REG - Luceco PLC - 2021 INTERIM RESULTS
07/09/2021 07:00
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RNS Number : 9083K Luceco PLC 07 September 2021
7 September 2021
LUCECO PLC
2021 INTERIM RESULTS
Strong progress and well positioned for long-term growth
Luceco plc ("Luceco", or the "Group" or the "Company"), a manufacturer and
distributor of high quality and innovative wiring accessories, LED lighting,
and portable power products, today announces its unaudited results for the six
months ended 30 June 2021 ("H1 2021" or "the period").
Six months ended Reported results Adjusted(1) results
30 June (£m)
2021 2020 2019 Change vs 2020 Constant currency change vs 2020(2) 2021 2020 2019 Change vs 2020 Constant currency change vs 2020(2)
(%) (%) (%) (%)
Revenue 108.2 71.6 82.7 51.1% 58.4% 108.2 71.6 82.7 51.1% 58.4%
Gross margin % 38.5% 38.4% 35.0% 0.1ppts 38.5% 38.4% 35.0% 0.1ppts (0.8ppts)
Operating profit 19.0 8.8 7.0 115.9% 19.2 9.0 7.2 113.3% 123.3%
Operating margin % 17.6% 12.3% 8.5% 5.3ppts 17.7% 12.6% 8.7% 5.1ppts 5.1ppts
Profit before tax 16.6 8.4 5.3 97.6% 18.5 8.3 6.1 122.9%
Profit after tax 13.4 6.8 4.1 97.1% 15.0 6.7 4.9 123.9%
Basic earnings per share 8.7p 4.4p 2.6p 97.7% 9.8p 4.3p 3.1p 127.9%
Net debt 24.3 22.7 36.4 7.0%
Net debt : EBITDA(3) 0.5x 0.8x 1.5x (37.5%)
Free cash flow 5.0 6.7 2.1 (25.4%) 5.0 10.2 5.1 (51.0%)
Return on capital invested 42.5% 24.5% 18.3% 18.0ppts
Dividend per share(4) 2.6p 1.5p 0.6p 73.3%
1. The definitions of the adjustments made and reconciliations to the
reported figures can be found in note 1 of the condensed consolidated
financial statements
2. H1 2021 translated at H1 2020 exchange rates. These were 1.26 for £:
US dollar and 9.04 for £: RMB. Further details in note 10 of the condensed
consolidated financial statements
3. Last 12 months earnings before net finance expense, tax, depreciation
and amortisation
4. H1 2020 excludes the one-off special interim dividend of 1.7p paid in
2020 in lieu of the suspended final dividend payment for 2019
Financial Highlights
· Revenue increased to £108.2m:
o £36.6m (51.1%) higher than a COVID-disrupted H1 2020
o £25.5m (30.8%) higher than H1 2019, underlining the extent of our ongoing
market share gains
· Gross Margin of 38.5%:
o 0.1ppts higher than H1 2020
o 2.3ppts lower than H2 2020's record levels, as expected, due to temporary
compression from cost inflation, but with operating margins supported by high
operating leverage on increased sales
· Adjusted Operating Profit of £19.2m, more than double H1 2020 and H1
2019:
o Material expansion in Adjusted Operating Margin to 17.7%
· Net debt to Adjusted EBITDA at 0.5x providing substantial capacity
for future investment in growth
· Proposed interim dividend of 2.6p, 73.3% higher than H1 2020
Business Highlights
· Generally favourable market conditions:
o Healthy UK residential RMI market throughout the first half
o Improving conditions in UK commercial and institutional and overseas markets
o Sources of growth increasingly diversified
· Progress in favourable conditions maximised by:
o Steady pipeline of new business wins
o Superior channel access
o Actions taken to increase product availability despite widespread supply
chain delays, facilitated by our vertically integrated model
· Impact of cost inflation on gross margin mitigated by manufacturing
efficiency gains, proactive selling price updates and hedging, in an
increasingly challenging environment
· On track to deliver ambitious ESG objectives for 2021
· On track to launch new EV charger range in H2 2021
· Luceco has performed well during COVID and should continue to prosper
as the effects of the pandemic recede:
o Shift toward home working should drive a structural uplift in our core
residential RMI market
o COVID has accelerated the existing shift in electrical product distribution
toward our largest sales channels
o Agile business model and vertical integration has proved a clear advantage
in changing market conditions
o Healthy post-COVID profitability, cash generation and balance sheet will
support investment in future growth
Commenting on the results, Chief Executive Officer, John Hornby said:
"The Group has outperformed the market throughout its history thanks to its
leading brands, strong channel relationships, well-invested product innovation
and operational agility. The competitive advantages of our business model
have been accentuated during COVID, accelerating our market share gains. As
a result, in the first half, we have increased Group revenue by 31% and
doubled Adjusted Operating Profit against pre-pandemic levels.
COVID has also brought severe supply chain disruption to our industry, driving
significant cost inflation and making it harder for all participants to serve
the customer. We have navigated these challenges comparatively well,
adjusting inventory cover, production levels and prices proactively. We have
managed to protect our overall margins and deliver strong profit growth in
favourable market conditions. Cost pressures are expected to increase in the
near-term as the global economy gathers steam at the end of the pandemic.
Our gross margins will inevitably see some temporary compression during this
phase, but I expect this to be compensated by good operating leverage from
sales growth.
Thanks in large measure to the dedication of the entire Luceco team, I believe
the Group is well positioned to continue to prosper as markets eventually
adapt to a post-pandemic future."
There will be a webcast presentation and conference call of the results at
9:30am BST today for analysts and investors. Please contact Florence Mayo at
MHP Communications on 020 3128 8572 or email luceco@mhpc.com
(mailto:luceco@mhpc.com) for details.
Luceco plc Contact
John Hornby, Chief Executive Officer 020 3128 8572 (Via MHP Communications)
Matt Webb, Chief Financial Officer 020 3128 8572 (Via MHP Communications)
MHP Communications Contact
Tim Rowntree 020 3128 8572
James Bavister 020 3128 8170
There will also be a live presentation relating to the 2021 Interim Results
via the Investor Meet Company platform on 13 September 2021 at 11:00am BST.
The presentation is open to all existing and potential shareholders.
Questions can be submitted pre-event via your Investor Meet Company dashboard
up until 9am the day before the meeting or at any time during the live
presentation. Investors can sign up to Investor Meet Company for free via:
https://www.investormeetcompany.com/luceco-plc/register-investor
(https://www.investormeetcompany.com/luceco-plc/register-investor)
Investors who already follow Luceco on the platform will automatically be
invited.
This announcement is released by Luceco plc and contains inside information
for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014
(MAR). It is disclosed in accordance with the Company's obligations under
Article 17 of MAR. Upon the publication of this announcement, this
information is considered to be in the public domain.
For the purposes of MAR and Article 2 of Commission Implementing Regulation
(EU) 2016/1055, this announcement is being made on behalf of Luceco plc by
Matt Webb, Chief Financial Officer.
Business summary
Luceco is a manufacturer and distributor of high quality and innovative wiring
accessories, LED lighting and portable power products for a global customer
base.
The Group supplies trade distributors, retailers, wholesalers and project
developers with a wide range of products which broadly fall into the following
market recognised brands:
· British General ("BG"): wiring devices including switches and
sockets, circuit protection and cable management products;
· Luceco and Kingfisher Lighting: energy efficient internal and
external LED lighting products and accessories; and
· Masterplug: cable reels, extension leads, surge protection,
timers and adaptor products;
Luceco's long-established BG brand commands a loyal following amongst
professional electrical contractors in both the UK and overseas. It is
synonymous with quality, safety, innovation and value for money. The
production of BG wiring accessories is the main focus of the Group's Chinese
manufacturing facility, allowing it to control product quality, cost and
availability.
The Luceco and Kingfisher LED lighting brands combine to present a
comprehensive range of indoor and outdoor LED lighting solutions that is well
positioned to benefit from growth in the net zero economy. The range focuses
largely on professionally installed products with an emphasis on performance
and quality. The Group is able to support these products by offering
customers access to its in-house installation design team.
Masterplug is the market leading brand in the UK Portable Power category. It
is sold largely to consumers through retail distribution and online. Its
products are offered in a wide range of global electrical standards and they
are sold in every territory in which the Group operates.
