REG - Marks Electrical Grp - Final Results
26/06/2024 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:20240626:nRSZ8645Ta&default-theme=true
RNS Number : 8645T Marks Electrical Group plc 26 June 2024
Marks Electrical Group plc
Annual financial results for the year ended 31 March 2024
Continuing to gain market share profitably and well positioned for the year
ahead
Marks Electrical Group plc ("Marks Electrical" or "the Group"), a fast-growing
online electrical retailer, today announces its full year audited results for
the 12 months ended 31 March 2024 ("the year" or "FY24").
Financial highlights
· Record full-year revenue of £114.3m (FY23: £97.8m) up 16.9%
year on year, doubling the revenue we achieved in the year prior to listing
(FY21: £56.0m).
· Adjusted EBITDA((1)) of £5.0m (FY23 £7.5m) in line as
previously guided, maintaining strong cost control despite downward margin
pressure as a result of consumers trading-down, and continuing our strategy of
gaining market share profitably.
· Adjusted EPS of 2.45p((3)) (FY23 4.82p), statutory EPS of 0.41p
(FY23 4.91p).
· Further improvements in working capital and a reduction in
inventory days to 56 days in FY24 from 74 days in FY23, helping the Group
achieve a closing net cash((4)) position of £7.8m, whilst making strategic
investments in capacity across vehicles, equipment, facilities and systems.
· Proposed final dividend of 0.66p per share, resulting in a total
FY24 dividend payout of 0.96p (FY23: 0.96p). The dividend payout is being
maintained year on year, despite the lower profitability, reflecting the
Group's strong cash position and confidence in its future outlook.
Operational highlights
· Growth in Major Domestic Appliances ("MDA") market share from
2.5% in FY23 to 2.8% in FY24, with our share in the online segment of the
market growing from 4.7% to 5.3%((5)).
· Growth in Consumer Electronics ("CE") market share from 0.3% in
FY23 to 0.5% in FY24, with our share in the online segment of the market
growing from 0.6% to 0.8%((5)).
· Completed the development of the Marks Electrical Academy, a
purpose-built training facility, where our drivers and installers are trained
on integrated, gas, electrical and freestanding connections and appliance
installations.
· Successfully transitioned away from the Euronics ("CIH") buying
group, providing greater opportunities to develop deeper relationships with
our manufacturer brand partners and drive further growth in revenue and
margin.
· Maintained an excellent Trustpilot rating of 4.8, demonstrating
the strength of our best-in-class customer proposition.
Current trading and outlook
· Strong trading performance in April, May and June, with
double-digit revenue growth and momentum starting to pick-up following the
weaker January to March trading period, providing us with optimism for the
year ahead.
Mark Smithson, Chief Executive Officer, commented:
"During what was a more challenging year for the Group, in an environment
where consumers remained highly price-conscious, we continued to make good
strategic progress across multiple fronts as a business. I am proud of the
ongoing commitment and dedication of our entire team of customer-focused
colleagues.
Over the past year we invested in our operations and systems to position the
business for long-term success, navigated a trade-down in customer buying
preferences, managed the inflation increases impacting our cost base and
continued to make a profit. Having doubled revenue since IPO, we've also
managed to grow our market share profitably, and thanks to our disciplined
approach to capital allocation, we've consistently returned a dividend to our
shareholders, whilst retaining a net cash position. Our strategy and approach
leaves us very well positioned for a market recovery when it occurs.
Our relentless focus on operational excellence and customer service has
enabled us to continue to gain share in a very competitive market, growing our
share from 2.5% to 2.8% of the overall Major Domestic Appliances ("MDA")
market and from 4.7% to 5.3% in the online segment, with huge opportunities
ahead, both in MDA and in other segments of Consumer Electronics and Small
Domestic Appliances.
Whilst I continue to be personally frustrated about our margin progression
during the year, I remain confident in our long-term growth prospects, and
continue to be impressed by our ability to deliver market share gains
profitably, against a fiercely competitive backdrop, whilst maintaining the
highest levels of customer service standards in the industry.
The first three months of FY25 have been encouraging and we have been pleased
to see a return to double-digit growth during the period, providing us with a
robust platform to continue driving profitable market share gains, and
ultimately enabling the Group to deliver long-term value creation and become
the UK's leading premium electrical retailer.
( )
(Notes)
((1) Adjusted EBITDA) (is a non-statutory measure defined as earnings before
interest, tax, depreciation, and amortisation and adjusted for non-underlying
items, share-based payment charges and buying group rebates receivable.)
