SomnoMed Annual Report 2019

FY2019 Annual Report · SomnoMed

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LEADERS IN
LEVELING

ANNUAL REPORT 2019

Somero® provides industry-leading
concrete-leveling equipment, training,
education and support to customers
in over 90+ countries.

Strategic report
06 At a glance
08 chairman’s statement
10 President & chief Executive

officer’s review
13 Investment case
14 Market overview
16 Business model
18 our vision & strategy
20 Strategy in action
22 Financial review
26 risks and uncertainties

Corporate governance
28 Board of Directors
29 corporate governance report
31 Directors’ remuneration report
33 Directors’ report

Financial statements
36 report of the independent auditors
37 consolidated balance sheets
38 consolidated statement of
comprehensive income
39 consolidated statements of

changes in stockholders’ equity

40 consolidated statements of

cash flows

41 notes to the consolidated financial

statements

Strategic report

Our world-class products and
services allow contractors to
complete every installation...

FASTER

MORE DONE IN LESS TIME

the use of Somero laser-guided technology
enables our customers to install concrete
slabs faster, flatter, and with fewer workers.
completing projects quicker and more
efficiently is every contractor’s dream.

Screed up to

5,000

SQ FT PER HOUR WITH
SOMERO EQUIPMENT

Innovation
the Sky Screed® 25 is the first Laser Screed
machine in the world designed for structural
high-rise applications. the versatile articulating
knuckle boom design provides unparalleled
versatility with 360° rotation of the upper frame
and screed head providing flexibility to screed
around columns and other protrusions.

See more information on our vision & strategy
on page 18

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSFLATTER

BUSINESS CRITICAL

the concrete floor is the most critical
component of any building. It carries the load
of the entire business operation. the floor is
the foundation from which all other trades
start their work and, if improperly installed,
will show in the finished product and the
operational efficiency of the building.

Golden Trowel® Awards won for
industrial concrete floor production

157

USING SOMERO
EQUIPMENT SINCE 1990(1)

note:
1. the Golden trowel® Award is given annually to

commercial concrete contractors that achieve the highest
industry standards in concrete floor construction.

Application
Modern warehouses require high quality
flat and level concrete floors. Floor flatness
determines the types and heights of racking
systems, how quickly material handling
equipment can operate, maintenance
costs, and most importantly, the safety
of the warehouse.

See more information on our business model
on page 16

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSFEWER

ELIMINATE
LABOR COSTS

What used to take a full team of men 4 or 5
days can now be done by a Laser Screed
machine in 1 day. this represents a
cost-savings to companies of tens of
thousands of dollars per job – or millions
of dollars per year.

>50%

REDUCTION IN
LABOR COSTS

Training and support
Somero has years of experience helping
customers to solve the toughest application
or maintenance challenges associated with
Laser Screed® concrete leveling equipment.
We provide expert help 24 hours a day, 7
days a week – so we’ll always be there when
customers need us.

See more information on our training and support
on page 12

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSAt a glance

WORLD-CLASS

Financial highlights

Revenue

Adjusted EBITDA(1,2)

US$ 89.3m

US$ 28.7m

28.7m

30.8m

28.0m

24.6m

18.9m

23.8m

20.0m

17.0m

Diluted adjusted net
income per share(1,3)

Cash flow from
operating activities

US$ 0.37

US$ 18.9m

-5%
2019

2018

2017

2016

-3%
2019

2018

2017

2016

-16%
2019

2018

2017

2016

89.3m

94.0m

85.6m

79.4m

0.37

0.38

0.31

0.27

-7%
2019

2018

2017

2016

-21%
2019

2018

2017

2016

-1%
2019

2018

2017

2016

Net cash(4)

Ordinary dividend per share

US$ 23.8m

US$ 0.1875

23.8m

28.2m

19.0m

20.2m

0.1875

0.190

0.155

0.111

Visit us online at
www.somero.com/investors

% of revenue
by product group

% of revenue
by territory

Operational highlights
• Demand across markets and product lines

remained healthy

• Better than anticipated H2 recovery in the US as

weather conditions improved

• Good growth in north America, china, Latin

America and India

• new products contributed meaningfully to growth

— Sales of the Sky Screed® (the world’s first Laser
Screed machine to allow screeding on structural
high-rise applications) and the Somero Line
Dragon® product line (formerly the SP-16 Line
Pulling & Placing System) (following its
acquisition in January 2019) combined to
contribute US$ 2.2m in incremental 2019 sales

— 3-D Profiler System® and other revenues

contributed US$ 0.9m of incremental sales in
2019 compared to 2018

Post-period highlights
• In response to the rapidly evolving coVID-19

pandemic and the dramatic increase in pressure on
Somero’s non-china markets, the company
provided an update on 30 March 2020 announcing
the cancellation of the US$ 1.0m share buy-back,
the postponement of the 30 April 2020 dividend
payments, and the withdrawal of guidance for
FY2020 as outlined in the 11 March 2020 final
results. As a result of the change in outlook, certain
views expressed in those results, including in the
chairman’s and chief executive’s statements which
are reproduced unedited in this annual report, are
no longer reflective of the current situation. this
report should therefore be read together with the
30 March 2020 update.

notes:
1. the company uses non-US GAAP financial measures to provide
supplemental information regarding the company’s operating
performance. See further information regarding non-GAAP
measures below.

2. Adjusted EBItDA as used herein is a calculation of the company’s
net income plus tax provision, interest expense, interest income,
foreign exchange loss, other expense, depreciation, amortization,
stock-based compensation and non-cash lease expense.

3. Adjusted net income as used herein is a calculation of net income
plus amortization of intangibles and excluding the tax impact of
stock option and rSU settlements and other special items.

4. net cash is defined as cash and cash equivalents less borrowings
under bank obligations exclusive of deferred financing costs.

System

42% 3-D Profiler
24%
22%

remanufactured
machines

07%
05%

Boomed
screeds

ride-on
screeds

other

north
America

Europe

rest of
World

china

Middle
East

69%
14%
08%

06%
03%

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Our products
Somero products are laser-guided,
technologically innovative machinery used in
horizontal concrete placement. By using
Somero products, customers can expect
flatter floors, increased productivity, and
higher efficiency.

Somero pioneered the Laser Screed®
machine market in 1986 and has led the
market ever since through continued
innovation, growing our product offering from
a single model to a portfolio of 14 products.
our proprietary designs are protected by 73
patents and patent applications.

Our services
Every piece of Somero equipment is designed
and built to provide maximum productivity
and operation economy throughout its
working life. Somero helps customers
maintain that built-in value with a variety
of services that include in-depth training,
service contracts, extended warranty,
equipment evaluation, and mechanical
repairs. All of these offerings are in addition
to our guaranteed 24 x 7 x 365
troubleshooting over the phone with our
expert Somero technicians.

Our applications
Somero equipment is used to place
and screed the concrete slab in all
commercial building types, including
all floors in multi-story buildings.

our equipment has been used in
construction projects for a wide array
of the world’s largest organizations
including Amazon, Walmart, costco,
Home Depot, B&Q, carrefour, IKEA,
Mercedes-Benz, coca-cola, FedEx,
tesla and Prologis.

Patents and patent applications

Products in portfolio

Our locations

Warehousing

Assembly
plants

commercial
construction

Exterior
paving

North america, Fort Myers, Florida:
Global headquarters and Somero concrete Institute
training facility

Houghton, Michigan:
Production, operations and support

Parking
structures

retail
centers

UK, chesterfield:
Sales and service office

India, New Delhi:
Sales and service office

Customers in

90+

countries

china, Shanghai:
Sales, service
and Somero
concrete
college training facility

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSChairman's statement

INVESTING
TO EXECUTE
OUR GROWTH
STRATEGY

Performance and dividend
We have delivered another year of strong profits
and advanced our new product growth initiatives.
Given the challenges faced over the period,
particularly in the first half, I am very pleased
with the numbers delivered, and the fact that the
business recovered to a level higher than the top
of our previous expectations demonstrates the
underlying strength of our business.

our strong balance sheet provides us with the
flexibility to make investments to develop new
products, expand our operational capacity, and
add resources to sell and support our products
and services in new and existing markets.
these investments underpin the long-term
success of our business, and we are pleased to
be in a position to make them while maintaining
a disciplined return of cash to shareholders.

In 2019, we paid a record US$ 17.4m in
dividends. I am delighted to report that based on
confidence in the business outlook, the Board
has approved a final 2019 ordinary dividend of
13.0 US cents per share and a supplemental
dividend of 7.7 US cents per share, which on a
combined basis represents a US$ 11.7m
payment to shareholders. Both amounts are
payable on April 30, 2020 to shareholders of
record on April 14, 2020. together with the
interim dividend paid in october 2019 of
5.75 US cents per share, the 2019 full-year
ordinary dividend is 18.75 US cents per share.
the supplemental dividend declared is in
accordance with the company’s supplementary
dividend policy adopted on March 14, 2018 that
states the company intends to distribute 50% of
the excess of net cash over the year-end target of
US$ 15.0m.

the Board has also approved a US$ 1.0m share
buyback program for the purpose of mitigating
future dilution resulting from share issuances
under the company’s equity award programs.
We expect to complete this program in
H1 2020.

Strategic progress
Innovation is at the core of our strategy.
the launch of the Sky Screed® 25 in January
2019 marked a new chapter in Somero’s legacy
of innovation and opened a new, untapped
market segment. the Sky Screed® is a disruptive
technology that will dramatically change the way
work is done on structural high-rise jobsites. not
only did we achieve our target of US$ 1.0m in
first year Sky Screed® sales, we also gained a
deep understanding of this new market segment
and the jobsite challenges our customers face.
Based on our 2019 success along with the
knowledge and experience we gained, we are
confident in the meaningful long-term growth
opportunity this product and the broader market
segment represents.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

CORE VALUES

At Somero we believe in a set of core values for
how we do business, how we innovate, how we treat
our customers and employees. Our values include:

A commitment to teaching and learning

an ability to solve problems in creative ways

Being accountable and taking ownership

Operating with a sense of urgency

Proactive honest communication

Embracing and driving change

Having fun

Expressing our passion through amazing service

Making things simple

read more about our values at
www.somero.com about-us/
our-core-values

A strong culture
Every Somero employee
is committed to delivering
world-class products
and services that enable
customers to meet
their business and
profitability goals.

our presence outside our main US market remains strong and
presents significant opportunity for the future. revenues outside
north America in 2019 represented 27% of total sales in 2019
compared to 31% in 2018 as a result of several specific regional
challenges. However, non-residential construction market
conditions remain generally positive across the globe, we are
seeing meaningful contributions from new products outside the
US, and we have a clear strategy in place to deepen our
penetration of non-US markets by promoting adoption of
wide-placement theory and quality concrete flooring standards.
together, these factors give us confidence that our international
markets represent a significant long-term opportunity for Somero.

Our people
the Board enjoyed active engagement with the full
management team during the year, witnessing first-hand the
commitment and energy of the teams that run the business.
the strength of our people and culture is a key driver of our
success and essential in delivering shareholder value. We are
extremely proud to work with such a talented group of
employees who work passionately to help our customers
achieve their business goals. on behalf of the Board, I would
like to thank the management team and all 179 Somero
employees located throughout the world for delivering these
outstanding 2019 results.

Coronavirus
Whilst we have not seen an impact to date on our business,
we are closely monitoring the evolving coronavirus situation.
our supply chain has been unaffected as we do not source
components from china and while we have yet to see delays
in projects outside of china, we remain in the early stages of
understanding the impact of the virus. We will provide updates
in due course if we anticipate our full-year 2020 results will
be impacted.

Outlook
the Board is confident in the outlook for 2020 with the solid
momentum in the US carrying forward from 2019 supported
by the strength of the US customer project backlogs that span
well into 2020. outside of the US, while market conditions and
activity levels remain generally positive, the Board continues to
recognize factors impacting each market that slightly temper
underlying growth expectations for 2020.

the Board is also confident in the significant long-term growth
opportunity from new products such as the Sky Screed®, and
reflective of this confidence, and as announced on 22 January,
the Board has made the decision to increase investment in the
Sky Screed® to support its future growth. this investment will
primarily consist of adding sales and support staff for new
products and will drive an increase in operating costs that slightly
tempers our overall profitability expectations for 2020. thanks to
our strong financial position and positive momentum, the
business is in a good position to be able to make this investment
now, in order to feel the benefit in future years.

With this comprehensive view, the Board expects 2020 will be
a profitable year with healthy cash generation. revenues are
expected to be comparable to 2019 with EBItDA broadly in line
with 2019 and in line with current market expectations.

Larry Horsch
Non-Executive Chairman
March 11, 2020

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSPresident & Chief Executive
Officer’s review

THE NEXT
PHASE OF
INNOVATION

We are excited by the opportunities that
lie ahead, and I am confident in our ability
to execute our strategy, delivering strong
results and dividends for our shareholders.

SOMERO’S JOURNEY

Somero started as a single product
company in 1986 and has grown its
portfolio to 14 products over 30 years.
We are always looking for ways to improve
the construction industry and what we
can provide.

Overview
Following a well-documented challenging start
to 2019, strong and profitable trading ahead of
the Board’s expectations in H2 meant we
finished the year strong. revenues in H2 2019
were US$ 50.3m, a record level of sales and an
increase over the US$ 49.0m reported in H2
2018, as the US fully recovered from historic
levels of rainfall during the first half of 2019.
Led by the strength of H2 trading in the US, we
reported combined 2019 sales of US$ 89.3m,
EBItDA of US$ 28.7m and ended the year with
US$ 23.8m in net cash, all of which were ahead
of the guidance provided on 11 July 2019.(1)

the strength of the cash generation of the
business enabled the company to pay US$
17.4m in dividends in 2019, a record for cash
returned to shareholders, and still maintain a
strong and secure financial position to start
2020. Most importantly, we took a significant
step forward with our new product growth
initiatives marked by the successful launch of
our Sky Screed® 25.

Region reviews
three of our six markets grew in 2019 compared
to 2018 led by north America and followed to a
lesser extent by Latin America and china.