Further information on the Group can be found on www.lucecoplc.com
(http://www.lucecoplc.com) .
Forward-looking statements
This announcement contains forward‑looking statements that are subject to
risk factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries, sectors and
markets in which the Group operates. It is believed that the expectations
reflected in these statements are reasonable, but they may be affected by a
wide range of variables which could cause actual results to differ materially
from those currently anticipated. No assurances can be given that the
forward‑looking statements in this announcement will be realised.
The forward‑looking statements reflect the knowledge and information
available at the date of preparation of this announcement and the Company
undertakes no obligation to update these forward‑looking statements.
Nothing in this announcement should be construed as a profit forecast.
Use of alternative performance measures
The commentary in both the Chief Executive Officer's and Chief Financial
Officer's Reviews uses alternative performance measures, which are described
as "Adjusted". Definitions of these measures can be found in note 1 of the
condensed consolidated financial statements. The measures provide additional
information for users on the underlying performance of the business, enabling
consistent year-on-year comparisons.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The Group has a long track record of outperforming the market. Since its
formation in 2000, it has grown twice as fast as the UK Construction RMI
market that it largely serves. Our strategy for success - leading brands
sold through established sales channels, supported by product innovation and
an agile supply chain - endured throughout the 19 years that followed until
the world encountered COVID.
COVID has created an appalling global public health crisis. It also created
a set of market conditions that accentuated our sources of competitive
advantage. Our diverse sales channel access, with a bias toward
multi-channel distributors, provided continuous and relatively healthy demand
as markets responded differently to COVID. Our production capacity increased
faster than others to meet robust post-lockdown market demand. Our team on
the ground in China secured scarce sea containers amid a global shortage to
ensure deliveries were made on time. Our sales teams continued to win new
business throughout the pandemic as customers recognised our ability to
deliver consistently in changing circumstances. Widening the gap between us
and the competition in these and other ways accelerated our rate of market
outperformance. Our revenue is now 31% higher than it was pre-pandemic.
This trend has continued as our key markets have begun to transition from a
pandemic to endemic footing this year, suggesting the advantage we have gained
is here to stay.
In 2020, COVID created relatively good conditions in the Residential RMI
market, as people spent more time and money in and on their homes. This has
continued into the first half of 2021 and been joined by an improvement in
demand for LED retrofits in commercial and institutional settings in the
second quarter, broadening our sources of growth.
We have made a decent start to the third quarter. We have an encouraging
order book from Hybrid and Retail customers that we are working hard to ship
amid continued sea container shortages, and macro leading indicators such as
planning applications and architect/surveyor workloads suggest a good second
half. We have recently seen a softening in late July and August in
previously very robust UK Professional Wholesale demand which has slowed the
Group's rate of revenue growth compared to H1. This could be attributable to
both contractors and homeowners taking well-earned post-lockdown holidays en
masse at the end of the academic year, but we are keeping the situation under
review.
Healthy market conditions have been beneficial to our performance but
increased demand for goods over services during COVID has also brought
widespread supply chain disruption, making it more difficult for us all to
serve the customer, and resulting in cost inflation. The average cost of
copper and plastic in 2021 to date has been 37% and 71% higher than 2020
respectively. The cost of a sea container from China to the UK has increased
nearly five-fold over the same period. We estimate the total annual cost of
inflation to Luceco to date will be £20m, a 15% increase in our cost of goods
sold, of which £13m will arise in 2021 and £7m will be deferred into later
years by hedging arrangements.
We have had little option but to update our selling prices in response to this
industry-wide phenomenon, albeit with a slight lag due to notice periods and
order lead times. We expect 75% of our update to be in place by the start of
the fourth quarter, with the remaining 25% to follow in early 2022. Some of
the profit gap caused by the lag has been filled by impressive efficiency
gains from earlier manufacturing investment, whilst strong operating leverage
from 2021's sales growth has further mitigated the impact at the operating
margin level.
A selling price update of this magnitude whilst gaining share underlines both
the value of our brands and the widespread nature of the underlying
inflation. We have navigated the inflation challenge well to date but we are
not complacent. The mathematical reality is that cost inflation will
always dilute the gross margin % even if every pound is passed through. This
situation is also fast moving. For instance, we have recently received
notification of a further 40% increase in sea container rates for the fourth
quarter that we may not be able to pass through until early 2022. All of
this leads me to conclude that we will see some gross margin compression as we
navigate this post-lockdown inflationary phase in the second half, albeit
mitigated by solid operating leverage on strong sales growth. We continue to
expect to achieve Adjusted Operating Profit of £39m for FY 2021, as
previously guided, although temporary margin compression and the recent
softening in Professional Wholesale demand over the summer may have curtailed
any potential upside.
We have worked hard to insulate our customers from widespread supply chain
disruption. We have delivered a further increase in output from our
production facility in China, from last year's record levels. Our team there
have had an outstanding year to date. We have leveraged our extensive
network of OEM component suppliers in China and Taiwan to mitigate global
integrated circuit shortages. We have increased our inventory cover to
combat extended third-party supplier lead times, with the latter increasing
through COVID from an average of 87 to 134 days. We successfully implemented
market-leading software to manage our fulfilment operations, improving order
fill rates and delivery capacity. These agile actions collectively turned a
cause of potential disruption into a source of market share gain. Whilst I
am very pleased with our efforts to maximise product availability during
COVID, it would be remiss of me not to highlight that there is still the
potential for the more contagious delta variant to disrupt supply chains in
countries with lower vaccination levels or COVID-free strategies, such as
China which is of course important to us. Recent partial closures of the
Meidong and Yantian ports in China illustrate the potential of localised COVID
outbreaks to still impact our short-term forecasts.
Whilst COVID continues to challenge us in different ways, we have found time
to advance our strategy. We have accelerated our manufacturing
transformation initiative, improving efficiency and adding capacity for the
future. We have continued to invest in our supply chain transformation
initiative, implementing new software and adopting more efficient working
practices as previously described. We have been very active in seeking
M&A opportunities and, whilst we have not completed any acquisitions in
the period, I am increasingly positive about the role that M&A can play in
both bringing additional professional brands into our portfolio and perhaps
adding some geographic diversity to our sources of supply. We have increased
our marketing efforts with a focus on improving our brand presence and
engagement with the contractor directly. We have made good progress in the
ESG area, delivering many of the targets we had set for ourselves this year,
as described in more detail in the Chief Financial Officer's Review. We have
also launched our new Commercial Power range and plan to expand significantly
our range of EV chargers before the year-end.
As we look ahead with cautious optimism to a world in which we hope COVID can
be managed safely and with less economic disruption, I believe Luceco has
emerged from the COVID pandemic to date stronger and well positioned for the
future, with clear long-term growth drivers. Whilst our core Residential RMI
market has undoubtedly been buoyant during COVID, there are reasons to believe
there will be a permanent shift in consumer spend toward the home following an
inevitable permanent shift in working location. Surveys suggest COVID has
driven more contractors permanently toward multi-channel distribution, which
favours some of our key sales channels. We are well positioned to exploit
the electrification of energy to meet climate goals, particularly within EV
charging. Our balance sheet, profitability and cash flow have all improved
during COVID, unlike many others.
In short, we are well positioned to continue to invest in both organic and
acquisition opportunities to maintain the market outperformance that has been
Luceco's hallmark.
Performance by sales channel
We group our customers into the following sales channels:
· Retail: Distributors serving consumers only, including DIY sheds,
pure-play online retailers and grocers
· Hybrid: Distributors serving both consumers and professionals,
typically with multi-channel service options
· Professional Wholesale: Distributors serving professionals only,
largely via a branch network
· Professional Projects: Sale agreed by Luceco direct with
professionals, but fulfilled via Professional Wholesale
The following table, at constant exchange rates, outlines revenue by channel
and the growth rates versus H1 2020 and H1 2019:
Revenue by sales channel at constant exchange rates £m % of Growth v 2020 % Growth v 2019 %
2021 Total
Retail 37.5 33% 55.4% 33.9%
Hybrid 30.2 27% 80.1% 79.9%
Professional Wholesale 31.6 28% 63.1% 35.5%
Professional Projects 14.1 12% 24.4% (6.3%)
TOTAL at constant exchange rates 113.4 100% 58.4% 36.4%
Currency impact (5.2) (7.3%) (5.6%)
TOTAL 108.2 51.1% 30.8%
The table makes clear that our 31% increase in revenue versus pre-pandemic
levels, significantly better than the wider market, has been broadly based
albeit with some obvious highlights.
