TIDMSOLI
RNS Number : 7299U
Solid State PLC
07 December 2021
Solid State plc
( "Solid State", the " Group " or the "Company" )
Interim Results for the six months ended
30 September 2021
Analyst Briefing & Investor Presentation
Solid State plc (AIM: SOLI), the specialist value added
component supplier and design-in manufacturer of computing, power,
and communications products, announces results for the six months
to 30 September 2021.
Highlights in the period include:
H1 2021/22 H1 2020/21 Change
Reported revenue GBP39.4m GBP33.1m 19.0%
Reported operating profit margin 5.6% 7.3% (170bps)
Adjusted operating profit margin* 8.6% 7.8% 80bps
Reported profit before tax GBP2.11m GBP2.37m (11.0%)
Adjusted profit before tax* GBP3.27m GBP2.55m 28.2%
Reported diluted earnings per share 19.8p 24.0p (17.5%)
Adjusted diluted earnings per share 32.7p 25.6p 27.7%
Interim dividend 6.25p 5.25p 19.0%
Net cash flow from operations GBP4.97m GBP1.91m 160.2%
* Adjusted performance metrics are reconciled in note 5, the
adjustments relate to IFRS 3 acquisition amortisation, share-based
payments charges, effect of the enacted 19% to 25% tax rate
increase to deferred tax and non-recurring charges in respect of
acquisition costs and fair value adjustments.
H1 2021/22 FY 2020/21 Change
Net cash / (net debt)** (GBP1.9m) (GBP4.4m) (56.8%)
Open order book @ 30 September / 31 March GBP61.5m GBP41.3m 48.9%
** Net cash / debt includes net cash with banks GBP3.3m (H1
2020/21: GBP4.0m), the fair value of deferred contingent
consideration of GBP5.3m (H1 2020/21: GBPNil) and excludes the
right of use lease liabilities of GBP2.3m (H1 2020/21:
GBP2.1m).
Financial highlights:
-- Revenue and adjusted profit before tax up 19.0% and 28.2% respectively.
-- Adjusted operating cash generation of GBP4.97m to deliver
operating cash conversion of 148%.
-- Reported Net Debt (including deferred contingent
consideration) on 30 September 2021 decreased to GBP1.9m (31 March
2021: GBP4.4m) after payment of the prior year final dividend of
GBP0.9m.
-- Increased the fair value of the earn out deferred contingent
consideration by GBP0.3m due to Active Silicon and Willow
Technologies outperforming management expectations.
-- Record open order book at 30 November 2021 of GBP70.3m, up
14.3% on 30 September 2021 of GBP61.5m, and up 70% on year end
figure of GBP41.3m at 31 March 2021.
Operational highlights:
-- Previously announced $4.6m defence contract within the
Components Division which secured a three year contract renewal
with a global defence technology customer to supply components for
its defence aerospace programme.
-- Completed the commissioning of the Group's in-house
Electromagnetic Compatibility (EMC) testing facility and continued
to invest in enhancing the Group's capabilities through the
capital
investment programme.
-- Continued progress on our R&D programmes in respect of
own brand component development as well as computing, security,
antenna products and our BMS (Battery Management Systems)
solutions.
-- Post completion of Willow and Active, implementation of cross
Group training to maximise collaboration and improve understanding
and awareness of the enlarged Group's capabilities.
Commenting on the results and prospects, Nigel Rogers, Chairman
of Solid State, said:
" Our half year results are particularly pleasing given the
widely reported challenges in the global supply chain and more
local pressures in staffing and the foreign exchange headwinds at a
revenue level.
"The successful acquisition programme has added resilience and
opened up opportunities to grow the business in targeted regions
and industry sectors. We continue to see acquisitions as a pillar
of our growth strategy.
"Group-wide we have worked closely with customers and suppliers
in response to the rebound in the economy. This is evident in the
order flow and the strong open order book, which gives the Board
confidence in meeting expectations(1) for the full year."
(1) Analysts from brokers WH Ireland Limited, finnCap Limited,
and Edison Investment Research Limited, provide equity research on
Solid State, and the Company considers the average of their
research forecasts to represent market expectations, being, for
Solid State's 2021/22 financial year, revenue of GBP78.4m, and
adjusted profit before tax* of GBP5.9m.
Analyst Briefing: 9.30 a.m. today, Tuesday 7 December 2021
An online briefing for Analysts will be hosted by Gary Marsh,
Chief Executive, and Peter James, Group Finance Director, at 9.30
a.m. today, Tuesday 7 December 2021, to review the results and
prospects. Analysts wishing to attend should contact Walbrook PR on
solidstate@walbrookpr.com or on 020 7933 8780.
Investor Results Presentation: 4 p.m. on Thursday 9 December
2021
Gary Marsh, Chief Executive , and Peter James, Group Finance
Director, will hold a presentation to cover the results and
prospects at 4 p.m. on Thursday 9 December 2021. The presentation
will be hosted through the digital platform Investor Meet Company.
Investors can sign up to Investor Meet Company for free and add to
meet Solid State plc via the following link
https://www.investormeetcompany.com/solid-state-plc/register-investor
. Investors who have already registered and added to meet the
Company will automatically be invited.
Questions can be submitted pre-event to
solidstate@walbrookpr.com , or in real time during the presentation
via the "Ask a Question" function.