((2) Adjusted EPS is) (a non-statutory measure of profit after tax, adjusted
for non-underlying items (ERP implementation costs), share-based payment
charges and buying group rebates receivable, over the total diluted ordinary
number of shares in issue.)
((3) Net cash represents cash and cash equivalents less financial liabilities
(excluding lease liabilities).)
((4) Based on the Group's analysis of GfK Market Intelligence sales tracking
GB data, Major Domestic Appliances and Consumer Electronics.)
( )
Enquiries:
Marks Electrical Group
plc
Via DGA Group:
Mark Smithson (CEO)
Tel: +44 (0)20 7664 5095
Josh Egan (CFO)
DGA Group (Financial PR)
Jonathon Brill / James Styles / Nishad Sanzagiri
Tel: +44 (0)20 7664 5095
markselectrical@dentonsglobaladvisors.com
(mailto:markselectrical@dentonsglobaladvisors.com)
Canaccord Genuity (NOMAD and Broker)
Max Hartley / George Grainger
Tel: +44 (0)20 7886 2500
About Marks Electrical
Marks Electrical is a fast growing, highly scalable, technology driven
e-commerce electrical retailer which sells, delivers, installs and recycles a
wide range of household electrical products. The Group was founded in
Leicester in 1987 by Mark Smithson and has scaled into a nationwide online
retailer with a compelling growth track record, thanks to its vertically
integrated, low-cost, high-quality operating model, supported by the ongoing
structural shift of consumers to purchase online. The Group operates within
the UK Major Domestic Appliances (MDA) and Consumer Electronics (CE) market,
estimated to be worth approximately £7 billion.
Primarily through its simple, clear and intuitive website -
markselectrical.co.uk - the Group offers over 4,500 products from over 50
leading brands across its main product categories, which include Cooking,
Refrigeration, Washers & Dryers, Dishwashers and Audio-Visual. These
products are sourced from UK distributors of the brands, with whom the Group
maintains strong and direct relationships. Marks Electrical delivers direct to
customers in its owned and branded vehicles, operated by the Group's skilled
team of delivery drivers, who are also able to offer installation and
recycling services.
For further information, visit the Marks Electrical corporate
website: https://group.markselectrical.co.uk
(https://group.markselectrical.co.uk/) and its retail
website: https://markselectrical.co.uk/ (https://markselectrical.co.uk/) .
Group Chief Executive Officer's review
We've faced a challenging but rewarding year in FY24:
· Our revenue continued to grow, surpassing £100m for the first
time in our history as a business, reaching £114.3m with 16.9% revenue
growth year on year;
· Our industry leading customer focus is proven in the maintenance
of our excellent Trustpilot score at 4.8;
· We continued investing in our long-term strategy through
additional developments in our warehouse, expansion of our vehicle fleet and
began the implementation of a new Enterprise Resource Planning system to fuel
our future growth; and
· We grew market share growth in both Major Domestic Appliances
("MDA") and Consumer Electronics ("CE") segments leaving us well positioned
for future market recovery.
Whilst I am personally frustrated about our margin progression in FY24, I
remain confident about our long-term growth prospects and continue to be
impressed by our ability to deliver market share gains profitably, against a
fiercely competitive backdrop, whilst maintaining the highest levels of
customer service standards in the industry.
In the current trading environment, consumers remain highly price-conscious,
which given our premium focus, continues to have an impact on our average
order value, resulting in customer order volumes growing faster than revenue.
This impact has limited our ability for margin expansion which we expect to
continue in the short-term, when taking into account the relatively fixed cost
of delivery. As we work tirelessly as a team to enhance our margin into FY25,
I know from 37 years of trading that margin fluctuations are inevitable, they
present us with an opportunity to learn, and will ultimately enable the Group
to deliver long-term value creation and position us as the UK's leading
premium electrical retailer.
Furthermore, during the year, we made further strides in our strategic plans
and as we focus on positioning our business to deliver long-term growth and
value creation, we made the decision to exit the Euronics buying group, which
we believe represents the next logical step in our journey. This enables us to
further build on the direct relationships we have with our brand partners,
which we anticipate will lead to revenue and margin upside in the medium-term
and in addition, improved flexibility as a national account.
Market share - a small share of a big opportunity
We are predominantly focused on the MDA market but have also been rapidly
expanding our footprint in the CE market, primarily in the television
category.
During our financial year, the MDA market declined by 1.3%, with the CE market
declining by 3.9%. Despite this, we were able to increase our market share to
2.8% in MDA (FY23: 2.5%) and 0.5% in CE (FY23: 0.3%). Our consistent
gains in market share are driven by our relentless focus on market-leading
customer service.
