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INNOVATE.
EXPAND.
GROW.
ANNuAl REPORT & AccOuNTs 2023
lEADERs
IN lEVElING
At Somero we provide industry-leading
concrete-leveling equipment, training, education
and support to customers in over 90 cOuNTRIEs.
Our INNOVATIVE TEcHNOlOGY allows contractors to
complete every concrete floor installation faster,
flatter and with fewer people, providing a platform
for customers to GROW succEssFul BusINEssEs.
sTRATEGIc REPORT
02 At a glance
04 Where we operate
06 Chairman’s and Chief Executive
Officer’s Statement
12 Market overview
14 Our business model
16 Our strategy
19 ESG
22 Stakeholder engagement
24 Financial review
28 Risk management
29 Principal risks and uncertainties
cORPORATE GOVERNANcE
30 Board of Directors
32 Corporate governance report
35 Audit committee report
36 Directors’ remuneration report
39 Directors’ report
FINANcIAl sTATEMENTs
42 Report of the independent auditors
43 Consolidated balance sheets
44 Consolidated statements of
comprehensive income
45 Consolidated statements of
changes in stockholders’ equity
46 Consolidated statements of cash flows
47 Notes to the consolidated
financial statements
56 Other unaudited information
HIGHlIGHTs
sTRATEGIc REPORT
FINANcIAl
Revenue
us$ 120.7m
-9.7%
Adjusted EBITDA(1,2)
us$ 36.5m
-20.7%
Ordinary dividend per share
us$ 0.23
-16.5%
2023
2022
120.7m
133.6m
2023
2022
36.5m
46.0m
2023
2022
0.23
0.28
Diluted adjusted net income
per share(1,3)
us$ 0.47
-14.5%
cash flow from operations
us$ 24.4m
-12.2%
Net cash(4)
us$ 33.3m
-1.2%
2023
2022
0.47
0.55
2023
2022
24.4m
27.8m
2023
2022
33.3m
33.7m
OPERATIONAl
• Strategic investment in
international markets
yielding positive results
– Revenue in Australia
grew 18% driven by new
customer acquisition and
broader product range
– Parts and service sales
in Europe and Australia
grew 19% and 43%
respectively
POsT-PERIOD
• Non-residential construction
remains healthy with
customers reporting high
activity levels and extended
project backlogs, and expect
market conditions to remain
consistent in 2024
• Three new products launching
in 2024, including the first
step toward electrification
with the launch of the
S-940e in January
• Completed installation of
in-house painting and material
preparation systems in the US
• Increased European
footprint with a new
site in Belgium
• Completed relocation of
Australia operations to
a larger facility to meet
growing demand
• Declared a 13.2 US cents
per share final 2023 ordinary
dividend and a 7.4 US cents
per share supplemental
dividend, totaling a
combined US$ 11.4m
• Authorized a new share
buyback program of an
aggregate value of up to
US$ 2m to offset dilution
from on-going equity award
programs, expected to be
completed by the end of 2024
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 gain (loss) other
income (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.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
01
AT A GlANcE
WHO
WE ARE
OuR PuRPOsE
We work hard to deliver world-class
products and services because
we’re passionate about HELPING
our customers achieve their
business and profitability goals.
OuR VIsION
Somero’s vision is for our
innovative, cutting-edge
technology and processes
to be in use wherever a
ready-mix truck is discharging
concrete for a horizontal
concrete slab.
OuR VAluEs
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
• Operating with a sense
of urgency
• An ability to solve problems
• Proactive honest communication
in creative ways
• Being accountable and
taking ownership
• Embracing and driving change
• Expressing our passion through
amazing service
• Having fun
OuR culTuRE
At Somero, we are always striving to be great ... providing great
equipment and service for our customers and creating a great
place to work for our employees, and operating a sustainable
and responsible business.
02
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
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 PRODucTs
Somero products are technologically innovative machinery
used in the process of 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 over 20 products. Our proprietary designs are protected by
129 patents and patent applications.
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.
• Warehousing
• Assembly
• Exterior paving
• Parking structures
• Commercial construction plants
• Retail centers
% OF REVENuE
BY PRODucT
GROuP
Boomed screeds 50%
Ride-on screeds 15%
3D Profiler System 7%
Remanufactured machines 5%
Other 23%
See all products on our website: www.somero.com
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
03
WHERE WE OPERATE
A GlOBAl BusINEss
OuR lOcATIONs
Somero’s Global Headquarters and Training
Facility, and the home of the Somero
Concrete Institute, is located in Fort Myers,
Florida while the Company’s Operations
and Support Center is located in Houghton,
Michigan. Somero also maintains a Sales
and Service Office in Shanghai, China, as
well as sales and service offices located in
Chesterfield, England, New Delhi, India and
our newest location, Melbourne, Australia.
north America,
Fort myers, Florida:
Global headquarters and Somero
Concrete Institute training facility
Houghton, michigan:
Production, operations and support
India, new Delhi:
Sales and service office
china, Shanghai:
Sales, service and Somero Concrete
College training facility [ceased
operations in December 2023]
Australia, melbourne:
Sales and service office
UK, chesterfield:
Sales and service office
Belgium, Kampenhout:
Sales and service office
Read more about Market opportunities
and growth on page 12
% OF
REVENuE BY
TERRITORY
North America
73%
Australia
8%
Europe
13%
Rest of World
6%
04
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
05
cHAIRMAN’s AND
cHIEF EXEcuTIVE OFFIcER’s sTATEMENT
FOcusED ON OuR
sTRATEGY FOR succEss
OVERVIEW
Against an exceptional 2022 and taking into consideration the
previously reported factors impacting the pace of sale of boomed
screeds in North America, the Board is pleased with a solid overall
performance in 2023. We have delivered continued growth in our
key international markets, in particular sales of parts and service,
while maintaining healthy profitability. Group 2023 revenues totaled
US$ 120.7m (2022: US $133.6m), with the 10% decline driven by
the trading slowdown in North America. The Company’s flexible cost
structure enabled it to quickly adjust its operational headcount to the
changing circumstances. Customer facing and product development
headcount were not impacted, enabling us to continue to execute
and support the long-term growth strategy. As a result, 2023 gross
margin was 55.8% (2022: 57.0%) and adjusted EBITDA margin
was 30.2% (2022: 34.5%). Net income of US$ 27.9m (2022: US$
31.1m) converted efficiently to operating cash flow of US$ 24.4m in
2023 (2022: US$ 27.8m), reflecting healthy profitability and strong
cash collection. The 2023 operating cash flow funded US$ 19.8m in
dividend payments. December 31, 2023 net cash totaled US$ 33.3m
(2022: US$ 33.7m). The Company’s final 2023 results were in line
with guidance provided on 20 June 2023.
REGION AND PRODucT REVIEWs
north America
2023 North American sales declined 13.2% from 2022 to US$ 88.4m.
Our US customers continue to report a high level of activity and a
diverse range of projects ranging from large footprint manufacturing
facilities, data centers and warehousing to smaller footprint retail,
schools, and medical centers, and maintain robust project backlogs.
While underlying market conditions remain positive, factors noted in
the 20 June 2023 Trading Update led to delayed starts and pauses
to non-residential construction projects and impacted the translation
of construction activity into trading in the US compared to 2022.
Although US customers have not reported project cancellations,
the project delays have impacted their equipment purchase decision.
H2 trading benefited from the re-launched S-22EZ reaching full
production at the end of H1 2023. The long-standing and worsening
shortage of skilled labor necessitating the need for automation and
work productivity, coupled with strong end-user demand, such as
onshoring of manufacturing, electric vehicle battery plants, and chip
manufacturing, provides long-term demand for our products.
Europe
Europe, one of our target international markets where we see
meaningful opportunity for growth, reported sales of US$ 15.1m in
2023, up 1.3% from US$ 14.9m in 2022. Of particular note, revenue
from the sale of parts and service grew 19% on 2022. The Company’s
investments in customer facing resources and capabilities, including
adding three European-based sales positions and customer support
employees, led to an increase in new customer acquisitions, deeper
penetration of new and existing products, and, with a growing
installed base, an elevated demand for machine repair and service.
The Company remains focused on attracting new customers by
leveraging entry-level equipment such as the SRS-4 in the boomed
screed category and the EcoScreed in the ride-on category, and
intends to continue to invest in this market in 2024 with the addition
of a new facility in Belgium commencing in Q1 2024 and expected to
be fully operational later in the year. This enables us to stock machines
and parts and offer training and machine repair capabilities closer to
our customers across Europe.
Australia
Australia is also a target international market where we see meaningful
opportunity for growth through increased market penetration across
our product portfolio. The transition to a direct sales and support
model at the end of 2020 provided the foundation for the strong
performance in 2023 and future growth.
Australia reported 2023 sales of US$ 9.9m, a 17.9% increase from
the US$ 8.4m in 2022. Similar to Europe, the higher sales were
attributable to our direct sales and customer support teams that were
expanded with additional staff, focus on new customer acquisitions
and selling a broader range of new and existing products.
Due to the success and continued growth in the region, in late
H1 2023 we secured a larger facility to replace the current one.
This provides additional space to stock a broader range of our
products locally to quickly capitalize on sales opportunities,
accommodate recent and future staff additions, and enhance our
training and machine repair capabilities in the market. Operations
were transitioned to the new facility in August 2023. The expanded
capability has enabled us to capture incremental machine repair
opportunities resulting in an increase in revenue from sale of parts
and service of 43% on 2022.
06
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
TO HAVE succEssFullY NAVIGATED A cHAllENGING YEAR AND DElIVERED AGAINsT
MARKET EXPEcTATIONs sET IN JuNE Is A GOOD REsulT AND I AM PROuD OF HOW OuR
EMPlOYEEs AROuND THE WORlD ROsE TO THE cHAllENGE.
Jack cooney
Chief Executive Officer
rest of World
Our Rest of World region includes Latin America, the Middle East,
India, Southeast Asia, Korea and China. Excluding China, the Rest
of World region reported combined 2023 revenues of US$ 6.6m
(2022: US$ 7.5m). The main contributors to 2023 revenues were
Latin America, India and the Middle East, which reported respective
sales of US$ 2.6m (2022: US$ 3.6m), US$ 1.8m (2022: US$ 2.6m),
and US$ 1.5m (2022: US$ 0.8m). As expected, China continued to
report declines to US$ 0.7m in 2023 from the US$ 1.1m reported in
2022. At the end of 2023, we completed the divestment of our direct
operations in China. Excluding China, market conditions in Rest of
World territories were generally positive. Given the relatively small base
of business in each region, trading will fluctuate from period to period.
products
Demand for our product categories is impacted by the type and size
of projects, and applications, which are ultimately driven by end
users. Large Boomed screeds are suitable for large footprint projects
such as warehousing, medical facilities and manufacturing facilities,
while Ride-on screeds are suitable for smaller footprint projects and
smaller concrete slabs. Different applications drive demand for other
equipment, such as exterior applications driving demand for the 3D
Profiler Systems and the Somero Broom+CureTM. As these variables
shift, our product mix fluctuates accordingly.
2023 Boomed screed sales decreased to US$ 53.9m from the
US$ 67.2m reported in 2022, driven by the factors in the US noted
in the 20 June 2023 Trading Update and above. Nonetheless, there
continues to be healthy demand for large Boomed screeds driven by
recent onshoring efforts, an increase in electric vehicle battery plants
and US legislation including the CHIPS Act, a statute providing roughly
US$ 280 billion in new funding to boost domestic research and
manufacturing of semiconductors in the United States. 2023 sales of
ride-on screeds totaling US$ 20.4m grew 4.6% (2022: US$ 19.5m),
while sales of 3D Profiler Systems, remanufactured machines and
total other revenue remained relatively comparable to 2022. Within the
other revenue category, revenue from parts and service increased 9%
to US$ 20.5m from US$ 18.8m reported in 2022. As detailed above,
investments in customer support in our EU and Australia markets and
growing installed bases contributed to this growth.
Products released since 2019, the SkyScreed® 36, S-PS50, SkyStrip®
and the Somero Broom+CureTM, that target new market segments,
together contributed US$ 2.1m in 2023 revenues (2022: US$ 4.2m),
which was mostly from sales of Broom+CureTM. These are new
inventions that address entirely new market segments and customer
bases. The SkyScreed® 36 and the other products in this group are
highly disruptive solutions supported by a strong value proposition
that deliver meaningful value to customers, but also significantly
change long-established jobsite work practices and workflows.
We remain confident that the long-term opportunity in these new
market segments, including the high-rise structural market, far
exceeds reported 2023 revenue for the Company, but understand
as with all disruptive technology, gaining broad market acceptance
will be a gradual process and trading will be volatile.