Progress in the Retail channel has been driven by healthy demand from UK DIY,
supported by key business wins in the Wiring Accessories category, and good
progress with major DIY chains in Continental Europe.
We estimate that Hybrid operators, of whom we have a greater than average
share, outperformed the wider market in 2020 by 32% due to their multi-channel
business model and this has continued in 2021. We supplemented this benefit
with key business wins, particularly in the Circuit Protection category,
leaving Hybrid sales considerably higher than pre-pandemic levels with no sign
of a slow-down as contractors regain their choice of distribution channel.
Professional Wholesale recovered very strongly in the first half of 2021 after
a prior year punctuated by COVID-enforced branch closures. We believe we
served this recovery better than most with good product availability. We
continue to see the strongest growth from the minority of wholesalers with
good online ordering options.
Professional Projects was the only channel to fall short of pre-pandemic
revenue levels, albeit that this shortfall occurred in the first quarter, with
second quarter revenue surpassing 2019 levels by 13%. Commercial and
institutional demand continues to improve with confidence returning to the LED
project market, further diversifying our sources of growth.
Performance by product group
The Group's operating segments are defined by its three major product groups:
Wiring Accessories, LED Lighting and Portable Power. Segmental operating
profit is stated after the proportional allocation of fixed central overheads.
Segmental profit contribution, before fixed central overheads, is also shown
to illustrate the likely profit impact of future growth.
Wiring Accessories
Adjusted(1) Reported
H1 H1 H1 H1
2021 2020 Change 2021 2020 Change
Revenue £53.7m £31.3m 71.6% £53.7m £31.3m 71.6%
Contribution profit £19.6m £10.9m 79.8% £19.6m £10.9m 79.8%
Contribution margin % 36.5% 34.8% 1.7ppts 36.5% 34.8% 1.7ppts
Operating profit £15.2m £7.3m 108.2% £15.2m £7.3m 108.2%
Operating margin % 28.3% 23.3% 5.0ppts 28.3% 23.3% 5.0ppts
1. A reconciliation of the reported to Adjusted results is shown within
note 1 of the condensed consolidated financial statements
Wiring Accessories is the Group's largest and most profitable segment,
generating 50% of Group revenue, with a brand established over 80 years ago.
Our Wiring Accessories sales are now nearly 60% higher than pre-pandemic
levels. We have secured important new business in both the Hybrid and Retail
channels and flexed our manufacturing output to meet the extra volume. Our
Circuit Protection sales are two-and-a-half times larger than pre-pandemic
levels due to new business wins and favourable regulatory changes. This
product group was first introduced in 2010 and has grown organically to become
a £30m annual sales category, underlining the Group's ability to develop
products and extend its brand.
Inflationary pressure on profitability was successfully offset by
manufacturing efficiency gains and by achieving increased sales without the
need for extra sales resources.
LED Lighting
Adjusted(1) Reported
H1 H1 H1 H1
2021 2020 Change 2021 2020 Change
Revenue £26.9m £19.8m 35.9% £26.9m £19.8m 35.9%
Contribution profit £4.5m £2.6m 73.1% £4.5m £2.6m 73.1%
Contribution margin % 16.7% 13.1% 3.6ppts 16.7% 13.1% 3.6ppts
Operating profit £2.3m £0.9m 155.6% £2.1m £0.7m 200.0%
Operating margin % 8.6% 4.5% 4.1ppts 7.8% 3.5% 4.3ppts
1. A reconciliation of the reported to Adjusted results is shown within
note 1 of the condensed consolidated financial statements
LED Lighting generates 25% of Group revenue.
Revenue increased by 35.9% in the year and by 5.1% over H1 2019. The
business experienced a slow start to 2021 with lighting projects curtailed by
COVID lockdowns and associated site access constraints. This improved in the
second quarter, with LED project revenue surpassing 2019 levels. Our project
order book suggests demand will remain good throughout the important
educational retrofit cycle in the third quarter.
Segmental profitability improved to an 8.6% Adjusted Operating Margin despite
COVID headwinds and inflationary pressures. We secured pricing updates in
our most technical lighting categories. We designed and sourced cheaper
versions of existing lines to offset increased commodity costs. We won new
business in channels with low additional cost to serve. Increasing sea
container costs present a challenge to segmental profitability given
lighting's relatively low value density.
Portable Power
Adjusted(1) Reported
H1 H1 H1 H1
2021 2020 Change 2021 2020 Change
Revenue £27.6m £20.5m 34.6% £27.6m £20.5m 34.6%
Contribution profit £4.0m £3.1m 29.0% £4.0m £3.1m 29.0%
Contribution margin % 14.5% 15.1% (0.6ppts) 14.5% 15.1% (0.6ppts)
Operating profit £1.7m £0.8m 112.5% £1.7m £0.8m 112.5%
Operating margin % 6.2% 3.9% 2.3ppts 6.2% 3.9% 2.3ppts
1. A reconciliation of the reported to Adjusted results is shown within
note 1 of the condensed consolidated financial statements
Portable Power represents 25% of Group revenue. We hold a leading position
in the UK portable power market, supported by a brand established over 30
years ago.
Segmental revenue is 20.0% higher than pre-pandemic levels thanks to business
wins with UK and European DIY multiples and independent chains, as well as
good progress in the US market despite stiffening freight and tariff
barriers.
Profitability expanded, but progress was limited by high inflation impacting
what is a high copper content and low value density product group. Some
margin compression is expected in the second half before pricing resets
deliver better profitability during 2022.
Outlook
The Group has outperformed the market throughout its history thanks to its
leading brands, strong channel relationships, well-invested product innovation
and operational agility. The competitive advantages of our business model
have been accentuated during COVID, accelerating our market share gains. As
a result, in the first half, we have increased Group revenue by 31% and
doubled Adjusted Operating Profit against pre-pandemic levels.
COVID has also brought severe supply chain disruption to our industry, driving
significant cost inflation and making it harder for all participants to serve
the customer. We have navigated these challenges comparatively well,
adjusting inventory cover, production levels and prices proactively. We have
managed to protect our overall margins and deliver strong profit growth in
favourable market conditions. Cost pressures are expected to increase in the
near-term as the global economy gathers steam at the end of the pandemic.
Our gross margins will inevitably see some temporary compression during this
phase, but I expect this to be compensated by good operating leverage from
sales growth.
Thanks in large measure to the dedication of the entire Luceco team, I believe
the Group is well positioned to continue to prosper as markets eventually
adapt to a post-pandemic future.
JOHN HORNBY
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
Income Statement
Revenue
Revenue increased by £36.6m (51.1%) to £108.2m in the period. The primary
drivers are shown below:
Change
Revenue bridge: £m %
H1 2020 71.6
Like-for-like increase 41.8 58.4%
H1 2021 in constant currency(1) 113.4
Currency movements (5.2) (4.6%)
H1 2021 108.2
1. H1 2021 translated at H1 2020 exchange rates
Depreciation of the US Dollar against sterling reduced the value of our
dollar-denominated Free On Board ('FOB') sales, resulting in a currency
headwind to revenue.
Like-for-like growth absent currency movements was 58.4% against a prior year
comparative weakened by COVID restrictions in the second quarter of 2020 and
30.8% on a reported basis against pre-pandemic H1 2019. Significant growth
during COVID has been achieved by a steady pipeline of new business wins,
superior sales channel access and actions taken to maximise product
availability despite pandemic-driven supply chain disruption.
The split of revenue by geography is as follows:
Revenue by geographical location of customer H1 % H1 %
2021 total revenue 2020 total revenue Growth
£m £m %
UK 89.2 82.5 56.1 78.4 59.0%
Europe 10.1 9.3 7.2 10.1 40.3%
Middle East and Africa 2.6 2.4 3.9 5.4 (33.3%)
Asia Pacific 2.2 2.0 1.3 1.8 69.2%
Americas 4.1 3.8 3.1 4.3 32.3%
Total revenue 108.2 100.0 71.6 100.0 51.1%
Growth by geography largely reflects levels of COVID disruption in each
country. The UK continued to allow construction and defined hardware stores
as essential throughout, allowing us to grow our sales healthily. European
DIY chains have been forced to close at different times in 2021, disrupting
progress somewhat, but the situation is now improving.
