REG - Luceco PLC - Final Results
21/03/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230321:nRSU5988Ta&default-theme=true
RNS Number : 5988T Luceco PLC 21 March 2023
21 March 2023
LUCECO PLC
2022 FULL YEAR RESULTS
Well positioned to progress as market conditions improve
Luceco plc ("Luceco", or the "Group" or the "Company"), the supplier of wiring
accessories, EV chargers, LED lighting, and portable power products, today
announces its audited results for the year ended 31 December 2022 ("2022" or
"the year").
Year ended Reported results Adjusted(1) results
31 December (£m)
2022 2021 2019(4) Change vs 2019 2022 2021 2019(4) Change vs 2019
(%) (%)
Revenue 206.3 228.2 172.1 19.9% 206.3 228.2 172.1 19.9%
Gross margin % 36.0% 37.1% 37.5% (1.5ppts) 36.0% 37.1% 36.2% (0.2ppts)
Operating profit 20.0 35.3 20.2 (1.0%) 22.0 39.0 18.0 22.2%
Operating margin % 9.7% 15.5% 11.7% (2.0ppts) 10.7% 17.1% 10.5% 0.2ppts
Profit before tax 11.7 33.3 17.1 (31.6%) 19.4 37.4 15.8 22.8%
Profit after tax 11.0 27.1 13.1 (16.0%) 17.2 31.2 12.1 42.1%
Basic earnings per share 7.1p 17.6p 8.3p (14.5%) 11.1p 20.2p 7.7p 44.2%
Net Debt 29.4 38.1 27.4 7.3%
Covenant Net Debt : EBITDA(2) 0.8x 0.7x 1.1x (27.3%)
Free cash flow 30.3 18.0 13.0 133.1% 30.7 18.8 18.9 62.4%
Return on capital invested 18.2% 36.4% 21.8% (3.6ppts)
Dividend per share(3) 4.6p 8.1p 2.3p(3) 100.0%
1. The definitions of the adjustments made and reconciliations to the
reported figures can be found in note 1 of the consolidated financial
statements
2. Includes pro-forma adjustment for EBITDA of acquired businesses, as
shown in note 1 of the consolidated financial statements
3. Restated to include a 1.7p dividend paid in 2020 in lieu of the final
dividend payment for 2019 that was temporary suspended due to COVID
4. Pre-COVID comparator
Performance highlights
· 2022 results in line with January Trading Update:
o Revenue: £206.3m
o Adjusted Operating Profit: £22.0m
o Adjusted EPS: 11.1p
· Results reflect normalisation after a record 2021 performance:
o Slowdown in Residential RMI demand post-lockdown
o Significant but temporary headwind from distributor customer destocking
· Results remain well ahead of pre-pandemic levels:
o Versus 2019:
§ Revenue +20%
§ Adjusted Operating Profit +22%
§ Adjusted EPS +44%
o Gained share in attractive markets
· Improving momentum in the second half:
o Strong Non-Residential demand
o Resilient Professional Residential RMI demand
o Customer destocking nearing completion
o Gross margin improving and input costs reducing
o Strong cash generation
o Healthy balance sheet
Outlook
· 2023 trading in line with expectations
· Seeing expected tailwinds from improving trends in:
o customer destocking
o gross margin
o input costs
· Slower Residential RMI market, as expected
· Comparatives get easier as the year progresses
· Well positioned to progress as market conditions improve
Commenting on the results, Chief Executive Officer, John Hornby said:
"These results are significantly ahead of pre-pandemic levels and, although
they don't match the record benchmark set last year, they underline the
strategic progress we have made over recent years. A record cash flow
performance for the year has also left our balance sheet in great shape.
Our trading performance relative to prior year reflects the particularly
buoyant demand we experienced in 2021, boosted by COVID lockdowns and stocking
up by our distributor customers. It also reflects slower demand in 2022 as
residential RMI markets have normalised and as our customers have run their
stocks down. I am pleased to report that destocking by our customers is nearly
complete.
Trading in early 2023 has been in line with our expectations, with tailwinds
from reduced customer destocking, improved gross margin and lower input costs
balancing less residential RMI activity. Whilst the macroeconomic outlook for
2023 remains difficult to judge, I am encouraged by the healthy underlying
trading momentum we are carrying into the year which leaves us well positioned
to progress as market conditions improve."
A meeting for analysts will be held at 9:30am GMT today, Tuesday 21 March 2023
at the offices of Liberum, 25 Ropemaker Street, London EC2Y 9LY. To register
to attend please email luceco@mhpgroup.com (mailto:luceco@mhpgroup.com) . To
register to watch a live webcast of the meeting, please follow this link:
https://stream.brrmedia.co.uk/broadcast/63ce7074777efd4a8b513ae0
(https://stream.brrmedia.co.uk/broadcast/63ce7074777efd4a8b513ae0)
An open presentation and Q&A session for retail investors will be held via
the Investor Meet Company platform at 9:00am GMT on 23 March 2023. Investors
can register for the event via this link:
https://www.investormeetcompany.com/ (https://www.investormeetcompany.com/)
Luceco plc Contact
John Hornby, Chief Executive Officer 020 3128 8276 (Via MHP Communications)
Matt Webb, Chief Financial Officer 020 3128 8276 (Via MHP Communications)
MHP Communications Contact
Tim Rowntree 020 3128 8004
Ollie Hoare 020 3128 8276
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.
Note to Editors
Luceco plc - Bringing Power To Life
Luceco plc (LSE:LUCE) is a supplier of wiring accessories, EV chargers, LED
lighting, and portable power products.
For more information, please visit 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
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
Performance highlights
In 2022, we delivered revenue of £206.3m (2021: £228.2m; 2019: £172.1m) and
Adjusted Operating Profit of £22.0m (2021: £39.0m; 2019: £18.0m).
The reduction in trading performance versus the prior year reflects
particularly buoyant demand in our core residential RMI construction market in
2021 as well as previously flagged destocking by our major distributor
customers in 2022.
Whilst it proved difficult to keep pace with our exceptional 2021 results, we
have delivered significant growth in both revenue and profit versus pre-COVID
2019 comparatives, underlining the strategic progress we have made over recent
years which positions us well for the future.
The slower activity versus a buoyant 2021, combined with diligent working
capital management, generated a record cash inflow in 2022. This has left our
balance sheet in great shape, allowing us to plan and invest with confidence.
I am also encouraged by the way in which our performance improved as the year
progressed, providing healthy earnings momentum as we start a new financial
year.
Customer stock movements
Nearly all of our sales are made to distributors, who in turn sell to the end
users of our products, namely consumers or professional installers. The demand
we experience is therefore a product of end user activity plus stock movements
in the distribution channel. The pandemic caused some very unusual distributor
stock movements.
In 2021, the combination of strong end user demand and exceptionally
constrained global supply chains caused our distributor customers to
materially increase their stock of our products, adding to our sales. In 2022,
they largely unwound the extra inventory added as both demand and supply chain
constraints eased, reducing our sales.
This sharp transition from stocking up to stocking down had a significant
impact on our year-on-year performance. Customer stock movements explain all
of our revenue and profit reduction in 2022. The data we have from our major
customers shows that they reduced their stock levels by c.£20m in 2022, with
a further c.£5m reduction expected in 2023. We therefore believe that we are
nearing the end of this temporary, post-pandemic destocking phase, which is
encouraging for the future.
Cost inflation
Aside from customer stock movements, the other key driver of our results in
2022 was our close management of input cost inflation.
Global supply and demand imbalances in the wake of the pandemic resulted in
significant industry-wide input cost inflation from late 2020 onwards. We
identified these trends early and reset selling prices accordingly without
impacting on our competitive position.
Despite protection from hedging arrangements and inventory cover, unusually
rapid inflation resulted in costs rising faster than selling prices in 2021,
leading to an under-recovery of inflation in that year. As anticipated, this
gap closed in 2022 as selling price updates delivered their full expected
benefit. Indeed, the cost of key items such as sea freight and commodities
retreated as the year progressed, which is encouraging for 2023. In short, we
have the prices we need in the market to manage the current wave of global
inflation and the proven ability to adapt if circumstances change.
Underlying demand
The prevalence of pandemic-driven customer stock movements and cost inflation
in 2022 makes it harder to isolate our underlying performance trends.
Our analysis shows that our like-for-like revenue absent customer stock
movements was broadly flat year-on-year, with a 9% average price increase
offsetting a 9% volume decline. The volume decline largely arose from the
residential RMI market, particularly in the DIY segment following the start of
the Ukraine conflict, whilst the non-residential market remained more
resilient. Encouragingly, the rate of volume decline slowed as the year
progressed due to the combination of easier comparatives and growing demand
for LED retrofit projects as energy prices increased.
Whilst this is encouraging, we remain mindful that 2023 could bring continued
pressure on discretionary consumer spending. However, any future volume
slowdown would be mitigated by the improvements we have made throughout the
year to gross margin, which was above 38% at the end of 2022, with a full-year
average of 36%.
Supply chain management
For professional contractors, time is money. We know that product availability
is a key driver of their loyalty. We gained market share during the pandemic
by helping our distributor customers to remain in stock of our products
despite unprecedented turmoil in the global supply chain.
Our vertically integrated manufacturing model allowed us to respond with
agility to rapid changes in demand. In 2021, we took the decision to add a
£12m buffer to our own inventory to compensate for elongated delivery lead
times and preserve customer service levels.
I am pleased to say that lead times have normalised in 2022 and we have
therefore removed the extra inventory. This, combined with diligent cash
collection, were the key drivers of our record Adjusted Free Cash Flow of
£30.7m in 2022 (2021: £18.8m; 2019: £18.9m).
Strategic highlights
The pandemic has presented a series of unique and consuming challenges over
the last three years. The fact that we have risen to them whilst also
delivering on our Grow, Innovate and Sustain strategy is testament to the
strength of our business model and the dedication of the Luceco team.
Our progress is evident in our financial performance. Since pre-pandemic 2019,
we have grown our revenue and Adjusted EPS by 20% and 44% respectively. Whilst
impressive, I do not believe this does justice to the actions we have taken to
improve the quality and sustainability of our business over recent years,
which leave us well positioned for the future.
Key aspects of our strategic progress are summarised below.
Grow
We have gained market share over recent years.
We have complemented the Group's long history of organic growth with
acquisitions funded by our consistently strong cash flow. The acquisition of
Sync EV in 2022 has given us a valuable foothold in the rapidly growing EV
charger market. We now have the right foundations for a successful "buy and
build" M&A strategy.