We continue to dedicate significant organizational time and resources
to engage customers directly to develop a pipeline of ideas for solutions
that address pain points. 2023 was an active period in this regard, with
extensive jobsite visits and innovation council sessions both in the US
and internationally, which will lead to the launch of three new products
in 2024.
The first of these is the initial step in the long journey toward
electrification, the S-940e, an electric version of the Company’s
popular S-940 ride-on machine. The second, further demonstrating
Somero’s commitment to addressing customer needs, is a new product
filling a product-line market application gap, the SRS-6s.
Both of these machines launched in January with a third scheduled
for release later this year.
As part of our R&D process, we continue to explore and implement
new technological advancements that will enhance our current and
future offerings.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
07
cHAIRMAN’s AND
cHIEF EXEcuTIVE OFFIcER’s sTATEMENT cONTINuED
sTRATEGIc PROGREss
Somero’s strategy is to capture growth from new products and in our
international markets. The Company began in 1986 with an industry
transforming invention, the laser screed machine, and to this
day Somero remains committed to leading the industry forward
by developing solutions that help customers build better, safer, and
more profitable businesses. Developing new products creates value
for customers and expands our growth opportunity. The Company’s
new product releases include entirely new, disruptive products that
target new market segments as well as products closely related to
our current portfolio.
cAsH FlOW AND BAlANcE sHEET
Somero reported operating cash flow in 2023 of US$ 24.4m, a strong
result nonetheless driven by healthy profitability, albeit down from
the exceptional US$ 27.8m reported in 2022. Inventory required to
support the Company’s European and Australian operations remained
elevated. While we drive to work down excess safety stock, which was
built up to mitigate supply chain shortages, the addition of the new
products will cause a natural uplift to inventory levels. Therefore, we
anticipate overall inventory to remain relatively comparable to 2023.
The Company spent US$ 1.7m in 2023 on capital expenditures,
relating to on-going product software programs, and other activities
in the ordinary course of business. With the goal of continuously
enhancing productivity and customer engagement, the Company
intends to make incremental investment in technological solutions
in 2024 within operations, customer training, and marketing.
The Company also paid dividends in 2023 totaling US$ 19.8m
(2022: US$ 29.0m), reflecting the Company’s ongoing commitment to
disciplined return of cash to shareholders, and repurchased US$ 1.4m
in common stock under the Company’s share buyback program.
The Company ended 2023 with US$ 33.3m in net cash slightly down
from the US$ 33.7m reported in 2022 reflecting lower net income,
offset by lower capital expenditures and lower dividend payments,
but still providing a secure financial position with a December 31,
2023 net cash balance that comfortably exceeds the Board approved
minimum year-end cash reserve of US$ 25.0m.
DIVIDEND AND sHARE BuYBAcK PROGRAM
Based on the results of 2023, our secure financial position, and
outlook for 2024, we are pleased to report that the Board has declared
a final 2023 ordinary dividend of US$ 0.1319 per share, calculated
based on the Board approved payout ratio of 50% of adjusted net
income, and after reviewing anticipated future cash requirements for
the business, the Board has also declared a supplemental dividend of
US$ 0.0740 per share, calculated as a 50% distribution of December
31, 2023 cash that exceeds the Board approved year-end US$
25.0m minimum cash reserve. The final 2023 ordinary dividend
when combined with the US$ 0.10 per share interim dividend paid
in October 2023, results in a total 2023 ordinary dividend of US$
0.2319, a 16.5% decrease from the US$ 0.2778 per share 2022
ordinary dividend. Both the final 2023 ordinary dividend and the
2023 supplemental dividend will be payable on 10 May, 2024 to
shareholders on the register at 12 April, 2024. The common stock
ex-dividend date is 11 April 2024.
sOMERO’s JOuRNEY
Somero started as a single product company in 1986 and has
grown its portfolio to over 20 products over 30 years, significantly
expanding our addressable market. We are always looking for ways
to improve the construction industry and what we can provide.
S-240
S-160
3D profiler
System
StS-132
topping
Spreader
Siteshape
system
copperhead
mini
Screed c
StS-11m
topping
Spreader
S-15r
Laser
Screed®
S-485 Laser
Screed®
S-22EZ
Advanced Laser
Screed
1986
1994
1999
2000
2007
2009
2012
2013
2014
UK,
chesterfield
India,
new Delhi
china,
Shanghai
PRODucT INNOVATION
INTERNATIONAl EXPANsION
08
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
In 2023, the Company repurchased a total of 373,635 shares of
common stock under the Company’s share buyback program put in
place to offset dilution from on-going equity award programs. Under
the buyback program, the maximum price paid per common share is
to be no more than the higher of 105% of the average middle market
closing price of common share for the five business days preceding
the date of any share buyback, the price of the last independent trade
and the highest current independent purchase bid. It is intended
that any shares repurchased will be immediately canceled and the
Company will make further announcements to the market as and
when share purchases are made.
The Board has approved a 2024 share buyback program, pursuant
to which, the Board intends to carry out a buyback US$ 2.0m of
common shares in order to mitigate future dilution resulting from share
issuances under the Company’s equity award programs. The Company
expects to complete the program by the end of 2024.
OuR PEOPlE
On behalf of the Board, we would like to thank all our global employees
for their performance in 2023. A core strength of the Somero team
is its ability to quickly adjust to changing conditions while always
delivering the highest level of products and service to our customers.
This underpins the Company’s highly flexible cost model that enables it
to deliver healthy profits. The Board and management team remain as
committed as ever to providing all our employees with a rewarding and
challenging working environment that is full of opportunity.
AcHIEVEMENTs IN 2023 EXEMPlIFY THE
cOMPANY’s cOMMITMENT TO THE TWO
PIllARs OF ITs lONG-TERM GROWTH
sTRATEGY OF PRODucT INNOVATION AND
INTERNATIONAl EXPANsION WITH THE
DEsIGN cOMPlETION OF THREE NEW
PRODucTs lAuNcHING IN 2024, AND
RElOcATING TO A lARGER FAcIlITY
IN AusTRAlIA AND sEcuRING A
NEW FAcIlITY IN BElGIuM TO DRIVE
ONGOING REVENuE GROWTH IN OuR
KEY INTERNATIONAl MARKETs.
Jack cooney
Chief Executive Officer
S-10A Laser
Screed®
S-158c
S-940
Laser Screed®
Somero Line
Dragon®
SkyScreed® 25
SkyScreed® 36
S-pS50
SrS-4 Laser Screed®
S-28EZ Laser Screed®
relaunched
S-22EZ
Laser Screed®
S-940e
SrS-6s
Somero Broom+cure™
S-15r Base
Broom+cure™
2015
2016
2019
2020
2021
2023
2024
Australia,
melbourne
Belgium,
Kampenhout
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
09
cHAIRMAN’s AND
cHIEF EXEcuTIVE OFFIcER’s sTATEMENT cONTINuED
ENVIRONMENTAl, sOcIAl AND GOVERNANcE
The Board closely monitors environmental, social and governance
topics that materially impact our stakeholders. These topics are
discussed to ensure Somero strikes the appropriate balance of
meeting shareholder expectations and addressing the concerns of
key stakeholders necessary to ensure sustainability of the business.
A primary material topic is the environmental impact of our business
including the use of our equipment in the construction process.
In 2023, we completed a phase two environmental study by Colorado
State University, which supplements the phase one study that
was completed in 2021 by Middle Tennessee State University, the
results of which were outlined in white papers. The phase one study
concluded that the use of our laser screed machines in non-residential
construction provides a number of environmental benefits, including
a reduction in required concrete used in slab-on-grade projects that
in turn reduces carbon emissions during construction that would
otherwise occur from the use of alternative manual methods, which
quantified in the phase two study to be approximately 3%.
Moreover, as noted above, the Company introduced its first electric
machine as the first step toward electrification. The Board is
committed to continuing down the path of electrifying our machines
as customer demand dictates.
Additionally, we continue to invest resources not only in expanding
and enhancing customer training, but also employee training.
This commitment extends beyond Somero to the broader industry
by sponsoring and prominently participating in a number of industry
organizations with the goal of advancing the industry in general and
on a variety of topics including safety, education, and best practices.
Lastly, the Board continues to prioritize independence and diversity
on the Board reflecting a broad variety of disciplines, experiences,
backgrounds and gender.
cONclusION AND OuTlOOK
Thanks to the talent, dedication and resolve of our employees, 2023
was a successful year under challenging conditions. The Company
reported 2023 results in line with revised market expectations, paid
US$19.8m in dividends to shareholders, capitalized on strategic
investments which led to revenue growth, expanded sales of parts and
service in Europe and Australia, and completed product development
activities to set forth three new product launches in 2024. There is
much to be proud of as we look back.
Looking forward, the Board expects US non-residential construction
to remain strong, supported by customers reporting high levels of
activity and healthy backlogs, with market conditions expected to
remain consistent to 2023, continued contribution from Europe and
Australia, and multiple new product launches. With the Board’s vision
of long-term growth from new products and deeper international
penetration, it has committed to continue making targeted investments
to add resources to drive long-term growth. With the planned addition
of the new Belgium service and training center and the annualized
impact of strategic resources added in 2023, we expect an increase in
2024 operating costs that is within our traditionally targeted US$ 2.0m
incremental investment.
The Board expects the Company to deliver strong revenues, profits,
and cash flows to shareholders in 2024, supported by a strong balance
sheet with no outstanding debt and full availability of its US$ 25.0m
credit facility. The health of the non-residential construction markets
in the US, Europe and Australia form the foundation of the Company’s
2024 expectations. With all factors considered, 2024 revenues are
expected to be comparable with 2023, EBITDA slightly lower from
2023 reflecting modest incremental investment including the new
Belgium service and training center and the annualized impact of
strategic resources added in 2023, and a commensurate level of
year-end 2024 cash.
Larry Horsch
Non-Executive Chairman
5 March 2024
Jack cooney
President & Chief Executive Officer
Notes:
(1) Net Cash is defined as total cash and cash equivalents less borrowings under bank
obligations exclusive of deferred financing costs.
10
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
OuR cORE sTRENGTHs
Our performance in 2023 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.
01
02
03
04
05
06
INDusTRY lEADER IN INTRODucING
cusTOMER-DRIVEN, TEcHNOlOGIcAllY
ADVANcED NEW PRODucTs
DOMINANT MARKET POsITION
sIGNIFIcANT BARRIERs TO ENTRY
BAsED ON TEcHNOlOGY, EDucATION,
AND GlOBAl TEcHNIcAl suPPORT
AND INDusTRY EXPERTIsE
sKIllED MANAGEMENT TEAM WITH
EXTENsIVE INDusTRY EXPERIENcE
ATTRAcTIVE GlOBAl
GROWTH OPPORTuNITY:
• Solid growth and market dynamics
in developed markets
• Strong potential for growth
in emerging markets
sTRONG AND cONsIsTENT
FINANcIAl PERFORMANcE:
• Superior margins
• Strong conversion of revenue growth
into free cash flow
• Disciplined return of cash to
shareholders through dividends
• Strong, unleveraged balance sheet
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
11
MARKET OVERVIEW
Our
locations
Drivers
of growth
Market
dynamics
NORTH
AMERIcA
EuROPE
AusTRAlIA
• New product introductions
• New technology to upgrade fleet of
installed equipment
• Fleet additions
• Shortage of skilled labor in concrete
construction industry
• Accelerated shift toward e-commerce
driving demand for warehousing
• Manufacturing and warehouse
onshoring
• New product introductions
• New technology to upgrade
installed base of equipment
• Fleet additions
• Shortage of skilled labor in concrete
construction industry
• Accelerated shift toward e-commerce
driving demand for warehousing
• Demand for parts and service
• Machine electrification
• New product introductions
• New technology to upgrade
installed base of equipment
• Fleet additions
• Shortage of skilled labor in concrete
construction industry
• Accelerated shift toward e-commerce
driving demand for warehousing
• Demand for parts and service
• Largest market and installed base
of equipment
• Non-residential construction market
fundamentals remain positive in
the US
• Healthy economy supported by
extended customer project backlogs
• Second largest installed base
of equipment
• Positive non-residential
construction market conditions
in the European region
• Meaningful installed base
of equipment
• Positive non-residential
market conditions
• Growing economic environment
REsT OF
WORlD
• New product introductions
• Growing demand for quality
concrete flooring
• Move toward e-commerce driving
demand for warehousing
• Increasing shortage of skilled labor
in concrete construction industry
• Current market penetration
very low
• Meaningful opportunities in
the Middle East, Latin America
and India
12
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
Ongoing
priorities
• Introducing product innovations
to the market
• Increasing the efficiency
and depth of sales and
support coverage
• Increasing the reach of our
training capabilities and
industry expertise
Percentage of
total 2023 revenues
73%
• Increasing market penetration of
new products
• Increasing efficiency and depth of
sales and support coverage in
targeted portions of the region
13%
• Introducing product innovations that
resonate with the local market
• Increasing market penetration of
new products
• Increasing efficiency and depth of
sales and support coverage
• Increasing the reach of our training
capabilities and industry expertise
• Increasing market penetration
of new and legacy products
• Increasing efficiency of sales
and support coverage in targeted
portions of the region
• Supporting promotion of wide-
placement theory and quality
standards for concrete floors
8%
6%
sTRATEGIc REPORT
INVEsTMENTs IN KEY
INTERNATIONAl MARKETs
HAVE BORNE EXcEllENT
REsulTs WITH cONTINuED
OVERAll REVENuE GROWTH
uNDERPINNED BY EXcEPTIONAl
NEW cusTOMER AcQuIsITIONs
AND EXPANDED PARTs AND
sERVIcE sAlEs.
