SOLID STATE PLC - Earnings Release 2022

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RNS Number : 8318T

Solid State PLC

27 July 2022

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27 July 2022

Solid State plc

("Solid State", the "Group" or the "Company")

Final Results for the 12 months ended 31 March 2022

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, is pleased to announce its audited final results for the 12 months ended 31 March 2022.

Financial overview:

Set out below are the financial key performance indicators which reflect the record year and a very pleasing result:


KPI	2022	2021	Change
Reported revenue	£85.0m	£66.3m	+28.2%
Reported operating profit margin	4.4%	6.5%	-210bps
Adjusted operating profit margin*	8.7%	8.3%	+40bps
Reported profit before taxation	£3.5m	£4.2m	-16.7%
Adjusted profit before taxation*	£7.2m	£5.4m	+33.3%
Reported EPS	29.5p	46.4p	-36.4%
Adjusted fully diluted EPS	70.6p	54.7p	+29.1%
Adjusted cash flow from operations	£6.0m	£6.9m	-13.0%
Net cash/(net debt)**	£(5.2)m	(£4.4m)	-18.2%
Dividend	19.5p	16.0p	+21.9%
Open order book @ 31 May	£89.7m	£51.0m	+75.9%

* Adjusted performance metrics are reconciled in note 31, the adjustments relate to IFRS 3 acquisition amortisation, share based payments charges, and non-recurring charges in respect of redundancies and acquisition costs and fair value adjustments.

** Net cash / debt includes net cash with banks £1.4m (2021: £3.1m) less the fair value of deferred contingent consideration of £6.6m (2021: £7.5m) and excludes the right of use lease liabilities of £2.1m (2021: £2.5m).

The Group has delivered:

· Revenue growth of 28.2%, including the first full year of acquisitions, with record revenue of £85.0m (2021: £66.3m) reflecting the Group's pro-active approach to working in partnership with customers to manage supply and demand.

· Record profitability with adjusted operating margins increasing 40bps to 8.7%, based on solid margins in both divisions.

· Adjusted fully diluted EPS up 29.1% to 70.6p (2021: 54.7p).

· Strong operating cash generation of £6.0m (2021: £6.9m) supported investment in inventory of £6.9m in with reported cash conversion of 161% (2021: 162%).

· A dividend increase of 21.9% on the prior year, reflecting record adjusted performance in the year.

· An open order book on 31 May 2022 of £89.7m (31 May 2021: £51.0m) highlighting 75.9% organic growth.

Strategic Achievements in 2021/22:

Notable achievements to advance the Group's strategy included:

· Integration of the acquisitions of Willow Technologies Group ("Willow") and Active Silicon Group ("Active Silicon"):

o Enhanced technology adding a portfolio of own brand image processing products and electro-mechanical components (including component manufacturing capabilities in USA).

o Broadened the international sales capabilities and resources in the USA and Europe.

· Continued investment in technical capabilities through the Group's capital investment programme:

o Semi automated battery pack wire bonding - providing improved quality and efficiency for volume battery pack production runs.

o In-house electromagnetic compatibility ("EMC") testing capabilities.

Post period events:

Proposed acquisition of Custom Power LLC ("Custom Power"), a strategically aligned, profitable, cash generative battery pack manufacturer for a total consideration of up to $45.0m. The acquisition is expected to complete in early August following the general meeting on 29 July 2022.

Commenting on the results and prospects, Gary Marsh, Chief Executive said:

"I am very pleased to report 29.1% growth in adjusted diluted earnings per share over the prior year's record result and a significant step change in revenue year on year at £85.0m (2021: £66.3m).

"The Group benefitted from the first full year of the two acquisitions and a few pull ins of demand at the end of the year where our team's supplier relationships secured product pre year end, meaning we were able to fulfil some of the strong customer demand.

"The Group has a record open order book which, combined with our inventory management plan, positions Solid State to proactively manage the well-publicised electronics supply chain issues with our customers. Despite these ongoing challenges, the Group has been able to make considerable strides in delivering its growth strategy in the current year.

"The opportunities for significant growth across both Divisions are very exciting and the acquisition of Custom Power is expected to be an important catalyst enabling Solid State to deliver on its five year ambition of matching or exceeding the performance achieved over the preceding five years."

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Analyst Briefing: 1.00 p.m. on Wednesday 27 July 2022

An online briefing for Analysts will be hosted by Gary Marsh, Chief Executive, and Peter James, Group Finance Director, at 1.00 p.m. today, Wednesday 27 July 2022 to review the results and the proposed acquisition of Custom Power. Analysts wishing to attend should contact Walbrook PR on [email protected] or on 020 7933 8780.

Investor Presentation: 12 p.m. on Friday 29 July 2022

Gary Marsh, Chief Executive, Peter James, Group Finance Director, and Matthew Richards, Managing Director Systems Division will hold a presentation to cover the results and the proposed acquisition of Custom Power at 12 p.m. on Friday 29 July 2022, following the General Meeting being held at 11 a.m. 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 [email protected], or in real time during the presentation via the "Ask a Question" function.

For further information please contact:


Solid State plc Gary Marsh - Chief Executive Peter James - Group Finance Director	Via Walbrook
WH Ireland (Nominated Adviser & Joint Broker) Mike Coe / Sarah Mather (Corporate Finance) Fraser Marshall (Corporate Broking / Sales)	020 7220 1666
finnCap (Joint Broker) Ed Frisby / Kate Bannatyne (Corporate Finance) Rhys Williams / Tim Redfern (Sales / ECM)	020 7220 0500
Walbrook PR (Financial PR) Tom Cooper / Nick Rome	020 7933 8780 0797 122 1972 [email protected]

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.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that the Group has delivered another year of record adjusted profits despite the supply chain challenges and volatile global markets. We have delivered growth in both revenue and adjusted profits; however, the macro-economic environment has somewhat curtailed the increase in the period.

Group management continues to make good progress in the implementation of its strategy by investing in people and technology, and through the integration of the two bolt-on acquisitions completed in March 2021. The acquisitions' performance and positive attitude to being part of the Group has surpassed management's expectations and have enhanced the value we can offer in both our Components and Systems Divisions.

The Group's sector diversity continues to provide a resilient business model. Order intake has been strong across all sectors including in those markets which had previously shown some weakness during the pandemic, specifically energy and aerospace. This has resulted in a record open order book on 31 May 2022 of £89.7m, (comparatives: 31 March 2022: £85.5m; 31 March 2021: £41.3m; 31 May 2021: £51.0m).

The record open order book and strong balance sheet, where we have invested in inventories, provide confidence in our ability to continue to deliver growth. Whilst the most volatile period of the supply chain challenge is starting to stabilise, component lead times remain extended, logistical delays are common and inflationary pressures are rising. These challenges are expected to continue through the year ahead into 2023. These are complex issues that can be difficult to navigate and call upon the full range of skills and experience of our highly competent team.

Having delivered on the five year goal of doubling adjusted diluted EPS to > 60p, the Board is refining its five-year strategic plan to 2027. The ambition for the next five years is to replicate or beat historic performance which saw the Group deliver >20% CAGR (Compound Annual Growth Rate) in total shareholder return over the five years to 2022.

Strategy

The Group provides customers broad-based access to trusted electronic technology for demanding applications and extreme environments and has a commercial focus on high growth markets including security & defence, medical, green energy, transport, communications and industrial.

Our medium-term financial objective is to double fully diluted adjusted earnings ("aeps") over each five year period. This was exceeded in the five years to 31 March 2022, when aeps increased from 30 pence to 71 pence per share. The accelerated growth rate achieved in recent years reflects the benefit of the foundations which have been laid and the resulting new and exciting businesses. The Directors are fully committed to continuous development of our capabilities to build on this success, further strengthening our partnership approach with major customers, and continuing to share rewards equitably amongst all our stakeholders.

Notwithstanding the acknowledged short term supply challenges, the demand outlook for customised electronic solutions offers exciting opportunities. Many ground breaking technologies are embedded within our current activities, and there is scope for further investment in specialist skills and knowledge to expand and differentiate our offering to existing and prospective customers, both through internal development and acquisition as we target international expansion.

We are building ever closer relationships with our customers, adding substantial value through early stage integration into their design and development road maps, and interlocking with their operational and logistics processes. This will be achieved by further strengthening channels of co-operation between Group entities and building cross-selling specialist teams to facilitate ease of customer access to our full range of products and services.

Governance and Accountability

The Board structure continues to evolve as we strive towards full implementation of all the principles of the Quoted Companies Alliance code on Corporate Governance. The Board currently comprises four executive directors and three non-executive directors, including an independent non-executive Chair and a senior independent non-executive Director. It is the intention of the Board to recruit an additional independent non-executive Director in the coming year, ensuring appropriate access to an open and transparent process for all candidates, being cognisant of the breadth of diversity. Following this appointment, the Board will have an equal balance of executive and non-executive directors with a casting vote for the chair.

An annual formal Board effectiveness review is undertaken, and any updates to Board structure, processes and documentation are actioned without delay. There is a continuous improvement approach to addressing the Environmental, Social and Governance ("ESG") agenda, which is set out in this report, and this will continue to evolve in future reports as additional metrics are identified and progressed.

In communication with our shareholders and others, our primary aim is to provide timely, well balanced, and succinct information about our business and its prospects to a wide audience on a regular basis. In addition to our Annual General Meeting and scheduled meetings with key institutional shareholders, we participate in periodic on-line presentations which are open to all by prior arrangement on the "Investor Meet Company" platform (www.investormeetcompany.com).

Acquisitions

The trading contribution from the two acquisitions made at the end of financial year 2020/21, Willow and Active Silicon, have each exceeded management's expectations. The Willow acquisition provided the Components Division with a wider customer base and product offering, significantly increasing the portfolio of own brand components, enabling record revenues. The combined skillsets of the Systems Division and the Active Silicon acquisition enabled the award of the Transport for London Piccadilly line upgrade contract and will provide further opportunities. Active Silicon bring expertise in the design and manufacture of imaging products and embedded vision systems.

Post year end, the intended acquisition of US battery manufacturer Custom Power was announced on 12 July 2022, subject to shareholder approval at the general meeting on the 29 July 2022. Custom Power is a strategically significant US based power specialist operating at scale in target growth markets for Solid State. This transaction aligns with the Group's four key strategic goals and is a good fit with the existing power business unit. Custom Power is a profitable, cash generative business in high growth market sectors that will provide broader technical competencies and opportunities for stronger relationships with key suppliers. This will enable the enlarged Group to cross sell to both businesses' international blue-chip customers. The size of this acquisition will be transformational to the Power business unit providing a step change, with Custom Power delivering revenues of approximately $29.8m in their financial year ended 31 December 2021.

People

There has been further investment in the Group HR function in the current year supporting the welfare of our people. Although the impact of the COVID-19 pandemic is receding, there has been ongoing attention to keep workplaces safe and a focus on broader social welfare. This includes access to a wellbeing at work support programme for employees and their families, cash back opportunities, pay reviews, bonuses and a commitment to a one-off energy bonus payment for all employees in the next financial year.

Dividend

The Group has paid dividends every year since joining AIM in 1996. The Board is committed to maintaining a progressive dividend policy, however the Board's focus when deploying capital is to continue to drive strong total shareholder returns comparable to historic periods.

Accordingly, the Board is proposing a final dividend of 13.25 pence (2021: 10.75 pence) resulting in full year dividends of 19.5 pence (16.0 pence) which is covered 3.6 times by adjusted earnings (2021: 3.4 times).

Subject to approval of the final dividend by shareholders at the AGM on 7 September 2022, the final dividend will be paid on 5 October 2022 to shareholders on the register at the close of business on 2 September 2022, and the shares will be marked ex-dividend on 1 September 2022.

Opportunities and prospects for 2022/2023

The Group's business model now serves a wide customer base of over 2,000 clients, operating across multiple sectors, offering a broad product range with specialist production facilities. This diversification provides the Group with resilience when markets are challenging. Whilst the forthcoming period will no doubt continue to be adversely affected by component shortages, having invested in inventories, in partnership with our customers, the Group is well placed to take advantage of the market conditions and emerge in a stronger position than many competitors.

The acquisition of Custom Power, which is expected to complete following the general meeting on 29 July 2022, will be transformational for our Power business unit providing a production facility in the USA. This clearly presents a very exciting opportunity for the Group in the power sector which is the area of the business which has the highest growth potential.

The Group has achieved high order intake in Q1 2022/23 across its diverse sector exposure. The strong open order book provides opportunities for significant growth in the current year, albeit this is expected to be influenced by component lead times. Presently the timing of supplies and programmes remains somewhat difficult to predict.

The Group has seen a strong start to the year with Q1 billings up 31% on a like for like basis with margins comparable with FY22. This excellent start, combined with the Group's strong financial footing, technology, capabilities, engineering specialisms, and its sector penetration in areas which are political priorities, for example in defence, transportation and medical, mean the Board is confident that the Group is well placed to deliver continued growth.

N Rogers

Chairman

Chief Executive's Review

Given the macro-economic backdrop, with the component supply shortages, Brexit and latterly inflationary pressures and volatile exchange rates, this reporting period again served up some of the most challenging business conditions in our history. As a result, I am very pleased to report 29.1% growth in adjusted diluted earnings per share over the prior year's record result and a significant step change in revenue year on year at £85.0m (2021: £66.3m).

The Group benefitted from the first full year of the two acquisitions and a few pull ins of demand at the end of the year where our team's supplier relationships secured product pre year end, meaning we were able to fulfil some of the strong customer demand.

The Group has a record open order book which, combined with our inventory management plan, positions Solid State to proactively manage the well-publicised electronics supply chain issues with our customers. Despite these ongoing challenges, the Group has been able to make significant strides in delivering its growth strategy in the current year.

Solid State reports a strong year-end balance sheet with net assets of £27.1m and net cash at the bank of £1.4m. The balance sheet strength has meant we have been able to proactively invest in inventories, which has been a critical factor in enabling the Group to provide the differentiated customer service which is core to our success. Furthermore, this strength means the Group is well placed to continue to gain a competitive advantage when managing the challenging market conditions which are expected to continue through 2022 and into 2023.

On 12 July 2022, the Group announced its intention to acquire Custom Power, a battery pack manufacturing business based in California USA, for a total consideration of up to $45.0m subject to achieving an earn out hurdle. The acquisition is expected to complete in early August following the general meeting on 29 July 2022 to approve the transaction. Full details of the transaction have been provided to shareholders within the circular which was posted on the 13 July 2022.

This acquisition will be transformational for our Power business unit, enabling the Group to meet the increasing demand from its blue-chip tier one customers to provide power solutions on a transatlantic basis.

Custom Power is a profitable and cash generative battery pack manufacturer. Like our business, they are engineering led and target markets with high barriers to entry where the engineering expertise is valued, and the production horizons are longer. As reported previously in the circular issued to shareholders, Custom Power delivered record proforma results in the year ended 31 December 2021 with revenue of approximately $29.8m, EBITDA of $3.5m and proforma net profit of $2.5m (reported net profit $1.9m). Building on last year's record performance, we look forward to delivering further strategic progress and this acquisition is a critical building block for the Group in the execution of its strategy.