For further information please contact:
Solid State plc Via Walbrook
Gary Marsh - Chief Executive
Peter James - Group Finance Director
WH Ireland (Nominated Adviser & Joint
Broker)
Mike Coe / Sarah Mather (Corporate
Finance)
Jasper Berry (Corporate Broking /
Sales) 020 7220 1666
finnCap (Joint Broker)
Ed Frisby (Corporate Finance)
Rhys Williams / Tim Redfern (Sales
/ ECM) 020 7220 0500
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Nick Rome 0797 122 1972
solidstate@walbrookpr.com
Analyst Research Reports: For further analyst information and
research see the Solid State plc website:
https://solidstateplc.com/research/
Notes to Editors:
Solid State plc (SOLI) is a value added electronics group
supplying commercial, industrial and military markets with durable
components, assemblies and manufactured units for use in specialist
and harsh environments. The Group's mantra is - 'Trusted technology
for demanding applications'. To see an introductory video on the
Group - https://bit.ly/3kzddx7
Operating through two main divisions: Systems (Steatite &
Active Silicon) and Components (Solid State Supplies, Pacer, Willow
Technologies & AEC); the Group specialises in complex
engineering challenges often requiring design-in support and
component sourcing for computing, power, communications,
electronic, electro-mechanical and opto-electronic products.
Headquartered in Redditch, UK, Solid State employs approximately
300 staff across UK and US, serving specialist markets in
industrial, defence and security, transportation, medical and
energy.
Solid State was established in 1971 and admitted to AIM in June
1996. The Group has grown organically and by acquisition - having
made 12 acquisitions since 2002.
Unaudited Interim Results of the six months ended
30 September 2021
I am pleased to report an excellent first half, with Group
revenue of GBP39.4m (H1 2020/21: GBP33.1m) which is 19% up on the
prior period (like for like organic revenue growth is 8%) despite
the significant challenges presented by the well-publicised
electronics supply chain constraints. Reported revenue growth was
held back as a result of a weaker US dollar, however the profit
effect of this was mitigated by a natural hedge from US dollar
denominated component purchases, benefitting the gross margin
percentage.
The Group's sector diversity continues to provide a resilient
business model. Order intake has been strong across all sectors
including in those markets which had previously shown some weakness
during the Pandemic, specifically energy and aerospace. This has
resulted in a record open order book on 30 November 2021 of
GBP70.3m (Comparatives: 30 September 2021: GBP61.5m; 31 March 2021:
GBP41.3m; 30 November 2020: GBP34.3m) .
The contribution from the acquisitions of Willow and Active
Silicon at the end of last year has exceeded management's
expectations, supporting the Group's progress in delivering its
growth strategy. The Board is making good progress in updating its
5-year vision and strategy for the period to 2027. As part of that
work, and going forward, we will simplify the descriptions of the
respective divisions to better describe their core activities.
The Group's "Components Division" (previously Value Added
Supplies) manufactures and sells own brand and franchise
components. The Components Division has products and services
across Semiconductors, Opto-electronics, Electromechanical,
Embedded Solutions, Sourcing & Obsolescence and value added
services. The Group's "Systems Division" (previously Manufacturing)
provides products and systems across three key business unit areas
of Power, Computing and Communications. The Board considers that
this simplification will help stakeholders better understand the
Group's capabilities, and where and how we add value to our
customers.
The strong trading performance in the period has been held back
by component shortages, and had supply chains been more normal, we
would have seen even stronger organic revenue growth. In the
period, Group gross margins have increased to 32.7% (H1 2020/21:
29.9%). While FX has benefitted reported margins by circa 1%,
underlying margins in both divisions have seen improvements year on
year, as a consequence of the execution of the Group's strategy and
the recent acquisitions.
Despite these challenges, adjusted diluted earnings per share of
32.7p (H1 2020/21: 25.6p) is 28% higher than the prior year and we
believe this sets the Group up well to deliver a record full year
result and meet expectations . Based on the trading in the first
half and prospects for the full year, the Board is increasing the
interim dividend to 6.25p (H1 2020/21: 5.25p).
The Group continued to deliver strong cash generation in the
first half with cash inflow from operations of GBP5.0m (H1 2020/21:
GBP1.9m) albeit the period benefitted from a working capital
in-flow which is expected to unwind in the second half, however,
the strong cash generation means net debt has fallen 49% to GBP1.9m
(31 March 2021: GBP4.4m).
The macro-economic environment continues to be problematic, and
the Group is working hard with customers and suppliers to manage
supply chain challenges. This has resulted in some increase in
stocking at Solid State during the period and post period end,
requiring investment in working capital, and some commitments to
longer order schedules by both Solid State and its customers. As a
result, there is reduced mid / long term visibility over supplies
which makes forecasting more testing.
Current order intake continues to be strong and trading since
the period end has been in-line with management expectations.
Prospects for the remainder of the financial year are underpinned
by the near-term open order book and the resilience and diversity
of the Group. Whilst there is still some uncertainty as to the
impacts of supply chain challenges for the remainder of our
financial year, the Board is confident of meeting its expectations
for the year ending 31 March 2022.
Business Overview
The Group supplies electronic products, technology, and
solutions, primarily designed for demanding applications where
safety, performance, reliability, and quality are critical;
enabling customers to focus on their core business with confidence
by providing trusted technology for demanding applications.
The Group is focused on the supply and support of specialist
electronics equipment and solutions from components,
sub-assemblies, products, and embedded systems, through to complete
integrated electronic solutions.
The Group operates through two operating divisions: Components
and Systems. They have distinct characteristics in their respective
markets; however, they have a common mission, a clear strategy, and
consistent business values.
The Components Division is developing its offering in three
areas: own brand manufactured components, franchised components and
the provision of value-added services such as Sourcing &
Obsolescence management. The Components Division is a specialist in
delivering innovative, valuable, technical solutions for customers
seeking cutting edge, electronic, opto-electronic,
electro-mechanical components and displays with market leading
value-added capabilities.
