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TRUSTED
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FOR
DEMANDING
APPLICATIONS
SOLID STATE
Annual Report & Accounts 2023
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Welcome to our
Annual Report 2023
What we do
We supply components and systems, primarily designed
for demanding applications. This enables our customers to
focus on their core business with confidence by delivering
trusted technology where safety, performance, reliability
and quality are critical.
Our Purpose
To deliver trusted technology for demanding applications
in the quest for innovation.
Our Mission
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.
Our Vision
To be the enabler that allows our customers to innovate
and to solve the problems that the electronic community
can’t solve alone.
Employees
400+
50+
Years of innovation and strategic growth
Locations
14
58+
Countries we sell to
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Overview
Strategic Report
Governance
Financial Statements
WELCOME FROM OUR CEO
CONTENTS
Our Journey
“Solid State has had a really productive year,
building on the pillars of our long-term growth
strategy. The acquisition of Custom Power deepens
sector specialism, broadens product offering and
extends international reach to an increasingly global
client base.
“By targeting structurally growing end markets and
having a specialist technology-led workforce, the
Board is optimistic for the continued success of the
business. The Group remains ambitious to meet the
new 2030 targets for the benefit of all stakeholders.”
Gary Marsh
Chief Executive Officer
Solid State PLC.
Our values lead every aspect of our
business operations and decision-making
Create a positive
and collaborative
workplace by putting
our people at the heart
of what we do.
Add value to all our
stakeholders by being
responsible, ethical
and sustainable.
Overview
Group highlights
Group At Glance
Chairman’s Statement
Acquisition Timeline
Strategic Report
Chief Executive Officer’s Review
Business Model
Our Marketplace
Our Strategy
Our Strategy In Action
Chief Financial Officer’s Review
Key Performance Indicators
S172 Statement
Environmental, Social and Governance (“ESG”)
Principal Risks & Uncertainties
Governance
Our Board of Directors
Corporate Governance Report
Audit Committee Report
Remuneration Committee Report
Directors’ Report
Financial Statements
Independent Auditor’s Report
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
02
04
12
14
18
22
24
26
28
32
36
38
40
46
52
54
61
65
71
76
82
83
84
85
87
124
125
126
Find us online at
solidstateplc.com
Annual Report & Accounts 2023 SOLID STATE
01
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GROUP HIGHLIGHTS
Financial highlights
Revenue
(million)
£126.5m
Reported Operating profit
(million)
£9.4m
Reported profit before tax
(million)
£8.4m
2020
£67.4m
2021
£66.3m
2022
£85.0m
2023
£126.5m
2020
£4.0m
2021
£4.3m
2022
£3.7m
2023
£9.4m
2020
£4.1m
2021
£4.2m
2022
£3.5m
2023
£8.4m
Adjusted operating margin
(%)
Underlying cash flow from operations
(million)
Adjusted fully diluted EPS
(pence)
9.2%
£9.4m
80.7p
2020
7.2%
2021
8.3%
2022
8.7%
2023
9.2%
2020
£8.0m
2021
£6.9m
2022
£6.0m
2023
£9.4m
2020
46.3p
2021
54.7p
2022
70.6p
2023
80.7p
Dividend
(pence)
20.0p
ROCE
(%)
14.2%
Open Orderbook
(million)
£120.1m
2020
12.5p
2021
16.0p
2022
19.5p
2023
20.0p
2020
21.3%
2021
14.4%
2022
11.6%
2023
14.2%
2020
£39.9m
2021
£41.3m
2022
£85.5m
2023
£120.1m
Alternative/Adjusted Performance Measures (“APMs”), including ‘adjusted’ and ‘underlying’, are applied consistently throughout the 2023 Annual Report and Accounts.
APMs are defined and reconciled in Note 30 to the reported GAAP measures, and also include a narrative disclosure of the basis of recognition of the APMs and the
impact of the differences compared to the statutory measures.
02
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Overview
Strategic Report
Governance
Financial Statements
Operational highlights
Sustainability highlights
Gender diversity
2022
M 69% F 31%
2023
M 68% F 32%
Employee retention
2022
92%
2023
91%
Lost time incidents
2022
1%
2023
0%
Introduction
This year we have formed an ESG committee chaired by
the CFO to focus on progressing our ESG strategy and
goals. Our key highlights for the year include:
Overall reduction in our Scope 1 and Scope 2 (UK &
offshore) emissions from the base year by 48%.This is
driven by 38% reduction in Gas use and 20% in Electricity
aided by the impact of the Covid-19 changes in working
practice. The increase in 2022 reflects the impact of the
acquisition of Active Silicon and Willow.
500
400
300
200
100
0
Scope 1 + 2 (UK & offshore) (tCO2e)
423.8
217.7
256.7
222.4
2020
2021
2022
2023
Adoption of electric or hybrid vehicles, reduced travel
during Covid-19, increase in working from home and
reducing business mileage has seen vehicle emissions
reduce by 73% since 2020.
200
150
100
50
0
Company vehicle emissions (tCO2e)
186.9
37.0
2021
2020
48.8
49.9
2022
2023
Our Intensity ratio has reduced from 20.87 in our base year
to 11.20 in FY23. This is driven by the overall reduction
In CO2e aided by Covid-19, and significantly improved
financial performance. FY22 saw intensity ratio increase
due to the Willow acquisition. Positively, including the
Custom Power acquisition FY23 has declined.
25
20
15
10
5
0
Intensity ratio (tonnes)
20.9
16.8
11.3
11.2
2020
2021
2022
2023
Annual Report & Accounts 2023 SOLID STATE
03
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GROUP AT A GLANCE
Our divisions: Systems division
The systems division has market-leading capabilities in the design, manufacture,
supply and through life support of high performance systems. The business provides
systems solutions across three areas: industrial computing and vision systems,
custom battery packs providing portable power and energy storage solutions and
advanced communication systems, encompassing wideband antennas and high-
performance radio products.
Antennas &
subsystems
Communication
systems
Systems
Power
systems
Computing, imaging &
embedded systems
04
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Overview
Strategic Report
Governance
Financial Statements
Our divisions: Components division
The components divisions business provides products and services in three areas:
own brand manufactured components, franchised components, and the provision
of value-added services such as sourcing and obsolescence management. It is a
specialist in designing-in innovative, valuable, technical solutions for customers
seeking cutting edge, electronic, opto-electronic, electro-mechanical components
and displays with market-leading value-added capabilities.
Sourcing &
obsolescence
Electro-mechanical
Components
Electronics
Opto-electronics
Special Projects Group
Manufacturing
(Durakool®)
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Annual Report & Accounts 2023 SOLID STATE
05
GROUP AT A GLANCE
CONTINUED
Solid State provides specialist, trusted technology, components and systems for a
broad range of applications. Performance and quality are key. Size, weight, and power
are characteristics which often define our customers demanding requirements.
How we differentiate
Our combination of the two divisions gives us specialist
industry and market knowledge which supports our product
knowledge and technical expertise. This combined with our
strong supply chain relationships enables us to form the
foundation of our know how.
How we serve our customers
We build trusted long-standing relationships with our
customers. We work with them to solve their technology
challenges, turning ideas into plans and plans into
products and systems, by linking up the electronics
community in the quest for innovation.
Application example:
Medical
Defibrillator Unit
Uninterupted Power
Supply
Medical Grade
Panel PC
Powered, Air-purifying
Respirator ("PAPR")
Ven�la�on/Respirator
System
Remote Diagnos�cs
Rugged Laptop
Surgical Tools
Medical Imaging
Compu�ng
Portable Observa�on
Unit
06
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Overview
Strategic Report
Governance
Financial Statements
Application example:
Unmanned Air Vehicle
Posi�oning(cid:853) (cid:69)aviga�on(cid:853)
Timing (cid:894)Resilient Posi�oning(cid:895)
(cid:68)I(cid:68)O Blade (cid:4)ntenna
Application example:
Rail Transportation Systems
(cid:4)F(cid:127) (cid:18)amera
(cid:39)round Based (cid:18)ommand
(cid:920) (cid:18)ontrol Terminal and
Long Range (cid:4)ntennas
High (cid:18)apacity Datalink
(cid:58)etson (cid:18)arrier Board
Lithium Ba�ery Pack
(cid:4)ngular Rate (cid:39)yro
Passenger Informa�on System
Ethernet IP AF-Zoom
Block Camera
CCTV Video Recorder
CCTV Video Recorder
Emergency Ligh�ng Ba�eries
Industrial Panel PC
On Train Ticke�ng
Facial Recogni�on System
Facial Recogni�on System
Driver Display Interface
Hybrid/Full Ba�ery Power
For Engines
Embedded Vision Systems
Annual Report & Accounts 2023 SOLID STATE
07
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GROUP AT A GLANCE
CONTINUED
Our International Customer Base
We work with Tier 1 OEMs across all our key
markets. In our key target markets of industrial,
medical, transport and defence, our long
standing relationships with Tier 1 global prime
contractors provide recurring revenue streams
where we add value through our technology
and industry expertise.
Our Global Footprint
Developing our international sales channels across the UK,
EU and USA to drive our growth strategy.
Revenue
£27.2m
United States
Revenue
£9.5m
Rest of the World
08
08
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Overview
Strategic Report
Governance
Financial Statements
Revenue
£71.6m
United Kingdom
Revenue
£18.2m
Europe
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Annual Report & Accounts 2023 SOLID STATE
Annual Report & Accounts 2023 SOLID STATE
0909
GROUP AT A GLANCE
CONTINUED
Our operating structure:
Solid State PLC
Systems
Custom P wer
Battery Systems and Energy Solutions
A Solid State Group Company
Power
Design and manufacture of battery
systems providing portable power
and energy storage solutions.
Communications
Advanced communication systems,
encompassing wideband antennas
and high-performance radio systems.
Computing
High specification industrial
computers, circuit board level
design and manufacturing providing
embedded computing systems.
The markets we serve:
Industrial
Defence and Security
Medical
Transport
10
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Overview
Strategic Report
Governance
Financial Statements
Components
Franchise
OEM components where we
provide an engineering led design-in
service to supply components.
Own Brand
Portfolio of complementary
components which we manufacture
or have manufactured under our
own brands.
Value Added Services
Services to ensure we add value
differentiating our component supply
offering for customers securing long-
term commercial partnerships.
Our investment case:
Unmatched technical knowledge and
experience with a consultative approach
The Group is the subject matter expert for its customers, with
deep industry knowledge and long-standing key supplier
relationships. When designing-in solutions to address
customer needs, the Group selects the most appropriate
component, module, computing technology, cell chemistry
or communications solution which ensures Solid State is a
trusted partner.
A proven track record
The business achieved its financial objective to double fully
diluted adjusted earnings per share (‘AEPS’) over the five
years to 31 March 2022 where AEPS increased from 30 pence
to 71 pence. The accelerated growth rate achieved in recent
years, and the foundations which have been laid, allow us
to continue to deliver and provide value to our stakeholders
and invest in new opportunities, including through targeted
acquisition as demonstrated through our previous sucessful
acquisitions.
Trusted relationships with
blue-chip customers
The business has long standing relationships with its diverse
customers including Tier-one customers in medical and
defence sectors. Our ability to adapt, our resilience and
operating in markets with high barriers to entry provides
our customers with the confidence to trust us to deliver high
value, long life sustainable products that can operate in a
harsh environment.
Best-of-breed product portfolio
Solid State constantly seeks to add value for its customers,
who are typically looking to embrace the adoption of the
enabling technologies where the Group has industry leading
component and manufacturing expertise, such as electronic
and optoelectronic component design-in, image processing,
AI (”Artificial Intelligence”), IoT (“Internet of Things”), fossil fuel
replacement, power switching, cordless & portable power,
and leading-edge communications / antenna solutions.
Focused on high growth markets
The Group actively targets markets with high barriers to
entry, requiring accreditations, long standing reputations and
specialist test and measurement capabilities.
The demand 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.
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Annual Report & Accounts 2023 SOLID STATE
11
CHAIRMAN’S STATEMENT
I am delighted to announce the Group has delivered another year of record growth
across both our divisions with a solid demand for our products in the market as
reflected with our strong orderbook of £120.1m. Total shareholder return over the
five years to 2023 has been circa 29% and the Board is committed to maintaining a
level in excess of 20% going forward.
Performance
We successfully acquired Custom Power,
the battery systems and energy solutions
provider based in Southern California in
the United States in August 2022, and I am
pleased that the business is performing
in line with our Board’s expectations. This
acquisition alongside previously acquired
Willow Technologies & Active Silicon has
strengthened our performance in the
medical and transport sectors.
The geo–political environment continues to
drive government spending in security and
defence, with Group revenue in these sectors
approaching 20%. Solid State has been
successful in building on its relationships
with Tier 1 customers to the security and
defence sector. Additionally, the systems
division won a notable contract with NATO
to supply communications equipment to a
client in the defence sector and provide a
foundation for long-term recurring revenue
in this market as the Group targets ‘through–
life’ support opportunities.
The macro–economic environment continues
to be challenging with higher inflation, higher
interest rates and the on–going supply chain
challenges still present, albeit there has been
some stability in the component supply
chain. The Group is continuing to pro–actively
engage customers to manage the supply
chains. The order book visibility (which
extends approximately 18 months) is critical
as we continue to work with our customers
to manage our investment in inventory to
support order fulfilment and supply chain risk.
Environmental, Social and Governance
(ESG)
ESG is at the core of Solid State’s strategy
and we continue to focus on developing
a governance framework that remains
appropriate for our developing business,
creating a long-term sustainable business
which minimises our adverse impact on the
Environment and maximising the value for
our stakeholders.
Nigel Rogers
Non–Executive Chairman
12
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Overview
Strategic Report
Governance
Financial Statements
We have established an ESG committee
which meets regularly and is focused on
developing the ESG strategy to deliver on
our goals including achieving Net Zero in
Scope 1 and Scope 2 emissions by 2050.
This committee is working hard on how
we enhance our communication of our
approach to ESG to the stakeholders both
internally and externally.
Our technology, products and systems
are designed and engineered to be
high quality, often upgradable with
long life which inherently means we are
starting from a strong position. These
characteristics help to differentiate us
from our competitors and enable us to
be ambitious in how we do business, to
maintain our position where we believe we
are a business leading on ESG in our sector.
Our employees
On behalf of the Board, I would like
to thank all our employees for their
commitment to the business. Our business
has grown to over 400 employees and the
investment in our people is essential in
successfully delivering on our strategy and
underpinning our long-term performance.
We are seeing the benefit of our
investment in HR last year with key
initiatives & activities being incorporated
into the Group’s people and talent
development plans.
The energy crisis and increased cost of
living has made it a challenging year for
our employees. The Board has taken steps
to supporting our employees including
paying a one–off energy bonus and
awarding an interim pay increase.
The Board & Governance
The Board strives to maintain the highest
standards of corporate governance in line
with principles of the Quoted Companies
Alliance code on Corporate Governance. As
a result of a Board evaluation, the Board is
at an advanced stage in its recruitment of
an additional independent non–executive
Director in the UK. Subject to agreeing
contractual terms and completing the AIM
compliance we expect to be able announce
the new appointment during the Summer,
well ahead of our AGM.
This addition to the Board will provide
an equal balance of executive and non
executive directors with the Chair having a
casting vote.
“We are confident we are well placed
to deliver on this ambition and are
committed to making strategic
investments both organic and M&A
to ensure we have a sustainable and
scalable business which will drive the
mid and long-term growth in value
for all our stakeholders.”
Nigel Rogers
Non–Executive Chairman
The 2022 ISS report has concluded
that Peter Haining is not independent,
and Nigel Rogers is overboarded. The
Board has considered these conclusions
fully. We agree Peter does not meet
the definition of an independent non–
executive, however we consider he
acts with independence and integrity
in fulfilling his non–executive director
responsibilities. The Board consider
that the recruitment of the additional
independent director establishes an
appropriate level of independent
governance while enabling Peter to
continue adding value to the Board with
his experience.
The Board has evaluated my capacity to
fulfil my role as Chair. This evaluation was
led by the senior independent director
and concluded that I have sufficient time
to fulfil all the roles to the high standard
required, even in the event of unforeseen
circumstances which may require a
significant increase in time commitment.
In any event, it has subsequently been
announced that I will be stepping down
from one of the other roles towards the
end of 2023.
Dividend
The Board is proposing a final dividend of
13.5 pence (2022: 13.25 pence) resulting
in full year dividends of 20.0 pence (19.50
pence) which is covered 4.0 times by
adjusted earnings (2022: 19.50 times).
The Directors believe this policy allows a
suitable balance between investment for
growth and investor return.
Subject to approval of the final dividend by
shareholders at the AGM on 6 September
2023, the final dividend will be paid on
29 September 2023 to shareholders on
the register at the close of business on
8 September 2023, and the shares will be
marked ex–dividend on 7 September 2023.
Outlook
The Board is confident it will continue
to deliver further sustainable growth
for shareholders as the Group expands
its international presence, broadens its
product and service offering, and continues
to target complementary acquisitions.
Our 2030 ambition and strategy as
presented on page 26 & 27 highlights our
ambition to maintain compound annual
growth in total shareholder return to be in
excess of 20%. We are confident we are well
placed to deliver on this ambition and are
committed to making strategic investments
both organic and M&A to ensure we have
a sustainable and scalable business which
will drive the mid and long-term growth in
value for all our stakeholders.
Nigel Rogers
Non-Executive Chairman
4 July 2023
Annual Report & Accounts 2023 SOLID STATE
13
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OUR ACQUISITION TIMELINE
OUR ACQUISITION TIMELINE
1971
Solid State PLC
Company founded
1996
London Stock Exchange
Listed
2002
Steatite – Computing, Systems
Established 1938
£1.3M
2007
RZ Pressure – Battery
Power, Systems
£1.3M
2005
Wordsworth –
Computing, Systems
£1.8M
2010
Rugged Systems – Radio
Comm’s, Systems
£0.2M
2011
Blazepoint – Rail Printer,
Systems
£0.2M
14
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Overview
Strategic Report
Governance
Financial Statements
2021
Willow Technologies –
E-Mech
Components
£13.1M
2021
Active Silicon –
Machine Vision,
Systems
£8.9M
2022
Custom Power –
Battery Power,
Systems
£32.9M
2018
Pacer – Optoelectronics,
Components
£3.7M
2016
Creasefield – Battery
Power, Systems
£1.6M
2013
Q Par Angus – Antenna,
Comm’s, Systems
£1.0M
2013
2001 – Semiconductor,
Components
£2.0M
2015
Ginsbury – Display,
Components
£2.1M
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Annual Report & Accounts 2023 SOLID STATE
15
STRATEGIC
REPORT
In this section
Chief Executive Officer’s Review
Business Model
Our Marketplace
Our Strategy
Our Strategy In Action
Chief Financial Officer’s Review
Key Performance Indicators
S172 Statement
ESG
Principal Risks & Uncertainties
18
22
24
26
28
32
36
38
40
46
16
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“Solid State’s growth strategy has proved
itself over the last five years, building
what is now a truly international,
resilient, specialist technology business.
We remain ambitious and have set
ourselves targets based on delivering
through 4 key pillars: broadening our
complementary product portfolio;
further internationalising the Group;
developing our range of ‘own brand’
products; and, investment in, and
development of, our pool of talent.”
Gary Marsh
Chief Executive Officer
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Annual Report & Accounts 2023 SOLID STATE
17
CHIEF EXECUTIVE OFFICER’S REVIEW
I am pleased to report that despite the challenges in the macro–economic
environment the Group has delivered significant progress in the execution of
its growth strategy and resulting record financial results for the period, which
continues to build on the strong performance we have seen over the last 5 years.
The acquisition of Custom Power reflects
an important strategic step forward,
enhancing our capabilities to service our
international customers’ demands for
our battery pack technology adding USA
production and engineering capabilities.
Our commitment to customer service
and long–standing relationships, and a
pro–active approach to managing the
semiconductor supply chain challenges,
enabled us to invest in inventory in
partnership with our customers. This has
been the key factor in enabling us to
secure product and business over the last
year which has been the cornerstone of
our 18% organic revenue growth.
The last two years have highlighted
the huge value of having two distinct
divisions with the Components division
supporting the delivery in the Systems
Division and the Systems Division aligning
itself to be in a position to deliver on
significantly larger scale projects. It is the
diversity of our business that reduces risk
and sets us apart in the industry.
Strong Business Performance
The Group has delivered another record
year of financial, strategic and operational
performance which was achieved against
a backdrop of component shortages,
inflationary pressures, and volatile
exchange rates.
I am very pleased to report 14% 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 £126.5m (2022: £85.0m),
with second half revenues of £67.1m
outperforming a strong H1.
Gary Marsh
Chief Executive Officer
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Group adjusted operating margins are a
key metric. We saw adjusted operating
margins increase by 0.5% to 9.2% during
the year. Operating margins this year have
benefited from a strong mix in sales across
both divisions and lower overheads as a
result of the challenging labour market
driven by recruitment taking longer.
During the year the Group raised £27m,
placing 2.7m shares to assist in funding
the acquisition of Custom Power. Group
AEPS increased 14% to 80.7p (2022:
70.6p). During the first half, the Group
invested a significant proportion of its
operating cash generation into working
capital. Pleasingly, in the second half we
saw adjusted operating cash conversion
increase to 145% with full year cash
conversion of 81% (2022: 81%).
Sector and Divisional review
The Components division delivered
revenue of £70.0m (2022: £52.5m), a 33%
increase on the prior year. This growth
has been built upon the design work
which commenced during 2020 when the
shortages first started to arise, combined
with work with customers to secure order
schedules and inventory to ensure we could
deliver product.
Our Systems division revenue increased
by 77% to £57.5m (2022: £32.5m). This
reflects a £16.7m benefit in the current
financial year from the acquisition of
Custom Power in August 2022.
In November 2022, the Systems division
reported notable contract wins to supply
communications equipment to a client
in the defence sector through NATO.
None of the revenue associated with
Nato contracts which were announced in
Q3 shipped in the current financial year,
positioning the division to have a very
strong first half to the FY2023/24.
While these contracts are likely to dilute
the margin mix within the Systems
business in the year ahead, they will
contribute positively to the attainment
of expectations for FY23/24 and provide
a foundation for long-term recurring
revenue in this sector as the Group targets
‘through–life’ support opportunities.
Overview
Strategic Report
Governance
Financial Statements
“The Group has delivered another
record year of financial, strategic
and operational performance
which was achieved against a
backdrop of component shortages,
inflationary pressures, and
volatile exchange rates.”
Gary Marsh
Chief Executive Officer
Key leadership
Pleasingly, in the second half of the year
and into the new financial year, we have
seen several internal promotions as well
as continued investment in new talent in
addition to the talent which has joined
our senior team from the acquisition of
Custom Power during the year. We are
continuing to invest in our people and
developing our Group leadership team
as this is a key differentiator and driver
for future growth as we strive to replicate
recent successes.
Acquisitions
Custom Power, the battery systems
and energy solutions provider based in
Southern California in the United States,
acquired in August 2022 and integrated
into the Power business unit, continues
to perform in–line with management’s
expectations. Positive co–operation with
the Group sales and marketing teams
and exposure to an existing customer
base is generating new international
opportunities in target markets. In the year
ahead we plan to invest in and develop the
technical sales team to complement and
support the established representative
sales network which Custom Power
leverages to drive organic growth.
The Board continues to actively explore
attractive acquisition opportunities across
its target markets both overseas and in
the UK.
TSR CAGR
(%)
29%
2021
14%
2022
22%
2023
29%
2020
(8%)
March 2020 reflects the COVID-19 share price dip
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CHIEF EXECUTIVE OFFICER’S REVIEW
CONTINUED
As we reported in the trading update,
the Custom Power open order book
was up 11% on the prior year at $18.6m
(31 March 2022: $16.8m), giving the Board
confidence in the growth prospects in the
year ahead. Albeit due to the continued
impact of supply chain challenges for
both Custom Power and its customers,
the higher, stretch earn out hurdle is not
expected to be exceeded and as such
the Group’s obligations payable to the
vendors will be reduced.
Strategy
Solid State’s Strategy remains broadly
consistent with prior years, combining an
acquisitive and organic growth strategy
to actively target strategic customers in
growth sectors with high barriers to entry
that require accreditations, long standing
credibility, and specialist skills and
experience where our technology adds
tangible value. The Group’s key target
markets include industrial, security and
defence, medical, transport, and energy.
We are continuing the implementation of
our mid-term strategy where we have set
goals to 2030 aligned with the adoption
of key technology and geopolitical/
environmental agendas. (See further
details on page 26 & 27).
Our four strategic pillars to drive growth
remain:
•
Internationalisation of the Group;
• Talent development embedding our
ESG values;
• Broadening our complementary
product and technology portfolio;
• Development of our “own brand”
components and systems offering
securing recurring revenue.
The following key milestones represent
critical steps in delivery of our strategy
and are cornerstones which our 2030
plans and ambitions will continue to
build on:
• The acquisition of Custom Power;
• The development of the own brand
Durakool® components range;
• Additional talent at Active Silicon
to increase our technologies and
engineering capabilities; and
• Formation of eTech Developments
enhances engineering capabilities.
20
SOLID STATE Annual Report & Accounts 2023
The team and the strategic foundation
which the Group has put in place over
recent years underpins the ambition
to maintain in excess of 20% annual
compound growth in total shareholder
return (“TSR”) over the next phase of
the Solid State’s development to 2030,
maintaining the record performance which
has been delivered over the last 5 years.