Kingfisher Lighting, celebrating five years of Luceco ownership, enjoyed an
outstanding year. Following our help with the design, sourcing and manufacture
of new lower cost, high quality products, the business has been able to
improve its profitability and gain share in the Sports, High Mast and Rail
outdoor lighting markets. This demonstrates the value we can add to the
businesses we buy.
Through organic growth and M&A, we have increased our sales of
professionally installed products over recent years, a key strategic priority,
to complement our historic weighting towards consumer installed products. This
has given us greater access to a typically higher margin and more resilient
market. Our growth in the non-residential construction market has proved
particularly beneficial as consumer-led construction has normalised post-COVID
and institutions have increasingly demanded LED retrofit projects to combat
energy cost increases.
We have also continued to refine our portfolio, shifting capital towards those
businesses with greatest long-term potential. This resulted in the closure of
our sales office in Germany in 2022.
Innovate
The Group has approximately 100 product development specialists globally.
Their focus is on developing new products whilst continually enhancing our
existing range. Our product development process is customer-centric, rapid and
carries relatively low execution risk. It has been a key driver of the Group's
historic success.
The focus of our innovation activities in 2022 was on entering the EV charger
market and bringing product development benefits to our acquired businesses.
We launched our new range of residential EV chargers in the year, which we are
making very competitively at our production facility in China. They are sold
jointly under the BG and Sync EV brands for maximum market appeal. These have
been well received by installers and have helped us achieve a 4% share of the
UK market in our first year. We will continue to expand our product range in
2023, including the launch of EV chargers for installation in commercial
settings.
We are making good progress in integrating DW Windsor, supporting its drive to
gain share in the street lighting market by sourcing and manufacturing a more
competitive alternative to its current product range. Whilst 2022 has been a
year of transition for the business, we hope that over time these efforts will
deliver similar benefits to those now being seen in Kingfisher Lighting.
We continue to innovate our core offering to deliver higher margin products,
with a particular focus on redesigning products to simplify their installation
by professional contractors. We are pleased with contractor feedback on our
recently launched range of circuit protection and weatherproof devices.
Sustain
We have made significant progress with our climate goals, which we hope will
be a source of increasing competitive advantage in the future.
We committed to the Science Based Targets initiative ("SBTi"), targeting a 42%
reduction in operational emissions and a 27.5% reduction in value chain
emissions by 2031. We expect these targets to be validated by the SBTi in
2023. Our operations continue to offer one of the lowest operational carbon
footprints in our industry and our progress was recognised with an upgraded
rating by the Carbon Disclosure Project in 2022.
We have held over 100 contractor training seminars nationwide so far this
year, hosted in conjunction with our major professional wholesale customers.
We continue to invest in the next generation of contractors. We were proud to
sponsor the prestigious eFIXX 30 under 30 awards, aimed at recognising
talented, young electricians in the UK.
We continue to invest in our business model to sustain and accelerate future
growth. It was exciting to see the collective impact of our efforts to
automate our production facility in China during my first visit there in three
years after a pandemic‑enforced hiatus. I am confident that this work will
continue to deliver improvements in manufacturing efficiency and product
quality, with the latter being key to making further inroads with the
professional contractor. We are also making progress with defining our
longer-term manufacturing diversification strategy - a key priority for 2023.
I am also pleased with the changes we are making within our commercial
functions to improve their reach. New CRM software is enabling a more
efficient sales process and recent investments in our online capability are
bearing fruit.
In summary, I am proud of the progress the entire Luceco team have made in the
year. We have made further steps towards our sustainability goals, integration
of our recent acquisitions is going well and the right actions are being taken
to deliver on our long-term strategy.
How we create value
I think it is important to assess how our business ultimately creates value
for our customers, shareholders and other stakeholders, as well as providing
great products for our end consumers.
Our attractive markets
Over the course of the last decade, we have worked hard to both grow our share
of existing markets as well as enter adjacent markets where we see a
competitive advantage. As a result, we now hold enviable positions across a
range of industries that are poised for future growth.
Although demand from residential construction and DIY markets has slowed by
5.1% in the year relative to the buoyant 2021 performance boosted by
lockdowns, these markets remain more active than they were in 2019. Consumers
continue to spend more time living and working from home than they did
pre-pandemic, which continues to be a benefit to us.
Non-residential construction markets have grown 13.2% in the year with higher
energy prices driving increased interest in our energy-saving LED lighting
retrofit projects.
I am also encouraged that the infrastructure market, which we serve through
our Kingfisher Lighting and DW Windsor businesses, grew by 10.1% versus 2021.
Our customers operating within the infrastructure market have long recognised
the benefits that premium exterior lighting can have on an environment, but
given the current cost of energy, these advantages have become even more
pertinent.
I am confident that the right fundamental drivers are in place in each of our
chosen markets for us to see sustained growth over the coming years, despite
operating in a period of short-term macroeconomic uncertainty. What is more, I
am certain that we have the right strategy in place to outperform these
markets over the long term.
Our advantaged business model
Our advantaged business model is a key reason why we capture opportunities in
our chosen markets. Over the course of the pandemic our vertical integration
gave us unmatched control of supply, enabling us to provide greater product
availability to our customers and fuelling our own market share gains.
In 2022, our business model has enabled us to continue to remain agile as
short-term demand changed as a result of our customers' stock movements. As
our operating environment altered, our close control of our own manufacturing
and distribution channels enabled us to respond quickly by flexing our
inventory levels, generating cash and maintaining good gross margins.
Although our markets are attractive, the opportunities they create can only be
harnessed by those with the correct processes and knowledge. Regulatory change
is a key part of our industry, with new wiring regulations introduced
approximately every two years.
Our advantaged business model allows us to redesign to meet these new
regulations, manufacture the new product at our own facilities and bring the
product to market quickly and efficiently under our trusted brands. The same
advantages apply when considering the end consumers' increasing desire for
more technology and increased functionality, which we can respond to more
quickly than others.
Finally, our business model is allowing us to respond more quickly to the
climate emergency. Not only does our control over our processes allow us to
act to minimise our environmental impact, with our operations remaining carbon
neutral in 2022, it also enables us to design products that promote
sustainable choices.
Compelling financial outcomes
Our attractive markets and how we operate within them create compelling
financial outcomes. This is evident from our historic financial performance.
Whilst customer stock movements made progress more challenging in 2022,
temporary headwinds such as this do not change my view on our long-term
potential. This view is supported by progressive improvements during 2022 to
both gross margin and cash generation, which are the foundations on which much
of our financial performance is built.
I am particularly pleased with the way we ended the year and our ability to
respond to the challenges we have faced lends further support to the success
of our long-term strategy.
Our long-term performance targets remain unchanged and are covered in the
Chief Financial Officer's Review.
Outlook
Trading in early 2023 has been in line with our expectations, with tailwinds
from reduced customer destocking, improved gross margin and lower input costs
balancing less residential RMI activity. Whilst the macroeconomic outlook for
2023 remains difficult to judge, I am encouraged by the healthy underlying
trading momentum we are carrying into the year which leaves us well positioned
to progress as market conditions improve.
JOHN HORNBY
Chief Executive Officer
20 March 2023
CHIEF FINANCIAL OFFICER'S REVIEW
Comparisons with 2021 are hampered by unusually buoyant COVID-driven
conditions experienced in that year. As we emerge from the pandemic and
markets normalise, I have chosen to add a 2019 pre-pandemic comparator
throughout this review to provide a clearer view of our underlying progress.
Summary of reported results
Summary results (£m) 2022 2021 2019
Revenue 206.3 228.2 172.1
Operating profit 20.0 35.3 20.2
Profit before tax 11.7 33.3 17.1
Taxation (0.7) (6.2) (4.0)
Profit for the year 11.0 27.1 13.1
Operating profit of £20.0m was £15.3m lower than 2021 due to customer stock
movements, as explained in more detail below. It was broadly in line with our
2019 performance despite less favourable trading conditions caused by customer
destocking in 2022.
Adjusting items
Adjusting items are those which we consider unusual by virtue of their size or
incidence and therefore not representative of our underlying trading
performance. We have identified £2.0m of such items within our reported
operating profit for 2022. They consist of:
· Amortisation of acquired intangibles: £1.8m
· Acquisition-related costs of £1.2m
· Restructuring provision release of £1.0m
Adjusted Operating Profit for the year, excluding the items above, was
therefore £22.0m (2021: £39.0m; 2019: £18.0m).
Income statement
Revenue
Revenue of £206.3m was £21.9m (9.6%) lower than 2021 but £34.2m (19.9%)
higher than 2019. The main movements are summarised below:
Bridge from 2021 Bridge from 2019
Revenue bridge: £m Change % £m %
2021/2019 228.2 172.1
Acquisitions/closures 17.3 7.6% 23.0 13.4%
Like-for-like (decrease)/increase(1) (46.6) (20.4%) 9.7 5.6%
Constant Currency(2) 198.9 (12.8%) 204.8 19.0%
Currency movements 7.4 3.2% 1.5 0.9%
2022 206.3 (9.6%) 206.3 19.9%
(1. ) (Like-for-like revenue increase excludes the impact of currency
movements and acquisitions, see footnote 2 for currency calculation 2022
revenue translated at 2021 exchange rates)
Revenue benefited from the acquisition of DW Windsor in late 2021 and Sync EV
in early 2022. This added £17.3m to Group revenue in 2022, net of the impact
of closing our operations in France and Germany.
Like-for-like revenue declined by £46.6m compared to 2021 due overwhelmingly
to customer stock movements. In 2021, our Retail and Hybrid distributor
customers experienced buoyant demand in the residential RMI market as people
spent more time and money on their homes during the pandemic. A swing in
consumer spending from services to goods during the pandemic stretched global
supply chains, lengthening product delivery lead times. Our customers
responded to this by increasing their inventory cover of our products in 2021,
adding to our already buoyant sales. The end of pandemic restrictions in 2022
normalised consumer spending patterns and supply chains. Our customers have
therefore reduced their inventory of our products in 2022, reducing our sales.
The sharp reversal in customer stocking trends from upward to downward
explains all of our like-for-like revenue reduction versus 2021. The effect
was particularly pronounced in the second half. Most of this destocking
activity is now complete. We estimate that customers only need to reduce their
inventory levels by a further c.£5m in 2023 to achieve their targeted
inventory cover.