In north America, as weather conditions began
to normalize across broad sections of the US in
H2 2019 and previously delayed projects were
started, trading activity accelerated. this
improvement ultimately resulted in H2 2019
sales in north America of US$ 38.3m, a 12%
increase over H2 2018, and full-year sales of
US$ 65.5m, a 1.2% increase compared to
2018. overall, this was a significant
improvement from H1 2019 when sales were
US$ 27.2m, down US$ 3.2m compared to H1
2018. General market conditions in north
America remain favorable as we enter 2020.
With a high level of non-residential construction
activity, a continued shortage of skilled labor
and extended customer project backlogs that
span well into 2020, partly the result of ongoing
recovery from inclement weather during H1
2019, the outlook for our largest market
remains optimistic.

1986
S-240

2007
Siteshape System
copperhead

2013
StS-11M topping Spreader
S-15r Laser Screed

PRODUCT

1999
3-D profiler System

2009
Mini Screed c

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Cashflow and balance sheet
Somero’s earnings and the cash flow
generated from these profits were strong in
2019. the company delivered US$ 18.9m
in operating cash flow in 2019, down from
US$ 23.8m in 2018 due to the timing of
tax payments and the strong finish to 2019
trading that resulted in an increase in trade
receivables carrying over into 2020, and
ended the year with US$ 23.8m in net cash.

this robust financial position allowed the
company to comfortably maintain a dividend
pay-out ratio of 50% and the company’s
supplemental dividend policy. Under this
dividend policy, the company paid a total of
US$ 17.4m in dividends to shareholders in
2019, a record for the company. I am pleased
to report that reflecting the Board’s confidence
in the business outlook for the company and in
the strength of cash generation from the
business, the Board has declared a final 2019
ordinary dividend of 13.0 US cents per share
and a supplemental dividend of 7.7 US cents
per share, both payable on April 30, 2020 that
combined will result in a US$ 11.7m dividend
payment to shareholders.

Product development
new products are a significant growth driver of
the business, and in 2019 two new products,
the Somero Line Dragon® (the new generation
SP-16 Line Pulling & Placing System) and the
Sky Screed® 25, combined to contribute US$
2.0m in incremental sales compared to 2018.
this contribution was meaningful to the 2019
results and the launch of the Sky Screed® 25
was an important milestone for the company.
over the last two years, a significant portion of
our product development resources have been
focused on designing and developing solutions
for the high-rise structural market. the launch
of the Sky Screed® 25 was the culmination of
this multi-year effort. We met our first year
target of achieving US$ 1.0m in Sky Screed®
sales, gained a deep understanding of an
exciting new market segment, and now enter
2020 with confidence in both our product
offering and in the meaningful long-term growth
opportunity this product and the broader
market segment represents.

In Europe, 2019 sales declined to US$
10.0m compared to US$ 13.5m in 2018,
reflecting the impact of economic uncertainty
across the region on customer equipment
purchase decisions. Project activity levels
across the region were encouraging as we
sold products into eighteen countries there in
2019, with the most significant contributors
being the UK, Poland, Hungary, Belgium
and France. We see significant opportunities
across the region for 2020 with the main
drivers of performance being demand for
replacement equipment, technology
upgrades and new products.

We are also pleased with our 2019
performance in china despite the turmoil from
the US-china tariff dispute. revenues for this
market grew to US$ 5.6m, up from US$ 5.3m
in 2018, reflecting a focus on the products
favored in the market and effective demand
generation and sales execution led by our
in-country management. the longer-term
opportunity in china will ultimately be driven
by demand for quality concrete floors by
building owners and end-users. We will
continue to pursue market development
efforts to drive this acceptance and demand.

In Latin America, 2019 sales were US$ 2.0m,
up US$ 0.3m compared to 2018, as 2019
project activity remained solid. During the
year, the most significant contributions in the

region came from Mexico and chile.
We remain encouraged by the activity seen in
this region, particularly in Mexico and Brazil,
albeit in the early stages, and expect to see
improvement in 2020.

the Middle East was negatively impacted
by economic and geopolitical uncertainty.
2019 sales in the Middle East were US$
0.7m, a decline of US$ 1.7m compared to
2018. Although activity levels in the region
were generally solid throughout the year,
these prospects did not translate into trading
as a result of customer cautiousness. the
main contributors to sales during the period
in the Middle East were turkey, the United
Arab Emirates and Egypt.

In our rest of World region, 2019 sales
declined US$ 0.9m from 2018. the two
major territories comprising most of this
region are Australia and India. Australia
represented much of the decline in 2019
due primarily to a weakened local currency
that slowed the pace of trading. Despite the
impact of currency, we continue to see
positive non-residential construction activity
in this market. We are also pleased with the
traction we continue to gain in India as sales
grew to US$ 1.4m in 2019, a 34% increase
from 2018, and are encouraged by signs of
increasing demand for quality concrete
floors in this market.

2015
S-10a Laser Screed
Floor Levelness System

2019
Somero® Line Dragon®
Sky Screed® 25

2014
S-485 Laser Screed
S-22eZ advanced Laser Screed

2016
S-158c
S-940 Laser Screed

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

PRODUCTS

CGFS
President & Chief Executive
Officer’s review continued

As such, as previously communicated with
the market, the Board has made the decision
to increase investment in resources targeted
at developing, selling and supporting new
products, such as the Sky Screed®, in 2020
and beyond. We are confident in our ability to
deliver on these initiatives alongside
continuing to deliver profitable growth for our
shareholders.

Expansion update
the company has made significant progress
on the US$ 3.5m expansion to our Houghton,
Michigan facility. the project will add 35,000
square feet to the facility, provide our
assembly operations with needed space to
accommodate new products, and add needed
office space for our customer support and
engineering teams. the project is on track to
be completed in Q1 2020 with approximately
half of the planned project cost to be expended
in 2020.

the US$ 0.5m planned expansion to the
Global Headquarters and training Facilities in
Fort Myers, Florida has been delayed due to
a backlog in the municipality permitting
process. timing to complete the project is
currently being evaluated by management
and we will provide an update in due course.

Conclusion
2019 was a good year of progress for Somero.
We delivered robust financial results, returned
a record level of cash to shareholders and
made significant progress on our new product
initiatives. We will look to continue on our
journey towards capitalizing on the substantial
and wide-ranging opportunities in front of us,
and I am confident our management team is
up to the task. We are pleased with the health
of the north American market that is
supported by customer project backlogs that
extend well into 2020, encouraged by
opportunities in our international markets, and
excited by the long-term opportunity of our
new products.

As our performance in 2019 clearly
illustrates, our talented and agile
management team with a flexible operating
platform can steer us through challenges
without losing focus on our growth objectives.
We are extremely well positioned for our next
phase of growth and look forward to
delivering another year of substantial
progress for our shareholders.

Jack cooney
President and Chief Executive Officer
March 11, 2020

note:
1. net cash is defined as total cash and cash equivalents
less borrowings under bank obligations exclusive of
deferred financing costs.

INDUSTRY EXPERTISE,
TRAINING & SUPPORT

Somero sees training not as an added benefit for our customers; we see
this as an absolute must. When customers invest time and money with a
Somero machine, we are certainly going to invest time to make sure they
get the most out of their new Laser Screed®.

Somero offers in-depth hand-off training for customers that covers a variety
of topics ranging from hands-on Laser Screed® operation, maintenance
and troubleshooting to how to handle specific job-site situations. After
initial training, we provide customers 24/7 phone support across the globe
for any questions or support-related matters. We’ve also been known to fly
a support representative to assist with any matters that need to be dealt
with in-person.

We have taken our passion for our customers’ success one step further by
developing the Somero concrete Institute. through in-depth hands-on
training, customers benefit from real-world experience at our one-of-a-kind
training facility in Fort Myers, Florida. We offer training for all levels of
industry professionals, from new to advanced operators, with each course
tailored to specific responsibilities and skill sets in addition to American
concrete Institute certification.

Somero concrete Institute, Fort Myers, Florida

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Investment case

OUR CORE STRENGTHS

Our performance in 2019 is a great illustration of
the strength of our management team, the flexibility
of our operating model, and our commitment to
driving long-term growth.

Industry leader in introducing
customer driven, technologically
advanced new products

Significant barriers to entry
based on technology,
education, and global technical
support

Attractive global geographic
growth opportunity:
• Solid growth and market dynamics in

developed markets

• Strong potential for growth in emerging

markets

Minimal direct competition

Skilled management team with
extensive industry experience

Strong and consistent financial
performance:
• Superior margins
• Strong conversion of revenue growth into

free cash flow

• Strong, unleveraged balance sheet
• Disciplined return of cash to shareholders

through dividends

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSMarket overview

OPPORTUNITY
FOR GROWTH

Demand for Somero’s equipment is driven
by factors that apply across all the regions
we serve – the need for quality floors and
a shortage of skilled workers.

We enter 2020 in a strong
financial position, allowing us
to make investments to capture
growth in new and existing
markets with a growing
product offering.

Jack cooney
President and chief Executive officer

New Houghton expansion
Somero expects to complete its US$ 3.5m
expansion to our Houghton, Michigan facility
in H1 2020. this expansion adds 35,000
square feet to the facility, providing our
assembly operations with needed space to
accommodate our broadening product line.

Location

NORTH
AMERICA

Estimated 2020 global
cement consumption(1)

03%
EUROPE

Estimated 2020 global
cement consumption(1)

05%

CHINA

Estimated 2020 global
cement consumption(1)

55%

REST OF
WORLD

Estimated 2020 global
cement consumption(1)

36%

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Market dynamics

Drivers of growth

• Largest market
• commercial construction industry
fundamentals remain positive in
the US

• Healthy economy supported by
extended customer project
backlogs are positive factors for
US construction industry outlook

• US non-residential construction
spend forecast to grow by 3%
annually through to 2020(2)
• new technology to upgrade
fleet of installed equipment

• Fleet additions
• new product introductions
• Shortage of skilled labor in

concrete construction industry

• Second largest installed base of

•

equipment

• Healthy commercial construction

outlook across the European region

Increased commercial
construction activity across
mainland Europe

• new technology to upgrade
installed base of equipment

• Fleet additions
• new product introductions
• Shortage of skilled labor in

concrete construction industry

• Most significant opportunity for
long-term growth outside north
America

• cement consumption forecast to
represent over 50% of 2020(2)
world cement consumption
• current market penetration

very low

• Large multinational projects
requiring high-quality floors
adhering to Western standards
• Broader domestic acceptance of
wide-placement and Western
flatness, levelness floor
specifications
Increased availability of long-term
financing options for customers

•

• new product introductions
Increasing shortage of
•
skilled labor

• current market penetration

• Accelerating commercial

wvery low

• Most significant opportunity in

region is India that is forecast to
represent 8% of 2020(2) world
cement consumption
• Significant opportunities

in the Middle East, Southeast
Asia, Latin America and Australia

construction activity across
mainland Europe

• new technology to upgrade
installed base of equipment

• Fleet additions
• new product introductions
• Shortage of skilled labor in

concrete construction industry

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

notes:
1. Source: cembureau, cemnet and Morgan

Stanley.

2. FMI research Services Group 2019

construction outlook report.

CGFSBusiness model

OUR SIMPLE &
PROVEN MODEL

The use of Somero equipment and service
delivers significant benefits to our
customers and the owners and end-users
of the completed construction projects,
a true win-win proposition.

Somero is much more than simply a seller
of equipment. We are committed to
making our customers successful in
their businesses by providing unparalleled
industry expertise, service, training and
support and by developing innovative
new products that address our
customers’ needs.

Jack cooney
President and chief Executive officer

What we do

Somero customers
Small, medium and large concrete
contractors and self-performing
general contractors. Somero
operates in markets across the
globe, selling products in 90+
countries with minimal direct
competition.

Applications
Somero’s laser-guided technology
and wide-placement methods have
been specified for use in a wide
range of construction projects.

Warehousing

Assembly
plants

commercial
construction

Exterior
paving

Parking
structures

retail
centers

Building owners and end-users
Somero equipment has been used in
construction projects for a wide array
of the world’s largest organizations.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Increases quality

Key benefits to our customers
•
• Productivity
• Profit
• Direct access to Somero expertise,

training and support

Key benefits to our employees
• challenging and rewarding work
environment full of opportunity
Investment in training to help each
employee reach their full potential

•

What makes us different

Our beneficiaries

Innovative product leadership
• Pioneered Laser Screed® machine

market in 1986

• Product portfolio grown to 14 products
• Designs protected by 73 patents/

applications

• Product development fueled by

customer engagement

Key outcomes for building
owners and end-users
• operational efficiency
•
• Lower floor maintenance cost
• Lower forklift repair cost

Improved physical appearance

Industry expertise,
training and support
• Proven commitment to exceptional

classroom/job-site training

• 24/7 direct global support (in 10
minutes, all major languages)

• overnight spare parts delivery, next

day world travel

• Somero concrete college & Institute

Key benefits to our investors
• Strong, consistent financial

performance

• Significant growth opportunity in new

and existing markets

• Strong, unleveraged financial position
• Disciplined return of cash to

shareholders

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSOur vision & strategy

A ROADMAP
FOR
SUSTAINABLE
GLOBAL
GROWTH

Our strategy is to provide innovative
products and solutions to concrete
flooring contractors that enable them to
attain the highest level of flat-floor
precision at the lowest cost, and to
develop and penetrate the global market
for our products and services.

INNOVATING
FOR THE FUTURE

Our strategy
Our strategy for growth is to leverage
our strengths, expand and deepen our
global footprint, and continue to provide
innovative products.

Product innovation
Somero continues to push the industry
forward with innovative proprietary designs.
We currently offer 14 products protected by
73 patents and patent applications.
In 2019, we launched the Sky Screed® 25, the
world’s first laser screed for use in structural
high-rise applications and launched the
next -generation Somero Line Dragon® (formerly
the SP-16 Line-Pulling and Placing System).
these products combined to contribute US$
2.2m of incremental sales compared to 2018.