Our markets and business
development
One of the Group’s strategic strengths is
the resilience that arises from servicing
a broad range of growth markets with
high barriers to entry where customers
value the high performance, long life
sustainably engineered components
and systems that the Group provides.
In the current year the geo–political
environment continues to drive
government spending in security and
defence, where the Group revenue in this
sector has seen strong organic growth
and is now circa 18% (2022: circa 14%).
Solid State has been successful in building
relationships with Tier 1 suppliers to the
medical and the security and defence
sectors, such as BAE, NATO and Siemens
healthcare. This has been augmented by
the acquisition of Custom Power who
have strong customer relationships with
Tier 1 defence and medical customers in
the USA such as Flextronics International,
iRhythem Technologies and General
Atomics. The Group continues to see
further growth opportunities within its
strategic Tier 1 customers in its target
growth sectors.
Our strategy has positioned the Group
to take advantage of new opportunities
and allowing us to enter 2023 with a
strong pipeline and an order book of
£120.1m at 31 March 2023 (31 March
2022: £85.5m). Our order book combined
with our inventory management plan
positions Solid State to proactively
manage the well-publicised ongoing
electronics supply chain issues with our
customer and gives us confidence for the
year ahead.
Sustainability and development
Our ESG strategy has developed
significantly during the year. ESG is an
intrinsic part of our overall purpose
and strategy. During the year we have
established an ESG committee which is
working to challenge ourselves and as far as
possible influence our stakeholders to “do
the right thing”. (See page 40 for details).
The initial findings of the ESG committee
were that the business’ established
principles, values, and behaviours by
which Solid State has operated for many
years are fully aligned with good practice
ESG principles, as a result we believe we
are leading in this area in our sector.
However, we recognise that we have
significant work to do to ensure we
measure and communicate what we
do both internally and externally. We
recognise that capturing the right data
practically, and communicating it, is
becoming of increasing commercial
importance. This is critical to ensuring
that we can deliver on our ambition to
differentiate.
Furthermore, as the Group continues
to grow, to ensure we maintain the
culture where the best practice principles,
values and behaviours of ESG, continue to
be embedded into what we do and how
we do it.
Outlook
We are confident that the strategic
progress and the associated growth from
new bespoke strong project demand and
recurring business will more than offset
the potential short-term macro-economic
and electronics sector headwinds which
may arise from foreign currency and the
potential for some level of destocking
driven by improving component lead
times and customers looking to normalise
working capital levels.
The supply chain shortages meant our
open orderbook visibility was extended
throughout the year. Post year end higher
interest rates have increased customer focus
on working capital. For some components,
lead times are starting to improve, which
is resulting in customers looking to reduce
order schedules back to more normal levels.
Current trading has been very strong with
the benefit of Custom Power combined
with significant shipments of product
under the NATO contract announced in
November 2022 resulting in record Q1
revenues which were significantly up over
the prior year. We do anticipate that this
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Overview
Strategic Report
Governance
Financial Statements
is a short-term spike with revenues and
profits being particularly strong in the
first half compared to traditional norms.
With strong Q1 shipments combined with
customers looking to normalise order
cover, our open orderbook at 31 May
2023 was slightly down at £116.2m (31
May 2022: reported £89.7m, like for like
£104.5m) albeit it was up on the prior year
both on a reported and like for like basis.
The Group’s plans to drive its organic
growth strategy and secure the delivery
of the strong order book is continuing
to progress. While recruitment of talent
continues to be challenging, we have
seen good progress and plan to add
further talent in the remainder of H1 and
into H2 to drive mid-term organic growth.
The very strong Q1 and the strength of the
order book, balanced with the investments
made and planned, means pleasingly we
expect revenue in FY2023/24 to be ahead
of current consensus, reflecting year on
year growth in excess of 15% and adjusted
profit before tax to be slightly ahead of
current consensus reflecting circa10% year
on year growth.
Gary Marsh
Chief Executive Officer
4 July 2023
Adjusted operating margin in FY23
9.2%
18%
Organic growth in FY23
Ambition to maintain TSR growth
20%
£116m
May open orderbook
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Annual Report & Accounts 2023 SOLID STATE
21
BUSINESS MODEL
Our business model brings together synergetic and diverse operations that
work across the electronics industry. It incorporates our industry expertise
knowledge, key relationships with suppliers, customers, and our people
which enables us to source, design and manufacture products that are
built to provide sustainable long-term value added solutions.
Key resources
Key activities
Design in engineered solutions for our clients where we partner with clients to
turn ideas into plans and plans into products. We are more than an electronic
components distributor and systems solution provider. We are trusted experts
with the technical knowledge, connections and adaptability to solve the
problems our electronic community customers can’t solve alone.
Understand the vision
and evolution of the
tech requirements
Repeat the design
cycle, driving next
generation innovation
and performance
Collaboratively design
and develop a plan
Turning ideas
into plans
and plans
into products
Manufacture the
system or supply the
components
Turn the plan into an
engineered product/
solution/system
Our people
We have an industry leading team
of technology and electronics
experts upon which the Group’s
success is built. They enable us
to add value to our customers in
supplying our components and
system solutions through product
agnostic technology-led advice.
Our technology
Specialist components, sub-
assemblies, and embedded systems,
through to complete integrated
electronic solutions.
Domain knowledge
The Group has more than 50 years
of industry expertise and domain
knowledge upon which it can
draw on design-in, high quality,
high performance, sustainably
engineered, components and
systems to apply ‘industry know-how’
in delivering innovative results.
Our relationships
Our supply chain and technology
partners and relationships ensure that
we can reliably provide technology
component and sub-systems at times
of need and shortage.
Our culture
The Solid State family culture is at
the heart of how our teams build
relationships internally and externally
which is a cornerstone of how we
deliver trusted technology for our
customers demanding applications
in the quest for innovation.
22
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Overview
Strategic Report
Governance
Financial Statements
Value we add through our divisions
Value we deliver
Systems division
The systems division has market
leading capabilities in the design,
development, manufacture, supply
and support of high specification
systems. The business provides systems
solutions across three areas: industrial
computing and vision systems, custom
battery packs providing portable
power and energy storage solutions
and advanced communication
systems, encompassing wideband
antennas and high-performance
radio products.
Components division
The components division’s business
provides products and services in
three areas: own brand manufactured
components, franchised components,
and the provision of value-added
services such as sourcing and
obsolescence management. It is a
specialist in designing-in innovative,
valuable, technical solutions for
customers seeking cutting edge,
electronic, opto-electronic, electro-
mechanical components and displays
with market leading value-added
capabilities.
Cross selling and
customer referral
create repeat revenue
streams
Cross selling and
customer referral
create repeat revenue
streams
Competitive advantage
1 Unmatched technical knowledge and experience
2 Complete supply solutions leveraging best-of-breed product portfolio
3 Consultative approach with trusted relationships
Customers
We work collaboratively with customers
to meet or exceed their expectations.
We leverage our team’s technology
knowhow, product expertise, system
performance delivering innovation and
value-added solutions.
Employees
We are committed to delivering
high quality rewarding employment
opportunities, maintaining a high
level of employee engagement and
providing an environment where all
employees can fulfil their potential.
Suppliers
We work in partnership with our
suppliers to drive innovation and
development. Designing-in the best
technology to deliver the required
performance for a given application,
securing recurring revenue for us and
our suppliers.
Communities &
environments
We recognise our role as a local
employer, and the importance of our
environmental commitments to our
local community. Our work with and for
the communities in which we operate,
is a critical part of influencing and
maximising the social value.
Shareholders
As a well established public company we
are committed to delivering long-term
sustainable growth in total shareholder
returns through a combination of capital
growth and dividend income.
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OUR MARKETPLACE
We provide high-performance, high-quality components, products and systems to the
following key markets which have high barriers to entry and typically require accreditations.
This ensures that our engineering value added is recognised and provides a differentiated
offering to meet the demanding needs of the customers in our target markets.
Our key markets
Industrial
37%
Defence & Security
43%
19%
99%
Of total revenue
Year on year growth rate
Of total revenue
Year on year growth rate
Medical
16%
128%
Transport
11%
7%
Of total revenue
Year on year growth rate
Of total revenue
Year on year growth rate
Other markets generate the remaining 17% of revenue, including Communications, Energy, Green Technology and Utilities.
Overall percentage of revenue UK vs Rest of the world
Revenue mix
(%, 10-year period)
12%
88%
15%
85%
20%
80%
22%
78%
20%
80%
28%
72%
30%
70%
38%
62%
43%
57%
2015
2016
2017
2018
2019
2020
2021
2022
2023
Rest of the world
12%
88%
2014
UK
24
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Overview
Strategic Report
Governance
Financial Statements
Market trends
Key market
Macro trends
Market drivers
Impact
How we are responding
• Smart devices
• Connected, wireless
systems
• Big data
Industrial
•
Industrial
automation
• Autonomy &
robotics
• ESG
requirements
• AI, 5G and IoT
• Onshoring
• Labour
availability
• Sustainability
• Machine learning
Systems
and vision
• 5G technology
adoption
• Smart factories
• Unstable Geopolitical
• Evolving cyber
•
environment
• Higher threat
environment
Increased spending
•
• Expanded NATO
threats
• Autonomous
•
systems
Integrated
secure
communications
platforms
Defence &
Security
Investment in cyber
defence technology
• Adoption of
green tech
Investment in
autonomy
•
• Secure
communications
• Embedded computing and vision systems
• Portable and off grid battery power solutions
• Products designed to last; meeting sustainability
and environmental requirements
Components
• Wifi, Bluetooth, cellular, mesh and narrow
band components and systems
• Machine vision components
• Sensors
• Power and switching devices
• Embedded processing devices
Systems
• Range of mesh communications radios,
embedded computing command and control
and TEMPEST products
• Suite of RF antenna solutions
• Portable and off grid battery power solutions
for autonomous system
• ESG requirements
• Drone solutions
Components
• Mil grade Power supplies
• FPGA semiconductors and portfolio of
military grade displays
• Mesh networking modules
• Next generation
Systems
• Green transport
• Smart transport
• Adoption of UAVs1
AUVs2 and UGVs3
• Remote monitoring
Transport
• Electrification,
• ESG
smart rail
requirements
• Enhanced machine
• Autonomy
• Smart transport
• EV infrastructure
vision systems
• ANPR adoption
• Smart charging
• Autonomous
transport
• Sensing
• Robotics
• Analytics and AI
•
Increasing life
expectancy
• Growing population
Increasing use of
•
radiation technology
(diagnosis & treatment)
• Adoption of
medical robots
• Reducing pressure on
the NHS infrastructure
•
Internet of medical
things (“IoMT”)
• Medical Robotics
• AI augments
healthcare processes
• Enhanced data
analysis
• Rapidly expanding
use of wearable
technology
Medical
1 Unmanned Arial Vehicle
2 Autonomous Underwater Vehicle
3 Unmanned Ground Vehicle
• Embedded edge computing systems for ANPR
• On and off train embedded computing with low
latency image capture and processing
Components
• EV & charging Power switching
• Remote vision cameras
• Embedded processing
• Communication modules and modems
supporting all standards
Systems
• High performance embedded computing
for medical data processing
• Portable and off grid battery power solutions
for medical equipment
Components
• Portfolio of medical sensors
• Portfolio of medical grade optical sensors
and detectors
• Portfolio of medical grade displays
• Certification of manufacturing facility to
ISO13485 – medical
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OUR STRATEGY
The Group’s growth strategy is based upon a combination of strategic acquisitions to complement
its organic growth strategy.
The Group is driving organic growth based on targeting the structural growth markets of security & defence, medical,
transport, and industrial where there is significant Government and industry investment to drive the ESG agenda in the
technology the group provides and is aligned to our strengths.
The Group has a clear and focused approach to targeting M&A opportunities, aligned with the strategy. We target specific
opportunities where M&A provides a lower risk approach to accelerate in our four strategic pillars.
In implementing this strategy, the Group will continue to focus on building on its successful acquisition history and retaining
its diverse, customer and sector exposure ensuring Solid State maintains the resilience it has benefited from in recent times.
Our key strategic pillars:
1 Investment and
development of talent
2 Broaden complementary
products/technology profile
3 Internationalise
the group
4 Develop our “own brand”
product portfolio
The Group continues to invest heavily in the acquisition of
new talent and training existing talent, believing that the key
to success is having the right people in the right place at the
right time with the right skills.
Achievements in 2022/23
• Establishing eTech Developments helped secure additional
engineering talent for our Power BU.
• Successfully added significant talent across the business
through recruitment and M&A with Custom Power.
• Progressed the recruitment of additional NED.
• Added highly experienced engineers to the business
development team in the Components division.
• Enlarged Group HR team to accelerate future talent
development.
Mid-term strategic goals for 2030
• Continue long-term succession and talent development
pathways.
• Develop partnership with academic partners to secure
talent pipeline.
• Scale our Engineering capability to form a dedicated
engineering team to service tier 1 primes as the System
Provider of choice for through life engineered service
and support.
• Add high level brand and product managers to the
Durakool® business.
The Group recognises that its best future customers are
often its existing customers. Consequently, the businesses
seek to sell more to, and add increased value for, our diverse
customer base. Facilitating our customers to innovate
through access to our growing portfolio of leading edge
products ensures that the Group remains a key partner to
its existing and new customers.
Achievements in 2022/23
• Customer specific developments leveraging the increased
breadth of technology which has been established in last
few years now driving organic revenue growth.
• Organic development of the component portfolio
combined with the power switching portfolio from
the Willow acquisition.
Mid-term strategic goals for 2030
• Continue to develop our complementary
component portfolio.
• Expand the distributed product range.
• Develop our specialist computing capabilities around
vision systems, Positioning, Navigation & Timing
(PNT) and tempest capabilities to further leverage our
engineering expertise.
The Group recognises that its business remains UK centric.
The Group recognises that controlling its own brands and
However, recent acquisitions and new business wins have
products increases the opportunity for growth and provides
focused on internationalising the Group either through direct
greater control of supply and margins. At the same time this
business or through the expansion and reorganisation of our
allows the Group to take advantage of well developed sales
overseas businesses to create greater scale and efficiency.
networks through the Components business and through
Achievements in 2022/23
• The acquisition of Custom Power establishing a Power
Achievements in 2022/23
capability to service the USA market.
•
Increased investment in R&D which has accelerated
• Commenced the refocusing of, and increased the scale of,
the component division’s USA sales channel to provide a
product development such as the “Crib” and
communications antenna portfolio.
platform to grow our USA components revenues.
• Continued investment to develop the Durakool® brand
third party sales companies.
Mid-term strategic goals for 2030
• Add US component franchises.
• Establish an EU components sales channel.
•
Investigate high growth opportunities in other overseas
markets and position to take advantage of them.
• Establish USA antenna production capability.
of contactors and relays.
Mid-term strategic goals for 2030
• Develop own brand portfolio of semi custom
battery modules.
• Develop our system and programme support/training
offerings providing annuity revenues at strong margins.
• Focus the Durakool® product range to meet the needs
of the high growth power switching markets.
Increase the market penetration of the Durakool®
•
•
product ranges.
target markets.
Investigate other own-brand products for our
26
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Overview
Strategic Report
Governance
Financial Statements
Our key strategic pillars:
1 Investment and
development of talent
2 Broaden complementary
products/technology profile
3 Internationalise
the group
4 Develop our “own brand”
product portfolio
The Group continues to invest heavily in the acquisition of
The Group recognises that its best future customers are
new talent and training existing talent, believing that the key
often its existing customers. Consequently, the businesses
to success is having the right people in the right place at the
seek to sell more to, and add increased value for, our diverse
right time with the right skills.
Achievements in 2022/23
customer base. Facilitating our customers to innovate
through access to our growing portfolio of leading edge
products ensures that the Group remains a key partner to
• Establishing eTech Developments helped secure additional
its existing and new customers.
engineering talent for our Power BU.
• Successfully added significant talent across the business
through recruitment and M&A with Custom Power.
• Progressed the recruitment of additional NED.
• Added highly experienced engineers to the business
development team in the Components division.
• Enlarged Group HR team to accelerate future talent
development.
Mid-term strategic goals for 2030
• Continue long-term succession and talent development
pathways.
talent pipeline.
• Develop partnership with academic partners to secure
• Scale our Engineering capability to form a dedicated
engineering team to service tier 1 primes as the System
Provider of choice for through life engineered service
and support.
Durakool® business.
• Add high level brand and product managers to the
Achievements in 2022/23
• Customer specific developments leveraging the increased
breadth of technology which has been established in last
few years now driving organic revenue growth.
• Organic development of the component portfolio
combined with the power switching portfolio from
the Willow acquisition.
Mid-term strategic goals for 2030
• Continue to develop our complementary
component portfolio.
• Expand the distributed product range.
• Develop our specialist computing capabilities around
vision systems, Positioning, Navigation & Timing
(PNT) and tempest capabilities to further leverage our
engineering expertise.
The Group recognises that its business remains UK centric.
However, recent acquisitions and new business wins have
focused on internationalising the Group either through direct
business or through the expansion and reorganisation of our
overseas businesses to create greater scale and efficiency.
Achievements in 2022/23
• The acquisition of Custom Power establishing a Power
capability to service the USA market.
• Commenced the refocusing of, and increased the scale of,
the component division’s USA sales channel to provide a
platform to grow our USA components revenues.
Mid-term strategic goals for 2030
• Add US component franchises.
• Establish an EU components sales channel.
•
Investigate high growth opportunities in other overseas
markets and position to take advantage of them.
• Establish USA antenna production capability.
The Group recognises that controlling its own brands and
products increases the opportunity for growth and provides
greater control of supply and margins. At the same time this
allows the Group to take advantage of well developed sales
networks through the Components business and through
third party sales companies.
Achievements in 2022/23
•
Increased investment in R&D which has accelerated
product development such as the “Crib” and
communications antenna portfolio.
• Continued investment to develop the Durakool® brand
of contactors and relays.
Mid-term strategic goals for 2030
• Develop own brand portfolio of semi custom
battery modules.
• Develop our system and programme support/training
offerings providing annuity revenues at strong margins.
• Focus the Durakool® product range to meet the needs
of the high growth power switching markets.
•
•
Increase the market penetration of the Durakool®
product ranges.
Investigate other own-brand products for our
target markets.
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27
OUR STRATEGY IN ACTION
Custom Power
In August 2022, Solid State PLC
acquired Custom Power
based in Southern California.
The acquisition scales our combined
Power operations to circa $40m
today, with tremendous growth
opportunities. Custom Power is a
high-tech manufacturer of complex
battery packs meeting the power
needs of customers operating in
the Aerospace, Defence, Medical
and Industrial markets. Established
for over 30 years, the business
has focused on the design and
manufacture of battery and
energy solutions where safety,
high reliability and performance
are critical factors. Size weight and
power are key considerations for
products that are used in drones
(commercial and defence) and other
autonomous devices.
Execution of our strategy
Later this year the Enlarged Power
Business unit will adopt the Custom
Power brand internationally. The
Custom Power, and Steatite Power
business unit teams have a shared
vision and ambition to grow the
combined business addressing the
unmet power needs of existing
and prospective customers on an
international scale.
Trends such as autonomy and
robotics enabled by AI, onshoring
and a politically unstable world are
driving demand for innovative battery
technologies on land, sea and in the air.
The business will exploit our rich
heritage, reputation, international
reach, technical skills, and experience
to deliver transformational mid-term
growth in line with Solid States’
ambition. The acquisition of Custom
Power aligns with all four pillars of
our strategy and will provide the
Company with commercial synergies
across multiple areas, such as
geographical, technology, market,
customer & supply.
How Custom Power has been
integrated into the Solid State Group
The Integration of Custom Power
is going well. Both businesses
having consistent business values &
principles. Despite the geographic
constraints Solid State team has
invested considerable time with the
Custom Power team. This followed
a phased approach that initially was
observation, then to engage and join
in and then to recommend ways the
business can develop and grow. Joint
technical and commercial visits have
taken place and cross pollination of
customers and capabilities are now
resulting in exciting opportunities.
As with prior acquisitions the measure
of success will be the level of new
business resulting from the union with
the sum being greater than the parts.
Strategy
Custom Power Alignment
Investment & development of talent
The Custom Power acquisition significantly increased our battery expertise adding 100
employees, which included a very strong engineering team with decades of applied
industry experience.
Furthermore Custom Power has a strong rep and distribution network across the USA.
Broaden complementary
product/technology profile
Custom Power manufactures a range of Battery technologies that complement our
existing product portfolio.
These include energy dense battery packs for autonomous devices and drone
technologies with specific expertise in battery heating, fuel gauges, remote diagnostics
and the use of lightweight materials.
Internationalise the Group
The Custom Power brand is established in the USA and therefore allows us to enter the
USA high barrier market, particularly in Medical, Industrial & Defence markets.
Develop own brand product portfolio
The enlarged Power business is now in a position to service the combined Tier 1
international blue-chip customers base who are looking for a battery technology partner
who can support their requirements both sides of the Atlantic from our high-quality UK
and US manufacturing facilities.
The acquisition will expand the existing products including the ability to develop
in-house Battery Management Systems BMS and modular battery platform
products. Furthermore there is future potential to offer a portfolio of higher
voltage modular products.
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Overview
Strategic Report
Governance
Financial Statements
Five key synergies:
1
4
Geographical
With access to North America and EMEA respectively
Customers
Mutual introductions to new global blue chip clients
2
5
Technical
With complementary technology and manufacturing
capacity
Supply Chain
Common supplier base allows enhanced scale and
strengthened relationships
3
Markets
Existing medical and industrial complemented with
military, energy, and autonomy
Strategy
Custom Power Alignment
Investment & development of talent
The Custom Power acquisition significantly increased our battery expertise adding 100
employees, which included a very strong engineering team with decades of applied
industry experience.
Furthermore Custom Power has a strong rep and distribution network across the USA.
Broaden complementary
product/technology profile
existing product portfolio.
Custom Power manufactures a range of Battery technologies that complement our
These include energy dense battery packs for autonomous devices and drone
technologies with specific expertise in battery heating, fuel gauges, remote diagnostics
and the use of lightweight materials.
Internationalise the Group
The Custom Power brand is established in the USA and therefore allows us to enter the
USA high barrier market, particularly in Medical, Industrial & Defence markets.
The enlarged Power business is now in a position to service the combined Tier 1
international blue-chip customers base who are looking for a battery technology partner
who can support their requirements both sides of the Atlantic from our high-quality UK
and US manufacturing facilities.
Develop own brand product portfolio
The acquisition will expand the existing products including the ability to develop
in-house Battery Management Systems BMS and modular battery platform
products. Furthermore there is future potential to offer a portfolio of higher
voltage modular products.
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Annual Report & Accounts 2023 SOLID STATE
29
OUR STRATEGY IN ACTION
The monitoring hub, designed
and built in the UK, incorporates
a customised display assembly
involving a touchscreen and
protective cover glass with screen
printing of the customer’s logo and
various icons. The design and build of
bespoke cables were also required to
ensure that the hardware was able to
fit into the customer’s product casing.
We were able to accommodate these
customisations and tailor the solution
to meet these requirements.
Several different local
communications protocols are
employed in the system, including
USB, Bluetooth and Zigbee, and 4G
cellular technology is used to transmit
the data back to the central system. As
well as guiding the customer through
the nuanced pros and cons of each
of these protocols, our engineers also
advised on the complex choice of
wireless antennas for the project.
When off-the-shelf products are
not readily available to meet a
customer’s exact specification, we
can provide custom solutions to
fit the bill. While supporting the
customer’s engineering team through
the design process, our custom
capabilities proved invaluable for
this development.
IMAGE REQUIRED
Remote Patient
Monitoring
Technology has enabled the
introduction of remote
monitoring of patients in their
own homes, bringing a
number of significant benefits
to both patient and
healthcare provider.
Remote monitoring systems can
continuously track a patient’s
physical symptoms or the results
of self-care processes at home,
using a combination of sensors and
telecommunications technology.
Results and readings are gathered
in a local home hub, which then
transmits them securely to a central
system where they can be accessed
by the healthcare provider. Clinical
staff are thus able to give healthcare
recommendations based on the
resulting data without necessitating
a face to face consultation. Such
“telehealth” systems can lead to better
patient outcomes and higher patient
satisfaction, as well as increased
efficiencies for healthcare providers.
The Group has helped a key UK
customer to develop a home hub
for remote patient monitoring. Our
product specialists have in-depth
knowledge of how to deploy leading-
edge technology in real-world
applications. Working closely with the
customer’s engineering team, they
were able to analyse the requirements
for the monitoring system and advise
on component selection which
included the core microprocessors
and digital control ICs, as well as
touchscreen displays for the patient
to interact with the hub (the human-
machine interface or HMI).
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Overview
Strategic Report
Governance
Financial Statements
The last two years have
highlighted the huge value of
having two distinct divisions
with the Components division
supporting delivery in the
Systems Division. This has
given the Systems Division the
opportunity to have exposure
to significantly larger projects. It
is this diversity that reduces risk
and sets us apart in the industry.
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Annual Report & Accounts 2023 SOLID STATE
31
CHIEF FINANCIAL OFFICER’S REVIEW
To provide a fuller understanding of the Group’s ongoing 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 30, 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 £126.5m (2022:
£85.0m) reflect the benefit of a significant
foreign exchange tailwind (circa £9.3m
due to the average US dollar rate
moving from circa 1.37 in FY22 to 1.20
during FY23) and the revenue from the
acquisition of Custom Power in August
2022. As previously reported, post-
acquisition the performance of Custom
Power has been in-line with management
expectations. Organic constant currency
revenue growth (calculated by applying
the FY22 exchange rate to FY23 legacy
Group figures) was approximately 18%.