Jack cooney
Chief Executive Officer
39%
of European revenue
from new customers
62%
of Aus revenue
from new customers
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
13
OuR BusINEss MODEl
WHAT WE DO
WHO WE WORK WITH
Somero operates in markets across
the globe, selling products in
90+ countries.
We work with small, medium and
large concrete contractors and
self-performing general contractors.
Our equipment has been used in
construction projects for a wide array
of the world’s largest organizations.
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
14
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
WHAT MAKEs us DIFFERENT
OuR BENEFIcIARIEs
OuR INNOVATIVE PRODucT lEADERsHIP
• Pioneered Laser Screed® machine
market in 1986
• Product portfolio grown to over 20 products
• Designs protected by over 120 patents/
applications
• Product development fueled by
customer engagement
OuR INDusTRY EXPERTIsE,
TRAINING AND suPPORT
• Proven commitment to exceptional
classroom/job-site training
• 24/7 direct global support (within 10
minutes, all major languages)
• Overnight spare parts delivery, next-day
world travel
• Somero Concrete College & Institute
Key benefits to
our employees
• Challenging and
rewarding work
environment full
of opportunity
Key benefits to
our customers
• Quality
• Productivity
• Profit
• Investment in
training to help each
employee reach their
full potential
• Direct access to
Somero expertise,
training and support
Key outcomes for
building owners and end-users
• Operational efficiency
• Improved physical
• Lower floor
maintenance cost
appearance
• Lower forklift
repair cost
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 & Accounts 2023
15
OuR sTRATEGY
PRODucT
INNOVATION
Pushing the industry forward with innovative solutions to
help customers increase speed, productivity & safety and
deliver high-quality concrete slabs for building owners.
PROGREss DuRING THE YEAR
• Relaunched S-22EZ meaningfully
contributed to H2 2023 revenue
• Completed the design for three new
products launching in 2024.
• Active periods of jobsite visits,
customer innovation councils – set
stage for next round of new products
current Patents & Applications
120+
ONGOING PRIORITIEs
To expand Somero’s product offering, and
consequently increase the Company’s addressable
market opportunity, by developing proprietary,
innovative and often disruptive solutions for
customers that improve the efficiency, productivity,
quality and safety of their work.
16
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
17
OuR sTRATEGY
INTERNATIONAl
EXPANsION
Growing our presence in targeted global markets by promoting
wide-placement theory & quality concrete flooring standards,
and increasing penetration across our range of products.
BElGIuM
sTRATEGY IN AcTION
new facility
Commencing in Q1 2024, enables the
company to stock machines and parts and
offer training and machine repair capabilities
closer to customers across Europe
PROGREss DuRING THE YEAR
• Added sales and customer support
personnel in Italy, Germany and
Czech Republic
• 19% parts and service revenue growth
in Europe
• Increased size of in-country team and
facility directly serving Australia
• 18% revenue growth in Australia
Non-Operational staff Based Outside us
23%
ONGOING PRIORITIEs
To allocate resources to targeted international
markets where the value proposition of the
Company’s products is strongest in order to
promote the benefits of wide-placement and quality
concrete flooring standards, and increase market
penetration with new and existing products.
18
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
EsG
sTRATEGIc REPORT
OuR EsG FRAMEWORK
Our goal is to strike the right balance between shareholder expectations and the needs and
concerns of our employees and customers, the communities we live in, and the environment.
In 2023 we continued to make progress on our long-term ESG journey. The Company will
continue to monitor and improve upon metrics outlined on pages 20-21.
sOcIAl
Somero is dedicated to fostering an open and inclusive
working environment for our employees, ensuring their
safety and wellbeing at all times, supporting a training
program for our customers and giving back to the
community in which we operate.
sOcIAl
suPPORTING OuR cOMMuNITY
—
HEAlTH AND sAFETY
—
EMPlOYEE EXPERIENcE
—
cusTOMER TRAINING
PROGRAM
clIMATE cHANGE
—
ENVIRONMENTAl
IMPAcT
E
N
V
I
R
O
N
M
E
N
T
A
l
EsG GOVERNANcE
—
BOARD
INDEPENDENcE
& DIVERsITY
E
c
N
GOVERNA
ENVIRONMENTAl
Somero is committed to making a lasting
positive impact on the environment in which
we operate and doing our bit to reduce our
environmental footprint.
GOVERNANcE
maintaining strong, diverse leadership and
accountability on ESG issues is critical and
Somero takes this responsibility seriously in
how we manage ESG across our business.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
19
EsG cONTINuED
ENVIRONMENT
clIMATE cHANGE
climate change is a critical issue facing humanity today and Somero
is committed to ensuring our own operations maintain a low carbon
footprint and optimal energy efficiency in support of this effort.
ENVIRONMENTAl IMPAcT
Somero understands that natural resources are finite and our
business has a responsibility to protect the environment by
minimizing waste and water use.
Our products generally help the broader environment by
minimizing concrete waste in construction projects, avoiding
excess emission of CO2.
commitment: To reduce our carbon footprint and improve energy
efficiency across our operations.
metrics: Total energy consumption, CO2 production.
Accomplishments:
Commissioned a phase two environmental study by Colorado State
University. The phase two study supplements the phase one study
that was completed in 2021 by Middle Tennessee State University,
the results of which are outlined in a white paper available on
our website. The phase one study concluded the use of our
laser screed machines in non-residential construction provides
a number of environmental benefits, including a reduction in
required manpower and concrete used in building projects that
in turn reduces carbon emissions during construction that would
otherwise occur from the use of alternative manual methods.
Colorado State University study completed in 2023 concluded the
use of Somero laser screed equipment reduces concrete used in
slab-on-grade projects by 3% over traditional manual methods.
commitment: To reduce the amount of waste across our operations
and minimize our water and electrical power consumption.
metrics: Waste to landfill, recycling, total water and electrical
power consumption.
Accomplishments:
• Established baseline of current water and electrical power
consumption from operations and evaluated opportunities to
increase efficiency.
• Collaborated with a third party provider to install water-efficient
wash bay as part of the Remanufactured reconditioning process.
• Implemented cardboard recycling program and installed
cardboard recycling equipment. Recycled 31,400 pounds of
cardboard in 2023, up 21% from 2022.
• Converted factory lighting to LED, resulting in 28,000 kilowatts
savings per year.
• Electricity consumption increased 12% in 2023 although the
Houghton facility was expanded by 35%.
• Our Remanufactured machines, which are customer machines
that are taken in on trade toward the purchase of new machines,
reconditioned and resold, ultimately reduce waste to landfill.
sOcIAl
suPPORTING OuR cOMMuNITY
Somero cares deeply about our community and supporting local
charities is an important part of that.
commitment: To financially support local charities and communities
in the areas where we operate and support our employees with
volunteering and fundraising efforts wherever possible.
metrics: Funds donated to charitable causes, hours donated
to volunteering.
Accomplishments:
• Provided financial support to local charities. In 2023 financial
support of 17 non-profit organizations, including donation to
Ukraine humanitarian efforts, totaling over US $103,000.
• Provided “days of service” where the Company/employees give
time in support of the charities.
• Created employee volunteer initiative program resulting in
participation of 61 employees and 250 volunteer total hours
toward 8 non-profit organizations.
HEAlTH AND sAFETY
the health and safety of our team, both in the workplace and on
site, is of the highest priority at Somero and we work meticulously
to ensure the highest safety standards possible to protect the
welfare of our people.
commitment: We monitor and constantly improve all aspects of
health and safety in the workplace and onsite; providing employees
with the appropriate training, equipment and support to do their
jobs safety.
metrics: Recordable incidents, maintain ISO 9001 accreditation,
safety training delivered.
Accomplishments:
• Workplace training at Somero facilities to educate employees on
safety with a goal to limit/reduce workplace injuries.
• Expanded safety training program to reduce the Company’s
Occupational Safety and Health Administration (OSHA) incident
rate. Over 900 hours of training provided in 2023.
• Developing new products/solutions for customers that improve
job-site safety.
20
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
sOcIAl
cusTOMER TRAINING PROGRAM
Somero are proud to support our customers by providing unique
training opportunities that develop a strong pipeline of skilled
workers, benefiting the industry as a whole.
commitment: We deliver a training program to our customer base
that supports a pipeline of skilled talent within the concrete
construction industry.
metrics: Number of external training hours delivered.
Accomplishments:
• Held 355 training events globally, of which 32% were held at the
Company’s training facility and the remainder onsite at customer
locations. Training events held at the Company’s training facility
included 416 attendees representing 152 individual companies.
EMPlOYEE EXPERIENcE
Fostering a positive company culture and environment where our
employees have ample opportunity to learn and develop is key for
retaining our team and growing our workforce.
commitment: We grow and maintain a strong and supportive
company culture and provide training and development
opportunities to our colleagues to support their growth
and progression.
metrics: Employee feedback, number of internal training hours
delivered to employees.
Accomplishments:
• Conducted 452 days of employee customer support trainings
to expand knowledge base.
• The Company offers virtual training via its Learning Management
System (LMS). In 2023, over 2,400 users accessed LMS for over
3,000 hours of training videos.
• Regular, open engagement with employees through
Company-wide meetings, bi-annual performance
reviews, and through a variety of social events.
• Key members of the Company’s management team actively
participated in concrete construction association events,
including the American Society of Concrete Contractors (ASCC),
and the American Concrete Institute (ACI).
• Providing training opportunities that leverage the Somero
Concrete Institute to increase the pool of skilled labor for the
concrete construction industry.
GOVERNANcE
BOARD INDEPENDENcE & DIVERsITY
Ensuring our Board is independent, operates honestly and is
representative of the diverse voices in our company is key to our
success.
EsG GOVERNANcE
ESG topics are now a critical part of business as usual and ensuring
strong leadership and accountability on these matters is of great
importance to Somero.
commitment: To ensure equal and fair opportunities among our
Board members with appropriate levels of independence.
commitment: To have transparent accountability on ESG issues and
report on performance each year for the benefit of our stakeholders.
metrics: % of Board by gender, % of Board by ethnicity, number
of independent Board members.
ongoing Action: Enhance ESG reporting to increase awareness of
ongoing Company efforts to balance shareholder/stakeholder interests.
Accomplishments:
25% of non-executive directors are female, see page 33.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
21
sTAKEHOlDER ENGAGEMENT
HOW WE ENGAGE
OuR APPROAcH
Developing a
comprehensive ESG
strategy that includes
regular engagement
with stakeholders
on material topics.
Our stakeholders
Material topics
ENVIRONMENTAl
the net carbon impact of our operations
is modest and use of our equipment reduces
co2 emissions.
cOMMuNITIEs
Somero strives to make a lasting,
positive impact in the community
and on the environment.
EMPlOYEEs
our dedicated and talented employees
deliver great results for our customers
and shareholders. We strive to create a
work environment where employees
thrive and grow.
• Broader environmental goals
• Investing to increase energy efficiency
of operations
• Study on CO2 environmental impact of
Somero equipment
• Local charities
• Supporting and donating to local charities,
and industry education programs that include
total donations of over $103,000 in 2023
• Working environment, culture
• Training programs
and values
• Opportunities for learning and
career development
• Investing in remote working tools
• Performance management
cusTOMERs
Somero’s customer relationships are built on
years of providing solutions and world-class
training and support.
• New product development
• High-quality products and
services
• Training and education
• Job-site safety
BOARD/INVEsTORs
Somero prioritizes an open, transparent
dialogue with our Board and shareholders
regarding our business performance
and strategy.