Find out more at
www.somero.com/products

International expansion
Somero is committed to growing our business
globally through continued investment in
adding international employees and
promoting adoption of wide-placement theory
and quality concrete flooring standards.
currently, 30% of our non-operational
employees are located internationally. our
presence outside our main US market
remains strong and presents a significant
opportunity for the future that we anticipate
will also benefit from new products.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Somero Line Dragon®
In January of 2019, Somero acquired Line
Dragon and the synergies from this acquisition
have resulted in the industry’s most advanced
Placer and Puller machine. Introducing the next
generation, the Somero Line Dragon® Line-
Pulling and -Placing System.

LATEST
PRODUCTS

Product innovation
Product development for Somero
has always been a customer led
process. We understand customer
involvement throughout the
development cycle is critical to
ensure our ideas turn into tangible
products that create meaningful
value for our customers.

Somero Sky Screed® 25
the Sky Screed® 25 provides labor savings,
improved floor quality and increased
productivity that will allow customers to
save time and money on their next project.
Importantly, the Sky Screed® 25 is the first
step in a longer-term product development
journey to penetrate a completely new
market segment for Somero, structural
high-rise applications.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSStrategy in action

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

PRODUCT INNOVATION

REACHING
NEW
HEIGHTS

Future focused
Bringing the Sky Screed® 25 to market was the
result of two years of dedicated market research
and direct engagement with customers to
understand their challenges that formed the basis
for designing an innovative solution to these
challenges. the Sky Screed® 25 is the first Laser
Screed® machine in the world designed for
screeding on structural high-rise applications.
the versatile articulating knuckle boom design
provides unparalleled versatility with 360° rotation
of the upper frame and screed head providing
flexibility to screed around columns and
other protrusions.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSFinancial review

Summary of financial results

revenue
cost of sales

gross profit

operating expenses
Selling, marketing and customer support
Engineering and product development
General and administrative

total operating expenses

operating income

other income (expense)
Interest expense
Interest income
Foreign exchange impact
other

income before income taxes
provision for income taxes

Net income

Basic earnings per share
Diluted earnings per share
Basic adjusted net income per share (1) (2) (4)
Diluted adjusted net income per share (1) (2) (4)

other data
Adjusted EBItDA (1) (2) (4)
Adjusted net income (1) (3) (4)
Depreciation expense
Amortization of intangibles
capital expenditures

Year ended December 31,

2019 US$ 000

2018 US$ 000

except per
share data

89,306
38,602

50,704

11,108
1,796
11,198

24,102

26,602

(42)
241
(71)
310

27,040
5,929

21,111

per Share
US$

0.37
0.37
0.38
0.37

28,714
21,126
977
145
3,015

except per
share data

94,001
40,375

53,626

11,059
1,357
12,037

24,453

29,173

(54)
188
(42)
(191)

29,074
7,531

21,543

Per Share
US$

0.38
0.38
0.38
0.38

30,837
21,407
1,175
–
803

notes:
1. Adjusted EBItDA and Adjusted net income are not measurements of the company’s financial performance under US GAAP and should not be considered as an alternative to net
income, operating income or any other performance measures derived in accordance with US GAAP or as an alternative to US GAAP cash flow from operating activities as a
measure of profitability or liquidity. Adjusted EBItDA and Adjusted net income are presented herein because management believes they are useful analytical tools for measuring
the profitability and cash generation of the business. Adjusted EBItDA is also used to determine pricing and covenant compliance under the company’s credit facility and as a
measurement for calculation of management incentive compensation. the company understands that although Adjusted EBItDA is frequently used by securities analysts,
lenders, and others in their evaluation of companies, its calculation of Adjusted EBItDA may not be comparable to other similarly titled measures reported by other companies.

2. Adjusted EBItDA as used herein is a calculation of the company’s net income plus tax provision, interest expense, interest income, foreign exchange loss, other expense,

depreciation, amortization, stock-based compensation and non-cash lease expense.

3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding the tax impact of stock option and rSU settlements and other

special items.

4. the company uses non-US GAAP financial measures to provide supplemental information regarding the company’s operating performance. the non-US GAAP financial measures
presented herein should not be considered in isolation from, or as a substitute to, financial measures calculated in accordance with US GAAP. Investors are cautioned that there
are inherent limitations associated with the use of each non-US GAAP financial measure. In particular, non-US GAAP financial measures are not based on a comprehensive set of
accounting rules or principles, and many of the adjustments to the US GAAP financial measures reflect the exclusion of items that may have a material effect on the company’s
financial results calculated in accordance with US GAAP.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Net income to adjusted EBITDA reconciliation and Adjusted net income reconciliation

adjusted eBitDa reconciliation
net income
tax provision
Interest expense
Interest income
Foreign exchange impact
other
Depreciation
Amortization
Stock-based compensation
non-cash lease expense

adjusted eBitDa

adjusted net income reconciliation
net income
Amortization
tax impact of stock option & rSU settlements

adjusted net income

Year ended December 31,

2019

US$ 000

2018

US$ 000

21,111
5,929
42
(241)
71
(310)
977
145
760
230

28,714

21,111
145
(130)

21,126

21,543
7,531
54
(188)
42
191
1,175
–
489
–

30,837

21,543
–
(136)

21,407

2. Adjusted EBItDA as used herein is a calculation of the company’s net income plus tax provision, interest expense, interest income, foreign exchange loss, other expense,

depreciation, amortization, stock-based compensation and non-cash lease expense.

3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding the tax impact of stock option and rSU settlements and other

special items.

4. the company uses non-US GAAP financial measures in order to provide supplemental information regarding the company’s operating performance. the non-US GAAP financial
measures presented herein should not be considered in isolation from, or as a substitute to, financial measures calculated in accordance with US GAAP. Investors are cautioned
that there are inherent limitations associated with the use of each non-US GAAP financial measure. In particular, non-US GAAP financial measures are not based on a
comprehensive set of accounting rules or principles, and many of the adjustments to the US GAAP financial measures reflect the exclusion of items that may have a material effect
on the company’s financial results calculated in accordance with US GAAP.

Revenues
the company’s consolidated revenues declined by 5% to US$ 89.3m (2018: US$ 94.0m). company revenues consist primarily of sales from
Boomed screed products, which include the S-22E, S-22EZ, S-15r and S-10A Laser Screed machines, sales from ride-on screed products,
which are drive through the concrete machines that include the S-840, S-485, S-940 and S-158c Laser Screed machines, remanufactured
machine sales, 3-D Profiler System, Somero Line Dragon (formerly SP-16 concrete Hose Line-Pulling and Placing Systems), Sky Screed® 25
and other revenues which consist primarily of revenue from sales of parts and accessories, sales of other equipment, service, training and
shipping charges.

ride-on screed sales declined to US$ 16.9m (2018: US$ 22.9m) due to lower volume, partially offset by price increases, Boomed screed
sales declined to US$ 38.0m (2018: US$ 39.1m) due to lower volume, partially offset by price increases, the Somero Line Dragon, including
SP-16 concrete Hose Line-Pulling and Placing Systems, sales increased to US$ 2.8m (2018: US$ 1.6m) due to higher volume, the Sky
Screed® 25 contributed US$ 1.0m, and other revenues increased to US$ 20.0m (2018: US$ 19.2m) primarily due to increased sales of parts
and accessories.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSFinancial review continued

Revenue breakdown by geography

North america
US$ in millions

eMea(1)
US$ in millions

roW(2)
US$ in millions

total
US$ in millions

2019

2018

% of

Boomed screeds(3)
ride-on screeds(4)
remanufactured machines
3D Profiler System
Somero Line Dragon(5)
Sky Screed® 25
other(6)

total

2019

27.4
12.7
3.0
5.8
2.2
1.0
13.4

65.5

2018

27.0
16.6
2.3
5.3
1.5
–
12.0

64.7

2019

2018

2019

2018

Net sales

net sales

4.9
2.3
0.7
0.2
0.5
–
2.1

8.7
4.0
0.4
0.2
0.1
–
2.5

5.7
1.9
0.7
0.2
0.1
–
4.5

3.4
2.3
2.4
0.6
–
–
4.7

38.0
16.9
4.4
6.2
2.8
1.0
20.0

42.6%
18.9%
4.9%
6.9%
3.2%
1.1%
22.4%

39.1
22.9
5.1
6.1
1.6
–
19.2

41.7%
24.4%
5.4%
6.5%
1.7%
–
20.3%

10.7

15.9

13.1

13.4

89.3

100.0%

94.0

100.0%

notes:
1. EMEA includes the Europe, Middle East, Scandinavia and russia markets.
2. roW includes the china, Australia, Latin America, Korea, India and Southeast Asia markets. In the 2018 Annual report, India was included in EMEA. India has been reclassified

in the above table and is included in roW for the years presented.

3. Boomed Screeds include the S-22E, S-22EZ, S-15r, and S-10A.
4. ride-on Screeds include the S-840, S-940, S-485, and S-158c.
5. Includes sales of the Somero Line Dragon and its predecessor the SP-16 concrete Hose Line-Pulling and Placing Systems.
6. other includes parts, accessories, services and freight, as well as other equipment such as the StS-11M topping Spreader, copperhead, and Mini Screed c.

Units by product line

Boomed screeds
ride-on screeds
remanufactured machines
3D Profiler System

total

2019

128
159
27
56

370

2018

132
234
35
59

460

Sales to customers located in north America contributed 73% of total revenue (2018: 69%), sales to customers in EMEA (Europe, Middle
East, Scandinavia, and russia) contributed 12% (2018: 17%) and sales to customers in roW (Southeast Asia, Australia, Latin America, India
and china) contributed 15% (2018: 14%).

Sales in north America were US$ 65.5m (2018: US$ 64.7m) up 1.2% driven by higher volume and price increases across most of the
product lines, coupled with incremental sales from new products including the Somero Line Dragon, the Sky Screed® 25 and an increase in
other revenues. Sales in EMEA were US$ 10.7m (2018: US$ 15.9m) which is down 33% primarily due to an decline in Boomed screed,
ride-on screed sales, and other revenues, offset by an increase in sale of Somero Line Dragon (formerly SP-16 concrete Hose Line-Pulling
and Placing Systems). Sales in roW were US$ 13.1m (2018: US$ 13.4m), representing a 2.0% decline driven by lower sales of ride-on
screeds, remanufactured machines, 3D Profiler Systems and other revenues, offset by an increase in Boomed screed sales.

regional sales

north America
Europe
china
Middle East
Latin America
rest of World(1)

total

note:
1. roW includes Australia, India, Southeast Asia, Korea and russia.

US$ in millions

2019

65.5
10.0
5.6
0.7
2.0
5.5

89.3

2018

64.7
13.5
5.3
2.4
1.7
6.4

94.0

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

Gross profit
Gross profit declined to US$ 50.7m (2018: US$ 53.6m), with gross margins remaining steady at 57.0% with modest selling price increases,
favorable product and geographical mix, and productivity gains, offsetting normal inflationary cost increases.

Operating expenses
operating expenses declined by US$ 0.4m to US$ 24.1m (2018: US$ 24.5m). this decrease is due to lower administrative costs, offset by
higher engineering and product development expenses.

Debt
As of December 31, 2019, the company had no outstanding debt and there were no changes to the company’s US$ 10.0m secured revolving
line of credit which will mature in February 2021.

Other income (expense)
other income (expense) was US$ 0.4m of other income, compared to other expense of US$ 0.1m in 2018, primarily due to a gain on a
non-cash payment for intangible assets.

Provision for income taxes
the provision for income taxes was US$ 5.9m in 2019 compared to US$ 7.5m in 2018. overall, Somero’s effective tax rate changed to 21.9%
in 2019 from 25.9% in 2018.

Earnings per share
Basic earnings per share represents income available to common stockholders divided by the weighted average number of shares outstanding
during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common
shares had been issued, as well as any adjustments to income that would result from the assumed issuance.

Potential common shares that may be issued by the company relate to outstanding stock options and restricted stock units. Earnings per
common share has been computed based on the following:

Income available to stockholders
Basic weighted shares outstanding
net dilutive effect of stock options and restricted stock units

Diluted weighted average shares outstanding

Basic earnings per share
Diluted earnings per share
Basic adjusted net income per share
Diluted adjusted net income per share

Year ended December 31,

2019
US$ 000

2018
US$ 000

21,111
56,330,400
489,218

21,543
56,276,778
451,573

56,819,618

56,728,351

per Share

US$

Per Share

US$

0. 37
0. 37
0. 38
0. 37

0. 38
0. 38
0. 38
0. 38

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFS
Risks and uncertainties

The key risks and uncertainties facing
the Company are considered as part of
the Company’s established process for
identifying, evaluating and managing risk.
Impacts of significant risks and their
mitigation are monitored at Board
meetings throughout the year and are
subject to annual review by the Audit
Committee. The key risks facing the
business and the processes in place to
manage those risks are:

Bank obligations
In February 2016, the company entered into an amended
credit facility that included a US$ 10.0m secured revolving
line of credit that will mature in February 2021. the
company’s credit facility is secured by substantially all its
business assets.

Employee retention
the company has a number of programs in place to retain
key employees including a savings and retirement match
for employees, restricted stock units (rSUs) for employees,
stock options for key employees and a compensation
program to attract and retain key employees.

Economic and industry conditions
Somero’s financial performance is affected
by a number of factors, including the cyclical nature of the
non-residential concrete construction industry, as well as the
varying economic conditions of its geographic markets.
Somero’s primary geographic markets are north America,
Europe and china, however, the company has a growing
presence in Southeast Asia, Eastern Europe, Australia, the
Middle East, Africa and Latin America. Demand in these
markets continues to fluctuate in response to overall
economic conditions and to the amount of private sector
spending on commercial construction projects.

Product development
Somero invests over 2.0% of sales on product development
and introduces new products each year. Somero’s product
development effort is a customer driven process focused
on customer needs and value requirements. new products
are meaningful contributors to the company’s growth. In
2019, sales of the Sky Screed® 25 and the Somero Line
Dragon® combined to contribute US$ 2.2m in incremental
2019 sales compared to 2018.