Our analysis shows that like-for-like revenue absent customer stock movements
was broadly flat year-on-year, with 9% growth from price increases offsetting
a 9% underlying volume decline. We saw an inevitable slowdown in demand from
the residential RMI market, particularly within the DIY segment. After a
strong start to the year, demand cooled in the second quarter as hostilities
in Ukraine eroded consumer confidence and prompted a squeeze on domestic
incomes. However, we were pleasantly surprised by the resilience of this
market as the year progressed. We also benefited from our enlarged presence in
non-residential and infrastructure construction markets, which saw strong
demand for energy-saving LED lights and a gradual release of commercial
capital expenditure post-COVID. The 9% average price increase in 2022 largely
reflects the full-year impact of selling prices amended in 2021 in response to
input cost inflation. Adjusting for customer stock movements, we believe we
have increased our market share during the pandemic, as our growth versus 2019
indicates, and enriched our margin mix by increasing the proportion of our
sales made to professional end users.
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 largely fulfilled via Professional Wholesale
Performance by sales channel was as follows:
Like-for-like revenue by sales channel: 2022 2022 2019 Change vs 2021 % Change vs 2019 %
£m % of total % of total
Retail 48.8 27.7% 33.4% (31.7%) (7.9%)
Hybrid 35.7 20.2% 20.5% (36.6%) 9.3%
Professional Wholesale 51.0 28.9% 27.4% (12.5%) 11.8%
Professional Projects 40.9 23.2% 18.7% 17.9% 17.8%
Like-for-like revenue 176.4 100.0% 100.0% (20.4%) 5.6%
Currency impact 7.4
Acquisitions/closures 22.5
TOTAL 206.3 (9.6%) 19.9%
The Group has increased its presence in sales channels serving professional
contractors since 2019 and thereby created a more diversified revenue base.
This has been achieved through like-for-like growth, as shown in the table
above, and
acquisitions. It helped to soften the impact of the slowdown in Retail and
Hybrid sales in 2022 as pandemic-boosted DIY activity normalised and the
associated sales channel destocked. We aim to continue to diversify our
revenue base, diluting the influence of individual sectors and customers and
making the Group increasingly resilient over time.
Nearly all of the destocking impact we experienced in the year arose within
the Retail and Hybrid channels. These customers hold greater inventory of our
products relative to their size because they buy from us on long lead times
direct from China on a Free On Board ("FOB") basis and therefore hold the
product for longer. The amount of inventory cover they needed rose sharply in
2021 as demand increased and delivery times from China extended. The removal
of this extra inventory cover in 2022 is evident from the larger revenue
reduction in these channels.
The slowdown in the Professional Wholesale channel was more modest and
contrasted with the performance of the Hybrid channel despite both selling to
professional contractors. This underlines the impact of destocking.
Traditional electrical wholesalers buy from us on short lead times in the
country in which they operate, meaning they had less need to destock in 2022.
Our Professional Wholesale business largely serves professional residential
RMI construction, which proved more resilient than DIY-driven RMI due to
contractors bringing significant project backlogs into the year. The channel
also benefited from growing EV charger sales as the year progressed.
We saw like-for-like growth in the Professional Projects channel in the year
thanks to a record performance from Kingfisher Lighting and growing commercial
and institutional demand for LED retrofits in the UK as electricity prices
increased.
Revenue by geographical location of customer: 2022 2021 2019
£m £m £m Change vs Change vs
2021 % 2019 %
UK 165.3 181.2 135.1 (8.8%) 22.4%
Europe 19.7 24.0 17.6 (17.9%) 11.9%
Middle East and Africa 8.7 7.6 9.0 14.5% (3.3%)
Asia Pacific 8.0 10.6 4.3 (24.5%) 86.0%
Americas 4.6 4.8 6.1 (4.2%) (24.6%)
Total revenue 206.3 228.2 172.1 (9.6%) 19.9%
Customer destocking impacts were largely confined to the UK market, which
explains the UK revenue decline of 8.8% versus 2021.
European sales reduced in the year following the closure of our operations in
Germany and France. These actions have improved regional profitability. Sales
in the Middle East and Africa grew by 14.5% versus 2021. Regional construction
projects resumed apace following a slower 2021, underpinned by a healthy oil
price. Growth was also helped by favourable currency movements.
The sales decline in the Americas is attributable to the US market. A key
customer in the US DIY channel over-bought stock in 2021, whilst temporarily
elevated sea container costs also reduced the price competitiveness of our
Portable Power products. However, we were encouraged by our progress in
Mexico, where sales increased by 17% thanks to further share gains in the
project-based LED lighting market.
Our progress in Asia Pacific was hampered by COVID restrictions, which are now
finally easing.
Profitability
Adjusted Operating Profit of £22.0m for 2022 was £17.0m lower than 2021 but
£4.0m higher than 2019. The key drivers were as follows:
Bridge from 2021 Bridge from 2019
Adjusted Operating Profit £m £m
2021/2019 39.0 18.0
Acquisitions/closures 1.2 1.6
Like-for-like (decrease)/increase(1) (17.1) 2.9
Currency movements (1.1) (0.5)
2022 22.0 22.0
(1. Like-for-like profit movements exclude the impact of currency
movements and acquisitions/closures)
The net impact of acquisitions and closures added £1.2m to Adjusted Operating
Profit. This includes one-off losses incurred during stock clearance activity
in Germany. DW Windsor experienced a slower year for tendered street lighting
projects, but we expect profits to grow in 2023 following actions taken to
improve gross margin and lower overheads.
The reduction in revenue due to customer stock movements had a material impact
on like-for-like profit since it largely impacted the sale of high margin
Wiring Accessories made in-house. Manufacturing overheads were consequently
less well utilised than in 2021. The end of destocking should therefore
materially help future profitability, notwithstanding changes in macroeconomic
conditions.
We benefited as expected from a catch up in the pass through of
pandemic-driven input cost inflation, which added £8.1m to like-for-like
profit in the year. We now have the selling prices we need in the market to
insulate ourselves from the recent wave of global inflation.
Indeed, in recent months we have seen a gradual reversal of those input costs
most elevated by the pandemic, such as sea freight and certain commodities. As
a result, my estimate of the total impact of input cost inflation on our
annual cost base since pre-pandemic 2019 has reduced from £21.5m at half year
2022 to £14.0m now. This is a helpful development, but we will remain alert
to cost changes until macroeconomic conditions stabilise.
The table below provides a more detailed view of the currency impact in the
year:
Adjusted Currency impact Adjusted 2022 Constant Currency Adjusted
2022 at Constant variance to 2021 2021
actual(1) Currency(2) actual
£m £m £m
£m % £m %
Revenue 206.3 7.4 3.2% 198.9 (29.3) (12.8%) 228.2
Cost of sales (132.0) (8.3) 5.8% (123.7) 19.8 (13.8%) (143.5)
Gross profit 74.3 (0.9) (1.1%) 75.2 (9.5) 11.2% 84.7
Gross margin % 36.0% (1.8ppts) 37.8% 0.7ppts 37.1%
Operating costs (52.3) (0.2) 0.4% (52.1) (6.4) 14.0% (45.7)
Operating profit 22.0 (1.1) (2.8%) 23.1 (15.9) (40.8%) 39.0
Operating margin % 10.7% (0.9ppts) 11.6% (5.5ppts) 17.1%
(1. Year ended 31 December 2022 translated at 2022 average exchange
rates)
(2. Year ended 31 December 2022 translated at 2021 average exchange
rates)
Operating costs
Adjusted Operating Costs increased by £6.6m to £52.3m. £5.4m of the
increase came from acquisitions, net of closures. The remaining £1.2m
increase is from a combination of wage inflation, increased direct marketing
to the professional contractor and currency movements.
Net finance expense
Adjusted Net Finance Expense increased by £1.0m to £2.6m in 2022, reflecting
an increase in borrowing and interest rates.
We entered into swaps in the period to fix the interest rate applicable to
approximately 70% of our borrowings on a rolling three-year basis, resulting
in an effective interest rate of 4.9% (subject to small changes driven by the
impact of debt leverage on lending margin in the future). 30% of our borrowing
remains at floating interest rates.
Taxation
The effective tax rate on Adjusted Profit Before Tax reduced by 5.3ppts to
11.3% in 2022. The Group's mix of profits by country would indicate a typical
effective tax rate of c.19.5%. Work done over recent years to maximise
available tax incentives, particularly those relating to research and
development, has lowered this to c.15%. The slightly lower rate of 11.3%
achieved in 2022 also reflects certain one-off benefits relating to prior
years. We expect a Group effective tax rate of c.20% when the new UK
corporation tax regime takes effect in April 2023.
Adjusted Free Cash Flow
Adjusted(1) Free Cash Flow (£m) Adjusted(1) Adjusted(1) Adjusted(1)
2021 2021 2019
Operating profit 22.0 39.0 18.0
Depreciation and amortisation 7.1 6.7 7.9
EBITDA 29.1 45.7 25.9
Changes in working capital 13.4 (12.6) 1.0
Other items 1.2 1.9 0.3
Operating Cash Flow 43.7 35.0 27.2
Operating cash conversion(2) 198.6% 89.7% 151.1%
Net capital expenditure (5.6) (6.4) (3.6)
Interest paid (2.7) (1.7) (2.1)
Tax paid (4.7) (8.1) (2.6)
Free Cash Flow 30.7 18.8 18.9
Free Cash Flow as % Revenue 14.9% 8.2% 11.0%
(1. A reconciliation of the reported to Adjusted results is shown
within note 1 of the consolidated financial statements)
(2. Adjusted Operating Cash Conversion is defined as Adjusted
Operating Cash Flow divided by Adjusted Operating Profit)
In 2021, we added £12.0m of buffer stock to our own inventory to combat
supply chain disruption. At half year 2022, with supply chains normalising, we
announced that this would be largely removed and converted into cash in the
second half. I am pleased to report that this has now been done. This,
combined with disciplined cash collection, resulted in record Operating Cash
Conversion of 198.6% and Adjusted Free Cash Flow of £30.7m. The one-off
benefit from selling through buffer stock means that, whilst cash generation
should remain healthy, we are unlikely to match 2022's performance in 2023.