The Systems Division has market leading capabilities in the
design, development and supply of high specification industrial
computers, circuit board level design and manufacturing
capabilities, primarily for image capture, processing,
transmission, custom battery packs providing portable power and
energy storage solutions and advanced communication systems,
encompassing wideband antennas and high-performance radio
products.
The Group is the subject matter expert for its customers, with
deep industry knowledge and longstanding key supplier
relationships. In designing-in solutions to address the customer
needs, the Group selects the most appropriate component, module,
computing technology, cell chemistry, or communications solution
which ensures Solid State is a trusted partner.
The Group constantly seeks to add value for its customers, who
are typically looking to embrace the adoption of the enabling
technologies where Solid State has industry leading component and
manufacturing expertise, such as electronic and optoelectronic
component design-in, image processing, artificial intelligence
(AI), IOT, fossil fuel replacement, switching, cordless &
portable power, and leading-edge communications / antenna
solutions.
Our stated strategy is to supplement organic growth with
selective acquisitions within the electronics industry which
complement our existing Group companies and facilitate the
internationalisation of the Group and/or provide additional
products / talent / technology / IP and knowhow which can
accelerate our progress in our target growth markets.
Chief Executive's first half review
Key stakeholder engagement
The first half of the year has seen unprecedented shortages in
the electronic components sector. We anticipated these shortages
during FY20/21 and engaged with our customers to increase order
cover. Where possible we placed longer order schedules with our key
suppliers to mitigate these shortages. Continued disruption in the
supply chains is expected in the second half and through FY22/23.
We are working with customers and suppliers to manage this
disruption as effectively as we can.
In managing the supply chain challenges we are facing increased
working capital demands to secure product. The Group's strong
balance sheet puts Solid State in a good position to ensure that it
can secure product, albeit the lead times are significantly
extended. In managing purchase price rises, which vary
significantly, we have communicated these supply chains challenges
carefully to our customers, and there has been clear recognition of
the need for the financial effects to be passed on into selling
prices.
Positively, the Group is seeing record customer demand for our
products and components and the open order book at the end of H1
was GBP61.5m (31 March 2021: GBP41.3m), which is up 49%. The
increased demand is across our business, we have seen a recovery in
some of the markets which were adversely impacted during the
pandemic such as energy and aerospace, combined with several new
projects which had been deferred now being delivered. Pleasingly,
we have also seen strong demand in our growth markets such as AI,
edge computing and autonomy.
Benefitting from our recent acquisitions
In the first half of the financial year 2021/22 we have
benefitted from the acquisitions of Willow Technologies and Active
Silicon. The acquisitions have exceeded management expectations.
The engagement from the acquired business teams to maximise the
benefits of being part of an enlarged Group has delivered tangible
opportunities. We are currently bidding on projects that would not
have been achievable without the acquired capabilities.
Delivery of the strategy
Enhancing our international sales channels
Following the acquisition of Willow and Active, the Group has
been working to develop its international sales channels in the EU
and the USA for its own brand components within the Hermaseal(R)
and Durakool(R) portfolio as well as the Pacer branded
components.
The Group has started to develop the USA sales channel by
expanding its representative network in the USA. Representatives
benefit from being able to sell own brand components as well as our
own brand products from our Systems Division such as our antenna
solutions and our own brand TEMPEST computing offering.
In addition to the own brand components that can be sold
globally, the Group also has several pan-European franchises that
provide opportunities to deliver organic growth as the Group
develops its EU sales channel. The acquisitions brought the Group
some local representatives and distribution partners in the USA as
well as local resources in the EU. These foundations provide an
initial platform from which the Group is looking to develop its
international sales channels.
Broadening our components portfolio
Our Components Division has continued to develop its portfolio
of franchise manufacturers in the period taking on the ASUS
industrial computing component line which provides IoT platforms
enhancing our portfolio of industrial computing components.
During this period of shortages in the electronics sector, our
breadth of components has enabled us to support customers in
designing-in and supplying second sources for many components,
providing customers with some resilience. This work adds value and
provides new opportunities for the Group.
We have strengthened the USA component manufacturing facility
(AEC) leadership team, by appointing a General Manager, and
bolstering the local sales resource. The Group continues to invest
in our R&D projects further developing our portfolio of own
brand electro-mechanical components.
Manufacturing portfolio of own brand modular products
The Systems Division has made significant progress in our
product development. The computing business unit has extended our
own brand fan-less computing offering to include a low magnetic
signature computing product offering which is increasingly
important for defence applications including those with demanding
EMC requirements. In addition, we have seen our TEMPEST accredited
security product portfolio become market ready which includes the
Group's keyboard video mouse (KVM) product and
high-attenuation-smart-enclosure HASE units.
In the Communications business unit, the development of the
standard and semi-custom antenna portfolio (horns, spirals and
sinuous antennas) has delivered a stable platform of run rate
business over which longer term and larger programmes are being
targeted to provide upside opportunities for organic growth.
Within our Power business unit, the development of our scalable
and flexible modular pack solutions, continues to progress
positively, albeit COVID and supply chain challenges have meant the
progress with our application development partners is taking longer
than anticipated. These products are applicable to multiple high
growth, un-commoditised industrial markets that are adopting either
a low carbon power source, or an off-grid power source.
We continue to develop our supply chain partnerships with cell
manufacturers focussed on additional lithium and non-lithium
chemistries such as lithium iron phosphate and nickle metal
hydride.
Lithium iron phosphate has performance characteristics which are
well suited to higher peak power applications which we are
developing for Combustion Engine Replacement Programmes (CERP).