Product replacement demand
the company’s financial performance
is also dependent on the replacement and refurbishment of
older products as they reach the end of their expected life
cycles. Somero equipment is in a period of demand for
replacement as older machines reach the end of their life
cycles. Somero’s level of replacement demand is also
dependent on its ability to continue developing enhanced
models with advanced technology that encourage
customers to replace older machines.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Strategic report

the company’s financing agreement with citizens Bank imposes
various restrictions and covenants on the company which could
potentially limit its ability to respond to market conditions, to provide
for unanticipated capital investments or to take advantage of business
opportunities. the restrictive covenants include limitations on the
incurrence of additional indebtedness, limitations on the creation of
liens and limitations on asset sales and other fundamental changes,
limitations on payment of dividends and limitations on the redemption
or repurchase of outstanding capital stock, among other restrictions.
the covenants also include financial measures such as a minimum
debt service ratio, minimum net tangible asset ratio and a maximum
funded debt to EBItDA ratio. the company was in compliance with all
debt covenants at the end of 2019. the Directors believe that funds
generated from operations, together with existing cash, will be sufficient
to meet the company’s debt obligations over the next 12 months.
the Directors also expect that existing cash, available funds from the
financing agreement with citizens Bank, and funds generated from
operations will be sufficient to meet anticipated operating requirements
and to fund planned capital expenditures for the remainder of 2020.

Somero had capital expenditures of US$ 3.0m in 2019 and US$ 0.8m
in 2018. the majority of the expenditures during these periods were
related to construction of the new Houghton facility expansion and the
Somero concrete Institute building in Florida, computer hardware and
software upgrades and information technology upgrades.

the Directors will, from time to time, evaluate opportunities to sell
equity or debt securities, and/or obtain credit facilities from lenders,
which could result in dilution to the company’s stockholders and
increased interest expense.

this Strategic report was approved by the Board on March 11, 2020
and signed on its behalf by:

Jack cooney
President and Chief Executive Officer
March 11, 2020

Global market penetration
Somero’s financial performance is impacted by its ability to
successfully enter and penetrate international markets. Europe and
china represent Somero’s primary markets outside the US, and
Somero has primarily focused on developing these markets with a
secondary focus on Latin America, Australia, Middle East, Southeast
Asia and India. Somero’s primary market development activities are to
promote the benefits of the company’s technology, wide-placement
theory, and the demand for quality flat and level floors through
education and marketing efforts in emerging markets.

Interest rates
Somero’s financial performance is also linked to prevailing interest
rates; see “Liquidity and capital resources” below. In February 2016,
the company entered into an amended credit facility that included
a US$ 10.0m secured revolving line of credit that will mature in
February 2021. the company’s credit facility is secured by
substantially all its business assets.

Liquidity and capital resources
Liquidity
the company’s principal liquidity needs are for payroll, lease
obligations, purchases of component parts and other inventory
items, payments for professional services from third party providers,
and interest and principal payments on its long-term debt.
the company’s primary sources of liquidity are cash balances,
cash provided by operations and its available revolving line of credit
with citizens Bank of up to US$ 10.0m. operations are primarily
funded through existing cash.

Capital resources
currently, the company’s capital expenditure plans include
investment in tools and equipment to increase the efficiency of the
assembly and remanufacturing processes and regular replacement
of information technology equipment. one element of Somero’s
strategy is to identify and acquire businesses that have
complementary products and services. Somero may finance such
future acquisitions from internally generated funds, bank borrowings,
public or private securities offerings or some combination of these
methods. In addition, the company may issue debt or equity
securities as some or all of the consideration for such acquisitions.
Somero cannot predict the level of financing that may be required
in connection with future acquisitions. As of December 31, 2019,
the company had not drawn any amounts under the revolving portion
of its citizens Bank Financing Agreement.

the strong performance and relationship with its bank enabled the
company to amend its credit facility so that it matures in February
2021. the amended facility allows management access to funding
if needed to implement its strategic plan, successfully introduce
new products into the market and maximize opportunities from
investments in emerging markets.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

CGFSBoard of Directors

Lawrence L. Horsch
Non-executive chairman of the Board

Mr. Horsch, age 85, came to Somero in october 2009 with extensive
experience having served on 26 company boards, invested in
30 venture projects and conducted four corporate turnarounds.
He co-founded SciMed Life Systems prior to its merger with Boston
Scientific corporation, after which he served on the Boston Scientific
corporation board. Mr. Horsch currently serves as the chairman of
Leuthold Funds Inc. and Pioneer Sales Group. Mr. Horsch has been
a business consultant since 1990. He is a graduate of the University
of St. thomas, received an MBA in Finance from northwestern
University, and is a chartered Financial Analyst.

John t. (Jack) cooney
president, chief executive officer and Director

Mr. cooney, age 73, joined Somero in December 1997 and has
served as its chief Executive since that time. He has been a director
of the company since August 2005. Mr. cooney has 33 years of
experience in various senior management and sales and marketing
positions. From 1995 to 1997, Mr. cooney served as the chief
executive officer of Advance Machine company, a US$145m
industrial equipment manufacturer located in Minneapolis,
Minnesota, USA. From 1990 to 1995, he was the vice president of
sales and marketing, as well as the vice president of manufacturing,
at Ganton technologies, an aluminum die caster and precision
machine business located in Wisconsin, USA. Mr. cooney has an
Associate’s degree in Industrial Engineering from central new
England college and a Master of Business Administration degree
from college of St. thomas.

John Yuncza
chief Financial officer, Secretary and Director

Mr. Yuncza, age 49, joined Somero in May 2015 to serve as chief
Financial officer. Mr. Yuncza has over 20 years of experience in
various finance and senior management roles. Most recently,
Mr. Yuncza served as chief Financial officer of Datamax-o’neil, a
subsidiary of Dover corporation. Prior to his role at Datamax-o’neil,
Mr. Yuncza held a variety of senior financial roles at Pegasus
communications, Legg Mason Wood Walker, Fifth third Bancorp in
addition to serving as an Audit Manager at KPMG LLP. Mr. Yuncza
earned a Bachelor of Science degree from St. Joseph’s University in
Philadelphia and an MBA from the Yale School of Management.

Howard e. Hohmann
executive Vice president of Sales Worldwide, Director

Mr. Hohmann, age 58, joined Somero in 1997 and currently serves
as Executive Vice President of Sales, Marketing and customer Service
Worldwide. Mr. Hohmann also developed and managed Somero’s
Field Support team and was part of its Product Development team.
Mr. Hohmann brings nearly three decades of career expertise in the
concrete industry, previously working as Founder, owner & President
of one of the eastern United States’ largest and most successful
concrete contractors, placing all aspects of concrete floors from coast
to coast. Mr. Hohmann was also a concrete flooring consultant,
teaching procedures, practices and designs, alongside the inventors
of the Somero Laser Screed. Additionally, he has developed and
managed sales in emerging markets, and managed both marketing
and inside sales departments. Mr. Hohmann also served the U.S.
Marine corps.

thomas M. anderson
Non-executive Director

Mr. Anderson, age 69, retired after 30 years of service as president
and chief executive officer of Schwing America, Inc. to become the
president and managing partner of Schwing Bioset, Inc. He also
served as the managing partner of concrete Pump repair from 1989
to 2013. Mr. Anderson participated in compensation decisions for all
three companies. He is also a partner in Engineered chassis
Systems, a specialty truck manufacturer. He spent 22 years on the
board of directors of the American concrete Pumping Association
and five years as the president of the concrete Pump Manufacturers
Association. Mr. Anderson previously served on the board of directors
of Somero Enterprises, Inc. from 1997 to 1999 prior to the sale of the
company to Dover corporation. Along with his affiliation with Somero,
Mr. Anderson stays active in the concrete industry with an investment
in Southwest concrete Pumping based in colorado.

robert Scheuer
Non-executive Director

Mr. Scheuer, age 61, has served in a series of senior executive
roles at Dover corporation, an $8 billion Fortune 500 company.
Most recently, from 2011 to 2014, Mr. Scheuer was chief Financial
officer and Vice President Finance of Dover Engineered Systems,
a $3.8 billion business segment of Dover corporation. In this role,
Mr. Scheuer provided strategic guidance to the 14 operating company
cEos/cFos in the segment and directed over 140 global employees
in FP&A, budgeting, forecasting, acquisitions, compliance,
accounting and reporting. Prior to this role, from 2007 to 2011
Mr. Scheuer served as chief Financial officer and Vice President
of Finance of Dover Industrial Products, a $2.4 billion business
segment of Dover corporation and from 1998 to 2007 as chief
Financial officer and Vice President of Finance of Dover Industries,
a $1.2 billion business segment of Dover corporation. Prior to his
tenure at Dover corporation, from 1986 to 1998, Mr. Scheuer served
in a variety of leadership roles at Kraft Foods, Inc., most recently as
controller of the Grocery Products Division, a $1.7 billion multi-brand
portfolio with 6 major product lines. Mr. Scheuer received a Bachelor
of Science degree from DePaul University and an MBA from
northwestern University J.L. Kellogg School of Management.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Corporate governance report

corporate goVerNaNce

the Board recognizes the value and importance of, and is committed
to high standards of corporate governance, and all Directors are fully
aware of their duties and responsibilities. In accordance with rule 26
of the AIM rules for companies, the company confirms that it has
adopted and observes the QcA corporate Governance code (the
“code”). the Board considers that the company complies with the
requirements of the code and continues to implement a robust
governance structure to ensure continued compliance with the code.
the information below (in conjunction with our corporate governance
disclosures that can be found on our website at www.somero.com)
sets out those disclosures that the company is required to include in
its annual report as well as information relating to how the company
may deviate from the code.

In accordance with Principal 1 of the code the company’s business
model and strategy, including key challenges in their execution and how
these are addressed, are set out on pages 16-17 and 26-27 of this
annual report.

Principle 2 requires that Somero seeks to understand and meet
shareholder needs and expectations. the Directors are committed to
maintaining good communications with the shareholders and quickly
responding to all queries received. All shareholders will have at least
20 working days’ notice of the AGM at which the majority of Directors
are introduced and available for questions. Institutional investors and
analysts are invited to briefings by Somero immediately after the
announcement of Somero’s interim and full year results and all
shareholders are encouraged to participate in Somero’s AGM. the
chairman is contactable at Somero’s registered office, and all of the
Directors are expected to attend the AGM.

Principle 3 requires that Somero take into account wider stakeholder
and social responsibilities and their implications for long-term
success. Investors and shareholders are invited to learn more about
Somero’s business and relationship strategies on pages 16-21 of this
annual report. Somero strives to develop long-standing relationships
with customers and shareholders alike; maintaining open lines of
communication, availability to conduct site tours and a robust library
of online content that demonstrates the unique value proposition of
our products. For further information, please contact Somero at
www.somero.com.

In accordance with Principal 4 of the code the Board reviews the
company’s strategic plans each year. on a regular basis, the
company’s significant risks are updated and appropriate control
strategies and accountabilities are agreed. the Board has set clear
terms of reference for each of its committees and the company has
an organizational structure with clearly defined and documented
delegation of authority to executive management and reporting
systems for financial results, risk exposure and control assessment.
the company has a comprehensive system for reporting financial
results to the Board. the company is committed to competence and
integrity of management and staff at all levels, through its values
statement, comprehensive recruitment, training and appraisal
programs. the company has established controls and procedures
over the security of data held on computer systems and has put in
place suitable disaster recovery arrangements. A number of the
company’s key functions, including treasury and taxation, are dealt
with centrally. the chief Financial officer reports on an as needed
basis to keep the Board updated. there is no dedicated resource
for internal audit functions, which is considered sufficient for the
company due to its size. Day-to-day management of the company’s
activities is delegated to senior management and is considered
sufficient for the company. the Board has overall responsibility for

identifying, evaluating and managing major business risks facing
the company. It annually reviews all operating unit assessments
of business risk exposure and control, including compliance
assessments, and determines appropriate action, taking into account
the recommendations of senior management.

An ongoing review of the effectiveness of the system of internal
control for the year ended December 31, 2019 has been maintained
and has taken account of any material developments since the
year end.

In accordance with Principal 5 of the code the Board comprises six
Directors, three of whom are Executive Directors and three of whom
are non-Executive Directors.

the Board regards the non-Executive chairman, Lawrence Horsch,
and each of thomas Anderson and robert Scheuer as independent
non-Executive Directors. the Board recognizes that Mr. Horsch and
Mr. Anderson each has served as an independent non-Executive
Director for more than nine years. notwithstanding, having carefully
considered the individual circumstances, the Board has determined
that both Mr. Horsch and Mr. Anderson continue to be independent.
this determination is reviewed on an ongoing basis and is based on a
range of factors including the Board’s determination that (i) neither
Mr. Horsch nor Mr. Anderson are dependent on his compensation as
a director of the company and (ii) both Mr. Horsch and Mr. Anderson
have the strength of character and integrity to remain unaffected by
circumstances that, in theory, may compromise their independence.

All independent non-Executive Directors are selected from outside
the company with due regard being given to their ability to contribute
to the Board in light of knowledge, skills and experience required. the
Board believes that the current composition is sufficient for the
company’s current size (the company is a smaller company) and the
Board has been structured to ensure that an appropriate mix of skills
and experience are in place to allow it to operate effectively and to
support the development of the company’s strategy and long-term
objectives. the composition of the Board will be regularly reviewed by
the nomination committee to ensure this balance of skills, experience
and knowledge is maintained.

the time commitment required from each Director is set out in his/
her letter of appointment. the nomination committee is responsible
for considering annually whether each Director is able to devote
sufficient time to his/her duties. During the year, there were twelve
regularly scheduled monthly Board meetings, two Audit committee
meetings, one remuneration committee meeting and one
nomination committee meeting.

In accordance with Principal 6 of the code, the Board’s membership
consists of the individuals whose credentials are outlined on page 28
of this report.

on joining the Board, new Directors will receive a comprehensive
induction. It is expected that Directors will receive regular updates on
legal, regulatory and governance issues.

