Solid State (LSE:SOLI) — Annual General Meeting

0:02 Good morning, ladies and gentlemen, and welcome to the annual general meeting of SOLID STATE PLC. We are running a hybrid meeting today, so we have attendees online as well as in the room. Throughout the meeting, online attendees will be in listen only mode. However, questions can be submitted via the q and a tab in the top right hand corner of your screen.

0:25 Questions will be addressed ahead of the formal proceedings of the meeting, so please do submit them if you have any now. We will only be able to address questions relating to public domain information. I would now like to hand you over to Chairman, Nigel Rogers. Thank you very much, Tom, and welcome everybody both in the room and those joining us online to the Annual General Meeting of SOLID STATE PLC. We're here live in the room in Redditch with four shareholders attending in person in addition to the Board. Almost the headcount in the room outnumbering the Board, but not quite, but very good to see you here today. Thank you, and thanks for joining us online. I'll start off with introductions to the board. I think the camera should be broad enough view for everybody to be in view. I'll start with the executive team, most of which will be known to you, Graham Marsh, Gary Marsh, I beg your pardon, and CEO, Pete James, who is CFO, and the two divisional directors, John McMichael and Matthew Richards, run the components and systems businesses respectively.

1:31 The nonexecutive team, we've seen some changes over the course of the year. I'm gonna start off at the left hand end of the table as I'm sitting with Pete Hayning. Pete has been a very valuable member of the company for a number of years. He has some thirty years of history with the company. He's been a director since 1996. I I have to say he's taken, you know, during that time on the board of the business on on a journey from being a very small private company to a major international listed business. It's been a a transformational period of time, and he's been a very steady hand on the on the tiller during that time, very much providing wisdom, providing perspective, and having a very deep historical roots in the company and some very good contacts, not only with shareholders, but also with employees outside of the boardroom. So he's been an extremely valuable support to me as I've bedded myself in as chairman, and I'd to pair out my respects and thanks to him for that.

2:30 A major factor in his decision to retire from the board has been increasing pressure by the corporate governance code, recognizing that nonexecutives who exceed their nine year term are are sort of under question as whether they are independent or not. I I can tell you with absolute certainty that Peter's independence in the boardroom has never been asked question, and I'm sure the executive team would back me up in that. He's still very happy to ask a difficult question from time to time. So Peter, I'm delighted to say, is is going to remain with us as company secretary until end of the financial year, so we'll continue to have the benefit of that wisdom during a handover period. And we'd like to extend our thanks and our best wishes in your retirement beyond your time with us.

3:18 Thanks. I'd also like to introduce Sam Smith. Sam's joined the board very recently, and we're delighted to welcome her on the board. She has twenty five years of experience in capital markets, most of those as leader and chief executive of FinCap. Obviously, that experience is invaluable in the company boardroom. Although it's fair to say that's not the primary driver in terms of her appointment and the and the reasons why she stood out amongst the candidates that we spoke to. Mostly, it's her insight as an entrepreneur. She's spent many, many years both building what was initially a small business into a very large one, but also advising growth companies with a particular perspective on growth companies that are led by women. But, generally, she has, you know, a breadth of experience, particularly in people management, talent management, and succession planning. And I think as our business grows over the next few years, that's gonna be very valuable insight to us. So welcome on board to Sam.

4:17 Last no means least, Pete McGowan, who most people will have met at previous AGMs. Pete joined the board in 2020 and chairs remuneration committee. So with that said, last thing on board structure is that we are likely to appoint an additional independent nonexecutive director over the course of the next twelve months who will be put up for reelection at the next annual general meeting. Before I start the formal business of the meeting, I'm now going to turn to an AGM statement, which was published at 7AM this morning. Some people will have read it. For those that haven't, I'll take a sip of water and then read it for you. Might need to be a gulp. It's quite long. So our trading update this morning was published at 7AM.

5:05 SOLID STATE PLC, the specialist value added component supplier and design and manufacturer of computing power and communications product announces an AGM statement ahead of its Annual General Meeting being held at 2 Ravensbank Business Park at Arrow Road, Redditch at 09:30 today. The directors are pleased to report a strong start to the financial year across both divisions as the group continues to benefit from its robust and diverse customer base across multiple sectors. The geopolitical drivers have meant the group has seen particularly strong order intake in the security and defense sector with the medical sector continuing to see good demand and new design opportunities. Custom Power, acquired just over a year ago, is now an integral part of the group, providing U. S. Battery power production. SOLID STATE has continued to see the benefits of the excellent collaboration between the group's UK and U. S. Teams to create product and marketing development opportunities, demonstrating the value of the strategy of internationalizing the group and positioning it to take advantage of this high growth sector.