The Middle East and Africa were not meaningfully impacted by COVID until the
second half of 2020, presenting a tough comparative for the first half of this
year, but our current pipeline of LED projects indicates a better third
quarter.
Growth in the Americas was driven by increased sales of Portable Power
products to US DIY chains.
Profitability
The Group has significantly improved its profitability over the last three
years. Key to this has been gross margin, which has increased from 27.3% in
H1 2018 to 38.5% in H1 2021 through pricing updates and the delivery of
sustained reductions in product cost from improved sourcing and manufacturing.
As explained in the Chief Executive Officer's Review, severe cost inflation
brought about by COVID has placed the margin of all manufacturers under
pressure. We have worked hard to protect ours, delivering Adjusted Operating
Margin of 17.7% in H1 2021 versus 17.0% in FY 2020 and 12.6% in a
COVID-disrupted H1 2020.
The table below summarises the drivers of our improved profitability in the
period:
Adjusted(1) Adjusted(1) Operating Margin
Operating Profit £m
Profitability bridge:
H1 2020 9.0 12.6%
Cost inflation net of selling price updates (2.4) (3.5%)
Manufacturing efficiency gain 1.5 2.1%
Operating leverage on sales growth 12.0 6.5%
Currency movements (0.9) -
Total movement 10.2 5.1%
H1 2021 19.2 17.7%
1. Half Year 30 June 2020 translated at 2021 exchange rates to calculate
constant exchange rates impact
Inflation increased our cost of goods sold by £3.0m and overheads by £0.5m,
of which was £1.1m was passed on in selling price updates and £1.5m offset
by manufacturing efficiency gains. The benefit of selling price updates lags
cost inflation due to notice periods required to implement price changes and
order lead times. The resulting net profit gap of £0.9m reduced operating
margin by 1.4%, which was offset by strong operating leverage on sales growth,
leaving margins ahead of last year overall.
We expect product cost inflation of £3.0m in H1 to increase to £10.0m in H2
as we sell more products at more recent increased cost, experience higher
container costs and replace our currency and copper hedging with new cover at
higher rates. It is inevitable that cost inflation at these levels will
mathematically reduce the margin percentage even when all is passed through.
To illustrate, if we had experienced the additional £7.0m of inflation
forecast for H2 in H1 and fully offset it with higher selling prices, our
profit would have been unchanged, but our gross margin would have reduced from
38.5% to 36.2%. It is therefore reasonable to expect some gross margin
compression in the second half even as our selling price updates deliver
further benefit. Our profitability will continue to benefit from high
operating leverage on good sales growth and we therefore expect H2 2021
Adjusted Operating Margin to be similar to FY 2020 which would be a strong
performance in the circumstances.
Strong share price growth over the last three years has accrued unusually
significant value in the Group's long-term share option scheme. 2.4m
options, granted in 2018 when the Company's share price was approximately
one-tenth of its current value, are due to vest for UK scheme participants in
H2 2021. The Company will need to pay employers National Insurance on their
value. I estimate this will cost approximately £1.5m, with the charge being
taken as and when option holders choose to exercise vested options.
Net finance expense
Average debt levels in H1 2021 have been lower than H1 2020 and borrowing
costs have reduced, but we have yet to see the full benefit of this within net
finance expense. Strong sales have increased bank charges for the letters of
credit we use with certain FOB customers, leaving the net finance expense
unchanged from prior year at £0.7m. We are moving away from letters of
credit in H2 which will save cost and speed up cash collection.
Taxation
An effective tax rate of 18.9% is expected for 2021 versus 19.3% in the prior
year. This is lower than earlier years due to better tax planning.
Adjusted Free Cash Flow
Adjusted(1) Free Cash Flow H1 H1 LTM(3)
2021 2020 H1 2021
£m £m £m
Operating profit 19.2 9.0 40.2
Depreciation and amortisation 2.9 2.8 6.2
EBITDA 22.1 11.8 46.4
Changes in working capital (9.8) 1.6 (14.5)
Other items 0.8 0.4 1.5
Operating Cash Flow 13.1 13.8 33.4
Operating cash conversion(2) 68.2% 153.3% 83.1%
Net capital expenditure (3.0) (1.7) (5.7)
Interest paid (0.7) (0.7) (1.3)
Tax paid (4.4) (1.2) (8.9)
Free Cash Flow 5.0 10.2 17.5
Free Cash Flow as % Revenue 4.6% 14.2% 8.2%
1. A reconciliation of the reported to Adjusted results is shown within
note 1 of the condensed consolidated financial statements
2. Adjusted Operating Cash Conversion is defined as Adjusted Operating
Cash Flow divided by Adjusted Operating Profit
3. Results for the 12 months ended 30 June 2021
H1 2021 Adjusted Free Cash Flow margin of 4.6% was lower than recent trends
due to a £9.8m increase in working capital. This was driven by an increase
in inventory partly offset by quicker collection of receivables. The
inventory increase arose from a doubling of sea container lead times from
China that left more of our inventory in transit and therefore unproductive.
It was also the result of a temporary strategic increase in safety stocks in
our sales organisation to ensure customer service continuity in an unsettled
supply chain. We expect both factors to ameliorate over time, driving better
cash conversion in H2.
Capital expenditure
The Group's net capital expenditure consists of capitalised product
development costs and the purchase of physical assets.
During the period we capitalised £3.0m of assets including £0.3m of product
development costs. This compares to £1.7m in the prior year. Our capex
spend as a percentage of revenue was 2.9%, just under our expected range of
3-4%.
We invested £0.6m in our now completed Warehouse Management System ('WMS')
and upgraded our demand planning software. Both will deliver better
logistics efficiency and improve stock turn.
We expect a slight increase in capex in the second half of the year as a
hopefully more predictable supply chain environment allows us more time to
invest in manufacturing automation.
Capital structure and returns
Capital structure
The Group used its £5.0m of Adjusted Free Cash Flow to fund dividends of
£7.2m and EBT share purchases of £1.3m. Net debt increased from £18.3m on
31 December 2020 to £24.3m on 30 June 2021, which included an additional
£2.3m of IFRS 16 indebtedness from extending the lease on our main UK
operating site. Our IFRS 16 debt adjustment now totals £4.5m.
Increased profitability has lowered our net debt leverage and increased our
borrowing capacity as shown below:
£m 2021 2020 Change
Reported net debt £24.3m £22.7m £1.6m
Add: Non-recourse debt factoring - £1.5m (£1.5m)
Normalised net debt £24.3m £24.2m £0.1m
Normalised net debt : Adjusted EBITDA 0.5 0.8 (0.3)
Borrowing covenants and covenant headroom:
H1 2021 covenant Covenant Actual Headroom
Net debt : Adjusted EBITDA 2.5 : 1 0.5 Net debt headroom: £91.7(1)m
Adjusted EBITDA headroom: £36.7m
Adjusted EBITDA : Net finance expense 4.0 : 1 35.7 Adjusted EBITDA headroom: £41.2m
Net finance expense headroom: £10.3m
1. Headroom with increased facility. Current facility headroom is £30.2m
The Group's internal leverage policy limit of net debt at or below 2x Adjusted
EBITDA affords circa £80m of additional borrowing for acquisitions, assuming
those acquisitions are bought for on average 9x Adjusted EBITDA. Our
committed borrowing facilities total £50.0m, of which £30.2m was undrawn at
period end. We aim to replace these in the second half with an enlarged,
longer-dated facility that better matches our capacity to borrow.
The key measures which management use to evaluate the Group's use of its
financial resources and capital management are set out below:
Adjusted Adjusted
H1 2021 H1 2020
Basic Earnings Per Share (pence) 9.8 4.3
Net debt : Adjusted EBITDA (times) 0.5 0.8
Free Cash Flow (£m) 5.0 10.2
Note 1 in the notes to the condensed consolidated financial statements
provides an explanation of the Group's alternative performance measures.
