Solid State Plc (LON:SOLI) continues to make progress towards management’s goal of doubling revenues over the next five years. It delivered pre-exceptional profit growth from continuing businesses of 6% during FY17. The record order book combined with investment during FY17 in both the Manufacturing and Distribution divisions shows management is driving organic growth to complement its successful acquisition programme.
Strategy drives 6% PBT growth during FY17
Group revenues from continuing businesses rose by £3.2m (9%) y-o-y to £40.0m. £4.2m of this was 10 month’s contribution from the Creasefield acquisition, which offset reported delays in a number of antenna contracts. Gross margin fell by 0.6pp to 30.5% because of the impact of Creasefield sales, which are below the average for the Manufacturing division. Underlying sales, general and administrative expenses increased by 7% (£0.6m), primarily reflecting the impact of Creasefield. Pre-exceptional PBT rose by £0.2m (6%) to £3.1m, as Creasefield was turned from a loss to break-even. The dividend was maintained at 12.0p (2.25x dividend cover) with a stated policy targeting 2.5-2.75x cover going forward.
Strengthening platform for future growth
During FY17, management made several key investments. The two largest were the acquisition of Creasefield in June 2016 for £1.6m and the establishment of a new facility for the antennas operation, which cost almost £1m during FY16 and FY17. Creasefield brought complementary battery technology, access to new market segments and increased manufacturing capacity. The antenna facility enables Steatite to manufacture larger volumes of product, to create larger structures and to offer RF testing as an additional revenue stream. Antennae work is typically higher margin than other areas of the business. During H217, the Distribution division recruited several sales personnel to form a sourcing and obsolescence team, creating a source of higher margin, recurring revenue. Management terminated development activity on offender monitoring systems. This generated £0.5m operating losses and is treated as a discontinued operation.
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