6:07 The NATO contract referred to in previous announcements has now been substantially delivered with the result that the associated inventory and payables position reported at the final results in July is unwinding. SOLID STATE continues to maintain a strong balance sheet, which provides the business with advantageous commercial and competitive strength for working capital needs and M and A opportunities. The group continues to invest in securing inventory to manage the delivery of its order book through timely order fulfillment and supply chain risk mitigation. As previously reported, we expect to see net debt continuing to fall in the first half and to be consistent with the expectations for the full year. The order book profile, driven by customer order schedules, is continuing to normalize as lead times improve.

6:54 The order book remains strong, totaling 101,100,000 with around 65% expected to be delivered in the remainder of the current financial year.

7:02 The Board is confident in meeting the recently upgraded forecasts for the full year and in managing supply chain and input cost risks, which remain stubborn, whilst also being mindful of the current macroeconomic risks. SOLID STATE remains ambitious and continues to review acquisition opportunities and organic growth initiatives with a view to meeting its new 2,030 strategic objectives of maintaining compound annual growth in total shareholder return in excess of 20% per annum. A further trading update will be announced towards

7:35 the end of October in respect of the first six months trading of this financial year. And that's the end of the announcement. There is a footnote to the announcement which refers to consensus market expectations for the current financial year with revenue at 147,300,000, adjusted PBT of 11.9, and net debt of 3.1.

8:02 I'm now going to turn to the formal part of the meeting. With permission, I'm gonna take the notice of meeting as read. I'm sure you don't want me to read that having had to endure my voice long enough on the trading update. But first, I'm going to open the meeting up for q and a. Be happy to take any questions.

8:24 Strictly speaking, they ought to be aligned with the resolutions that we're voting on. Although if there's any questions that fall outside of that scope, we'll answer them where we can provide that that the information is generally available in the public domain. So there will also potentially be questions coming in online, but if I may, I'm gonna start in the room.

8:47 Roger. Roger. Investor. Your your company is very, very acquisitive, should we say. And and one of the concerns I have is investors that that these are positions very well.

9:19 That that is actually a standard cover. Can you talk a bit about how you price these? And and what do the due diligence you do to make sure that that that we don't get problems with some other companies. Yes. Of course. Nigel Nigel, could you possibly recap the question, please, for online attendees? It wasn't quite as clear as we would like. So the the question was an observation that the company is very acquisitive and is seeking reassurance as to how acquisition opportunities are priced

9:59 and also the degree of due diligence that is carried out in order to ensure that we don't fall into any bad traps, which have been observed in other companies. Thank you. I think Roger has been observing another company in particular that we were talking about earlier, which was

10:17 name's gone. Forgive me. XP Power. XP Power. Thank you. So in response to the question, Roger, first of all, I would just push back slightly on saying we're very, very acquisitive. You know, there there are companies that are up to do multiple acquisitions each year, whereas I think our profile has been much steadier than that. And I think our acquisition profile has been very constant considered and and with a cadence that enables us to digest one deal before we do the next, generally speaking.

10:47 In terms of pricing mechanism and the work that we do, I'm gonna pass your question, I think, first to Gary, who I think is well qualified as as the lead in this area. We look we look for acquisitions to be able to enhancing if we can almost straight away. So that that's a key key part of that. We're we're we're very conscious of of shareholder dilution. So we've made two fundraisers in the twenty seven years we've been we've been on a we we look at a lot of companies and turn most of them away.

11:19 To be honest, the due diligence is is very important part of that. We do a lot of in house due diligence to start with. When we get into more formal due diligence, that includes our our lawyers that we work with that team for a number of years. So then they know us well. They've got a good network around the world for for others. So we we use a very good firm in The US for custom power, for example. We also have financial DD. We've also strengthened the team in the other part of this year. Someone joined us from KPMG on m and a activity. But we've got a a much stronger team there, which is is helpful as we look to grow grow the business.

11:54 So, yeah, there it's it's clear that the actuators have to fit with the four tenants of our strategy, being internationalization of the group, adding complementary products, potential of our own brand products, and talent development. That the key key tenants of the strategy. So they have to be aligned to that. If not, we we don't we don't pursue it. Regarding size, as the business grows, a sort of sweet spot would probably be 15 to £25,000,000 of turnover. As I say, we won't go to smaller businesses if they offer niche areas for us. Specialisms, we'll we'll do that. So we we don't have a rigid rule book on that, but I think the the key thing is they've got to fit in with the strategy, and we we look for them to be able to answer.