The continued market share growth we have seen, regardless of such a
challenging backdrop is the fuel that encourages us to work hard every day,
delivering for customers and taking comfort in the fact that we have such a
small share of an enormous market with significant scope for future market
share gains.
Our strategy for growth
Our strategic approach is very clear - we put the customer at the heart of
everything we do and have four key elements to our strategy for growth:
Customer proposition
Our operating model continues to be unique across the MDA sector in that we
consistently offer free next day delivery for in-stock items over set values,
throughout our wide range of products, to over 90% of the UK population.
In addition, our expanded installation service offering now provides
customers with the ability to add integrated, gas, electric and television
installation services to their order, which can be carried out within a rapid
time frame.
This proposition centres around the vertical integration of our delivery
model, with our own fleet, employed drivers and installers, in-house training
academy, and our centralised single-site distribution centre, maximising
efficiency and improving financial returns.
During the period we have made further advancements in developing our customer
proposition, including:
· Developing the ME academy, our leading in-house product
installation facility for driver, installer and customer service training;
· Introducing alternate customer communications, improving the
speed and efficiency at which our customer services team can resolve problems
for customers;
· Further developing our website to continually improve the
customer journey; and
· Maintaining our excellent Trustpilot score of 4.8.
Throughout the year we have strengthened our brand relationships in order to
deliver the best quality products to customers and furthermore we expect these
relationships to grow even deeper having exited the Euronics buying group as
we establish direct trading across all our brands.
Brand awareness
A key to our success is to grow our brand awareness.
During the year we have carried out continued brand awareness activities
focused on brand building across digital, television, out-of-home, radio and
social media channels, helping us to improve our reach and visibility across
the UK.
This activity and continued customer focus has resulted in elevated order
growth in key geographical locations. Whilst we are proud of the progress we
have made, we also recognise that there is significant opportunity for
further brand awareness growth, as more people across the UK come into contact
with our brand for the first time.
During the year we have also spent time developing our relationships with our
brand partners' marketing teams, in order to offer them innovative
opportunities to advertise with us. Our agile and creative approach has
proved highly complementary during the year and we look forward to building on
these relationships in the years ahead, ensuring that the activities that we
carry out are mutually beneficial for us and our brand partners.
Operational capacity
Across the four pillars of our strategy, operational capacity is one that has
been in significant focus in FY24. We've made sizeable investments across our
distribution centre and vehicle fleet, including but not limited to:
· Two automated dock-leveller loading bays;
· A very narrow aisle forklift system;
· Multiple racking and layout improvements and additional fork
lift trucks; and
· Increased fleet capacity with a range of different vehicle types.
By making these investments, we have increased our efficiency and capacity,
allowing us to minimise additional headcount, improve throughput and scale
further in our current facility, without requiring additional warehousing. It
also remains important for us to continue to modernise our fleet in order to
increase capacity and minimise operational downtime.
We continue to believe that investing across our business in people, processes
and equipment will ensure that we retain talent and provide them with the best
tools to give customers an excellent service.
Financial performance
We continued to deliver strong revenue growth in FY24 whilst gaining new
customers and increasing market share. This was, however, at lower
profitability levels than in the prior year, as a result of lower gross
product margin and higher distribution costs. We held advertising &
marketing expenses flat as a percentage of sales and kept a sharp focus on
other operating expenses to mitigate some of the external profitability
challenges but were frustrated by the outcome of our bottom line margin,
despite all the hard work across our teams throughout the year.
Despite this, we have been able to continue to demonstrate that gaining market
share can be done so profitably and with good cash generation to invest in our
future growth prospects.
We made continued progress on working capital management, reducing inventory
days from 74 to 56 and improving terms with suppliers, however some commercial
arrangements with suppliers led to higher year end rebate balances weakening
our operational cash conversion year on year. We continue to expect that in
the long-term, our operating cash conversion should consistently be in the
range of 90-110%.
The strong focus on cash has allowed us to pay our annual dividend, invest
£2.2m in selected capital projects to underpin our growth, and a further
£2.1m in the replacement of our legacy enterprise resource planning system.
We believe this combination of profitable market share growth, high return on
capital and dividend income provides a compelling proposition to drive
attractive long-term shareholder returns and despite lower profitability in
the current year, we are focused on driving improvements in FY25 and have
already taken multiple steps to do so.
Outlook - focused on delivering profitable market share growth
We believe that our current share of the UK MDA market of 2.8% (FY23: 2.5%)
and online share of 5.3% (FY23: 4.7%), with an even smaller share in CE,
continues to provide significant scope and opportunity for growth, regardless
of the economic backdrop. Our market-leading customer service and free next
day delivery for the majority of items, combined with in-house installation
expertise, provides a compelling and unique offering, that sets us apart from
the competition.