The Components division achieved
revenues of £69.0m (2022: £52.5m)
reflecting very strong organic growth.
This is an excellent result and reflects
the benefits of the hard work over the
last 18 months to leverage the increased
component portfolio and secure
additional design-ins, supported by our
ability to source and invest in inventory to
fulfil customer demand.
The Systems division reported revenue
of £57.5m (2022: £32.5m), with Custom
Power contributing £16.6m, meaning
like-for-like revenue up £8.4m (25.8%)
against a challenging macro-economic
backdrop. Supply chain pressures,
including component availability, and
the requirement for board and system
redesigns as a result, have caused some
project delays.
Gross profit
Reported gross profit of £39.7m (2022:
£27.5m) are up 44.4%, £12.2m year on
year. There was an adverse impact of
acquisition accounting charges in both
years which have been excluded in the
adjusted gross profit (see Note 30).
In managing foreign exchange risk, we
look to mitigate exposure by quoting
in the currency of main supply when
possible. The reduction in the gross
Peter James
Chief Financial Officer
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Overview
Strategic Report
Governance
Financial Statements
margin percentage is driven by the dollar
exchange rate movement as a result
of the Group benefiting from being
largely naturally hedged against foreign
exchange movements at a gross margin
level. In the current year the revenue
tail wind results in an estimated margin
percentage headwind of circa 2.5%.
Excluding the impact of foreign exchange,
the underlying margins in both divisions
reflect improvements benefiting from the
richer sales mix with higher engineering
value added sales.
Adjusted gross profit for the year is up
£12.1m to £39.8m (2022: £27.7m), albeit
because of the currency movements the
Group’s adjusted gross margin percentage
has decreased to 31.4% (2022: 32.6%).
Components contributed adjusted
gross profit of £17.5m (2022: £14.0m)
and Systems contributed £22.2m
(2022: £13.7m).
Sales, general and administration
expenses
Reported Sales, general and
administration (“SG&A”) expenses
increased to £30.3m (2022: £23.8m).
Within SG&A, there were acquisition
related and share based payments
charges totalling £2.1m (2022: £3.5m).
These items have been added back in
reporting our adjusted performance (see
Note 30) and are made up as follows:
• £0.3m credit (2022: £1.7m debit) from
the Active Silicon earn-out provision
true up;
• £0.3m (2022: £0.5m) in relation to
acquisition costs;
• £1.6m (2022: £1.0m) amortisation of
IFRS3 acquisition intangibles,
• £0.6m (2022: £0.3m) share-based
payments charge; and
• £0.1m (2022: £nil) Imputed interest
charges.
Adjusted SG&A expenses on an
underlying basis increased by £7.8m to
£28.1m (2022: £20.3m) reflecting the
acquisition of Custom Power (adding
approximately £5.5m to overheads in the
period), the impact of inflation, and our
planned investment to attract new, and
retain our existing, talent, as we look to
enhance our technical expertise and drive
continued growth.
“Solid State delivered a record
financial performance in 2023,
positioning the Group for sustained
future growth by delivering on
our key strategic objectives and
maintaining a very strong financial
position through leveraging our
relationships with shareholders
and debt providers.”
Peter James
Chief Financial Officer
Operating profit
Adjusted operating margins increased
to 9.2% (2022: 8.7%) with adjusted
operating profit up to £11.6m (2022:
£7.4m) reflecting the £1.4m contribution
of Custom Power and stronger margins
across the Group. Reported operating
profit was up 154% to £9.4m (2022:
£3.7m), additionally benefiting from the
decrease in acquisition related accounting
charges. The adjustments to operating
profit are set out in further detail in
Note 30.
Based on the R&D criteria, the Group is
now a large company in terms of the
classifications for UK R&D tax benefits.
Under the large company scheme, we have
recognised £0.29m (2022: £0.01m) within
operating profit in respect of research and
development expenditure credit (“RDEC”).
These development programmes are a
cornerstone of the Group’s future high
value add revenue streams.
Profit before tax
Adjusted profit before tax was up 50.0%
to £10.8m (2022: £7.2m). Reported profit
before tax was up 140% to £8.4m (2022:
£3.5m). This is reported after adjusting
items totalling £2.4m (2022: £3.7m) of
which £0.1m (2022: £0.2m) is charged
to cost of sales and the balance is within
SG&A and interest set out above.
Profit after tax
The Group’s underlying effective tax rate
for the year is 21% (2022: 14%) compared
to the standard rate of 19% (2022: 19%)
in the UK.
The effective tax rate has increased
primarily because of three factors:
increased profits generated in the USA
where the effective corporate tax rate is
higher at circa 29%, increased profitability,
diluting the benefit of R&D tax credits,
and the fact the Group no longer qualifies
for the more generous SME scheme.
Adjusted profit after tax was up 38.7% to
£8.6m (2022: £6.2m). Reported profit after
tax was up 168% to £6.7m (2022: £2.5m).
The corporation tax rate in FY23/24
is planned to increase to 25% from
19% which is expected to result in an
increase in our effective rate of tax, albeit
the increase has been reflected in the
recognition of the deferred tax positions
on the balance sheet which will unwind in
the years ahead.
EPS
Adjusted fully diluted earnings per share
for the year ended 31 March 2023 is up
14.3% to 80.7p (2022: 70.6p). Reported
fully diluted earnings per share is up
118% to 63.1p (2022: 28.9p).
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CHIEF FINANCIAL OFFICER’S REVIEW
CONTINUED
Dividend
The Board is proposing a final dividend
of 13.50p (2022: 13.25p) for approval at
the Annual General Meeting, giving a full
year dividend of 20.00p (2022: 19.50p) as
set out in the Chairman’s statement on
page 13.
Cash flow from operations
Having seen a significant working capital
investment of £5.8m in the first half, cash
inflow from operations reduced to £0.6m.
In the second half we saw £1.5m of the
H1 working capital investment unwind,
delivering strong cash inflow from
operations of £8.8m in H2. This results in
a full year cash inflow from operations of
£9.4m (2022: £6.0m).
The second half adjusted operating cash
conversion percentage (cash generated
from operations/adjusted operating
profit) was 145% and full year of 81%
(2022: 81%). The full year reported
operating cash conversion percentage
was 100% (2022: 161%).
The full year working capital cash outflow
of £4.3m (2022: £2.5m) is driven by a
significant increase in inventories of
£12.5m, offset in part by an increase in
payables of £6.4m and a decrease in
receivables of £1.8m.
The increase in inventories and payables
reflects a short-term increase in inventory
of circa £4.4m in relation to the NATO
contract announced in November 2022
which shipped post year end during
Q1 23/24.
Post period end inventories have
reduced, albeit as a result of our strategic
investment in product to support
our significant increase in customer
orders our inventories remain inflated,
but proportionate to the increase in
committed orderbook.
Investing activities
During the year, the Group invested
£1.1m (2022: £1.1m) in property, plant
and equipment, and £1.2m (2022: £0.6m)
in software and research & development
intangibles. The Group’s capital
expenditure programme saw significant
increase in the Systems R&D investment
and an upgrade to our UK Power facility,
with the investment in the refurbishment
of the office space combined with the
wire bonder and improved battery test
equipment delivering a step change
in the working environment and
technology capabilities for the UK Power
business unit.
In the Components division, there was
continued investment to integrate
the Willow businesses including the
recognition of a decommissioning asset
and an associated provision of £0.4m in
relation to the planned decommissioning
of the legacy mercury product
production equipment. Furthermore,
across the Group we have continued our
programme to replace older vehicles with
hybrid and electric models.
There are capital commitments of £0.2m
(2022: £0.3m) at the balance sheet date,
primarily relating to planned upgrades to
existing IT systems and properties.
During the period, payments in respect
of the acquisitions of Custom Power
totalled £28.7m, and Active Silicon and
Willow totalled £4.6m (2022: £2.6m).
Furthermore, at year end we have
released £0.3m of the Active Silicon
deferred contingent consideration as a
credit to profit and loss. A reconciliation
of deferred contingent considerations
of £5.7m (2022: £6.6m) is included in
Note 21.
Financing activities
The Group has entered or extended
leases during the period which has
resulted in the recognition of £0.1m of
additional right of use assets (excluding
those acquired with Custom Power) with
a corresponding right of use liability, in
accordance with IFRS16. Cash payments
were made in the period in respect of
lease liabilities of £1.1m (2022: £0.9m).
The financing activities reflect loans
drawn down of £15.9m, which includes
the draw down of £13.0m of term loans
and £2.9m of the revolving credit facility
(RCF), offset by loan repayments of £2.8m
which includes the first two quarterly
repayments on the term loan of £0.65m.
Solid State continues to have a strong
relationship with Lloyds Bank. Lloyds has
authorised a $10m additional working
capital short-term overdraft subsequent
to year end ensuring the Group has
facility headroom should there be any
working capital delays arising from the
NATO contracts previously announced.
Furthermore, Lloyds have extended
the term of the £7.5m (2022: £7.5m)
Revolving Credit Facility (“RCF”) which is
now committed until 30 November 2024.
At 31 March 2023 £2.4m of the RCF was
drawn (2022: £1.5m).
The Group paid out £2.2m (2022: £1.5m)
in respect of dividends and £0.2m (2022:
£0.1m) for 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 £58.0m (2022: £27.1m), primarily
reflecting the £27.0m equity raised for the
Custom Power acquisition, £6.6m income
for the year, less £0.9m foreign exchange
and £2.2m dividends paid.
As a result of the unprecedented supply
chain challenges combined with the
acquisition of Custom Power and the
short-term inventory built to fulfil the
Q1 demand (in part arising from the
NATO contract) the Group inventory has
increased to £33.2m (2022: £17.6m).
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Overview
Strategic Report
Governance
Financial Statements
As previously reported, the Group continues
to pay suppliers on a proforma basis where
required to secure inventory in short supply,
however the strength of customer and
supplier relationships has helped us to
manage the cash challenges of the working
capital investment effectively.
We have worked in partnership with
customers who have, in many cases,
made payments in advance to secure
supply. The investment to secure product
continues to be critical to manage the
shortages ensuring product is available
to fulfil customer demand. This approach
has given us a competitive advantage,
strengthened customer relationships and
helped to secured growth.
Excluding deferred contingent
considerations and IFRS16 lease
obligations, the Group had a net debt
position with banks of £2.4m at the
year-end (2022: net cash £1.4m) having
paid £33.5m of consideration for the
acquisitions of Custom Power, Active
Silicon and Willow. At 31 March 2023,
the discounted fair value of the Group’s
deferred consideration liabilities are
£5.7m, with circa £0.1m of discounting
imputed interest to be charged to the P&L
ahead of payment.
The deferred consideration payable in
August 23 in relation to the acquisition
of Custom Power is $5.0m for which the
Group has cash on deposit. The Group will
utilise cash and the RCF facility to fund
the final £1.7m deferred consideration
payment for Active Silicon which is
expected to be paid during Q2 23/24.
Peter James
Chief Financial Officer
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Annual Report & Accounts 2023 SOLID STATE
35
KEY PERFORMANCE INDICATORS
The following key performance indicators are used by the Group to monitor performance,
working capital and forward prospects.
Revenue (million)
£126.5m
Definition
Revenue is measured as the value, net of sales taxes, of goods
sold and services provided to customers.
Reason for choice
This is a key driver for the business, enabling us to track our
progress in driving growth.
Adjusted operating profit (%)
9.2%
Definition
Earnings before interest, tax, amortisation of acquired intangibles,
acquisition costs and other adjustments for one-off non-recurring
items divided by revenue.
Reason for choice
Adjusted operating profit margin provides a consistent year-on-year
measure of the trading performance of the Group’s operations to
enhance the quality of the earnings.
Underlying cash flow from operations (million)
£9.4m
Definition
Cash flow for operating activities excluding investing and
financing activities.
Reason for choice
This provides a measure of the cash generated by the Group’s trading
and provides visibility of the cash impact of the working capital
investment decisions. It represents the cash that is generated to fund
capital expenditure, interest payments, tax and dividends.
2019
£56.3m
2020
£67.4m
2021
£66.3m
2022
£85.0m
2023
£126.5m
2019
6.5%
2020
7.2%
2021
8.3%
2022
8.7%
2023
9.2%
2019
£4.0m
2020
£8.0m
2021
£6.9m
2022
£6.0m
2023
£9.4m
Alternative/Adjusted Performance Measures (“APMs”), including ‘adjusted’ and ‘underlying’, are applied consistently throughout the 2023 Annual Report and
Accounts. APMs are defined and reconciled in Note 30 to the reported GAAP measures, and also include a narrative disclosure of the basis of recognition of the
APMs and the impact of the differences compared to the statutory measures.
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Adjusted profit before tax (million)
£10.8m
Definition
Profit before taxation, amortisation of acquired intangibles, acquisition
related costs and charges, share based payments and other adjustments for
one-off non-recurring items.
Reason for choice
This measure is the critical metric that the operational management
control and influence delivering profit to drive the total return achieved for
shareholders.
2019
£3.5m
2020
£4.7m
2021
£5.4m
2022
£7.2m
2023
£10.8m
Net debt (million)
£8.1m
Definition
Cash less borrowings less deferred and contingent consideration obligations
excluding rights of use lease obligations.
Reason for choice
The Group has financial covenants agreed with its lenders that are based on
this definition of net debt, making it a KPI monitored to ensure compliance.
Furthermore, net debt is used to monitor the Group’s leverage position and
ensure the Group maintains an appropriate capital structure.
2019
xxx
2020
£3.2m
2021
(£4.4m)
2022
(£5.2m)
2023
(£8.1m)
Book to Bill (rolling 12M)
1.5
Definition
Last Twelve Months (“LTM”) order intake divided by LTM Revenue.
Reason for choice
Monitoring the book to bill ratio provides a metric to monitor growth in
the open orderbook and therefore the prospects for sustainable growth.
While the LTM basis does eliminate some of the short-term month to month
volatility it should not be monitored in isolation from the absolute revenue
and open orderbook as variations in bookings and billings will impact
the ratio.
Reported profit before tax (million)
£8.4m
Definition
Profit before taxation.
2019
1.15
2020
1.09
2021
1.07
2022
1.34
2023
1.50
Reason for choice
This measure is the critical statutory metric that the operational management
control and influence delivering profit to drive the total return achieved for
shareholders.
2019
£2.8m
2020
£4.0m
2021
£4.2m
2022
£3.5m
2023
£8.4m
37
GovernanceFinancial StatementsAnnual Report & Accounts 2023 SOLID STATEOverviewStrategic Report
STAKEHOLDER ENGAGEMENT
Section 172 Statement
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).
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.
The Board has identified its key stakeholders to be its employees, investors, customers, partners, suppliers and
our community.
Overview
Stakeholder focus
How we engage
Investors & Shareholders
The Board decisions are
aligned to delivering on
commitments and providing
long-term shareholder value.
The Group seeks to promote
an investor base that is
committed to a longer-term
holding in the Company
while supporting optimising
shorter-term liquidity.
Employees
Our people are critical to our
business. The Group’s success
is built upon retaining the
knowledgeable and skilled
workforce who are committed
to the Group and the delivery
of the strategy.
The Board is proud of the
“Solid State family” culture,
which is inclusive, friendly and
supportive of all members of
the team.
• Our ambition and strategy
• Financial performance
• Governance
• Culture and ethics
• ESG commitments and
practices
The Board is committed to communicating
with our investor & Shareholders on a timely
and regular manner. We do this through:
• Annual and half year accounts
• Press releases and Stock Exchange
announcements
• AGM for shareholders
• Company website incl videos & presentations
•
Investor roadshows and Investor Meet
Company platform investor presentations
Investor open days/site visits
•
• Regular meetings with corporate brokers,
major shareholders, analysts and lenders
• Diversity & inclusion
• Retention, training and
progression
• Safety & wellbeing
• Recognition and reward
• ESG commitments and
practices
We engage with our employees through:
•
leadership events and Q&A sessions with
members of the executive leadership and line
managers
• Employee inductions, feedback and surveys
• Employee training and policies
• Ongoing employee workplace safety and
practice reviews
• Provide resources to support employee
wellbeing.
FY23 decisions
that impacted our
Stakeholders
• Approval and communication
on the recruitment plan for an
additional Non executive
Director in the UK
Initial approval on the
Acquisition of Custom Power
and regular update on key
milestones and performance
•
• Formation of an ESG
Committee and overview on
key metrics
• Communicating financial
results and performance
• Board changes with the
announcement of the planned
recruitment of an additional
non executive Director
in the UK
• Acquisition of Custom
Power,the integration,
performance and changes to
Group reporting
• Formation of an ESG
Committee with employee
feedback provided
• Communicating financial
results and performance
• Options awarded to
employees under the AESP
share plan
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Overview
Strategic Report
Governance
Financial Statements
Overview
Stakeholder focus
How we engage
Customers & Industrial Partners
FY23 decisions
that impacted our
Stakeholders
Our technical knowledge
and collaborative approach
with customers and industrial
partners allows us to provide
a tailored solution. The Group
aims to understand, design-in,
supply and manufacture to
the highest quality, ensuring
we meet the customer specific
requirements.
• Technology partner providing
product/component
innovation and development
• High quality, safe products
and systems delivering value
• Delivering on programme
management, meeting supply
requirements and contract
service and support
• Value added relationships
with our direct and reseller
sales network
• ESG commitments and
practices
• Maintaining the highest levels
of customer satisfaction
Our commercial engagement is built upon:
• Customer engagement providing a
technology partner relationship for
customers
• Proactive in design our current solutions out
to deliver technology innovation and
performance adding value to our customers
• Exhibitions and roadshows to showcase our
products
• Actively engaging with and receiving
customer feedback
• Building relationships with
new and existing customers
and industrial partners
associated with Custom Power
and communicating the
acquisition
• Formation of an ESG
Committee and working
together in delivering our ESG
strategy
• Supply Chain issues regarding
component shortage and
communicating timeline of
deliveries
Suppliers
The Group’s extensive supply
chain relationships with
component manufacturers and
technology partners are critical
to ensuring that the Group can
meet the customers’ technical
requirements for their specific
application.
• Supply Chain issues regarding
component shortage
• Managing supply chain
expectations
Insight on market demand
•
• Feedback on quality and
reliability
• Engaged value added working
Long-term supplier partnerships are
established through:
• New supplier due diligence and provision of
Group policies
• Continuous and open communication
between our team and the suppliers
relationship
• Regularly engaging with Group’s suppliers on
• Fair commercial terms and
payment for products and
services
• ESG commitments and
practices
key issues and visibility of demand
• Engagement on quality, performance, price
and how to improve the supply chain
relationship
Community
Solid State PLC continually
works with and for the
communities in which we
operate, recognising our role as
a local employer.
• Positive influence on local
communities
• ESG commitments and
practices
• Engagement to enhance the
partnership
Our community relationships are
underpinned by:
• Community outreach and engagement
aligned with the groups values
•
Internal ESG committee established
• Local community sponsorship and
charitable events
• See further details in the ESG section page 40
• Formation of an ESG
Committee
• Continued involvement in
activities within the
community. See the ESG
section for further details
Annual Report & Accounts 2023 SOLID STATE
39
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
Section 172 Statement
The Solid State Board is committed to creating a long-term sustainable business. Our focus
on ESG is a core part of our strategy and is integrated in all areas of our business. The Group
is focused on ensuring we operate in an ethically, socially, and environmentally responsible
way “Doing the right things the right way”.
The introduction of our ESG committee ensures we continue to make progress in improving our sustainability and
challenging ourselves in making timely changes that benefit all stakeholders.
The Board have a clear focus on making a positive impact with our stakeholders on all three areas of ESG.
Environmental
• Reduce consumption, reduce waste
Social
• Health, Safety & Wellbeing of
Governance
• Corporate governance framework
•
•
Improving sustainability of products
and solutions for our customers
Improving sustainability of sourcing
from suppliers
our people
• Promoting equality, diversity
and inclusion
• Supporting our communities
and STEM outreach
• Engaging our People. promoting
Learning & development
• Code of conduct including
Anti-Bribery and corruption
• Business ethics and integrity
We have aligned our ESG goals with the United Nations Sustainable Development Goals.
These being:
UNSDG
Link to Solid
State PLC
Supporting local
communities
Relevance to Solid State PLC
Progress so far
The Group continually works with
and for the communities in which
we operate, recognising our role as
a local employer.
The business supports local foodbanks with the aim to reduce food
poverty in our communities and we sponsor a room at the local
YMCA all year round.
From sponsoring grass roots community sports teams and
charitable events, to our incredible employees who choose to raise
money for many great causes.
We are in the process of formalising our support for our employees to
take time off to support local charities and community engagement.
Health & Safety
The Board continue to actively
promote a safety-first culture.
We track accidents and incidents
and have a global target to reduce
our incident rate to zero.
The health and wellbeing of our employees is critical to us and
throughout the year we provided training and share resources on
how to look after their mental and physical wellbeing. This includes
access to a wellbeing at work support programme for employees
and their families.
Our People
We are committed to maintaining
a high level of employee
engagement across all sites and
providing an environment of
equality where all employees can
fulfil their potential.
All employees are encouraged to take an active role in ensuring that our
working environment is a welcoming, inclusive and 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 Board is proud of the “Solid State family” culture which is
welcoming, friendly and supportive of all members of the team.
We provide formal and informal training as part our internal “on the
job” training as well as externally provided courses and training to
promote progression.
We have established a working Group with the aim to motivate,
empower and support all employees. Focus on reviewing and updating
the appropriate policies within the businesses such as flexible working,
promoting equality and diversity and equal pay.
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We have aligned our ESG goals with the United Nations Sustainable Development Goals.
These being:
UNSDG
Link to Solid
State PLC
Economic growth
Overview
Strategic Report
Governance
Financial Statements
Relevance to Solid State PLC
Progress so far
The Group’s strategy continues
to focus on economic growth
for all our stakeholders through
acquisition and organic growth.
The Group has been successful in achieving our five-year strategic
goals providing our shareholders with total shareholder return in
excess of 20%.
Our acquisitions and organic growth have allowed us to increase
our headcount to over 400 and drive improved margins and
increased added value contribution for all our stakeholders.
Our Growth provides employees with opportunities to develop and
progress in their roles as well as recruiting new talent into the team.
The nature of our products, systems and solutions mean we are
starting from a strong position based on our technology, products
and systems being designed and engineered to be high quality, often
upgradable with long life to meet demanding customer requirements.
By seeking to differentiate our premium products and systems based
on quality performance and sustainability we aim to ensure we deliver
secondary benefits for our customers as our products and technology
strives to be more sustainable than incumbent technology solutions.
The products we supply, and manufacture are typically long life, high
performance, high quality premium products.
We do not do typically operate in consumer or commodity markets
as a result we design in products which are typically designed to
deliver value through reduced consumption or reduced waste for
our customers.
We are a relatively energy light business, and the focus on
scope 1 and 2 reduction for 2050 is to further reduce our energy
consumption, focusing on reduction of C emissions from the use of
gas. None of the group’s waste goes to landfill, and our management
of waste is compliant with WBAR 2009 and the WEEE Directive. The
company is moving to low carbon Hybrid or electric cars, and we will
increase our use of sea freight in preference to air freight.
Annual Report & Accounts 2023 SOLID STATE
41
Sustainable Innovative
products
The Board are committed to
providing our customers with
sustainable products and encourage
sustainable innovation during the
design process of our products.
Sustainable sourcing
and products
The Group’s environmental
objectives are to reduce
consumption and to reduce waste.
Climate Change
Solid State PLC is committed to
achieving net zero by 2050 in
scope 1 & 2.
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ESG
CONTINUED
Environmental
Overview
Solid State PLC is committed in supporting the global journey in addressing climate change and we are pledging to mitigate our
own impact on the environment. We recognise we have a responsibility in protecting our planet by reducing our environmental
footprint and protecting the community in which we operate.
Solid State PLC’s Emission Plan
Our Strategy Reduce Consumption & Reduce Waste
Scope
Scope 1 & Scope 2
Scope 3 – indirect emissions with our value chain
How it impacts
Solid State PLC
Direct greenhouse (“GHG”) emissions occur
from sources that are controlled or owned by
Solid State PLC.
All the emissions associated, but not wholly owned by the company itself,
but that the organisation has a shared responsibility for, up and down its
value chain.
Indirect GHG emissions associated with the
purchase of electricity, steam, heat & cooling.
Our targets
The UK and US Governments have committed
to the respective grids being green by 2035.
Providing the UK and US governments meet their
commitments our strategy will result in our scope
1 and 2 emissions being eliminated by 2050.
Solid State is committed to working with its supply chain partners to ensure
they are able to achieve net zero in scope 1&2 by 2050 which will eliminate our
scope 3 emissions.
How we will
achieve our
strategy
Near term
Near Term
• Minimise CO2e from electricity use by:
• switching electrical equipment off
when there is no business benefit to
leaving it on,
• Considering the environmental impact of
new electrical equipment unless there are
other compelling business reasons not
to do so.
• Minimise CO2e from gas use by ensuring
that the temperature in our workplaces is
adequate but not excessive, and any warm-
up times are reasonable.
• Minimise CO2e from use of company
vehicles by:
• Reducing average CO2e emissions of
the fleet,
• Reducing the amount of company miles
travelled by considering other alternatives
to travel where feasible.