12:46 Thank you. You. I I think there's probably a little bit of a triple around the boardroom table at the sort of Gary overpaying for anything. That is his reputation.

12:58 Anything further in the room? I noticed goodwill has gone up up up with the acquisitions, intellectual property. What how to ensure you keep the value? Potentially, worst case scenario, intellectual property walks out the door and doesn't come back equally with a record of change. What was worth a lot ten years ago, if not five years ago, is very less valuable now because technical change and also competition, competitive change. Yes. That's my statement. Yeah. I mean, clearly, as part of the pricing mechanism on acquisition, one of the benchmarks is to look at the net assets of the business, particularly also intangible net assets of the business and compare those with the price. And and clearly, the higher the asset cover, the lower the risk of of downside failure.

13:49 So I I think your observation is perfectly valid and one that we take into account. In terms of the the financial treatment of goodwill also intangible assets, I think Pete's qualified to comment on Yeah. IFRS has moved us to a position where goodwill is no longer amortized as it used to be, And they yeah. You you therefore have to do annual impairment reviews. So future performance is is absolutely critical to, maintaining the carrying value of that goodwill. Intangibles, you can and we do amortize over an appropriate life for those intangibles that are identified through the the acquisition process. And for us, that's typically three to ten years depending on the nature of the intangibles.

14:40 Alright. Thank you. Okay. Tom, I'm gonna pass over to you and take any questions from the online audience if I could, please. We we don't have any questions here, Nigel, so you can move on to the formal. Okay. Thank you very much, everybody. So as I've said, I'm going to take the notice of meeting as read. We do have a number of proxies which have been placed in advance of the meeting. I don't propose to read those in detail, but I can report that approximately 46% of the total shareholder body or 96% of those voting have voted in favor of the ordinary resolutions and the special resolution, a total of 44% of total shareholder body representing 90% of the those voting have voted in favor in advance of the meeting.

15:31 So I'm now going to proceed with the resolutions. First resolution one, which is to receive the accounts for the year ended 03/31/2023 together with the report of the directors and auditors thereon. All those in favor, please.

15:47 Any against? Thank you. Resolution two, to appoint the to approve the director's report on the remuneration. This is an advisory vote only. All those in favor, please? Any against? Thank you. Ordinary resolution number three to declare a final dividend of 13.5p per share. All those in favor, please? Any against?

16:11 Thank you. Resolution four to reappoint myself as a director of the company. All those in favor, please. Thank you very much. All those sorry. To reappoint Gary Marsh as director of the company with the correct Christian name on this occasion. Thank you. Any against? Thank you. Resolution six to appoint John McMichael as the director of the company. All those in favor? Any against? Thank you. Resolution seven to appoint Peter James as the director of the company. All those in favor? Any against? Thank you. Resolution eight to reappoint Matthew Richards as the director of the company. All those in favor? Any against?

16:57 Thank you. Resolution nine to appoint Peter McGowan as the director of the company. All those in favor? Any against? Thank you. Resolution 10 to reappoint Samantha Smith as a director of the company with apologies for using her full Christian name. She doesn't really normally do that. Any against? Thank you. Resolution 11, to reappoint RSM UK Audit LLP as auditors of the company. All those in favor? Any against? Thank you. Ordinary resolution 12 to authorize the directors to fix the orders' remuneration. All those in favor? Any against? Thank you. Resolution 13, which I'm not going to read in full, although anybody who would like me to could ask.

17:46 Thank you. To authorize the directors to allot shares with preemption rights not exceeding 33% of the authorized share capital. All those in favor? Any against? Thank you. Resolution 14, which is a special resolution to authorize the directors to allot shares without preemption rights of up to 10% of the authorized share capital. All those in favor? Any against? Thank you. And resolution 15 to authorize the company to buy back its own shares under certain conditions. All those in favor? Any against? Thank you very much. With that, I declare the meeting closed. Super. Thank you.

18:33 Those are mine. Yes. Thank you, Nigel. Could I just mention if any shareholders are interested in attending a site visit, please do contact us on solidstate@walbrookpr.com. Other than that, many thanks for attending this year's AGM. Thank you. You. Thank you.