The scale and broader portfolio of products now offered by the Group's Components Division, has enabled like for like Components' revenues to grow 11% year on year to £52.5m. Furthermore, the Systems Division also saw like for like revenue growth at 4% at £32.5m but most pleasing was the significant improvement in adjusted systems gross margins to 42.0% from 38.7%.

Key stakeholder engagement

Solid State's pro-active approach to managing both customer and supplier stakeholders during the year has been recognised positively with many providing positive feedback about how the Group has supported their businesses in these very difficult times. This is evidenced by the Group being awarded the British Aerospace Supply to Win Gold award and several supplier awards recognising the Group's value to their businesses.

Throughout the pandemic and component supply challenges the business worked hard to ensure that it maintained timely and relevant communication and engagement with all stakeholders. The teamwork, support, and commitment from and by the staff has been a real success factor. The workforce has recognised and valued the investment in enhancing the Group's staff welfare programmes to provide both physical and mental health support, resources and benefits which are available to all employees.

The Group continues to recognise the value of, and invest in, its staff with various ongoing professional development initiatives. This is critical to the Group continuing to both retain and attract exceptionally high calibre staff which is necessary to maintain its market position and retain its trusted business partner relationships.

We have continued to develop the Group's staff and communities' engagement activities; highlights in the year being a new initiative to support local food banks near each of our UK facilities; sponsoring a room at a local YMCA to provide safe accommodation for young people in our community and repeating the Solid State charity walk. In support of all our employees, at the year end the Group committed to paying an energy grant in the autumn of 2022 to help our colleagues with managing the very significant increase in the cost of living and energy costs ahead of the winter.

Delivery of the strategy

In FY21/22 Solid State has continued to execute on its strategy, delivering improved financial performance with important strategic steps being taken across both operating divisions.

Internationalise the business

In developing our international sales channels, the acquisitions of both Active Silicon and Willow have accelerated our overseas sales.

During the year within our Components Division we have added resources into our USA and UK sales force which, in conjunction with adding several third-party representative companies in the USA, provides a foundation for growth in sales which is starting to be translated into orders reflected in our record order book.

Post year end, the expected acquisition of Custom Power as part of our Systems Division, provides a step change for this division to penetrate the US power market.

Investment in and enhancement of our talent

During the year we have made significant strides in developing the senior management team, which has benefitted from the acquisitions of Willow and Active Silicon, both of which had a strong and talented work force which have been additive to the Group. The integration of our new colleagues from the acquisitions has been very positive, providing additional depth in talent and resource across our business.

We have strengthened the USA component manufacturing facility ("AEC") leadership team by appointing a general manager, and bolstering the local engineering and sales resource, to accelerate the development of our own brand electromechanical product range. Furthermore, we have invested in our sourcing team where, because of the semiconductor shortages, we have seen very significant demand for the expertise this team offers. This has translated into significant new revenue opportunities for our design-in Components Division.

Within our Systems Division, the divisional MD has established an integrated functional leadership team to drive this division forward which has benefitted from the additional HR resource and talent who joined the Group as part of the Active Silicon acquisition. Post year end, the acquisition of Custom Power will add battery industry expertise and talent. Custom Power has a particularly strong complimentary engineering capability which will help to differentiate the Group's power offering.

Develop our portfolio of own brand products and complementary 3rd Party products

Our Components Division has continued to develop its portfolio of franchise manufacturers in the period, taking on the ASUS industrial computing component line which provides IoT platforms, enhancing our portfolio of industrial computing components.

During this period of shortages in the electronics sector, our breadth of components has enabled us to support customers in designing-in and supplying second sources for many components, providing customers with some resilience. This work adds value and provides new opportunities for the Group.

The Group continues to invest in R&D projects to develop our portfolio of own brand products and components.

The Computing business unit has extended our own brand fanless computing offering to include a low magnetic signature computing product which is increasingly important for defence applications, including those with demanding EMC requirements. In addition, we have seen our TEMPEST accredited security product portfolio become market ready, which includes the Group's keyboard video mouse ("KVM") product and high-attenuation-smart-enclosure HASE units.

In the Communications business unit, the development of the standard and semi-custom antenna portfolio (horns, spirals and sinuous antennas) has delivered a stable platform of run rate business which is enabling longer term and larger programmes to be targeted to provide sustainable organic growth.

Within our Power business unit, we are keeping pace with the emerging battery chemistries and technology being driven by the automotive sector. We remain a subject matter expert, offering our customers the most appropriate chemistry for their given application. The development of our scalable and flexible modular pack solutions continues to progress positively, albeit COVID-19 and supply chain challenges have meant the progress has been hindered somewhat. These products are applicable to multiple high growth, un-commoditised industrial markets that are adopting either a low carbon power source, cordless solutions and next generation autonomous technologies.

Broaden our technical manufacturing expertise / technology portfolio / designed in product base

The Group has made significant investments to further enhance its manufacturing and assembly capabilities with new automated die bonding capabilities, state of the art spectrum analysis equipment, and an in-house electromagnetic compatibility ("EMC") chamber which was commissioned during first quarter of FY21/22.

The EMC chamber now gives us the ability to complete pre-compliance EMC testing in-house. These facilities, combined with technical and engineering expertise, mean the Group has a differentiated offering, providing class leading manufacture, test and measurement capabilities that are utilised across the Group. Further investments are planned to encompass pre compliance TEMPEST test capabilities. The Group also upgraded its environmental chamber to enable Solid State to conduct pre-compliance testing of its products to aerospace standards.

Post year end, the Power business unit commissioned its first wire bonder to enable semi automation of battery pack manufacturing, which is proving to be a point of differentiation with our customers, and we have already seen significant interest arising from new and existing prestigious customers looking to benefit from this technology on their new projects. Furthermore, this is a capability we will look to roll out to Custom Power once the transaction is complete.

In addition to the investment in manufacturing equipment, we continue to enhance our capabilities and accreditations such as ATEX and our certification to build battery packs that are used in explosive atmospheres. Pleasingly, we are seeing growth in this particular specialist capability.

The strength of the Group

Cross-Group collaboration has been a key strategic focus to ensure the business maximises the commercial value of its extensive customer relationships. The Group wide "Senior Leadership team" which was formalised last year in conjunction with the implementation of a Company Share Option Plan ("CSOP") aligns the incentives of those individuals with Group performance. This approach has changed the level of engagement and aligned behaviours and the benefits are continuing to be seen with a further step change in cross-Group engagement and collaboration.

The acquisitions of Active Silicon and Willow provided additional breadth and depth to the Group's product and technology offering. In addition, the enlarged Group's active customer base now exceeds 2,000, presenting significant opportunities to sell more of the broadened product range to the enlarged customer base.

Managing and mitigating risk

The business risks have been considered and, where practical, mitigated. However, the macro-economic and geopolitical risks including conflict in Ukraine, the aftereffects of COVID-19, electronic component shortages, uncertainty in international trading relationships and the associated impact on foreign exchange, means that it continues to be difficult to predict supply and demand and therefore mitigate fully.

Component lead-times remain at unprecedented lengths of over 40 weeks for many critical components, such as semiconductors, computer processors, PCBs, some embedded processing modules, and battery cells. The Group has continued to deliberately increase the working capital investment in inventory to attempt to secure future supply. The lengthening order book coverage means that scheduled orders as at 30 June 2022 go beyond the end of FY25; FY23 (69%), FY24 (21%) and FY25 and beyond (10%).

The Group's diversity in suppliers, technology, markets, and territory is a key strength. It provides resilience and some mitigation against global headwinds and has enabled Solid State to deliver record results. Looking forward to the current year, we continue to believe that this diversity positions the Group well to weather the impact of any ongoing supply chain issues and take advantage of new opportunities.

Chief Financial Officer's Review

To provide a fuller understanding of the Group's ongoing adjusted performance, several adjusted profit measures as supplementary information are included on a consistent basis with that reported by the financial analysts that review our business. As detailed in note 31, the adjusted measures eliminate the impact of certain non-cash charges and non-recurring items together with the associated tax impact.

Revenues

Group revenues of £85.0m (2021: £66.3m) reflect the inclusion of a full 12 months of revenue from the two acquisitions made at the end of financial year 2020/21, both of which outperformed management expectations. Like-for-like revenue (based on proforma 2021: £81.3m) was £3.7m (4.6%) ahead of prior year. This is an excellent result in the ongoing context of well-publicised supply challenges as well as circa 5% foreign exchange headwinds with the average US dollar rate moving from circa 1.30 in FY21 to 1.37 during FY22, which suppressed the revenue growth.

The UK electronics distribution and semiconductor components industry expected growth of around 2.7% in the period while noting the absence of clear guidance from customers (source ECSN). The Components Division achieved revenues of £52.5m (2021: £39.0m) including the Willow acquisition, with like-for-like revenues exceeding expectations up 11.5% on the prior year at £52.5m (2021 proforma: £47.1m).

The Systems Division reported revenue of £32.5m (2021: £27.3m), with like-for-like revenue up £1.1m (3.5%) to £32.5m (2021 proforma: £31.4m) against a very challenging macro-economic backdrop. Supply chain pressures, including component availability, and the requirement for board and system redesigns as a result, have caused project delays.

The two acquisitions considerably outperformed initial expectations contributing significantly to the overall Group result. The acquired businesses saw significant benefit from being part of the enlarged Group, driving considerable organic growth. Willow had an excellent year with like for like revenues increasing by 26% to £11.5m (2021: £9.1m). Similarly, Active Silicon saw like for like revenues increase 45% to £6.4m (2021: £4.4m), reflecting a strong recovery from the adverse impact of COVID-19 in the comparative period.

Gross profit

Reported gross margins of £27.5m (2021: £19.9m) are up £7.6m. There was an adverse impact of acquisition accounting charges in both years which have been excluded in the adjusted gross margins (see note 31).

Adjusted gross profit for the year is up £7.7m to £27.7m (2021: £20.0m). The Group's adjusted gross margin has increased to 32.6% (2021: 30.2%) reflecting increased margins in both Divisions, Components seeing a 2.5% increase and Systems a 3.5% increase.

In managing forex we look to mitigate the profit impact by quoting in currency of main supply when possible. The improvement in the reported margin percentage is in part driven by the dollar exchange rate movements as result of the Group benefitting from being largely naturally hedged against foreign exchange movements at a gross margin level.

The acquisitions of Active Silicon and Willow have improved the margins of their respective Divisions as they have a higher proportion of own brand manufactured products and components, which command stronger margins.

Components contributed adjusted gross margin of £14.0m (2021: £9.4m) and the Systems Division contributed £13.7m (2021: £10.6m).

Sales, general and administration expenses

Sales, general and administration ("SG&A") expenses increased to £23.8m (2021: £15.6m), with the acquisitions adding approximately £4.1m to base overheads. The increase is partially driven by a resumption of business activities such as travel, marketing, and events with the easing COVID-19 restrictions. In addition, in recognition of this record performance there was further investment in our team to attract new, and retain our existing, talent as we look to enhance our technical expertise and drive continued growth. Post COVID-19 there was no significant grant income in 2022 (2021: £0.3m).

Furthermore, there were non-recurring expenses within SG&A, being a £1.7m increase in the Active Silicon earn-out provision and £0.5m in relation to acquisition costs. Other exclusions from adjusted profit measures, consistent with previous years, include acquisition intangibles amortisation of £1.0m (2021: £0.7m) and the share-based payments charge of £0.3m (2021: £0.2m).

Adjusted SG&A expenses increased by £5.8m to £20.3m (2021: £14.5m) reflecting the addition of the acquisitions to base costs and the decision to resume spending on controllable costs which were restricted in the COVID-19 period.

Operating profit

Adjusted operating margins increased to 8.7% (2021: 8.3%) with adjusted operating profit up to £7.4m (2021: £5.5m) reflecting stronger margins and contribution from acquisitions. Reported operating profit was down 14% to £3.7m (2021: £4.3m) primarily because of the increase in acquisition related accounting charges. The adjustments to operating profit are set out in further detail in note 31.

We have recognised £0.01m (2021: £0.01m) within operating profit in respect of research and development expenditure credit ("RDEC") in addition to the tax credits recognised within the tax line, where we are eligible for the SME R&D tax scheme. These development programmes are a cornerstone of the Group's future high value add revenue streams.

Profit before tax

Adjusted profit before tax was up 33.2% to £7.2m (2021: £5.4m). Reported profit before tax was down 16.7% to £3.5m (2021: £4.2m). This is reported after a share-based payments charge of £0.3m (2021: £0.2m), amortisation of acquisition intangibles of £1.0m (2021: £0.7m) and non-recurring charges of £2.4m (2021: £0.3m). The £2.4m non recurring charges include a £1.7m increase in the deferred contingent consideration, £0.5m of transaction costs in relation to the planned acquisition of Custom Power and £0.2m of fair value acquisition accounting charges in relation to Willow.

Profit after tax

The Group benefits from the R&D tax credit scheme which reduces the underlying effective tax rate for the year to 14% (2021: 12%) from the standard rate of 19%. As the Group grows and profitability increases the benefit of R&D tax credits will diminish, furthermore once the Group exceeds the SME thresholds and is no longer eligible for the SME scheme, there will be a step up in effective tax rate as the SME scheme is much more generous that the large company scheme.

Adjusted profit after tax was up 30.1% to £6.2m (2021: £4.7m). Reported profit after tax was down 37.5% to £2.5m (2021: £4.0m), as we recognised the impact of the expected future tax rate change from 19% to 25%, and did not have the benefit of the non-recurring R&D tax credits recognised in 2021, in addition to the non-recurring charges as noted above.

EPS

Adjusted fully diluted earnings per share for the year ended 31 March 2022 is up 29.1% to 70.6p (2021: 54.7p). Reported fully diluted earnings per share is down 36.8% to 28.9p (2021: 45.7p).

Dividend

The Board is proposing a final dividend of 13.25p (2021: 10.75p), giving a full year dividend of 19.50p (2021: 16.0p) as set out in the Chairman's statement.

Cash flow from operations

Cash inflow from operations for the year of £6.0m is down from £6.9m in 2021, primarily due to our investment in inventories, resulting in a working capital outflow of £2.5m (2021: £0.4m inflow). This delivers an adjusted operating cash conversion percentage of 81% (2021: 127%) and a reported operating cash conversion percentage of 161% (2021: 162%).

The working capital cash outflow in the period of £2.5m is driven by an increase in receivables of £3.7m and inventories of £6.9m offset in part by an increase in payables of £8.1m. The increase in inventories reflects our strategic investment in product to support our significant increase in customer orders. The strength of customer and supplier relationships has helped us to manage the cash challenges of the working capital investment effectively. This investment to secure product has provided us with a competitive advantage and is critical in these times of shortages to ensure product is available to fulfil customer demand.