The Group complied with its covenant requirements throughout the year with
significant headroom on all metrics. The Group has conducted a full going
concern review and this is outlined in note 1 of the condensed consolidated
financial statements. The Group has a strong balance sheet and significant
facility headroom under even a realistic worst case downside scenario. No
covenant breaches occur in any of our realistic downside cases, all of which
are before any mitigating actions, illustrating our financial resilience.
Return on capital
Return on Capital Invested exceeded our target in the period at 42.5% - above
our target range of 30-40%.
The Group continually reviews the deployment of its capital to ensure it is
invested in areas with the greatest opportunity for future returns. It has set
clear investment criteria for the deployment of additional capital. Its
investment in product development activities is focused on the low-risk
expansion of ranges sold through existing distribution channels. It
continually invests in projects that improve internal efficiency and deliver a
quick, relatively assured payback. Through these means, it aims to improve its
return on capital over time.
Dividends
The Board is proposing a 40% payout of Adjusted Profit After Tax, with a third
being paid out at the interim stage. It is therefore proposing an interim
dividend of 2.6p which will be paid on 22 October 2021 to shareholders on the
register on 16 September 2021.
Impact of foreign exchange movements
A summary of the condensed consolidated income statement on a constant
currency basis is shown below. Current period balances have been translated at
the prior year's average exchange rates and demonstrate the impact of the
movement in exchange rates during the period:
H1 2021 Currency impact H1 2021 Constant currency H1 2020
Adjusted Adjusted variance to H1 2020 Adjusted
actual(1) at constant actual
£m currency(2) £m
£m
£m % £m %
Revenue 108.2 (5.2) (4.6%) 113.4 41.8 58.4% 71.6
Cost of sales (66.5) 4.3 (6.1%) (70.8) (26.7) 60.5% (44.1)
Gross profit 41.7 (0.9) (2.1%) 42.6 15.1 54.9% 27.5
Gross margin % 38.5% 0.9ppts 37.6% (0.8ppts) 38.4%
Operating costs (22.5) - - (22.5) (4.0) 21.6% (18.5)
Operating profit 19.2 (0.9) (4.5%) 20.1 11.1 123.3% 9.0
Operating margin % 17.7% - 17.7% 5.1ppts 12.6%
1. Translated at H1 2021 average exchange rates
2. Translated at H1 2020 average exchange rates
The Group's main currency exposures are with the US dollar ("USD") and Chinese
Renminbi ("RMB"). The average USD rate experienced by the Group increased from
last year creating a revenue headwind. The RMB strengthened slightly against
sterling, increasing the cost of our products but our hedging limited the
overall currency impact in the period to just £0.9m.
The commentary above focuses on Adjusted metrics (see note 1) which, the Board
believes are a better indicator of performance. Our Reported performance was
lower than our Adjusted performance due largely to a decrease in the fair
value of currency hedging. The following table summarises Reported key lines
from the condensed consolidated income statement:
Reported Reported
Summary of results (£m) 2021 2020
Revenue 108.2 71.6
Operating profit 19.0 8.8
Profit before tax 16.6 8.4
Taxation (3.2) (1.6)
Profit for the year 13.4 6.8
Environmental, Social and Governance ('ESG') update
As a reminder, the Group set the following ESG objectives for 2021:
· Eliminate or offset Scope 1 and 2 GHG emissions by year end
· Quantify Scope 3 GHG emissions
· Commence participation in the Carbon Disclosure Project
· Launch a comprehensive ESG strategy
· Commit to science-based climate targets
75% of the Group's Scope 1 and 2 GHG emissions arise from electricity. We
have arranged for this to switch to renewable sources and we will offset the
remaining 25% with high quality carbon credits whilst we invest to eliminate
the emissions at source over the coming years.
We have now quantified our Scope 3 emissions for the first time, which is a
foundational step toward setting science-based targets ('SBTi'). We will
publish the emissions details at year-end.
We filed our first submission to the Carbon Disclosure Project, thereby
increasing the transparency and scrutiny of our climate performance and
goals. We will set targets for our CDP rating once we know the outcome of
our first assessment.
We will provide further details on our comprehensive ESG strategy, together
with the timeline for participating in the SBTi at year-end.
MATT WEBB
Chief Financial Officer
GOING CONCERN
The directors have reviewed the current financial performance and liquidity of
the business, and assessed its resilience to a reduction in sales through a
series of scenarios. The directors report that, having reviewed current
performance and forecasts, they have a reasonable expectation that the Group
has adequate resources to continue its operations for the foreseeable future.
For this reason, they have continued to adopt the going concern basis in
preparing the interim financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board is responsible for identifying, reviewing and managing business and
operational risk. It is also responsible for determining the level of risk
appetite it is prepared to take in the ordinary course of business to achieve
the Group's strategic objectives and to ensure that appropriate and sufficient
resource is allocated to the management and mitigation of risk.
In addition to the risk management framework, the Board has delegated
responsibility to the Audit Committee for reviewing the overall process of
assessing business risks and managing the impact on the Group. The Group's
risk management process is set out below.
The principal risks identified, and actions taken to minimise their potential
impact are: risk associated with coronavirus, concentration risks associated
with operations, concentration risk associated with customers and products
(including product and shipping cost inflation), macroeconomic and political
and environmental, loss of IT / data, loss of key employees, acquisitions,
legal and regulatory and finance and treasury. This is not an exhaustive
list but those the Board believes may have an adverse effect on the Group's
cash flow and profitability. See pages 36 to 41 in the 2020 Annual Report
and Accounts for a full review of principal risks and their impact and
mitigation of them.
In determining whether it is appropriate to adopt the going concern basis in
the preparation of the financial statements, the Directors have considered
these principal risks and uncertainties. The Viability Statement on pages 42
to 44 of the 2020 Annual Report and Accounts considers the prospects of the
Group should a number of these risks crystallise together.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK;
· the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Approved by the Board on 7 September 2021 and signed on its behalf.
JOHN HORNBY
Chief Executive Officer
MATT WEBB
Chief Financial Officer
Condensed Consolidated Income Statement
for the period ended 30 June 2021
Adjusted Adjustments(1) Adjusted Adjustments(1)
H1 2021 H1 2021 H1 2021 H1 2020 H1 2020 H1 2020 FY 2020
Note £m £m £m £m £m £m £m
Revenue 2 108.2 - 108.2 71.6 - 71.6 176.2
Cost of sales (66.5) - (66.5) (44.1) - (44.1) (106.0)
Gross profit 41.7 - 41.7 27.5 - 27.5 70.2
Other income - - - 1.0 - 1.0 -
Distribution expenses (3.7) - (3.7) (3.1) - (3.1) (8.6)
Administrative expenses (18.8) (0.2) (19.0) (16.4) (0.2) (16.6) (32.0)
Operating profit 2,3 19.2 (0.2) 19.0 9.0 (0.2) 8.8 29.6
Finance income - - - - 0.3 0.3 5.3
Finance expense (0.7) (1.7) (2.4) (0.7) - (0.7) (1.3)
Net finance expense (0.7) (1.7) (2.4) (0.7) 0.3 (0.4) 4.0
Profit before tax 18.5 (1.9) 16.6 8.3 0.1 8.4 33.6
Taxation 4 (3.5) 0.3 (3.2) (1.6) - (1.6) (5.7)
Profit for the period 15.0 (1.6) 13.4 6.7 0.1 6.8 27.9
Earnings per share (pence)
Basic 5 9.8 (1.1) 8.7 4.3p 0.1p 4.4p 18.0p
Fully diluted 5 9.5 (1.0) 8.5 4.3p - 4.3p 17.7p
1. Definition of the adjustments made to the reported figures can be found
in note 1 in the notes to the condensed consolidated financial statements
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2021
H1 2021 H1 2020 FY 2020
£m £m £m
Profit for the period 13.4 6.8 27.9
Other comprehensive income - amounts that may be reclassified to profit or
loss in the future:
Foreign exchange translation differences - foreign operations and investments (0.5) 1.7 0.8
Total comprehensive income for the period 12.9 8.5 28.7
All results are from continuing operations.
The accompanying notes form part of these financial statements.