• Financial performance
• Business strategy
• Market conditions
• Risk management
• Return of capital
• Governance
• Direct sales/support
• Customer-led product development
• Trade shows
• In-person and virtual information and
training sessions
• Support and actively partake in
industry associations
• Virtual roadshows
• Recorded presentations
• Trading updates
• Enhancing Board independence and diversity
• Monthly meetings
22
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
cONcRETE INDusTRY MANAGEMENT DONATION
ENVIRONMENTAl
the net carbon impact of our operations
is modest and use of our equipment reduces
co2 emissions.
cOMMuNITIEs
Somero strives to make a lasting,
positive impact in the community
and on the environment.
EMPlOYEEs
our dedicated and talented employees
deliver great results for our customers
and shareholders. We strive to create a
work environment where employees
thrive and grow.
• Broader environmental goals
• Investing to increase energy efficiency
Engagement
of operations
• Study on CO2 environmental impact of
Somero equipment
31 BAcKPAcKs
• Local charities
• Supporting and donating to local charities,
and industry education programs that include
total donations of over $103,000 in 2023
• Working environment, culture
and values
• Opportunities for learning and
career development
• Training programs
• Investing in remote working tools
• Performance management
cusTOMERs
• New product development
• High-quality products and
Somero’s customer relationships are built on
years of providing solutions and world-class
services
training and support.
• Training and education
• Job-site safety
BOARD/INVEsTORs
Somero prioritizes an open, transparent
dialogue with our Board and shareholders
regarding our business performance
and strategy.
• Financial performance
• Business strategy
• Market conditions
• Risk management
• Return of capital
• Governance
• Direct sales/support
• Customer-led product development
• Trade shows
• In-person and virtual information and
training sessions
• Support and actively partake in
industry associations
• Virtual roadshows
• Recorded presentations
• Trading updates
• Enhancing Board independence and diversity
• Monthly meetings
HARRY cHAPIN FOOD BANK
cusTOMER TRAINING
FEEDING AMERIcA
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
23
FINANcIAl REVIEW
suMMARY OF FINANcIAl REsulTs
revenue
cost of sales
Gross profit
operating expenses
Selling, marketing and customer support
Engineering and product development
General and administrative
Total operating expenses
operating income
other income (expense)
Interest expense
Interest income
Foreign exchange impact
Other
Income before income taxes
provision for income taxes
net income
Basic earnings per share
Diluted earnings per share
Basic adjusted net income per share(1), (3), (4)
Diluted adjusted net income per share(1), (3), (4)
other data
Adjusted EBITDA(1), (2), (4)
Adjusted net income(1), (3), (4)
Depreciation expense
Amortization of intangibles
Capital expenditures
Year ended December 31,
2023
US$ 000
Except per
share data
120,699
53,343
2022
US$ 000
Except per
share data
133,590
57,431
67,356
76,159
14,742
2,679
16,340
33,761
33,595
(19)
196
(731)
196
14,289
2,600
16,170
33,059
43,100
(18)
62
(1,342)
(1,001)
33,237
40,801
5,259
27,978
9,682
31,119
Per Share
US$
Per Share
US$
0.50
0.50
0.46
0.46
36,459
25,737
1,425
135
1,740
0.56
0.55
0.55
0.55
46,026
31,000
1,322
135
5,367
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 net income plus tax provision, interest expense, interest income, foreign exchange gain(loss), other income (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.
24
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
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
Net income
Amortization
Tax impact of stock option & RSU settlements
Change in uncertain tax position reserve
Adjusted net income
Year ended December 31,
2023
US$ 000
2022
US$ 000
27,978
5,259
19
(196)
731
(196)
1,425
135
985
319
31,119
9,682
18
(62)
1,342
1,001
1,322
135
1,165
304
36,459
46,026
27,978
135
(183)
(2,193)
31,119
135
(254)
–
25,737
31,000
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
25
FINANcIAl REVIEW cONTINuED
REVENuEs
The Company’s consolidated revenues decreased to US$ 120.7m (2022: US$ 133.6m). Company revenues consist primarily of sales from
Boomed screed products, which include the S-28EZ, S-22EZ, S-15R, S-10A and SRS-4 Laser Screed® machines, sales from Ride-on screed
products, which are drive through the concrete machines that include the S-485, S-940, and S-158C Laser Screed® machines, Remanufactured
machine sales, 3D Profiler System®, SkyScreed® and Other revenues which consist primarily of revenue from sales of parts and accessories,
sales of other equipment, including the Broom + CureTM, SkyStripTM, S-PS50, service, training and shipping charges.
Boomed screed sales decreased to US$ 53.9m (2022: US$ 67.2m) primarily due to reduced volume year over year. Ride-on screed sales
increased to US$ 20.4 (2022: US$ 19.5m) mainly due to higher selling prices, while Remanufactured sales decreased slightly to US$ 6.8m
(2022: US$ 6.9m). Sales of 3D Profiler System® decreased to US$ 8.5m (2022: US$ 8.7m) due to lower selling prices. Other revenues increased
to US$ 31.1m (2022: US$ 30.2m) primarily attributable to an increase in parts sales and service.
revenue breakdown by geography
Boomed screeds(3)
Ride-on screeds(4)
Remanufactured machines
3D Profiler System
SkyScreed
Other(5)
Total
North America
US$ in millions
EMEA(1)
US$ in millions
ROW(2)
US$ in millions
Total
US$ in millions
2023
2022
% of Net
2023
38.1
14.8
5.5
6.5
–
23.5
2022
49.7
14.4
5.2
8.2
1.1
23.2
2023
2022
2023
2022 Net sales
sales Net sales
9.0
2.5
0.9
0.4
–
3.8
9.9
1.8
0.9
0.1
–
3.0
6.8
3.1
0.4
1.6
–
3.8
7.6
3.3
0.8
0.4
–
4.0
53.9
20.4
6.8
8.5
–
31.1
44.7%
16.9%
5.6%
7.0%
0%
25.8%
67.2
19.5
6.9
8.7
1.1
30.2
% of Net
sales
50.3%
14.6%
5.2%
6.5%
0.8%
22.6%
88.4
101.8
16.6
15.7
15.7
16.1
120.7 100.0% 133.6 100.0%
Notes:
1. EMEA includes Europe, Middle East, and Scandinavia.
2. ROW includes Australia, Latin America, India, China, Korea, and Southeast Asia.
3. Boomed Screeds include the S-28EZ, S-22EZ, S-15R, S-10A and SRS-4.
4. Ride-on Screeds include the S-940, S-485, and S-158C.
5. Other includes parts, accessories, services and freight, as well as other equipment such as the SkyStripTM, Somero Broom + CureTM, STS-11M Topping Spreader, Copperhead,
Somero Line Dragon®, Mini Screed C and S-PS50.
Units by product line
Boomed screeds
Ride-on screeds
Remanufactured machines
3D Profiler System
SkyScreed®
Other(1)
Total
2023
174
168
33
82
–
93
550
2022
187
166
32
71
3
92
551
Note:
1. Other includes equipment SkyStripTM, Somero Broom + CureTM, STS-11M Topping Spreader, Copperhead, Somero Line Dragon®, Mini Screed C and S-PS50.
Sales to customers located in North America contributed 73% of total revenue (2022: 76%), sales to customers in EMEA (Europe, Middle East,
and Scandinavia) contributed 14% (2022: 12%) and sales to customers in ROW (Australia, Latin America, India, China, Korea, and Southeast
Asia) contributed 13% (2022: 12%).
Sales in North America were US$ 88.4m (2022: US$ 101.8m) down 13% driven by lower sales volume of large-line Boomed Screeds. Sales
in EMEA were US$ 16.6m (2022: US$ 15.7m), which is an increase of 6% primarily due to high volume Ride-on Screeds and other products.
Sales in ROW were US$ 15.7m (2022: US$ 16.1), representing a 3% decrease driven primarily by lower sales volume of large Boomed Screeds
in Latin America, India and China, partly offset by an increase in volume in Australia across most of the product line, including parts and service,
and Boomed Screeds in Middle East.
26
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
sTRATEGIc REPORT
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 restricted stock units.
Earnings per common share has been computed based on
the following:
Income available to stockholders
Year ended December 31,
2023
US$ 000
27,978
2022
US$ 000
31,119
Basic weighted shares outstanding
Net dilutive effect of restricted stock units
55,735,120
617,553
55,947,900
661,193
Diluted weighted average
shares outstanding
56,352,673
56,609,093
Basic earnings per share
Diluted earnings per share
Basic adjusted net income per share
Diluted adjusted net income per share
Per Share
US$
Per Share
US$
0.50
0.50
0.46
0.46
0.56
0.55
0.55
0.55
Regional sales
North America
Europe
Australia
Rest of World(1)
Total
US$ in millions
2023
88.4
15.1
9.9
7.3
120.7
2022
101.8
14.9
8.4
8.5
133.6
Note:
1. Includes Latin America, India, Southeast Asia, Middle East, and Korea.
GROss PROFIT
Gross profit decreased to US$ 67.4m (2022: US$ 76.2m), with gross
margins decreasing slightly to 56% (2022: 57%) primarily due to
higher input costs and lower Boomed screed volume, partly offset by
price increases.
OPERATING EXPENsEs
Operating expenses for 2023 were approximately US$ 33.8m
(2022: US$ 33.1), which is reflective of increased staffing that
includes investment in sales and support staff in the US and
abroad, and increased travel, offset by lower incentive compensation
and sales commissions.
DEBT
As of December 31, 2023, the Company had no outstanding debt.
In August 2022, the Company updated its credit facility to a US$
25.0m secured revolving line of credit, with a maturity date of August
2027. The interest rate on the revolving credit line is based on the
BSBY Index plus 1.25%. The Company’s credit facility is secured by
substantially all its business assets.
OTHER INcOME (EXPENsE)
Other income (expense) was US$ 0.2m of other income in 2023,
compared to US$ 1.0m of other expense in 2022, primarily due to
a lower unrealized foreign currency exchange loss.
PROVIsION FOR INcOME TAXEs
The provision for income taxes was US$ 5.3m in 2023 compared
to US$ 9.7m in 2022. Overall, Somero’s effective tax rate changed
to 15.8% in 2023 from 23.7% in 2022, due to the removal of an
uncertain tax position, previously reflected as a liability, upon
IRS acceptance.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
27
RIsK MANAGEMENT
Active risk management is essential for Somero to drive
successful operations. The Company is impacted by
various types of risks including strategic and external
risks as well as business risks such as operational and
financial risks. Somero monitors and minimizes these
risks in a structured and proactive manner.
RIsK MANAGEMENT FRAMEWORK
Somero faces different types of risks that can be divided into strategic risks and manageable business risks.
StrAtEGIc rISKS
mAnAGEABLE rISKS
EXTERNAl
RIsKs
sTRATEGY
RIsKs
OPERATIONAl
RIsKs
FINANcIAl
RIsKs
our strategic priorities in combination with the
external environment impact how we assess and
manage business risks and opportunities
policies
corporate governance
Our strategic priorities are related to the Company’s strategy and are impacted by the external environment,
while the business risks are related to operational and financial risks.
28
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
PRINcIPAl RIsKs AND uNcERTAINTIEs
sTRATEGIc REPORT
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.
ER External risks
sR Strategy risks
OR operational risks
FR Financial risks
Flexible cost structure OR
A large portion of Somero’s cost structure is variable and comprised
mainly of costs related to raw materials and components as well as
personnel and personnel-related costs. Somero aims to maintain a
flexible cost structure that enables the Company to be agile and adapt
quickly to fluctuations in market demand.
Data security FR
All business sectors are targeted by increasingly sophisticated cyber
security attacks, a risk that is elevated with an increased number of
employees working remotely, which started as a result of the COVID-19
pandemic. The risk of unauthorized access to or loss of data in respect
to our company, employees or suppliers could result in financial
exposure or business interruption.
Bank obligations FR
In August 2022, the Company entered into an amended credit facility
that included a US$ 25.0m secured revolving line of credit that will
mature in August 2027. The Company’s credit facility is secured by
substantially all its business assets.
Employee retention OR
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, and a compensation
program to attract and retain key employees.
Economic and industry conditions ER
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 Australia, however, the Company has
a presence in India, China (ceased operations in December 2023),
Southeast Asia, the Middle East, 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 sR
Somero invests significantly in 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.
product replacement demand sR
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’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.
Global market penetration sR
Somero’s financial performance is impacted by its ability to
successfully enter and penetrate international markets. Europe and
Australia represent Somero’s primary markets outside the US, and
Somero has primarily focused on developing these markets with a
secondary focus on Latin America, 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 FR
Somero’s financial performance is also linked to prevailing interest
rates; see “Liquidity” and “Capital Resources” below.