In accordance with Principal 7 of the code the Board periodically
conducts a formal performance evaluation and considers the balance
of skills, experience, independence and knowledge of the company on
the Board and its diversity, including gender, how the Board works as
a unit, and other factors relevant to its effectiveness. the composition
and functioning of the Board were reviewed and evaluated by the
nomination committee in 2019 and it was determined the Board as
constructed serves the company’s needs for proper governance.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRFScorporate governance report continued

In respect of compliance with Principal 8 of the Code, a critical
aspect of the Company’s strategy is to be perceived as a trusted
partner of our customers. In order to achieve this objective, a culture
of teamwork, openness, integrity and professionalism forms a key
element of our company principles and values which sets out the
standards of behavior we expect from all our employees. The Board
supports and promotes the principles of equal opportunities in
employment and promotes a culture where every employee is treated
fairly, as discussed in the Chairman’s statement on page 8 of this
report. The Board and management conduct themselves ethically at
all times and promote a culture in line with the standards set out in
the employee hand book. Principal risks and uncertainties facing the
business, as outlined on pages 26-27 of this report, are regularly
monitored by the Board along with the processes in place to mitigate
those risks.

Principle 9 requires Somero to maintain governance structures and
processes that are fit for purpose and support good decision-making
by the Board. Somero has a number of committees: the Audit
Committee, the Remuneration Committee and the Nominations
Committee. For further information on the individual roles of Board
members or for information in respect of the roles of each committee,
please refer to the additional information regarding Somero’s Board of
Directors on page 28 of this annual report, and the additional
discussion regarding the committees to follow in this report. The
Board is responsible for formulating, reviewing and approving the
Group’s strategy, budgets and corporate actions, and is collectively
responsible for the long-term success of Somero. Certain matters are
specifically reserved for decision by the Board and documented in a
written schedule which will also be reviewed annually.

In accordance with Principal 10 of the Code the Company has a
number of committees: the Audit Committee, the Remuneration
Committee and the Nomination Committee.

The Audit Committee comprises of Messrs. Scheuer, Anderson and
Horsch, and is chaired by Mr. Scheuer. The Audit Committee
determines and examines any matters relating to the financial affairs
of the Company, including the terms of engagement of the Company’s
auditors and, in consultation with the auditors, the scope of the audit.
It receives and reviews reports from management and the Company’s
auditors relating to the interim and annual accounts and the
accounting and internal control systems in use throughout the
Company. In addition, it ensures that the financial performance,
position and prospects of the Company are properly monitored and
reported on. The Audit Committee has unrestricted access to the
Company’s auditors.

The following table summarizes audit, tax and other fees paid by the
Company to its auditor and tax service provider in 2019 and 2018.

Year ended
December 31,
2019
US$ 000

Year ended
December 31,
2018
US$ 000

178
227
–

173
91
–

Audit
Tax
Other

The Remuneration Committee comprises of Messrs.
Anderson, Scheuer and Horsch, and is chaired by Mr. Anderson.
The Remuneration Committee measures the performance of the
Executive Directors and key members of senior management as a
prelude to recommending their annual remuneration, bonus awards
and awards of share options to the Board for final determination.
The Remuneration Committee also makes recommendations to the
Board concerning the allocation of share options to employees.

The Nomination Committee comprises of Messrs.
Horsch, Anderson and Scheuer and is chaired by Mr. Horsch.
The Nomination Committee regularly reviews the structure,
size and composition (including the skills, knowledge and experience)
required of the Board compared to its current position. It also makes
recommendations to the Board with regard to any changes; gives
full consideration to succession planning for Directors and other
senior executives in the course of its work, taking into account the
challenges and opportunities facing the Company, and what skills
and expertise are therefore needed on the Board in the future. It is
responsible for identifying and nominating for the approval of the
Board, candidates to fill Board vacancies as and when they arise.
The Nomination Committee supports equal opportunities in
employment and advancement and opposes all forms of unlawful
or unfair discrimination on the grounds of color, race, religion, age,
nationality, gender or marital status. Full and fair consideration is
given to applications for employment from disabled people. All our
benefits are accessible to every staff member and we encourage
and support personal and professional development. In addition to
the three permanent committees discussed above, in accordance
with applicable law and best practice the Board establishes ad hoc
committees from time to time to deal with discrete matters within the
Board’s remit in an efficient and effective manner.

Somero enterpriSeS, inc AnnuAl RepoRt And Accounts 2019

Directors’ remuneration report

corporate goVerNaNce

the members of the remuneration committee at year-end were thomas Anderson (chairman), robert Scheuer and Larry Horsch. the
remuneration committee makes recommendations to the Board, within existing terms of reference, on remuneration policy and determines,
on behalf of the Board, specific remuneration packages for each of the executive directors.

cash
salary
2019

$91,790
$464,368
$299,246
$312,890
$65,550
$74,500

Salary
paid in rSUs
2019

$34,919(1)
–
–
–
$24,937(1)
$15,987(1)

Bonus
2019 (2)

–
$116,092
$74,811
$99,522
–
–

L Horsch
J cooney
J Yuncza
H Hohmann
t Anderson
r Scheuer

Bonus paid
in common
shares
2019 (3)

–
–
$41,551
–
–
–

Salary
2020

$133,044
$487,587
$314,209
$328,584
$95,011
$95,011

Bonus
opportunity
2020

options held

restricted stock
units held

–
0%-100%(4)
0%-100%(4),(6)
commission(5),(6)
–
–

–
–
–
–
–
–

18,993
101,086
70,917
35,809
23,031
7,560

notes:
1. Annual fee increases were paid to non-executive directors in the form of rSUs through 2019. the amounts reflected in 2019 include the fair value of rSUs issued

to directors in 2019 representing the cumulative impact of fee increases through 2019. Beginning in 2020, the full Board fee is paid in cash.
Bonus earned for 2019 determined based on company performance with variable payouts along a sliding scale ranging from 0%-100%.
At year-end actual company results were measured against established EBItDA targets approved by the remuneration committee.

3. A portion of 2019 bonus was paid in common shares in lieu of cash under the company’s Equity Bonus Plan, as described in footnote 16.
4. on-target bonus is 50% of base salary. Bonus determined solely by company performance with variable payouts along a sliding scale ranging from 0%-100%.

At year-end actual company results are to be measured against established revenue and cost targets approved by the remuneration committee.

5. commission is based on actual sales in comparison to established annual thresholds approved by the remuneration committee.
6. At the discretion of the remuneration committee, up to 100% of annual bonus and commission amounts can be paid in the form of common shares.

Remuneration policy
the company’s policy is to provide executive remuneration packages which are designed to attract, motivate and retain directors of the high
caliber required and to reward them for enhancing value to stockholders. the performance measurement of the executive directors and the
determination of their annual remuneration package are undertaken by the remuneration committee consisting solely of non-executive
directors. the non-executive directors receive rSUs in lieu of salary increases as determined by the full Board.

In framing remuneration policy, the remuneration committee has given consideration to the requirements of the code.

Components of remuneration
the components of remuneration are:
• basic salary and benefits determined by the remuneration committee and reviewed annually;
• performance related bonuses having regard to profitability of the company; and
• stock option and restricted stock unit incentives.

Basic salary
An executive director’s basic salary is determined by the remuneration committee at the beginning of each year and when an individual
changes position or responsibility. Base salaries and non-executive director fees are set out in the table above.

Cash compensation
In the year ended December 31, 2019, the executive directors earned bonuses as shown in the table above. Bonuses paid to the company’s
cEo and cFo are determined entirely based on company performance. Each year, company performance targets are established and
approved by the remuneration committee. At year end, actual results are compared to established targets and the bonus earned is
determined along a sliding scale that could result in no payout up to a maximum capped at two times the target bonus. Historically, under this
bonus program, annual company performance was determined based on actual EBItDA compared to the annual established target as was
the case in 2019. In 2020, the annual established targets approved by the remuneration committee include revenue and cost targets.

Directors’ contracts
the company has entered into employment agreements with executive directors and certain members of senior management. the terms of
these agreements range from six to eighteen months and include non-compete and non-disclosure provisions as well as providing for defined
severance payments in the event of termination or change in control. If any existing contract of employment is breached by the company in
the event of termination, the company would be liable to pay, as damages, an amount approximating the net loss of salary and contractual
benefits for the unexpired notice period. the remuneration committee will seek to ensure that the director fulfills obligations to mitigate losses
and will also give consideration to phased payments where appropriate.

With the approval of the remuneration committee, executive directors are entitled, under their service agreements, to perform duties outside
the company and to receive fees for those duties.

Equity incentives
the remuneration committee approves the grant of equity awards to executive directors under the company’s discretionary equity incentive
schemes. All equity awards issued by the company in 2018 and 2019 are governed by Somero’s 2010 Equity Incentive Plan (the “2010 Plan”)
that was adopted by the remuneration committee in 2010. the 2010 Plan made 5.6 million stock options available to be granted, which is
10% of the 56 million shares that were issued and outstanding. At that time, all other equity incentive plans were abandoned.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRFS

Directors’ remuneration report continued

the equity awards issued to executive directors do not have any performance criteria attached to them. the remuneration committee has
determined that aside from service period requirements, performance criteria were not appropriate for equity awards issued under the 2010
Plan. the remuneration committee has determined that equity awards are critical incentives necessary to attract, retain and reward key
organizational talent including executive directors. the remuneration committee made this assessment in recognition that the company’s key
employees, including its executive directors, are US-based and do not participate in defined benefit pension schemes more prevalent in other
regions of the world.

the 2010 Plan expired on December 31, 2019 and was replaced by the 2020 Equity Incentive Plan (the “2020 Plan”) that was adopted by
the Board in December 2019. the 2020 Plan is also a 10-year Plan with terms consistent to the 2010 Plan, making up to 5.6 million of equity
awards (stock options, restricted stock units or common shares) available to be granted over a 10-year period until 2030, which is 10% of the
56 million shares currently issued and outstanding.

For more information, see note 15 within the notes to the Financial Statements.

Restricted stock units
Annually, the Board approves restricted stock unit (“rSU”) awards to executive and non-executive directors under the terms of its 2010 and
2020 Equity Incentive Plans. In 2019, non-executive directors are awarded rSUs in lieu of annual director’s fee increases, while certain
executive directors are awarded rSUs as part of their annual incentive compensation plans. Awarded rSUs vest three years from the date of
the grant and require continued employment for the period. In 2019, 151,121 rSUs were exercised or forfeited, 197,135 units issued, leaving
a balance of 486,090 units as of December 31, 2019. For more information, see note 15 within the notes to the Financial Statements.

Stock options
An initial grant was made in February 2010 for 2.3 million stock options as replacements for grants under the old option plan which was
cancelled. the grants have a three-year vesting and a strike price of 30p, a 100% premium over the market price on the date of grant. the
remaining options will only be issued for new key employees and superior performance. no options were outstanding as of December 31,
2019. For more information, see note 15 within the notes to the Financial Statements.

Directors and officers insurance
the company maintains customary D&o insurance.

Performance graph
the market price of the shares at December 31, 2019 was 278.0p. the range during the 2019 period of trading was 185.0p to 390.0p.

Somero Enterprises, Inc. Closing Share Price Data

e
r
a
h
S

r
e
P
e
c
n
e
P

390.00

340.80

291.60

242.40

193.20

144.00

b 1

p r 1

n 1

g 1

c t 1

c 1

the remuneration of the non-executive directors is determined by the Board within the limits set out in the Articles of Association, and is based
upon independent surveys of fees paid to non-executive directors of similar companies. the remuneration paid to each non-executive director in
the year to December 31, 2019 was subject to Board approval. the letters of appointment and terms are listed in the following chart.

Director

J Yuncza
r Scheuer
L Horsch
t Anderson
J cooney
H Hohmann

Approved by the Board of Directors and signed on behalf of the Board.

thomas anderson
Chairman of Remuneration Committee
March 11, 2020

class

Date of appointment

termination date

I
I
II
II
III
III

June 11, 2019
June 11, 2019
June 6, 2017
June 6, 2017
June 12, 2018
June 12, 2018

2022 AGM
2022 AGM
2020 AGM
2020 AGM
2021 AGM
2021 AGM

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Directors’ report

corporate goVerNaNce

the directors present their Annual report and the audited financial statements for the year ended December 31, 2019.

Activities
the principal activity of the company is to design, assemble and sell equipment that automates the process of spreading and leveling large
volumes of concrete for flooring and other horizontal surfaces, as well as to provide education, training and support services for its customers
throughout the world. Somero’s operations and Support offices are located in Michigan, USA with Global Headquarters and training Facilities
in Florida, USA along with an established Sales, Service and training Facility that is home to the Somero concrete college in Shanghai, china.
In addition, Somero maintains sales and service offices located in chesterfield, UK and new Delhi, India.

Review of business
A fair review of the company’s progress for the period reported, its future prospects and a description of the principal risks and uncertainties
facing the company are set out in the chairman’s Statement, the chief Executive’s Statement, the Financial review, the Directors’ report and
the corporate Governance report.

the Directors’ report is prepared for the members of the company and should not be relied upon by any other party for any other purpose.
the Directors’ report (including the chairman’s Statement, the chief Executive’s Statement, the Financial review and the corporate
Governance report) contain certain forward-looking information and statements in relation to the company’s operations, economic
performance and financial conditions. these statements are made by the directors in good faith based on the information available to them at
the time of the approval of this report and, although they believe that the expectations reflected in such forward-looking statements are
reasonable, they should be treated with caution due to their inherent uncertainties, including both economic and business risk factors
underlying such forward-looking statements or information.

Results and dividends
the audited results for the year are set out in detail below. Dividends equal to US$ 17.4m were paid in 2019. A 20.7 US cents per share
dividend was declared for the period ending December 31, 2019, with a record date of April 14, 2020, payable on April 30, 2020.

Share capital

L Horsch
J cooney
J Yuncza
H Hohmann
t Anderson
r Scheuer

ordinary Shares

January 1,
2019

December 31,
2019

46,000
1,414,634
84,169
54,067
—
25,000

46,000
614,634
99,811
73,662
—
25,000

Somero stock is traded on the LSE AIM exchange and is therefore quoted in Pounds Sterling. the market price of the shares at December 31,
2019 was 278.0p. the range during the 2019 period of trading was 185.0p to 428.0p.

