Solid State reports good results in a declining market

Solid State

Solid State plc, the Redditch-based AIM-listed manufacturer of computing, power and communications products, and distributor of electronic components, says it expects to announce revenue close to £68 million and adjusted profit before tax of approximately 10 per cent ahead of current consensus forecast of £4.2m, which is a record year for the Group.

Gary Marsh, Chief Executive, said:“We are very happy with the performance of the business in the past year and consider that it demonstrates the cash generative nature of the business model despite the macroeconomic and political uncertainties which became defining characteristics of the period.

“The last two months have presented challenges previously unseen. That said, the Board is optimistic that the structure of the Group and the diversity of its exposure to differing product groups and industrial sectors puts it in a relatively resilient position to navigate the challenges of the COVID-19 outbreak.  We are not complacent and will respond accordingly to the changing pressures and opportunities where appropriate. 

“Our staff have risen to the challenge presented by COVID-19 admirably and we would like to acknowledge their dedication and commitment.” 

In an earnings update, the company said that it has  continued to integrate Pacer Technologies into the business. Solid State bought Pacer in November 2018 for £3.73 million and has consolidated its two Pangbourne offices into one.

Year on year the UK distribution market has declined seven per cent as reported by industry association The Association of Franchised Distributors of Electronic Components (AFDEC), but Solid State said in spite of a declining market, proforma revenue in its Value Added Distribution (‘VAD’) division has significantly outperformed the market, albeit being broadly flat year on year. Its manufacturing division has delivered high single digit organic growth at good margins which has driven record profits. 

Solid State’s open order book at 31 March 2020 was up 11 per cent at £39.9m and it has approximately £34.5 million of orders scheduled for delivery in the coming year, however, in the current environment with the COVID-19 lock downs the company expects to see some rescheduling of orders from this financial year into next.  

Solid State operates across four independent manufacturing sites in the UK.  These sites are open and operating effectively and adhering to best practice guidelines on social distancing and hygiene protocols.  Where possible, staff are working from home.

COVID-19 is affecting the business in contrasting ways: On the plus side, Solid State has been notified by numerous customers in both its manufacturing and VAD divisions that the Group has been designated a critical supplier under the government’s critical industries and key workers guidance. 

Conversely, on the weaker side, the Group is experiencing softness in the demand for batteries for the commercial aerospace market and in computing products for certain niche applications in the industrial sector. Separately, owing to the fall in oil prices, we are currently experiencing lower levels of orders for battery packs from the oil and gas industry. 

The Group continues to hold relatively high levels of stock to limit exposure to supply chain volatility.  At present, the Group holds approximately 2.5 months’ stock.

Whilst the business has taken all steps to mitigate the risks of the COVID-19 outbreak, the Board is closely monitoring the situation. 

This began as a supply side risk in its Asian supply chain, which is now returning to normal.  The future uncertainty relates to the demand side, which is very difficult to predict. 

The Board expects to provide a further update ahead of the full year results announcement.  In addition, it will confirm the notice of its results announcement date.