Liquidity FR
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. Operations are
primarily funded through existing cash. The Company maintains its
cash balances in banks in each market where it has a presence. The
bank accounts facilitate operational transactions with the Company’s
employees, customers, and vendors in-country. The Company’s banks
serve retail and commercial clients, with a heavier weighting on retail.
Within the commercial customer base, the banks serve a range of
industries. The diversification of the customer base mitigates the risk
of being negatively impacted by any singular sector or vertical. Also,
the Company considers the adequacy of the banks’ capitalization to
ensure sufficient security. The Company evaluates the allocation of
its cash balances amongst the banks routinely to ensure adequate
liquidity in each of its markets where it has a presence, and overall
banking diversification.
capital resources FR
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. The amended
credit 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. As of December 31, 2023, the Company had not
drawn any amounts under the revolving portion of its Citizens Bank
Financing Agreement.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
29
BOARD OF DIREcTORs
OuR TEAM
lAWRENcE l. HORscH
non-Executive chairman of the Board
JOHN T. (JAcK) cOONEY
chief Executive officer and Director
Mr. Horsch, age 89, 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.
Mr. Cooney, age 77, 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 over
45 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.
HOWARD E. HOHMANN
Executive Vice president of
Sales Worldwide, Director
Mr. Hohmann, age 62, 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 and 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 in the U.S. Marine Corps.
THOMAs M. ANDERsON
non-Executive Director
Mr. Anderson, age 72, 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.
30
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
cORPORATE GOVERNANcE
VINcENZO lIcAusI
chief Financial officer, Secretary and Director
ANNE EllIs
non-Executive Director
Mr. LiCausi, age 50, joined Somero in September 2018 as Vice
President of Finance & Controller. Mr. LiCausi has over 25 years
of experience in various finance and senior management roles.
Most recently, Mr. LiCausi served as Vice President of Finance of
Conformis Inc., a global NADAQ listed orthopedics manufacture
and marketer. Prior to his role at Conformis, Mr. LiCausi held
a variety of senior financial roles at Cambridge Heart, C.R.
Bard, Gillette, and Tropicana (PepsiCo) in addition to serving
as an Audit Senior at Deloitte & Touche LLP. Mr. LiCausi
earned a Bachelor of Science degree in Accountancy
from Bentley University in Boston, Massachusetts.
Ms. Ellis, age 65, is a professional engineer with four decades
of experience in the architecture, engineering, and construction
industry. Ms. Ellis served as the 90th president (2013-2014)
of the American Concrete Institute. She is coauthor of the
“Concrete Design and Construction” section of the Standard
Handbook for Civil Engineers, Fifth Edition. Ms. Ellis experience
includes as a director on 16 boards, chairing four. Additionally,
she serves as a strategic advisor to several engineering and
environmental companies as well as construction technology
start-ups. She is immediate past-chair of the Board of Directors
of the National Institute of Building Sciences and serves by
invitation on the Industry Leaders Council of the American
Society of Civil Engineers. From 2008-2016, she served in a
series of growth-enabling corporate roles including director of
innovation at AECOM, a $20 billion publicly traded, professional
services and construction company with 100,000 employees
operating in 154 countries. From 2004-2018, Ms. Ellis served
by appointment of five U.S. cabinet secretaries to their federal
advisory committee addressing matters of energy and trade
policy. Ms. Ellis was inducted into the National Academy of
Construction in 2019.
ROBERT scHEuER
non-Executive Director
Mr. Scheuer, age 66, has served in a series of senior executive
roles at Dover Corporation, a US$ 8bn Fortune 500 company.
Most recently, from 2011 to 2014, Mr. Scheuer was Chief
Financial Officer and Vice President Finance of Dover
Engineered Systems, a US$ 3.8bn 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 US$ 2.4bn business segment
of Dover Corporation and from 1998 to 2007 as Chief Financial
Officer and Vice President of Finance of Dover Industries, a
US$ 1.2bn 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 US$ 1.7bn multi-brand portfolio with six 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 & Accounts 2023
31
cORPORATE GOVERNANcE REPORT
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 Principle 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 14 – 15 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. In addition, retail investors are invited to
a briefing immediately following announcement of Somero’s interim and
full-year results and this presentation is recorded and posted to Somero’s
Investor Relations website. 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 22 – 23 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 Principle 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 has
been maintained and has taken account of any material developments
since the year end.
In accordance with Principle 5 of the Code, the Board comprises seven
Directors, three of whom are Executive Directors and four of whom are
Non-Executive Directors.
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.
Director qualification for serving on the Company’s Board take into
consideration a number of factors including, but not limited to, experience,
functional discipline, industry knowledge, external appointments, time
availability and cultural fit that are aligned with the size and unique profile
of the Company. The combination of being a small company that has
established itself as the leader in a niche industry segment through
product innovation, global expansion, unmatched industry expertise and
extensive direct customer engagement with strong financial fundamentals
presents an inimitable business profile. Accordingly, this inherent
uniqueness necessitates a Board with commensurate attributes.
Whilst, corporate governance, policies and oversight remain at the
forefront, the composition of the Company’s Board enables it to also
provide significant strategic insight, operational guidance, accessibility,
time commitment, engagement and unparalleled industry experience
and knowledge that has been and will continue to be invaluable to
the Company.
The Board believes that the current composition, experience, and skill
sets as outlined on pages 22 – 23 of this report are sufficient for the
Company’s current size (the Company is a small company) and objectives.
The Board has been structured to ensure that an appropriate mix of skills,
experience and diversity are in place to allow it to operate effectively and to
support the development and achievement of the Company’s strategy and
long-term goals.
The composition of the Board is 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. None of the Directors hold more than five mandates
at listed companies, serve as executive officers of any public company, nor
serve as director on more than five public company boards. During the
year, there were 12 regularly scheduled monthly Board meetings, with all
Directors attending.
32
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
cORPORATE GOVERNANcE
The Board regards the Non-Executive Chairman, Lawrence Horsch,
and each of Thomas Anderson, Robert Scheuer and Anne Ellis 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 ten 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 in addition to tenure, including dependency
on compensation as a Director of the Company, size of shareholdings,
commercial relationships with the company and/or incentive pay
agreements. Neither Mr. Horsch nor Mr. Anderson are dependent on the
compensation as a Director of the Company, which is based on a fixed
cash fee, do not have material shareholdings in the Company nor any
commercial relationships either directly or indirectly with the Company,
nor participate in any performance-related pay schemes and 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.
In accordance with Principle 6 of the Code, the Board’s membership
consists of the individuals whose credentials are outlined on pages
30 – 31 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. The Chairman, together with
the Company Secretary, ensures that the Directors’ knowledge is kept
up to date on key issues and developments pertaining to the Group,
its operational environment and to the Directors’ responsibilities as
members of the Board. The Directors have access to the advice
and services of the Company Secretary and are empowered to take
independent professional advice in the furtherance of their duties at
Somero’s expense, where necessary.
In accordance with Principle 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. In November 2017,
the Board adopted a retirement policy stating that Directors shall not be
re-nominated for election after reaching 75 years of age, provided that the
Board may approve exceptions to the policy based on a recommendation
from the Nominating Committee. If a Director reaches the age of 75
during his or her term, the Director will offer to resign in writing.
The Board may choose to accept, defer, or reject the offer to resign.
The composition and functioning of the Board were reviewed and
evaluated by the Nomination Committee and it was determined the Board
as constructed serves the Company’s needs for proper governance.
In respect of compliance with Principle 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 on page 22– 23 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 handbook. Principal risks and uncertainties facing the business,
as outlined on pages 28 – 29 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 Nomination 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 30 – 31 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.
The Board strives for good and effective governance, with informed and
transparent decisions contributing to the delivery of the Group’s strategy.
The Chief Executive Officer is responsible for maintaining strategic focus
and direction and the President’s role, who reports to the Chief Executive
Officer, is responsible for implementing the strategy and overseeing the
management of the Group through the executive and management
teams. The executive and management teams, which are overseen by the
Chief Executive Officer with input from the Directors, are responsible for
day-to-day management of the Group’s business and its overall trading,
operational and financial performance.
In accordance with Principle 10 of the Code, we are committed to
maintaining good communications with our shareholders, and have put
in place appropriate processes and structures to allow that to happen.
Somero communicates with its shareholders through its annual report,
trading announcements, the AGM and in the manner set out in the
commentary in relation to Principle 2. Somero announces the result of
the proxy votes cast for each resolution proposed at each general meeting
of its shareholders immediately after such meeting, and a range of
corporate information (including all historical annual reports and notices
of meetings, announcements, dividend information and presentations)
is made available on Somero’s “Investors” website page. The Board also
receives regular updates on the views of shareholders through reports
from its brokers and from Directors following shareholder engagement.
Analysts notes are reviewed and discussions held with Somero’s brokers
to maintain a broad understanding of varying investor views. Furthermore,
the Company has a number of committees: the Audit Committee, the
Remuneration Committee and the Nomination Committee. A review
of the effectiveness of each of the committees is carried out annually.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
33
cORPORATE GOVERNANcE REPORT cONTINuED
THE NOMINATION cOMMITTEE
The Nomination Committee comprises Messrs. Horsch, Anderson,
Scheuer and Mrs. Ellis, 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, and 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.
The Company adopted a code for Directors’ and applicable employees’
share dealings. The Directors will comply with Rule 21 of the AIM rules
relating to Directors’ dealings and will take all reasonable steps to ensure
compliance by Somero’s applicable employees. In 2016, the Company
updated its dealing code to ensure compliance with the EU Market Abuse
Regulations which came into effect in 2016 and apply to companies listed
on AIM.
During the year, there was one Nomination Committee meeting with
full attendance.
THE AuDIT cOMMITTEE
The Audit Committee comprises Messrs. Scheuer, Anderson, Horsch
and Mrs. Ellis, 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.
During the year, there were two Audit Committee meetings with
full attendance.
Audit
Other
Year ended
December 31,
2023
US$ 000
Year ended
December 31,
2022
US$ 000
129
–
158
–
The Company also separately engages a tax advisor in matters relating
to tax compliance and filings.
Tax
Other
Year ended
December 31,
2023
US$ 000
Year ended
December 31,
2022
US$ 000
224
–
260
–
THE REMuNERATION cOMMITTEE
The Remuneration Committee comprises Messrs. Anderson, Scheuer,
Horsch and Mrs. Ellis, 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.
During the year there were three Remuneration Committee meetings with
full attendance.
34
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
AuDIT cOMMITTEE REPORT
cORPORATE GOVERNANcE
sTATEMENT BY THE cHAIR OF THE
AuDIT cOMMITTEE
On behalf of the Board, I am pleased to present our Audit Committee
Report for the year ended December 31, 2023.
AuDIT cOMMITTEE REsPONsIBIlITIEs
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. The Committee 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 acts independently to ensure the interests of
shareholders are protected in relation to financial reporting, internal
controls and risk management. The Audit Committee is responsible for
all aspects of the financial reporting of the business and has considered
not only the integrity of financial reporting, but also how the challenges
faced by the Company may flow through into internal control and the
procedures implemented to sufficiently mitigate risk.
The Company’s risk management is a permanent focus of the Audit
Committee. Details of the Company’s risk management, including
principal risks and uncertainties, are shown on pages 28 – 29 of this
Annual Report. The Audit Committee is also responsible for monitoring the
integrity of the consolidated financial statements of the Company and any
formal announcements relating to the Company’s financial performance,
including a review of the Company’s accounting policies and areas of
significant judgment and uncertainty.
The Audit Committee has unrestricted access to the Company’s auditors
and manages the relationship between the auditors and the Company.
The independence of the auditors is kept under review and is considered
at least annually with the aid of a memorandum presented to the Audit
Committee by the auditors.
AuDIT cOMMITTEE MEMBERsHIP AND MEETINGs
The Audit Committee is chaired by me, Robert Scheuer. The other
members are Messrs. Anderson, Horsch and Mrs. Ellis. Each of the
Committee members are Non-Executive Directors of the Company, as
set out in further detail on pages 30 – 31 of this Annual Report.
AcTIVITIEs OF THE AuDIT cOMMITTEE
DuRING THE YEAR
Financial reporting
The Audit Committee reviewed the content of the half-year and
full-year results announcement and the 2023 Annual Report & Accounts
to ensure the integrity of the content, financial statements, and related
disclosures. The Audit Committee does this by considering, among other
things, the accounting policies and practices adopted by the Company;
the application of applicable reporting standards and compliance with
broader governance requirements; reports detailing the approach taken
by management to the key judgment areas from the external auditors.