Condensed Consolidated Statement of Financial Position
at 30 June 2021
H1 2021 H1 2020 FY 2020
Note £m £m £m
Non-current assets
Property, plant and equipment 7 19.0 17.8 17.8
Right-of-use assets 4.5 3.0 2.7
Intangible assets 8 20.7 22.0 21.5
Financial assets held for trading 0.9 - 1.4
Deferred tax asset 2.6 - 0.5
47.7 42.8 43.9
Current assets
Inventories 49.2 29.7 37.2
Trade and other receivables 70.3 42.5 71.8
Financial assets held for trading 3.1 - 4.1
Cash and cash equivalents 2.4 - 6.7
125.0 72.2 119.8
Total assets 172.7 115.0 163.7
Current liabilities
Interest-bearing loans and borrowings 9 - 0.2 -
Trade and other payables 64.7 32.5 63.6
Current tax liabilities 2.0 3.2 3.1
Financial assets held for trading 0.4 - 0.5
Other financial liabilities 1.2 1.2 1.2
68.3 37.1 68.4
Non-current liabilities
Interest-bearing loans and borrowings 9 22.2 19.4 22.2
Other financial liabilities 3.3 1.9 1.6
Financial assets held for trading 0.3 - -
Deferred tax liability - 1.0 -
Provisions 1.1 0.8 1.1
26.9 23.1 24.9
Total liabilities 95.2 60.2 93.3
Net assets 77.5 54.8 70.4
Equity attributable to equity holders of the parent
Share capital 0.1 0.1 0.1
Share premium 24.8 24.8 24.8
Translation reserve (0.6) 0.8 (0.1)
Treasury reserve (8.1) (5.3) (6.8)
Retained earnings 61.3 34.4 52.4
Total equity 77.5 54.8 70.4
The accompanying notes form part of these financial statements.
Condensed Consolidated Statement of Changes in Equity
for the period ended 30 June 2021
Share Share Translation Retained Treasury Total
capital premium reserve earnings reserve equity
£m £m £m £m £m £m
Balance at 1 January 2020 0.1 24.8 (0.9) 27.2 (4.1) 47.1
Total comprehensive income
Profit for the period - - - 6.8 - 6.8
Currency revaluations of investments 1.0 1.0
Currency translation differences - - 0.7 - - 0.7
Total comprehensive income for the period - - 1.7 6.8 - 8.5
Transactions with owners in their capacity as owners:
Purchase of own shares - - - - (1.2) (1.2)
Share-based payments charge - - - 0.4 - 0.4
Total transactions with owners in their capacity as owners - - - 0.4 (1.2) (0.8)
Balance at 30 June 2020 0.1 24.8 0.8 34.4 (5.3) 54.8
Balance at 1 January 2021 0.1 24.8 (0.1) 52.4 (6.8) 70.4
Total comprehensive income
Profit for the period - - - 13.4 - 13.4
Currency revaluations of investments - - (0.7) - - (0.7)
Currency translation differences - - 0.2 - - 0.2
Total comprehensive income for the period - - (0.5) 13.4 - 12.9
Transactions with owners in their capacity as owners:
Dividends - - - (7.2) - (7.2)
Purchase of own shares - - - - (1.3) (1.3)
Deferred tax on share-based payment transactions - - - 2.0 - 2.0
Share-based payments charge - - - 0.7 - 0.7
Total transactions with owners in their capacity as owners - - - (4.5) (1.3) (5.8)
Balance at 30 June 2021 0.1 24.8 (0.6) 61.3 (8.1) 77.5
Condensed Consolidated Cash Flow Statement for the period ended 30 June 2021
Adjusted Adjustments(1) Adjusted Adjustments(1)
H1 2021 H1 2021 H1 2021 H1 2020 H1 2020 H1 2020 FY 2020
Note £m £m £m £m £m £m £m
Cash flows from operating activities
Profit for the period 15.0 (1.6) 13.4 6.7 0.1 6.8 27.9
Adjustments for:
Depreciation and amortisation 7,8 2.9 0.2 3.1 2.8 0.2 3.0 6.5
Financial income - - - - (0.3) (0.3) (5.3)
Financial expense 0.7 1.7 2.4 0.7 - 0.7 1.3
Taxation 4 3.5 (0.3) 3.2 1.6 - 1.6 5.7
Loss on disposal of tangible assets - - - - - - 0.1
Share-based payments charge 0.8 - 0.8 0.4 - 0.4 1.0
Operating cash flow before movement in working capital 22.9 - 22.9 12.2 - 12.2 37.2
Decrease/(increase) in trade and other receivables 1.4 - 1.4 4.6 (3.5) 1.1 (28.5)
(Increase)/decrease in inventories (12.2) - (12.2) 2.5 - 2.5 (4.8)
Decrease/(increase) in trade and other payables 1.0 - 1.0 (5.5) - (5.5) 25.2
Cash from operations 13.1 - 13.1 13.8 (3.5) 10.3 29.1
Income taxes paid (4.4) - (4.4) (1.2) - (1.2) (5.7)
Net cash from operating activities 8.7 - 8.7 12.6 (3.5) 9.1 23.4
Cash flows from investing activities
Acquisition of property, plant and equipment 7 (2.8) - (2.8) (1.3) - (1.3) (3.3)
Acquisition of other intangible assets 8 (0.3) - (0.3) (0.4) - (0.4) (1.1)
Disposal of tangible assets 7 0.1 - 0.1 - - - -
Net cash used in investing activities (3.0) - (3.0) (1.7) - (1.7) (4.4)
Cash flows from financing activities
Proceeds from new loans (0.6) - (0.6) 13.4 - 13.4 -
Repayment of borrowings (0.6) - (0.6) (20.0) - (20.0) (3.8)
Interest paid (0.7) - (0.7) (0.7) - (0.7) (1.3)
Dividends paid (7.2) - (7.2) - - - (4.9)
Finance lease liabilities (0.7) - (0.7) (0.6) - (0.6) (1.1)
Purchase of treasury shares (1.3) - (1.3) (1.2) - (1.2) (2.7)
Net cash from financing activities (11.1) - (11.1) (9.1) - (9.1) (13.8)
Net (decrease)/increase in cash and cash equivalents (5.4) - (5.4) 1.8 (3.5) (1.7) 5.2
Cash and cash equivalents at 1 January 6.7 1.4 1.4
Effect of exchange rate fluctuations on cash held (0.1) 0.1 0.1
Cash and cash equivalents(2) at 30 June/31 December 1.2 (0.2) 6.7
1. The definitions of the adjustments made to the statutory figures can be
found in note 1 in the notes to the condensed consolidated financial
statements
2. Cash and cash equivalents is £1.2m on the cashflow due to offsetting
permissions of IAS7 but £2.4m on the balance sheet as the balances on not
offset under IAS32
The accompanying notes form part of theses financial statements.
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021
1. Basis of preparation
Luceco plc (the 'Company') is a company incorporated and domiciled in the
United Kingdom. These condensed consolidated interim financial statements
("interim financial statements") for the period ended 30 June 2021 comprise
the Company and its subsidiaries (together referred to as the "Group"). The
Group is primarily involved in the manufacturing and distributing of high
quality and innovative wiring accessories, LED lighting and portable power
products to global markets (see note 2).
This condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the UK.
The annual financial statements of the group for the year ending 31 December
2021 will be prepared in accordance with UK-adopted international accounting
standards. As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial statements has
been prepared applying the accounting policies and presentation that were
applied in the preparation of the company's published consolidated financial
statements for the year ended 31 December 2020 which were prepared in
accordance with International Financial Reporting Standards (IFRSs) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in conformity with
the requirements of the Companies Act 2006.
The interim financial statements do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2020 were approved by the Board of Directors and have
been delivered to the Registrar of Companies. The audit report on those
accounts was unqualified and did not contain any statement under section
498(2) or (3) of the Companies Act 2006.
The interim financial information have been reviewed, not audited.
Risks and uncertainties
An outline of the key risks and uncertainties faced by the Group is described
in the 2020 Annual Report and Accounts. Risk is an inherent part of doing
business and the Directors believe that the Group is well placed to manage the
key risks it faces.
Going concern
The Directors have concluded that it is reasonable to adopt a going concern
basis in preparing the financial statements. This is based on an expectation
that the Company and the Group have adequate resources to continue in
operational existence for 12 months from the date of signing these accounts.