Capital expenditure
The Group's net capital expenditure consists of capitalised product
development costs and the purchase of physical assets. Capex reduced slightly
by £0.8m to £5.6m (2021: £6.4m; 2019: £3.6m) but was 2.7% of revenue
(2021: 2.8%; 2019: 2.1%) which is approaching our target range of 3-4%. We
continue to see opportunities to invest in low risk, high return automation
projects in our Chinese production facility and continue to invest in R&D
projects, particularly in relation to acquired businesses.
Capital structure and returns
Return on capital
Return on Capital Invested was lower than prior year at 18.2% (2021: 36.4%).
As previously flagged, our returns will naturally reduce as Luceco transitions
from a Group created organically to one growing equally via M&A (with its
required investment in goodwill). However, the reduction experienced in 2022
also reflects the temporary impact of customer destocking on profit. The
growing significance of M&A to the Group means the time is right to reset
our target for Return on Capital Invested. We expect average Return on Capital
Invested through the economic cycle to be 20% or higher.
Acquisitions
The acquisition of Sync EV was completed in March 2022. Sync EV is a
well-regarded supplier of EV charge points focused on the residential market
in the UK. Until June 2022, the installation of EV chargers into residential
settings was subsidised by a government grant that resulted in installations
being arranged directly between homeowners, equipment suppliers and a network
of approved installers. The removal of the grant has, as expected, opened up a
growing market to others. Whilst many installations still originate via
automotive OEMs who assign the work to approved partners, a growing proportion
are arranged directly between homeowner and electrician, with the electrician
sourcing the charger via their chosen Wholesaler or Hybrid. We are in a prime
position to gain a sizeable share of the market due to our brand recognition
amongst electricians, access to the Hybrid and Wholesale channels and our
vertically integrated, scalable supply chain.
The acquisition of Sync EV has given us technical know-how and extra presence
in the market. We have wasted no time in launching a new range of single-phase
Mode 3 chargers under a joint BG Sync EV branding. They address opportunities
within the Residential and Commercial sectors and are selling well. We are in
the process of designing a higher power, three-phase charger for use in large
homes and commercial premises. We have plans to enter the important fleet
market and are investigating on-street charging options with DW Windsor.
EV charging is a fast-growing, adjacent product category that is highly
synergistic with our core BG offering so the potential for future growth in
this space is exciting.
Capital structure
The business continues to consistently generate ample cash flow to support its
dividend policy and fund M&A activity.
£m 2022 2021 Change
Reported net debt £29.4m £38.1m (22.8%)
Less: IFRS 16 Finance Leases (£6.3m) (£8.2m) (23.2%)
Finance Leases - pre-IFRS 16 £0.7m £0.7m -
Covenant Net Debt £23.8m £30.6m (22.5%)
Covenant Net Debt : Covenant EBITDA 0.8 0.7 0.1
Strong cash generation in the second half resulted in a reduction in borrowing
in the year, despite investing £7.8m in Sync EV. It also resulted in Covenant
Net Debt leverage similar to last year at 0.8x. The Group's non-utilised
facilities totalled £56.9m, with an option (subject to lender consent) to add
a further £40.0m under the terms of its syndicated bank facility signed in
October 2021. The facility matures in September 2025 and the Group has an
option to trigger a one-year extension thereafter. The Group's balance sheet
is therefore in good shape, allowing us to plan and invest with confidence.
The Company's covenant position and headroom at 31 December 2022 was as
follows:
2022 full-year covenant Covenant Actual Headroom
Covenant Net Debt : Covenant EBITDA 3.0 : 1 0.8 : 1 Covenant Net Debt headroom: £67.1m(1)
Covenant EBITDA headroom: £22.4m
Covenant EBITDA : Adjusted Net Finance Expense 4.0 : 1 11.7 : 1 Covenant EBITDA headroom: £19.9m
Net Finance Expense headroom: £5.0m
(1. Headroom with increased facility. Current facility headroom is
£56.9m.)
The key measures which management use to evaluate the Group's use of its
financial resources and capital management are set out below:
2022 2021
Adjusted(1) Earnings Per Share (pence) 11.1 20.2
Covenant Net Debt : Covenant EBITDA (times) 0.8 0.7
Adjusted(1) Free Cash Flow (£m) 30.7 18.8
(1. Note 1 in the notes to the 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 the Annual Report and Accounts. The
Group has a strong balance sheet and significant facility headroom under even
a realistic severe but plausible downside scenario. No covenant breaches occur
in any of our severe but plausible downside scenarios, all of which are before
any mitigating
actions, illustrating our financial resilience.
Dividends
The Board is proposing to pay a final dividend of 3.0p, taking the full-year
dividend to 4.6p. representing a payout of 41% of earnings. The final dividend
will be paid on 19 May 2023 to shareholders on the register on 11 April 2023.
Operating segment review
The revenue and profit generated by the Group's operating segments are shown
below. Operating profits are stated after the proportional allocation of fixed
central overheads. The profit contribution for each segment, before fixed
central overheads, is also shown, to illustrate the likely profit impact of
future growth.
Wiring Accessories
Adjusted(1) Reported
2022 2021 Change 2022 2021 Change
Revenue £73.7m £104.5m (29.5%) £73.7m £104.5m (29.5%)
Contribution profit £20.1m £36.3m (44.6%) £20.1m £36.3m (44.6%)
Contribution margin % 27.3% 34.7% (7.4ppts) 27.3% 34.7% (7.4ppts)
Operating profit £13.9m £29.2m (52.4%) £13.9m £29.2m (52.4%)
Operating margin % 18.9% 27.9% (9.0ppts) 18.9% 27.9% (9.0ppts)
(1. A reconciliation of the reported to Adjusted results is shown
within note 1 of the consolidated financial statements)
Wiring Accessories is the Group's most profitable segment, generating 63% of
the Group's operating profit and 36% of its revenue, under a brand established
over 80 years ago.
Sales into the Wiring Accessories segment were £30.8m (29.5%) less than 2021.
We estimate that most of this decline was caused by customer stock movements,
particularly within the Hybrid channel, as well as the impact of pre-buying by
Professional Wholesalers ahead of sizeable selling price increases. We
estimate that sales excluding these temporary influences were broadly flat on
2021 but ahead of 2019 thanks to new business wins. Sales continue to be
supported by healthy demand for professionally installed wiring devices within
the residential repair and remodel market as contractors work through project
backlogs built up during the pandemic. Whilst the decline in revenue
inevitably impacted segmental profit, Wiring Accessories remains the most
significant contributor to Group profitability and its contribution should
improve as Hybrid customers in particular balance their post-pandemic
inventory positions.
LED Lighting
Adjusted(1) Reported
2022 2021 Change 2022 2021 Change
Revenue £81.4m £63.2m 28.8% £81.4m £63.2m 28.8%
Contribution profit £8.4m £7.4m 13.5% £7.8m £4.1m 90.2%
Contribution margin % 10.3% 11.7% (1.4ppts) 9.6% 6.5% 3.1ppts
Operating profit £3.4m £3.4m - £2.8m £0.1m 2700.0%
Operating margin % 4.2% 5.4% (1.2ppts) 3.4% 0.2% 3.2ppts
(1. A reconciliation of the reported to Adjusted results is shown
within note 1 of the consolidated financial statements)
The Group entered the lighting market in 2013 as the industry adopted LED
technology and it now represents 39% of Group revenue.
Revenue from the LED Lighting segment was £18.2m (28.8%) higher than 2021.
£15.9m (25.2%) of this additional revenue arose from the acquisition of DW
Windsor, acquired in October 2021. A £1.9m (3.0%) revenue decline arose from
the closure of our operations in France and Germany, which were LED focused.
Organic growth was therefore 6.6%, driven by strong demand for energy-saving
retrofits within the non-residential and infrastructure sectors and an
outstanding year for Kingfisher Lighting, following its successful entry in
the Sports, High Mast and Rail segments.
Adjusted Operating Profit of £3.4m was in line with 2021, and is expected to
improve following the rationalisation of our overseas sales presence and as DW
Windsor increasingly benefits from Group support.
Portable Power
Adjusted(1) Reported
2022 2021 Change 2022 2021 change
Revenue £51.2m £60.5m (15.4%) £51.2m £60.5m (15.4%)
Contribution profit £8.9m £10.3m (13.6%) £7.5m £9.9m (24.2%)
Contribution margin % 17.4% 17.0% 0.4ppts 14.6% 16.4% (1.8ppts)
Operating profit £4.7m £6.4m (26.6%) £3.3m £6.0m (45.0%)
Operating margin % 9.2% 10.6% (1.4ppts) 6.4% 9.9% (3.5ppts)
(1. A reconciliation of the reported to Adjusted results is shown
within note 1 of the consolidated financial statements)
The Portable Power segment consists of two main elements:
· Cable reels, extension leads and associated accessories sold under
the Masterplug brand
· EV chargers sold under the BG Sync EV brand
The Group enjoys a leading position in the UK portable power market. The
business generates 25% of Group revenue and 21% of Group Adjusted Operating
Profit.
Revenue in the period was 15.4% lower than the prior year due to customer
destocking but 7.1% higher than 2019.
EV charger sales totalled £5.4m, slightly lower than our target of £7.0m due
to a shortfall in sales of electric vehicles in the UK. Our share of the
market was in line with expectations at 4%. The product is being sold within
existing sales and distribution channels leading to a high profit
contribution. Segmental Adjusted contribution margin consequently increased by
0.4 ppts to 17.4%.
Going concern and viability statement
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future and
as such have applied the going concern principle in preparing the Annual
Report and Accounts. This is considered in more detail in note 1 of the
consolidated financial statements. The Group's Viability Statement can be
found on pages 72 to 74 and the Group's Going Concern Statement can be found
on page 147 of the 2022 Annual Report and Accounts.
MATT WEBB
Chief Financial Officer
20 March 2023
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") UPDATE
During 2022 we have had made progress in the following areas:
· We committed to the Science Based Targets Initiative (SBTi). This
means we have committed to reductions in carbon emissions over the near-term
consistent with the Paris Agreement
· Achievement of an improved management-level score (B) from the Carbon
Disclosure Project in 2022
· We have delivered significant progress against our low carbon product
revenue target and are on track to achieve £100m of such revenue by 2025
· During 2022, we have improved our packaging specifications,
particularly around plastic packaging. The first improvement we have made is
to ensure that packaging is made from a single polymer to ensure they are
recyclable. The second improvement has been to increase the minimum recycled
content of plastic packaging to 30%.