As momentum continues to develop and our brand awareness increases, our focus
on operational excellence and cash flow generation, combined with our healthy
net cash position, provides us with a robust platform to generate continued
profitable market share growth and become the UK's leading premium electrical
retailer.
Mark Smithson
Chief Executive Officer
Financial review
The Group continued its trajectory of profitable market share growth in a
challenging market backdrop resulting from the cost of living crisis. While
profitability was lower than the prior year due to lower gross product margin
and higher distribution costs, we maintained a tight control on advertising
and marketing expenses and other operating expenses. This demonstrates that
market share growth can continue to be achieved whilst delivering profit and
cash flow improvements, allowing us to further invest in our growth.
We maintained a tight control on working capital, improving inventory days and
credit terms, however this was offset by an increase in trade receivables at
the year end. Working capital decline to 1.3% of revenue from 1.7% in FY23 and
the cash flow we generated was invested in selected capital investment
opportunities for our warehouse and fleet, as well as the development of the
Group's new ERP software, Microsoft Dynamics 365, where there has been a cash
outflow of £2.1m to-date, with an additional £0.6m accrued of this
multi-year project. Further cash outflows, in addition to the £0.6m accrual
are expected in FY25.
Despite the lower profitability, our focus on selective capex investments to
fuel our future growth and tight cash flow control resulted in a closing net
cash position of £7.8m and a return on capital employed of 21%.
Financial Highlights
The Group's statutory revenue for the year was £114.3m, up 16.9% from
£97.8m in FY23. Gross profit for the year was £29.0m, up 8.8% from £26.7m
in FY23, with a gross margin of 25.4%, down 190 bps from FY23. The key driver
of the fall in gross margin was a trade-down into less premium products where
our rebate structures were not as favourable.
Statutory operating profit was down to £0.5m from £6.4m in FY23. The primary
reason for the decrease in operating profit was due to the lower trading
profitability as well as the impact of the costs incurred to replace our
legacy enterprise resourcing planning system with Microsoft Dynamics 365.
Statutory profit before tax was £0.6m driven by the non underlying costs
referenced above, as well as the weaker trading profitability.
Statutory measures Year ended Change %/bps
Year ended 31 March
31 March 2023
2024 *restated
£000 £000
Revenue 114,262 97,754 16.9%
Gross profit 29,032 26,692 8.8%
Gross profit margin 25.4% 27.3% (190)bps
Operating profit 488 6,419 (92.4)%
Operating profit margin 0.4% 6.6% (620)bps
Profit before tax 616 6,423 (90.4)%
Profit before tax margin 0.5% 6.6% (610)bps
Profit after tax 427 5,157 (91.7)%
Profit after tax margin 0.4% 5.3% (490)bps
Non-Statutory measures**
Adjusted EBITDA 5,007 7,549 (33.7)%
Adjusted EBITDA margin 4.4% 7.7% (330)bps
Adjusted EBIT 3,220 6,242 (48.4)%
Adjusted EBIT margin 2.8% 6.4% (360)bps
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified balances within the statement of comprehensive income
for the year ended 31 March 2023. Refer to Note 5 of the Group's annual report
and accounts for further details.
** Adjusted EBIT, adjusted EBITDA, operating cash conversion, return on
capital employed and adjusted earnings per share are alternative performance
measures, definitions of which are set out on page 119 of the Group's annual
report and accounts.
Revenue and gross product margin
The Group has continued to grow, achieving revenue of £114.3m which
represents a growth rate of 16.9% against FY23 (FY23: £97.8m). This result
was achieved against a declining MDA market and a declining CE market. The
continuation of customer acquisition, brand awareness improvements and order
volume growth demonstrates the sustainability of the strategic approach to
customer service being of paramount importance to the Group.
Growth in the first two quarters of the year was particularly strong at 24.8%,
followed by 17.9% in the third quarter and a lower growth rate of 2.0% in the
final quarter of the year. The final quarter saw much higher volume growth but
this was at a lower average order value, thereby not translating into revenue
at the same rate, as a result of the higher interest rates and inflationary
environment impacting consumers' propensity to spend on premium products.
Our definition of gross margin has changed in order to improve comparability
and understanding of the financial results. Presented below we are now showing
gross product profit, which represents the profit made on products and
services, less transaction fees. This now excludes the cost of distribution
which is presented separately below.
During the year, we saw a decline in our gross product margin to 25.4% (FY23:
27.3%) as a result of lower rebate levels due to sales mix. Unfortunately
during the year, we saw a trade-down to less premium products where our rebate
structures were not as a favourable from the outset of the financial year.