Nickle metal hydride cell voltage remains constant until the
battery is almost completely discharged, and they have a wide
operating temperature range which means they are well suited to
applications which require small, lightweight, portable, and
handheld applications.
We are keeping pace with the emerging solid state battery
technology being driven by the automotive sector. We remain a
subject matter expert offering our customers the most appropriate
chemistry for their given application.
Developing product range for strategic growth markets
The Group's opto-electronic component manufacturing team is
continuing to develop the portfolio of optical sensing components
that are supplied to tier one OEMs within the medical sector. We
are also developing our COTS (commercial off-the-shelf) own brand
portfolio of optical components which will enable these products to
be sold internationally.
Following the acquisition of Willow, our Components Division
supplies all the major components used within EV charging posts
including: electromechanical switches, contactors, displays,
Bluetooth and cellular interfaces and the embedded processing.
The addition of the Active Silicon's vision and image processing
technology and circuit board level design, combined with our
industrial embedded computing and engineering capability, has
enabled our enlarged Systems Division to provide more integrated
system solutions for our strategic growth markets for industrial
image processing. A good example of this is the transport sector
where the Group's new hardware products and solutions deliver next
generation technology for automatic number plate recognition (ANPR)
and various rail accredited image processing and monitoring
applications.
Enhancing our technical manufacturing expertise
As reported at year end, the Group has made significant
investments further enhancing its manufacturing and assembly
capabilities with new automated die bonding capabilities, state of
the art spectrum analysis equipment and an in-house electromagnetic
compatibility (EMC) chamber which was commissioned during first
quarter of FY21/22. The die bonder significantly increases
throughput and quality, enhancing our capability to manufacture die
level optical sensor components primarily for medical applications.
The chamber now gives us the ability to complete pre-compliance EMC
testing in-house. These facilities combined with technical and
engineering expertise mean the Group has a differentiated offering,
providing class leading manufacture, test and measurement
capabilities which are utilised across the Group.
In a similar vein, the Group is planning to enhance its
environmental chamber to enable the Group to conduct pre-compliance
testing of its products to aerospace standards.
During Q2, the Power business unit ordered its first wire bonder
to enable semi automation of pack manufacturing. In addition to the
investment in manufacturing equipment, we continue to enhance our
capabilities and accreditations such as ATEX and our certification
to build battery packs that are used in explosive atmospheres.
Pleasingly, we are seeing growth in this particular niche
capability.
Industry leading talent development
Talent development and engagement is a core value of the Group
and is a strength which underpins the retention of our industry
leading team. The increasing size and scale of the Group provides
additional opportunities for development.
The acquisitions of both Willow and Active Silicon have added
significant talent to the Group across all areas. In particular,
Active Silicon strengthening the Systems Division's engineering
capabilities.
Our Components Division has continued to invest in external
talent building the cleanroom expertise in opto-electronic
component manufacturing in Weymouth and in the new year an industry
leading expert will join the sourcing team.
Likewise, the Systems Division has also added expertise, with
additions to procurement and finance across the division and
engineering resource in the Power business unit. This growing
talent pool will underpin both Divisions' ability to deliver future
growth. The Group continues to actively seek additional skills
across the business to drive the exciting organic growth
opportunities which the Group is targeting.
Financial Review
Group revenue is up 19% at GBP39.4m (H1 2020/21: GBP33.1m) with
the Group benefiting from the acquisitions of Willow Technologies
and Active Silicon completed at the end of last financial year.
Reported revenue growth was depressed due to a weaker US dollar,
although the profit effect was mitigated by a natural hedge from
component purchases also denominated in US dollars, resulting in an
enhanced gross margin percentage. Underlying revenue on a like for
like and constant exchange rate basis reflects organic growth of
approximately 8%, however, this has been significantly held back as
a result of the component shortages and extended lead times.
The Group has continued to benefit from demand in government
funded sectors such as transport, security, and defence. Revenues
in the Components Division of GBP24.1m (H1 2020/21: GBP19.5m)
benefitted from the acquisition of Willow Technologies, where its
electromechanical products have been less significantly impacted by
the semiconductor shortages. The Systems Division revenues of
GBP15.2m (H1 2020/21: GBP13.5m) likewise benefitted from the Active
Silicon acquisition. Power business unit (BU) revenues are slightly
down on a record first half in the prior year. This is primarily
due to customer design in programmes progressing more slowly due to
the combination of COVID, compounded by the extended component and
cell lead times. However, the level of design activity and the
order book is strong which provides confidence for FY23 and beyond.
Demand in our Computing Systems and Communications business units
has been growing and our inventory holdings has enabled us to
deliver despite the extended lead times. The Group's diversity
provides some resilience enabling the Group to mitigate projects
delays in any given area.
First half order intake has been at record levels across the
Group with a recovery in sectors hit hard by COVID such as energy
and commercial aerospace. Lengthening lead times mean the benefit
of this is not reflected in H1 and the billings benefit is not
expected to be realised until FY22/23 and beyond.
Group gross margins saw a significant improvement to 32.7% (H1
2020/21: 29.9%) albeit there is a circa 1% gain from the weaker US
dollar as noted above. FX aside, underlying Group margins have
benefitted from the strategic actions, both organic and
acquisitive, to enhance the mix of products sold, increasing the
proportion of own brand products and high value-added systems,
solutions, and services which command high margins.
Reported overheads have increased to GBP10.7m (H1 2020/21:
GBP7.5m) principally due to; the additional share-based payment and
amortisation of acquisition intangibles totalling circa GBP0.7m,
the additional overhead associated with the acquisitions adding
circa GBP2.0m, and a GBP0.5m increase in overheads as post COVID
activities start to return to normal levels, albeit overheads
remain below pre COVID levels.