Investing activities

During the year, the Group invested £1.1m (2021: £0.4m) in property plant and equipment, and £0.6m (2021: £0.3m) in software and research & development intangibles. The Group's capital expenditure programme saw the installation of the new EMC test and measurement capability completed. In addition, investment in a wire bonder and improved battery test equipment will deliver a step change in technology for the Power business unit in Systems.

In the Components Division, there was investment into the Willow sites and further replacement of older vehicles with hybrid and electric models.

There are capital commitments of £0.3m (2021: £0.4m) at the balance sheet date, primarily relating to planned upgrades to existing IT systems.

During the year payments in respect of the acquisitions of Active Silicon and Willow totalled £2.6m (2021: £4.1m). Furthermore, at year end we have reassessed and increased the Active Silicon deferred contingent consideration by £1.7m to take the total to £6.6m (2021: £7.5m). A reconciliation of deferred contingent considerations is included in Note 21.

Financing activities

The Group has entered or extended leases during the year which has resulted in the recognition of £0.3m of additional right of use assets with a corresponding right of use liability, in accordance with IFRS16. Cash payments were made in the period in respect of lease liabilities of £0.9m (2021: £0.6m). Two properties were exited in the period, with Willow inventory moved to the Redditch location to rationalise activities.

The financing activities reflect a part repayment of the revolving credit facility (RCF) of £2.25m where the £3.75m drawdown in 2021 was used to fund the acquisition of Willow and Active Silicon at the end of the last year. Solid State continues to have a strong relationship with Lloyds Bank and Lloyds has extended the term of the £7.5m (2021: £7.5m) revolving credit facility which is now committed until 30 November 2023. At 31 March 2022 £1.5m of the facility was drawn.

The Group has deferred contingent consideration liabilities where, at 31 March 2022, the fair value has been estimated to be £6.6m, of which £4.6m was paid in Q1 2022/23. The Group utilised the RCF facility to fund the final £3.5m deferred consideration payment for Willow and initial £1.1m payment for Active Silicon. Subject to Active Silicon meeting the year two earn out performance target, it is expected that a final payment of approximately £2.0m will be payable in Q1 2023/24.

The Group paid out £1.5m (2021: £1.2m) in respect of dividends and purchase of own shares.

Statement of financial position

During the year, the Group has continued to strengthen its balance sheet position. The Group's net assets have increased to £27.1m (2021: £25.5m) reflecting the retained profits in the year. Excluding deferred contingent considerations and IFRS16 lease obligations, the Group had a net cash position of £1.4m at the year-end (2021: £3.2m) having paid a further £2.6m consideration for the acquisitions of Active Silicon and Willow.

As a result of the unprecedented supply chain challenges, the Group has increased the working capital investment in inventory by £6.9m. Securing the supply of critical components is essential to enable the delivery of customer demand in the next financial year. The Group has also paid suppliers on a proforma basis where required to secure inventory in short supply (now often on lead times of six months or more). We have worked in partnership with customers who have, in many cases, made payments in advance to secure supply, and this has been a critical part of managing working capital.

KPIs

In addition to the KPI information provided in the Chairman's Report and this Strategic Report, the Directors use several key performance indicators to manage the business, disclosed in the financial review. Non-financial KPIs are not disclosed other than in the environmental CO2e reporting.

Outlook

The recovery of sectors which were adversely impacted by COVID-19, such as oil & gas and commercial aviation, has progressed. Engineering work undertaken during the pandemic particularly in the Power business unit of the Systems Division is now converting to production orders. The Group continues to see demand in these core areas, whilst also developing its presence in new and emerging growth markets.

Two of the key technology areas where the Company expects to see significant growth in demand; are first in image capture, processing, and transmission, driven by increased adoption of industrial AI and the roll out of 5G; and secondly power control and switching driven by the need to reduce carbon emissions and development of the EV (Electric Vehicle) market. The Group's acquisitions of Willow and Active Silicon have enabled Solid State to strengthen its position in these sectors, with the opportunities to further penetrate these markets and so gain market share.

The Group has a strong and long established position in the security and defence sector. As a result of geo-political uncertainties this market is seeing significant investment in technology where the Group is well placed to deliver. Furthermore, the shift by prime contractors following the pandemic away from globalised supply chains to buying more of their vital electronics and services closer to home continues to be positive for Solid State.

On the 12 July 2022, Solid State PLC announced the planned acquisition of Custom Power, which is expected to be transformational for the Power business unit, providing a step change in the Group's power capabilities giving this business unit scale.

The Group is actively developing its pipeline of future acquisition opportunities albeit these are at an early stage. These opportunities are primarily focused on broadening the Group's product offering and further strengthening its international sales channels. The Company will remain agile, continuing to look to be opportunistic should a strategically aligned acquisition target arise.

Margin improvement, in conjunction with technology developments both from internal R&D and acquisitions across both Divisions has placed the Group in a strong position. The Group will remain focused on cross Group collaboration initiatives to drive organic growth. The technologies added through recent acquisitions further add scale and capability which the Group can provide to the enlarged customer base.

During the financial year Solid State has seen record order intake, increasing the open order book 107% to £85.5m at 31 March 2022 from £41.3m at 31 March 2021. Positively, post year-end the Group has continued to drive order intake increasing the open order book at 30 June 2022 to £92.0m up 7.6% from 31 March 2022. This provides confidence over customer demand for the coming year.

As Solid State looks forward to FY22/23, the continuing well-publicised supply chain issues within the electronics and particularly semiconductor sector mean the inconsistencies in the traditional supply and order fulfilment balance remain. The strength of the Group's balance sheet means it is better placed to manage the working capital demands than some of its smaller competitors, which is presenting new customer opportunities. Pleasingly, the collaboration with customers and suppliers to secure product which began in the late summer of 2020 is now delivering a strong start to sales this financial year.

The opportunities for significant growth across both Divisions are very exciting and the acquisition of Custom Power is expected to be an important catalyst enabling Solid State to deliver on its five year ambition of matching or exceeding the performance achieved over the preceding five years.

G S Marsh P O James

Chief Executive Officer Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2022


	Notes	2022 £'000	2021 £'000
Revenue	3, 30	84,997	66,281
Cost of sales		(57,470)	(46,362)
		_______	_______
Gross profit		27,527	19,919
Sales, general and administration expenses		(23,801)	(15,634)
		_______	_______
Operating profit	4	3,726	4,285
Finance expense	6	(226)	(85)
		_______	_______
Profit before taxation		3,500	4,200
Tax expense	7	(977)	(247)
		_______	_______
Adjusted profit after taxation		6,158	4,733
Adjustments to profit	31	(3,635)	(780)
Profit after taxation		2,523	3,953
		_______	_______
Profit attributable to equity holders of the parent		2,523	3,953
		_______	_______
Other comprehensive income	7	261	-
		_______	_______
Adjusted total comprehensive income		6,158	4,733
Adjustments to total comprehensive income	31	(3,374)	(780)
Total comprehensive income for the year		2,784	3,953
		_______	_______


Earnings per share		2022	2021
Basic EPS from profit for the year	8	29.5p	46.4p

Diluted EPS from profit for the year	8	28.9p	45.7p

Adjusted EPS measures are reported in note 8 to the accounts.

All results presented for the current and comparative period are generated from continuing operations.

The notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2022


	Share Capital £'000	Share Premium Reserve £'000	Foreign Exchange Reserve £'000	Capital Redemption Reserve £'000	Retained Earnings £'000	Shares held in Treasury £'000	Total Equity £'000
Balance at 31 March 2021	428	3,625	6	5	21,508	(70)	25,502

Total comprehensive income for the year ended 31 March 2022	-	-	-	-	2,784	-	2,784

Foreign exchange	-	-	27	-	-	-	27

Share based payment credit	-	-	-	-	295	-	295

Transactions with owners in their capacity as owners	-	-	-	-	-	-	-

Purchase of treasury shares	-	-	-	-	-	(80)	(80)

Transfer of treasury shares to AESP	-	-	-	-	(93)	93	-

Dividends	-	-	-	-	(1,453)	-	(1,453)

Rounding	-	-	-	-	1	-	1
	______	_______	_______	_______	_______	______	______

Balance at 31 March 2022	428	3,625	33	5	23,042	(57)	27,076
	______	_______	_______	_______	_______	______	______

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2022


	Share Capital £'000	Share Premium Reserve £'000	Foreign Exchange Reserve £'000	Capital Redemption Reserve £'000	Retained Earnings £'000	Shares held in Treasury £'000	Total Equity £'000
Balance at 31 March 2020	427	3,626	(7)	5	18,521	(43)	22,529

Total comprehensive income for the year ended 31 March 2021	-	-	-	-	3,953	-	3,953

Foreign exchange	-	-	13	-	-	-	13

Share based payment credit	-	-	-	-	171	-	171

Transactions with owners in their capacity as owners	-	-	-	-	-	-	-

Purchase of treasury shares	-	-	-	-	-	(95)	(95)

Transfer of treasury shares to AESP	-	-	-	-	(68)	68	-

Dividends	-	-	-	-	(1,069)	-	(1,069)

Shares issued	1	(1)	-	-	-	-	-
	______	_______	_______	_______	_______	______	______

Balance at 31 March 2021	428	3,625	6	5	21,508	(70)	25,502
	______	_______	_______	_______	_______	______	______

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 March 2022


		2022		2021
	Notes	£'000	£'000	£'000	£'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment	10	3,414		2,981
Right of use lease assets	11	1,983		2,476
Intangible assets	12	15,831		16,557
Deferred tax asset	23	539		-
		__________		__________
TOTAL NON-CURRENT ASSETS			21,767		22,014

CURRENT ASSETS
Inventories	15	17,598		10,629
Trade and other receivables	16	17,978		14,222
Deferred tax asset	23	-		188
Cash and cash equivalents	22	4,983		6,914
		____________,		____________
TOTAL CURRENT ASSETS			40,559		31,953
			___________		___________
TOTAL ASSETS			62,326		53,967
			___________		___________
LIABILITIES
CURRENT LIABILITIES
Trade and other payables	17	21,113		11,890
Contract liabilities	18	3,461		2,299
Current borrowings	19,21,22	2,059		-
Corporation tax liabilities		531		801
Right of use lease liabilities	20	758		741
		___________		___________
TOTAL CURRENT LIABILITIES			27,922		15,731

NON CURRENT LIABILITIES
Non current borrowings	19,21,22	1,500		3,750
Right of use lease liabilities	20	1,326		1,802
Provisions	24	694		741
Deferred tax liability	23	1,832		1,491
Deferred consideration on acquisitions	22	1,976		4,950
		___________		___________
TOTAL NON-CURRENT LIABILITIES			7,328		12,734
			____________		____________
TOTAL LIABILITIES			35,250		28,465
			____________		____________
NET ASSETS			27,076		25,502
			____________		____________
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share capital	25		428		428
Share premium reserve	26		3,625		3,625
Capital redemption reserve	26		5		5
Foreign exchange reserve	26		33		6
Retained earnings	26		23,042		21,508
Shares held in treasury	26, 27		(57)		(70)
			____________		____________
TOTAL EQUITY			27,076		25,502
			____________		____________

The financial statements were approved by the Board of Directors and authorised for issue on 27 July 2022 and were signed on its behalf by:

G S Marsh, Director P O James, Director

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2022


		2022		2021
	Notes	£'000	£'000	£'000	£'000
OPERATING ACTIVITIES
Profit before taxation			3,500		4,200
Adjustments for:
Property Plant and equipment depreciation			729		614
Right of use asset depreciation			763		497
Amortisation			1,327		978
Loss/(profit) on disposal of property, plant and equipment			3		(22)
Share based payment expense			295		171
Finance costs			226		85
Recognition of increase in deferred contingent consideration			1,651		-
			_______		_______
Profit from operations before changes in working capital and provisions			8,494		6,523
(Increase)/decrease in inventories		(6,922)		1,852
(Increase)/decrease in trade and other receivables		(3,679)		1,925
Increase/(decrease) in trade and other payables		8,140		(3,363)
Decrease in provisions		(47)		(7)
		_______		_______
			(2,508)		407
			_______		_______
Cash generated from operations			5,986		6,930
Income taxes paid		(941)		(432)
		_______		_______
			(941)		(432)
			_______		_______
Net cash inflow from operating activities			5,045		6,498

INVESTING ACTIVITIES
Purchase of property, plant and equipment		(1,178)		(356)
Capitalised own costs and purchase of intangible assets		(601)		(302)
Proceeds of sales from property, plant and equipment		81		77
Payments for acquisition of subsidiaries net of cash acquired	22	(2,572)		(4,119)
		_______		_______
Net cash outflow from investing activities			(4,270)		(4,700)

FINANCING ACTIVITIES
Repurchase of ordinary shares into treasury		(80)		(95)
Borrowings drawn	22	-		3,750
Borrowings repaid	22	(2,250)		(333)
Principal payment obligations for right of use assets		(871)		(575)
Interest paid	6	(127)		(37)
Dividend paid to equity shareholders		(1,453)		(1,069)
		_______		_______
Net cash (outflow)/inflow from financing activities			(4,781)		1,641
			_______		_______
(Decrease)/increase in cash and cash equivalents	22		(4,006)		3,439
			_______		_______

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2022 (continued)


	2022 £'000	2021 £'000
Translational foreign exchange on opening cash	16	(42)
Net (decrease)/increase in cash and cash equivalents	(4,006)	3,439
Cash and cash equivalents at beginning of year	6,914	3,517
	_______	_______

Cash and cash equivalents at end of year	2,924	6,914
	_______	_______

There were no significant non-cash transactions. Cash and cash equivalents comprise:


	2022 £'000	2021 £'000

Cash available on demand	5,045	6,914
Overdraft facility	(2,121)	-
	_______	_______

Net cash and cash equivalents	2,924	6,914
	_______	_______

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2022

1. ACCOUNTING POLICIES

Solid State PLC ("the Company") is a public company incorporated, domiciled and registered in England and Wales in the United Kingdom. The registered number is 00771335 and the registered address is: 2 Ravensbank Business Park, Hedera Road, Redditch, B98 9EY.

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented.

Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of International Accounting Standards in conformity with the requirements of the Companies Act 2006 and effective at 31 March 2021, this announcement does not itself contain sufficient information to comply with International Accounting Standards. The financial information set out in this preliminary announcement does not constitute the company's statutory financial statements for the years ended 31 March 2022 or 31 March 2021 but is derived from those financial statements.

The Group financial statements are presented in pounds sterling which is the functional and presentational currency of the Group and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.

Going concern

In assessing the going concern position of the Group for the Consolidated Financial Statements for the year ended 31 March 2022, the Directors have considered the Group's cash flows, liquidity and business activities.

At 31 March 2022, the Group had net cash at banks of £2.9m, an undrawn revolving credit facility (RCF) of £6.0m and a drawn RFF of £1.5m.