Apart from the stockholdings listed below the company has not been notified of any stockholdings which are 3% or more of the total issued
ordinary shares of the company.

Stockholders who hold more than 3% as of December 31, 2019

canaccord Genuity Group
Unicorn Asset Mgt
close Brothers Group
Polar capital
Affiiated Managers Group
Jupiter Asset Mgt
river & Mercantile Asset Mgt
Janus Henderson Investors
Hargreaves Lansdown Asset Mgmt
Lazard Freres Gestion
Aberdeen Standard Investments
Blackrock Investment Mgt

Amount

% holding

5,172,778
5,070,000
3,922,321
2,639,504
3,728,805
3,085,457
2,156,142
2,386,980
2,088,226
1,977,857
1,521,731
1,463,868

9.18
9.00
6.96
4.68
6.62
5.48
3.83
4.24
3.71
3.51
2.70
2.55

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRFS
Directors’ report continued

Director restricted stock units

Director

L Horsch
L Horsch
L Horsch
L Horsch
H Hohmann
H Hohmann
J cooney
J cooney
J cooney
J cooney
t Anderson
t Anderson
t Anderson
t Anderson
J Yuncza
J Yuncza
J Yuncza
J Yuncza
B Scheuer
B Scheuer
B Scheuer
B Scheuer

January 1,

2019

8,395
6,681
5,469
—
11,284
—
60,049
38,312
26,377
—
5,995
4,771
13,373
—
35,178
22,444
25,018
—
1,770
2,204
2,223
—

Award/
(Exercise)

(8,395)
—
—
6,843
—
24,525
(60,049)
—
—
36,397
(5,995)
—
—
4,887
(35,178)
—
—
23,455
(1,770)
—
—
3,133

cancelled

December 31,

2019

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

—
6,681
5,469
6,843
11,284
24,525
—
38,312
26,377
36,397
—
4,771
13,373
4,887
—
22,444
25,018
23,455
—
2,204
2,223
3,133

Weighted average
grant date fair
market value

(USD)

—
3.46
5.28
5.10
5.28
5.10
—
3.46
5.28
5.10
—
3.46
5.28
5.10
—
3.46
5.28
5.10
—
3.46
5.28
5.10

Vesting date

Fully vested date

—
3/17/2020
3/16/2021
3/14/2022
3/16/2021
3/14/2022
—
3/17/2020
3/16/2021
3/14/2022
—
3/17/2020
3/16/2021
3/14/2022
—
3/17/2020
3/16/2021
3/14/2022
—
3/17/2020
3/16/2021
3/14/2022

Other financial arrangements
Quantitative and qualitative disclosure about market risk
the company is exposed to market risk from changes in interest rates and foreign currency exchange rates because it may elect to fund
its operations through long- and short-term borrowings and it receives revenues and incurs expenses in a variety of foreign currencies.
the company does not currently hedge against the risk of exchange rate fluctuations. A summary of the company’s primary market risk
exposures follows.

Foreign currency risk
the company’s foreign sales and results of operations are subject to the impact of foreign currency fluctuations because it receives revenues
and incurs expenses in a variety of foreign currencies.

However, the vast majority of products and services are priced in US dollars to significantly reduce the exposure to foreign currency risk.

Payments to creditors
the company’s policy is to set payment terms when agreeing the terms of each transaction. It is the company’s general policy to pay
suppliers according to the set terms, to ensure suppliers are informed of the terms of payment and to abide by these terms whenever possible.

Corporate social responsibility
Somero Enterprises believes, as a good corporate citizen, it must care about the communities it is involved in, keep the environment healthy,
provide a safe and rewarding place to work and behave ethically in all its business dealings.

Donations
During the year, the company made no political donations. charitable donations were made in the amount of US$ 55,022 for 2019.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

corporate goVerNaNce

Employment policies
the company supports equal opportunities in employment and advancement and opposes all forms of unlawful or unfair discrimination on
the grounds of color, race, religion, age, nationality, gender or marital status. Full and fair consideration is given to applications for employment
from disabled people. As an Equal opportunity Employer, all our benefits are accessible to every staff member, and we encourage and
support personal and professional development.

the company has well established structures to communicate with employees at every level and to encourage their involvement regarding
the company’s performance and future activities. As an organization, Somero Enterprises, Inc. prides itself on its honesty, integrity and
high professional standards to deliver its services to its customers and in dealing with its staff and the public. It also demands the
maintenance of these high standards in everything that it does. to this end, the company has devised this policy and procedure in order
to give encouragement and support to employees in coming forward and reporting certain types of conduct or activities that fall short of
these high standards.

Under the Public Interest Disclosure Act 1998, employees who report wrongdoing of certain kinds have specific protection. the company
aims to ensure that by adherence to this policy and through proper use of the procedure, as far as possible, any such report shall be made
internally in the first instance by making it possible for all employees to approach an appropriate person within the company in order to
draw their concerns to the attention of someone who has authority to act. this policy and procedure is aimed at ensuring that any employee
who wishes to voice a concern regarding potential or actual wrongdoing on the part of the company or anyone with whom the company is
associated feels sufficiently comfortable to do so.

Director training
the directors have continued to receive formal AIM compliance training from the initial listing on the AIM to the present date.

Health and safety
the Board considers health and safety a key priority and believes it essential to conduct business to ensure the health, safety and welfare of
all our employees and all other persons who may be affected by our activities. this includes members of the public, customers and trade
contractors we may employ. We maintain ISo 9001 certification for quality.

Environment
It is our intention to take all reasonable measures to conduct our business activities so that damage to the environment and pollution
is minimized.

John Yuncza
Company Secretary
March 11, 2020

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRFSReport of the independent auditors
To the Board of Directors and Stockholders of Somero Enterprises, Inc.

We have audited the accompanying consolidated financial statements of Somero Enterprises, Inc., a Delaware corporation, which comprise
the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income,
changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (“GAAP”); this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.

Auditor’s responsibility
our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. the
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Somero
Enterprises, Inc. as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended in
conformity with GAAP.

Whitley penn LLp
Plano, texas
March 11, 2020

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Consolidated balance sheets
As of December 31, 2019 and 2018

assets
current assets:

cash and cash equivalents
Accounts receivable – net
Inventories – net
Prepaid expenses and other assets

total current assets

Accounts receivable, non-current – net
Property, plant and equipment – net
Financing lease right-of-use assets – net
operating lease right-of-use assets – net
Intangible assets – net
Goodwill
Deferred tax asset
other assets

total assets

Liabilities and stockholders' equity
current liabilities:
Accounts payable
Accrued expenses
Financing lease liability – current
operating lease liability – current
Income tax payable

total current liabilities

Financing lease liability – long-term
operating lease liability – long-term
other liabilities

total liabilities

Stockholders' equity

Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding
common stock, US$.001 par value, 80,000,000 shares authorized, 56,425,598 and 56,425,598
shares issued and 56,348,068 and 56,288,329 shares outstanding at December 31, 2019 and
2018, respectively

Less: treasury stock, 77,530 shares as of December 31, 2019 and 137,269 shares as of December 31,

2018 at cost

Additional paid in capital
retained earnings
other comprehensive loss

total stockholders’ equity

total liabilities and stockholders' equity

See notes to consolidated financial statements.

FiNaNciaL StateMeNtS

as of December 31,

2019
US$ 000

2018
US$ 000

23,757
11,979
12,289
1,291

49,316
904
13,714
557
1,213
1,698
3,303
564
261

71,530

2,227
5,960
148
247
1,078

9,660
262
982
1,587

12,491

–

(191)
17,001
44,923
(2,720)

59,039

71,530

28,233
10,231
10,813
1,501

50,778
346
12,001
–
–
–
2,878
850
226

67,079

2,146
6,391
–
–
3,012

11,549
–
–
430

11,979

–

(326)
16,969
41,255
(2,824)

55,100

67,079

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGConsolidated statement of comprehensive income
For the years ended December 31, 2019 and 2018

revenue
cost of sales

gross profit

operating expenses

Sales, marketing and customer support
Engineering and product development
General and administrative

total operating expenses

operating income

other income (expense)

Interest expense
Interest income
Foreign exchange impact
other

income before income taxes

provision for income taxes

Net income

other comprehensive income

cumulative translation adjustment

comprehensive income

earnings per common share
Earnings per share – basic
Earnings per share – diluted

Weighted average number of common shares outstanding

Basic
Diluted

See notes to consolidated financial statements.

Year ended December 31,

2019
US$ 000
except per
share data

89,306
38,602

50,704

11,108
1,796
11,198

24,102

26,602

(42)
241
(71)
310

27,040

5,929

21,111

2018
US$ 000
except per
share data

94,001
40,375

53,626

11,059
1,357
12,037

24,453

29,173

(54)
188
(42)
(191)

29,074

7,531

21,543

104

(895)

21,215

20,648

0.37
0.37

0.38
0.38

56,330,400
56,819,618

56,276,778
56,728,351

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Consolidated statements of changes in stockholders’ equity
For the years ended December 31, 2019 and 2018

FiNaNciaL StateMeNtS

common Stock

treasury Stock

amount
US$ 000

additional
paid-in
capital
US$ 000

amount
US$ 000

retained
earnings
US$ 000

other
comprehensive
income (loss)
US$ 000

total
Stockholders’
equity
US$ 000

Balance – January 1, 2018

56,425,598

17,169

183,477

(407)

32,007

(1,929)

46,866

cumulative translation adjustment
net income
Stock-based compensation
Dividend
treasury stock
rSUs settled for cash
Stock options settled for cash

–
–
–
–
–
–
–

–
–
489
–
(81)
(525)
(83)

–
–
–
–
(46,208)
–
–

–
–
–
–
81
–
–

–
21,543
–
(12,295)
–
–
–

(895)
–
–
–
–
–
–

(895)
21,543
489
(12,295)
–
(525)
(83)

Balance – December 31, 2018

56,425,598

16,969

137,269

(326)

41,255

(2,824)

55,100

cumulative translation adjustment
net income
Stock-based compensation
Dividend
treasury stock
rSUs settled for cash

–
–
–
–
–
–

–
–
760
–
(135)
(593)

–
–
–
–
(59,739)
–

–
–
–
–
135
–

–
21,111
–
(17,443)
–
–

104
–
–
–
–
–

104
21,111
760
(17,443)
–
(593)

Balance – December 31, 2019

56,425,598

17,001

77,530

(191)

44,923

(2,720)

59,039

See notes to consolidated financial statements.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGConsolidated statements of cash flows
For the years ended December 31, 2019 and 2018

cash flows from operating activities:

net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes
Depreciation and amortization
non-cash lease expense
Bad debt
Stock-based compensation
Gain on non-cash payment for intangible asset
Loss on disposal of property and equipment

Working capital changes:
Accounts receivable
Inventories
Prepaid expenses and other assets
other assets
Accounts payable, accrued expenses and other liabilities
Income taxes payable

Net cash provided by operating activities

cash flows from investing activities:

Proceeds from sale of property and equipment
Property and equipment purchases
Payments for intangible assets
Business acquisition, net of cash acquired

Net cash used in investing activities

cash flows from financing activities:

Payment of dividend
rSUs settled for cash
Stock options settled for cash
Payments under capital leases

Net cash used in financing activities

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

cash and cash equivalents:
Beginning of year

End of year

See notes to consolidated financial statements.

Year ended December 31,

2019
US$ 000

2018
US$ 000

21,111

21,543

286
1,122
230
188
760
(171)
16

(2,494)
(1,374)
210
(35)
936
(1,934)

748
1,175
–
150
489
–
114

353
(2,116)
1,039
41
(963)
1,271

18,851

23,844

–
(3,015)
(138)
(2,073)

(5,226)

(17,443)
(593)
–
(169)

(18,205)

47
(803)
–
–

(756)

(12,295)
(525)
(83)
(95)

(12,998)

104

(895)

(4,476)

9,195

28,233

23,757

19,038

28,233

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

Notes to the consolidated financial statements
As of December 31, 2019 and 2018

FiNaNciaL StateMeNtS

1. Organization and description of business
Nature of business
Somero Enterprises, Inc. (the “company” or “Somero”) designs, assembles, remanufactures, sells and distributes concrete levelling,
contouring and placing equipment, related parts and accessories, and training services worldwide. Somero’s operations and Support offices
are located in Michigan, USA with Global Headquarters and training Facilities in Florida, USA. Sales and service offices are located in
chesterfield, England; Shanghai, china; and new Delhi, India.

2. Summary of significant accounting policies
Basis of presentation
the consolidated financial statements of the company have been prepared in accordance with accounting principles generally accepted in
the United States of America. certain prior year amounts have been reclassified to conform to the current year presentation.

Principles of consolidation
the consolidated financial statements include the accounts of Somero Enterprises, Inc. and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.

Cash and cash equivalents
cash includes cash on hand, cash in banks, and temporary investments with a maturity of three months or less when purchased. the
company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by
the U.S. Federal Deposit Insurance corporation (“FDIc"). the company has not experienced any losses related to amounts in excess of
FDIc limits.

Accounts receivable and allowances for doubtful accounts
Financial instruments which potentially subject the company to concentrations of credit risk consist primarily of accounts receivable. the
company’s accounts receivable are derived from revenue earned from a diverse group of customers. the company performs credit
evaluations of its commercial customers and maintains an allowance for doubtful accounts receivable based upon the expected ability to
collect accounts receivable. Allowances, if necessary, are established for amounts determined to be uncollectible based on specific
identification and historical experience. As of December 31, 2019 and 2018, the allowance for doubtful accounts was approximately
US$ 961,000 and US$ 785,000, respectively. Bad debt expense was US$ 188,000 and US$ 150,000 in 2019 and 2018, respectively.

Inventories
Inventories are stated using the first in, first out (“FIFo") method at the lower of cost or net realizable value (“nrV"). Provision for potentially
obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts. As of December
31, 2019 and 2018, the provision for obsolete and slow moving inventory was US$ 346,000 and US$ 343,000, respectively.