Adjusted operating margin, an increasingly important measure of
Group performance, has increased to 8.6% (H1 2020/21: 7.8%). The
Components Division has seen improvement in adjusted operating
margin, benefitting from the richer mix with more own brand
components and reduced bad debt expense compared to the prior COVID
year. This has been offset by investment in talent and modest
dilution arising from the Active Silicon acquisition (albeit lower
than expected) in the Systems Division.
Adjusted profit before tax for the first half is up 28% at
GBP3.27m (H1 2020/21: GBP2.55m). As a result of the impact of IFRS3
acquisition accounting charges and higher share-based payments
charges, reported profit before tax was down at GBP2.11m (H1
2020/21: GBP2.37m). This is reported after a share-based payments
charge of GBP0.18m (H1 2020/21: GBPNil), amortisation of
acquisition intangibles at GBP0.51m (H1 2020/21: GBP0.18m), an
increase to the earn out deferred consideration of GBP0.30m (H1
2020/21: GBPNil) and the unwind of the stock fair value adjustment
of GBP0.17m (H1 2020/21: GBPNil). The fair value adjustment to the
deferred contingent consideration and the fair value of stock
adjustment are expected to be one-off in nature whereas the
amortisation and share based payments will be incurred at a similar
level in the second half.
Adjusted profit after tax was also up 28% at GBP2.85m (H1
2020/21: GBP2.22m). Reported profit after tax was GBP1.73m (H1
2020/21: GBP2.08m).
Going forward, the increase in corporate tax rates to 25% from
19% for the financial year 2023-24 will result in an increased
effective tax rate albeit the benefit of R&D tax credits will
continue to mean our effective rate is below the standard rate of
corporation tax.
This translates to an excellent start to our financial year with
adjusted diluted earnings per share at 32.7p (H1 2020/21: 25.6p)
and with basic EPS of 20.2p (H1 2020/21: 24.3p). The inflow of cash
from operating activities was GBP4.8m (H1 2020/21 inflow GBP1.9m)
giving an adjusted operating cash conversion of 148% (H1 2020/21:
72%).
During the period we invested in a significant increase in
inventories, however, most cash payments for these inventories fell
into the second half, which combined with effective cash
collections resulted in a working capital inflow for the first
half. With component shortages expected to continue into FY23, we
anticipate working capital outflows in excess of GBP3.0m in the
second half reflecting cash committed to both inventory and
proforma payments to secure inventories.
The Group has invested GBP0.8m in capital projects (H1 2020/21
GBP0.1m) reflecting resumed confidence after new planned capex
projects were suspended in the comparative period. Deferred
consideration for acquisitions totals GBP5.25m ( 31 March 2021:
GBP7.52m) after settlement of the Completion Accounts balances
totalling GBP2.6m and an increase in fair value due to performance
exceeding initial expectations posted in H1 of GBP0.3m.
The Group has net cash with banks which stood at GBP3.32m on 30
September 2021 (GBP3.16m on 31 March 2021) following a small net
cash inflow in the first half. Net debt at 30 September 2021 was
down 56% to GBP1.93m (31 March 2021: GBP4.36m) which includes the
remaining deferred contingent consideration of GBP5.25m.
Our cash reserves in addition to our GBP7.5m bank facilities
mean the Group is in a strong financial position to fund future
working capital requirements, capital investment and acquisition
opportunities as they arise.
Dividends
The Board typically declares an interim dividend which is
approximately 1/3 of the anticipated full year dividend. The Board
is pleased to be able to continue to adopt this approach in the
current period. Based on the trading performance in the first half
of the year and prospects for the full year, the Board has decided
to declare an increase in the interim dividend of 19% to 6.25p per
share (H1 2020/21: 5.25p).
The interim dividend will be paid on 18 February 2022 to
shareholders on the register at the close of business on 28 January
2022. The shares will go ex-dividend on 27 January 2022.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting'
as adopted by the European Union, and that the interim management
report herein includes a fair review of the information required by
DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed consolidated
interim financial information, and a description of the principal
risks and
uncertainties for the remaining six months of the financial year; and
-- material related party transactions in the first six months
and any material changes in the related
party transactions described in the last annual report.
Forward-looking statements
Certain statements in this half year report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to be correct. Because
these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward-looking statements.
We undertake no obligation to update any forward-looking
statements whether arising as a result of new information, future
events or otherwise.
Outlook
Having completed two acquisitions at the end of our last
financial year, the first half has seen a record underlying trading
period, against an extremely challenging market backdrop. The
Group's strategy and focus on ensuring we have sector, product and
customer diversity to provide a resilient business model has
continued to prove its value.
The development in capabilities which the Group now has to offer
(including enhanced component manufacturing in opto-electronics and
electro-mechanical components, enhanced test and measurement and
circuit board level design and manufacturing) positions the Group
to be able to engage with its tier one customers on opportunities
which we would not have been able to target previously.
Our cross-division collaboration, offering the full range of
Group capabilities and products means the Group continues to be
well placed to deliver organic growth, developing own brand
products and solutions for the Group's target growth markets.
In delivering the Group's strategy of complementing organic
growth with strategically aligned M&A, the Group has focused
its M&A efforts in two areas: facilitation of the
internationalisation of the Group and acquisition of additional
products / technology / IP and knowhow which is accelerating
progress in our target growth markets beyond inhouse development to
deliver additional shareholder value. We have a pipeline of
potential acquisition targets which are at the early stages of
discussion and evaluation. As ever, the Board will continue to
apply its rigorous due diligence processes in implementing its
acquisition strategy.