Based on the Group's forecasts, the Directors have adopted the going concern basis in preparing the Financial Statements. The Directors have made this assessment after consideration of the Group's cash flows and related assumptions and in accordance with the Guidance published by the UK Financial Reporting Council (Risk Management, Internal Control and Related Financial and Business Reporting 2014, the April 2016 guidance on Going concern basis of accounting and reporting on solvency and liquidity risks and the various guidance issued in 2020). This guidance provides support to Directors and Board in making the assessment of going concern.

In preparing the going concern assessment the Directors considered the principal risks and uncertainties that the business faced which have been disclosed. Four areas have been identified as potentially more significant: direct supply chain disruption limiting our ability to supply; indirect supply chain disruption delaying customer programmes and demand; rising inflation and a further COVID-19 outbreak causing operational disruption. The Board concluded that the three areas of risk which remained the most uncertain were the direct and indirect supply chain disruption risks in addition to inflation. The Directors have given careful consideration to the potential impact of on-going global electronic component shortages and rising inflation on the cashflows and liquidity of the Group over the next 12 month period.

Customer demand has remained solid and in the last financial year we have seen customers significantly extending order cover to help to manage the Global electronics supply chain issues. The most significant impact on the Group's future performance is the continued and worsening uncertainty arising from the extending electronic component lead times.

Management have taken all possible actions to minimise and mitigate the potential impact of this shortage, however the impact is expected to continue throughout 2022/23 and potentially into 2023/24. While the actions do not mitigate the risk fully it still positions the Group to manage the impact as effectively as possible as demonstrated historically over the last two trading years.

Given the post year end announcement of the intention to acquire Custom Power is subject to shareholder approval on the 29 July 2022, albeit the directors expect to receive shareholder support for the transaction, they have considered the going concern position of the Group under both scenarios, being the deal is rejected or approved.

The Directors have prepared revised "stressed" forecasts taking account of the results to date, current expected demand, and mitigating actions which could be taken, together with an assessment of the liquidity headroom against the cash and bank facilities. This includes the additional £13m term loan facilities provided by Lloyds bank to facilitate the acquisition of Custom Power and the equity fund raise (subject to shareholder approval).

The Board's evaluation of going concern was based on a minimum equity raise of £15m, therefore the additional shareholder support which has been announced post year end, with the equity fund raise expected to be in the region of £28.4m (subject to the take up of the open offer) significantly increases the funding headroom.

The bank facilities are subject to financial covenants requiring the business to be EBITDA positive therefore this facility is available to fund investment in working capital, capital investment or acquisition activities.

Should the business face such a significant downturn that it was loss making the facility would not be available to be drawn to fund additional losses without a covenant waiver or amendment. Therefore, in evaluating a stressed forecast model the Board only included the RCF in the headroom to the extent it is available within the covenants.

This financial modelling is based on applying various sensitivity scenarios to a base case to 30 September 2023 which has been prepared based on an extension of the budget for FY22/23.

In the period since the year end the rolling 12 month order intake remains strong, maintaining a book to bill ratio of 1.38, and reflects a continued improvement in order cover which does help to manage extending component lead times.

In preparing a severe downside scenario with no overhead mitigation, it assumes a shortfall in Group revenue of ~13% over 12 months period and a 2% margin erosion with limited cost mitigation. This results in EBITDA reducing by ~48% compared to the Board's base case expectations. Even with this level of Group EBITDA reductions, when combined with the mitigating actions that are within the Group's control, the Directors currently believe the Group would retain a reasonable cash surplus, comply with covenants and thus maintaining sufficient liquidity to meet its liabilities as they fall due.

In considering the assessment of the Group's going concern position the Directors have also identified that the Group could look to both the Group's bankers and or the equity markets if additional liquidity were required. Albeit none of the sensitivities indicate that the Group would require additional sources of liquidity.

In the post balance sheet period, the Group has continued to build up the inventory level to ensure customer demand can be met. In addition, the £4.6m short term deferred consideration on acquisitions was settled in Q1, partially utilising the RCF. The Group continues to focus on obtaining advanced customer deposits to manage the working capital investment required to secure long lead time / short supply components.

The Directors have concluded that the potential impact of the electronic component shortages and rising inflation as described above does not represent a material uncertainty over the Group and Company's ability to continue as a going concern. Nevertheless, it is acknowledged that there are potentially material variations in the forecasted level of financial performance for the coming year.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next 12 months, therefore it is appropriate to adopt a going concern basis for the preparation of the Financial Statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group and Company were unable to continue as a going concern.

Changes in accounting policy and disclosures

New standards, amendments and interpretations adopted in the year.

The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial year beginning on the 1 April 2021:

· Amendments to references to the Conceptual framework in IFRS Standards.

· Amendments to IFRS 9, IAS 39, IFRS 7: - Interest rate benchmark reform.

The adoption of these standards and amendments has not had a material impact on the financial statements.

New standards, amendments and interpretations to published standards issued but not yet effective and not early adopted

A number of new standards, amendments and interpretations to existing standards have been published that will be mandatory for the Group's accounting periods beginning on or after 1 April 2022 or later periods and which the Group has decided not to adopt early are listed below. The Group intends to adopt these standards when they become effective.

· Amendments to IAS 1 and IFRS Practice Statement 2, regarding the classification of liabilities and disclosure of accounting policies, effective for annual reporting periods beginning on or after 1 January 2023.

· Amendments to IAS 8 regarding the definition of accounting estimates, effective for annual reporting periods beginning on or after 1 January 2023.

· Amendments to IAS 12 regarding deferred tax on leases and decommissioning obligations, effective for annual reporting periods beginning on or after 1 January 2023.

· Amendments to IAS 16 regarding deductions from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use, effective for annual reporting periods beginning on or after 1 January 2022.

· Amendments to IAS 37 regarding the costs to include when assessing whether a contract is onerous, effective for annual reporting periods beginning on or after 1 January 2022.

· Amendments to references to the Conceptual framework in IFRS Standards.

The Directors anticipate that none of the new standards, amendments to standards and interpretations will have a significant effect on the financial statements of the Group.

Principle of consolidation

The consolidated financial statements incorporate the financial results and position of the Parent and its subsidiaries.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of financial position respectively.

Business combinations

The purchase method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. Acquisition-related costs are expensed as incurred.

The consideration transferred for the acquisition of a subsidiary comprises the: fair values of the assets transferred; liabilities incurred to the former owners of the acquired business; equity interests issued by the Group; fair value of any asset or liability resulting from a contingent consideration arrangement; and fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.

The excess of the: consideration transferred; amount of any non-controlling interest in the acquired entity; and acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired, is recorded as goodwill.

If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

Impairment of non-financial assets

Non financial assets that have an indefinite useful life (e.g. Goodwill) or other intangible assets which are not ready to use and therefore not subject to amortisation (e.g. ongoing incomplete R&D programmes) are reviewed at least annually for impairment.

Impairment tests on goodwill are undertaken annually on 31 March, and on other non-financial assets whenever events or changes in circumstances indicate that their carrying value may not be reasonable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Impairment charges are included in sales, general and administration expenses in the consolidated statement of comprehensive income, except to the extent that they reverse gains previously recognised in the consolidated statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed.

Intangible Assets

a) Goodwill

Goodwill arising on an acquisition is recognised as an asset and initially measured at cost, being the excess of the fair value of the consideration over the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised. However, it is reviewed for potential impairment at least annually or more frequently if events or circumstances indicate a potential impairment. For the purpose of impairment testing, goodwill is allocated to each of the Cash Generating Units to which is relates. Any impairment identified is charged directly to consolidated statement of comprehensive income. Subsequent reversals of impairment losses for goodwill are not recognised.

b) Development costs

Expenditure incurred that is directly attributable to the development of new or substantially improved products or processes is recognised as an intangible asset when the following criteria are met:

· the product or process is intended for use or sale;

· the development is technically feasible to complete;

· there is an ability to use or sell the product or process;

· it can be demonstrated how the product or process will generate probable future economic benefits;

· there are adequate technical, financial and other resources to complete the development; and

· the development expenditure can be reliably measured.

Directly attributable costs refers to the materials consumed; the directly attributable labour; and the incremental overheads incurred in the development activity. General operating costs, administration costs and selling costs do not form part of directly attributable costs.

All research and other development costs are expensed as incurred.

Capitalised development costs are amortised on a straight line basis over the period, during which the economic benefits are expected to be received, which typically range between 1 and 5 years. Amortisation expense is included within sales, general and administration expenses in the statement of comprehensive income.

The estimated remaining useful lives of development costs are reviewed at least on an annual basis. Amortisation commences once the project is completed and revenues are being generated.

The carrying value of capitalised development costs is reviewed for potential impairment at least annually, or more frequently if events or circumstances indicate a potential impairment. Any impairment identified is immediately charged to the consolidated statement of comprehensive income.

c) Software

Externally acquired software assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Cost includes all directly attributable costs of acquisition. In addition, directly attributable costs incurred in the development of bespoke software for the Group's own use are capitalised.

The useful economic life over which the software is being amortised has been assessed to be 3 to 5 years.

The carrying value of capitalised software costs is reviewed for potential impairment at least annually, or more frequently if events or circumstances indicate a potential impairment. Any impairment identified is immediately charged to the consolidated statement of comprehensive income.

The costs of maintaining internally developed software, and annual licence fees to utilise third party software, are expensed as incurred.

d) Other intangibles

Other intangible assets are those which arise on business combinations in accordance with IFRS 3 revised. These intangible assets form part of the identifiable net assets of an acquired business and are recognised at their fair value and amortised on a systematic basis over their useful economic life which is typically 5 to 10 years. This includes customer relationships, the fair value of which has been evaluated using the multi period excess earnings method "MEEM".

The MEEM model valuation was cross checked to the cost of product development and customer qualification to which the relationships relate.

Capitalised acquisition intangibles are amortised on a straight line basis over the period, during which the economic benefits are expected to be received, which typically range between 5 and 10 years. Amortisation expense is included within sales, general and administration expenses in the statement of comprehensive income.

The carrying value of other intangible assets is reviewed for potential impairment at least annually, or more frequently if events or circumstances indicate a potential impairment. Any impairment identified is immediately charged to the consolidated statement of comprehensive income.

Property, plant and equipment

Property, plant and equipment is stated at historical cost or deemed cost where IFRS 1 exemptions have been applied, less accumulated depreciation and any recognised impairment losses.

Costs include the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use including any qualifying finance expenses.

Depreciation is provided on all items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates:

· Short leasehold property improvements- straight line over minimum life of lease

· Fittings and equipment- 25% per annum on a reducing balance basis or a straight line basis over 3 to 5 years with an appropriate residual value as considered most appropriate

· Computers- between 20% and 33.3% per annum on a straight-line basis

· Motor vehicles- 25% per annum on a reducing balance basis

The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated net realisable value. Gains and losses on disposal are determined by comparing proceeds with carrying amounts. These are included in the consolidated statement of comprehensive income.

Leases

IFRS 16 "Leases" addresses the definition of a lease, the recognition and measurement of leases and establishes the principles for the reporting useful information to users of the financial statements about the leasing activities of both lessees and lessors.

The Group has applied judgement to determine the lease term for some lease contracts in which as lessee there includes a renewal option. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognised.

The lease liability reflects the present value of the future rental payments and interest, discounted using either the effective interest rate or the incremental borrowing rate of the entity.

Payments associated with short-term leases and leases of low value assets are recognised on a straight-line basis over the lease term as an expense within the income statement.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are related to the property leases, plant and machinery and motor vehicles and are depreciated on a straight-line basis over the lease term.

Right of use lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include lease payments less any lease incentives receivable. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments).

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on either average purchase cost or the cost of purchase on a first in, first out basis which is the most appropriate for the category of inventory. Work in progress and finished goods include labour and attributable overheads. Net realisable value is based on estimated selling price less any additional costs to completion and disposal.

Financial Instruments

Classification and measurement of financial instruments under IFRS9 classifies financial assets as either held at amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss, dependent on the business model and cash flow characteristics of the financial instrument.

Financial assets and financial liabilities are recognised when the company becomes party to the contractual provisions of the instrument.

Trade and other receivables

Trade receivables are initially measured at their transaction price. Other receivables are initially recognised at fair value plus transaction costs.

Receivables are held to collect the contractual cash flows which are solely payments of principal and interest. Therefore, these receivables are subsequently measured at amortised cost using the effective interest rate method.

The effect of discounting on these financial instruments is not considered to be material.

Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing securities with maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Impairment of financial assets

IFRS 9 requires an expected credit loss ('ECL') model which broadens the information that an entity is required to consider when determining its expectations of impairment. Under this new model, expectations of future events must be taken into account and this will result in the earlier recognition of potential impairments.

An impairment loss is recognised for the expected credit losses on financial assets when there is an increased probability that the counterparty will be unable to settle an instrument's contractual cash flows on the contractual due dates, a reduction in the amounts expected to be recovered, or both.

The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward-looking information that is available without undue cost or effort. The expected credit loss is a probability-weighted amount determined from a range of outcomes and takes into account the time value of money.

Impairment of trade receivables

For trade receivables, expected credit losses are measured by applying an expected loss rate to the gross carrying amount. The expected loss rate comprises the risk of a default occurring and the expected cash flows on default based on the aging of the receivable.

The risk of a default occurring always takes into consideration all possible default events over the expected life of those receivables ("the lifetime expected credit losses"). Different provision rates and periods are used based on groupings of historic credit loss experience by product type, customer type and location.

Impairment of other receivables

The measurement of impairment losses depends on whether the financial asset is 'performing', 'underperforming' or 'non-performing' based on the company's assessment of increases in the credit risk of the financial asset since its initial recognition and any events that have occurred before the year-end which have a detrimental impact on cash flows.

The financial asset moves from 'performing' to 'underperforming' when the increase in credit risk since initial recognition becomes significant.

In assessing whether credit risk has increased significantly, the company compares the risk of default at the year-end with the risk of a default when the investment was originally recognised using reasonable and supportable past and forward-looking information that is available without undue cost.

The risk of a default occurring takes into consideration default events that are possible within 12 months of the year-end ("the 12-month expected credit losses") for 'performing' financial assets, and all possible default events over the expected life of those receivables ("the lifetime expected credit losses") for 'underperforming' financial assets.

Impairment losses and any subsequent reversals of impairment losses are adjusted against the carrying amount of the receivable and are recognised in profit or loss.

Financial Liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Financial liabilities are classified as either:

· Financial liabilities at amortised cost; or

· Financial liabilities as at fair value through profit or loss (FVTPL).

All financial liabilities are measured at amortised cost and include:

· Trade and other payables

· Contract liabilities

· Borrowings

· Lease liabilities

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.

Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

They are initially recognised at fair value net of direct transaction costs and subsequently held at amortised cost.

Contract liabilities

Contract liabilities comprise payments in advance of revenue recognition and revenue deferred due to contract performance obligation not being completed.

They are classified as current liabilities if the contract performance obligations payment are due to be completed within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as noncurrent liabilities.