The Group has reported a profit before tax of £16.6m for the six months to 30
June 2021 (30 June 2020: £8.4m and 31 December 2020: £33.6m), has net
current assets of £56.7m (30 June 2020: £35.1m and 31 December 2020:
£51.4m) and net assets of £77.5m (30 June 2020: £54.8m and 31 December
2020: £70.4m).
The capital resources at the Group's disposal at 30 June 2021 were as follows:
· a revolving credit facility of £30.0m, £14.2m drawn at 30 June
2021
· an invoice financing facility of £20.0m, £8.0m was drawn at 30
June 2021
Both bank facilities mature on 31 March 2023, the Company is currently
negotiating an extension of bank facilities which is expected to be effective
from H2 2021.
The revolving credit facility requires the Group to comply with the following
quarterly financial covenants:
· Closing net debt of no more than 2.5 times Adjusted EBITDA for
the preceding 12-month period. At the 30 June 2021 this ratio was 0.5 - with
headroom on net debt of £91.7m (assuming a higher facility) and EBITDA of
£36.7m.
· Adjusted EBITDA of no less than 4.0 times Adjusted Net Finance
Expense, both for the preceding 12-month period. At the 30 June 2021 this
ratio was 35.7 - with headroom on Net Finance Expense of £10.3m and EBITDA of
£41.2m.
The Directors ran scenario tests on the severe but plausible downside case
during the year end and they have updated their forecasts based on the first
half performance of 2021. The assumptions in these scenarios were as follows:
Concentration risks with associated operations (25% reduction in revenue for
three months followed by 50% reduction for three months and 20% increase in
shipping costs during the period) and macroeconomic, political and
environmental risks (18 month recession with a 10% reduction in revenue and
gross profit). These severe but plausible downside scenarios do not lead to
any breach in covenants nor any breach in facility. All modelling has been
conducted without any mitigation activity. There have been no changes to post
balance sheet liquidity positions.
The Directors are confident that the Group and Company will have sufficient
funds to continue to meet its liabilities as they fall due for at least 12
months from the date of approval of the financial statements and therefore
have prepared the financial statements on a going concern basis.
Standards and interpretations issued
At the date of the approval of these financial statements, the following
standards and interpretations, which have not yet been applied in these
financial statements, were in issue, but not yet effective:
· Amendments to References to Conceptual Framework for IFRS
Standards
· Definition of a Business (Amendments to IFRS 3)
· Definition of Material (Amendments to IAS 1 and IAS 8)
The following accounting standards and amendments that are applicable to the
Group have been issued by the IASB but had either not been adopted by the UK
or were not yet effective at 30 June 2021.
· IFRS 17 Insurance Contracts. The current effective date is 1
January 2022. This is not expected to be applicable to the Group.
· Sale or Contribution of Assets between an Investor and its
Associate or Joint venture (Amendments to IFRS 10 and IAS 28).
Statutory and non-statutory measures of performance - adjusted measures
The financial statements contain all the information and disclosures required
by the relevant accounting standards and regulatory obligations that apply to
the Group.
The Group's performance is assessed using a number of financial measures which
are not defined under IFRS (the financial reporting framework applied by the
Group). Management uses the adjusted or alternative performance measures
("APMs") as a part of their internal financial performance monitoring and when
assessing the future impact of operating decisions. The APMs disclose the
adjusted performance of the Group excluding specific items. The measures
allow a more effective year-on-year comparison and identification of core
business trends by removing the impact of items occurring either outside the
normal course of operations or because of intermittent activities such as a
corporate acquisition. The Group separately reports items in the Condensed
Consolidated Income Statement and Condensed Consolidated Cash Flow Statement
which, in the Directors' judgement, need to be disclosed separately by virtue
of their nature, size and incidence for users of the financial statements to
obtain a balanced view of the financial information and the underlying
performance of the business.
In following the guidelines on Alternative Performance Measures (APMs) issued
by the European Securities and Markets Authorities, the Group has included a
Condensed Consolidated Income Statement and Condensed Consolidated Cash Flow
Statement that have both Statutory and Adjusted performance measures.
The measures used in these interim financial statements are defined in the
table on page 109 of the 2020 Annual Report and Financial Statements and the
principles to identify adjusting items have been applied on a consistent
basis.
The unaudited measures used in the interim financial statements and
adjustments made are summarised in the table below for H1 2021 and H1 2020
respectively:
Adjusted Amortisation of acquired intangibles and related acquisition costs(2) H1 2021 Total adjustments H1 2021
2021 Remeasurement to fair value of hedging portfolio(1) £m £m Reported
£m £m £m
Revenue 108.2 - - - 108.2
Cost of sales (66.5) - - - (66.5)
Gross profit 41.7 - - - 41.7
Other income - -
Distribution expenses (3.7) - - - (3.7)
Administrative expenses (18.8) - (0.2) (0.2) (19.0)
Operating profit 19.2 - (0.2) (0.2) 19.0
Net finance expense (0.7) (1.7) - (1.7) (2.4)
Profit before tax 18.5 (1.7) (0.2) (1.9) 16.6
Taxation (3.5) 0.3 - 0.3 (3.2)
Operating profit 15.0 (1.4) (0.2) (1.6) 13.4
Gross margin 38.5% 38.5%
1. Relating to currency hedges
2. Relating to Kingfisher Lighting
Adjusted Amortisation of acquired intangibles and related acquisition costs(2) H1 2021 Total adjustments H1 2021
2020 Remeasurement to fair value of hedging portfolio(1) £m £m Reported
£m £m £m
Revenue 71.6 - - - 71.6
Cost of sales (44.1) - - - (44.1)
Gross profit 27.5 - - - 27.5
Other income 1.0 - - - 1.0
Distribution expenses (3.1) - - - (3.1)
Administrative expenses (16.4) - (0.2) (0.2) (16.6)
Operating profit 9.0 - (0.2) (0.2) 8.8
Net finance expense (0.7) 0.3 - 0.3 (0.4)
Profit before tax 8.3 0.3 (0.2) 0.1 8.4
Taxation (1.6) - - - (1.6)
Operating profit 6.7 0.3 (0.2) 0.1 6.8
Gross Margin 38.4% 38.4%
1. Relating to currency hedges
2. Relating to Kingfisher Lighting
2. Operating segments
The Group's principal activities are in the manufacturing and supply of Wiring
Accessories, LED Lighting and Portable Power equipment. In previous years,
Ross's home entertainment products have been shown as a separate segment. In
2020 the Group combined its Ross business with Portable Power and these
operating segments have now been merged into one. This has been reflected in
both the current and prior period segmental results. For the purposes of
management reporting to the Chief Operating Decision-Maker (the Board), the
Group consists of three operating segments which are the product categories
that the Group distributes. The Board does not review the Group's assets and
liabilities on a segmental basis and, therefore, no segmental disclosure is
included. Inter-segment sales are not material. Revenue and operating profit
are reported under IFRS 8 Operating Segments.
Adjusted Adjusted
H1 2021 Adjustment(1) H1 2021 H1 2020 Adjustment(1) H1 2020
£m £m £m £m £m £m
Revenue
Wiring Accessories 53.7 - 53.7 31.3 - 31.3
LED Lighting 26.9 - 26.9 19.8 - 19.8
Portable Power 27.6 - 27.6 20.5 - 20.5
108.2 - 108.2 71.6 - 71.6
Operating profit
Wiring Accessories 15.2 - 15.2 7.3 - 7.3
LED Lighting 2.3 (0.2) 2.1 0.9 (0.2) 0.7
Portable Power 1.7 - 1.7 0.8 - 0.8
Operating profit 19.2 (0.2) 19.0 9.0 (0.2) 8.8
1. Relating to Kingfisher Lighting
Revenue by location of customer
H1 2021 H1 2020
£m £m
UK 89.2 56.1
Europe 10.1 7.2
Middle East and Africa 2.6 3.9
Asia Pacific 2.2 1.3
Americas 4.1 3.1
Total revenue 108.2 71.6
3. Expenses recognised in the Condensed Consolidated Income Statement
Included in the Condensed Consolidated Income Statement are the following:
H1 2021 H1 2020 FY 2020
£m £m £m
Research and development costs expensed as incurred 1.9 0.8 2.2
Depreciation of property, plant and equipment and right-of-use assets 2.1 2.1 4.3
Amortisation of acquired intangible assets 0.2 0.2 0.4
Amortisation of internally developed intangible assets 0.8 0.7 1.8
4. Income tax expense
A tax charge for the six-month period has been included in the Condensed
Consolidated Income Statement at £3.2m (H1 2020: £1.6m) and has been
calculated using the anticipated effective tax rate on the taxable profit of
the Group. The anticipated effective tax rate for the year ending 31
December 2021 was calculated at 19.3% (H1 2020: 19.0%).