• We will continuously challenge the status
quo and look for other opportunities
to reduce wasted energy.
• Freighting goods is one of our largest emissions. Solid State PLC is committed
to minimising CO2e from air freight by working with our customers to move
from air freight to sea freight when possible.
• Applying Waste Hierarchy to reduce waste.
• We are reviewing the green credentials of our website hosting platforms and
any external data storage providers we use, to ensure our carbon footprint in
these areas is minimal. We are evaluating and adopting smart practices such as
more efficient data archiving and more stringent information housekeeping to
reduce the amount of data we store.
Long Term
• Freighting goods is currently predicted to be one of our largest emissions.
Although leading freight carriers, such as DHL, are making great strides in
decarbonising their processes e.g., battery vehicles, cleaner fuel for aircraft,
etc., there is still great uncertainty in this area. There is currently no clear path
to net zero by 2050 although as new technologies and cleaner fuels emerge
this may change.
• Our plan is to diversify our supply chain to open up new opportunities and
work with all our partners to reduce carbon. We will continue to keep an open
mind and review new options including the use of carbon offsets as they arise
to meet our commitment to net zero by 2050.
• We currently have a relatively small footprint for business miles in private
vehicles.
Medium Term
• All new company vehicles will be battery
powered unless operational constraints
make this unworkable.
•
If there is no low carbon alternative for
gas for heating by 2040, we will change to
electric heating in all Business Units.
• Waste processing currently amounts for a very small proportion of our overall
emissions. We will diversify our supply chain to open up new possibilities and
work with all our partners to reduce the amount of waste in our supply chain.
• The vast majority of our employees currently commute by car. By 2050 only
cars older than 20 years will still be non-electric. Where this is the case, we
will consider taking actions to encourage the change to electric vehicles and
share the responsibility with the employees concerned including the use of
carbon offsets to meet our commitment to net zero by 2050.
Challenges
Achieving net zero from freighting goods looks likely to be one of our biggest
challenges.
Bringing in all the carbon information to fully understand our carbon footprint is
challenging but we are currently making good progress on capturing data from
work from home, business miles in private vehicles and freighting goods.
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Overview
Strategic Report
Governance
Financial Statements
Scope 1 & Scope 2 emissions
As a company quoted on AIM and subject to the reporting requirements for large companies under the Companies Act 2006 the Group
is required to report its Scope 1 and Scope 2 CO2e. The table below presents our Scope 1 and Scope 2 emissions and intensity metric.
Emissions for the Group are calculated using methodologies consistent with the Greenhouse Gas (“GHG”) Protocol: A Corporate
Accounting and Reporting Standard.
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 2022 conversion factors (2022: 2020
conversion factors) to obtain a figure for the CO2 consumption of the Group compared to the baseline reported.
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.
FY20
FY21
FY221
FY232
UK and
offshore
284.03
139.79
423.83
Global (excl.
UK and
offshore
0.00
6.26
6.26
UK and
offshore
116.20
101.47
217.67
Global (excl.
UK and
offshore
0.00
2.86
2.86
UK and
offshore
128.69
128.01
256.70
Global (excl.
UK and
offshore
71.52
130.32
201.84
UK and
offshore
111.27
111.17
222.44
Global (excl.
UK and
offshore
61.02
109.76
170.78
1,843,758
24,505
1,015,162
12,266
1,332,277
999,865
1,245,752
1,132,338
20.9
11.4
16.8
11.2
Total Scope 1 emissions (tCO2e)
Total Scope 2 emissions (tCO2e)
Total Scope 1 and 2 emissions
(tCO2e)
Energy consumption (kWh)
resulting in the above
reported emissions3
Intensity ratio (tCO2e per £m
of Added Value)
1
2
Includes Active Silicon, Willow and AEC
Includes Active Silicon, Willow, AEC and Custom Power
Environmental strategic highlights
We are pleased to report a reduction in our Scope 1 and Scope 2 emissions, equating to a 48% reduction from our base year for UK
and offshore. The progress to our environmental strategy includes minimising CO2e from:
• Electricity use by switching electrical equipment off when there is no business benefit to leaving it on.
• Gas use by continuing to focus on our mid-term investment to convert gas heating solution to electric heating solutions aligned
with the government’s commitment to the grid being green by 2035.
• Airfreight by working with our customers to move from airfreight to sea freight where lead-times / other operational constraints
allow or purchase closer to the business unit where possible.
• Use of company vehicles by reducing Average CO2e emissions of the fleet, and minimising company miles travelled by considering
other alternatives to travel where appropriate. Additionally, the % of our fleet that are hybrid or electric cars has increased to 75%
in FY23 compared to the 33% in our base year.
Our overall baseline intensity ratio has continued to decrease from 20.9 Tonnes in our base year to 11.2 Tonnes in FY23. This is
a positive step particularly as we have included our recent acquisition of Custom Power. 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 working towards achieving our net zero target.
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Annual Report & Accounts 2023 SOLID STATE
43
ESG
CONTINUED
Social
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”
Diversity & Inclusion
The Group is committed to maintaining and building an
organisation that promotes diversity and inclusion in all areas
of the business.
We are proud of what we have achieved so far in improving
diversity in our organisation albeit we recognise there
are opportunities to continue to improve and progress.
The recruitment of electronics talent remains challenging
with the talent pool being limited and not yet well diversified.
As a Group we have made progress in increasing the diversity
of our workforce in recent years, which has been underpinned
by our family culture which is inclusive and understanding
that work life balance is a critical motivating factor.
We are establishing a working Group with the aim to motivate,
empower and support all employees, particularly those who
may feel that they are in a minority, to understand themselves
and their aims and how we might develop our organisation
they might help us collectively ensure we achieve our goals of
everyone feeling welcome and belonging.
Local community engagement
We recognise we have an important role within the
communities in which we operate in and therefore we
actively encourage all our employees to participate in
supporting our community. Our employees are given time
off to support local charities, sponsor local support teams
and they engage in an annual charity walk. Throughout the
business we support local foodbanks with the aim to reduce
food poverty and we sponsor a room at the local YMCA all
year round.
Employee engagement
We are committed to maintaining a high level of employee
engagement across all sites and providing an environment
where all employees can fulfil their potential. The Group
regularly hosts leadership events with members of the
Executive Board to allow the employees to voice their
opinions and provides the Board with the opportunity to give
updates on the business.
Our employee surveys provide employees with a further
opportunity to provide feedback and suggest improvements
on aspects such as leadership communication, wellbeing
topics, team culture and work environment.
In supporting our employees, a one–off energy bonus was
paid and an interim pay increase was rewarded in FY23.
Health, wellbeing & safety
The health and wellbeing of our employees is important to
us and throughout the year we share resources with them
on how to look after their mental and physical wellbeing.
An example of the resources available include:
• Access to Westfield Health for our employees and their
families.
• A fully funded Employee Assistant Program is available to
help employees with financial, legal and/or mental health
challenges.
• Access to a high street discount platform giving the
opportunity to make savings on their daily purchases.
We continue to actively promote a safety-first culture.
We have mandatory training and policies in place for all
employees on workplace safety and practices. We track
accidents and incidents on a monthly basis and have a global
target to reduce our incident rate to zero, against which we
are making progress.
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Overview
Strategic Report
Governance
Financial Statements
Governance
The Board of Directors are committed to
conducting business activities in an honest and
ethical manner and seek to act professionally, fairly
and with integrity with all our stakeholders. We
actively promote a culture where all employees
have the confidence to speak up and raise
concerns or suggestions on how we can improve
in the way we conduct our business activities.
The business follows the guidelines of the QCA Corporate
Governance and further information on how we adopt this code
can be found on page 54.
Code of business conduct
We work with our partners to adopt best business practices,
and we have a range of policies in place that we require our
employees and other stakeholders to adhere to. These can be
found in further detail on our website and include the following:
Anti-bribery and corruption Act
The Group implements and enforces effective systems to
uphold a zero tolerance approach to bribery and corruption.
We continually review our policy to ensure that it is compliant
with regulatory requirements and communicate any changes
to our employees. To ensure all our stakeholders principles of
anti-bribery & corruption are consistent with the Groups, all
agents and third parties who act on behalf of the Group are
obliged by written agreement to comply with standards set
out in the Group’s Anti-corruption & Bribery Policy.
In our dealings with customers
The business is committed to being open and honest about
our products and services by communicating with customers
all appropriate information they need to ensure we consistently
meet their expectations. We ensure that any issues or problems
are dealt with efficiently and in a timely and fair manner. We
actively 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.
Human rights and modern slavery
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.
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.
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.
In our dealings with suppliers
Our suppliers are a critical element of our company, and we
are committed to ensuring that the suppliers we work with
operate with the same ethical business standards as we do.
We ensure to communicate our supplier code of conduct
with our existing and new suppliers and regularly review our
policy to ensure we are operating at best practise.
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Annual Report & Accounts 2023 SOLID STATE
45
PRINCIPAL RISKS & 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
In identifying the business risks below, the Group analyses
risks across four key areas:
the business;
• strategic risk;
• embedding risk management within the core processes of the
• commercial risk;
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.
• operational 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.
Year on year change
in likelihood:
Effect:
Integration of
acquired business is
not effective
Effect:
Trading may be
disrupted/restricted,
reduced sales volumes
and profitability.
Business risk
Mitigation and Strategy
Acquisition risk (Strategic 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.
During August 2022 the Group completed the acquisition of Custom Power LLC.
In managing acquisitions, the following processes are 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:
– key customers and suppliers; and,
– 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.
Legislative environment and compliance (Strategic risk)
•
Increased complexity in the
international legislative and trading
environment in which the Group
operates post Brexit.
•
• Overseas competitors are favoured in
their domestic markets.
International trade Post Brexit has seen increase in the administrative burden. As
the Group’s international exposure is increasing as it delivers on the strategy 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 the resources to meet the
administrative burden.
• Failure to comply with applicable
legislation, to include but not
limited to:
– Export Control and International
Traffic in Arms Regulations
(“ITAR”);
– Bribery Act;
– General Data Protection
Regulation (“GDPR”); and
– Employment legislation and
company legislation.
• 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.
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Overview
Strategic Report
Governance
Financial Statements
Key:
Risk change:
Potential Impact:
Increase
High
Decrease
Medium
No change
Low
Business risk
Mitigation and Strategy
Competition risk (Commercial risk)
• Loss of distribution supplier
• Setting a commercial strategy to gain share by:
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.
– Focusing on quality, value and customer service;
– Develop and maintain close relationships with suppliers and customers to
become the “partner of choice”, by forming multi-level partnerships;
– As a trusted partner providing product solutions from design, to pilot &
volume production; and,
– 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.
Product / Technology change (Commercial risk)
• Failure to maintain the Group’s
• Continued investment in the technical training and development of sales,
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.
•
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.
Failure of key distribution franchises to
innovate and introduce new products.
Continuously seek new franchises, suppliers and partners at the forefront of
electronics technology.
Supply chain interruption and cost inflation (Operational risk)
• The ongoing electronics supply
chain challenges.
• Dependency on significant
suppliers or dependency on a
qualified supplier within a
controlled supply chain.
• Risk demand falling due to customer
de–stocking as a consequence of
reducing inventories, over ordering,
inability to obtain other necessary
components and subsequent
cancellation or rescheduling.
• Risk of suppliers increasing
component costs as a prerequisite
to delivery placing margins at risk.
• Active programme to maintain cross qualified second 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 strategy meant that the Group has been able to manage the
disruption and extended lead times with limited impact. However, as lead times
improve the Group may see destocking and delays in projects/programmes in
the current and subsequent years.
Year on year change
in likelihood:
Effect:
Loss of market share,
reduced sales volumes
and profitability
Effect:
Sales volumes and
profitability
Effect:
Quality issues, costs,
sales volumes and
profitability
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Annual Report & Accounts 2023 SOLID STATE
47
PRINCIPAL RISKS & UNCERTAINTIES
CONTINUED
Business risk
Mitigation and Strategy
Retention of key employees (Operational risk)
• Loss of key people and critical skills.
•
Insufficient skilled employees
• Poor engagement and morale
• Retention & development of talent is critical to the long-term success of the Group.
• Senior HR resource has been added to the team. Reviewing and refining contracts
•
of employment and conditions for best practice.
Investment in the culture means we have been able to maintain 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 proactively looks to develop its own talent and will be making further
use of the government apprenticeship schemes.
• The Group proactively 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.
Year on year change
in likelihood:
Effect:
Quality and or service
level issues rise, and
costs increased
Failure of or malicious damage to IT systems (Operational risk)
• 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.
Effect:
Costs, sales,
profitability and
reputational
damage
Natural disasters (Operational risk)
• Natural disaster or medical
• The Group has a documented disaster recovery plan for each site. In addition, the
epidemic/pandemic disrupts
production capability, supply of
materials or customer demand.
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.
Effect:
Trading may be
disrupted, reduced
sales volumes and
profitability
Forecasting and financial liquidity (Financial risk)
• The business does not maintain
• The Group prepares financial forecasts to evaluate the level of funding required for
sufficient funding and liquidity to
meet its obligations as they fall due.
• The business commits to a materially
significant loss making contract.
the foreseeable future. The Board review and approve these forecasts.
• Based on these forecasts appropriate funding and liquidity solutions are put in
place to ensure that adequate headroom is maintained.
• 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.
• Extensive disclosure has been provided in respect of going concern and
longer-term viability (see pages 59, 60, 62, 87 and 88).
Effect:
Going concern/
financial loss
and reputational
damage
Key:
Risk change:
Potential Impact:
Increase
Decrease
No change
High
Medium
Low
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Overview
Strategic Report
Governance
Financial Statements
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Annual Report & Accounts 2023 SOLID STATE
49
GOVERNANCE
In this section
Our Board of Directors
Corporate Governance Report
Audit Committee Report
Remuneration Committee Report
Directors’ Report
52
54
61
65
75
50
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“The Board of the Solid State Group
follows the guidelines set out by the
Quoted Companies Alliance in ensuring a
high level of corporate governance. The
10 principles of governance set out by
QCA ensure an appropriate balance of
risk and reward for all stakeholders of the
Group, with an increasing focus on the
importance of ESG as a core tenet.
The Board continues to review its own
performance to ensure the highest
standards of corporate governance and
accountability deliver long-term Group
success and value for shareholders.”
Nigel Rogers
Non-executive Chairman
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Annual Report & Accounts 2023 SOLID STATE
51
OUR BOARD OF DIRECTORS
Nigel Rogers
Non–Executive Chairman
dob July 1961
Gary Marsh
Chief Executive Officer
dob April 1966
Nigel joined the Board as an Independent Non-Executive
Director in July 2019, and became Non-Executive Chairman
in November 2020. He has more than twenty years’
experience in leading AIM-listed engineering companies,
including as Group CEO of both Stadium Group PLC (now
part of TT Electronics PLC) and 600 Group PLC. He is
currently Executive Chairman at Transense Technologies PLC
and Chairman at Surgical Innovations Group PLC. His early
career was as a Chartered Accountant with PwC in the U.K.,
Latin America and the Middle East.
Gary Marsh joined the Company in 1986 having gained an
HND in Business and Finance Studies. He has held various
positions within the Group including that of Operations
Director of Solid State Supplies prior to his appointment as
its Managing Director in 1997. In addition to this role, Gary
was appointed Group Managing Director in 2002 following
the acquisition of Steatite. In 2010 following the acquisition
of Rugged Systems Ltd he was appointed Chief Executive
Officer of the Group.
Peter James
Chief Financial Officer
dob June 1979
John Macmichael
Director
dob April 1961
Peter James qualified as a Chartered Accountant with
PriceWaterhouseCoopers LLP 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 key member of the senior leadership
team successfully completing two significant transactions,
funded through an equity fund raising and a global
refinancing. Subsequently Peter was key member of the
integration and standardisation team, aligning the enlarged
Group with its customer markets serviced by manufacturing
sites, delivering improved efficiency and material cost
savings. As a Senior Manager with PriceWaterhouseCoopers
LLP Peter gained a wide range of experience in Audit and
Financial Due Diligence teams working with and 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.
Following graduation John Macmichael worked as a
development engineer for GEC Telecommunications before
moving into applications engineering and ultimately sales
at the electronic component distributor Steatite Ltd. John’s
career continued with worldwide responsibility for sales as
International Sales Manager with Comlinear Corporation, a
manufacturer of high speed analogue devices in the United
States, before returning to the UK to establish the UK
operation for Comlinear. Following the purchase of
Comlinear by National Semiconductor John joined
Breckenridge Technologies as Managing Director to lead
the sales and design-in activity on behalf of National
Semiconductor and Fairchild Semiconductor. Latterly John
moved back into distribution joining Solid State Supplies in
March 2006 firstly as Business Development Manager
before being promoted to Commercial Director. In 2010 he
was appointed Managing Director of Solid State Supplies
Ltd. In addition, he was appointed Managing Director of
Pacer Technologies following its acquisition in 2018.
52
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Overview
Strategic Report
Governance
Financial Statements
Matthew Richards
Director
dob October 1963
Peter Haining
Non–Executive Director
dob September 1956
Peter Haining qualified as a chartered accountant in 1980
and later worked at Binder Hamlyn. He left Binder Hamlyn in
1992, together with three colleagues, to establish The Kings
Mill Partnership, who were the Company’s previous
auditors. He has served as a Non-executive Director and
Non-executive Chairman and Company Secretary, and then
Executive Finance Director and Company Secretary, before
being reappointed as a Non-executive Director and
Company Secretary.
Matthew Richards was appointed as Managing Director of
Steatite Ltd 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
Non–Executive Director
dob August 1967
Pete joined the Board as an Independent Non–Executive
Director and Chairman of the Remuneration Committee in
January 2021. He was appointed Senior Independent
Director of the Group in February 2021. Pete has over thirty
years of experience in a combination of executive and
Non-executive roles within the technology industry and
investment community. Pete was previously an early
employee and main Board member of ARM Holdings PLC,
an Executive at Fidelity International Ltd and General
Partner at Alta Berkeley Venture Partners. Pete´s early
operational career was in sales and marketing at leading
technology companies. He received 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.
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Annual Report & Accounts 2023 SOLID STATE
53
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.
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.
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.
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.
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
2023, 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
How the corporate governance
principles are adopted at Solid State PLC
The Board considers that throughout
2022/23, 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:
Fully compliant
“Establish a strategy and
business model which
promote long-term value
for shareholders”
Principle 2:
Fully compliant
“Seek to understand and
meet shareholder needs
and expectations”
Principle 3:
Fully compliant
“Take into account wider
stakeholder and social
responsibilities and their
implications for long-term
success”
Group business strategy is set out in the Chairman’s
statement and the Strategic Review above.
Strategic issues, and the appropriate business model
to exploit opportunities and mitigate risks, are under
continuous review by the Board.
Regular meetings are held with shareholders at the
release of interim and full year results, the AGM and a
number of additional ad hoc meetings.
Directors and the management team adopt a broad
view during decision making to take meaningful
account of the impact of its business activities on all
key stakeholder groups.
Principle 4:
Fully compliant
“Embed effective risk
management, considering
both opportunities and
threats, throughout the
organisation”
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 Chairman’s Statement on
pages 12 to 13, the CEO’s review
on page 20 and Strategic review
on pages 22 to 23.
See further reporting on the
stakeholder engagement
provided on pages 22 to 23 and
pages 58 to 59 of this report and
Strategic review on pages 38
to 41.
See further reporting on the
stakeholder engagement
provided on pages 58 to 59 of
this report and Strategic review
on pages 38 to 41.
See the principal and emerging
risks identified and the
mitigation and the report on
its risk management processes
on page 56 of this report and
the Strategic review on pages
46 to 48.
54
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Overview
Strategic Report
Governance
Financial Statements
Principle
Compliance status Explanation
Further disclosure(s)
Maintain a dynamic management framework
Principle 5:
Fully compliant
“Maintain the Board
as a well–functioning,
balanced team led by
the chair”
Principle 6:
Compliant
“Ensure that between
them the Directors have
the necessary up-to-date
experience, skills and
capabilities”
Principle 7:
Fully compliant
“Evaluate Board
performance based
on clear and relevant
objectives, seeking
continuous improvement”
Principle 8:
Fully compliant
“Promote a corporate
culture that is based
on ethical values and
behaviours”
Principle 9:
Fully compliant
“Maintain governance
structures and processes
that are fit for purpose and
support good decision-
making by the Board”
Building trust
Principle 10:
Fully compliant
“Communicate how the
company is governed
and is performing by
maintaining a dialogue
with shareholders and
other relevant stakeholders”
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 is at an
advanced stage in its recruitment of an additional
independent Non-executive Director.
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 seeking to appoint an additional independent
Non–Executive Director, all short listed candidates
offered greater breadth of diversity.
The Board completes an annual internal evaluation
of performance which is led by the Chairman.
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.
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. A Working Group has
been established which aims to motivate, empower
and support all employees. Employees are actively
encouraged to participate in training courses and
maintain CPD.
The Board as a whole take responsibility for
ensuring appropriate corporate governance
practices are adopted.
The roles and responsibilities of each of the
Directors (including committee memberships)
are clearly defined.
See the Board and its sub
committees’ section in this
report on pages 56 to 59.
See the Board section in this
report on pages 52 to 53.
See the Board performance
evaluation section in this report
on page 58.
See the Board section in this
report on pages 56 to 57 and
Strategic review on pages 38
to 39 and ESG section pages
40 to 43.
See the Board section in this
report on pages 52 to 53 and
pages 56 to 59, and the audit
committee report on pages
61 to 64.
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 56 to 59, and Strategic
review on pages 38 to 39 and the
Remuneration Committee report
on pages 65 to 70.
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 2023 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).
Annual Report & Accounts 2023 SOLID STATE
55
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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 of independence, as
set out in the QCA guidelines, 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.
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.
The Board is mindful of the threats
to perceived and actual threats to
independence and will continue to
actively manage this potential risk as part
of its succession planning.
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 adopted best practice and
all Directors will stand for re-election
annually at the AGM. Biographies of
56
SOLID STATE Annual Report & Accounts 2023
the Directors (on pages 52 to 53) 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-executive
and have the appropriate skills and
experience and knowledge of the
business. Once the new additional
independent Non-executive director
is appointed the Board will have equal
balance of Executives and Non-executive
directors, with the Chairman exercising
a casting vote in the unlikely event of
deadlock. The Directors also ensured that
candidates who could offer enhanced
diversity, including gender or ethnic
background, were actively encouraged
in an open and transparent recruitment
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 Non-executive Directors roles
under the Chairman’s leadership is to
undertake detailed examination and
discussion of the strategies proposed
by the Executive Directors, ensuring
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.
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.
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Overview
Strategic Report
Governance
Financial Statements
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
has led the process of appointing an
additional Non-executive director,
identifying a shortlist of suitable
candidates to bring to the Board for final
interview and subsequent agreement
on appointment. The members of the
Committee are Mr N Rogers and Mr G
Marsh. 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.
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. Further details on the
independence and succession plans for the
chairmanship of the audit committee will
be announced in due course.
The Audit Committee has specific written
terms of reference which deal with its
authority and responsibilities and these
are available on the Solid State PLC
website. 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 acts to ensure that
the financial performance of the Group
is properly recorded and monitored.
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. In fulfilling their role
they meet 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
Board and Committee attendance at meetings
separate meetings with the external
auditors, as appropriate. Further details
are provided in the Audit Committee
report on pages 61 to 64.
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 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 on the Solid State PLC website.
The purpose of the committee is to review
the performance of the full time Executive
Directors, 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 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 65 to 70.
Number of meetings in 2022/23
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
*Attendance by invitation
Board
9
Nominations
Committee
4
Audit
Committee
3
Remuneration
Committee
4
9
9
9
9
9
9
9
n/a
n/a
n/a
n/a
4
n/a
n/a
n/a
n/a
n/a
3*
3
3
3
1*
n/a
n/a
n/a
4
4
4
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CORPORATE GOVERNANCE REPORT
CONTINUED
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
2022/23, 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.
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 investor relations email:
investor.information@solidstateplc.com.
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). Typically 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%*
Charles Stanley & Co
BGF Investment Management Limited
Schroders
Mr & Mrs Comben
Canaccord Genuity Group Inc
Adrdn PLC
GPIM
Mrs B Marsh
Hargreaves Lansdown Asset Mgt
% holding
10.97%
10.42%
7.99%
7.98%
7.12%
6.17%
5.21%
4.86%
3.19%
*Significant shareholders that the Board has been notified of as of 1 May 2023. The Solid State PLC website is kept updated for notified changes during the year.
58
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Overview
Strategic Report
Governance
Financial Statements
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. The Audit Committee has
responsibility to review, monitor and make
policy recommendations to the Board.
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 bi-annually.
In reviewing the effectiveness of the
Group’s system of internal controls the
Audit Committee has considered material
developments up to the date of the signing
of the financial statements. In addition, the
external audit findings, help to inform the
Committee’s views of areas of increased risk.
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. Providing 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
reporting lines. Performance against the
plan is reported monthly, 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 46 to 48.
Internal Control
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 pages 61 to 64.
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
2023, the Directors have considered the
Group’s cash flows, liquidity and business
activities. At 31 March 2023, the Group
had cash balances of £12.2m, drawn
term loans and revolving credit facilities
(“RCF”) totalling £14.7m and £5.1m of
undrawn RCF.
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.
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 87 and 88 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
Annual Report & Accounts 2023 SOLID STATE
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CORPORATE GOVERNANCE REPORT
CONTINUED
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.