The Audit Committee also considers significant issues including whether
the business remains a going concern and whether the Annual Report
& Accounts are fair, balanced and understandable, and provide the
information necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
External Audit
Following an auditor tender process in 2022, at the recommendations
of the Audit Committee, the Board reappointed Whitley Penn as
the Company’s auditor on November 15, 2022 for the year-end
December 31, 2023. The recommendation of the Audit Committee
to reappoint Whitley Penn was predicated on the basis that Whitley
Penn effectively satisfied the attributes set forth in the tender process,
including a complete rotation of the audit team starting with the 2023
audit, including engagement partner, concurring partner and quality
control partner. Furthermore, additional team rotation will occur, with
engagement partner rotation occurring at least every five years.
The external auditor reports to the Audit Committee on actions taken to
comply with professional and regulatory requirements. In addition, the
Audit Committee considers risk areas that might inform the audit strategy,
which are discussed with the external auditors.
The Audit Committee reviewed the scope of Whitley Penn’s audit and
reports outlining the audit work performed and conclusions reached on
key risk areas and on the disclosures in the Annual Report & Accounts.
The Audit Committee agreed with the key risk areas identified by
the auditors.
The Audit Committee has confirmed it is satisfied with the independence,
objectivity and effectiveness of Whitley Penn as auditor and will support a
resolution to retain them at the forthcoming Annual General Meeting.
At the invitation of the Audit Committee, representatives of the Company’s
auditors usually attend Committee meetings.
No non-audit services were provided by the external auditors during the
fiscal year.
The Audit Committee meets at least twice per year. The meetings were
attended by the CEO, President, and CFO, as well as the external auditor,
Whitley Penn LLP (“Whitley Penn”). In 2023, all meetings had full
attendance. Additionally, the Committee meets the external auditor twice
per year without executive management present, to discuss the auditor’s
remit and any issues arising.
risk review
Senior management identifies and evaluates major business risks,
then designs and implements internal control systems to mitigate these
risks. On an annual basis, an evaluation of the effectiveness of the
Company’s internal control systems is reported and discussed with the
Board of Directors and the Audit Committee. The evaluation includes
consideration of how internal control systems can be improved.
The Audit Committee is satisfied that the risk review process is
sufficiently rigorous.
robert Scheuer
Chair of the Audit Committee
March 5, 2024
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
35
DIREcTORs’ REMuNERATION REPORT
Executive Directors
J Cooney
J Yuncza(2)
V LiCausi
H Hohmann
Non-Executive Directors
L Horsch
T Anderson
A Ellis
R Scheuer
Cash salary
2023
Bonus
2023
$580,057
$282,545
$318,932
$390,841
$158,276
$113,031
$113,031
$113,031
$64,613
$31,441
$28,421
$43,536
–
–
–
–
Bonus paid
in common
shares
2023(1)
Other
Remuneration
2023
–
–
–
–
–
–
–
–
–
$141,272
–
–
–
–
–
–
Restricted
stock units held
at 31 Dec
2023
Salary
2024
$609,060
–
$334,879
$410,383
$166,190
$118,683
$118,683
$118,683
127,666
25,413
56,009
86,029
–
–
–
–
Total
2023
$644,670
$455,258
$347,353
$434,377
$158,276
$113,031
$113,031
$113,031
Notes:
1. The amount included in the 2023 bonus that was paid in common shares in lieu of cash under the Company’s Equity Bonus Plan, as described in Note 15 to the consolidated financial
statements. At the discretion of the Remuneration Committee and based upon employee election, up to 100% of annual bonus and commission amounts can be paid in the form of
common shares.
2. The amounts included reflect salary while Mr. Yuncza served in the role of President through 28 August 2023, and a pro rata bonus and severance pay pursuant to the terms of the
Separation Agreement entered on 28 August 2023.
3. No options were held by any Directors at 31 December 2023.
REMuNERATION POlIcY
The Company’s policy is to provide executive remuneration packages 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 annual increases as determined by the full Board. In setting compensation, the Remuneration Committee takes account of the
fairness and competitiveness of Executive and Non-Executive Compensation in comparison to peer companies and with regard to the US labor
market. The Remuneration of Non-Executive Directors is approved by the Board. In framing remuneration policy, the Remuneration Committee
has given consideration to the requirements of the Code.
cOMPONENTs OF REMuNERATION
The components of executive remuneration are:
• basic salary and benefits determined by the Remuneration Committee and reviewed annually;
• bonuses that are based solely on the performance and profitability of the Company. The maximum executive director bonus opportunity for
2023 and 2024 is 100% of salary: and
• its policy is to make an award of restricted stock units to Executive Directors at 40% of salary in the first quarter of each financial year as
further described later in this report.
Non-Executive Directors receive board fees solely in cash and no equity-based remuneration.
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 for 2023 and 2024 are set out in the table above.
All salaries and fees were increased by 5.0% effective 1 January 2024 in line with the general salary increase across the employee base.
ANNuAl BONus
In the year ended December 31, 2023, the Executive Directors earned bonuses as shown in the table above.
Bonus earned for 2023 was determined based on Company performance with variable payouts along a sliding scale ranging from 0%-100%.
On-target bonus is in the range of 40% to 50% of base salary. At the discretion of the Remuneration Committee and based upon employee
election, up to 100% of annual bonus and commission amounts can be paid in the form of common shares.
Bonuses paid to the Company’s Executive Directors 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.
For 2023, the annual established target approved by the Remuneration Committee was based on EBITDA.
In 2023, EBITDA was well below the target due to factors that impacted trading in North Americas, as discussed elsewhere in this Annual Report.
As a result, the bonus payout was at the low end of the sliding scale.
The annual bonus will operate in a similar manner in 2024.
36
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
cORPORATE GOVERNANcE
DIREcTORs’ cONTRAcTs
The Company has entered into employment agreements with Executive Directors and certain members of senior management. The terms of
these agreements are 12 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, REsTRIcTED sTOcK uNITs
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 2023 are governed by Somero’s 2020 Equity Incentive Plan (the “2020 Plan”) that was
adopted by the Remuneration Committee in 2019. The 2020 Plan is a ten-year Plan making up to 5.6 million of equity awards (stock options,
restricted stock units or common shares) available to be granted over a ten-year period until 2030, which is 10% of the 55.6 million shares
currently issued and outstanding.
The Company’s policy is to make awards of Restricted Stock Units (“RSU”) to Executive Directors with a value at award of 40% of salary in the
first quarter of each financial year. These awards vest after three years subject to continued employment.
The Remuneration Committee has determined that aside from service period requirements, performance criteria should not be applied to these
awards. The Remuneration Committee has determined that equity awards are critical incentives necessary to attract, retain and reward key
organizational talent including Executive Directors. The Company’s key employees, including its Executive Directors, are US-based and awards
of this structure are common practice in the USA and so using this award type is essential to achieve the objectives outlined above.
The Remuneration Committee also notes that the industry in which the Company operates is cyclical, further supporting the commercial
case for making awards of this structure. The awards provide simple powerful alignment between Executive Directors and the Company and
Shareholders. The Remuneration Committee notes that restricted share awards are provided for by the UK Investment Association Principles
of Remuneration. These Principles note that award levels should be discounted by at least 50% to the grant level of awards with performance
conditions attached to reflect higher certainty of vesting. With awards set at 40% of salary, Somero’s approach is in line with guidance.
Further, this plan was implemented in part due to the significant difficulty for US-based employees to access the AIM market due to securities
legislation and administration issues. This plan has resulted in a steady increase in equity ownership across Executive Directors and Key Managers.
For more information, see Note 15 within the Notes to the Financial Statements.
In 2023, Executive Directors were awarded RSUs as part of their annual incentive compensation plans. In line with the approach outlined above,
on 13 March 2023 the Company made awards to Jack Cooney, Howard Hohmann and Vincenzo LiCausi with a value at 40% of salary as detailed
in the table below. A further 118,890 RSU awards to non-Director employees on the same date. Awarded RSUs vest three years from the date
of the grant and require continued employment for the period. In 2023, 307,845 RSUs were exercised and 73,832 awards were forfeited.
284,437 units were issued leaving a balance of 570,750 units as of 31 December 2023. For more information, see Note 15 within the
Notes to the Financial Statements.
Details of Directors’ restricted stock units awarded, exercised and outstanding during 2023 are set out in the table below.
DIREcTOR REsTRIcTED sTOcK uNITs
Director
Executive Directors
H Hohmann
H Hohmann
H Hohmann
H Hohmann
J Cooney
J Cooney
J Cooney
J Cooney
J Yuncza
J Yuncza
J Yuncza
J Yuncza
V LiCausi
V LiCausi
V LiCausi
V LiCausi
Grant
Date
January 1,
2023
Award
(Exercise)
Canceled
December 31,
2023
3/13/2023
3/12/2022
3/13/2021
3/13/2020
3/13/2023
3/12/2022
3/13/2021
3/13/2020
3/13/2023
3/12/2022
3/13/2021
3/13/2020
3/13/2023
3/12/2022
3/13/2021
3/13/2020
–
23,123
26,572
46,512
–
34,317
39,426
69,030
–
25,074
25,413
44,484
–
14,152
12,208
21,369
36,334
–
–
(46,512)
53,923
–
–
(69,030)
39,399
–
–
(44,484)
29,649
–
–
(21,369)
–
–
–
–
–
(39,399)
(25.074)
–
–
–
–
–
–
36,334
23,123
26,572
–
53,923
34,317
39,426
–
–
–
25,413
–
29,649
14,152
12,208
–
Weighted
average grant
date fair market
value per unit
(USD)
Weighted
average grant
date total fair
market value
(USD)
Vesting
date
Fully vested
date
4.30
6.44
5.09
2.83
4.30
6.44
5.09
2.83
4.30
6.44
5.09
2.83
4.30
6.44
5.09
2.83
156,340
148,894
135,360
131,629
232,024
220,975
200,839
195,355
169,529
161,457
129,456
125,890
127,576
91,128
62,189
60,474
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
3/13/2026
3/11/2025
3/12/2024
3/13/2023
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
37
DIREcTORs’ REMuNERATION REPORT cONTINuED
DIREcTOR ORDINARY sHAREs
L Horsch
J Cooney
H Hohmann
V LiCausi
T Anderson
A Ellis
R Scheuer
The letters of appointment and terms are listed in the following chart.
Director
J Cooney
H Hohmann
A Ellis
R Scheuer
L Horsch
T Anderson
V LiCausi
ordinary Shares
January 1,
2023
46,000
614,634
43,266
56,084
–
–
25,000
December 31,
2023
46,000
614,634
–
66,469
–
8,000
25,000
Class
Date of appointment
Termination date
III
III
III
I
II
II
II
June 15, 2021
June 15, 2021
January 3, 2022
June 14, 2022
May 18, 2023
May 18, 2023
May 18, 2023
2024 AGM
2024 AGM
2024 AGM
2025 AGM
2026 AGM
2026 AGM
2026 AGM
REsTRIcTED sTOcK uNITs
In conjunction with awards to Executive and Non-Executive Directors, the Board approves restricted stock unit (“RSU”) to select employees
under the terms of its 2020 Equity Incentive Plan. Awarded RSUs vest three years from the date of the grant and require continued employment
for the period. In 2023, a total, including awards to Executive Directors, of 381,677 RSUs were exercised or forfeited, and 284,437 units
were issued, leaving a balance of 570,750 units as of December 31, 2023. For more information, see Note 15 within the Notes to the
Financial Statements.
Approved by the Board of Directors and signed on behalf of the Board.
ANNuAl GENERAl MEETING
At our AGM in May 2023, we voluntarily put our Remuneration Report to an advisory resolution as we have in previous years. In response to
proxy adviser comments in 2022, we included additional information in our 2022 Remuneration Report on the Company’s RSU policy including
the rationale for making awards of this structure because the Company is US-based and specifying that awards are made at 40% of salary and so
in line with guidance in the UK Investment Association Principles of Remuneration. Executive salary increases for 2023 and 2024 are in line with
those of the wider workforce.
38
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
DIREcTORs’ REPORT
cORPORATE GOVERNANcE
The Directors present their Annual Report and the audited financial statements for the year ended December 31, 2023.
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. In addition, Somero maintains sales and service offices located in Chesterfield, UK; Melbourne, Australia; New Delhi, India;
and Shanghai, China.
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 and Chief Executive Officer’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 and Chief Executive Officer’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$ 19.0m were paid in 2023. A 20.6 US cents per share dividend
was declared for the period ending December 31, 2023, with a record date of April 12, 2024, payable on May 5, 2024.
performance graph
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,
2023 was 375p. The range during the 2023 period of trading was 257.0p to 450.0p.