Key achievements by area
Products and services
· Acquisition of Sync EV and launch of single-phase Mode 3 EV chargers
under the joint BG Sync EV brand
· £78M of revenue from low carbon product categories, delivering
significant progress against our £100m low carbon product revenue target for
2025
· 3.5-fold increase in revenue from the sale of lighting control
devices into lighting projects in 2022
Supply Chain
· Insourcing of EV charger production within our China manufacturing
facility with 100% renewable electricity supply
· Acquisition of DW Windsor with UK manufacturing capability and 100%
renewable electricity supply
· Evaluation of key suppliers' physical climate risk exposure to
understand vulnerabilities within our supply chain
Research and Development
· Specialist R&D function in China and the UK and R&D
expenditure of £3.6m in 2022
· Development of higher power, three-phase EV chargers for larger homes
and commercial premises
· Investigating on-street EV charging solutions within DW Windsor
· Dedicated optical engineer focusing on improvements to lens design to
improve lighting efficiency
· Working towards the development of environmental product declarations
(EPD) and industry best practise on circular design in lighting
Operations
· Sourced renewable electricity for all group operations in 2022, bring
our scope 2 emissions to zero.
· Offsetting residual Scope 1 emissions for 2022
· Investment into energy efficiency and automation projects within the
China manufacturing facility
· Evaluation of our key locations (manufacturing and distribution
centres) to better understand physical climate risk exposure to understand
vulnerabilities across direct operations
· All plastic packaging is recyclable with a minimum 30% recycled
content
Our ESG objectives for 2023 are as follows:
· Formally engage with key customers to better understand their climate
ambitions and to communicate our strategy
· Undertake detailed energy audits of our UK operations as part of the
Energy Savings Opportunity Scheme
· Develop a Research and Development roadmap for over the short,
medium, and long-term that will help us deliver our Scope 3 science-based
target
· Begin work to develop a set of product design criteria that help to
improve the sustainability of our products
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 included below. 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 also pages 64 to 71 in the 2022 Annual Report and Accounts.
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 72
to 74 of the 2022 Annual Report and Accounts considers the prospects of the
Group should a number of these risks crystallise together.
Risk management process
The senior management team maintains a register of identified business risks
(financial and non-financial) which it categorises in terms of probability of
occurrence and the potential impact on the Group should the risk crystallise.
Mitigating actions undertaken and recommendations for further reduction of
risk are also included. Recommended actions are put forward to the Executive
Directors for consideration.
The Executive Directors review and challenge the content of the risk register
and the recommendations. Risk mitigation actions are agreed, and a plan is
created. Each action is assigned an owner who is responsible for carrying out
the required action within an agreed timescale. The Executive Directors review
the progress made against any actions that have been carried forward.
The Audit Committee regularly reviews risk management and is provided an
update in respect of progress made in the reduction of existing risks, summary
of newly identified risks and the actions agreed to reduce them to an
acceptable level.
These risks are reviewed in conjunction with the Audit Committee's other
responsibilities including the internal control framework, external audit
process and financial reporting.
The Audit Committee provides an update and appropriate recommendation to the
Board, where required, for the Board to consider in conjunction with the
strategic objectives of the Group.
Independent assurance is provided through the annual statutory audit and the
periodic internal control reviews and the monitoring of, and adherence to,
policies and procedures by an external assurance provider.
Senior management Executive Directors Audit Committee The Board Independent assurance
Reviews and updates the risk register for new risks, identifies mitigations in Review and challenge the risks identified and the actions proposed to mitigate Monitors and reviews the risks in conjunction with the internal control Holds overall responsibility for effective internal control, risk management Periodic internal control reviews and monitoring of adherence to policies and
place and recommends actions to reduce risk. them; approve and monitor agreed actions. framework, audit process and financial reporting. and the risk appetite of the Group. procedures by an external audit and assurance provider. Statutory audit by a
registered auditor.
Principal risks
Concentration risks associated with operations
Risk and impact: Mitigation
· The Group's products are overwhelmingly sourced from one country UK buffer stock is held in the event of supply disruption in China
(China) and a large proportion are made in one location (Jiaxing)
All suppliers are provided with visibility of forward orders and supply issues
· Disruption to our Jiaxing facility could compromise our ability to are discussed upfront
serve our customers
Production facilities in China are spread across multiple buildings on the
· General disruption, including to shipping routes between China and same site to mitigate risk
our selling markets (particularly the UK) could increase our costs or limit
our ability to serve our markets The Group owns its product designs and production tooling, allowing
manufacturing to be moved between suppliers more easily
· China could be impacted by events in Ukraine/Russia, which impacts
our ability to manufacture products Business Continuity Plans are in place for Jiaxing site
Business Interruption Insurance is in place for the Jiaxing site, Telford site
and our OEM supplier of Portable Power products
Concentration risks associated with customers and products:
Risk and impact: Mitigation
· The Group has a number of key customers representing circa 50% of Key customers typically follow a tender process, providing visibility of
Group revenue. A change in demand from these customers could result in reduced business wins and losses
sales and profits
Large customers typically take 6-12 months to implement a large range change
· The Group's committed order book extends 2-3 months forward. Orders throughout their networks, giving us time to react
thereafter are uncommitted
The cost of range changes for large customers is high, reducing the likelihood
· Geopolitical instability creates prices changes and shortages of of occurrence
materials and the impact of inflation on input costs from energy and material
costs impacting product cost and profitability Relationships with the Group's large customers are particularly established
· The Group has a material exposure to movements in the USD:RMB FX Capacity at our factory and at our OEM partners in China can be changed
rate. An adverse move could reduce short term profits and/or long-term quickly and cost effectively
competitiveness
The Group hedges its USD:RMB and copper exposures according to a
· The Group has a material exposure to the purchase price of copper. An Board-approved policy. The hedging matches the duration of any fixed selling
adverse move could reduce profits and/or price competitiveness price commitment offered to customers
Application of the hedging policy is reviewed by the Board
Macroeconomic, political and environmental:
Risk and impact: Mitigation
· A deterioration in trade relations between the UK and China could We have clear ESG objectives tied to management compensation plans. Our
disrupt product supply and/or increase costs progress is visible via independent bodies such as CPD and SBTi
· The Group has a concentrated exposure to the UK market. UK economic The Group is expanding and developing its product range of low carbon products
headwinds could reduce profits. (e.g. LED lighting and electric vehicle chargers)
· A failure to respond to governmental, cultural, customer or investor The Group is diversified by market segment within the UK, reducing risk
requirements on ESG in the following areas: changing customer behaviour and
demands (e.g. electric vehicle charging), increased stakeholder concern, The Group is largely exposed to the RMI cycle, which is less susceptible to
negative feedback or non-compliance on ESG strategy, increased severity and macroeconomic forces
frequency of extreme weather events accelerating ESG progress. All of which
could result in reduced profits or a reduced share price The Group's overseas businesses are expected to grow faster than the UK,
diluting the UK exposure
UK buffer stock is held in the event of supply disruption in China
A "China Plus 1" sourcing strategy is being developed
Management liaises closely with investors and customers to understand their
future ESG needs and responds accordingly
Loss of IT / data:
Risk and impact: Mitigation
· Loss of IT functionality would compromise operations, leading to Market-leading cyber security tools and monitoring are in place
increased costs or lost sales
Market-leading data backup tools are in place
· Loss of sensitive data from our IT environment would expose the Group
to regulatory, legal or reputational risk IT disaster recovery plans are in place throughout the Group
· Increased cloud server usage increases risk of data loss or We conduct regular penetration testing
compromise and cyber risk is on a upward trend impacting operations and
reputational risk We conduct regular Group-wide cyber security training for employees
IT incidents are reported to the Board
People and labour shortages:
Risk and impact: Mitigation
· Loss of key employees could damage business relationships or result Key relationships are typically shared between more than one employee
in a loss of knowledge
The Group's service offering is multi-faceted, reducing the risk that the loss
· A shortage of available labour for key roles could disrupt operations of an employee would result in lost sales
and impact long-term progress
Retention of key employees is driven by long-term personal development and
· Depending on the job role and team, COVID-19 has changed employee's incentive plans and ensuring compensation is regularly benchmarked for
and employer's work place expectations. A more fluid working environment in competitiveness. These plans are reviewed by the Nomination and Remuneration
both the office and home is more common place. The risk of not adapting to Committees
this change in working practices could lead to loss of employees and an
inability to attract talent Workforce engagement surveys ensure employee needs are identified and
addressed, promoting retention
Adoption of hybrid practices within appropriate teams and locations
Acquisitions:
Risk and impact: Mitigation
· An ill-judged acquisition could reduce Group profit and return on Our acquisition strategy is set by the Board
capital
Board members possess significant M&A experience
· Unable to grow or develop an acquired business in line with
expectations, leading to lower profits The acquisition strategy is implemented by an experienced in-house team
· The Group's acquisition strategy could compromise/distract the The Group's key markets are relatively stable, meaning acquisition targets
execution of strategy in other areas typically have an established track record
Individual acquisitions are typically small relative to the size of the Group,
reducing the impact of each deal and reducing potential distraction
The Group conducts extensive due diligence prior to acquisition
All acquisitions are approved by the Board
Legal and Regulatory
Risk and impact: Mitigation
· The Group could infringe upon the IP of others, leading to legal The Group receives IP advice from external experts
claims
The Group's products are certified for use prior to launch by external experts
· The Group's products could fail to meet regulatory requirements or
experience quality failures, resulting in legal claims and/or reputational The Group has extensive quality assurance resources in the UK and China
damage
Suppliers are required to adhere to a strict Code of Conduct
· The Group's businesses could fail to meet regulatory requirements in
their countries of operation Supplier compliance with the Code of Conduct is audited by our in-house teams
· The Group could fail to comply with local tax laws, particularly Product liability claims are reported to the Board
regarding transfer pricing
Product liability insurance is in place globally
The Group's transfer pricing policies are reviewed regularly with the help of
external experts
Finance and treasury
Risk and impact: Mitigation
· The Group could fail to provide sufficient funding liquidity for its The Group hedges its currency exposures according to a Board-approved policy.
operations The hedging matches the duration of any fixed selling price commitment offered
to customers
· The Group has a material exposure to movements in the USD and RMB
currency rates. An adverse move could reduce short-term profits and/or The Group has a clear Capital Structure policy that is designed to provide
long-term competitiveness sufficient liquidity
· The Group could fail to report its financial performance accurately, The Capital Structure policy is implemented by Treasury experts and monitored
leading to inappropriate decision-making and regulatory breaches by the Board
· The Group could suffer fraud across its widespread operations The Treasury team prepares regular cash flow forecasts
The Group's financial statements require relatively few judgements or
estimates, reducing the risk of misstatement
The Group's accounting policies and internal accounting manual are approved by
the Board
The Group operates two main accounting centres in the UK and China, which are
overseen closely by the Group Finance team
The Group has invested in market-leading financial accounting and reporting
software
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following statement will be contained in the 2022 Annual Report and
Accounts.