5. Earnings per share
Earnings per share is calculated based on the profit for the period
attributable to the owners of the Group. Adjusted earnings per share is
calculated based on the adjusted profit for the period, as detailed below,
attributable to the owners of the Group. These measures are divided by the
weighted average number of shares outstanding during the period.
H1 2021 H1 2020 FY 2020
£m £m £m
Reported earnings for calculating basic earnings per share 13.4 6.8 27.9
Adjusted for:
Amortisation of acquired intangibles and related acquisition costs 0.2 0.2 0.4
(Gain)/loss on remeasurement to fair value of hedging portfolio 1.7 (0.3) (5.3)
Income tax on above items (0.3) - 1.0
Adjusted earnings for calculating adjusted basic earnings per share 15.0 6.7 24.0
H1 2021 H1 2020 FY 2020
Number Number Number
million million Million
Weighted average number of ordinary shares
Basic 153.7 155.2 154.7
Dilutive effect of share options on potential ordinary shares 4.2 1.8 2.7
Diluted 157.9 157.0 157.4
H1 2021 H1 2020 FY 2020
Pence Pence Pence
Basic earnings per share 8.7 4.4 18.0
Diluted earnings per share 8.5 4.3 17.7
Adjusted basic earnings per share 9.8 4.3 15.5
Adjusted diluted earnings per share 9.5 4.3 15.2
6. Dividend
An interim dividend of 2.6 pence per share will be paid to shareholders on
22 October 2021. This compares to a 1.5p interim dividend in 2020. Note an
additional payment of 1.7p in lieu of the 2019 final dividend was also paid in
the second half of 2020.
7. Property, plant and equipment
During the six months ended 30 June 2021, the Group purchased assets at a cost
of £2.8m (H1 2020: £1.3m, FY 2020: £3.3m); including plant and equipment
£1.7m, construction in progress £0.5m and tooling £0.6m. Assets with a net
book value of £0.1m were disposed of (H1 2020: nil, FY 2020: nil). Total
depreciation for the period was £1.5m (H1 2020: £1.5m; FY 2020 £3.1m).
During the period there were lease additions totalling £2.4m and a
depreciation charge of £0.6m. The net book value of right-of-use assets at 30
June 2021 was £4.5m (30 June 2020: £3.0m, 31 December 2020: £2.7m).
The Group has not included any borrowing costs in additions for either 2021 or
2020. There were no funds specifically borrowed for the assets and the amount
eligible as part of the general debt instruments pool (after applying the
appropriate capitalisation rate) is not considered material.
8. Intangible assets and goodwill
Development expenditure is capitalised and included in intangible assets when
it meets the criteria laid out in IAS 38 Intangible Assets. During the six
months ended 30 June 2021, the Group capitalised internally generated
development costs of £0.3m (H1 2020: £0.4m, FY 2020: £1.1m). Amortisation
for the period on development costs was £0.8m (H1 2020: £0.7m; FY 2020
£1.8m). There were no capitalised borrowing costs.
The Group recognised an amortisation charge of £0.2m in the first half year
(H1 2020: £0.2m; FY 2020: £0.4m) in respect of acquired intangible assets
from Kingfisher Lighting. In the Condensed Consolidated Income Statement
these amounts have been included within "adjustments" in calculating the
Adjusted Operating Profit/loss (refer to note 1 in the Notes to the Condensed
Consolidated Financial Statements).
There have been no triggers to necessitate an impairment review of goodwill
since the review undertaken as part of the year ended 31 December 2020.
Goodwill has been allocated to cash-generating units and can be referred to in
the Group's 2020 Annual Report and Accounts.
9. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings, which are measured at amortised cost.
For more information about the Group's exposure to interest rate and foreign
currency risk, please refer to note 19 in the 2020 Annual Report and
Accounts.
H1 2021 H1 2020 FY 2020
£m £m £m
Current liabilities
Revolving credit facility - 0.2 -
Non-current liabilities
Revolving credit facility 14.2 4.9 13.6
Secured bank loans - invoice financing 8.0 14.5 8.6
22.2 19.6 22.2
Secured bank loans are secured by a fixed and floating charge over the assets
of the Group and are committed to 31 March 2023.
10. Exchange rates
The following significant Sterling exchange rates were applied during the
year:
Average rate Reporting date spot rate
H1 2021 H1 2020 H1 2021 H1 2020
USD 1.39 1.26 1.38 1.23
EUR(1) 1.15 1.14 1.16 1.10
RMB 8.91 9.04 8.93 8.72
11. Financial risk management and financial instruments
The Group's activities expose it to a variety of financial risks that include
currency risk, interest rate risk, credit risk and liquidity risk.
These interim financial statements do not include all financial risk
management information and disclosures required in the Annual Report and
Accounts. They should therefore be read in conjunction with the Group's
Annual Report and Accounts for the year ended 31 December 2020. There have
been no changes to the risk management policies since the year ended 31
December 2020.
12. Related party transactions
The Group has related party relationships with its subsidiaries and with its
directors. Transactions between Group companies, which are related parties,
have been eliminated on consolidation and are not disclosed in this note.
There have been no related party transactions with directors other than in
respect of remuneration.
13. Date of approval of financial information
The interim financial information covers the period 1 January 2021 to 30 June
2021 and was approved by the Board on 7 September 2021. Further copies of
the interim financial information can be accessed via the Luceco plc website:
www.lucecoplc.com (http://www.lucecoplc.com) .
INDEPENDENT REVIEW REPORT TO LUCECO PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2021 which comprises Condensed consolidated income statement, Condensed
consolidated statement of comprehensive income, Condensed consolidated
statement of changes in equity, Condensed consolidated statement of total
financial position, Condensed consolidated statement of cash flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2021 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements of the group
were prepared in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union and in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and the next annual financial
statements will be prepared in accordance with UK-adopted international
accounting standards. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly financial
report in accordance with IAS 34 as adopted for use in the UK.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Michael Froom
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill, Snow Hill Queensway
Birmingham B4 6GH
7 September 2021
Additional information
Financial calendar
Interim ex-dividend date 9 September 2021
Last date for Dividend Reinvestment Plan (DRIP) elections 1 October 2021
2020 Q3 trading update 21 October 2021
Interim dividend payment date 22 October 2021
2021 Year end 31 December 2021
2021 Full year trading update 20 January 2022
2021 Full year results statement 22 March 2022
AGM 12 May 2022
2022 Half year end 30 June 2022
2022 Half year trading update 19 July 2022
2022 Half year interim results statement 6 September 2022
Company's registered office
Luceco plc
Building E Stafford Park 1
Stafford Park
Telford TF3 3BD
www.lucecoplc.com (http://www.lucecoplc.com)
Independent auditor
KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
Financial advisors and brokers
Numis Securities
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Liberum
Ropemaker Place
Level 12, 25 Ropemaker Street
London EC2Y 9LY
Company registrar
Link Group
10th floor, Central Square
29 Wellington Street
Leeds LS1 4DL
Email: shareholderenquiries@linkgroup.co.uk
(mailto:shareholderenquiries@linkgroup.co.uk)
Tel: UK: 0371 664 0300 (calls are charged at the standard
geographic rate and will vary by provider)
International: +44 (0)371 664 0300
Company secretariat
Company Matters (part of Link Group)
6(th) Floor, 65 Gresham Street
London EC2V 7NQ
Email: luceco@linkgroup.co.uk (mailto:luceco@linkgroup.co.uk)
Tel: 020 7954 9547
Media and investor relations
MHP Communications
6 Agar Street
London WC2N 4HN
Email: luceco@mhp.com (mailto:luceco@mhp.com)
Tel: 020 3128 8572
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