The open order book stood at record level of GBP70.3m as at 30
November 2021. The order intake has remained strong in the post
balance sheet period with customers continuing to place longer
order schedules to help manage and mitigate supply chain
challenges. We have seen continued demand across all sectors
including those which had previously shown some weakness during the
Pandemic, specifically the energy and aerospace sectors. Trading
since the end of the first half of the year has been in-line with
management expectations albeit component lead times mean that the
conversion of orders into billings is significantly extended.
Whilst there is still some uncertainty as to potential impacts
of component shortages and lead times for the remainder of our
financial year and in to FY22/23, the Board is confident of meeting
its expectations for the year ending 31 March 2022. There is
potential upside in the second half of the year, delivery of which
is dependent upon careful management of the constraints imposed by
supply chain challenges.
Finally, the Board continues to recognise that the excellent
progress and execution of the Group's strategy is only possible
because of the hard work and contribution from our staff across the
whole of the Group. Consequently, the Board would like to extend
its thanks to all Group employees.
Gary Marsh
Chief Executive Officer
INTERIM CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2021
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Continuing Operations
Revenue 39,381 33,073 66,281
Cost of sales (26,495) (23,184) (46,362)
_______ _______ _______
Gross profit 12,886 9,889 19,919
Sales, general and administration
expenses (10,671) (7,477) (15,634)
_______ _______ _______
Profit from operations 2,215 2,412 4,285
Finance costs (106) (39) (85)
_______ _______ _______
Profit before taxation 2,109 2,373 4,200
Taxation expense (379) (296) (247)
_______ _______ _______
Adjusted profit after taxation 2,845 2,219 4,733
Adjustments to profit (1,115) (142) (780)
Profit after taxation 1,730 2,077 3,953
_______ _______ _______
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT 1,730 2,077 3,953
_______ _______ _______
Other comprehensive income - - -
_______ _______ _______
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD 1,730 2,077 3,953
_______ _______ _______
Earnings per share (see note 6)
Basic EPS from profit for the period 20.2p 24.3p 46.4p
Diluted EPS from profit for the period 19.8p 24.0p 45.7p
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2021 (unaudited)
Share Share Foreign Capital Shares
capital premium exchange redemption Retained held
reserve reserve reserve earnings in Total
treasury
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 March
2020 427 3,626 (7) 5 18,521 (43) 22,529
Total comprehensive
income for the period - - - - 2,077 - 2,077
Foreign exchange - - (2) - - - (2)
Dividends - - - - (620) - (620)
Share issue 1 (1) - - - - -
_______ _______ ______ _______ _______ _______ ______
Balance at 30 September
2020 428 3,625 (9) 5 19,978 (43) 23,984
Total comprehensive
income for the period - - - - 1,876 - 1,876
Purchase of treasury
shares - - - - - (95) (95)
Foreign exchange - - 15 - - - 15
Transfer of treasury
shares to All Employee
Share Plan - - - - (68) 68 -
Dividends - - - - (449) - (449)
Share based payment
credit - - - - 171 - 171
_______ _______ ______ _______ _______ _______ ______
Balance at 31 March
2021 428 3,625 6 5 21,508 (70) 25,502
Total comprehensive
income for the period - - - - 1,730 - 1,730
Foreign exchange - - 35 - - - 35
Dividends - - - - (920) - (920)
Share based payment
credit - - - - 179 - 179
_______ _______ ______ _______ _______ _______ ______
Balance at 30 September
2021 428 3,625 41 5 22,497 (70) 26,526
_______ _______ ______ _______ _______ _______ ______
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
on 30 September 2021
Unaudited Unaudited Audited
as at as at as at
30 Sept 21 30 Sept 20 31 Mar 21
ASSETS GBP'000 GBP'000 GBP'000
NON-CURRENT ASSETS
Property, plant and equipment 3,404 2,553 2,981
Right of use lease assets 2,206 1,924 2,476
Intangible assets 16,027 8,018 16,557
_______ _______ _______
TOTAL NON-CURRENT ASSETS 21,637 12,495 22,014
CURRENT ASSETS
Inventories 12,728 8,762 10,629
Trade and other receivables 14,986 12,091 14,222
Deferred tax asset 203 86 188
Cash and cash equivalents 5,323 3,952 6,914
_______ _______ _______
TOTAL CURRENT ASSETS 33,240 24,891 31,953
_______ _______ _______
TOTAL ASSETS 54,877 37,386 53,967
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (12,759) (6,388) (11,890)
Contract liabilities (2,720) (2,642) (2,299)
Deferred consideration on acquisitions (4,200) - -
- current
Corporation tax liabilities (986) (1,118) (801)
Right of use lease liabilities (694) (518) (741)
_______ _______ _______
TOTAL CURRENT LIABILITIES (21,359) (10,666) (15,731)
NON-CURRENT LIABILITIES
Non-current borrowings (2,000) - (3,750)
Provisions (694) (697) (741)
Deferred tax liability (1,666) (507) (1,491)
Right of use lease liabilities (1,582) (1,532) (1,802)
Deferred consideration on acquisitions (1,050) - (4,950)
_______ _______ _______
TOTAL NON-CURRENT LIABILITIES (6,992) (2,736) (12,734)
_______ _______ _______
TOTAL LIABILITIES (28,351) (13,402) (28,465)
_______ _______ _______
TOTAL NET ASSETS 26,526 23,984 25,502
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share capital 428 428 428
Share premium reserve 3,625 3,625 3,625
Capital redemption reserve 5 5 5
Foreign exchange reserve 41 (9) 6
Retained earnings 22,497 19,978 21,508
Shares held in treasury (70) (43) (70)
_______ _______ _______
TOTAL EQUITY 26,526 23,984 25,502
_______ _______ _______
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 September 2021
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20
GBP'000 GBP'000 GBP'000
OPERATING ACTIVITIES
Profit before taxation 2,109 2,373 4,200
Adjustments for:
Property, plant and equipment depreciation 326 220 614
Right of use asset depreciation 365 254 497
Amortisation 691 348 978
(Profit) / loss on disposal of property,
plant and equipment (14) (4) (22)
Share based payment expense 179 - 171
Finance costs 106 39 85