We confirm that to the best of our knowledge:
· The financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
· The Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation, taken as a whole, together with a
description of the principal risks and uncertainties that they face.
· We consider the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
JOHN HORNBY
Chief Executive Officer
MATT WEBB
Chief Financial Officer
20 March 2023
Consolidated Income Statement
for the year ended 31 December 2022
Adjusted Adjustments(1) 2022 Adjusted Adjustments(1) 2021
Note £m £m £m £m £m £m
Revenue 2 206.3 - 206.3 228.2 - 228.2
Cost of sales (132.0) - (132.0) (143.5) - (143.5)
Gross profit 74.3 - 74.3 84.7 - 84.7
Distribution expenses (9.2) - (9.2) (7.8) - (7.8)
Administrative expenses (43.1) (2.0) (45.1) (37.9) (3.7) (41.6)
Operating profit 2,3 22.0 (2.0) 20.0 39.0 (3.7) 35.3
Finance income - - - - - -
Finance expense (2.6) (5.7) (8.3) (1.6) (0.4) (2.0)
Net finance expense (2.6) (5.7) (8.3) (1.6) (0.4) (2.0)
Profit before tax 19.4 (7.7) 11.7 37.4 (4.1) 33.3
Taxation 4 (2.2) 1.5 (0.7) (6.2) - (6.2)
Profit for the period 17.2 (6.2) 11.0 31.2 (4.1) 27.1
Earnings per share (pence)
Basic 5 11.1p (4.0p) 7.1p 20.2p (2.6p) 17.6p
Fully diluted 5 11.0p (4.0p) 7.0p 19.8p (2.6p) 17.2p
1. Definition of the adjustments made to the reported figures can be
found in note 1 in the notes to the consolidated financial statements
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
2022 2021
£m £m
Profit for the period 11.0 27.1
Other comprehensive income - amounts that may be reclassified to profit or
loss in the future:
Foreign exchange translation differences - foreign operations 2.4 0.3
Total comprehensive income for the year 13.4 27.4
All results are from continuing operations.
The accompanying notes form part of these financial statements.
Consolidated Balance Sheet
at 31 December 2022
2022 2021(1)
Note £m £m
Non-current assets
Property, plant and equipment 7 21.4 21.2
Right-of-use assets 6.1 7.8
Intangible assets 8 41.7 33.7
Investment in associate - 2.1
Financial assets held for trading 0.5 4.3
Deferred tax asset 0.8 0.3
70.5 69.4
Current assets
Inventories 47.5 56.6
Trade and other receivables 52.9 69.7
Financial assets held for trading 0.7 0.4
Current tax asset 1.2 -
Cash and cash equivalents 5.3 6.9
107.6 133.6
Total assets 178.1 203.0
Current liabilities
Trade and other payables 49.8 66.6
Current tax liabilities - 1.8
Financial assets held for trading 2.3 0.1
Other financial liabilities 2.0 2.2
54.1 70.7
Non-current liabilities
Interest-bearing loans and borrowings 9 28.4 36.8
Other financial liabilities 4.3 6.0
Deferred tax liability 2.3 -
Provisions 2.3 1.8
37.3 44.6
Total liabilities 91.4 115.3
Net assets 86.7 87.7
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium 24.8 24.8
Translation reserve 2.6 0.2
Treasury reserve (8.7) (6.7)
Retained earnings 67.9 69.3
Total equity 86.7 87.7
(1. Amounts at 31 December 2021 have been restated for the
finalisation of acquisition accounting for DW Windsor)
The accompanying notes form part of these financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Share Share Translation Retained Treasury Total
capital premium reserve earnings reserve equity
£m £m £m £m £m £m
Balance at 1 January 2021 0.1 24.8 (0.1) 52.4 (6.8) 70.4
Total comprehensive income
Profit for the period - - - 27.1 - 27.1
Currency revaluations of investments - - (1.1) - - (1.1)
Currency translation differences - - 1.4 - - 1.4
Total comprehensive income for the period - - 0.3 27.1 - 27.4
Transactions with owners in their capacity as owners:
Dividends - - - (11.2) - (11.2)
Purchase of own shares - - - - (1.3) (1.3)
Deferred tax on share-based payment transactions - - - (1.3) 1.4 0.1
Share-based payments charge - - - 0.7 - 0.7
Total transactions with owners in their capacity as owners - - - (10.2) 0.1 (10.1)
Balance at 31 December 2021 0.1 24.8 0.2 69.3 (6.7) 87.7
Total comprehensive income
Profit for the period - - - 11.0 - 11.0
Currency revaluations of investments - - 2.5 - - 2.5
Currency translation differences - - (0.1) - - (0.1)
Total comprehensive income for the period - - 2.4 11.0 - 13.4
Transactions with owners in their capacity as owners:
Dividends - - - (10.9) - (10.9)
Purchase of own shares - - - - (2.4) (2.4)
Disposal of own shares - - - (0.4) 0.4 -
Deferred tax on share-based payment transactions - - - (1.6) - (1.6)
Corporation tax on foreign currency differences on overseas investments (0.5) (0.5)
Share-based payments charge - - - 1.0 - 1.0
Total transactions with owners in their capacity as owners - - - (12.4) (2.0) (10.4)
Balance at 31 December 2022 0.1 24.8 2.6 67.9 (8.7) 86.7
Consolidated Cash Flow Statement for the year ended 31 December 2022
Note Adjusted Adjustments(1) 2022 Adjusted Adjustments(1) 2021
£m £m £m £m £m £m
Cash flows from operating activities
Profit for the period 17.2 (6.2) 11.0 31.2 (4.1) 27.1
Adjustments for:
Depreciation and amortisation 7,8 7.1 1.8 8.9 6.7 1.0 7.7
Finance expense 2.6 5.7 8.3 1.6 0.4 2.0
Taxation 4 2.2 (1.5) 0.7 6.2 - 6.2
Loss on disposal of tangible assets 0.1 - 0.1 - - -
Increase in provisions 0.2 - 0.2 0.2 - 0.2
Share-based payments charge 1.0 - 1.0
Other non-cash items - 0.5 0.5 1.7 - 1.7
Operating cash flow before movement in working capital 30.3 0.3 30.6 47.6 (2.7) 44.9
Decrease in trade and other receivables 19.2 - 19.2 6.2 - 6.2
Decrease/(increase) in inventories 12.3 (0.3) 12.0 (14.6) 1.5 (13.1)
(Decrease)/increase in trade and other payables (18.1) (0.4) (18.5) (4.2) 0.4 (3.8)
Cash from operations 43.7 (0.4) 43.3 35.0 (0.8) 34.2
Tax paid (4.7) - (4.7) (8.1) - (8.1)
Net cash from operating activities 39.0 (0.4) 38.6 26.9 (0.8) 26.1
Cash flows from investing activities
Acquisition of property, plant and equipment 7 (4.1) - (4.1) (5.7) - (5.7)
Acquisition of other intangible assets 8 (1.7) - (1.7) (0.9) - (0.9)
Disposal of tangible assets 7 0.2 - 0.2 0.2 - 0.2
Acquisition of subsidiary (7.8) - (7.8) (16.3) - (16.3)
Investment in associate - - - (2.1) - (2.1)
Net cash used in investing activities (13.4) - (13.4) (24.8) - (24.8)
Cash flows from financing activities
(Repayment)/origination of borrowings (8.9) - (8.9) 14.5 - 14.5
Interest paid (2.7) - (2.7) (1.7) - (1.7)
Dividends paid (10.9) - (10.9) (11.2) - (11.2)
Finance lease liabilities (1.9) (0.3) (2.2) (1.4) - (1.4)
Purchase of own shares (2.4) - (2.4) (1.3) - (1.3)
Net cash from financing activities (26.8) (0.3) (27.1) (1.1) - (1.1)
Net (decrease)/increase in cash and cash equivalents (1.2) (0.7) (1.9) 1.0 (0.8) 0.2
Cash and cash equivalents at 1 January 6.9 6.7
Effect of exchange rate fluctuations on cash held 0.3 -
Cash and cash equivalents at 31 December - 5.3 - 6.9
1. The definitions of the adjustments made
to the statutory figures can be found in note 1 in the notes to the
consolidated financial statements
The accompanying notes form part of theses financial statements.
Notes to the Consolidated Financial Statements
for the year ended 31 December 2022
1. Basis of preparation
Luceco plc (the "Company") is a company incorporated and domiciled in the
United Kingdom. These consolidated financial statements for the year ended 31
December 2022 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).
The financial information is derived from the Group's consolidated financial
statements for the year ended 31 December 2022, which have been prepared on
the going concern basis in accordance with UK adopted international accounting
standards (UK adopted IFRS) in conformity with the requirements of the
Companies Act 2006. The financial statements have been prepared on the
historical cost basis except for certain financial instruments which are
carried at fair value.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2022 and 31 December 2021
but is derived from those accounts. Statutory accounts for 2021 have been
delivered to the Registrar of Companies, and those for 2022 will be delivered
in due course. The Auditors have reported on the 2022 statutory accounts;
their report was (i) unqualified and (ii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors'
report can be found in the Company's full 2022 Annual Report and Accounts on
pages 133 to 140.
The 2022 Annual Report and Accounts and the Notice of the 2022 Annual General
Meeting will be published on the Company's website
at http://www.lucecoplc.com (http://www.lucecoplc.com/) as soon as
practicable. They will also be submitted to the National Storage Mechanism
where they will be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The Group's accounting policies can be referred to in note 1 of the
consolidated financial statements in the 2022 Annual Report and Accounts.