Contract liabilities are recognised initially at fair value, and subsequently stated at amortised cost.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred and subsequently stated at amortised cost. Borrowing costs are expensed using the effective interest method.

Equity instruments and Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Treasury Shares

Where any Group company purchases the Parent Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of.

These shares are held in a separate negative reserve in the capital section of the consolidated statement of financial position. Any dividends payable in relation to these shares are cancelled.

Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.

Dividends

Equity dividends are recognised when they become legally payable. Interim dividends are recognised when paid. Final dividends are recognised when approved by the shareholders at an annual general meeting.

Adjusted performance metrics and non-recurring charges / credits

Nonrecurring charges / credits are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. Transactions are classified as non-recurring where they relate to an event that falls outside of the ordinary activities of the business and where individually or in aggregate, they have a material impact on the financial statements.

In presenting our adjusted performance metrics we also exclude the non-cash charges/credits that relates to acquisition accounting and share based payments and the associated tax effect of these items.

Foreign currency

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are retranslated at the rates ruling at the balance sheet date. Exchange differences arising are recognised in the statement of comprehensive income.

Revenue

The Group manufactures and distributes a range of electronic equipment. Revenue comprises sales to external customers after discounts, excluding value added taxes.

The Group's performance obligations with respect to physical goods is to deliver a finished product to a customer.

Revenue is recognised when control of the products has transferred, being when the products are delivered to the customer, the customer has full control over the products supplied, and there is no unfulfilled obligation that could affect the customer's acceptance of the products.

Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

Where performance obligations have not be satisfied at the reporting date any advanced payments are recognised as contract liabilities.

For goods that are subject to bill and hold arrangements this means:

• the goods are complete and ready for collection;

• the goods are separately identified from the Group's other stock and are not used to fulfil any other orders;

• and the customer has specifically requested that the goods be held pending collection.

Normal payment terms apply to the bill and hold arrangements.

Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.

No element of financing is deemed present as the sales are made with a credit term of 30 to 90 days, which is consistent with market practice. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

The Group's obligation to provide a refund for faulty products under the standard warranty terms is recognised as a returns provision. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors, who are responsible for allocating resources and assessing performance of the operating segments.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments.

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

The Executive Directors assess the performance of the operating segments based on the measures of revenue, Profit Before Taxation (PBT) and Profit After Taxation (PAT). Central overheads are not allocated to the business segments.

Government Grants

Income received from government grants is recognised as 'Other Income' within operating profit in the Statement of Comprehensive Income in the same period as the staff costs to which the income relates. Government grant income is only recognised once there is reasonable assurance both that the Group will comply with any conditions and that the grant will be received. The Group utilised the UK Government's Coronavirus Job Retention Scheme, 'furlough scheme', during the COVID-19 pandemic.

Pensions

The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the contributions payable by the Group.

Current and deferred taxation

Income tax on the profit or loss for the year comprises current and deferred tax.

Taxable profit differs from accounting profit because it excludes certain items of income and expense that are recognised in the financial statements but are treated differently for tax purposes. Current tax is the amount of tax expected to be payable or receivable on the taxable profit or loss for the current period. This amount is then amended for any adjustments in respect of prior periods.

Current tax is calculated using tax rates that have been written into law ('enacted') or irrevocably announced/committed by the respective Government ('substantively enacted') at the period-end date. Current tax receivable (assets) and payable (liabilities) are offset only when there is a legal right to settle them net and the entity intends to do so. This is generally true when the taxes are levied by the same tax authority.

Because of the differences between accounting and taxable profits and losses reported in each period, temporary differences arise on the amount certain assets and liabilities are carried at for accounting purposes and their respective tax values. Deferred tax is the amount of tax payable or recoverable on these temporary differences.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on:

· the initial recognition of goodwill

· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit: and

· investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the differences can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities, and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

Share based payment

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group's accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong.

Acquisition accounting

In accounting for the Active Silicon acquisition in accordance with IFRS 3 the key judgement relates to the fair value of the deferred contingent consideration at the balance sheet date. The 25 month deferred contingent consideration was originally recognised in the comparative period at a total of £1.45m based the budgeted and forecast profit after tax expectations.

The Active Silicon acquisition outperformed the current year budget expectation by 220% after achieving all-time record company revenues and resulting profits for the financial year. The shift from initial assumptions was driven by customer demand and order placement not only recovering post COVID-19 but achieving unprecedented levels, despite component shortages. Subsequent to year end, a cash payment of £1.13m was settled in relation to the first 13 month tranche of deferred consideration.

Based on the Active Silicon open orderbook, the performance to date in Q1 and management expectations for the full 2023 financial year, the total carrying value of the deferred contingent consideration has been increased by £1.65m to £3.1m. The key assumption for 2023 is the expected revenue based on existing and expected customer orders. Should the post-tax profit metric be 10% higher than assumed, the deferred contingent consideration will also increase by 10%. The increase has been expensed to the income statement and treated as a non-recurring adjustment to profit (as per Note 31).

The revised deferred consideration balance is considered prudent and reasonable by the Directors based on forecasts calculated on the information currently available. This is a judgemental estimate based on performance and key market changes, including component shortages and macro-economic factors, may result a difference between the estimation and final payment.

Expected credit losses

In accordance with IFRS 9 the Group is required to assess the expected credit loss occurring over the life of its trade receivables. As a result of the continued component shortages and rising inflation across the globe the Directors expect that the risk of credit default continues to be higher than historical norms. However, the COVID-19 business disruption risk has reduced.

As a result, the Directors have made a judgemental assessment of the potential credit losses in the current business environment. In these financial statements the Directors have provided full disclosures of the provisions for credit default in note 21.

The calculation of the provision based on the Directors judgemental assessment of expected credit loss reflects no change to the overall figure from 2021 of £0.65m.

Recognition criteria for capitalisation of development expenditure

The Group capitalises R&D in accordance with IAS 38. There is judgement in respect of when R&D projects meet the requirement for capitalisation, which internal costs are directly attributable and therefore appropriate to capitalise and when the development programme is complete, and capitalisation should cease.

Amounts capitalised include the total cost of any external products or services and labour costs directly attributable to the development programme. Management judgement is involved in determining the appropriate internal costs to capitalise and the amounts involved.

If there is any uncertainty in terms of the technical feasibility, ability to sell the product or any other risk that means the programme does not meet the requirements of the standard the R&D costs are expensed within the consolidated statement of comprehensive income.

Estimated useful life of research and development and intangible assets arising on acquisitions

The periods of amortisation adopted to write down capitalised product and process development requires estimates to be made in respect of the useful economic lives of the intangible assets to determine an appropriate amortisation rate.

Capitalised development costs are amortised over the period during which economic benefits are expected to be received which is typically 1 - 5 years. Intangible assets arising on acquisitions are amortised straight line over the period during which economic benefits are expected to be received which is typically 5 - 10 years.

The amortisation charge for capitalised development costs in the current year is £250k; if the lives were reduced by one year across all the projects which are being amortised the charge would increase by circa £100k.

The amortisation charge for intangible assets arising on acquisitions in the 2021 comparative year is £772k; if the lives were reduced by one year the charge would increase by £129k.

Estimation of level of R&D expenditure which is eligible for R&D tax credits under the SME and large company scheme.

Uncertainties exist in relation to the interpretation of complex tax legislation, changes in tax laws and the amount and timing of future taxable income. This could necessitate future adjustments to taxable income and expense already recorded.

At the year-end date, tax liabilities and assets reflect management's judgements in respect of the application of the tax regulations, in particular the R&D tax.

In assessing our year-end corporation tax liability, we have made a provisional assessment as to the likely amount of development expenditure that will be eligible under each of the HMRCs large company and SME R&D tax credit schemes as the detailed tax computations have not been completed.

Our judgement at year end assumed that the level of eligible spend was comparable with prior years. At 31 March 2022 there are net current and deferred tax provisions totalling approximately £1.8m (2021: £2.1m).

Due to the uncertainties noted above, it is possible that the Group's initial estimates are different to the final position adopted when the tax computation is finalised, resulting in a different tax payable or recoverable from the amounts provided.

Provisions for slow moving or obsolete inventories

Inventories are carried at the lower of cost and net realisable value (NRV). NRV is reviewed in detail on an on-going basis and provision for obsolete inventory is made based on several factors including age of inventories, the risk of technical obsolescence, the risk that customers default on customised product and the expected future usage.

This estimate is considered highly judgemental given the deliberate investment in inventory during the financial year to mitigate the challenge presented by market component shortages. An element of working capital risk can be mitigated with receiving advance customer deposits, however there remains a risk of default and order cancellation.

Differences between such estimates and actual market conditions may have a material impact on the amount of the carrying value of inventories and may result in adjustments to cost of sales. See note 15 for details of the inventory provisions and the amounts written off to the consolidated statement of comprehensive income in the year.

3. REVENUE

The Group derives revenue from the transfer of goods at a point in time in the following major product lines and geographical regions:


	2022 £'000	2021 £'000

United Kingdom	53,030	46,301
Rest of Europe	15,726	7,349
Asia	6,542	3,342
North America	9,175	9,148
Rest of World	524	141
	_______	_______

Total revenue	84,997	66,281
	_______	_______


	2022 £'000	2021 £'000

Computing products	16,103	10,643
Communications products	7,745	5,678
Power products	8,681	10,978
Opto electronic and electronic components and modules	52,468	38,982
	_______	_______

Total revenue	84,997	66,281
	_______	_______

See further segmental disclosures in note 30.

4. PROFIT FROM OPERATIONS

This has been arrived at after charging/(crediting):


	2022 £'000	2021 £'000

Staff costs excluding share based payments (see note 5)	16,562	11,656
Share based payment expenses	295	171
Depreciation of property, plant and equipment	729	614
Depreciation of right of use asset	763	497
Amortisation of intangible assets	1,327	978
Loss/(profit) on disposal of property, plant and equipment	3	(26)
Auditors' remuneration:
Audit fees	120	123
Other assurance fees	-	-
Non audit fees:
Corporate finance services	-	48
Other advisory services	6	3
Research and development costs (includes relevant staff costs)	2,044	1,664
Foreign exchange (credit)/expense	(33)	564
Stock write downs/(backs)	59	(5)
Acquisition of subsidiaries legal and due diligence *	533	194
Other Income from government grants **	(2)	(297)
	_______	_______

* 2022 relates to the post year end planned acquisition of Custom Power. 2021 includes the £48k corporate finance fees from the Group auditors as disclosed and £155k from other professional services firms.

** Furlough scheme in 2021

The foreign exchange differences have been treated as an adjustment to cost of sales rather than as an overhead as they arise from sales income and cost of sales expenditures.

Details of transactions with businesses associated with the Directors are included within the Remuneration Committee report.

5. STAFF COSTS

Staff costs for all employees during the year, including the Executive Directors, were as follows:


	2022 £'000	2021 £'000

Wages and salaries	13,985	9,751
Social security costs	1,377	1,012
Pension costs	1,200	893
Share based payment charges	295	171
	_______	_______

Total staff costs	16,857	11,827
	_______	_______

Wages and salaries include termination costs of £56k (2021: £69k).

The average monthly number of employees during the year, including the Executive Directors, was as follows:


	2022 Number	2021 Number

Selling and distribution	134	112
Manufacturing and assembly	110	103
Management and administration	59	30
	_______	_______

	303	245
	_______	_______

In the previous year a formalised senior management team was formed and included with the Company Share Option Plan. As the Group continues to grow, we continue to invest in and develop the senior leadership team which are considered to be key management. This senior management team, which includes executive Directors. The key management team and their total compensation, including employers NI, totals £3,857k (2021: £2,981k).

6. FINANCE EXPENSE


	2022 £'000	2021 £'000

Bank borrowings	127	37
Interest on lease liabilities	99	48
	______	______

Total finance expense	226	85
	______	______

7. TAX EXPENSE


	2022 £'000	2021 £'000
Analysis of total tax expense
Total tax charge	716	247
	_______	_______

	716	247
	______	______
Current tax expense
Group corporation tax on profits for the year	735	610
Adjustment in respect of prior periods	(8)	(182)
	_______	_______
	727	428
Deferred tax expense/(credit) charged to income statement	250	(181)
	______	______
Total tax charge to income statement	977	247

Deferred tax (credit)/expense charged to other comprehensive income	(261)	-
	______	______

Total tax charge to comprehensive income	716	247
	______	______

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows:


	2022 £'000	2021 £'000
Profit before tax	3,500	4,200
	_______	_______
Expected tax charge based on the standard rate of corporation tax in the UK of 19% (2021: 19%)	665	798
Effect of:
Expenses not deductible for tax purposes	443	20
Difference between depreciation/amortisation for the year and capital allowances	(60)	(3)
Tax relief on exercise of share options exercised	-	(11)
Enhanced relief on research and development expenditure	(483)	(366)
Overseas tax rate differences	8	3
Deferred tax asset recognised	(226)	(10)
Change in rate in respect of deferred tax recognition	343	-
Adjustments in respect of prior years	(9)	(182)
Foreign exchange	35	(2)
	_______	_______

Total tax charge	716	247
	_______	_______

The UK corporation tax rate is 19% (effective from 1 April 2017). Amendments were substantively enacted on 24 May 2021, so the rate of UK corporation tax will rise to 25% from 1 April 2023. The deferred tax liabilities on 31 March 2022 have been calculated based on this revised 25% rate. This change was not substantively enacted at the March 2021 balance sheet date and the deferred tax comparatives were calculated at the existing 19% rate.

R&D tax credits

The Group recognised a credit of £10k (2021: £10k) within operating profit in relation to claims made under the Research and Development expenditure credit scheme (RDEC). There were also claims made under the SME scheme which are recognised within the tax expense.

8. EARNINGS PER SHARE

The earnings per share is based on the following:


	2022 £'000	2021 £'000
Adjusted earnings post tax	6,158	4,733
Reported earnings post tax	2,523	3,953

Weighted average number of shares	8,551,455	8,524,883
Diluted number of shares	8,728,268	8,650,237

Reported EPS
Basic EPS from profit for the year	29.5p	46.4p

Diluted EPS from profit for the year	28.9p	45.7p

Adjusted EPS
Adjusted Basic EPS from profit for the year	72.0p	55.5p

Adjusted Diluted EPS from profit for the year	70.6p	54.7p

Earnings per ordinary share has been calculated using the weighted average number of shares in issue during the year. The weighted average number of equity shares in issue was 8,551,455 (2021: 8,524,883) net of the treasury shares disclosed in note 27.

The diluted earnings per share is based on 8,728,268 (2021: 8,650,237) ordinary shares which allow for the exercise of all dilutive potential ordinary shares.

The adjustments to profit made in calculating the adjusted earnings are set out in note 31.