Gary Marsh
Chief Executive Officer
4 July 2023
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 whilst 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 2025 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.
60
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Overview
Strategic Report
Governance
Financial Statements
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.
As set out on page 58 of the corporate
governance report Mr Haining does
not meet the strict definition of
independence and best practice is to
have the audit committee chaired by an
independent Non-executive. However,
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 at the current time. The Board
will keep this under review as part of
their succession planning and a further
announcement will be made in due
course.
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 Audit Committee Chairman
and the Group CFO visit each of the
Group’s major business units across the
year to review and challenge the local
management on their draft financial
results. This year this has been conducted
through a combination of face-to-face
meetings and remotely.
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
judgements 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 2022/23 were as
follows:
The presentation of the financial
statements, including the presentation
of adjusted performance measures.
Following review of reports from
management the Committee concurred
that the presentation of the adjusted
performance measures is appropriate,
balanced and enables the users of the
accounts to understand the underlying
and on-going performance of the business.
Review of Acquisition accounting.
Following review of reports from
management and discussion with the
CFO, which set out the key judgements
which were in respect of:
•
•
•
the assessment of the fair value of the
consideration and in particular the
deferred contingent consideration;
the fair value of the property plant and
equipment;
the modelling performed by
independent valuations experts
supporting the fair value of the IFRS3
intangible assets in respect of the
Orderbook, Customer Relationships
and the Brand; and
•
the associated deferred tax assets and
liabilities.
Furthermore, the audit committee
reviewed the disclosures associated with
the acquisition of Custom Power.
This is an area where there was extensive
discussion, challenge and review
between the auditors, management, and
the audit committee. The Committee
concluded that the judgements within
the acquisition accounting, and that
the treatment and disclosure were in
accordance with IFRS3.
Review of revenue recognition and
deferred income
Following review of reports from
management and discussion with
the CFO, which sets out the updated
assessments for the contracts which have
material revenue recognition judgements
in accordance with IRFS15.
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AUDIT COMMITTEE REPORT
CONTINUED
The key judgements related to the
evaluation of whether the contracts
required revenue to be recognised
over time or whether they were based
on completion of the performance
obligations at a point in time.
As part of the review the audit committee
reviewed the post balance sheet events
position to ensure that these judgements
remained appropriate. The Committee
concurred with the revenue recognition
judgements and that the treatment was in
accordance with IFRS15. In finalising the
accounts, the committee noted that the
external auditors accepted management
and the committee’s conclusions.
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,
cost inflation and increased interest rates.
Based on this information as disclosed
on pages 59, 60, 87 and 88 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 of judgemental areas, and
specifically the level of accounting
provisions.
Following review of reports from
management two areas of more significant
estimation are provisions for credit
defaults based on the expected loss rate
in accordance with IFRS9, 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 in the
past there have been events which have
required one off significant write offs
against debtors and or inventory. In the
year under review it has been necessary
to make a specific provision of £0.6m
in respect of bespoke inventory held
by the company where the customer
has cancelled the order. The Committee
concurred that the provisioning policy
had been applied consistently that the
level of provisions remains appropriate.
Review for the potential impairment of
goodwill and other intangible assets.
The Committee reviewed and challenged
the key assumptions, judgements,
and sensitivities in the report from
management. The Committee concurred
that the expected future cash flows of
the Group support the carrying value of
goodwill and other intangible assets, and
that there were no triggering events which
suggested any potential impairment of
goodwill and other intangible assets.
The committee also reviewed
mangement’s judgement relating to
the useful economic lives of acquisition
intangible assets.
Accounting for R&D tax credits.
Following review of reports from
management and correspondence with
the companies’ R&D tax advisers, 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 reviewed the assessment
that this year the majority of the Group’s
R&D activities will be under the large
company scheme rather than the more
generous SME scheme as a result of
the increased size of the Group and
concluded that this was appropriate and
that the accounting was appropriate.
The committee also reviewed the
judgements relating to the capitalisation
of development expenditure and
considered them appropriate.
Annual report
At the request of the Board the Committee
considered whether the 2022/23
annual report was fair, balanced, and
understandable and whether it provided
the relevant information for stakeholders
to assess the Group’s performance,
business model and strategy.
Having taken account of the other
information provided to the Board
throughout the year, the Committee
was satisfied that, taken as a whole, the
annual report was fair, balanced, and
understandable.
The Committee was satisfied that based on
its review, challenge and debate of the draft
financial statements and the key accounting
items, that the assumptions made, the
judgements applied, and the accounting
and disclosures were appropriate.
The Committee reviewed and
recommended the approval of the
narrative reporting statements on
corporate governance, internal control
and risk management in the annual report
and the half year and trading statements.
62
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Overview
Strategic Report
Governance
Financial Statements
External auditors
The Audit Committee has developed a
formal Auditor Independence Policy. In
accordance with this policy, the Committee
oversees the relationship with the external
auditors and monitors all services provided
by them and all fees payable to them.
This is to ensure that potential conflicts
of interest are considered, and that an
independent, objective and professional
relationship is maintained.
Following the completion of last year’s
audit by RSM UK Audit LLP (“RSM”) 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.
This is the fifth year that RSM have acted as
auditors for the Group.
RSM UK audit LLP (Group auditors)
Based on the scope of work the
committee ensures 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 Crowe LLP, Bevan Buckland
LLP and The Kings Mill Practice.
In addition, Solid State PLC’s management
also provides 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 2022/23 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.
The nature of the services provided by the
auditors and the amounts paid to them
are as detailed below:
31 March 23
£’000
31 March 22
£’000
Fees payable to company’s auditors for the audit of the parent company accounts and consolidated financial
statements
245
120
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
* Legacy service for acquired entity and RSM LLP (USA) resigned as tax advisers in 2022.
–
–
–
–
–
6
–
–
245
126
The audit scope for the year ended
31 March 2023 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).
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Annual Report & Accounts 2023 SOLID STATE
63
AUDIT COMMITTEE REPORT
CONTINUED
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 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.
The position 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 acquisition of Custom
Power last year and it was concluded that
it was appropriate but would be kept
under review.
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 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 46 to 48.
Internal control
The Audit Committee reviews the
effectiveness of the Group’s system of
internal controls and risk management
activities 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.
Peter Haining FCA
Audit Committee Chairman
4 July 2023
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Overview
Strategic Report
Governance
Financial Statements
REMUNERATION COMMITTEE REPORT
The members of the Committee are:
Mr P Magowan (Chairman); Mr N Rogers
and, Mr P Haining. The Rem Co met four
times during the year ended 31 March 2023.
I am pleased to present our Directors’
remuneration report (the “Report”) for
the year ended 31 March 2023. Being
listed on the AIM market we are required
to comply with AIM Rule 19 in respect
of remuneration disclosures. However,
the Committee has chosen to provide
additional disclosures in line with AIM
best practice to enable shareholders
to better understand and consider our
remuneration arrangements.
This report is divided into three sections:
• My Annual Report, which summarises
the Committee and its work,
remuneration outcomes in respect
of the year just ended and how the
remuneration policy will be operated
for the forthcoming year
• The Remuneration policy report,
which summarises the Group’s
remuneration policy
• The Annual report on remuneration,
which discloses how our policy
was implemented in the year ended
31 March 2023 in detail
Annual Report
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 employees. 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.
During the year the remuneration
committee engaged KPMG to perform a
remuneration review and benchmarking
exercise of the remuneration packages
of the Executive Directors. The results of
this identified a general alignment in total
remuneration however some elements
of the packages were not in-line with
current market rates. As a result, of the
review the Remuneration Committee
made a mid-year adjustment to the base
salary elements of the CEO and CFO.
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 2023;
• 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 comparator companies that have
similar complexities to Solid State PLC
and drew on specific expertise from the
external KPMG benchmarking exercise
All decisions made by the Committee
have been made under the Group
Remuneration Policy.
Performance Outcomes
Solid State PLC has continued to deliver
strong results for Shareholders. Trading
for the year ended 31 March 2023 was
strong across both divisions with record
levels of order intake, revenue and EBITDA
despite continued market headwinds.
Revenue increased by 49% to £126.5m
and operating profit grew by 152% to
£9.4m.
Additionally the Group has made progress
against certain of its strategic objectives
including expanding its presence in
the custom battery market with the
acquisition of Custom Power, forming a
joint venture development centre, eTech
Developments Ltd, and commencing the
roll-out of a key customer programme.
Considering this performance against the
targets established at the start of the year
the Committee awarded an annual bonus
pool for the Executive Directors which
in total was equivalent to 95% 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 in the Annual report on
remuneration in the following pages.
Having completed the acquisition of
Custom Power we are in the process of
agreeing a LTIP award for the key US
management which is expected to vest in
FY27 or FY28 to incentivise the US team
with the mid-term objectives, ambitions
and stretch growth target. This US targeted
scheme will operate in a manner consistent
with the framework and rules of the existing
“LTIP” scheme during the coming year.
Other key activities in the year
ending 31 March 2023
During the year under review, the
Committee held four formal meetings.
As well as the implementation of the
remuneration policy, the Committee also
carried out the following activities:
• Commissioned an independent
remuneration benchmarking of executive
remuneration using external advisers;
• Reviewed and approved the Executive
Directors’ performance against
financial and non-financial objectives
for the year ended 31 March 2023 and
determined the bonuses payable;
• Reviewed the Remuneration policy
and updated with Executive Director
shareholding targets of 150% of salary;
• Reviewed and approved the annual
bonus structure for Executive Directors
for the year ending 31 March 2024;
• Awarded a grant of 48,825 shares under
the HMRC approved CSOP plan to
senior staff;
• Awarded a grant of 56,400 shares under
the LTIP plan to the executives;
•
In response to the inflationary
pressures on the wider workforce the
executive implemented a mid–cycle
additional company-wide salary
increase for our workforce, and for our
UK employees made a one off heating
allowance payment to mitigate rising
UK heating costs;
• Agreed financial targets for the US
Senior Management team and engaged
with advisers on scheme creation;
• Determined salary increases for
Executive Directors for the year ending
31 March 2024; and
• Approved the LTIP Awards to be made
in the year ending 31 March 2024 and
their performance conditions.
Annual Report & Accounts 2023 SOLID STATE
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REMUNERATION COMMITTEE REPORT
CONTINUED
During 2023/24, 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).
The Committee continues to welcome
feedback from shareholders and will
seek engagement with key shareholders
on any major changes to remuneration
related policy.
Remuneration policy report
Element and Purpose
Operation
Opportunity
Base Salary
To attract and retain
quality executives which
provides a competitive
total package.
Benefits
To help retain employees
and remain competitive in
the marketplace.
Pension
To facilitate long-term
savings provisions.
Annual performance
related bonus
Rewards the achievement
of annual financial and
strategic business targets.
Base salaries are normally reviewed
on an annual basis with any changes
effective from 1 April.
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.
Performance metrics
Base salary levels
and corresponding
increases are based on
individual experience,
skills and business
performance along with
competitiveness against
similar companies.
Directors receive an electric or hybrid
company car or car allowance, life
assurance, and medical insurance.
Contributions to a Director’s pension
as appropriate. This may include
contribution to the Company’s defined
contribution scheme or payment of a
cash allowance as appropriate.
Insurance cover based on market rates.
Not performance related.
Aligned to the pension available to the
Group’s UK workforce.
Not performance related.
Targets (financial and non-financial)
are set and reviewed by the Committee
annually.
Up to 100% of salary payable for significant
over-achievement of financial and non-
financial bonus objectives.
Actual bonus payable is determined
by the Committee after the financial
year-end, based on performance against
these targets.
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 cap of 100%.
Performance is assessed
annually against financial
and personal/strategic
objectives set at the start
of each year.
Long-Term Incentive Plan
(“LTIP”)
To motivate Executive
Directors to deliver
shareholder value over the
longer term.
Awards of conditional shares through
nil-cost options 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.
Up to 125% of salary.
Performance conditions
are based on Group
financial performance,
which may include (but
not be limited to) Group
earnings or returns over
the performance period.
Dividend equivalents will be paid on
vested awards.
Malus and clawback provisions.
Awards of conditional shares through
market price options with vesting
dependent on the achievement of
performance conditions over the
following three years.
Similar provisions to LTIP.
Company Share Option
Plan (“CSOP”)
HMRC Approved scheme to
motivate our senior leaders
to deliver shareholder
value over the longer term.
Shareholding guidelines
To align Executive Directors
with shareholder interests.
Shareholding guidelines require a
minimum shareholding (normally within
five years).
66
SOLID STATE Annual Report & Accounts 2023
Awards of up to approved HMRC
approved limits.
Funded through shares purchased
in the market and newly issued shares
as appropriate.
Performance conditions
are based on Group
financial performance,
which may include (but
not be limited to) Group
earnings or returns over
the performance period.
150% of salary.
Not performance related.
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Overview
Strategic Report
Governance
Financial Statements
Policy on fees paid to the Non–Executive Directors:
Remuneration element
and link to strategy
Operation
Opportunity
Performance metrics
Fixed fees to attract and
retain Non-executive
Directors of the highest
calibre with broad experience
relevant to the Company.
Paid monthly in arrears and reviewed
each year. Any reasonable business
related expenses can be reimbursed.
The Chairman’s and Non-executive
Directors’ fees are determined by
relevant benchmark data.
Annual review by
the Board.
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.
Recruitment Policy
Upon recruitment of an Executive
Director, the remuneration package
will be in line with the remuneration
policy, subject to the Committee having
discretion that buy-out awards (or
any other means in order to facilitate
recruitment) are reasonably necessary.
Adoption of the refined policy for
2023/24
In addition to reviewing and refining
the policy to incorporate best practice,
the committee has reviewed the
Remuneration policy for the coming
year and introduced a new shareholding
guideline for Executive Directors of 150%
of salary to be met by April 2026.
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.
Target Setting
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 and awards only become
eligible when current year performance
exceed market expectations at the time
of setting. Malus, clawback and leaver
provisions apply.
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.
The Company is committed to remaining
within the Investment Association’s 10%
dilution limit.
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 FY22/23.
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.
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Annual Report & Accounts 2023 SOLID STATE
67
REMUNERATION COMMITTEE REPORT
CONTINUED
Annual Report on remuneration
This section sets out how the remuneration policy was applied for the year ended 31 March 2023 (and the prior year).
Single figure table for Executive Directors
Gary Marsh
2023
£’000
2022
£’000
Peter James
2023
£’000
2022
£’000
John Macmichael Matthew Richards
2022
£’000
2022
£’000
2023
£’000
2023
£’000
Base Salary
Benefits
Pension
Annual Bonus***
LTIP**
Total
Of which:
Fixed remuneration
Variable remuneration
218*
200
183*
8
4
175
106
511
230
281
6
4
105
–
315
210
105
24
7
175
106
495
214
281
165
23
7
105
–
300
195
105
175
18
–
175
106
474
193
281
165
25
1
105
–
296
191
105
175
165
5
7
175
–
362
187
175
4
7
105
–
281
176
105
*following the results of the independent salary benchmarking exercise conducted during 2022/23 the salary for Gary Marsh was increased from £215,000 to £225,000 and
Peter James from £175,000 to £200,000.
** There were no LTIP or EMI shares granted which were due to vest in the period. However, three directors exercised 8,000 vested options each on the 24th February 2023.
*** 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. Matthew Richards and Peter James have an requirement to use a specified proportion of the annual bonus to exercise options or purchase shares
within an agreed time period.
The principal benefits in kind relate to the provision of company cars, fuel, and private healthcare.
Of the current year share-based payments charge £308k (2022: £144k) relates to the Directors.
FY2024 Director Salaries
G S Marsh
P O James
M T Richards
J L Macmichael
From
1 April
2023
1 April 2022
to 31 March
2023
240
210
190
190
225*
200*
175
175
*following the results of the independent salary benchmarking exercise conducted during 2022/23 the salary for Gary Marsh was increased from 215,000 to £225,000 and
Peter James from £175,000 to £200,000.
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Overview
Strategic Report
Governance
Financial Statements
Single figure table for Non-executive Directors
Nigel Rogers
Peter Haining
Pete Magowan
From 1 Apr
2023
Fees
70
2023
66
From 1 Apr
2023
26
2022
62
2023
26
From 1 Apr
2023
40
2022
25
2023
32
2022
30
In the event that an non executive director provides additional services there may be an appropriate incremental fee agreed.
During the period, additional fees totalling £53k (2022: £31k) 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, were paid. A balance of £5k (2022: £9k) was due to
The Kings Mill Practice at 31 March 2023.
Directors’ interests in shares
The Directors’ interest in the issued ordinary share capital of the Company at today’s date, at 31 March 2023 and 31 March 2022 or
date of appointment if later, were as follows:
04 July 23
Vested but
unexercised
options
Total Interest
in shares of
the Company Shareholding
31 March 23
Vested but
unexercised
options
Total Interest
in shares of
the Company Shareholding
31 March 22
Vested but
unexercised
options
Total Interest
in shares of
the Company
Shareholding
G S Marsh
288,676
8,000
298,676
288,674
M T Richards
P O James
12,329
12,445
32,000
24,000
44,329
36,445
12,329
12,446
J L Macmichael
131,247
8,000
139,247
131,247
N Rogers
P Haining
P J Magowan
6,351
56,583
6,927
–
–
–
6,351
56,583
6,927
6,351
56,583
6,927
8,000
32,000
24,000
8,000
–
–
–
296,674
280,892
44,329
36,446
10,376
3,205
139,247
122,491
6,351
56,583
6,927
4,400
54,627
4,000
16,000
32,000
32,000
16,000
–
–
–
296,892
42,376
35,205
138,491
4,400
54,627
4,000
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Annual Report & Accounts 2023 SOLID STATE
69
REMUNERATION COMMITTEE REPORT
CONTINUED
Shareholding Guidelines
G S Marsh
P O James
M T Richards
J L Macmichael
Directors’ interest in long-term incentive awards
Options held at 31.03.21
Granted*
Exercised
Lapsed
Options held at 31.03.22
Granted**
Exercised***
Lapsed
Total Interest
in Ordinary
shares
Shareholding
guidelines
Shareholding
guidelines
met
296,674
36,446
139,247
44,329
150%
150%
150%
150%
Yes
Yes
Yes
Yes
Gary
Marsh
26,700
10,700
–
–
37,400
14,100
(8,000)
–
Peter
James
John
Macmichael
Matthew
Richards
42,700
10,700
–
–
53,400
14,100
(8,000)
–
42,700
10,700
–
–
53,400
14,100
–
–
26,700
10,700
–
–
37,400
14,100
(8,000)
–
Options held at 31.03.23
43,500
59,500
67,500
43,500
*During the year to 31 March 2022, the Board Granted an award of 10,700 shares on the 29 October 2021 to each of the Executive Directors which, subject to the
performance criteria, will be eligible to vest in 2024. The exercise price of these options was 5p.
**During the year to 31 March 2023, the Board Granted an award of 14,100 shares on the 4 October 2022 to each of the Executive Directors which, subject to the
performance criteria, will be eligible to vest in 2025. The exercise price of these options was 5p.
***Three directors exercised 8,000 options on the 24 February 2023 with an exercise price of 0.01p and where the mid market price was 13.20 each of the directors sold
1,200 shares at £13.10 resulting in net proceeds and a gain of £15,640 to cover the associated tax.
The range of exercise prices for the options held are 0.1p to 5p with an exercise period of April 2018 to April 2032. The market price of
the shares on 31 March 2023 was £10.80 (2022: £11.75), with a quoted range during the year of £9.86 to £14.35 (2022: of £8.30 to £14.05).
Service contracts and letters of
appointment
The Executive Directors have rolling
service contracts that are subject to
twelve months’ notice.
The Chairman and Non-executive
Directors have entered into letters of
appointment with six months’ notice. In
accordance with the company’s policy on
re-election they are re-elected annually
by the shareholders at the AGM.
External appointments
During the year ended 31 March 2023,
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.
Advisers
KPMG LLP provided independent
compensation benchmarking advice to
the Committee and DAC Beachcroft LLP
provided US share scheme advice during
the Period.
Loss of office
There were no loss of office payments
made during the Period.
Pete Magowan
Remuneration Committee Chairman
4 July 2023
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Overview
Strategic Report
Governance
Financial Statements
DIRECTORS’ REPORT
The Directors submit their report together
with the audited financial statements of
the Group in respect of the year ended
31 March 2023.
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 36 & 37).
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 (pages 42 to
43) 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 68 to 70.
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 54 to 55.
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 66 to 70.
Board of Directors
The structure and operation of the Board
of Directors is set out in the corporate
governance report on pages 52 to 53.
Details of Directors’ interests are set out
in the remuneration report on pages
68 to 69.
Principal risks and uncertainties
Details of the principal risks and
uncertainties of the Group are set out in
the strategic report on pages 46 to 48.
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 7 September
2022. This authority expires on 7 March
2024. During the year the company
repurchased 15,000 shares at £13.55 with
a nominal value of £750 at market value
of £203k 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 13.
Post balance sheet events
Details of post balance sheet events are
included in Note 34.
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 £2.2m (2022: £2.0m) in research and
development. The Company continues to
claim R&D tax credits where eligible.
Share options award
On 4 October 2022 and 12 January 2023,
the company granted options to the
Senior Leadership team and the Executive
Directors under the Company’s LTIP and
CSOP, further details are provided in the
remuneration report on pages 65 to 70
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.
Further details are set out in the
compliance with section 172 statement
(pages 38 to 45) and within the corporate
governance report on pages 54 to 60.
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 54 to 60.
Insurance
The Group has in place appropriate
Directors’ and Officers’ indemnity
insurance for all Group companies.
Business relationships
We agree payment terms with suppliers
in advance and pay in accordance with
agreed terms unless the goods or services
provided are under dispute. Further
details are set out in the corporate
governance report on pages 54 to 60.
Going Concern
Further details are set out in the corporate
governance report on pages 59 to 60.
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DIRECTORS’ REPORT
CONTINUED
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.
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
72
SOLID STATE Annual Report & Accounts 2023
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 reappoint RSM UK Audit
LLP as auditors will be proposed at the
next annual general meeting.
By order of the Board
P Haining FCA
Secretary
4 July 2023
Registered Office: 2 Ravensbank Business
Park, Hedera Road, Redditch, B98 9EY
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Overview
Strategic Report
Governance
Financial Statements
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Annual Report & Accounts 2023 SOLID STATE
73
OUR FINANCIALS
In this section
Independent Auditor’s Report
76
Consolidated Statement of Comprehensive Income 82
83
Consolidated Statement of Changes in Equity
84
Consolidated Statement of Financial Position
85
Consolidated Statement of Cash Flows
87
Notes to the Financial Statements
124
Company Statement of Financial Position
125
Company Statement of Changes in Equity
126
Notes to the Company Financial Statements
7474
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“Our trading performance reflects the
hard work of the team across the Group,
proactively managing the supply chain
challenges in delivering for our customers.
The Group’s Balance Sheet reflects the
equity fund raise and the new debt
facilities which funded the acquisition of
Custom Power, completed during August
2022. This new financing maintains our
strong financial position which underpins
our commercial ambitions.”
Peter James
Chief Financial Officer
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Annual Report & Accounts 2023 SOLID STATE
Annual Report & Accounts 2023 SOLID STATE
7575
INDEPENDENT AUDITOR’S REPORT
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 2023 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 2023
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
Materiality
Scope
Group
• Revenue recognition
•
Inventory provisioning
• Acquisition accounting for Custom Power LLC
Parent Company
• No key audit matters
Group
• Overall materiality: £500,000 (2022: £450,000)
• Performance materiality: £375,000 (2022: £337,000)
Parent Company
• Overall materiality: £450,000 (2022: £331,000)
• Performance materiality: £337,500 (2022: £248,000)
Our audit procedures covered 87% of revenue, 87% of total assets
and 86% of profit before tax.
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.
76
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Overview
Strategic Report
Governance
Financial Statements
Key audit matters
Revenue recognition
Key audit
matter
description
Refer to accounting policies in Note 1 to the group financial statements and Note 3.
The group’s revenue comprises sales of electronic equipment to its customers after deductions for discounts and
anticipated returns. There are also certain contracts where retentions have been received or where obligations are
satisfied in stages.
Revenue underpins the key performance measures of the group.
There is a risk that revenue may be misstated around the year end through:
•
Inappropriate application of the group’s revenue recognition policies;
• Recognition of revenue in the wrong period; or
•
Inaccurate estimates for returns.
How the
matter was
addressed in
the audit
We assessed whether revenue was recognised in line with the group’s revenue recognition policies and IFRS 15.
We selected a sample of items to check that revenue was recognised in accordance with contractual terms and that
the cut-off of these 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 also evaluated the provision for returns by assessment of the level and nature of post year end credit notes.
Key
observations
Our audit work in reviewing revenue recognised around the year end, including the review of key judgements, did
not identify any material misstatement. The disclosures management have made are appropriate.
Inventory provisioning
Key audit
matter
description
How the
matter was
addressed in
the audit
Refer to accounting policies and critical accounting judgements in Notes 1, 2 and 15.
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.
Certain inventory lines are bespoke to customers and may not be useable if orders are cancelled. As inventory levels
have increased, there is an increased risk that the full value of certain products is not recoverable.
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 an established process for addressing this risk and recognising provisions accordingly.
The effect of these matters is that, as part of our risk assessment, we determined that the inventory provision has a
high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than materiality for the
financial statements as a whole, and, as a result, was determined to be a key audit matter.
We reviewed and understood the group’s accounting policy and how this satisfied the requirements of IAS2
‘Inventories’.