Business combinations and purchase accounting
the company includes the results of operations of the businesses that it acquires as of the applicable acquisition date. the purchase price of
the acquisition is allocated to the assets acquired and liabilities assumed based on their estimated fair values. the excess of the purchase
price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized
separately from the business combination and are expensed as incurred.

Intangible assets and goodwill
Intangible assets consist primarily of customer relationships, trademarks and patents, and are carried at their fair value when acquired, less
accumulated amortization. Intangible assets are amortized using the straight-line method over a period of three to seventeen years, which is
their estimated period of economic benefit.

Goodwill is not amortized but is subject to impairment tests on an annual basis, and the company has chosen December 31 as its periodic
assessment date. Goodwill represents the excess cost of the business combination over the company’s interest in the fair value of the
identifiable assets and liabilities. Goodwill arose from the company’s prior sale from Dover corporation to the Gores Group in 2005 and the
purchase of the Line Dragon, LLc business assets in January 2019. the company did not incur a goodwill impairment loss for the periods
ended December 31, 2019 nor December 31, 2018.

Revenue recognition
the company adopted ASc 606 “revenue from contracts with customers” on January 1, 2018. the new revenue recognition standard
requires revenue recognition based on a five-step model that includes: identifying the contract, identifying the performance obligations,
determining the transaction price, allocating the transaction price, and recognizing the revenue. the standard results in the recognition of
revenue depicting the transfer of promised goods or services to customers in an amount reflecting the expected consideration to be received
from the customer for such goods and services, based on the satisfaction of performance obligations, occurring when the control of the goods
or services transfer to the customer. the company’s contracts and customer orders originate with fixed determinable unit prices for each
deliverable quantity of goods defined by the customer order line item (performance obligation) and include the specific due date for the
transfer of control and title of each of those deliverables to the customer at pre-established payment terms. We have elected to account for
shipping and handling costs as fulfillment costs after the customer obtains control of the goods.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes to the consolidated financial statements continued
As of December 31, 2019 and 2018

2. Summary of significant accounting policies continued
the company generates revenue by selling equipment, parts, accessories, service agreements and training. the company recognizes
revenue for equipment, parts and accessories when it satisfies the performance obligation of transferring the control to the customer. For
product sales where shipping terms are FoB shipping point, revenue is recognized upon shipment. For arrangements which include FoB
destination shipping terms, revenue is recognized upon delivery to the customer. the company recognizes the revenue for service agreements
and training once the service or training has occurred.

the change in accounting principle from ASc 605 to ASc 606 did not materially impact the amount of revenue recognized in the company’s
financial statements.

Prior to the adoption of this standard the company recognized revenue in accordance with ASc 605-10, “revenue recognition in Financial
Statements”. revenue was recognized when persuasive evidence of an arrangement existed, delivery or service had occurred, the sale price
was fixed or determinable and receipt of payment was probable.

the company believes its previous recognition policy as related to the sale of equipment and training is consistent with the new revenue
recognition standard defined within FASB ASc 606 which requires unique performance obligations be recognized upon satisfaction of the
performance obligation at the point in time when the control of goods is transferred to the customer (sale of equipment) or services are
performed (training).

During the year ended December 31, 2019 there was US$ 652,000 of revenue recognized during the period from customer deposit liabilities
(deferred contract revenue).

As of December 31, 2019 there are US$ 596,000 in customer deposit liabilities for advance payments received during the period for
contracts expected to ship in 2020. As of the year ended December 31, 2019 and 2018, there are no significant contract costs such as
sales commissions or costs deferred. Interest income on financing arrangements is recognized as interest accrues, using the effective
interest method.

Leases
the company adopted ASU 2016-02-Leases (topic 842), as of January 1, 2019 and elected to use ASU 2018-11-Leases (topic 842),
targeted Improvements, issued by the FASB in July 2018. ASU 2018-11 provides that adopters may take a prospective approach when
transitioning to ASU 2016-02. Effectively, an entity would be permitted to change its date of initial application to the beginning of the period of
adoption. As such, an entity is not required to adjust comparative period financial information or disclosures for the impacts of ASc 842.
ASc 840 presentation and disclosures would be carried forward for comparative periods presented in which ASc 840 was utilized.
Additionally, the entity would recognize the effects of applying ASc 842 as a cumulative-effect adjustment to retained earnings as of the
effective date. Applying ASU 2018-11, the company elected to present results for the period beginning January 1, 2019 using ASc 842 and
comparative periods presented will use presentation and disclosures in accordance with ASc 840.

Warranty liability
the company provides warranties on all equipment sales ranging from 60 days to three years, depending on the product. Warranty
liabilities are estimated net of the warranty passed through to the company from vendors, based on specific identification of issues and
historical experience.

Balance, January 1, 2018

Warranty charges
Accruals

Balance, December 31, 2018

Balance, January 1, 2019
Warranty charges
Accruals

Balance, December 31, 2019

US$ 000

(551)

475
(537)

(613)

(613)
416
(734)

(931)

Property, plant, and equipment
Property, plant and equipment is stated at estimated market value based on an independent appraisal at the acquisition date or at cost for
subsequent acquisitions, net of accumulated depreciation and amortization. Land is not depreciated. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which is 31.5 to 40 years for buildings (depending on the nature of the
building), 15 years for improvements, and 3 to 10 years for machinery and equipment.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

FiNaNciaL StateMeNtS

Income taxes
the company determines income taxes using the asset and liability approach. tax laws require items to be included in tax filings at different
times than the items reflected in the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are
reduced by a valuation allowance, if necessary, to the extent that it appears more likely than not that such assets will be unrecoverable.

the company evaluates tax positions that have been taken or are expected to be taken in its tax returns and records a liability for uncertain
tax positions. this involves a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the
weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of
related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than
50% likelihood of being realized upon settlement.

Use of estimates
the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Stock-based compensation
the company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements
over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). the company
measures the cost of employee services in exchange for an award based on the grant-date fair value of the award. compensation expense
related to stock-based payments was US$ 760,000 and US$ 489,000 for the years ended December 31, 2019 and 2018, respectively.
the company settled US$ 0 and US$ 83,000 in stock options for cash during the years ended December 31, 2019 and 2018, respectively.
In addition, the company settled US$ 593,000 and US$ 525,000 in restricted stock units for cash and conversion to common shares during
the years ended December 31, 2019 and 2018, respectively.

Transactions in and translation of foreign currency
the functional currency for the company’s subsidiaries outside the United States is the applicable local currency. the preparation of the
consolidated financial statements requires the translation of these financial statements to USD. Balance sheet amounts are translated at
period-end exchange rates and the statement of comprehensive income accounts are translated at average rates. the resulting gains or losses
are charged directly to accumulated other comprehensive income. the company is also exposed to market risks related to fluctuations in
foreign exchange rates because some sales transactions, and some assets and liabilities of its foreign subsidiaries, are denominated in foreign
currencies other than the designated functional currency. Gains and losses from transactions are included as foreign exchange gain (loss) in
the accompanying consolidated statements of comprehensive income.

Comprehensive income
comprehensive income is the combination of reported net income and other comprehensive income (“ocI"). ocI is changes in equity of a
business enterprise during a period from transactions and other events and circumstances from non-owner sources not included in
net income.

Earnings per share
Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential
common shares had been issued using the treasury stock method. Potential common shares that may be issued by the company relate to
outstanding stock options and restricted stock units.

Earnings per common share have been computed based on the following:

Income available to stockholders
Basic weighted shares outstanding
net dilutive effect of stock options and restricted stock units

Diluted weighted average shares outstanding

Year ended December 31,

2019
US$ 000

2018
US$ 000

21,111
56,330,400
489,218

21,543
56,276,778
451,573

56,819,618

56,728,351

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes to the consolidated financial statements continued
As of December 31, 2019 and 2018

2. Summary of significant accounting policies continued
Fair value
the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate
fair value because of the short-term nature of these instruments. the carrying value of our long-term debt approximates fair value due to the
variable nature of the interest rates under our credit Facility.

the FASB has issued accounting guidance on fair value measurements. this guidance provides a common definition of fair value and a
framework for measuring assets and liabilities at fair values when a particular standard prescribes it.

this guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. these valuation
techniques may be based upon observable and unobservable inputs. observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the company’s market assumptions. these two types of inputs create the following fair
value hierarchy.

• Level 1 – Quoted prices for identical instruments in active markets.
• Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in
markets that are not active; and model-derived other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets and liabilities.

• Level 3 – Unobservable inputs for the asset or liability which are supported by little or no market activity and reflect the company’s

assumptions that a market participant would use in pricing the asset or liability.

Year ended December 31, 2018
Asset:

non-recurring
Goodwill

Year ended December 31, 2019
Asset:

non-recurring
Goodwill

Quoted prices
in active markets
identical assets
Level 1
US$ 000

Significant other
observable inputs
Level 2
US$ 000

Significant other
unobservable
inputs
Level 3
US$ 000

2,878

3,303

US$ 000

2,878

3,303

New accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update no. 2014-09, revenue from contracts with customers (“ASU 2014-09"), which
supersedes nearly all existing revenue recognition guidance under US GAAP. the core principle of ASU 2014-09 is to recognize revenues
when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be
entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment
and estimates may be required within the revenue recognition process than were required under previous US GAAP. the standard is effective
for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical
expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). the company adopted the new standard using the full retrospective approach.

In February 2016, the FASB released Accounting Standard Update 2016-02, Leases. the new guidance requires lessees to recognize lease
assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. Lessees are required to
recognize a single lease cost, amortized on a straight-line basis over the lease term for operating leases. All cash payments are to be classified
as operating activities on the cash flow statement. the update is effective for fiscal years beginning after December 15, 2018, and interim
periods therein. the company has implemented the new guidance under ASc 842, using the targeted Improvements, ASU 2018-11, as of
January 1, 2019.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

3. Inventories
Inventories consisted of the following at December 31, 2019 and 2018:

raw material
Finished goods and work in process
remanufactured

total

FiNaNciaL StateMeNtS

Year ended December 31,

2019
US$ 000

4,267
3,154
4,868

12,289

2018
US$ 000

3,634
3,617
3,562

10,813

4. Acquisition
on January 15, 2019, the company concurrently executed a settlement agreement and mutual release with Daniel r. Stoltzfus and Line
Dragon, LLc (collectively “Line Dragon”), including an asset purchase agreement whereby the company acquired substantially all of the
business assets of Line Dragon (collectively the “Agreements”). the purchase price consists of US$ 2,000,000 in cash and additional
consideration (the “Performance Payments”) during the period beginning on the day immediately following the close date and ending on
May 29, 2031 (the “Performance Period”). the Performance Payments are calculated as 3% of gross revenues from the sale of SP-16 or Line
Dragon concrete puller or placer equipment. the Performance Payments for any full calendar year during the Performance Period shall not be
less than US$ 30,000 and the Purchase Price, including the Performance Payments, is subject to a cap.

the purchase was treated as a business combination as it met certain criteria stipulated in ASc 805 – Business combinations. the company
expects the acquisition of the Line Dragon assets will complement its SP-16 Line Pulling & Placing System product offering. the acquisition of
Line Dragon is strategically significant in revenue for the company, however at the time of the acquisition and at December 31, 2019, the
company concluded that historical results of the acquisition were not material to the company’s consolidated financial results and therefore
additional pro-forma disclosures are not presented.

the company completed the Line Dragon purchase price allocation. At close, of the total purchase price, approximately US$ 187,000 was
attributed to inventory, US$ 25,000 was attributed to property and equipment, US$ 1,048,000 was attributed to specifically identified
intangible assets, including patents, trademarks and customer relations, US$ 400,000 in other intangible assets and US$ 351,000 was
attributed to goodwill. the company also assumed US$ 11,000 of warranty liability. Subsequently, pursuant to the terms of the Agreement,
the company exchanged two sets of pulling and placing systems retained by Line Dragon with new models that the company introduced
commercially. As a result of this exchange, an additional US$ 77,000 was attributed to goodwill.

5. Goodwill and intangible assets
Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. the company is required
to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a unit may be
below its carrying value.

the results of the qualitative assessment indicated that goodwill was not impaired as of December 31, 2019 and 2018, and that the value of
patents was not impaired as of December 31, 2019.

the following table reflects other intangible assets:

capitalized cost

Accumulated amortization

net carrying costs

Patents
Intangible Assets

Weighted average
Amortization
Period

12 years

Year ended December 31,

2019
US$ 000

19,247
7,434

26,681

18,578
6,405

24,983

669
1,029

1,698

2018
US$ 000

18,538
6,300

24,838

18,538
6,300

24,838

–
–

–

Amortization expense associated with the intangible assets in each of the years ended December 31, 2019 and 2018 was approximately
US$ 145,000 and US$ 0, respectively. net intangible assets were fully amortized in 2018.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes to the consolidated financial statements continued
As of December 31, 2019 and 2018

6. Property, plant, and equipment
Property, plant, and equipment consist of the following at December 31:

Land
Building and improvements
Machinery and equipment

Less: accumulated depreciation and amortization

Year ended December 31,

2019
US$ 000

864
13,149
5,414

19,427
(5,713)

13,714

2018
US$ 000

864
11,128
5,022

17,014
(5,013)

12,001

Depreciation expense for the years ended December 31, 2019 and 2018 was approximately US$ 977,000 and US$ 1,175,000, respectively.

7. Line of credit and note payable
In February 2016, the company entered into an amended credit facility which consists of a US$ 10.0m secured revolving line of credit that
will mature in February 2021. the interest rate on the revolving credit line is based on the one-month LIBor rate plus 1.25%. the company’s
credit facility is secured by substantially all its business assets. no amounts were drawn under the secured revolving credit line in the years
ended December 31, 2019 or in 2018.

Interest expense for the years ended December 31, 2019 and 2018 was approximately US$ 42,000 and US$ 54,000, respectively, and
relates primarily to interest costs on leased vehicles.

8. Retirement program
the company has a savings and retirement plan for its employees, which is intended to qualify under Section 401(k) of the Internal revenue
code (“Irc"). this savings and retirement plan provides for voluntary contributions by participating employees, not to exceed maximum limits
set forth by the Irc. the company’s matching contributions vest immediately. the company contributed approximately US$ 690,000 to the
savings and retirement plan during 2019 and contributed US$ 591,000 during 2018.