9. DIVIDENDS


	2022 £'000	2021 £'000

Prior year final dividend paid of 10.75p per share (2021: 7.25p)	920	620
Current year interim dividend paid of 6.25p per share (2021: 5.25p)	535	450
Cancelled dividends on shares held in treasury	(2)	(1)
	_______	_______

	1,453	1,069
	_______	_______

Final dividend proposed for the year 13.25p per share (2021: 10.75p)	1,134	919
	_______	_______

The proposed final dividend has not been accrued for as the dividend will be approved by the shareholders at the annual general meeting.

10. PROPERTY, PLANT AND EQUIPMENT


Year ended 31 March 2022	Land and Buildings £'000	Short leasehold property improvements £'000	Motor vehicles £'000	Fittings, equipment and computers £'000	Total £'000
Cost
1 April 2021	446	1,951	678	3,570	6,645
Additions	-	121	302	755	1,178
Disposals	-	(98)	(207)	(158)	(463)
Foreign Exchange	20	2	-	2	24
	_______	_______	_______	_______	_______
31 March 2022	466	1,976	773	4,169	7,384
	_______	_______	_______	_______	_______
Depreciation and impairment
1 April 2021	-	896	371	2,397	3,664
Charge for the year	-	189	103	437	729
On disposals	-	(98)	(166)	(160)	(424)
Foreign Exchange	-	-	-	1	1
	_______	_______	_______	_______	_______
31 March 2022	-	987	308	2,675	3,970
	_______	_______	_______	_______	_______
Net book value
31 March 2022	466	989	465	1,494	3,414
	_______	_______	_______	_______	_______


Year ended 31 March 2021	Land and Buildings £'000	Short leasehold property improvements £'000	Motor vehicles £'000	Fittings, equipment and computers £'000	Total £'000
Cost
1 April 2020	-	1,518	847	3,142	5,507
Acquisitions	446	31	-	126	603
Additions	-	402	51	303	756
Disposals	-	-	(220)	-	(220)
Foreign Exchange	-	-	-	(1)	(1)
	_______	_______	_______	_______	_______
31 March 2021	446	1,951	678	3,570	6,645
	_______	_______	_______	_______	_______
Depreciation and impairment
1 April 2020	-	727	440	2,054	3,221
Charge for the year	-	169	100	345	614
On disposals	-	-	(169)	-	(169)
Foreign Exchange	-	-	-	(2)	(2)
	_______	_______	_______	_______	_______
31 March 2021	-	896	371	2,397	3,664
	_______	_______	_______	_______	_______
Net book value
31 March 2021	446	1,055	307	1,173	2,981
	_______	_______	_______	_______	_______

There are capital commitments of £303k (2021: £371k) at the balance sheet date.

11. RIGHT OF USE ASSETS


Year ended 31 March 2022	Land and buildings £'000	Motor vehicles/ other £'000	Total £'000
Cost
1 April 2021	3,604	188	3,792
Additions	285	28	313
Disposals	(69)	(3)	(72)
	_______	_______	_______
31 March 2022	3,820	213	4,033
	_______	_______	_______
Depreciation
1 April 2021	1,263	53	1,316
Charge for the year	701	62	763
Disposals	(27)	(2)	(29)
	_______	_______	_______
31 March 2022	1,937	113	2,050
	_______	_______	_______
Net book value
31 March 2022	1,883	100	1,983
	_______	_______	_______


Year ended 31 March 2021	Land and buildings £'000	Motor vehicles/ other £'000	Total £'000
Cost
1 April 2020	1,894	120	2,014
Additions	1,124	72	1,196
Acquisition additions	726	-	726
Disposals	(140)	(4)	(144)
	_______	_______	_______
31 March 2021	3,604	188	3,792
	_______	_______	_______
Depreciation
1 April 2020	944	15	959
Charge for the year	459	38	497
Disposals	(140)	-	(140)
	_______	_______	_______
31 March 2021	1,263	53	1,316
	_______	_______	_______
Net book value
31 March 2021	2,341	135	2,476
	_______	_______	_______

The total depreciation expense of £763k (2021: £497k) has been charged to operating expenses.

12. INTANGIBLE ASSETS


Year ended 31 March 2022	Development Costs £'000	Computer Software £'000	Goodwill on Consolidation £'000	Acquisition Intangible Assets £'000	Total £'000

Cost
1 April 2021	1,433	473	9,898	8,781	20,585
Additions	350	251	-	-	601
Acquisitions (note 31)	-	-	-	-	-
	_______	_______	_______	_______	_______
31 March 2022	1,783	724	9,898	8,781	21,186
	_______	_______	_______	_______	_______
Amortisation
1 April 2021	1,333	350	-	2,345	4,028
Charge for the year	250	49	-	1,028	1,327
	_______	_______	_______	_______	_______
31 March 2022	1,583	399	-	3,373	5,355
	_______	_______	_______	_______	_______
Net book value
31 March 2022	200	325	9,898	5,408	15,831
	_______	_______	_______	_______	_______

The cost of acquisition intangible assets comprises the estimated net present value of customer relationships identified on acquisitions. The development costs relate to the cost of developing new products and technology to enable the company to extend its operations into new growth areas. Any assets developed that are no longer deemed to meet the recognition criteria of development costs have been written down.


Year ended 31 March 2022 - Acquisition intangible assets	Cost £'000	Net book value £'000
Systems Division commercial relationships	2,075	1,205
Components Division commercial relationships	6,706	4,203
	_______	_______

Total	8,781	5,408
	_______	_______

A decision was taken to accelerate the amortisation of intangible assets related to the 2013 acquisition of '2001' commercial relationships within the Components division from 10 years to 7 years based on a reassessment of the UEL of that asset in the year ended 31 March 2021. This was an additional charge of £264k to comprehensive income in 2021 and took the net book value to nil.


Year ended 31 March 2021	Development Costs £'000	Computer Software £'000	Goodwill on Consolidation £'000	Acquisition Intangible Assets £'000	Total £'000

Cost
1 April 2020	1,183	402	6,300	3,378	11,263
Additions	250	52	-	-	302
Acquisitions	-	19	3,598	5,403	9,020
	_______	_______	_______	_______	_______
31 March 2021	1,433	473	9,898	8,781	20,585
	_______	_______	_______	_______	_______
Amortisation
1 April 2020	1,083	302	-	1,665	3,050
Charge for the year	250	48	-	680	978
	_______	_______	_______	_______	_______
31 March 2021	1,333	350	-	2,345	4,028
	_______	_______	_______	_______	_______
Net book value
31 March 2021	100	123	9,898	6,436	16,557
	_______	_______	_______	_______	_______


Year ended 31 March 2021 - Acquisition intangible assets	Cost £'000	Net book value £'000
Systems Division commercial relationships	2,075	1,426
Components division commercial relationships	6,706	5,010
	_______	_______

Total	8,781	6,436
	_______	_______

13. GOODWILL AND IMPAIRMENT

Details of the carrying amount of goodwill allocated to cash generating units (CGUs) are as follows:


Goodwill carrying amount	2022 £'000	2021 £'000

Systems Division	3,946	3,946
Components division	5,952	5,952
	_______	_______

Total	9,898	9,898
	_______	_______

The recoverable amounts of all the above CGUs have been determined from a review of the current and anticipated performance of these units. In preparing the projection, a pre tax discount rate of 10% (2021: 10%) has been used based on the Group's estimated weighted average cost of capital.

A future growth and terminal growth rate of 2.5% (2021: 2.5%) has been assumed beyond the first year, for which the projection is based on the budget approved by the Board of Directors. It has been assumed investment in capital equipment will equate to depreciation over this period.

The recoverable amount exceeds the carrying amount for the Group by £94,447k (2021: £64,382k).

The headroom within the Systems Division is significant at £53,765k (2021: £43,250k), with the more sensitive CGU the Components division with headroom of £47,318k (2021: £25,636k). If the following changes were made to the above key assumptions in respect of each division, the carrying amount would still exceed the recoverable amount for both divisions.

Discount rate: Increase from 10% to 20%

Growth rate: Reduction from 2.5% to nil%

14. SUBSIDIARIES

The subsidiaries of Solid State PLC included in these consolidated financial statements are as follows:


Subsidiary undertakings		Proportion of voting rights and Ordinary share capital held	Nature of business
Solid State Supplies Limited	UK	100%	Supply of electronic components.
Steatite Limited	UK	100%	Supply of electronic components and manufacture of electronic equipment.
Pacer Technologies Limited	UK	100%	Non trading entity
Pacer Components Limited*	UK	100%	Supply of opto-electronic components.
Pacer LLC*	USA	100%	Supply of opto-electronic components.
Willow Technologies Limited	UK	100%	Supply of opto-electronic components.
American Electronic Components, Inc.*	USA	100%	Supply of opto-electronic components.
Active Silicon Limited	UK	100%	Digital image design and manufacturing.
Active Silicon, Inc.*	USA	100%	Manufacturing sales facility
Solid State Supplies Electronics Limited	Ireland	100%	Sales office
Custom Power Limited	UK	100%	Non trading entity
Creasefield Limited	UK	100%	Non trading entity
Q-Par Angus Limited	UK	100%	Non trading entity
Ginsbury Electronics Limited	UK	100%	Non trading entity
Wordsworth Technology Kent Limited	UK	100%	Non trading entity
Creasefield Crewkerne Limited	UK	100%	Non trading entity

*Indirect holdings. All other holdings are direct.

The non-trading entities are exempt from filing audited accounts with the registrar under section 479a of the Companies Act 2006.

Aside from the operations in the USA and Ireland identified above, the country of operation and of incorporation is England and Wales, with the same registered office as Solid State PLC. The registered offices for operations in the US and Ireland are listed below.


Subsidiary undertaking	Registered Office
Pacer USA LLC	661 Maplewood Drive, Suite 10, Jupiter, FL 33458, USA
American Electronic Components, Inc.	1101 Lafayette Street, Elkhart, Indiana, 46516, USA
Active Silicon, Inc.	479 Jumpers Hole Road, Suite 301, Severna Park, MD 21146, USA
Solid State Supplies Electronics Limited	3rd Floor Ulysses House, 23/24 Foley Street, Dublin 1, Dublin D01 W2T2, Ireland

As set out in the audit committee report, the UK trading subsidiaries are exempt from the requirements to have an audit and file audited financial statements by virtue of section 479A of the Companies Act 2006. In adopting the exemption Solid State PLC has provided a statutory guarantee to these subsidiaries in accordance with section 479C of the Companies Act 2006.

Subsequent to year end, eTech Developments Limited was incorporated in the UK with Solid State Plc owning 75% of the ordinary shares and voting rights in the Company.

15. INVENTORIES


	2022 £'000	2021 £'000

Finished goods and goods for resale	15,333	9,056
Work in progress	2,265	1,573
	_______	_______

Total inventories	17,598	10,629
	_______	_______

The Directors are of the opinion that the replacement value of inventories is not materially different to the carrying value stated above. These carrying values are stated net of provisions of £3,694k (2021: £3,271k).

An impairment loss of £610k (2021: £418k loss) was recognised in cost of sales during the year against inventory due to slow moving and obsolete items.

Inventory recognised in cost of sales during the year as an expense was £57,812k (2021: £43,061k).

16. TRADE AND OTHER RECEIVABLES


	2022 £'000	2021 £'000

Trade receivables	14,948	11,683
Other receivables	126	157
Prepayments	2,904	2,382
	_______	_______

	17,978	14,222
	_______	_______

An impairment credit against trade receivables of £13k (2021: Loss of £608k) was recognised within operating costs during the year.

17. TRADE AND OTHER PAYABLES (CURRENT)


	2022 £'000	2021 £'000

Trade payables	8,083	4,192
Other taxes and social security taxes	2,607	1,301
Other payables	89	88
Accruals	5,709	3,737
Deferred consideration on acquisitions	4,625	2,572
	_______	_______

	21,113	11,890
	_______	_______

18. CONTRACT LIABILITIES


	2022 £'000	2021 £'000

Contract liabilities	3,461	2,299
	_______	_______

The contract liabilities identified above relate to unsatisfied performance obligations resulting from proforma and advanced customer payments where we have not recognised the revenue and provisions for product returned for rework. All these contract liabilities are expected to be recognised in the subsequent financial year.

Revenue recognised within the year includes £1,980k (2021: £2,161k) which was included within contract liabilities in the prior year.

19. BANK BORROWINGS AND FACILITIES


	2022 £'000	2021 £'000
Current borrowings
Bank borrowings - overdraft facility	2,059	-

Non-current borrowings
Bank borrowings	1,500	3,750
	_______	_______

Total borrowings	3,559	3,750
	_______	_______


	2022 £'000	2021 £'000

Within one year	2,059	-
Between one and two years	1,500	3,750
Between two and five years	-	-
	_______	_______

Total borrowings	3,559	3,750
	_______	_______

The bank facilities are secured by a fixed and floating charge over the assets of the Company and the Group. At the balance sheet date, the Group had the following facilities:

· Revolving credit facility of £7.5m (2021: £7.5m) of which £1.50m (2021: £3.75m) was drawn at the balance sheet date. This facility was committed until November 2022 and was renewed in March 2022 to a November 2023 commitment date.

· In addition, the Group has a multi-currency overdraft facility of £3.0m (2021: £1.0m) which was utilised for USD of £2.1m at year end (2021: Nil).

The multi-currency overdraft facility is in place to provide flexibility in financing short-term multi-currency working capital requirements. This facility is available to utilise as long as the overall balance netted across all accounts in the bank nets to an overall position of £Nil or higher.

The Group's banking facilities are subject to three financial covenants, being: leverage; debt service; and a tangible net worth covenant. These covenants were met at all measurement points throughout the period.

20. RIGHT OF USE LEASE LIABILITIES


	2022 £'000	2021 £'000

Current right of use lease liabilities	758	741
Non-current right of use lease liabilities	1,326	1,802
	_______	_______

Total right of use lease liabilities	2,084	2,543
	_______	_______


	2022 £'000	2021 £'000

Within one year	758	741
Between one and two years	650	654
Between two and five years	676	1,148
	_______	_______

Total right of use lease liabilities	2,084	2,543
	_______	_______

21. FINANCIAL INSTRUMENTS

The Group's overall risk management programme seeks to minimise potential adverse effects on the Group's financial performance.

The Group's financial instruments comprise cash and cash equivalents and various items such as trade payables and receivables that arise directly from its operations. The carrying value of all financial instruments equal their fair values. The Group is exposed through its operations to the following risks:

· Credit risk

· Foreign currency risk

· Liquidity risk

· Cash flow interest rate risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Group's exposure to financial instrument risks and consequently the objectives, policies and processes are unchanged from the previous period.

The Board has overall responsibility for the determination of the Group's risk management policies. The objective of the Board is to set policies that seek to reduce the risk as far as possible without unduly affecting the Group's competitiveness and effectiveness. Further details of these policies are set out below.

Credit risk

The Group is exposed to credit risk primarily on its trade receivables, which are spread over a range of customers and countries, a factor that helps to dilute the concentration of the risk.