450
425
400
375
350
325
300
275
250
225
Jan 23
Feb 23
Mar 23
Apr 23
May 23
Jun 23
Jul 23
Aug 23
Sep 23
Oct 23
Nov 23
Dec 23
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
39
DIREcTORs’ REPORT cONTINuED
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.
Hargreaves Lansdown, stockbrokers (EO)
Close Brothers Asset Management
Chelverton Asset Management
Canaccord Genuity Wealth Management (Inst)
Interactive Investor (EO)
Unicorn Asset Management
Société Générale (Awaiting custodian response)
AJ Bell, stockbrokers (EO)
Allianz Global Investors
Amount
% holding
4,435,279
3,800,867
3,610,000
3,475,000
3,097,163
2,710,310
2,438,291
1,938,018
1,752,379
7.99
6.85
6.50
6.26
5.58
4.88
4.39
3.49
3.16
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
The Company 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. For more information regarding Somero’s approach to social
responsibility, please refer to the Stakeholder Engagement section on pages 22 – 23 of this Annual Report.
DONATIONs
During the year, the Company made no political donations. Charitable donations were made in the amount of US$ 103,000 for 2023. For more
information regarding Somero’s community support, please refer to the Stakeholder Engagement section on pages 22 – 23 of this Annual Report.
40
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
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. While, as an assembly operation our energy consumption is comparably low and net carbon footprint minimal, Somero continues to
evaluate and invest in ways to improve energy efficiency and reduce waste in our operations. For more information regarding Somero’s approach
to business sustainability, please refer to the our ESG Framework and Stakeholder Engagement sections on pages 19 – 23 of this Annual Report.
Vincenzo Licausi
Company Secretary
March 5, 2024
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
41
REPORT OF THE INDEPENDENT AuDITORs
TO THE BOARD OF DIREcTORs AND sTOcKHOlDERs
OF sOMERO ENTERPRIsEs, INc.
opinion
We have audited the consolidated financial statements of Somero
Enterprises, Inc. a Delaware corporation, which comprise the consolidated
balance sheets as of December 31, 2023 and 2022, 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.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of Somero
Enterprises, Inc. as of December 31, 2023 and 2022, and the results
of their operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
Basis for opinion
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America (“GAAS”).
Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of Somero Enterprises,
Inc. and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audits. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
responsibilities of management for the
Financial Statements
Management is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with GAAP, and for 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.
In preparing the consolidated financial statements, management is
required to evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about Somero Enterprises,
Inc.’s ability to continue as a going concern for one year after the date that
the consolidated financial statements are issued.
Auditor’s responsibilities for the Audit of the
Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of
assurance but is not absolute assurance and therefore is not a guarantee
that an audit conducted in accordance with GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually
or in the aggregate, they would influence the judgment made by a
reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism
throughout the audit.
• Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated
financial statements.
• Obtain an understanding of internal control relevant to the audit
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 Somero Enterprises, Inc.’s internal control.
Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by
management, as well as evaluate the overall presentation of the
consolidated financial statements.
• Conclude whether, in our judgment, there are conditions or events,
considered in the aggregate, that raise substantial doubt about
Somero Enterprises, Inc.’s ability to continue as a going concern
for a reasonable period of time.
We are required to communicate with those charged with governance
regarding, among other matters, the planned scope and timing of the
audit, significant audit findings, and certain internal control–related
matters that we identified during the audit.
other Information
Management is responsible for the other information attached to the
financial statements. The other information comprises the management
discussion and analysis but does not include the consolidated financial
statements and our auditor’s report thereon. Our opinion on the
consolidated financial statements does not cover the other information,
and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the consolidated financial statements,
our responsibility is to read the other information and consider whether
a material inconsistency exists between the other information and the
consolidated financial statements, or the other information otherwise
appears to be materially misstated. If, based on the work performed,
we conclude that an uncorrected material misstatement of the other
information exists, we are required to describe it in our report.
Fort Worth, Texas
March 5, 2024
42
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
cONsOlIDATED BAlANcE sHEETs
As of December 31, 2023 and 2022
FINANcIAl sTATEMENTs
Assets
current assets:
Cash and cash equivalents
Accounts receivable – net
Inventories – net
Prepaid expenses and other assets
Income tax receivable
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, 55,550,697 and 55,818,357 shares issued and
55,499,368 and 55,812,857 shares outstanding at December 31, 2023 and 2022, respectively
Less: treasury stock, shares 51,329 as of December 31, 2023 and 5,500 shares as of December 31, 2022 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.
As of December 31,
2023
US$ 000
2022
US$ 000
33,311
8,835
19,375
2,388
–
63,909
431
25,928
346
1,606
1,120
3,294
1,674
242
98,550
3,410
7,768
199
342
2,099
13,818
110
1,305
82
15,315
33,699
10,315
18,849
2,022
702
65,587
414
25,650
323
1,066
1,257
3,294
1,165
235
98,991
9,683
8,495
175
304
–
18,657
98
799
2,311
21,865
–
–
26
(213)
13,253
72,498
(2,329)
83,235
98,550
26
(39)
14,625
64,325
(1,811)
77,126
98,991
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
43
Year ended December 31,
2023
US$ 000
except share
and per share
data
2022
US$ 000
except share
and per share
data
120,699
53,343
133,590
57,431
67,356
76,159
14,742
2,679
16,340
33,761
14,289
2,600
16,170
33,059
33,595
43,100
(19)
196
(731)
196
(18)
62
(1,342)
(1,001)
33,237
40,801
5,259
9,682
27,978
31,119
(518)
658
27,460
31,777
0.50
0.50
0.56
0.55
55,735,120
56,352,673
55,947,900
56,609,093
cONsOlIDATED sTATEMENTs OF cOMPREHENsIVE INcOME
For the years ended December 31, 2023 and 2022
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.
44
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
cONsOlIDATED sTATEMENTs OF cHANGEs IN sTOcKHOlDERs’ EQuITY
For the years ended December 31, 2023 and 2022
FINANcIAl sTATEMENTs
Common stock
Treasury stock
Amount
US$ 000
Additional
paid-in capital
US$ 000
Shares
Shares
Amount
US$ 000
Retained
earnings
US$ 000
Other
Comprehensive
income (loss)
US$ 000
Total
Stockholders’
equity
US$ 000
Balance – January 1, 2022
56,246,964
26
16,769
207,040
(848)
62,187
(2,469)
75,665
Cumulative translation
adjustment
Net income
Stock-based compensation
Dividend
Treasury stock
RSUs settled for cash
Share buyback
New shares Issued
–
–
–
–
(483,960)
–
–
55,353
–
–
–
–
–
–
–
–
–
–
1,165
–
(2,236)
(1,073)
–
–
–
–
–
–
(483,960)
–
282,420
–
–
–
–
–
2,236
–
(1,427)
–
–
31,119
–
(28,981)
–
–
–
–
658
–
–
–
–
–
–
–
658
31,119
1,165
(28,981)
–
(1,073)
(1,427)
–
Balance – December 31, 2022
55,818,357
26
14,625
5,500
(39)
64,325
(1,811)
77,126
Cumulative translation
adjustment
Net income
Stock-based compensation
Dividend
Treasury stock
RSUs settled for cash
Share buyback
New shares issued
–
–
–
–
(327,806)
–
–
60,146
–
–
–
–
–
–
–
–
–
–
985
–
(1,202)
(1,155)
–
–
–
–
–
–
(327,806)
–
373,635
–
–
–
–
–
1,202
–
(1,376)
–
–
27,978
–
(19,805)
–
–
–
–
(518)
–
–
–
–
–
–
–
(518)
27,978
985
(19,805)
–
(1,155)
(1,376)
–
Balance – December 31, 2023
55,550,697
26
13,253
51,329
(213)
72,498
(2,329)
83,235
See Notes to consolidated financial statements.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
45
cONsOlIDATED sTATEMENTs OF cAsH FlOWs
For the years ended December 31, 2023 and 2022
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 expense (recoveries)
Stock-based compensation
Gain/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 receivable/payable
net cash provided by operating activities
cash flows from investing activities:
Proceeds from sale of property and equipment
Property and equipment purchases
net cash used in investing activities
cash flows from financing activities:
Payment of dividend
RSUs settled for cash
Stock buyback
Payments under financing leases
net cash used in financing activities
Effect of exchange rates on cash and cash equivalents
net 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,
2023
US$ 000
2022
US$ 000
27,978
31,119
(510)
1,560
319
(4)
985
40
1,468
(526)
(366)
(7)
(9,292)
2,801
(993)
1,457
304
247
1,165
(158)
(2,824)
(4,556)
(273)
159
481
1,674
24,446
27,802
–
(1,740)
(1,740)
143
(5,367)
(5,224)
(19,805)
(1,155)
(1,376)
(240)
(28,981)
(1,073)
(1,427)
(202)
(22,576)
(31,683)
(518)
658
(388)
(8,447)
33,699
33,311
42,146
33,699
46
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
NOTEs TO THE cONsOlIDATED FINANcIAl sTATEMENTs
As of December 31, 2023 and 2022
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 leveling, 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; New Delhi, India; and Melbourne, Australia.
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 using the accrual basis of accounting.
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.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP)
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.
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.
restricted cash
Restricted cash of approximately US$ 251,000 is included in “Cash and cash equivalents” on the consolidated balance sheet as of December
31, 2023. This represents cash deposited by the Company into a guaranteed deposit account and designated as collateral for the building lease
in Australia in accordance with the lease agreement.
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 estimate of future losses.
As of December 31, 2023 and 2022, the allowance for doubtful accounts was approximately US$ 1,862,000 and US$ 1,780,000, respectively.
Bad debt expense (recovery) was US$ (4,000) and US$ 247,000 in 2023 and 2022, respectively. The opening balance of accounts receivable
at January 1, 2022 was $ 8,152,000, which includes $ 461,000 of non-current accounts receivable.
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,
2023 and 2022, the provision for obsolete and slow-moving inventory was US$ 707,000 and US$ 643,000, respectively.
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.
revenue recognition
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 at a point in time upon shipment. For arrangements which include FOB
destination shipping terms, revenue is recognized at a point in time upon delivery to the customer. The Company recognizes the revenue for
service agreements and training at a point in time once the service or training has occurred.
As of December 31, 2023 and 2022 there are US$ 600,000 and US$ 582,000, respectively, of extended service agreement liabilities.
The opening balance of extended service agreement liabilities at January 1, 2022 was US$ 517,000. During the years ended December 31, 2023
and 2022, US$ 451,000 and US$ 425,000, respectively, of revenue was recognized related to the amounts recorded as liabilities on the
consolidated balance sheets in the prior year (deferred contract revenue).
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
47
NOTEs TO THE cONsOlIDATED FINANcIAl sTATEMENTs cONTINuED
2. suMMARY OF sIGNIFIcANT AccOuNTING POlIcIEs contInueD
As of December 31, 2023 and 2022, there are US$ 1,635,000 and US$ 2,180,000, respectively, in customer deposit liabilities for advance
payments received during the period for contracts expected the following period. The opening balance of customer deposit liabilities for advance
payments received at January 1, 2022 was US$ 4,009,000. As of the year ended December 31, 2023 and 2022, 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.
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
and is recorded in accrued expenses in the accompanying consolidated balance sheets.
Balance, January 1, 2022
Warranty charges
Accruals
Balance, December 31, 2022
Balance, January 1, 2023
Warranty charges
Accruals
Balance, December 31, 2023
US$ 000
(1,986)
808
(270)
(1,448)
US$ 000
(1,448)
986
(828)
(1,290)
property, plant, and equipment
Property, plant and equipment is stated at cost, 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.
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.
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, which is the stock price on the
grant date multiplied by the number of shares. Compensation expense related to stock-based payments was US$ 985,000 and US$ 1,165,000
for the years ended December 31, 2023 and 2022, respectively. In addition, the Company settled US$ 1,155,000 and US$ 1,073,000 in
restricted stock units for cash during the years ended December 31, 2023 and 2022, 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 impact 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.
48
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
FINANcIAl sTATEMENTs
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,
2023
US$ 000
2022
US$ 000
27,978
55,735,120
617,553
31,119
55,947,900
661,193
56,352,673
56,609,093
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.
recently Adopted Accounting Guidance
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “standard”) 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequently, the FASB issued
several clarifying standard updates to clarify and improve the ASU. These ASUs significantly change how entities will measure credit losses
for most financial assets and certain other instruments that are not measured at fair value through net income. The most significant change
in this standard is a shift from the incurred loss model to the expected loss model that will be based on an estimate of current expected credit
loss (“CECL”). Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an
entity’s exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in
Topic 326 were trade accounts receivable.
The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial
statements and primarily resulted in new and enhanced disclosures only.
