Solid State's (LON:SOLI) H118 pre-close trading statement notes an estimated 12% increase in group revenues to £22.5m during the period, demonstrating that management is driving organic growth to complement its successful acquisition programme. Consensus sales estimates have been raised but as some of the high margin antenna programmes have taken longer to secure than management expected, profit estimates have been reduced.
Strategy drives c12% revenue growth during H118
Distribution revenues rose by c 20%, primarily as a result of recruiting additional sales personnel in H217. Manufacturing revenues increased by c 7%, most of which was attributable to the Creasefield business, acquired in June 2016. Significant improvement in both batteries and computing activities offset a one-off order (c £2m+) for delivery of a new portable rail ticket printer which benefitted H117. Antenna revenues were only slightly ahead of H117 levels because of contract delays. Group gross margin reduced by c 3pp to 28%, as although margins for individual product groups were maintained, the overall result was adversely affected by the absence of the high margin printer revenue, lower than expected antenna revenues and a greater proportion of Distribution revenues in the mix. H118 PBT will be lower than management’s expectations.
Strong order book
While the order book (£18.0m end H118 vs. £14.8m end H117) points to good sales growth, margins are expected to be subdued throughout the remainder of FY18 as the higher margin antenna contracts are expected to slip into Q119 while the sales overhead has been increased. Management expects FY18 performance to be lower than originally anticipated, but anticipates margins to improve during FY19 through a combination of higher antenna sales, the onset of high margin orders for obsolete and end-of-life components and better pricing at Creasefield.
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