_______ _______ _______
Profit from operations before changes
in working capital and provisions 3,762 3,230 6,523
(Increase) / decrease in inventories (2,084) 886 1,852
(Increase) / decrease in trade and
other receivables (731) 1,735 1,925
Increase / (decrease) in trade and
other payables 4,084 (3,988) (3,363)
Decrease in provisions (47) (7) (7)
_______ _______ _______
Cash generated from operations 4,984 1,856 6,930
Income taxes (paid) / received (13) 51 (432)
_______ _______ _______
(13) 51 (432)
Net cash flows from operating activities 4,971 1,907 6,498
INVESTING ACTIVITIES
Purchase of property, plant and equipment (756) (98) (356)
Capitalised own costs and purchase
of intangible assets (160) (153) (302)
Proceeds from sale of property, plant
and equipment 33 14 77
Payments for acquisition of subsidiaries
net of cash acquired (2,572) - (4,119)
_______ _______ _______
Net cash flow from investing activities (3,455) (237) (4,700)
FINANCING ACTIVITIES
Repurchase of ordinary shares into
treasury - - (95)
Borrowings drawn - - 3,750
Borrowings repaid (1,750) (333) (333)
Payment obligations for right of
use assets (394) (239) (575)
Interest paid (75) (22) (37)
Dividends paid to equity shareholders (920) (620) (1,069)
_______ _______ _______
Net cash flow from financing activities (3,139) (1,214) 1,641
_______ _______ _______
(DECREASE) / INCREASE IN CASH AND
CASH EQUIVALENTS (1,623) 456 3,439
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
21 20 21
GBP'000 GBP'000 GBP'000
Translational foreign exchange on opening
cash 32 (21) (42)
Net (decrease) / increase in cash and
cash equivalents (1,623) 456 3,439
Cash and cash equivalents brought forward 6,914 3,517 3,517
_______ _______ _______
Cash and cash equivalents carried forward 5,323 3,952 6,914
_______ _______ _______
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
21 20 21
GBP'000 GBP'000 GBP'000
Represented by:
Cash available on demand 5,323 3,952 6,914
_______ _______ _______
NOTES TO THE INTERIM REPORT
for the six months ended 30 September 2021
1. Basis of preparation of interim financial information
General information
Solid State PLC ("the Company") is a public company
incorporated, domiciled and registered in England and Wales in the
United Kingdom. The registered number is 00771335 and the
registered address is: 2 Ravensbank Business Park, Hedera Road,
Redditch, B98 9EY.
The interim financial statements are unaudited and do not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
March 2021, prepared in accordance with IFRS, have been filed with
the Registrar of Companies. The Auditors' Report on these accounts
was unqualified, did not include any matters to which the Auditors
drew attention by way of emphasis without qualifying their report
and did not contain any statements under section 498 of the
Companies Act 2006.
Basis of preparation
These condensed interim financial statements for the six months
ended 30 September 2021 have been prepared in accordance with IAS
34, 'Interim financial reporting', as contained in UK-adopted
International Accounting Standards. The condensed interim financial
statements should be read in conjunction with the annual financial
statements for the year ended 31 March 2021, which have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
The consolidated interim financial statements have been prepared
in accordance with the recognition and measurement principles of
UK-adopted International Accounting Standards expected to be
effective at the year end of 31 March 2022.
In assessing going concern the Directors gave careful
consideration of the potential impact of the on-going COVID
pandemic and the global electronic component shortages on the
cashflows and liquidity of the Group over the next 12 month
period.
Throughout the COVID pandemic, and the United Kingdom's exit
from the European Union, customer demand has remained solid and in
recent months we have continued to see customers extending order
cover to help to manage the global electronics supply chain issues.
The most significant impact on the Group future performance is the
uncertainty arising from the extending electronic component lead
times. Management have taken all possible actions to minimise and
mitigate the potential impact of shortage.
If shortages continue into the later part of the financial year
2021/22 as expected the risk does have the potential to adversely
impact performance. While the actions do not mitigate the risk
fully it certainly has significantly reduced the impact in the
first half of 2021/22 and positions the Group to manage the period
beyond as effectively as possible. In assessing going concern for
the period ended 30 September 2021, the financial modelling applied
various sensitivity scenarios to a base case to 31 March 2023 which
was prepared based on an extension of the budget for FY21/22.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
next 12 months, therefore it is appropriate to adopt a going
concern basis for the preparation of the interim financial
information. Accordingly, this interim financial information does
not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the
Group and Company were unable to continue as a going concern.
2. Accounting policies
The accounting policies are unchanged from the financial
statements for the year ended 31 March 2021 other than as noted
below.
Financial Instruments
The carrying value of cash, trade and other receivables, other
equity instruments, trade and other payables and borrowings also
represent their estimated fair values. There are no material
differences between carrying value and fair value at 30 September
2021.
Additional disclosure of the basis of measurement and policies
in respect of financial instruments are described on pages 102 to
108 of our 31 March 2021 Annual Report and remain unchanged at 30
September 2021.
Estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed interim financial statements, the
significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial
statements for the year ended 31 March 2021.
Impairment
No Impairment charges have been recognised in the period to 30
September 2021.