It is Group policy, implemented locally, to assess the credit risk of each new customer before entering binding contracts. Each customer account is then reviewed on an ongoing basis (at least once a year) based on available information and payment history.

The maximum exposure to credit risk is represented by the carrying value of receivables as shown in note 16 and in the statement of financial position. The amount of the exposure shown in note 16 is stated net of provisions for doubtful debts.

The credit risk on liquid funds is low as the funds are held at a bank with a high credit rating assigned by international credit rating agencies.

Foreign currency risk

Foreign exchange transaction risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. The general policy for the Group is to sell to customers in the same currency that goods are purchased in, reducing the transactional risk. Where transactions are not matched, excess foreign currency amounts generated from trading are converted back to sterling and required foreign currency amounts are converted from sterling. Forward currency contracts are not used speculatively and are considered where the Group has a demand for foreign currency that it can reliably forecast. The Group overdraft facility is available on an individual currency basis as well as an overall basis.

Liquidity risk

The Group operates a Group overdraft facility common to all its trading companies (with the exception of the 2021 acquisitions). This facility has a right of offset, so individual accounts in an overdraft position can be netted from cash held in other accounts in the same bank to a maximum position of £Nil in total.

The Group has approximately a three month visibility in its trading and runs a rolling 6 month cash flow forecast. If any part of the Group identifies a shortfall in its future cash position the Group has sufficient facilities that it can direct funds to the location where they are required. If this situation is forecast to continue remedial action is taken.

Cash flow interest rate risk

External Group borrowings are approved centrally. The Board accepts that this neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully the cash flow risk associated with interest payments. It considers, however, that by ensuring approval of borrowings is made by the Board the risk of borrowing at excessive interest rates is reduced. The Board considers that the rates being paid are in line with the most competitive rates it is possible for the Group to achieve.

Credit risk

The carrying amount of financial assets represents the maximum credit exposure. The Group maintains its cash reserves at a reputable bank. The maximum exposure to credit risk at the reporting date was:


Loans and Receivables	2022 £'000	2021 £'000

Current financial assets
Trade and other receivables	15,074	11,840
Cash and cash equivalents	2,924	6,914
	_______	_______

	17,998	18,754
	_______	_______

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:


Carrying value	2022 £'000	2021 £'000

UK	8,471	7,700
Non UK	6,477	3,983
	_______	_______
	14,948	11,683
	_______	_______

The Group policy is to make a provision against those debts that are overdue, unless there are grounds for believing that all or some of the debts will be collected. During the year, the value of provisions made in respect of bad and doubtful debts was a charge of £193k (2021: £618k) which represented 0.1% (2021: 1.0%) of revenue. This provision is included within the sales, general and administration expenses in the Consolidated Statement of Comprehensive Income.

Trade receivables ageing by geographical segment


Geographical area	Total £'000	Current £'000	30 days past due £'000	60 days past due £'000	90 days past due £'000
2022
UK	8,860	8,273	418	128	41
Non UK	6,737	6,122	412	116	87
	_______	_______	_______	_______	_______
Total	15,597	14,395	830	244	128

UK	(389)	(322)	(21)	(11)	(35)
Non UK	(260)	(136)	(24)	(23)	(77)
	_______	_______	_______	_______	_______
Total provisions	(649)	(458)	(45)	(34)	(112)
	_______	_______	_______	_______	_______
Total	14,948	13,937	785	210	16
	_______	_______	_______	_______	_______
IFRS 9
UK expected loss rate	4.4%	3.9%	5.0%	8.6%	85.4%
Non UK expected loss rate	3.9%	2.2%	5.8%	19.8%	88.5%
	_______	_______	_______	_______	_______


Geographical area	Total £'000	Current £'000	30 days past due £'000	60 days past due £'000	90 days past due £'000
2021
UK	8,175	8,008	112	15	40
Non UK	4,168	3,907	216	5	40
	_______	_______	_______	_______	_______
Total	12,343	11,915	328	20	80

UK	(496)	(401)	(50)	(10)	(35)
Non UK	(164)	(100)	(22)	(2)	(40)
	_______	_______	_______	_______	_______
Total provisions	(660)	(501)	(72)	(12)	(75)
	_______	_______	_______	_______	_______
Total	11,683	11,414	256	8	5
	_______	_______	_______	_______	_______
IFRS 9
UK expected loss rate	6.1%	5.0%	44.6%	66.7%	87.5%
Non UK expected loss rate	3.9%	2.6%	10.2%	40.0%	100.0%
	_______	_______	_______	_______	_______

The Group records provision for impairment losses on its trade receivables separately from gross receivables. The movements on this allowance account during the year are summarised below:


	2022 £'000	2021 £'000

Opening balance	658	496
Acquisition of subsidiaries	-	19
(Decrease)/ Increase in provisions	(14)	618
Written off against provisions	4	(474)
Foreign exchange	1	(1)
	_______	_______

Closing balance	649	658
	_______	_______

The main factor used in assessing the expected impairment losses of trade receivables is the age of the balances and the circumstances of the individual customer.

As shown in the earlier table, at 31 March 2022 trade receivables of £1,011k which were past their due date were not impaired (2021: £269k).

Liquidity risk

The following are maturities of financial liabilities, including estimated contracted interest payments.


	Carrying Amount	Contractual cash flow	12 months or less	1 - 2 Years	2 - 5 Years	5+ Years

2022
Trade and other payables	16,488	16,488	16,488	-	-	-
Borrowings	3,559	3,559	2,059	1,500	-	-
Right of use lease liabilities	2,084	2,215	781	690	744	-
Provisions	694	694	-	150	544	-
Deferred consideration on acquisition	6,601	6,601	4,625	1,976	-	-
	_______	_______	_______	_______	_______	_______

	29,426	29,557	23,953	4,316	1,288	-
	_______	_______	_______	_______	_______	_______

2021
Trade and other payables	9,318	9,318	9,318	-	-	-
Borrowings	3,750	3,750	-	3,750	-	-
Right of use lease liabilities	2,543	2,736	763	694	1,279	-
Provisions	741	741	71	20	650	-
Deferred consideration on acquisition	7,522	7,522	2,572	4,250	700	-
	_______	_______	_______	_______	_______	_______

	23,874	24,067	12,724	8,714	2,629	-
	_______	_______	_______	_______	_______	_______


Movement in deferred consideration on acquisitions	2022 £'000	2021 £'000	2022 £'000	2021 £'000	2022 £'000	2021 £'000
	Willow		Active		Total
Opening balance	5,089	-	2,433	-	7,522	-
Increase/recognition	-	5,089	1,651	2,433	1,651	7,522
Settlement	(1,589)	-	(983)	-	(2,572)	-
	_______	_______	_______	_______	_______	_______
Closing balance	3,500	5,089	3,101	2,433	6,601	7,522
	_______	_______	_______	_______	_______	_______

Foreign currency risk

The Group's main foreign currency risk is the short-term risk associated with accounts receivable and payable denominated in currencies that are not the subsidiaries' functional currency. The risk arises on the difference in the exchange rate between the time invoices are raised/received and the time invoices are settled/paid. For sales denominated in foreign currencies the Group will try, as far as practical, to ensure that the purchases associated with the sale will be in the same currency. As a result of advanced purchasing of components, there is a timing difference on USD, where the Group overdraft has been utilised as required.

All monetary assets and liabilities of the Group were denominated in sterling except for the following items, which are included in the financial statements at the sterling value based on the exchange rate ruling at the statement of financial position date.

The following tables show the Group net assets/(liabilities) exposed to US dollar and Euro exchange rate risk::


USD	2022 £'000	2021 £'000

Trade receivables	8,786	5,727
Cash and cash equivalents	(1,308)	3,121
Trade payables	(4,005)	(930)
	_______	_______

	3,473	7,918
	_______	_______
EUR	2022 £'000	2021 £'000

Trade receivables	287	337
Cash and cash equivalents	272	942
Trade payables	(175)	(115)
	_______	_______

	384	1,164
	_______	_______

The Group is exposed to currency risk because it undertakes trading transactions in US dollars and Euros (and immaterial transactions in other currencies). The Directors do not generally consider it necessary to enter into derivative financial instruments to manage the exchange risk arising from its operations, but from time to time when the Directors consider foreign currencies are weak and it is known that there will be a requirement to purchase those currencies, forward arrangements are entered into. There were no forward purchase agreements in place at 31 March 2022 (2021: £nil) with £nil net exposure (2021: £nil).

The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the statement of financial position date would have resulted in an estimated net increase in pre-tax profit for the year and an increase in net assets of approximately £428k (2021: £1,009k) and the effect of a weakening of 10% in the rate of exchange in the currencies against sterling at the statement of financial position date would have resulted in an estimated net decrease in pre-tax profit for the year and a decrease in net assets of approximately £351k (2021: £826k).

Interest rate risk

The Group finances its business through a Revolving credit facility. During the year the Group utilised this facility at a floating rate of interest.

The Group's banking facilities with Lloyds Bank Plc incurs interest at the rate of 2.55% over LIBOR. The Group is affected by changes in the UK interest rate. As the loans are all based on variable interest rates the fair value of the Group's borrowings is not materially different to the book value.

In terms of sensitivity, if the ruling base rate had been 1% higher throughout the year the level of interest payable would have been £82k (2021: £41k) higher and if 1% lower throughout the year the level of interest payable would have been lower by the same amount.

Capital risk management

The Group defines total capital as equity in the consolidated statement of financial position plus net debt or less net funds plus deferred consideration. Total capital at 31 March 2022 was £32,251k (2021: £29,860k).

The Group defines net (cash)/leverage as net (cash)/debt plus deferred consideration which totals £5,177k (2021: £4,358k). In calculating net (cash)/debt the Group has excluded the right of use lease liabilities of £2,084k (2021: £2,543k) from its definition and calculation.

In managing its capital, the Group's main objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

Consistent with others in the industry, the Group monitors capital based on the gearing ratio. This ratio is calculated as leverage divided by total capital. At 31 March 2022 the gearing ratio was 16.0% (2021: 14.6%).

The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain sufficient funding to enable the Group to meet its working capital and strategic investment need in the light of changes in economic conditions and the characteristic of the underlying assets.

In making decisions to adjust its capital structure to achieve these aims the Group considers not only its short-term position but also its long term operational and strategic objectives and sets the amount of capital in proportion to risk.

The Group's gearing ratio at 31 March 2022 is shown below:


	2022 £'000	2021 £'000
Cash and cash equivalents	(4,983)	(6,914)
Borrowings / bank overdrafts	3,559	3,750
Deferred Consideration	6,601	7,522
	_______	_______

Net (cash)/leverage	5,177	4,358
	_______	_______

Share capital	428	428
Share premium account	3,625	3,625
Retained earnings	23,042	21,508
Capital redemption reserve	5	5
Foreign exchange reserve	33	6
Shares held in treasury	(57)	(70)
	_______	_______

Equity	27,076	25,502
	_______	_______

Gearing ratio (net leverage / (equity + net leverage)/cash))	16.0%	14.6%
	_______	_______

22. NET DEBT


Year ended 31 March 2022 (£'000)	At 1 April 2021	Cash flow	Other non-cash movement	At 31 March 2022

Bank borrowing due within one year	-	-	-	-
Bank borrowing due after one year	(3,750)	2,250	-	(1,500)
	_______	_______	_______	_______
Total borrowings	(3,750)	2,250	-	(1,500)
Deferred consideration on acquisition of subsidiaries within one year	(2,572)	2,572	(4,625)	(4,625)
Deferred consideration on acquisition of subsidiaries after one year	(4,950)	-	2,974	(1,976)
Cash and cash equivalents	6,914	(4,006)	16	2,924
	_______	_______	_______	_______

(Net debt) / net cash	(4,358)	816	(1,635)	(5,177)
	_______	_______	_______	_______


	2022 £'000	2021 £'000
(Decrease)/ increase in cash in the year	(4,006)	3,439
Decrease/ (Increase) in borrowings in the year	-	(3,750)
Repayment of borrowings in the year	2,250	333
Payment of deferred consideration on acquisitions	2,572	-
	_______	_______

Net movement resulting from cashflows	816	22
	_______	_______


	2022 £'000	2021 £'000
(Net debt) / Net cash at 1 April	(4,358)	3,184

Net movement resulting from cashflows	816	22
Contingent consideration recognised in year - short term (note 17)	-	(2,572)
Contingent consideration recognised in year - long term	(1,651)	(4,950)
Other non-cash movements	16	(42)
	_______	_______

Net debt at 31 March	(5,177)	(4,358)
	_______	_______

Although the Group's banking facilities allow a right of offset between cash balances held at the bank with overdraft balances at the same bank, the overdraft balances have been presented as gross on the Statement of Financial Position rather than net in accordance with the Interpretations Committee March 2016 Agenda decision on IAS 32 interpretation of cash-pooling arrangements.

23. DEFERRED TAX

The Group's deferred tax positions arise primarily on share-based payments, accelerated capital allowances, capitalised development costs and intangible assets arising on acquisition of subsidiaries:


	2022 £'000	2021 £'000

At 1 April	(1,303)	(421)
Deferred tax arising on acquisition of subsidiaries	-	(1,061)
Credit for the year	348	181
Effect of changes to foreign exchange rates	5	(2)
Deferred tax adjustment in respect of prior periods	-	-
Effect of tax rate change	(343)	-
	_______	_______

Net deferred tax at 31 March	(1,293)	(1,303)
	_______	_______
Deferred tax (liabilities)/assets in relation to:
Accelerated capital allowances on property plant and equipment	(504)	(331)
Short term timing differences on intangible assets	(1,437)	(1,266)
Share based payments	415	96
Short term timing differences	98	95
Losses carried forward	135	103
	_______	_______

Net deferred tax at 31 March	(1,293)	(1,303)
	_______	_______

Deferred tax assets	539	188
Deferred tax liabilities	(1,832)	(1,491)
	_______	_______
Net deferred tax at 31 March	(1,293)	(1,303)
	_______	_______

The movements in respect of deferred tax in the year were as follows:


	Accelerated capital allowances	Short term timing differences on intangible assets	Share based Payments	Short term timing differences	Losses carried forward	Total

At 1 April	(331)	(1,266)	95	96	103	(1,303)
Change in tax rate	(83)	(344)	38	13	32	(344)
Recognised in statement of comprehensive income	(90)	173	21	(11)	-	93
Recognised in other comprehensive income	-	-	261	-	-	261
	_______	_______	_______	_______	_______	_______
At 31 March	(504)	(1,437)	415	98	135	(1,293)
	_______	_______	_______	_______	_______	_______

The UK corporation tax rate is 19% (effective from 1 April 2017) which was substantively enacted on 17 March 2020. The comparative deferred tax liabilities at 31 March 2021 were calculated based on this rate. As substantively enacted on 24 May 2021, the UK corporation tax rate will increase to 25% with effect from 1 April 2023. The impact of re-calculating the deferred tax at the 25% rate is recognised in comprehensive income.

The amount of the net reversal of deferred tax expected to occur next year is approximately £231k (2021: £191k) relating to the timing differences identified above.