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 at least 12 months from the date of signing these
accounts and our cashflow forecasts support this. The Group has reported a
profit before tax of £11.7m for the year to 31 December 2022 (2021: £33.3m),
has net current assets of £53.5m (2021 (restated): £62.9m) and net assets of
£86.7m (2021: £87.7m), net debt of £29.3m (2021: £38.1m) and net cash from
operating activities of £38.6m (2021: £26.1m). The bank facilities mature on
30 September 2025 as detailed below:
The capital resources at the Group's disposal at 31 December 2022 and 28
February 2023 were as follows:
· A revolving credit facility of £80.0m, £23.1m drawn at 31 December
2022 and £27.2m drawn at 28 February 2023
The revolving credit facility requires the Group to comply with the following
quarterly financial covenants:
· Closing Covenant Net Debt of no more than 3.0 times Covenant EBITDA
for the preceding 12-month period
· Covenant EBITDA of no less than 4.0 times Covenant Net Finance
Expense for the preceding 12‑month period
The Directors ran scenario tests on the severe but plausible downside case.
The assumptions in this scenario 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.
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 as a result of intermittent activities such as a
corporate acquisition. The Group separately reports acquisition costs, other
exceptional items and other specific items in the Consolidated Income
Statement which, in the Directors' judgement, need to be disclosed separately
by virtue of their nature, size and incidence in order 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
Consolidated Income Statement and Consolidated Cash Flow Statement that have
both Statutory and Adjusted performance measures. The definitions of the
measures used in these results are below and the principles to identify
adjusting items have been applied on a basis consistent with previous years.
Nature of measure Related IFRS measure Related IFRS source Definition Use/relevance
Adjusted Gross Profit Margin Gross Profit Margin Consolidated Income Statement Based on the related IFRS Allows management to
measure but excluding the assess the performance
adjusting items. of the business after
A breakdown of the removing large/unusual
adjusting items from 2022 items or transactions that
and 2021, which reconciles are not reflective of the
the adjusted measures to underlying business
statutory figures, can be operations
found later in this document
Adjusted Operating Costs Operating Gross profit less Operating profit Consolidated Income Statement
Adjusted Operating Profit Operating profit Consolidated Income Statement
Adjusted Basic EPS Basic EPS Consolidated Income Statement
Constant Currency Current period reviewed translated at the average exchange rate of the prior Allows management
year
to identify the relative
year-on-year performance
of the business by removing
the impact of currency
movements that are outside
of management's control
EBITDA Operating profit Consolidated Income Statement Consolidated earnings before interest, tax, depreciation and amortisation Provides management with an approximation of cash generation from the Group's
operational activities
Low Carbon Sales Revenue Segmental operating revenue EV charger revenue and LED revenue less sales from lighting columns Provides management with a measure of low
and downlight accessories carbon sales
Adjusted EBITDA Operating profit Consolidated Income Statement EBITDA excluding the adjusting items excluded from Adjusted Operating Profit Provides management with an approximation of cash generation from the Group's
except for any adjusting items that relate to depreciation and amortisation underlying operating activities
Covenant EBITDA Operating profit Consolidated Income Statement As above definition of "Adjusted EBITDA" but including EBITDA generated from Aligns with the definition of EBITDA used for bank covenant testing
acquisitions between 1 January and the date of acquisition and excluding
share-based payment expense
Contribution profit Operating profit and operating costs Consolidated Income Statement Contribution profit is after allocation of directly attributable adjusted Provides management with an assessment of profitability by operating segment
operating expenses for each operating segment
Contribution margin Operating profit and operating costs Consolidated Income Statement Contribution margin is contribution profit, as above, divided by revenue for Provides management with an assessment of margin by operating segment
each operating segment
Adjusted Operating Cash Flow Cash flow from operations Consolidated Cash Flow Statement Adjusted Operating Cash Flow is the cash from operations but excluding the Provides management with an indication of the amount of cash available for
cash impact of the adjusting items excluded from Adjusted Operating Profit discretionary investment
Adjusted Free Cash Flow Net increase/(decrease) in cash and cash equivalents Consolidated Cash Flow Statement Adjusted Free Cash Flow is calculated as Adjusted Operating Cash Flow less Provides management with an indication of the free cash generated by the
cash flows in respect of investing activities (except for those in respect of business for return to shareholders or reinvestment in M&A activity
acquisitions or disposals), interest and taxes paid
Adjusted Net Cash Flow Net increase/(decrease) in cash and cash equivalents Consolidated Cash Flow Statement Adjusted Free Cash Flow less cash flows relating to dividend payments and the Provides management with an indication of the net cash flows generated by the
purchase of own shares business after dividends and share purchases
Adjusted Operating Cash Conversion None Consolidated Cash Flow Statement and Consolidated Income Statement Operating Cash Conversion is defined as Adjusted Operating Cash Flow divided Allows management to monitor the conversion of operating profit into cash
by Adjusted Operating Profit
Return on Capital Invested ("ROCI") None Operating profit and Net assets Adjusted Operating Profit divided into the sum of net assets and net debt To provide an assessment of how profitability capital is being deployed in the
(average for the last two years) expressed as a percentage business
The following tables indicate how alternative performance measures are
calculated:
2022 2021
Adjusted EBITDA £m £m
Adjusted Operating Profit 22.0 39.0
Adjusted Depreciation and Amortisation 7.1 6.7
Adjusted EBITDA 29.1 45.7
2022 2021
Covenant EBITDA £m £m
Adjusted EBITDA 29.1 45.7
EBITDA from acquisitions from 1 January to the date of acquisition and share 1.2 1.2
based payment expense
Covenant EBITDA 30.3 46.9
2022 2021
Adjusted Operating Cash Conversion £m £m
Cash from operations (from Consolidated Cash Flow Statement) 43.3 34.2
Adjustments to operating cash flow (from Consolidated Cash Flow Statement) 0.4 0.8
Adjusted Operating Cash Flow 43.7 35.0
Adjusted Operating Profit 22.0 39.0
Adjusted Operating Cash Conversion 198.6% 89.7%
2022 2021
Adjusted Net Cash Flow as % of revenue £m £m
Adjusted Free Cash Flow (see below) 30.7 18.8
Purchase of own shares (2.4) (1.3)
Dividends (10.9) (11.2)
Adjusted Net Cash Flow 17.4 6.3
Revenue 206.3 228.2
Adjusted Net Cash Flow as % of revenue 8.4% 2.8%
2022 2021
Adjusted Free Cash Flow as % of revenue £m £m
Adjusted Operating Cash Flow (see table above) 43.7 35.0
Net Cash used in investing activities excluding acquisitions (from (5.6) (6.4)
Consolidated Cash Flow Statement)
Interest paid (from Consolidated Cash Flow Statement) (2.7) (1.7)
Tax paid (from Consolidated Cash Flow Statement) (4.7) (8.1)
Adjusted Free Cash Flow 30.7 18.8
Revenue 206.3 228.2
Adjusted Free Cash Flow as % of revenue 14.9% 8.2%
2022 2021
Return on Capital Investment £m £m
Net assets 86.7 87.7
Net debt 29.4 38.1
Capital invested 116.1 125.8
Average capital invested (from last two years) 121.0 107.3
Adjusted Operating Profit (from above) 22.0 39.0
Return on Capital Invested (Adjusted Operating Profit/average capital 18.2% 36.4%
invested)
The following table reconciles all adjustments from the reported to the
adjusted figures in the income statement:
2022 Amortisation of acquired intangibles and related acquisition costs(1) Re-measurement Restructuring(3) 2022 2022
£m £m to fair value of hedging portfolio(2) £m Adjustments Adjusted
£m £m £m
Revenue 206.3 - - - - 206.3
Cost of sales (132.0) - - - - (132.0)
Gross profit 74.3 - - - - 74.3
Distribution expenses (9.2) - - - - (9.2)
Administrative expenses (45.1) 3.0 - (1.0) 2.0 (43.1)
Operating profit 20.0 3.0 - (1.0) 2.0 22.0
Net finance expense (8.3) - 5.7 - 5.7 (2.6)
Profit before tax 11.7 3.0 5.7 (1.0) 7.7 19.4
Taxation (0.7) (0.6) (1.1) 0.2 (1.5) (2.2)
Profit for the year 11.0 2.4 4.6 (0.8) 6.2 17.2
Gross margin 36.0% 36.0%
1. Relating to Kingfisher Lighting, DW Windsor and Sync EV
2. Relating to currency/interest hedges
3. Relating to the closure of Germany and France operation
2021 Amortisation of acquired intangibles and related acquisition costs(1) Re-measurement Restructuring(3) 2021 2021
£m £m to fair value of hedging portfolio(2) £m Adjustments Adjusted
£m £m £m
Revenue 228.2 - - - - 228.2
Cost of sales (143.5) - - - - (143.5)
Gross profit 84.7 - - - - 84.7
Distribution expenses (7.8) - - - - (7.8)
Administrative expenses (41.6) 1.4 - 2.3 3.7 (37.9)
Operating profit 35.3 1.4 - 2.3 3.7 39.0
Net finance expense (2.0) - 0.4 - 0.4 (1.6)
Profit before tax 33.0 1.4 0.4 2.3 4.1 37.4
Taxation (6.2) 0.1 (0.1) - - (6.2)
Profit for the year 27.1 1.5 0.3 2.3 4.1 31.2
Gross margin 37.1% 37.1%
1. Relating to Kingfisher Lighting and DW Windsor
2. Relating to currency hedges
3. Relating to the closure of Germany and France operation
Standards and interpretations issued
The following UK-adopted IFRS have been issued and have been applied in these
financial statements. Their adoption did not have a material effect on the
financial statements, unless otherwise indicated, from 1 January 2022:
• Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16)
• Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
• Annual Improvements to IFRS Standards 2018-2020
• Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to
IAS 16)
• Reference to the Conceptual Framework (Amendments to IFRS 3)
The following UK adopted IFRS have been issued but have not been applied and
adoption is not expected to have a material effect on the financial
statements, unless otherwise indicated, from 1 January 2023:
• IFRS 17 Insurance contracts
• Amendments to IFRS 17 Insurance Contracts: Initial application of IFRS 17
and IFRS 9 -Comparative Information
• Accounting Policies, Changes in Accounting Estimates and Errors:
definition (Amendments to IAS 8)
• Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2 Making Materiality judgements
• Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes
2. Operating segments
The Group's principal activities are in the manufacturing and supply of Wiring
Accessories, LED Lighting and Portable Power equipment. 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 Reported Adjusted Reported
2022 Adjustments 2022 2021 Adjustments 2021
£m £m £m £m £m £m
Revenue
Wiring Accessories 73.7 - 73.7 104.5 - 104.5
LED Lighting 81.4 - 81.4 63.2 - 63.2
Portable Power 51.2 - 51.2 60.5 - 60.5
206.3 - 206.3 228.2 - 228.2
Operating profit
Wiring Accessories 13.9 - 13.9 29.2 - 29.2
LED Lighting 3.4 (0.6) 2.8 3.4 (3.3) 0.1
Portable Power 4.7 (1.4) 3.3 6.4 (0.4) 6.0
Operating profit 22.0 (2.0) 20.0 39.0 (3.7) 35.3
The following table provides an analysis of adjustments made to each segment
2022 2021
Total Amortisation of acquired intangibles and related costs(1) Restructuring(2) Total Amortisation of acquired intangibles and related costs(1) Restructuring(2)
£m £m £m £m £m £n
Cost of sales
Wiring Accessories - - - - - -
LED Lighting - - - - - -
Portable Power - - - - - -
Gross Profit - - - - - -
Administration expenses
Wiring Accessories - - - - - -
LED Lighting (0.6) (1.6) 1.0 (3.3) (1.4) (1.9)
Portable Power (1.4) (1.4) - (0.4) - (0.4)
Total (2.0) (3.0) 1.0 (3.7) (1.4) (2.3)
Operating profit
Wiring Accessories - - - - - -
LED Lighting (0.6) (1.6) 1.0 (3.3) (1.4) (1.9)
Portable Power (1.4) (1.4) - (0.4) - (0.4)
Operating profit (2.0) (3.0) 1.0 (3.7) (1.4) (2.3)
1. Relating to Kingfisher Lighting, DW Windsor and Sync EV (year 2022
only)
2. Restructuring costs relating to the closure of Germany and France
operations in 2021
Revenue by location of customer
2021 2021
£m £m
UK 165.3 181.2
Europe 19.7 24.0
Middle East and Africa 8.7 7.6
Americas 8.0 10.6
Asia Pacific 4.6 4.8
Total revenue 206.3 228.2
Revenues exceeded 10% or more of total revenue for one customer. This
customer's revenue represents 23% (2021:
30%) of total revenue and is across all operating segments.