9. Leases
the company leases property, vehicles, and equipment under leases accounted for as operating and finance leases. the leases have
remaining lease terms of less than 1 year to 13 years, some of which include options for renewal. the exercise of these renewal options is at
the sole discretion of the company. the right-of-use assets and related liabilities presented on the consolidated Balance Sheet, reflect
management’s current expectations regarding the exercise of renewal options. the components for lease expense were as follows as of
December 31, 2019:

operating lease cost
Finance lease cost:

Amortization of right-of-use assets
Interest on lease liabilities

total finance lease cost

US$ 000

301

230
15

245

As of December 31, 2019, the weighted average discount rate was 4.7% and 4.4%, respectively, and the weighted average remaining
lease term for finance and operating leases was 3.0 years and 10.5 years, respectively. Maturities of lease liabilities are as follows for the
years ended:

2020
2021
2022
2023
2024
thereafter

total

Less imputed interest

total

operating Leases
US$ 000

Finance Leases
US$ 000

303
157
105
100
100
801

1,566

(337)

1,229

166
142
90
40
–
–

438

(28)

410

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

10. Supplemental cash flow and non-cash financing disclosures

cash paid for interest
cash paid for taxes
Finance lease liabilities arising from obtaining right-of-use assets
operating lease liabilities arising from obtaining right-of-use assets
non-cash payment for intangible assets

FiNaNciaL StateMeNtS

Year ended December 31,

2019
US$ 000

41
6,315
245
1,229
257

2018
US$ 000

34
6,013
22
–
–

11. Business and credit concentration
the company’s line of business could be significantly impacted by, among other things, the state of the general economy, the company’s
ability to continue to protect its intellectual property rights, and the potential future growth of competitors. Any of the foregoing may
significantly affect management’s estimates and the company’s performance. At December 31, 2019 and 2018, the company had three
customers which represented 22% and two customers which represented 23% of total accounts receivable, respectively.

12. Commitments and contingencies
the company has entered into employment agreements with certain members of senior management. the terms of these are for renewable
one-year periods and include non-compete and non-disclosure provisions as well as provide for defined severance payments in the event of
termination or change in control. the company is also subject to various unresolved legal actions which arise in the normal course of its
business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible losses, the
company believes these unresolved legal actions will not have a material effect on its consolidated financial statements.

13. Income taxes

current Income tax

Federal
State
Foreign

total current income tax expense

Deferred tax expense

Federal
State
Foreign

total deferred tax expense

total tax provision

Year ended December 31,

2019
US$ 000

4,431
823
389

5,643

256
30
–

286

2018
US$ 000

5,194
844
745

6,783

632
11
105

748

5,929

7,531

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes to the consolidated financial statements continued
As of December 31, 2019 and 2018

13. Income taxes continued
As of December 31, 2019 and 2018, the effects of temporary differences that give rise to the deferred tax assets are as follows:

Deferred tax assets

Bad debt allowance
Inventory
Accrued expenses
Intangible assets
UK intangibles
Stock compensation
Italy – noL
other

total deferred tax assets

Deferred tax liabilities
Prepaid insurance
Fixed assets
Intangible assets

total deferred tax liabilities

Valuation allowance

total net deferred tax asset

Year ended December 31,

2019
US$ 000

2018
US$ 000

220
288
378
–
105
279
189
202

185
251
242
485
105
178
129
147

1,661

1,722

(109)
(607)
(191)

(907)

(190)

564

(124)
(619)
–

(743)

(129)

850

A reconciliation of the income tax provision with the amount of tax computed by applying the federal statutory rate to pretax income follows:

consolidated income before tax
Statutory rate

Statutory tax expense

State taxes
Foreign taxes
Permanent differences due to share-based compensation
Permanent differences due to other items
Foreign derived intangible income
tax credits
change in valuation allowance
change in reserve
out of period adjustment
other

tax expense

Year ended December 31,

2019
US$ 000

27,040
21%

5,678

2018
US$ 000

29,074
21%

6,105

681
(48)
(70)
(11)
(458)
–
60
108
–
(11)

677
(115)
(87)
112
(471)
(19)
129
193
860
147

5,929

7,531

As of December 31, 2019, the company has US$ 786,000 of foreign loss carryforwards with an indefinite carryforward life. Management
assesses the recoverability of our deferred tax assets as of the end of each quarter, weighing all positive and negative evidence, and is
required to establish and maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the
deferred tax assets will not be realized. the weight given to the evidence is commensurate with the extent to which the evidence can be
objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not
needed. As of December 31, 2019, management has determined that a valuation allowance is currently needed against the company’s net
operating loss carryforward deferred tax assets.

the company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. the company has open years for the tax
year 2013 and forward. the company has open years related to United Kingdom filings for the tax year 2018, and open years related to Italian
filings for tax years 2014 forward.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

FiNaNciaL StateMeNtS

the company adopted the accounting standard for uncertain tax positions, ASc 740-10, and as required by the standard, the company
recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax
authority. Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be
sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.

Unrecognized tax benefits – January 1, 2018

Increases from positions taken during prior periods
Increases from positions taken during current period
Settled positions
Lapse of statute of limitations

Unrecognized tax benefits – December 31, 2018

Unrecognized tax benefits – January 1, 2019

Increases from positions taken during prior periods
Increases from positions taken during current period
Settled positions
Lapse of statute of limitations

Unrecognized tax benefits – December 31, 2019

958
–
–
–
–

958

958
–
–
–
–

958

the amount of unrecognized tax benefits as of December 31, 2019, if recognized, would favorably affect the company’s effective tax rate.
these unrecognized tax benefits are classified as “other long-term liabilities” in the company’s consolidated balance sheet as the company
does not intend to make significant payments in the next twelve months. the interest and penalties related to the unrecognized tax benefits
are US$ 108,000 and US$ 263,000 as of December 31, 2019 and 2018, respectively. Interest and penalties related to unrecognized tax
benefits are included in provision for income tax expense.

14. Revenues by geographic region
the company sells its products to customers throughout the world. the breakdown by location is as follows:

United States and U.S. possessions
rest of World

total

2019
US$ 000

65,534
23,772

89,306

2018
US$ 000

64,661
29,340

94,001

15. Stock-based compensation
the company has stock-based compensation plans which are described below. the compensation cost that has been charged against
income for the plans was approximately US$ 760,000 and US$ 489,000 for the years ended December 31, 2019 and 2018, respectively. the
income tax effect recognized for stock-based compensation was US$ 0.1m and US$ 0.1m, respectively, for the years ended December 31,
2019 and 2018.

Stock options
An initial grant was made in February 2010 for 2.3 million stock options as replacements for grants under the old option plan, which was
cancelled when the old plan was abandoned. the grants have a three-year vesting and a strike price of 30p, a 100% premium over the
market price on the date of grant. the remaining stock options will only be issued for new key employees and superior performance. options
granted under the Plan have a term of up to ten years and generally vest over a three-year period beginning on the date of the grant. options
under the Plan must be granted at a price not less than the fair market value at the date of grant. the fair value of each option award is
estimated on the date of grant using the Black-Scholes-Merton option pricing model. the risk-free interest rate is based on the U.S. treasury
rate for the expected term at the time of grant, volatility is based on the average long-term implied volatilities of peer companies as our
company has limited trading history and the expected life is based on the average of the life of the options of ten years and an average vesting
period of three years. no new options were granted in 2019 and 2018. A summary of options activity is presented below:

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes to the consolidated financial statements continued
As of December 31, 2019 and 2018

15. Stock-based compensation continued

options

outstanding at January 1, 2018
Granted
Exercised
Forfeited

outstanding at December 31, 2018
Exercisable at December 31, 2018

options

outstanding at January 1, 2019
Granted
Exercised
Forfeited

outstanding at December 31, 2019
Exercisable at December 31, 2019

Weighted
average
exercise
price

Weighted average
remaining
contractual term
(years)

0.47
–
0.47
–

–
–

2.13
–
1.13
–

–
–

Weighted
average
exercise
price

Weighted average
remaining
contractual term
(years)

–
–
–
–

–
–

–
–
–
–

–
–

Aggregate
intrinsic
value

61,195
–
(61,195)
–

–
–

aggregate
intrinsic
value

–
–
–
–

–
–

Stock options

17,140
–
(17,140)
–

–
–

Stock options

–
–
–
–

–
–

no options were exercised in 2019, and options exercised in 2018 were settled for cash of US$ 0.1m. As of December 31, 2019 and 2018,
the company’s stock options have all been vested with no unrecognized compensation cost related to non-vested stock-based compensation
arrangements granted under the company’s stock option plan.

Restricted stock units
the company also regularly issues restricted stock units to employees and non-Executive Directors, subject to Board approval.

A summary of restricted stock unit activity in 2019 and 2018 is presented below:

outstanding at January 1, 2018
Granted
Vested or settled for cash
Forfeited

outstanding at December 31, 2018

outstanding at January 1, 2019
Granted
Vested and settled for cash
Forfeited

outstanding at December 31, 2019

386,972
200,971
(117,316)
(30,151)

grant date fair
market value
US$

963,505
1,062,130
(230,371)
(129,878)

440,476

1,665,386

440,476
197,135
(148,581)
(2,940)

1,665,386
994,392
(332,194)
(15,000)

486,090

2,312,584

rSUs settled for cash were US$ 0.6m in 2019 and US$ 0.5m in 2018.

As of December 31, 2019, there was US$ 1,130,000 total unrecognized compensation cost related to non-vested restricted stock units.
restricted stock unit expense is being recognized over the three-year vesting period. the weighted average remaining vesting period is 1.41 years.

16. Employee compensation
the Board approved management bonuses and profit-sharing payments totaling US$ 0.8m to be paid in December 2019 and early 2020
based upon the company meeting certain profitability targets.

Equity bonus plan
the company has an Equity Bonus Plan, under which eligible senior managers may choose to receive a percentage of their annual
performance bonus in shares of common stock. In March 2019, the company issued 39,373 shares of common stock, valued at
US$ 201,000 at the time of grant. In March 2018, the company issued 34,157 shares of common stock, valued at US$ 180,000 at
the time of grant.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

FiNaNciaL StateMeNtS

17. Subsequent events
Dividend
In recognition of Somero’s strong performance and the Board of Directors’ confidence in the continued growth of the company, the Board
approved an increase to the dividend payout ratio to 50% of adjusted net income and is pleased to announce a final 2019 dividend of
13.0 US cents per share that will be payable on April 30, 2020 to shareholders on the register at April 14, 2020. together with the interim
dividend paid in october 2019 of 5.75 US cents per share, this represents a full year regular dividend to shareholders of 18.75 US cents per
share. In addition, due to the strength of the company’s cash position at the end of 2019, and upon the review of anticipated future cash
requirements for the business, the Board of Directors’ has adopted a new supplementary dividend policy and approved a supplemental
dividend of 7.7 US cents per share that will be paid together with the final 2019 dividend on April 30, 2020 to shareholders on the register at
April 14, 2020. the combined dividend payment on April 30, 2020 will total 20.7 US cents per share, representing a total dividend payment
of US$ 11.7m.

All future dividends, including both ordinary and supplemental, now have the option of being paid in two currencies, GBP and USD. In
addition, there is also the option of being paid by check or through crest for either currency and additionally via BAcS for GBP payments. If
no election is made, dividends will be paid in USD and via check. If shareholders wish to change their current currency or payment methods,
forms are available through computershare Investor Services PLc at https://www-uk.computershare.com/investor/formscatalogue.asp

Distribution amount:

Ex-dividend date:

Dividend record date:

Final day for currency election:

Payment date:

$0.207 cents per share

09 April 2020

14 April 2020

15 April 2020

30 April 2020

Further, any participant holding the Security on behalf of beneficial owners resident in a treaty country with the United States of America can
facilitate claims for tax relief at source for its underlying beneficial owners. In order to ensure that the appropriate rate of US Withholding tax is
applied correctly, completed documentation must be provided to the Depositary, computershare Investor Services PLc.

Additional information on currency election and tax withholding can be found at: https://investors.somero.com/aim-rule-26. Shareholders can
also contact computershare Investor Services PLc by telephone at +44 (0370) 702 0000 or email via webcorres@computershare.co.uk.

Equity bonus plan
In February 2020, the Board approved the 2019 Equity Bonus Plan, under which eligible senior managers can elect to receive up to 50% of
their 2019 annual performance bonus in shares of common stock. the company expects to issue shares for awards under the 2019 Equity
Bonus Plan in 2020.

Share buyback
In February 2020, the Board approved a share buyback program, pursuant to which, the Board intends to carry out an on market buyback of
such number of its listed shares of common stock as are equal to US$ 1,000,000. the purpose of the program is to mitigate future dilution
resulting from share issuances under the company’s equity award programs. the company estimates that the program will be fulfilled by the
end of 2020.

Adoption of QCA
the Board has approved the adoption of the Quoted companies Alliance corporate Governance code (the “QcA code”) in substitution for the
UK corporate Governance code 2018. the Board intends that the adoption of the QcA code shall be effective from 15 April 2020, in
conjunction with the release of its Annual report. the Board considers the adoption of the QcA code appropriate for companies of similar
sizes to Somero and for companies who are listed on AIM and believes that its adoption is for the benefit of the company and its shareholders.

Annual General Meeting
the Annual General Meeting of Stockholders (the “AGM”) of the company will be held at 14530 Global Parkway, Fort Myers, FL 33913 USA
on June 9, 2020 at 9:00 am local time. the notice of the AGM shall be released with the Annual report and shall include instructions for
remote participation. Stockholders of record at the close of business on April 13, 2020 will be entitled to receive notice of, and vote at,
the AGM.

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

SRCGNotes

SOMERO ENTERPRISES, INC AnnuAl RepoRt And Accounts 2019

FSC LOGO TO
GO HERE

Registered and Head Office
Somero Enterprises, Inc.
14530 Global Parkway,
Fort Myers, Florida 33913
USA