We assessed and challenged the basis, methods and model on which provisions for obsolete and slow-moving
inventory have been established. This was undertaken at a component level and took account of the nature of each
business and its products.
We challenged the year-end inventory provisions recognised and the key assumptions, including the specific areas
where a provision was considered necessary.
We reviewed inventory increases and by reference to historic trends, the risk that more current items may become
aged and therefore at risk of a diminution in value.
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.
Key
observations
Our audit work on the inventory provision, including the review of key estimates, did not identify any material
misstatement in the valuation of the inventory provision. The disclosures management have made are appropriate.
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INDEPENDENT AUDITOR’S REPORT
CONTINUED
Acquisition accounting for Custom Power LLC
Key audit
matter
description
Refer to accounting policies and critical accounting judgements in Notes 1, 2, 12 and 32.
During the year the group acquired Custom Power LLC.
How the
matter was
addressed in
the audit
The acquisition arrangement included contingent consideration which is payable if a specified revenue hurdle is met.
The hurdle is an ‘all or nothing’ target.
Separately identifiable intangible assets were recognised upon acquisition, including in relation to the acquired
customer relationships and brand. Relatively small changes in the forecasts and key assumptions would have a
significant impact on the carrying values of these assets.
The effect of these matters is that, as part of our risk assessment, we determined that the acquisition accounting has a
high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than materiality for the
financial statements as a whole, and, as a result, was determined to be a key audit matter.
We reviewed and verified that the acquisition accounting entries and fair value adjustments were in accordance with
IFRS 3 ‘Business Combinations’.
We reviewed management’s forecasts to challenge whether the specified revenue hurdle for the contingent
consideration would be met, including comparisons to past trading performance and assessing expectations
regarding forecasted financial performance.
We performed our own sensitivity analysis to assess the required changes in forecasted financial performance such
that the revenue hurdle would be met.
We critically challenged management’s judgements and estimates in relation to the recognition of separately
identifiable intangible assets, including forecasted sales growth and the discount rates adopted within the model.
We reviewed the mathematical accuracy of the acquisition accounting model.
We reviewed the related disclosures to assess whether these sufficiently explained the level of estimation uncertainty
present.
Key
observations
Our audit work in respect of the acquisition accounting for Custom Power LLC concluded that the acquired assets and
liabilities were not materially misstated, albeit subject to a high degree of estimation uncertainty as regards to the fair
value of the contingent consideration recognised. The disclosures management have made are appropriate.
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:
Overall materiality
£500,000 (2022: £450,000)
£450,000 (2022: £331,000)
Group
Parent company
Basis for determining
overall materiality
Rationale for
benchmark applied
Equates to 4.6% of adjusted profit before tax
5% of net assets, capped at 90%
of group overall materiality
Adjusted profit before tax is deemed to be the
primary performance measure for the users of
the financial statements to review the financial
performance of the Group
Net assets is considered to be the most
appropriate benchmark for the holding company
Performance materiality
£375,000 (2022: £337,000)
£337,500 (2022: £248,000)
Basis for determining
performance materiality
Reporting of misstatements
to the Audit Committee
75% of overall materiality
75% of overall materiality
Misstatements in excess of £25,000 and
misstatements below that threshold that,
in our view, warranted reporting on
qualitative grounds.
Misstatements in excess of £22,500 and
misstatements below that threshold that,
in our view, warranted reporting on
qualitative grounds.
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Full scope
Specific audit procedures
Analytical procedures
Total
Number of
components
4
2
6
12
Revenue
Total assets
Profit before tax
80%
7%
13%
100%
87%
0%
13%
100%
75%
11%
14%
100%
Overview
Strategic Report
Governance
Financial Statements
An overview of the scope of our audit
The group consists of 12 components, located in the United Kingdom, USA and Ireland.
The coverage achieved by our audit procedures was:
3 %
1
%
7
3 %
1
4 %
1
Revenue
Total assets
%
1
1
Profit before tax
80%
87%
75%
Full scope
Specific audit procedures
Analytical procedures
Full scope audits were performed for 4 components, specific audit procedures for 2 components and analytical procedures at group
level for the remaining 6 components.
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.
• Reviewing 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.
• Reviewing agreements and correspondence relating to the availability of financing arrangements.
• Considering management’s sensitivities and stressed forecasts, including the mitigating actions which could be taken.
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.
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.
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INDEPENDENT AUDITOR’S REPORT
CONTINUED
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 72 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.
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 operates 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.
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Overview
Strategic Report
Governance
Financial Statements
The most significant laws and regulations were determined as follows:
Legislation / Regulation
Additional audit procedures performed by the Group audit engagement team included:
IFRS/UK-adopted IAS, FRS102
and Companies Act 2006
Review of the financial statement disclosures and testing to supporting documentation;
Completion of disclosure checklists to identify areas of non-compliance.
Tax compliance regulations
Inspection of advice received from external tax advisors.
Export Control and
International Traffic
in Arms (ITAR)
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 and
inspection of legal and regulatory correspondence, if any.
Health and safety 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 and
inspection of legal and regulatory correspondence, if any.
The areas that we identified as being susceptible to material misstatement due to fraud were:
Risk
Audit procedures performed by the audit engagement team:
Revenue recognition
See key audit matters above.
Management override
of controls
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 Chartered Accountants
103 Colmore Row
Birmingham
B3 3AG
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Annual Report & Accounts 2023 SOLID STATE
81
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2023
Revenue
Cost of sales
Gross profit
Sales, general and administration expenses
Operating profit
Finance costs
Profit before taxation
Tax expense
Adjusted profit after taxation
Adjustments to profit
Profit after taxation
Profit attributable to equity holders of the parent
(Loss)/profit attributable to non-controlling interests
Other comprehensive (loss)/income – FX on overseas operations
Other comprehensive (loss)/income – taxation
Adjusted total comprehensive income
Adjustments to total comprehensive income
Total comprehensive income for the year
Comprehensive income attributable to equity holders of the parent
Comprehensive loss attributable to non-controlling interests
Earnings per share
Basic EPS from profit for the year
Diluted EPS from profit for the year
Note
3, 31
4
6
7
30
7
30
8
8
2023
£’000
126,503
(86,829)
39,674
(30,266)
9,408
(972)
8,436
(1,746)
8,553
(1,863)
6,690
6,693
(3)
(869)
(94)
7,684
(1,957)
5,727
5,730
(3)
2023
64.5p
63.1p
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
261
6,158
(3,374)
2,784
2,784
–
2022
29.5p
28.9p
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 87 to 123 form part of these financial statements.
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Overview
Strategic Report
Governance
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2023
Share
Premium
Reserve
£’000
Foreign
Exchange
Reserve
£’000
Capital
Redemption
Reserve
£’000
Shares
held in
Treasury
£’000
Non-
controlling
interests
£’000
Total
£’000
Share
Capital
£’000
428
139
–
–
–
–
3,625
26,849
–
–
–
–
139
26,849
–
–
–
–
–
–
–
–
Balance at 31 March 2022
Issue of new shares
Share-based
payment credit
Transfer of treasury
shares to AESP
Dividends
Transactions with non-
controlling interests
Transactions with
owners in their capacity
as owners
Result for the year
ended 31 March 2023
Other comprehensive
income
Total comprehensive
income
Purchase of
treasury shares
33
–
–
–
–
–
-
–
(869)
(869)
–
(836)
5
–
–
–
–
–
–
–
–
–
–
5
Balance at 31 March 2023
567
30,474
FOR THE YEAR ENDED 31 MARCH 2022
Share
Capital
£’000
Share
Premium
Reserve
£’000
Foreign
Exchange
Reserve
£’000
Capital
Redemption
Reserve
£’000
Balance at 31 March 2021
428
3,625
Share-based
payment credit
Transfer of treasury
shares to AESP
Dividends
Transactions with
owners in their capacity
as owners
Result for the year
ended 31 March 2022
Other
comprehensive income
Foreign exchange
Total comprehensive
income
Purchase of
treasury shares
Rounding
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 March 2022
428
3,625
6
–
–
–
–
–
–
27
27
–
–
33
5
–
–
–
–
–
–
–
–
–
–
5
The notes on pages 87 to 123 form part of these financial statements.
Retained
Earnings
£’000
23,042
–
551
(152)
(2,235)
–
(57)
27,076
–
–
26,988
551
152
–
(2,235)
–
–
–
50
50
(1,836)
152
25,304
50
25,354
6,693
(3)
6,690
6,693
(94)
6,599
–
–
–
(963)
5,730
–
(203)
(203)
27,805
(108)
57,907
–
(3)
–
47
(963)
5,727
(203)
57,954
Shares
held in
Treasury
£’000
Non-
controlling
interests
£’000
Total
£’000
Retained
Earnings
£’000
21,508
295
(93)
(1,453)
(70)
25,502
–
93
–
295
–
(1,453)
Total
Equity
£’000
27,076
26,988
551
–
(2,235)
Total
Equity
£’000
25,502
295
–
(1,453)
(1,158)
2,523
261
27
2,811
(80)
1
27,076
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,251)
93
(1,158)
2,523
261
–
2,784
–
1
–
–
–
–
2,523
261
27
2,811
(80)
–
(80)
1
23,042
(57)
27,076
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Annual Report & Accounts 2023 SOLID STATE
83
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2023
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use lease assets
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents – on deposit
Cash and cash equivalents – available on demand
Total current assets
TOTAL ASSETS
Liabilities
Current liabilities
Trade and other payables
Deferred and contingent consideration on acquisitions – current
Current borrowings
Contract liabilities
Corporation tax liabilities
Right-of-use lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Non-current borrowings
Provisions
Deferred tax liability
Right-of-use lease liabilities
Deferred and contingent consideration on acquisitions
Total non-current liabilities
Total liabilities
Total net assets
Share capital
Share premium reserve
Capital redemption reserve
Foreign exchange reserve
Retained earnings
Shares held in treasury
Capital and reserves attributable to equity holders of the parent
Non-controlling interests
TOTAL EQUITY
Note
2023
£’000
2022
£’000
12
10
11
23
15
16
22
22
41,563
4,718
1,981
375
48,637
33,228
19,699
4,032
8,192
65,151
113,788
15,831
3,414
1,983
539
21,767
17,598
17,978
–
4,983
40,559
62,326
£’000
£’000
17
(23,735)
(16,488)
17, 21, 22
19, 21, 22
18
20
24
(5,679)
(1,279)
(5,380)
(1,110)
(1,057)
(323)
(4,625)
(2,059)
(3,461)
(531)
(758)
–
(38,563)
(27,922)
19, 21, 22
(13,383)
24
23
20
21,22
25
26
26
26
26
26, 27
26
(715)
(2,187)
(986)
–
(17,271)
(55,834)
57,954
567
30,474
5
(836)
27,805
(108)
57,907
47
57,954
(1,500)
(694)
(1,832)
(1,326)
(1,976)
(7,328)
(35,250)
27,076
428
3,625
5
33
23,042
(57)
27,076
–
27,076
The financial statements were approved by the Board of Directors and authorised for issue on 4 July 2023 and were signed on its
behalf by:
G S Marsh
Director
P O James
Director
The notes on pages 87 to 123 form part of these financial statements.
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Overview
Strategic Report
Governance
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2023
2023
2022
Note
£’000
£’000
£’000
£’000
OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Property plant and equipment depreciation
Right-of-use asset depreciation
Amortisation
(Profit)/loss on disposal of property, plant and equipment
Share-based payment expense
Finance costs
(Decrease)/increase in deferred contingent consideration
Profit from operations before changes in working capital
and provisions
Increase in inventories
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Decrease in provisions
Cash generated from operations
Income taxes paid
Income taxes recovered
Cash acquired
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
Settlement of deferred consideration in respect of prior
year acquisitions
Payments for acquisition of subsidiaries net of cash acquired
32
Net cash outflow from investing activities
FINANCING ACTIVITIES
Proceeds from issue of ordinary shares
Repurchase of ordinary shares into treasury
Borrowings drawn
Borrowings repaid
Principal payment obligations for right of use assets
Interest paid
Transactions with non-controlling interests
Dividend paid to equity shareholders
Net cash inflow/(outflow) from financing activities
Increase/(decrease) in cash and cash equivalents
19
19
6
9
22
The notes on pages 87 to 123 form part of these financial statements.
8,436
1,159
965
2,035
(45)
551
972
(326)
13,747
(4,310)
9,437
(389)
9,048
3,500
729
763
1,327
3
295
226
1,651
8,494
(2,508)
5,986
(941)
5,045
(6,922)
(3,679)
8,140
(47)
(941)
–
(1,178)
(601)
81
(2,572)
–
(35,476)
(4,270)
–
(80)
–
(2,250)
(871)
(127)
–
(1,453)
35,742
9,314
(4,781)
(4,006)
Annual Report & Accounts 2023 SOLID STATE
85
(12,457)
1,767
6,380
–
(573)
184
(1,145)
(1,197)
153
(4,625)
(28,662)
26,988
(203)
15,872
(2,772)
(1,093)
(865)
50
(2,235)
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CONSOLIDATED STATEMENT OF CASH FLOWS
CONTINUED
Translational foreign exchange on opening cash
Net increase/(decrease) in cash and cash equivalents
Cash available on demand at beginning of year
Cash and cash equivalents at end of year
There were no significant non-cash transactions. Cash and cash equivalents comprise:
Cash available on demand
Overdraft facility
Cash on deposit
Net cash and cash equivalents
2023
£’000
(14)
9,314
2,924
12,224
2023
£’000
8,192
–
4,032
12,224
2022
£’000
16
(4,006)
6,914
2,924
2022
£’000
4,983
(2,059)
–
2,924
The notes on pages 87 to 123 form part of these financial statements.
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Overview
Strategic Report
Governance
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
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.
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 2023,
the Directors have considered the Group’s cash flows, liquidity and business activities.
At 31 March 2023, the Group had net debt with banks of £2.4m and deferred consideration liabilities of £5.7m, giving reported net
debt (excluding IFRS16) of £8.1m. Furthermore, the Group has a £7.5m revolving credit facility, of which £5.1m was not drawn at the
year end.
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 the 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 46 to 48. The Board concluded that the three areas of risk that 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 ongoing global electronic component shortages and rising inflation on the cash flows 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 maintaining strong order cover to help
to manage global electronics supply chain issues. The most significant impact on the Group’s future performance is the potential for
an unwinding of customer stock holdings as the uncertainty arising from the extended electronic component lead times improves
and there is a need to manage working capital and cash more tightly.
Management has taken all possible actions to minimise and mitigate the potential impact of this unwind; however, there is potential
for some rescheduling of demand/de-stocking in the second half of 2023/24 and, potentially, into 2024/25. 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).
The Directors have prepared revised “stressed” forecasts, taking account of the results to date, current expected demand, and
mitigating actions that could be taken, together with an assessment of the liquidity headroom against the cash and bank facilities.
The bank facilities are subject to financial covenants; therefore, in evaluating a stressed forecast, 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 FY23/24.
In preparing a severe downside scenario, it assumes a shortfall in Group revenue of ~20% over a 12-month period and a 3% margin
erosion with limited cost mitigation, resulting in EBITDA reducing by ~69% compared to the Board’s base case expectations. Even
with this level of reduction to Group EBITDA, when combined with the mitigating actions that are within the Group’s control, the
Directors currently believe the Group would fully comply with covenants and, thus, maintain 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 or the equity markets if additional liquidity were required. Albeit, none of the sensitivities indicate that the
Group would require additional sources of liquidity.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
1. Accounting policies continued
Going concern (continued)
In the post balance sheet period, the rolling 12-month order intake remains strong, maintaining a book-to-bill ratio of 1.09, and
reflects strong order cover. Furthermore, the Group has put in place a $10m approved short-term working capital overdraft facility
until the end of September to ensure that there is funding, should it be needed, to manage any short-term spikes in working capital
as a result of the delivery of the significant NATO contracts announced in the prior year. In addition, £1.6m of the short-term deferred
consideration on acquisitions was settled in Q1 and the remainder will be settled in early August using the cash set aside on deposit
for this purpose.
The Directors have concluded that the potential impact of the electronic component shortages and higher 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 forecast level of future financial performance.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next
12 months; therefore, it is appropriate to adopt a going concern basis for the preparation of the financial statements. Accordingly,
these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would
result if the Group and Company were unable to continue as a going concern.
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the year.
The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial
year beginning on 1 April 2022:
• 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
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 considered relevant to the Group 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 2024
• 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 references to the Conceptual framework in IFRS Standards
The Directors anticipate that none of the new standards, amendments to standards or 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.
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Overview
Strategic Report
Governance
Financial Statements
1. Accounting policies continued
Business combinations
Non-controlling interests in the results and equity of subsidiaries are shown separately in the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Changes in Equity and the Consolidated Statement of Financial Position, respectively.
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 that 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.
Intangible assets
a) Goodwill
Goodwill arising on an acquisition is recognised as an asset and is, 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 it relates.
Any impairment identified is charged directly to the 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;
Annual Report & Accounts 2023 SOLID STATE
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
1. Accounting policies continued
Intangible assets (continued)
•
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, typically ranging between one and five 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 three to five 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.
d) Other intangibles
Other intangible assets are those which arise on business combinations in accordance with IFRS3 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, five to ten years. This includes the open orderbook, brand and customer
relationships, the fair value of which are evaluated using the multi-period excess earnings method (“MEEM”).
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 five and ten 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 IFRS1 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;
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Overview
Strategic Report
Governance
Financial Statements
1. Accounting policies continued
Property, plant and equipment (continued)
• Fittings and equipment – 25% per annum on a reducing balance basis or a straight-line basis over three-to-five years with an
appropriate residual value as considered most appropriate;
• Computers – between 20% and 33.3% per annum on a straight-line basis; and
• 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
IFRS16 “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.
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.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
1. Accounting policies continued
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 statement of financial position.
Impairment of financial assets
IFRS9 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 ageing 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 impairment losses depends on whether the financial asset is “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.
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”)
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Governance
Financial Statements
1. Accounting policies continued
Financial Liabilities and equity (continued)
Any contingent consideration due in relation to acquisitions is measured at FVTPL with all other financial liabilities measured at
amortised cost and include:
• Trade and other payables;
• Contract liabilities;
• Borrowings;
• Lease liabilities; and
• Deferred consideration for acquisitions.
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 non-current 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
Non-recurring 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.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
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.
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.
Pensions
The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the
contributions payable by the Group.
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Governance
Financial Statements
1. Accounting policies continued
Current and deferred taxation
Income tax on the profit or loss for the year comprises current and deferred tax.
Taxable profit differs from accounting profit because it excludes certain items of income and expense that are recognised in
the financial statements but are treated differently for tax purposes. Current tax is the amount of tax expected to be payable or
receivable on the taxable profit or loss for the current period. This amount is then amended for any adjustments in respect of prior
periods.
Current tax is calculated using tax rates that have been written into law (“enacted”) or irrevocably announced/committed by the
respective Government (“substantively enacted”) at the period end date. Current tax receivable (assets) and payable (liabilities) are
offset only when there is a legal right to settle them net and the entity intends to do so. This is, generally, true when the taxes are
levied by the same tax authority.
Because of the differences between accounting and taxable profits and losses reported in each period, temporary differences arise
on the amount certain assets and liabilities are carried at for accounting purposes and their respective tax values. Deferred tax is the
amount of tax payable or recoverable on these temporary differences.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial
position 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 statement
of financial position date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities,
and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Share-based payment
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated
statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting
the number of equity instruments expected to vest at each statement of financial position date so that, ultimately, the cumulative
amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are
factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of
whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the
remaining vesting period.
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95
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
2. Critical accounting estimates and judgements
The preparation of financial statements requires the use of accounting estimates, which, by definition, will seldom equal the actual
results. Management also needs to exercise judgement in applying the Group’s accounting policies and relevant legislation. This
Note provides an overview of the areas that involved a higher degree of judgement or estimation complexity as noted, and of items
that are more likely to be materially adjusted due to assumptions driving the estimates or judgements turning out to be wrong.
Acquisition accounting (estimation)
In accounting for the Custom Power acquisition (see Note 32) in accordance with IFRS 3, there were several key areas identified
where the estimation of the value could have changed if key assumptions were varied. This primarily relates to the fair value of
tangible assets, the fair value of brand and customer relationship intangible assets, and the recognition of the $5m of contingent
consideration (and the impact to the resultant goodwill carrying value).
A £0.9m uplift to the carrying value of tangible assets was booked as a fair value adjustment, primarily reflecting the substantial
replacement cost value for testing equipment. The estimation range on these assets was calculated as between £Nil (book value)
and £1.7m (estimated replacement cost). The fair value adopted was based on the best estimate of depreciated replacement cost for
items that are not available for sale on the open market, due to creation via internally generated expertise, and the expected useful
economic life (“UEL”) for those assets. If the estimated full replacement cost had been used, the uplift value recognised could have
increased by £0.8m.
A third-party expert completed an independent valuation of IFRS 3, intangible assets recognised on acquisition, with two material
assets identified, being Customer Relationships and Brand. These assets will be depreciated between three and ten years based on
the value of incremental earnings in the model. Estimates required included customer attrition, future profitability, and appropriate
discount rates.
The $5m contingent consideration liability has not been recognised in the acquisition accounting consideration as the stretch
threshold set for revenue is not expected to be achieved. The fair value of this element of the consideration is estimated to be Nil as
the hurdle is an “all or nothing” target and will not be achieved based on the agreed budget target and the current open orderbook.
This is still considered an estimate as there is an outside possibility that Custom Power may receive a transformational order, where
all components are easily available to fulfil by the deadline. However, in the opinion of the Directors, this is considered highly
unlikely.
The above estimations of the quantum of the fair value of intangibles and tangible assets and the consideration would impact the
recognised goodwill value.
Expected credit losses (estimation)
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 Group has experienced no material credit losses in the reported period
after careful credit management. As a result, the Directors have made a judgemental assessment of the potential credit losses in
the current business environment. This includes the forward assessment of ongoing component shortages, where customers could
invest in most of the goods required to complete their product and suffer adverse cash flow due to any missing components and the
impact of rising inflation. In these financial statements the Directors have provided full disclosures of the provisions for credit default
in Note 21.
Custom Power also has a historically high collection rate and trades with large, reputable customers so is judged to have decreased
the overall credit risk of the Group. The calculation of the provision based on the Directors’ judgemental assessment of expected
credit loss reflects the impact of the acquisition of Custom Power with a small increase to the overall figure from 2022 of £39k.
If the Group were to provide for all debt that is overdue according to agreed credit terms, the recognised provision would increase by
£2m to £2.7m.
Provisions for slow moving or obsolete inventories (estimation)
Inventories are carried at the lower of cost and net realisable value (“NRV”). NRV is reviewed in detail on an ongoing 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.
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Overview
Strategic Report
Governance
Financial Statements
2. Critical accounting estimates and judgements continued
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. If an additional 10% of the year-on-year increase in underlying
inventory values were to be provided, the provision increase would be £1.2m. See Note 15 for details of the inventory provisions and
the amounts written off to the consolidated statement of comprehensive income in the year.
Estimated useful life of intangible assets arising on acquisitions (estimation)
The periods of amortisation adopted to write down intangible assets arising on acquisitions (Note 12) requires estimates to be made
in respect of the useful economic lives of the intangible assets to determine an appropriate amortisation rate.
Intangible assets arising on acquisitions are amortised on a straight-line basis over the period during which economic benefits are
expected to be received, which is typically five to ten years.
The amortisation charge for intangible assets arising on the Custom Power acquisition in August is £575k; if the lives of all the
acquired assets were reduced to five years, the impact would be to increase the charge by £554k.
Level of R&D expenditure that is eligible for R&D tax credits (judgement)
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 (Note 7).
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. The assumption is that the statutory Group entities previously eligible
for the SME R&D tax scheme will move into the large company scheme for the 2023 tax year, so a £285k RDEC credit has been
recognised in Other Income.
Our estimated taxation exposure at year-end assumed that the level of eligible R&D spend was comparable with prior years. At 31
March 2023, there are net current and deferred tax provisions totalling approximately £2.9m (2022: £1.8m).
Due to the uncertainties noted above, it is possible that the Group’s initial R&D position is different to the final position adopted
when the tax computation is finalised, resulting in a different tax payable or recoverable from the amounts provided.
Recognition criteria for capitalisation of development expenditure (judgement)
The Group capitalises R&D in accordance with IAS 38 (Note 12). There is judgement in respect of when (or if ) 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 that are
directly attributable to the development programme.
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.
Revenue recognition on customer contracts spanning financial periods (judgement)
The Group is now entering into a higher volume of contracts with customers that require judgement on appropriate milestones to
recognise the related revenue. This has partially driven the £1.9m increase in contract liabilities (Note 18) in the financial year.
Key judgements can include the timing of transfer of ownership of inventory to the customer under bill-and-hold arragements as
well as the determination of the appropriate contractual milestones and whether the criteria have been met to recognise revenue.
For material contracts that involve a significant level of judgement, management from various business areas will document and
communicate the key judgement areas regarding ownership obligations, contractual commitments, and any other relevant inputs to
result in the recognition of revenue to the Audit Committee.
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97
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
3. Revenue
The Group derives revenue from the transfer of goods at a point in time in the following major product lines and geographical regions:
Geography
United Kingdom
Rest of Europe
Asia
North America
Rest of World
Total revenue
Product
Computing products
Communications products
Power products
Opto electronic and electronic components and modules
See further segmental disclosures in Note 31.