Non-current assets by location
2022 2021(1)
£m £m
UK 52.1 52.1
China 17.6 16.3
Other 0.8 1.0
Total non-current assets 70.5 69.4
(1. Amounts restated for the finalisation of acquisition accounting
for DW Windsor)
3. Expenses recognised in the Consolidated Income Statement
Included in the Consolidated Income Statement are the following:
2022 2021
£m £m
Research and development costs expensed as incurred 1.9 2.1
Depreciation of property, plant and equipment and right-of-use assets 6.0 5.3
Amortisation of intangible assets 2.9 2.4
4. Income tax expense
2022 2021
£m £m
Current tax expense
Current year - UK 2.3 5.4
Current year - overseas (0.9) 0.6
Adjustment in respect of prior years (0.3) 0.6
Current tax expense 1.1 6.6
Deferred tax expense/(credit)
Origination and reversal of temporary differences (0.2) (0.6)
Adjustment in respect of prior years (0.1) 0.2
Effect of tax rate change on opening balance (0.1) -
Deferred tax (credit) (0.4) (0.4)
Total tax expense 0.7 6.2
2022 2021
Reconciliation of effective tax rate £m £m
Profit for the year 11.0 27.1
Total tax expense 0.7 6.2
Profit before taxation 11.7 33.3
Tax using the UK corporation tax rate of 19.0% (2021: 19.0%) 2.2 6.3
Effect of tax rates in foreign jurisdictions - -
R&D tax credits (0.4) (0.4)
Non-deductible expenses 0.2 0.1
Adjustment in respect of previous periods (0.4) 0.5
Transfer pricing adjustments (related to China) (1.0) -
Effect of rate change in calculation of deferred tax 0.1 0.2
Deferred tax on share-based payments 0.3 (0.3)
Fixed asset differences related to tax and book value (0.1) -
Utilisation of unrecognised overseas brought forward tax losses (0.2) (0.2)
Total tax expense 0.7 6.2
A tax reduction of £0.2m within overseas tax occurred in the period due to
the utilisation of brought forward overseas trading losses previously not
recognised as a deferred tax asset due to it being deemed unlikely that they
could be utilised. The adjustment in respect of previous periods of a £0.4m
charge relates to differences between the Group's tax provisions at the date
of the accounts being signed and the completion of the final Group's tax
returns.
Factors which may affect future current and total tax charges
An increase in the UK corporation tax rate from 19% to 25% (effective 1 April
2023) was substantively enacted on 24 May 2021. This will increase the
Company's future current tax charge accordingly. The deferred tax liability at
31 December 2021 and 31 December 2022 has been calculated based on these
rates, reflecting the expected timing of reversal of the related temporary
differences.
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.
2022 2021
£m £m
Earnings for calculating basic earnings per share 11.0 27.1
Adjusted for:
Restructuring of European operations (1.0) 2.3
Amortisation of acquired intangibles and related acquisition costs 3.0 1.4
Remeasurement to fair value of hedging portfolio 5.7 0.4
Income tax on above items (1.5) -
Adjusted earnings for calculating adjusted basic earnings per share 17.2 31.2
2022 2021
Number Number
Weighted average number of ordinary shares Million Million
Basic 154.3 154.1
Dilutive effect of share options on potential ordinary shares 2.6 3.8
Diluted 156.9 157.9
2022 2021
Pence Pence
Basic earnings per share 7.1 17.6
Diluted earnings per share 7.0 17.2
Adjusted basic earnings per share 11.1 20.2
Adjusted diluted earnings per share 11.0 19.8
6. Dividend
Amounts were recognised in the financial statements as distributions to equity
shareholders as follows:
2022 2021
£m £m
Final dividend for the year ended 31 December 2021 of 5.5p (2020: 4.7p) per 8.5 7.2
ordinary share
Interim dividend for the year ended 31 December 2022 of 1.6p (2021: 2.6p) per 2.4 4.0
ordinary share
Total dividend recognised during the year 10.9 11.2
7. Property, plant and equipment
During the year, the Group purchased assets at a cost of £4.1m (2021:
£5.7m); including plant and equipment £2.3m, tooling £1.2m, construction in
progress £0.2m, land and buildings £0.3m and fixtures and fittings £0.1m.
Assets with a net book value of £0.3m were disposed of (2021: £0.2m). Total
depreciation for the period was £4.1m (2021: £3.5m).
During the year there were lease additions totalling £0.1m and a depreciation
charge of £1.9m. The net book value of right-of-use assets at 31 December
2022 was £6.1m (31 December 2021: £7.8m).
The Group has not included any borrowing costs within additions in 2022 (2021:
£nil). 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.
For further information refer to note 9 of the consolidated financial
statements in the 2022 Annual Report and Accounts.
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
year, the Group incurred internally generated development costs of £1.7m
(2021: £0.9m). The Group has not included any borrowing costs within
capitalised development costs. There were no funds specifically borrowed for
this asset and the amount eligible as part of the general debt instruments
pool (after applying the appropriate capitalisation rate) is not considered
material. As a result of the acquisition of Sync EV during the year, the Group
recognised £6.9m of goodwill, £1.5m of customer relationships and £0.8m of
brand names. Amortisation totalled £2.9m (2021: £2.4m). Net book value at 31
December 2022 was £41.7m (31 December 2021 (restated): £33.7m).
Goodwill impairment is reviewed annually. Further details on the review
conducted at 31 December 2022 can be found in note 10 to the 2022 Annual
Report and Accounts. No impairment charge was recorded in either 2022 or 2021.
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 20 in the 2022 Annual Report and
Accounts.
2022 2021
£m £m
Non-current liabilities
Revolving credit facility 28.2 36.8
Overdrafts 0.2 -
28.4 36.8
Bank loans are secured by a fixed and floating charge over the assets of the
Group.
10. Exchange rates
The following significant Sterling exchange rates were applied during the
year:
Average rate Reporting date spot rate
2022 2021 2022 2021
USD 1.23 1.38 1.21 1.35
EUR 1.17 1.16 1.13 1.19
RMB 8.30 8.87 8.34 8.59
11. Related party transactions
Transactions with key personnel
Key personnel include executive and non-executive Board members and the senior
management team. The compensation of key management personnel, including
executive Directors, is as follows:
2021 2021
£m £m
Remuneration (including benefits in kind) 5.1 6.9
Element of share-based payments expense 1.0 1.7
6.1 8.6
12. Post Balance Sheet Events
There are no post balance sheet events.
13. Annual General Meeting
The 2023 AGM will take place on 10 May 2023 at Numis Securities, 45 Gresham
Street, London EC2V 7BF. The notice of AGM and any related documents will be
sent to shareholders within the prescribed timescales. Shareholders will be
encouraged to submit their proxy votes online.
14. Date of approval of financial information
The financial information covers the year 1 January 2022 to 31 December 2022
and was approved by the Board on 20 March 2023. A copy of the 2022 Annual
Report and Accounts will be published on the Luceco plc investor relations
website, www.lucecoplc.com (http://www.lucecoplc.com) as soon as practicable.
Additional information
Financial calendar
Dividend record date 11 April 2023
Dividend reinvestment plan final date for election 26 April 2023
Annual General Meeting 10 May 2023
Dividend paid 19 May 2023
Half-year end 30 June 2023
Half-year end trading update 18 July 2023
Half-year interim management statement 5 September 2023
Year end 31 December 2023
Full-year preliminary statement March 2024
Company's registered office
Luceco plc
Building E Stafford Park 1
Stafford Park
Telford TF3 3BD
www.lucecoplc.com (http://www.lucecoplc.com)
ir@luceco.com
Independent auditor
KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
Financial advisors and brokers
Numis Securities
45 Gresham Street
London EC2V 7BF
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: 0333 300 1950
Financial PR
MHP
60 Great Portland Street
London W1W 7RT
Email: luceco@mhpgroup.com (mailto:luceco@mhpgroup.com)
Tel: 020 3128 8100
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SESSSFEDSEEDRecent news on Luceco
See all newsREG - Luceco PLC - EBT Share Purchase and PDMR Dealings
AnnouncementREG - Luceco PLC - Notification of Major Holdings
AnnouncementREG - Luceco PLC - Notice of AGM
AnnouncementREG - Luceco PLC - Director/PDMR Shareholding
AnnouncementREG - Luceco PLC - Grant of Awards Under Performance Share Plan
Announcement