The deferred tax asset of £261k (2021: £84k) in respect of the future tax deduction that would be available based on the share price at the balance sheet date compared to the share price at the date of grant of the options and share bonus, which is used to calculate the share based payments charge, was recognised in the year. This deferred tax asset has been credited to other comprehensive income ("OCI") and treated as an adjustment to profit. The share price post year end when the shares are exercised may be lower than at the balance sheet date, therefore this deferred tax asset is considered judgemental as it may not be fully recoverable.

In addition, there is an unrecognised deferred tax asset in relation to capital losses carried forward. The capital losses carried forward are approximately £275k. The associated deferred tax asset of approximately £69k has not been recognised due to the uncertainty over the recoverability combined with the fact it is immaterial.

The deferred tax asset has been reclassified as long-term in the current year; the comparative was retained in current as it was not material.

24. PROVISIONS


	2022 £'000	2021 £'000

At 1 April	741	304
Dilapidations acquired on acquisitions at FV	-	43
Provisions utilised during the year	(18)	(7)
Recognition of dilapidation asset	-	400
(Released)/charged to statement of comprehensive income	(29)	-
	_______	_______
Provisions at 31 March	694	741
	_______	_______

The Group has provided for property related provisions which include obligations in respect of exited legacy premises and dilapidations provisions it expects to exit within the next 5 years. Based on using a risk-free discount rate of 2.5% the Group has assessed the impact of discounting to be immaterial and has not therefore discounted the provisions.

25. SHARE CAPITAL


	2022 £'000	2021 £'000
Allotted issued and fully paid 8,564,878 (2021: 8,564,878) ordinary shares of 5p	428	428
	_______	_______

The ordinary shares carry no right to fixed income, the holders are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings.

Details of options granted are set out in the Remuneration Committee Report. At 31 March 2022 the number of shares covered by option agreements amounted to 248,100 (2021: 79,550). At the balance sheet date there were 96,000 (2021: 96,000) share options which had vested and remained unexercised. No options were exercised in the current year (2021: Nil).

26. RESERVES

Full details of movements in reserves are set out in the consolidated statement of changes in equity.

The following describes the nature and purpose of each reserve within owners' equity.


Reserve	Description and Purpose
Share premium	Amount subscribed for share capital in excess of nominal value.
Capital redemption	Amounts transferred from share capital on redemption of issued shares.
Retained earnings	Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.
Shares held in treasury	Shares held by the Group for future staff share plan awards.
Foreign exchange	Foreign exchange translation differences arising from the translation of the financial statements of foreign operations .

27. TREASURY SHARES

At 31 March 2022 the Group held 6,946 (2021: 11,374) shares in treasury with a cost of £57k (2021: £70k). No shares have been cancelled.


	2022 shares	2021 Shares

At 1 April	11,374	7,374
Purchase of shares into treasury	7,000	15,000
Transfer of shares to the All Employee Share Plan (AESP)	(11,428)	(11,000)
	_______	_______
At 31 March	6,946	11,374
	_______	_______

28. SHARE BASED PAYMENT

The total amount charged to the income statement in 2022 in respect of share-based payments was £295,000 (2021: £171,000).

The company operates two long term share incentive schemes set out below:

Long term incentive plan (LTIP):

Normal LTIP awards of up to 125% of salary may be made to Executive Directors and Senior management.

For all participants, awards will vest after three years in accordance with the performance conditions applicable to each grant. Options are granted with a contractual life of ten years and with a fixed exercise price of 5p equal to the par value of the shares or as otherwise disclosed in the remuneration report.

The performance conditions will be determined and set by the Remuneration Committee in accordance with the remuneration policy. No award will vest below Threshold performance, and vesting will increase on a straight-line basis between threshold, target and stretch.

On the 29 October 2021 42,800 (2021: 42,800) share options were granted to the Executive Directors under the LTIP.


Principal assumptions	2022	2021
Weighted average share price at grant date in pence	1,085	580
Weighted average exercise price in pence	5	5
Weighted average vesting period (years)	3	3
Option life (years)	10	10
Weighted average expected life (years)	3	3
Weighted average expected volatility factor	47%	50%
Weighted average risk free rate	1.50%	0.75%
Dividend yield	2.5%	2.5%

The expected volatility factor is based on historical share price volatility over the three years immediately preceding the grant of the option. The expected life is the average expected period to exercise. The risk-free rate of return is the yield of zero-coupon UK government bonds of a term consistent with the assumed option life.

Non-market performance conditions are incorporated into the calculation of fair value by estimating the proportion of share options that will vest and be exercised based on a combination of historical trends and future expected trading performance. These are reassessed at the end of each period for each tranche of unvested options.

Company Share Option Plan (CSOP):

CSOP awards of up to the HMRC tax approved levels of £30,000 may be made to senior staff and Executive Directors. For all participants, awards will vest after three years in accordance with the performance conditions applicable to each grant.

Options are granted with a contractual life of ten years and with a fixed exercise price equal to the market value of the shares under option at the date of grant or as otherwise disclosed in the remuneration report

On the 06 October 2021 36,750 (2021: 36,750) share options were granted to the senior management under CSOP.


Principal assumptions	2022	2021
Weighted average share price at grant date in pence	1,050	587
Weighted average exercise price in pence	1,050	592
Weighted average vesting period (years)	3	3
Option life (years)	10	10
Weighted average expected life (years)	3	3
Weighted average expected volatility factor	46%	50%
Weighted average risk free rate	1.50%	0.75%
Dividend yield	2.5%	2.5%

Movement in share options during the year

In addition to the current CSOP and LTIP there are bought forward executive EMI options which have vested which remain unexercised at the balance sheet date.


	2022 Number of options	2022 average exercise price in pence	2021 Number of options	2021 average exercise price in pence
At 1 April	175,550	125	112,000	0.1
Granted	79,550	488	79,550	276
Exercised	-	-	16,000	0.1
Cancelled / lapsed	(7,000)	(707)	-	-
	_______	_______	_______	_______
At 31 March	248,100	225	175,000	125
	_______	_______	_______	_______

No options were exercised in the year and the weighted average share price at the date share options were exercised in 2021 was 544p.

As at 31 March 2022, the total number of long-term incentive awards and share options held by employees was 248,100 (2021: 175,550) as follows:


Option price pence/share	Option period ending	2022 Number of options	2021 Number of options
0.1p	31 March 2027	96,000	96,000
5p - 592p	31 March 2030	74,300	79,550
5p - 1050p	31 March 2031	77,800	-
		_______	_______
At 31 March		248,100	175,550
		_______	_______

No share options have vested in the period (2021: Nil).

All Employee Share plan (AESP)

AESP awards of up to the HMRC tax approved levels to all UK employees. These awards vest tax free from the AESP after at least three years but not more than five years from the date of grant subject to continued employment.

On the 7 March 2022 12,250 (2021: 10,900) share options were awarded to the employees under the AESP.

The share price at the date of award was 960p (2021: 680p). As the awards are effectively £nil cost awards, the fair value is determined to equal to the share price at the date of grant under the Black Scholes model. This resulted in a share based payments charge of £118k (2021: £74k) as part of the total share based payments charge.

29. CAPITAL COMMITMENTS

At 31 March 2022 there were capital commitments of £303k (2021: £371k).

30. SEGMENT INFORMATION

The Group's primary reporting format for segment information is business segments which reflect the management reporting structure in the Group. The Components Division comprises Solid State Supplies Ltd, Pacer LLC, Pacer Components Ltd, Willow Technologies Limited and American Electronic Components, Inc.. The Systems Division includes Steatite Ltd, Active Silicon Limited and Active Silicon Inc..

Year ended 31 March 2022


	Components division £'000	Systems division £'000	Head office £'000	Total Group £'000
External revenue	52,480	32,517	-	84,997
	______	______	______	______
Profit before tax	3,627	2,270	(2,397)	3,500
Taxation	(903)	(297)	223	(977)
	______	______	______	______
Profit after taxation	2,724	1,973	(2,174)	2,523

Consolidated statement of financial position
Assets	24,616	21,665	16,045	62,326
Liabilities	(11,587)	(14,253)	(9,410)	(35,250)
	______	______	______	______
Net assets
	13,029	7,412	6,635	27,076
Other
Capital expenditure:
Tangible fixed assets	524	654	-	1,178
Tangible fixed assets - acquisitions	-	-	-	-
Intangible assets	268	333		601
Intangible assets - acquisitions	-	-	-	-
Right of use assets	216	97	-	313
Right of use assets - acquisitions	-	-	-	-
Depreciation - PPE	331	398	-	729
Depreciation - right of use assets	264	499	-	763
Amortisation	20	279	1,028	1,327
Share based payments	-	-	295	295
Interest	48	61	117	226
	______	_____	______	______

No individual customer contributed more than 10% of the Group's revenue in the financial year ended 31 March 2022 or the prior year.

Year ended 31 March 2021


	Components division £'000	Systems division £'000	Head office £'000	Total Group £'000
External revenue	38,982	27,299	-	66,281
	______	______	______	______
Profit before tax	2,011	4,353	(2,164)	4,200
Taxation	(337)	(310)	400	(247)
	______	______	______	______
Profit after taxation	1,674	4,043	(1,764)	3,953

Consolidated statement of financial position
Assets	22,631	14,852	16,484	53,967
Liabilities	(8,804)	(7,680)	(11,981)	(28,465)
	______	______	______	______
Net assets	13,827	7,172	4,503	25,502

Other
Capital expenditure:
Tangible fixed assets	413	343	-	756
Tangible fixed assets - acquisitions	504	99	-	603
Intangible assets	45	257	-	302
Intangible assets - acquisitions	3	19	8,998	9,020
Right of use assets	315	881	-	1,196
Right of use assets - acquisitions	27	699	-	726
Depreciation - PPE	379	235	-	614
Depreciation - right of use assets	207	290	-	497
Amortisation	19	279	680	978
Share based payments	-	-	171	171
Interest	35	14	36	85
	______	_____	______	______


	External revenue by location of customer		Total assets by location of assets		Net capital expenditure by location of assets
	2022 £'000	2021 £'000	2022 £'000	2021 £'000	2022 £'000	2021 £'000

United Kingdom	53,030	46,301	59,023	49,616	1,723	1,058
Rest of Europe	15,726	7,349	1	1	-	-
Asia	6,542	3,342	-	-	-	-
North America	9,175	9,148	3,302	4,151	56	-
Other	524	141	-	-	-	-
	_______	_______	_______	_______	_______	_______

	84,997	66,281	62,326	53,768	1,779	1,058
	_______	_______	_______	_______	_______	_______

Capital expenditure excludes acquisitions of assets as per note 10 and 12 in 2021.

31. ADJUSTMENTS TO PROFIT

The Group's results are reported after several imputed non-cash charges and non-recurring items. We have provided additional adjusted performance metrics to aid understanding and provide clarity over the Group's performance on an on-going cash basis before imputed non-cash accounting charges. This is consistent with how analysts and investors tell us they review our business performance in presenting an adjusted profit metric adjusting for the following items:

· Non-cash charges arising from share-based payments and the amortisation of acquisition intangibles.

· Non-recurring cash costs relating to the re-organisation of the Systems Division and acquisition costs (including fair value adjustments).

· Non-recurring tax credits arising primarily from prior year R&D claims and tax deductions on share options.

· The impact of the change in deferred tax rate from 19% to 25% on charges treated as adjustments.

· The recognition in OCI of a deferred tax asset relating to the future tax deduction that would be available based on the share price at the balance sheet date compared to the share price at the date of grant of the options and share bonus.


	2022 £'000	2021 £'000
Reported gross profit	27,527	19,919
Adjustments to gross profit	168	73
	_______	_______
Adjusted gross profit	27,695	19,992
	_______	_______
Reported operated profit	3,726	4,285
Adjustments to operating profit	3,674	1,187
	_______	_______
Adjusted operating profit	7,400	5,472
	_______	_______
Reported operating margin percentage	4.4%	6.5%
Operating margin percentage impact of adjustments	4.3%	1.8%
	_______	_______
Adjusted operating margin percentage	8.7%	8.3%
	_______	_______
Reported profit before tax	3,500	4,200
Adjustments to profit before tax	3,674	1,187
	_______	_______
Adjusted profit before tax	7,174	5,387
	_______	_______
Reported profit after tax	2,523	3,953
Adjustments to profit after tax	3,635	780
	_______	_______
Adjusted profit after tax	6,158	4,733
	_______	_______
Reported total other comprehensive income	2,784	3,953
Adjustments to total other comprehensive income	3,374	780
	_______	_______
Adjusted total other comprehensive income	6,158	4,733
	_______	_______

The split of the adjustments is as follows:


	2022 £'000	2021 £'000
Acquisition fair value adjustments within cost of sales	168	73
Acquisition fair value adjustments, reorganisation and deal costs	533	263
Increase in deferred consideration on acquisition of Active Silicon	1,650	-
Amortisation of acquisition intangibles	1,028	680
Share based payments	295	171
	_______	_______
Adjustment to profit before tax	3,674	1,187
Current and deferred taxation effect	(327)	(226)
Deferred tax rate change impact on acquisition intangibles and share based payments	288	-
Non-recurring tax credits	-	(181)
	_______	_______
Adjustments to profit after tax	3,635	780
Recognition of deferred tax asset in OCI re. share price impact on options	(261)	-
	_______	_______
Adjustments to total other comprehensive income	3,374	780

Acquisition fair value adjustments within cost of sales relates to the unwind of the IFRS 3 fair value uplift on stock to selling price less cost to sell in both periods.

Acquisition fair value adjustments, reorganisation and deal costs in the current year relate to transaction costs for the acquisition of Custom Power. The costs in the comparative period relate to £195k transaction costs on Willow and Active Silicon and £69k redundancy costs.

32. POST BALANCE SHEET EVENTS

Intended Acquisition of Custom Power LLC ("Custom Power")

Post year end the Group announced on 12 July 2022 its intention to raise up to £28.4m of equity to fund the acquisition of Custom Power for up to $45m. New additional term loan debt facilities of £13m and $10m of standby letters of credit have been agreed by Lloyds Bank PLC in support of the transaction.

Full details of the acquisition are set out in the announcement on the 12 July 2022 and in the circular issued to shareholders on the 13 July 2022 ahead of the general meeting on the 29 July 2022. The announcement, circular and investor presentation are available on the Group's website www.solidstateplc.com.

Formation of eTech Developments Limited

On the 8 June 2022 the Group formed a new entity, eTech Developments Limited, registered Co. number 14159260. eTech Developments Limited is 75% owned by Solid State PLC. This is a new business which is expected to provide engineering consultancy by employing a small engineering team. Once the team are recruited, the team are expected to provide Power engineering services to the Group and external customers on an arm's length basis.

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SOLID STATE PLC Earnings Release 2022

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SOLID STATE PLC — Earnings Release 2022

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SOLID STATE PLC Earnings Release 2022