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
(Profit)/loss on disposal of property, plant and equipment
Auditors’ remuneration:
Audit fees
Other assurance fees
Non audit fees
Other advisory services
Research and development costs (includes relevant staff costs)
RDEC Credit
Foreign exchange expense/(credit)
Stock write downs
Acquisition of subsidiaries legal and due diligence
Other income from government grants
2023
£’000
71,649
18,202
8,811
27,205
636
2022
£’000
53,030
15,726
6,542
9,175
524
126,503
84,997
2023
£’000
21,718
11,005
24,789
68,991
126,503
2023
£’000
23,646
551
1,159
965
2,035
(45)
2022
£’000
16,103
7,745
8,681
52,468
84,997
2022
£’000
16,562
295
729
763
1,327
3
245
120
–
–
2,190
(285)
269
777
234
(14)
–
6
2,044
(10)
(33)
59
533
(2)
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 65 to 70.
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Governance
Financial Statements
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
2023
£’000
20,173
2,147
1,361
551
2022
£’000
13,985
1,377
1,200
295
24,232
16,857
Wages and salaries include termination costs of £45k (2022: £56k).
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
2023
Number
2022
Number
136
167
101
404
134
110
59
303
As the Group continues to grow, we continue to invest in and develop the senior leadership team, which are considered to be key
management. Detailed disclosures in relation to Non-executive and executive remuneration can be found in the Remuneration
Report on pages 65 to 70.
This senior management team includes Executive Directors. The key management team and their total compensation, including
employers NI, totals £4,075k (2022: £3,857k). The amount charged in respect of share-based payments for key management
personnel is £382k (2022: £202k). The amount charged in respect of defined contribution pension payments for key management
personnel is £143k (2022: £198k).
6. Finance costs
Bank borrowings
Interest on lease liabilities
Imputed Interest on deferred consideration
Total finance costs
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
Deferred tax expense charged to income statement
Adjustment in respect of prior periods
Total tax charge to income statement
Deferred tax expense/(credit) charged to other comprehensive income
Total tax charge to comprehensive income
2023
£’000
790
46
136
972
2023
£’000
1,840
1,840
1,537
(283)
1,254
398
94
1,746
94
1,840
2022
£’000
127
99
–
226
2022
£’000
716
716
735
(8)
727
250
–
977
(261)
716
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
7. Tax expense continued
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied
to profits for the year are as follows:
Profit before tax
2023
£’000
8,436
2022
£’000
3,500
Expected tax charge based on the standard rate of corporation tax in the UK of 19% (2022: 19%)
1,603
665
Effect of:
Expenses not deductible for tax purposes
Non-taxable credit
Difference between depreciation/amortisation for the year and capital allowances
Tax relief on exercise of share options exercised
Deferred tax asset released/(recognised) on share option expense
Movement in relief on research and development expenditure
Change in rate in respect of deferred tax recognition
Taxation difference in respect of Intangibles on acquisition
Tax losses recognised/(utilised)
Adjustments in respect of prior years
Overseas tax rate differences
Foreign exchange
Total tax charge
101
(62)
115
(60)
75
143
–
(14)
78
(189)
56
(6)
1,840
443
–
(60)
–
(226)
(483)
343
–
–
(9)
8
35
716
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 and assets on 31 March 2023 and comparative
figures from March 2022 have been calculated based on this revised 25% rate.
R&D tax credits
The Group recognised a credit of £285k (2022: £10k) within other income in relation to claims made under the Research and
Development expenditure credit scheme (“RDEC”). The UK entities in the Group are no longer considered eligible for the SME
scheme estimated based on tax calculations. Claims were made under the SME scheme and recognised within the tax expense for
the March 2022 comparative period.
8. Earnings per share
The earnings per share is based on the following:
Reported earnings post tax
Adjusted 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
2023
£’000
6,693
8,553
2022
£’000
2,523
6,158
10,374,314
8,551,455
10,604,768
8,728,268
64.5p
63.1p
82.5p
80.7p
29.5p
28.9p
72.0p
70.6p
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 10,374,314 (2022: 8,551,455) net of the treasury shares disclosed in Note 27.
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Strategic Report
Governance
Financial Statements
8. Earnings per share continued
The diluted earnings per share is based on 10,604,768 (2022: 8,728,268) 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 30.
9. Dividends
Prior year final dividend paid of 13.25p per share (2022: 10.75p)
Current year interim dividend paid of 6.5p per share (2022: 6.25p)
Cancelled dividends on shares held in treasury
2023
£’000
1,500
736
(1)
2022
£’000
920
535
(2)
2,235
1,453
Final dividend proposed for the year at 13.5p per share (2022: 13.25p)
1,528
1,134
The proposed final dividend has not been accrued for as the dividend will be approved by the shareholders at the Annual General
Meeting.
10. Property, plant and equipment
Year ended 31 March 2023
Cost
1 April 2022
Foreign exchange
Additions
Acquisitions
Disposals
31 March 2023
Depreciation and impairment
1 April 2022
Foreign exchange
Charge
Impairment
Disposals
31 March 2023
Net book value
31 March 2023
Short
leasehold
property
improvements
£’000
Fittings,
equipment
and
computers
£’000
Motor
vehicles
£’000
Land and
buildings
£’000
Total
£’000
7,384
(2)
1,515
991
(145)
9,743
3,970
(11)
1,159
–
(93)
466
30
–
–
–
1,976
1
94
–
–
496
2,071
–
–
–
–
–
–
987
–
164
–
21
1,172
773
–
308
–
(84)
997
308
–
151
–
(74)
385
4,169
(33)
1,113
991
(61)
6,179
2,675
(11)
844
–
(40)
496
899
612
2,711
4,718
3,468
5,025
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101
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
10. Property, plant and equipment continued
Short
leasehold
property
improvements
£’000
Fittings,
equipment
and
computers
£’000
Motor
vehicles
£’000
Land and
buildings
£’000
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
11. Right-of-use assets
Year ended 31 March 2023
Cost
1 April 2022
Additions
Acquisition additions
Disposals
Foreign exchange
31 March 2023
Amortisation
1 April 2022
Charge for the year
Disposals
Foreign exchange
31 March 2023
Net book value
31 March 2023
446
–
–
20
466
–
–
–
–
–
466
1,951
121
(98)
2
1,976
896
189
(98)
–
987
989
Total
£’000
6,645
1,178
(463)
24
7,384
3,664
729
(424)
1
3,970
678
302
(207)
–
773
371
103
(166)
–
308
3,570
755
(158)
2
4,169
2,397
437
(160)
1
2,675
465
1,494
3,414
Land and
buildings
£’000
Motor
vehicles/
other
£’000
Total
£’000
3,820
213
4,033
115
883
(63)
20
4,775
1,937
915
(33)
32
2,851
7
–
–
–
220
113
50
–
–
163
122
883
(63)
20
4,995
2,050
965
(33)
32
3,014
1,924
57
1,981
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Overview
Strategic Report
Governance
Financial Statements
11. Right-of-use assets continued
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
12. Intangible assets
Year ended 31 March 2023
Development
costs
£’000
Computer
software
£’000
Goodwill on
consolidation
£’000
Acquisition
intangible
assets
£’000
Cost
1 April 2022
Foreign Exchange
Additions
Acquisitions (Note 32)
Disposals
31 March 2023
Amortisation
1 April 2022
Foreign Exchange
Charge for the year
Disposals
31 March 2023
Net book value
31 March 2023
1,783
–
810
–
–
724
(2)
387
52
(74)
2,593
1,087
1,583
–
328
–
1,911
399
(1)
105
(48)
455
9,898
(492)
–
20,320
–
29,726
–
–
–
–
–
8,781
(164)
–
6,858
–
15,475
48,881
3,373
(23)
1,602
–
4,952
5,355
(24)
2,035
(48)
7,318
682
632
29,726
10,523
41,563
Total
£’000
3,792
313
(72)
4,033
1,316
763
(29)
2,050
1,983
Total
£’000
21,186
(658)
1,197
27,230
(74)
The cost of acquisition intangible assets includes the estimated net present value identified on acquisition of:
• customer relationships with a net book value of £8,594k and a remaining useful economic life between one and ten years.
• brand with a net book value of £2,777k and a remaining useful economic life of approx. six years.
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.
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103
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
12. Intangible assets continued
Year ended 31 March 2022
Development
costs
£’000
Computer
software
£’000
Goodwill on
consolidation
£’000
Acquisition
intangible
assets
£’000
Cost
1 April 2021
Additions
Acquisitions
31 March 2022
Amortisation
1 April 2021
Charge for the year
31 March 2022
Net book value
31 March 2022
1,433
350
–
1,783
1,333
250
1,583
200
473
251
–
724
350
49
399
325
9,898
8,781
–
–
9,898
–
–
–
–
–
8,781
2,345
1,028
3,373
Total
£’000
20,585
601
–
21,186
4,028
1,327
5,355
9,898
5,408
15,831
Systems Division commercial relationships
Components Division commercial relationships
31 March 2023
13. Goodwill and impairment
Details of the carrying amount of goodwill allocated to cash-generating units (CGUs) are as follows:
Systems Division – UK
Systems Division – Custom Power
Components division
Total
Cost
£’000
8,769
6,706
15,475
2023
£’000
3,946
19,828
5,952
29,726
NBV
£’000
7,126
3,397
10,523
2022
£’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 using a value in use calculation over a period of 5 years then a terminal value. In preparing the base case projection,
a pre-tax discount rate of between 10% and 12% (2022: 10%) was used based on the Group’s estimated weighted average cost of
capital.
Future growth rates of between 5% and 7.5% and terminal growth rate of 2.5% (2022: 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 that investment in capital
equipment will equate to depreciation over this period. The key assumptions are the growth rates and discount rates.
The recoverable amount exceeds the carrying amount for the Group by £141.9m (2022: £95.0m) in the base case.
The headroom within the UK Systems Division is significant at £59.9m (2022: £53.8m), and the Custom Power CGU £14.5m with
the Components division having headroom of £75.7m (2022: £47.3m). The following changes can be made to the above key
assumptions in respect of each division and the carrying amount would still exceed, or equal, the recoverable amount for each CGU.
It is not considered reasonably possible that changes to the assumptions would trigger an impairment.
Discount rate: Increase the rate of each CGU by 2%
Growth rate: Reduce the annual growth to Nil and retain a 2.5% terminal growth rate
The Custom Power goodwill carrying value is $24,588k and the value in GBP is recalculated at the closing reporting date exchange
rate with an FX loss of £492k from the acquisition date.
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Overview
Strategic Report
Governance
Financial Statements
14. Subsidiaries
The subsidiaries of Solid State PLC included in these consolidated financial statements are as follows:
Subsidiary undertakings
Solid State Supplies Limited
Steatite Limited
Custom Power Holdings Inc
Custom Power LLC*
Pacer Technologies Limited
Pacer Components Limited*
Pacer LLC*
Willow Technologies Limited
American Electronic Components, Inc.*
Active Silicon Limited
Active Silicon, Inc.*
UK
UK
USA
USA
UK
UK
USA
UK
USA
UK
USA
Solid State Supplies Electronics Limited
Ireland
eTech Developments Limited
Custom Power Limited
Creasefield Limited
Q-Par Angus Limited
Ginsbury Electronics Limited
Wordsworth Technology Kent Limited
Solsta Limited
Durakool® Limited
* Indirect holdings. All other holdings are direct.
UK
UK
UK
UK
UK
UK
UK
UK
Proportion of voting
rights and Ordinary share
capital held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Supply of electronic components
Supply of electronic components and manufacture
of electronic equipment
Holding Company
Battery systems and energy solutions supplier
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
Engineering consultation
Non-trading entity
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.
Subsequent to the year end, a new USA holding company, Solsta Holding Inc. was incorporated.
Aside from the operations in the USA and Ireland identified above, the countries of operation and of incorporation are 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
Pacer USA LLC
Registered office
661 Maplewood Drive, Suite 10, Jupiter, FL 33458, USA
American Electronic Components, Inc.
1101 Lafayette Street, Elkhart, Indiana, 46516, USA
Active Silicon, Inc.
479 Jumpers Hole Road, Suite 301, Severna Park, MD 21146, USA
Solid State Supplies Electronics Limited
3rd Floor Ulysses House, 23/24 Foley Street, Dublin 1, Dublin D01 W2T2, Ireland
Custom Power Holdings Inc
Custom Power LLC
10910 Talbert Ave, Fountain Valley, CA 92708, USA
10910 Talbert Ave, Fountain Valley, CA 92708, USA
As set out in the audit committee report, the 100%-owned 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.
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Annual Report & Accounts 2023 SOLID STATE
105
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
15. Inventories
Finished goods and goods for resale
Work in progress
Total inventories
2023
£’000
30,195
3,033
33,228
2022
£’000
15,333
2,265
17,598
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 £5,053k (2022: £3,694k).
An impairment loss of £1,012k (2022: £610k loss) was recognised in the 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 £83,958k (2022: £57,812k).
16. Trade and other receivables
Trade receivables
Other receivables
Prepayments
2023
£’000
16,379
163
3,157
19,699
2022
£’000
14,948
126
2,904
17,978
An impairment credit against trade receivables of £77k (2022: Credit of £13k) was recognised within operating costs during the year.
17. Trade and other payables (current)
Trade payables
Other taxes and social security taxes
Other payables
Accruals
Deferred consideration on acquisitions
Contingent consideration on acquisitions
18. Contract liabilities
Contract liabilities
Note
21, 32
21
2023
£’000
12,919
2,952
376
7,488
4,029
1,650
29,414
2023
£’000
5,380
2022
£’000
8,083
2,607
89
5,709
–
4,625
21,113
2022
£’000
3,461
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 £2,910k (2022: £1,980k), which was included within contract liabilities in the prior year.
106
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Overview
Strategic Report
Governance
Financial Statements
19. Bank borrowings and facilities
Current borrowings
Bank borrowings – overdraft facility
Bank borrowings – term loans
Non-current borrowings
Bank borrowings
Total borrowings
Within one year
Between one and two years
Between two and five years
Total borrowings
2023
£’000
–
1,279
13,383
14,662
2023
£’000
1,279
4,958
8,425
14,662
2022
£’000
2,059
–
1,500
3,559
2022
£’000
2,059
1,500
–
3,559
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:
• The Group has a term loan of £6.5m entered into in August 2022, as part of the Custom Power acquisition financing, which is
repayable in full in August 2025. The full principal balance was utilised at the year end.
• The Group also entered into a term loan of £6.5m in August 2022 as part of the Custom Power acquisition financing that is
repayable in quarterly tranches over a five-year period. A principal balance of £5.85m was outstanding at the year end.
• A revolving credit facility of £7.5m (2022: £7.5m) of which £2.4m (2022: £1.5m) was drawn at the balance sheet date. This facility
was committed until November 2023 and then renewed in March 2023 to a November 2024 commitment date.
•
In addition, the Group has a multi-currency overdraft facility of £3.0m (2022: £3.0m), which was not utilised at the year end (2022:
£2.1m for USD). Subsequent to the year end, the Group agreed a facility extension on the USD overdraft facility of up to $10m to
the end of September 2023 in order to cover the maximum potential impact of the NATO project’s timing differences to cash flow.
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: leverage, debt service and a tangible net worth covenant.
These covenants were met at all measurement points throughout the period.
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107
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
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
2023
£’000
1,057
986
2,043
2023
£’000
1,057
942
44
2,043
2022
£’000
758
1,326
2,084
2022
£’000
758
650
676
2,084
Lease liabilities relate to leased properties and vehicles and an analysis of the undiscounted maturity analysis of the remaining lease
payments is presented in Note 21.
The following is a reconciliation of the Group’s lease liabilities:
Right-of-use lease liabilities at 1 April
Additions
Acquisitions
Payments made
Discounting charge
Disposals
FX
Right-of-use lease liabilities at 31 March
21. Financial instruments
2023
£’000
2,084
123
883
(1,026)
46
(56)
(11)
2022
£’000
2,543
313
–
(795)
99
(76)
–
2,043
2,084
The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance.
The Group’s financial instruments comprise cash and cash equivalents and various items such as trade payables and receivables that
arise directly from its operations. The Group is exposed through its operations to the following risks:
• Credit risk
• Foreign currency risk
• Liquidity risk
• Cash flow interest rate risk
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes
the Group’s objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is
presented throughout these financial statements.
The acquisition of Custom Power and the related draw-down of additional long-term fixed borrowings is a substantive change in
the Group’s exposure to financial instrument risks. Consequently, the objectives, policies and processes have been reassessed to
determine the updated risk profile (where relevant).
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.
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Overview
Strategic Report
Governance
Financial Statements
21. Financial instruments continued
Credit risk
The Group is exposed to credit risk, primarily, on its trade receivables, which are spread over a range of customers and countries, a
factor that helps to dilute the concentration of the risk.
It is Group policy, implemented locally, to assess the credit risk of each new customer before entering 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 banks 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 recent Willow, Active
and Custom Power 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 six-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.
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 fully eliminates 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.
The Group does not currently hedge interest rates on financing, but monitors the impact of rising interest rates and will put an
instrument in place if considered an effective risk mitigation.
Credit risk
The carrying amount of financial assets represents the maximum credit exposure. The Group maintains its cash reserves at reputable
banks. The maximum exposure to credit risk at the reporting date was:
Loans and receivables
Trade and other receivables
Cash and cash equivalents
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Debt exposure
UK
Non-UK
2023
£’000
16,542
12,224
28,766
2023
£’000
8,257
8,122
16,379
2022
£’000
15,074
2,924
17,998
2022
£’000
8,471
6,477
14,948
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 £233k (2022: £193k), which represented 0.2% (2022: 0.1%) of revenue. This provision is included within the sales, general and
administration expenses in the Consolidated Statement of Comprehensive Income. Trade receivables are written off where there is
no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the
failure of a debtor to engage in a repayment plan with the Group, insolvency or a lack of contact with the customer.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
21. Financial instruments continued
Trade receivables ageing by geographical segment
Geographical area
2023
UK
Non-UK
Total
UK
Non-UK
Total provisions
Total
IFRS9
UK expected loss rate
Non-UK expected loss rate
Geographical area
2022
UK
Non-UK
Total
UK
Non-UK
Total provisions
Total
IFRS9
UK expected loss rate
Non-UK expected loss rate
30 days
past due
£’000
60 days
past due
£’000
90 days
past due
£’000
394
725
1,119
(80)
(4)
(84)
81
971
1,052
(1)
(119)
(120)
932
132
85
217
(107)
(83)
(190)
27
16,379
14,385
1,035
1.65%
2.44%
20.17%
0.59%
1.00%
12.26%
80.94%
97.38%
Current
£’000
30 days
past due
£’000
60 days
past due
£’000
90 days
past due
£’000
Total
£’000
8,576
8,492
Current
£’000
7,969
6,711
17,068
14,680
(319)
(370)
(689)
(131)
(164)
(295)
3.71%
4.35%
Total
£’000
8,860
6,737
15,597
(389)
(260)
(649)
8,273
6,122
14,395
(322)
(136)
(458)
14,948
13,937
4.4%
3.9%
3.9%
2.2%
418
412
830
(21)
(24)
(45)
785
5.0%
5.8%
128
116
244
(11)
(23)
(34)
210
41
87
128
(35)
(77)
(112)
16
8.6%
19.8%
85.4%
88.5%
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
2023
£’000
2022
£’000
649
124
(77)
(9)
2
689
658
–
(14)
4
1
649
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 2023, trade receivables of £1,994k, which were past their due date, were not impaired
(2022: £1,011k).
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Overview
Strategic Report
Governance
Financial Statements
21. Financial instruments continued
Liquidity risk
2023
Trade and other payables
Borrowings
Right-of-use lease liabilities
Provisions
Deferred consideration on acquisition
2022
Trade and other payables
Borrowings
Right-of-use lease liabilities
Provisions
Deferred consideration on acquisition
Carrying
amount
Contractual
cash flow
12 months
or less
21,628
14,662
2,043
1,038
5,679
21,628
16,722
2,138
1,038
5,679
21,628
2,142
1,088
323
5,679
1–2
Years
–
5,671
792
94
–
45,050
47,205
30,860
6,557
16,488
16,488
3,559
2,084
694
6,601
3,559
2,215
694
6,601
29,426
29,557
16,488
2,059
781
–
4,625
23,953
–
1,500
690
150
1,976
4,316
2–5
Years
–
8,909
258
621
–
9,788
–
–
744
544
–
1,288
5+
Years
–
–
–
–
–
–
–
–
–
–
–
–
Movement in deferred
consideration on acquisitions
2023
£’000
2022
£’000
2023
£’000
2022
£’000
Willow
Active
2023
£’000
2022
£’000
Custom Power
2023
£’000
2022
£’000
Group
1 April
Initial recognition
Increase/(decrease) in estimation
Settlement
FX movement
31 March
3,500
5,089
3,101
2,433
–
–
–
–
–
–
(326)
(3,500)
(1,589)
(1,125)
–
–
–
–
3,500*
1,650*
3,101*
–
8,264
1,651
(983)
–
–
(4,065)
(170)
4,029
–
–
–
–
–
–
6,601
8,264
(326)
(8,690)
(170)
5,679
7,522
–
1,651
(2,572)
–
6,601
* level 3 contingent consideration values calculated based on forecast management data.
The fair value hierarchy of financial instrument is considered as follows:
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is
based on quoted market prices at the end of the reporting period. These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market (e.g. over-the-counter derivatives) is
determined using valuation techniques that maximise the use of observable market data and rely as little as possible on entity-
specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is
the case for unlisted equity securities.
All the Group’s financial instruments as disclosed are considered to fall under Level 1, except for deferred contingent consideration
due on acquisitions (Willow and Active table above) which are classified as Level 3 instruments.
The measurement of the contingent deferred consideration liability on Active Silicon is based on the performance of the business
during the 25 month earn-out period up to the 31st March 2023. The basis of the calculation is a multiple of the post tax profit
included within the consolidated Group financial statements and the only immaterial variable that is considered subject to change
is the final taxation figure. The contingent consideration in relation to Custom Power has been recognised at £Nil value based on the
discounted future forecasts prepared as described in Note 2.
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Annual Report & Accounts 2023 SOLID STATE
111
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
21. Financial instruments continued
Foreign currency risk
The Group’s main foreign currency risk is the short-term risk associated with accounts receivable and payable denominated in
currencies that are not the subsidiaries’ functional currency. The risk arises on the difference in the exchange rate between the time
invoices are raised/received and the time invoices are settled/paid. For sales denominated in foreign currencies the Group will try, as
far as practical, to ensure that the purchases associated with the sale will be in the same currency.
All monetary assets and liabilities of the Group were denominated in sterling 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
2023
£’000
8,870
8,235
(8,149)
8,956
2023
£’000
448
444
(178)
714
2022
£’000
8,786
(1,308)
(4,005)
3,473
2022
£’000
287
272
(175)
384
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 2023 (2022: £Nil) with £Nil net exposure (2022: £Nil).
The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the statement of financial position
date would have resulted in an estimated net increase in pre-tax profit for the year and an increase in net assets of, approximately,
£1,074k (2022: £428k). In addition, 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, £879k (2022: £351k).
Interest rate risk
The Group finances its ongoing business through a revolving credit facility. During the year, the Group utilised this facility at a
floating rate of interest. The Group also, partially, financed the acquisition of Custom Power with two new term loans drawn down in
August 2022, as described in Note 19.
The Group’s banking facilities with Lloyds Bank PLC incur 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
£122k (2022: £82k) higher, and if 1% lower throughout the year, the level of interest payable would have been lower by the same
amount.
112
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Overview
Strategic Report
Governance
Financial Statements
21. Financial instruments continued
Capital risk management
The Group defines total capital as equity in the consolidated statement of financial position plus net debt or less net funds plus
deferred consideration. Total capital at 31 March 2023 was £66,070k (2022: £32,251k).
The Group defines net (cash)/leverage as net (cash)/debt plus deferred consideration, which totals £8,117k (2022: £5,177k). In
calculating net (cash)/debt, the Group has excluded the right-of-use lease liabilities of £2,042k (2022: £2,084k) from its definition and
calculation.
When 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 2023, the gearing ratio was 12.3% (2022: 16.0%).
The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and to maintain sufficient funding
to enable the Group to meet its working capital and strategic investment needs 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 2023 is shown below:
Cash and cash equivalents
Borrowings/bank overdrafts
Deferred consideration
Net leverage/(cash)
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))
2023
£’000
(12,224)
14,662
5,679
8,117
567
30,474
27,805
5
(836)
(108)
57,907
12.3%
2022
£’000
(4,983)
3,559
6,601
5,177
428
3,625
23,042
5
33
(57)
27,076
16.0%
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Annual Report & Accounts 2023 SOLID STATE
113
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
22. Net debt
Year ended 31 March 2023 (£’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
2022
–
(1,500)
(1,500)
(4,625)
(1,976)
2,924
(5,177)
Increase/(decrease) in cash in the year
Increase in borrowings in the year
Repayment of borrowings in the year
Payment of deferred consideration on acquisitions
Net movement resulting from cash flows
Net debt at 1 April
Net movement resulting from cash flows
Contingent consideration recognised in year – short term
Contingent consideration recognised in year – long-term
Other non-cash movements
Net debt at 31 March
Other
non-cash
movement
At
31 March
2023
Cash flow
(1,279)
(11,822)
(13,101)
4,625
–
9,314
838
–
(61)
(61)
(5,679)
1,976
(14)
(3,778)
2023
£’000
9,314
(15,873)
2,772
4,625
838
2023
£’000
(5,177)
838
(3,704)
–
(74)
(8,117)
(1,279)
(13,383)
(14,662)
(5,679)
–
12,224
(8,117)
2022
£’000
(4,006)
–
2,250
2,572
816
2022
£’000
(4,358)
816
–
(1,651)
16
(5,177)
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 balance at 31 March 2022 was 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.