Recent accounting developments
The accounting policies adopted are consistent with those of the
previous financial year except as described below:
In preparing the interim financial statements, the Group has
adopted the following Standards, amendments and interpretations,
which are effective for 2021/22 and will be adopted in the
financial statements for the year ended 31 March 2022:
-- Amendments to IFRS 9, IAS 39, IFRS 17: - Interest rate benchmark reform.
The adoption of these standards and amendments has not had a
material impact on the interim financial statements.
3. Principal risks and uncertainties
The principal risks and uncertainties impacting the Group are
described on pages 11 to 15 of our 31 March 2021 Annual Report and
remain unchanged at 30 September 2021.
They include: Acquisitions, product / technology change, supply
chain interruption, retention of key employees, competition,
forecasting and financial liquidity, legislative environment and
compliance, failure of or malicious damage to IT systems and
natural disasters.
4. Segmental information
Unaudited Unaudited Audited
Six months Six months Year
to to to
30 Sept 30 Sept 31 Mar
21 20 21
GBP'000 GBP'000 GBP'000
Revenue
Systems 15,234 13,546 27,299
Components 24,147 19,527 38,982
_______ _______ _______
Group revenue 39,381 33,073 66,281
_______ _______ _______
5. Adjusted profit measures
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Acquisition fair value adjustments
within cost of sales 168 - 72
Acquisition fair value adjustments
and reorganisation costs 300 - 264
Amortisation of acquisition intangibles 514 176 680
Share based payments 179 - 171
Taxation effect (221) (34) (226)
Deferred tax rate change impact on 175 - -
acquisition intangibles and share
based payments
Non-recurring tax credits - - (181)
_______ _______ _______
Total adjustments to profit 1,115 142 780
_______ _______ _______
Reported gross profit 12,886 9,889 19,919
Adjusted gross profit 13,054 9,889 19,992
Reported operating profit 2,215 2,412 4,285
Adjusted operating profit 3,374 2,588 5,472
Reported operating profit margin percentage 5.6% 7.3% 6.5%
Adjusted operating profit margin percentage 8.6% 7.8% 8.3%
Reported profit before tax 2,109 2,373 4,200
Adjusted profit before tax 3,268 2,549 5,387
Reported profit after tax 1,730 2,077 3,953
Adjusted profit after tax 2,845 2,219 4,733
6. Earnings per share
The earnings per share is based on the following:
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Adjusted continuing earnings post
tax 2,845 2,219 4,733
Reported continuing earnings post
tax 1,730 2,077 3,953
_______ _______ _______
Weighted average number of shares 8,550,531 8,556,193 8,524,883
Diluted weighted average number of
shares 8,698,270 8,668,786 8,650,237
_______ _______ _______
Reported EPS
Basic EPS from profit for the period 20.2p 24.3p 46.4p
Diluted EPS from profit for the period 19.8p 24.0p 45.7p
Adjusted EPS
Adjusted basic EPS from profit for
the period 33.2p 25.9p 55.5p
Adjusted d iluted EPS from profit
for the period 32.7p 25.6p 54.7p
7. Dividends
Dividends paid during the period from 1 April 2020 to 30
September 2021 were as follows:
23 September 2020 Final dividend year ended 31 March 2020 7.25p
per share
19 February 2021 Interim dividend year ended 31 March 2021 5.25p
per share
24 September 2021 Final dividend year ended 31 March 2021 10.75p
per share
The Directors are intending to pay an interim dividend for the
year ending 31 March 2022 on 18 February 2022 of 6.25p per share.
This dividend has not been accrued at 30 September 2021.
8. Share capital
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20
Allotted issued and fully paid
Number of ordinary 5p shares 8,564,878 8,564,878 8,564,878
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Allotted issued and fully paid
Ordinary 5p shares 428 428 428
9. Related party transactions
Consistent with the year ended 31 March 2021 the only related
party transactions in the period were those with the trading
companies which are used by the non-executive directors for their
consultancy services. These transactions are disclosed in the
remuneration report in the annual report to the 31 March 2021 and
will be updated in the full year report to the year ending 31 March
2022. There are no other related party transactions.
10. Non-current assets
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Goodwill 9,898 6,300 9,898
Acquisition intangibles 5,923 1,537 6,436
Research and development 50 100 100
Software 156 81 123
_______ _______ _______
Intangible assets 16,027 8,018 16,557
Property plant and equipment 3,404 2,553 2,981
Right of use asset 2,206 1,924 2,476
_______ _______ _______
Total non-current assets 21,637 12,495 22,014
_______ _______ _______
11. Net Debt
Unaudited Unaudited Audited
Six months Six months Year to
to to 31 Mar
30 Sept 30 Sept 21
21 20 GBP'000
GBP'000 GBP'000
Bank borrowing due within one year - - -
Bank borrowing due after one year (2,000) - (3,750)
_______ _______ _______
Total borrowings (2,000) - (3,750)
Deferred consideration on acquisitions
within one year (4,200) - (2,572)
Deferred consideration on acquisitions
after one year (1,050) - (4,950)
Cash and cash equivalents 5,323 3,952 6,914
_______ _______ _______
(Net debt) / net cash (1,927) 3,952 (4,358)
_______ _______ _______
During the period we have reviewed the fair value of the
deferred contingent consideration which was provided at the year
end. As a result of the improved performance of the acquired
business we concluded that it was appropriate to increase the
provision for deferred contingent consideration by GBP0.30m in the
period. This has been expensed through P&L and has been
excluded from the adjusted performance metrics as an exceptional
item as set out in note 5.
The statement will be available to download on the Company' s
website: www.solidstateplc.com.
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IR FLFFRFALRIIL
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