3. INVENTORIEs
Inventories consisted of the following:
Raw material
Finished goods and work in process
Remanufactured
Total
Year ended December 31,
2023
US$ 000
10,607
5,161
1,688
19,375
2022
US$ 000
11,393
5,768
3,607
18,849
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
49
NOTEs TO THE cONsOlIDATED FINANcIAl sTATEMENTs cONTINuED
4. 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, 2023 and 2022,
and that the value of patents and other intangibles were not impaired as of December 31, 2023 and 2022. The following table reflects other
intangible assets:
Capitalized cost
Accumulated amortization
Net carrying costs
Patents
Intangible Assets
Patents
Intangible Assets
Patents
Intangible Assets
Weighted
average
Amortization
Period
12 years
12 years
12 years
Year ended December 31,
2023
US$ 000
19,247
7,434
26,681
18,770
6,791
25,559
477
643
1,120
2022
US$ 000
19,247
7,434
26,681
18,721
6,703
25,424
526
731
1,257
Amortization expense associated with the intangible assets in each of the years ended December 31, 2023 and 2022 was approximately
US$ 135,000 and US$ 135,000, respectively. The amortization expense for each of the next five years will be US$ 135,000 and the remaining
amortization thereafter will be US$ 445,000.
5. PROPERTY, PlANT, AND EQuIPMENT
Property, plant and equipment consist of the following:
Land
Building and improvements
Machinery and equipment
Less: accumulated depreciation and amortization
Year ended December 31,
2023
US$ 000
864
25,465
8,487
34,816
(8,888)
25,928
2022
US$ 000
864
24,812
8,744
34,420
(8,770)
25,650
Depreciation expense for the years ended December 31, 2023 and 2022 was approximately US$ 1,425,000 and US$ 1,322,000, respectively.
6. lINE OF cREDIT
In August 2022, the Company updated its credit facility to a US$ 25.0m secured revolving line of credit, with a maturity date of August 2027.
The interest rate on the revolving credit line is based on the BSBY Index plus 1.25%. The Company’s credit facility is secured by substantially
all its business assets. No amounts were drawn under the secured revolving line of credit in the years ended December 31, 2023 or 2022.
Interest expense for the years ended December 31, 2023 and 2022 was approximately US$ 19,000 and US$ 18,000, respectively, and relates
primarily to interest costs on leased vehicles.
7. RETIREMENT PROGRAM
The Company has a savings and retirement plan for its employees, which is intended to qualify under Section 401(k) of the US 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$ 1,039,000 to the
savings and retirement plan during 2023 and contributed US$ 1,058,000 during 2022.
50
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
FINANcIAl sTATEMENTs
8. 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 9 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. Some of our building leases have additional fees related to maintenance costs,
property taxes, etc. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases.
In addition, we have elected the short-term lease practical expedient related to leases of various equipment which the lease term is less than
12 months. The components for lease expense were as follows as of December 31, 2023:
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
US$ 000
407
319
17
336
As of December 31, 2023, the weighted average discount rate for finance and operating leases was 5.4% and 5.3%, respectively, and the
weighted average remaining lease term for finance and operating leases was 1.8 years and 6.1 years, respectively.
Maturities of lease liabilities are as follows for the years ended:
2024
2025
2026
2027
2028
Thereafter
Total
Less imputed interest
Total
9. 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
Operating
Leases
US$ 000
Finance Leases
US$ 000
421
311
311
311
186
386
1,926
(279)
1,647
210
80
27
8
–
–
325
(16)
309
Year ended December 31,
2023
US$ 000
19
4,858
35
544
2022
US$ 000
18
8,806
(37)
(513)
10. 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, 2023 and 2022, the Company had three customers which
represented 32% and five customers which represented 42% of total accounts receivable, respectively.
11. AllOWANcE FOR cREDIT lOssEs
The allowance for credit losses for accounts receivable and the related activity as of December 31:
Beginning balance
Provision for credit losses
Write-offs
Recoveries
Ending balance
2023
US$ 000
2022
US$ 000
1,780
9
(52)
125
1,862
1,638
185
(43)
–
1,780
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
51
NOTEs TO THE cONsOlIDATED FINANcIAl sTATEMENTs cONTINuED
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 benefit
Federal
State
Foreign
Total deferred tax benefit
Total tax provision
Year ended December 31,
2023
US$ 000
2022
US$ 000
4,133
1,286
349
5,768
(474)
(35)
–
(509)
8,703
1,332
640
10,675
(820)
(89)
(84)
(993)
5,259
9,682
As of December 31, 2023 and 2022, the effects of temporary differences that give rise to the deferred tax assets are as follows:
Year ended December 31,
2023
US$ 000
2022
US$ 000
317
283
405
146
377
454
26
1,155
521
3,684
(158)
(859)
(502)
(37)
349
325
343
146
386
385
43
683
494
3,154
(149)
(783)
(631)
(41)
(1,556)
(1,604)
(454)
1,674
(385)
1,165
Deferred tax assets
Bad debt allowance
Inventory
Accrued expenses
UK intangibles
Stock compensation
Italy – NOL
Lease liability
Capital research expenditures
Other
Total deferred tax assets
Deferred tax liabilities
Prepaid insurance
Fixed assets
Intangible assets
Right-of-use asset
Total deferred tax liabilities
Valuation allowance
Total net deferred tax asset
52
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
FINANcIAl sTATEMENTs
A reconciliation of the income tax provision with the amount of tax computed by applying the U.S. federal statutory rate to pretax income follows:
Consolidated income before tax
Statutory rate
Statutory tax expense
State taxes
Foreign taxes
Permanent differences due to stock options and RSUs
Permanent differences due to other items
Foreign derived intangible income
Change in valuation allowance
Change in reserve
Tax credits
Other
Tax expense
Year ended December 31,
2023
US$ 000
33,237
21%
6,980
909
245
(33)
152
(624)
69
(2,193)
(182)
(64)
5,259
2022
US$ 000
40,801
21%
8,568
1,007
723
(55)
344
(738)
117
–
(158)
(126)
9,682
As of December 31, 2023, the Company has US$ 1.89m 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, 2023
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
2020 and forward at the end of December 31, 2023. The Company has open years related to United Kingdom filings for the tax year 2019, and
open years related to Italian filings for tax years 2018 forward.
The Company adopted the accounting standard for uncertain tax positions, ASC 740-10, in accordance with US GAAP, 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, 2022
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, 2022
Unrecognized tax benefits – January 1, 2023
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, 2023
1,450
–
–
–
–
1,450
1,450
–
–
(1,450)
–
–
During the tax year ended December 31, 2023 the Company settled all uncertain tax position that existed as of December 31, 2022 and, as a
result, removed the unrecognized tax reserve classed as “Other Long-Term Liabilities” from the Company’s Consolidated Balance Sheet.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
53
NOTEs TO THE cONsOlIDATED FINANcIAl sTATEMENTs cONTINuED
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
2023
US$ 000
88,374
32,325
2022
US$ 000
101,773
31,817
120,699
133,590
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$ 985,000 and US$ 1,165,000 for the years ended December 31, 2023 and 2022, respectively. The income
tax effect recognized for stock-based compensation was US$ 0.2m and US$ 0.3m, respectively, for the years ended December 31, 2023
and 2022.
restricted stock units
The Company regularly issues restricted stock units to employees subject to Board approval. The Company establishes the fair market value of
the restricted stock units at the grant date, based on the stock price and applicable exchange rate.
A summary of restricted stock unit activity in 2023 and 2022 is presented below:
Outstanding at January 1, 2022
Granted
Vested or settled for cash
Forfeited
Outstanding at December 31, 2022
Outstanding at January 1, 2023
Granted
Vested or settled for cash
Forfeited
Outstanding at December 31, 2023
Grant date fair
market value
US$
2,752,120
1,133,698
(925,674)
(25,000)
Shares
681,356
176,808
(183,666)
(6,508)
667,990
2,935,144
Grant date fair
market value
US$
2,935,144
1,217,027
(869,737)
(380,981)
Shares
667,990
284,437
(307,845)
(73,832)
570,750
2,901,453
RSUs settled for cash were US$ 1.2m in 2023 and US$ 1.1m in 2022.
As of December 31, 2023, there was US$ 1,201,000 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
1.34 years.
16. EMPlOYEE cOMPENsATION
The Board approved management bonuses and profit-sharing payments totaling US$ 1.2m, partly paid in December 2023 and the remainder
to be paid in early 2024, based upon the Company meeting certain financial targets. Amounts not paid during 2024, are included in accrued
expenses in the accompanying consolidated balance sheets.
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 2023, the Company issued 21,114 shares of common stock, valued at US$ 91,000 at the time of
grant. In March 2022, the Company issued 40,467 shares of common stock, valued at US$ 261,000 at the time of grant.
54
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
FINANcIAl sTATEMENTs
17. sHARE BuYBAcK
In February 2022 and 2023, the Board authorized on-market share buyback programs for such number of its listed shares of common stock
as are equal to US$ 2,000,000 for each program. The maximum price paid per common share was no more than the higher of 105 percent of
the average middle market closing price of common share for the five business days preceding the date of the share buyback, the price of the
last independent trade and the highest current independent purchase bid. As of December 31, 2023, the Company purchased 217,919 shares
of common stock for an aggregate value of US$ 765,000 pursuant to the share buyback program authorized in 2023, and 155,716 shares
of common stock for an aggregate value of US$ 611,000 , which completed the share buyback program authorized in 2022. The Company
estimates the share buyback program authorized in 2023 will be completed by the end of H1 2024. In connection with the Company’s share
buyback programs authorized in 2023 and 2022, 327,806 shares held in treasury were canceled in 2023.
18. suBsEQuENT EVENTs
In preparing the consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition
or disclosure through March 5, 2024, the date the consolidated financial statements were available for issuance.
Dividend
In recognition of Somero’s strong performance and the Board of Directors’ confidence in the continued growth of the Company, the Board
approved a dividend payout ratio of 50% of adjusted net income and is pleased to announce a final 2023 dividend of 13.19 US cents per share
that will be payable on May 10, 2024 to shareholders on the register at April 12, 2024. Together with the interim dividend paid in October 2023
of 10.00 US cents per share, this represents a full year regular dividend to shareholders of 23.19 US cents per share. In addition, due to the
strength of the Company’s cash position at the end of 2023, and upon the review of anticipated future cash requirements for the business, the
Board of Directors’ has approved a supplemental dividend of 7.4 US cents per share that will be paid together with the final 2023 dividend
on May 10, 2024 to shareholders on the register at April 12, 2024. The combined dividend payment will total 20.59 US cents per share,
representing a total dividend payment of US$ 11.4m.
Distribution amount:
Ex-dividend date:
Dividend record date:
Final day for currency election:
Payment date:
$0.2059 cents per share
11 April 2024
12 April 2024
26 April 2024
10 May 2024
Further, any participant holding the security on behalf of beneficial owners resident in a treaty country with the United States of America can
facilitate claims for tax relief at source for its underlying beneficial owners. In order to ensure that the appropriate rate of US Withholding Tax is
applied correctly, completed documentation must be provided to the Depositary, Computershare Investor Services PLC.
Equity bonus plan
In January 2024, the Board approved the 2023 Equity Bonus Plan, under which eligible senior managers can elect to receive up to 100% of their
2023 annual performance bonus in shares of common stock. The Company expects to issue shares for awards under the 2023 Equity Bonus
Plan in 2024.
Share buyback
In January 2024, the Board approved a share buyback program, pursuant to which, the Board intends to carry out an on-market buyback of
such number of its listed shares of common stock as are equal to US$ 2,000,000. 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 2024.
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
55
OTHER uNAuDITED INFORMATION
DIVIDEND
All dividends, including both ordinary and supplemental, have the option of being paid in either GBP or USD subject to the underlying
agreements between shareholders and their brokers which Somero cannot override. Payments in USD can be paid by Check or through CREST.
Payments in GBP can be paid via Check, CREST and BACS. The default option if no election is made will be for a USD payment via check.
Should 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/Content/c057a8a7-f4f8-4fcb-a497-836ce2f708d5.
If shares are held as Depositary Interests through a broker or nominee, the holding company must be contacted and advised of the payment
preferences. Such requests are subject to the terms and conditions of the broker or nominee.
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.
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 18, 2024 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 May 17, 2024 will be entitled to receive notice of, and vote at, the AGM.
56
sOMERO ENTERPRIsEs, INc
AnnuAl RepoRt & Accounts 2023
CBP024496
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Registered and Head Office
SomEro EntErprISES, Inc.
Somero Enterprises, Inc
14530 Global Parkway,
Fort Myers, Florida 33913
USA
WWW.SOMERO.COM