No overdraft was utilised as at 31 March 2023.
Lease liabilities are excluded from the Group’s definition of net debt and a separate roll-forward of lease liabilities is presented in
Note 20.
114
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Overview
Strategic Report
Governance
Financial Statements
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
(Expense)/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:
2023
£’000
(1,293)
67
(485)
(7)
(94)
–
(1,812)
(747)
(1,736)
351
114
206
(1,812)
375
(2,187)
(1,812)
At 1 April
Acquisition of subsidiaries
Recognised in statement of
comprehensive income
Recognised in other comprehensive income
At 31 March
Short-term
timing
differences
on intangible
assets
(1,437)
Accelerated
capital
allowances
(504)
Share-based
payments
415
Short-term
timing
differences
98
Losses
carried
forward
135
(31)
(212)
–
(747)
62
(361)
–
(1,736)
–
30
(94)
351
36
(20)
–
114
–
71
–
206
(1,812)
The UK corporation tax rate is 19% (effective from 1 April 2017), which was, substantively, enacted on 17 March 2020. 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
recalculating the deferred tax at the 25% rate was recognised in comprehensive income in the 2022 comparative period.
The amount of the net reversal of deferred tax expected to occur next year is, approximately, £447k (2022: £231k) relating to the
timing differences identified above.
The deferred tax asset of £166k (2022: £261k), 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 recalculated in the year after initial recognition in 2022. The movement in the deferred tax
asset has been debited 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 higher/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.
Annual Report & Accounts 2023 SOLID STATE
115
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2022
£’000
(1,303)
–
348
5
–
(343)
(1,293)
(504)
(1,437)
415
98
135
(1,293)
539
(1,832)
(1,293)
Total
(1,293)
67
(492)
(94)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
24. Provisions
At 1 April
Dilapidations acquired on acquisitions at FV
Provisions utilised during the year
Recognition of decommissioning asset
(Released)/charged to statement of comprehensive income
Provisions at 31 March
2023
£’000
694
22
–
323
(1)
1,038
2022
£’000
741
–
(18)
–
(29)
694
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 five years. Based on using a discount rate of 6%, the Group has assessed
the impact of discounting to be immaterial and has not, therefore, discounted the provisions. Provisions are split in current £323k
(2022: Nil) and non-current £715k (2022: 694k).
25. Share capital
Allotted issued and fully paid 11,346,394 (2022: 8,564,878) Ordinary shares of 5p
2023
£’000
567
2022
£’000
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.
Share Capital at 1 April
Issue of new shares on equity raise
Share options exercised
Share Capital at 31 March
2023
2022
Shares
No.
8,564,878
2,757,516
24,000
11,346,394
Value
£’000
428
138
1
567
Shares
No.
8,564,878
–
–
8,564,878
Value
£’000
428
–
–
428
Details of options granted are set out in the Remuneration Committee Report on pages 65 to 70. At 31 March 2023, the number
of shares covered by option agreements amounted to 352,925 (2022: 248,100). At the balance sheet date, there were 72,000
(2022: 96,000) share options which had vested and remained unexercised. 24,000 (2022: Nil) options were exercised in the current year.
26. Reserves
Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 83. The total value of
transaction costs incurred that have been offset against the share premium account movement in the year total £1,275k (2022: £Nil).
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve
Description and purpose
Share premium
Amount subscribed for share capital in excess of nominal value
Capital redemption
Amounts transferred from share capital on redemption of issued shares
Retained earnings
Cumulative net gains and losses recognised in the consolidated statement of comprehensive income
Shares held in treasury
Shares held by the Group for future staff share plan awards
Foreign exchange
Foreign exchange translation differences arising from the translation of the financial statements of foreign operations
Non-controlling interest
Equity attributable to non-controlling shareholders
27. Treasury shares
At 31 March 2023, the Group held 9,146 (2022: 6,946) shares in treasury with a cost of £108k (2022: £57k). 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
116
SOLID STATE Annual Report & Accounts 2023
2023
Shares
6,946
15,000
2022
Shares
11,374
7,000
(12,800)
(11,428)
9,146
6,946
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Overview
Strategic Report
Governance
Financial Statements
28. Share-based payment
The total amount charged to the income statement in 2023 in respect of share-based payments was £551k (2022: £295k).
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 66.
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.
On 4 October 2022, 56,000 (2022: 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
2023
986
5
3
10
3
49%
2.28%
2.10%
2022
1,085
5
3
10
3
47%
1.50%
2.50%
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 66. 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.
Between 4 October 2022 and 12 January 2023, 48,825 (2022: 36,750) share options were granted to 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
2023
1,006
1,008
3
10
3
49%
2.28%
2.10%
2022
1,050
1,050
3
10
3
46%
1.50%
2.50%
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
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. 24,000 were exercised
in the year, leaving 72,000, which remain unexercised at the balance sheet date.
At 1 April
Granted
Exercised
Cancelled/lapsed
At 31 March
2023
Number of
options
248,100
104,825
(24,000)
–
328,925
2023
Average
exercise
price in
pence
225
471
0.1
–
320
2022
Number of
options
175,550
79,550
–
(7,000)
248,100
2022
Average
exercise
price in
pence
125
488
–
(707)
225
24,000 options were exercised in the year (2022: Nil) and the weighted average share price at the date share options were exercised
was 1,320p.
As at 31 March 2023, the total number of long-term incentive awards and share options held by employees was 328,925 (2022:
248,100) as follows:
Option price pence/share
0.1p
5p – 592p
5p – 1050p
5p – 1254p
At 31 March
Option
period
ending
2023
Number of
options
2022
Number of
options
31 March 2027
31 March 2030
31 March 2031
31 March 2032
72,000
74,300
77,800
104,825
328,925
96,000
74,300
77,800
–
248,100
No share options have vested in the period (2022: Nil).
All Employee Share plan (“AESP”):
AESP awards, of up to HMRC tax-approved levels, are given 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 27 February 2023, 12,800 (2022: 12,250) share options were awarded to the employees under the AESP.
The share price at the date of award was 1,160p (2022: 960p). 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 £148k (2022: £118k) as part of the total share-based payments charge.
29. Capital commitments
At 31 March 2023, there were capital commitments of £172k (2022: £303k).
30. 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 ongoing 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 costs relating to acquisition costs (including fair value adjustments and earn-out estimation changes)
• Non-recurring tax credits arising, primarily, from prior year R&D claims and tax deductions on share options
• The movement via OCI of the 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 options and share bonus
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Strategic Report
Governance
Financial Statements
30. Adjustments to profit continued
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
2023
£’000
39,674
88
39,762
9,408
2,219
11,627
7.4%
1.8%
9.2%
8,436
2,355
10,791
6,690
1,863
8,553
5,727
1,957
7,684
2023
Acquisition fair value adjustments within cost of sales
Acquisition fair value adjustments, reorganisation and deal costs
Decrease in deferred consideration on acquisition of Active Silicon
Amortisation of acquisition intangibles
Share-based payments
Imputed interest on deferred consideration unwind
Adjustment to profit before tax
Current and deferred taxation effect
Adjustments to profit after tax
Movement of deferred tax asset in OCI re. share price impact
on options
Adjustments to total other comprehensive income
Components
£’000
Systems
£’000
Head office
£’000
–
–
–
–
–
–
–
–
–
–
–
88
289
(326)
–
–
136
187
(26)
161
–
161
–
15
–
1,602
551
–
2,168
(466)
1,702
94
1,796
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
Total
£’000
88
304
(326)
1,602
551
136
2,355
(492)
1,863
94
1,957
All amortisation charges relating to acquisition intangibles have been consistently classified into head office overheads for the current
and comparative year to provide a consistent presentation and accurate representation of underlying divisional trading as presented
to the Directors.
In evaluating our adjusted performance metric in respect of Earnings Per Share (“EPS”) the Board consider “Adjusted Fully Diluted EPS”
to be the most appropriate metric as our investors and the analysts who cover Solid State PLC use this metric to monitor performance.
However, we also recognise the equal importance of the statutory metric of “Reported EPS” as the other relevant metric (which
includes the IFRS2 charge for the value gained from employees but excludes the dilution so not to double count with the charge).
Whilst we disclose “Reported Fully Diluted EPS” and “Adjusted EPS” for completeness in Note 8 these are not considered to be as
appropriate metrics by the Board as “Reported Fully Diluted EPS” reflects a double hit to the results of the IFRS2 charge and the
dilution and “Adjusted EPS” does not reflect either the IFRS2 charge or the dilution which clearly makes these metric much less
appropriate when assessing performance.
Annual Report & Accounts 2023 SOLID STATE
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
30. Adjustments to profit continued
2022
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
Adjustments to profit after tax
Recognition of deferred tax asset in OCI re. share price impact on
options
Adjustments to total other comprehensive income
Components
£’000
168
Systems
£’000
–
Head office
£’000
–
–
–
–
–
168
(31)
–
137
–
137
533
1,650
–
–
2,183
(75)
–
2,108
–
2,108
–
1,028
295
1,323
(221)
288
1,390
(261)
1,129
Total
£’000
168
533
1,650
1,028
295
3,674
(327)
288
3,635
(261)
3,374
Acquisition fair value adjustments within cost of sales relates to the unwind of the IFRS3 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 and comparative period relate to transaction
costs for the acquisition of Custom Power.
31. 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 Limited, Pacer LLC, Pacer Components Limited,
Willow Technologies Limited and American Electronic Components, Inc. The Systems Division includes Steatite Limited, Custom
Power LLC, Active Silicon Limited, Active Silicon Inc. and eTech Developments Limited.
Year ended 31 March 2023
External revenue
Operating profit
Adjusted operating profit
Profit before tax
Taxation
Profit after taxation
Consolidated statement of financial position
Assets
Liabilities
Net assets
Other
Capital expenditure:
Intangible assets
Intangible assets – acquisitions
Tangible fixed assets
Tangible fixed assets – acquisitions
Right-of-use assets
Right-of-use assets – acquisitions
Depreciation – PPE
Depreciation – right-of-use assets
Amortisation
Share-based payments
Interest
120
SOLID STATE Annual Report & Accounts 2023
Components
division
£’000
68,986
5,754
5,754
5,723
(1,041)
4,682
30,435
(13,220)
17,215
339
–
836
–
115
–
559
217
50
–
30
Systems
division
£’000
57,517
7,941
7,992
7,718
(1,488)
6,230
38,408
(25,331)
13,077
858
52
679
991
7
883
600
748
383
–
222
Head
office
£’000
–
(4,287)
(2,119)
(5,005)
783
(4,222)
44,945
(17,283)
27,662
–
27,178
–
–
–
–
–
–
1,602
551
720
Total
Group
£’000
126,503
9,408
11,627
8,436
(1,746)
6,690
113,788
(55,834)
57,954
1,197
27,230
1,515
991
122
883
1,159
965
2,035
551
972
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Overview
Strategic Report
Governance
Financial Statements
31. Segment information continued
No individual customer contributed more than 10% of the Group’s revenue in the financial year ended 31 March 2023 or the
prior year.
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 assets
Tangible assets – acquisitions
Intangible fixed assets
Intangible fixed assets – acquisitions
Right-of-use assets
Right-of-use assets – acquisitions
Depreciation – PPE
Depreciation – right-of-use assets
Amortisation
Share-based payments
Interest
United Kingdom
Rest of Europe
Asia
North America
Other
Components
division
Systems
division
52,480
4,433
(903)
3,530
24,616
(11,587)
13,029
524
–
268
–
216
–
331
264
20
–
48
32,517
2,492
(297)
2,195
21,665
(14,253)
7,412
654
–
333
–
97
–
398
499
279
–
61
Head
office
–
(3,425)
223
(3,202)
16,045
(9,410)
6,635
–
–
–
–
–
–
–
1,028
295
117
Total
Group
84,997
3,500
(977)
2,523
62,326
(35,250)
27,076
1,178
–
601
–
313
–
729
763
1,327
295
226
External revenue by
location of customer
Total assets by
location of assets
Net capital expenditure
by location of assets
2023
£’000
71,649
18,202
8,811
27,205
636
2022
£’000
53,030
15,726
6,542
9,175
524
2023
£’000
102,687
31
–
11,070
–
126,503
84,997
113,788
2022
£’000
59,023
1
–
3,302
–
62,326
2023
£’000
2,134
–
–
578
–
2,712
2022
£’000
1,723
–
–
56
–
1,779
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121
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
32. Acquisition accounting for Custom Power LLC
Book value
$’000
Fair value
Adjustment
$’000
Fair value
to Group
$’000
Fair value
to Group*
£’000
Intangible assets
Property, plant and equipment
Right-of-use assets**
Deferred tax asset
Inventory
Trade and other receivables
Trade and other payables
Right-of-use lease liabilities**
Provision for dilapidations
Cash and cash equivalents
Net assets on acquisition
Goodwill on acquisition
Discounted consideration
Discharged by:
Cash paid on acquisition
Short-term deferred consideration
Gross consideration
Discounting
Discounted consideration
–
362
–
–
4,105
4,368
(2,305)
–
–
319
6,849
–
8,298
895
1,069
81
(303)
(250)
(337)
(1,069)
(25)
–
8,359
–
8,298
1,257
1,069
81
3,802
4,118
(2,642)
(1,069)
(25)
319
15,208
24,588
39,796
30,001
10,000
40,001
(205)
39,796
6,858
1,039
883
67
3,142
3,403
(2,183)
(883)
(21)
264
12,569
20,321
32,890
24,795
8,264
33,059
(169)
32,890
* Exchange rate at date of acquisition was 1.21.
** These adjustments are GAAP alignments rather than fair value adjustments.
Solid State PLC incorporated Custom Power Holdings Inc. as a new 100%-owned US subsidiary to subsequently acquire Custom
Power, LLC on 5 August 2022. Custom Power LLC is a Company based in Orange County, California, which designs and manufactures
custom battery pack solutions. The entire membership interest, and therefore control, of the LLC was purchased for a maximum
consideration of $45m, including $10m of deferred consideration (payable in two equal tranches in February 2023 and August 2023)
and a $5m contingent earn-out payable on achievement of a revenue performance target.
The fair value of intangible assets recognised is in relation to the brand “Custom Power”, the open order book and the customer
relationships. The goodwill recognised represents expected synergies from combining the operations of Custom Power LLC with those
of the existing Systems Division, expected value from incremental sales arising across the combined operation that is not separately
recognisable at the date of acquisition and the value of the work force not recognised as an intangible asset under IFRS3 revised.
The Group acquired the membership interests of Custom Power LLC, which is a disregarded entity for US tax, so we expect to benefit
from a tax deduction in the US in relation to the goodwill arising. The goodwill carrying value on consolidation is not amortised,
but is assessed for impairment at the end of each reporting period. If no impairment is recognised, the initial asset recognised for
deferred taxation will unwind until it becomes a deferred tax liability when the local deduction is fully recognised.
The revenue and profit after tax for the post-acquisition period included in the Statement of Comprehensive Income arising from
Custom Power’s operations were $19.8m (£16.7m) and $1.7m (£1.4m), respectively. If Custom Power had been acquired on 1 April
22, the estimated values to include in the Group’s Statement of Comprehensive Income would have been revenue of $29.4m
(£24.5m) and profit after tax of $2.4m (£2.0m). The Group incurred acquisition related costs of £786k (of which £565k was expensed
in prior periods and £221k expensed in the current period) on legal fees and due diligence costs, included in sales, general and
administration expenses.
122
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Strategic Report
Governance
Financial Statements
32. Acquisition accounting for Custom Power LLC continued
Lloyds Bank PLC provided a $10m standby letter of credit which was fully funded by the $10m cash on deposit. By setting aside
$10m in a separate deposit account, to minimise charges, the Group fully funded the short-term deferred consideration. $5 million
was settled in the year, leaving a balance of $5m disclosed as a separate element of cash and cash equivalents on the face of the
consolidated statement of financial position.
The final $5m of deferred contingent consideration only becomes payable if Custom Power achieves a last 12-month revenue in
excess of $37.5m within an 18-month period post acquisition. Based on the information available to management at the year end
date, this stretch hurdle is, currently, not considered to be achievable, and the contingent consideration of $5m has been removed
from the goodwill calculations. The deferred consideration amounts were discounted at an appropriate cost of debt and the impact
was to reduce the fair value of the consideration by $205k. The discounting will be charged as a non-cash interest charge over the
period of the deferment with £136k charged to date.
The total cash settled to date is the initial consideration of £24.8m plus the first $5m of deferred consideration at £4.1m.
33. Related parties
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 following an initial £150k investment. This is a new business, which provides
engineering consultancy by employing an engineering team. The team provide power engineering services to the Group and
external customers on an arm’s length basis.
eTech made sales to the Group totalling £196k (2022: £Nil) and purchases from the Group totalling £49k (2022: £Nil). As at 31 March
2023, £60k is owed to the Group from eTech and £8k is owed from eTech to the Group.
Transactions with The Kings Mill Practice, a firm of which Mr P Haining is the proprietor, are disclosed in the Remuneration Report on
page 69.
34. Post balance sheet events
Subsequent to the year end, the Group agreed a facility extension on the USD overdraft facility of up to $10m to the end September
2023 in order to cover the maximum potential impact of the NATO project’s timing differences to cash flow.
A new USA holding company, Solsta Holding Inc., was incorporated with the intention to simplify the structure of the US
Components Division legal entities. This entity is 100% owned by Solid State PLC.
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123
COMPANY STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2023
Fixed assets
Investments
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents - available on demand
Cash and cash equivalents - on deposit
Creditors: Amounts falling due within one year
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
Notes
4
5
6
7
7
8
9
9
9
10
2023
£’000
68,630
351
6,107
148
4,032
10,287
(29,886)
(13,383)
–
2023
£’000
2022
£’000
2022
£’000
35,654
415
68,981
36,069
1,725
276
–
2,001
(28,255)
(19,599)
(26,254)
(1,500)
(1,976)
(13,383)
35,999
567
30,474
5
5,061
(108)
35,999
(3,476)
6,339
428
3,625
5
2,338
(57)
6,339
The company made a profit after tax of £4,653k (2022: £1,189k), and an other comprehensive loss of £94k (2022: profit of £261k). Total
comprehensive income for the period was £4,559k (2022: £1,450k).
The financial statements were approved by the Board of Directors and authorised for issue on 4 July 2023 and were signed on its
behalf by:
G S Marsh
Director
P O James
Director
The notes on pages 126 to 129 form part of these financial statements.
124
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Overview
Strategic Report
Governance
Financial Statements
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2023
Share
Capital
£’000
Share
Premium
Reserve
£’000
Capital
Redemption
Reserve
£’000
Retained
Earnings
£’000
Shares
held in
Treasury
£’000
Total Equity
£’000
Balance at 31 March 2022
Shares issued
Dividends
Share-based payment credit
Transfer of treasury shares to AESP
428
139
–
–
–
3,625
26,849
–
–
–
Transactions with owners in their capacity
as owners
139
26,849
Result for the year
ended 31 March 2023
Other comprehensive
income
Total comprehensive income for the year
ended 31 March 2023
Purchase of treasury shares
Balance at 31 March 2023
–
–
–
–
–
–
–
–
567
30,474
5
–
–
–
–
–
–
–
–
–
5
2,338
–
(2,235)
551
(152)
(1,836)
4,653
(94)
4,559
–
5,061
(57)
–
–
–
152
152
–
–
–
(203)
(108)
6,339
26,988
(2,235)
551
–
25,304
4,653
(94)
4,559
(203)
35,999
Balance at 31 March 2021
Shares issued
Transfer of treasury shares to AESP
Dividends
Share-based payment credit
Transactions with owners in their capacity
as owners
Result for the year
ended 31 March 2022
Other comprehensive
income
Total comprehensive income for the year
ended 31 March 2022
Purchase of treasury shares
Balance at 31 March 2022
Share
Premium
Reserve
£’000
Capital
Redemption
Reserve
£’000
Share
Capital
£’000
428
–
–
–
–
–
–
–
–
–
3,625
–
–
–
–
–
–
–
–
–
428
3,625
Retained
Earnings
£’000
2,139
Shares
held in
Treasury
£’000
Total Equity
£’000
(70)
6,127
–
(93)
(1,453)
295
(1,251)
1,189
261
1,450
–
2,338
–
93
–
–
93
–
–
–
(80)
(57)
–
–
(1,453)
295
(1,158)
1,189
261
1,450
(80)
6,339
5
–
–
–
–
–
–
–
–
–
5
The notes on pages 126 to 129 form part of these financial statements.
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125
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
1. Accounting policies
The following accounting policies have been applied consistently in dealing with items that 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
• Paragraph 33.1A – Exemption from disclosing transactions between wholly owned entities
• Section 26 “Share-based payment” qualifying disclosure exemptions
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 2023 and the profit for the year ended 31 March 2022 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
statement of financial position reflects £19.6m net current liabilities (excluding group balances) due to the short-term £6.0m of
deferred consideration, balances owed by Group entities and short-term bank borrowings. The deferred consideration can be settled
through the Group’s bank facilities and the $5m cash on deposit which are committed until November 2023 with £5.1m not drawn
at the balance sheet date. Dividends totalling £7.5m 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/reorganised the investment is reallocated 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.
The carrying value of investments in subsidiaries 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.
Receivables
Receivables are measured at transaction price, less any impairment. The carrying value of receivables 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.
Other financial liabilities
Other financial liabilities are accounted for on the same basis as in the consolidated accounts. See the accounting policy on pages 92
to 93 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 the accounting policy on page 95 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 the accounting policy on page 93 as there
is no material difference between FRS102 and IFRS.
126
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Overview
Strategic Report
Governance
Financial Statements
1. Accounting policies continued
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 involve 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 Custom Power, 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
2023
£’000
1,019
255
62
551
2022
£’000
985
130
50
295
1,887
1,460
Staff costs amounted to £1,887k (2022: £1,460k) and comprised the share-based payment expense of £551k (2022: £295k) and
provision for employer’s national insurance on exercise of share options of £35k (2022: £45k).
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 65 to 70.
The average monthly number of employees during the year, including the Executive Directors, was as follows:
Management and administration
3. Share-based payments
See Group share-based payments disclosures in Note 28 to the Group accounts.
4. Investments
Subsidiary undertakings
Cost
1 April
Additions
Disposals
31 March
Net book value
31 March
2023
Number
2022
Number
15
15
15
15
2023
£’000
35,654
33,302
(326)
68,630
2022
£’000
34,003
1,651
–
35,654
68,630
35,654
The additions in the period relate to the acquisition of Custom Power as disclosed in Note 32 to the Group accounts and the
incorporation of eTech Developments as disclosed in Note 33 to the Group accounts. The disposal in the period relates to the true-up
of the deferred consideration acquisition cost of the Active Silicon Group.
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Annual Report & Accounts 2023 SOLID STATE
127
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
CONTINUED
4. Investments continued
Subsidiary undertakings
Net book value of investment in:
Steatite limited
Solid State Supplies Limited
Pacer Technologies Limited
Willow Technologies Group
Active Silicon Group
Custom Power, LLC
eTech Developments
Total investments at 31 March
See Group subsidiary undertakings disclosures in Note 14 to the Group accounts.
5. Debtors
Amounts owed by Group undertakings
Other debtors
Prepayments
6. Creditors – Amounts falling due within one year
Amounts owed to Group undertakings
Other taxes and social security costs
Trade and other creditors
Accruals
Short-term bank borrowings
Deferred consideration on acquisitions
Contingent consideration on acquisitions
2023
£’000
5,307
4,201
3,747
13,144
8,929
33,152
150
68,630
2023
£’000
6,070
–
37
2022
£’000
5,307
4,201
3,747
13,144
9,255
–
–
35,654
2022
£’000
1,710
1
14
6,107
1,725
2023
£’000
21,761
289
27
850
1,280
4,029
1,650
29,886
2022
£’000
22,357
149
28
1,096
–
–
4,625
28,255
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, Custom Power, LLC., Willow Technologies Limited and Active Silicon
Limited. At the year end, the liabilities covered by those guarantees amounted to £Nil (2022: £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. See Note 19 to the Group accounts for borrowings disclosures.
The short-term deferred consideration on acquisitions is £4.0m for Custom Power, LLC. and £1.6m for Active Silicon Group.
All amounts owed to/from Group undertakings are payable/repayable on demand and not interest bearing.
128
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7. Creditors – Amounts falling due after more than one year
Bank borrowings
Contingent consideration on acquisitions
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.
2023
£’000
13,383
–
13,383
2022
£’000
1,500
1,976
3,476
11. Related parties
See Group-related party disclosures in Note 33 to the Group accounts. eTech Developments made no sales to the Company and
purchases from the Company totalled £23k.
The production of this report supports the work of the Woodland Trust,
the UK’s leading woodland conservation charity. Each tree planted will
grow into a vital carbon store, helping to reduce environmental impact as
well as creating natural havens for wildlife and people.
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SPINE TO BE ADJUSTED IN ACCORDANCE WITH PAGINATION
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SOLID STATE
Solid State PLC
Ravensbank Business Park,
Hedera Road, Redditch,
Worcestershire, B98 9EY
United Kingdom
www.solidstateplc.com
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