Year ended
Year ended 31 March
31 March 2023
2024 *restated Change
£000 £000 %*/BPS
Revenue 114,262 97,754 16.9%
Cost of Sales (85,230) (71,062) 19.9%
Gross product profit 29,032 26,692 8.8%
Gross product margin 25.4% 27.3% (190)bps
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified fair value gains to buying rebates receivable into
gross product margin.
Distribution costs
For improved clarity we have now separated distribution costs from gross
product margin and will be reporting this way moving forward. During the year
we saw a significant increase in our distribution costs, as a result of three
primary elements:
· Decreased average order value leading to the requirement to
deliver more for less revenue per order;
· Increase in driver pay and reward to remain competitive in the
current inflationary environment; and
· Full year of in-house installation services which provides
added-value to customers with significantly shorter waiting times and improved
service delivery, but comes at a higher cost of fulfilment.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 £000 %*/BPS
Revenue 114,262 97,754 16.9%
Distribution costs (11,089) (7,249) 53.0%
Distribution costs as % of revenue 9.7% 7.4% 230bps
Advertising and marketing costs
During the year the Group continued to utilise its marketing spend to acquire
new customers and promote the Marks Electrical brand. Total advertising costs
were £5.8m (FY23: £4.9m) and advertising as a percentage of revenue was
maintained at 5.0% (FY23: 5.0%).
The Group focusses on both online marketing and offline brand building
activities, with each playing an important role in driving the topline growth
during FY24.
Online marketing spend was focused on search engine optimisation, strategic
pay-per-click activities, affiliate programmes and marketplace fees. We
continued to improve our online presence across our SKUs and improved our
search result rankings whilst also benefiting from improved sales on
marketplaces. We continued our out-of-home campaigns during the year with
investments made in specific geographies to drive improved brand awareness,
which resulted in faster sales growth in those locations. We carried out a
range of non-digital activities, including static visual campaigns across
multiple locations, television, and radio.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 £000 %*/BPS
Revenue 114,262 97,754 16.9%
Advertising and marketing costs (5,754) (4,906) 17.3%
Advertising and marketing as % of revenue 5.0% 5.0% 0bps
Other operating expenses (excluding depreciation)
Given the impact of lower product margin and higher distribution costs, it was
imperative that other operating expenses were tightly controlled. This
laser-focus on overhead expenses resulted in a modest increase of 4.9% year on
year to £6.8m, despite revenue growth reaching 16.9%, thereby reducing the
operating expenses as a percentage of revenue to 6.0% (FY23: 6.7%).
As a business, our focus on minimising other operating expenses is key to us
driving operating leverage in the future as the business scales.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 £000 %*/BPS
Revenue 114,262 97,754 16.9%
Other operating expenses (excluding depreciation) (6,827) (6,507) 4.9%
Other operating expenses as % of revenue 6.0% 6.7% (70)bps
Adjusted earnings before Interest, tax, depreciation and amortisation
("adjusted EBITDA")
The Group achieved adjusted EBITDA in the year of £5.0m (FY23: £7.5m).
Margin decreased by 330bps to 4.4% from FY23 due to the following reasons:
· 190bps decline in gross product margin as a result of lower
rebate levels due to sales mix;
· 230bps decline as a result of higher distribution costs
as outlined above; and
· Offset by a 70bps improvement in operating expenses due to tight
operating cost control.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 *restated %*/BPS
£000
Statutory profit after tax 427 5,157 (91.7)%
Add back:
Non underlying items net of tax 2,045 - 100%
Underlying profit for the financial year 2,472 5,157 (52.1)%
Add back:
Underlying tax charge 871 1,266 (31.2)%
Underlying profit before tax 3,343 6,423 (48.0)%
Finance costs 39 67 (41.8)%
Finance income (167) (71) 135.2%
Share based payment expense 362 304 19.1%
Less:
Buying group rebates (357) (481) (25.8)%
Adjusted EBIT 3,220 6,242 (48.4)%
Depreciation and amortisation 1,787 1,307 36.7%
Adjusted EBITDA 5,007 7,549 (33.7)%
Adjusted EBITDA margin 4.4% 7.7% (330)bps
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified fair value gains to buying rebates receivable into
gross product margin.
Statutory profit after tax
Statutory profit after tax in the year was £0.4m (FY23: £5.2m). The decrease
year on year is due to the lower trading profitability as well as the impact
of the cost incurred to replace our legacy enterprise resourcing planning
system with Microsoft Dynamics 365.
Share-based payments
The Group issued further awards under its long-term incentive plan during the
year to senior and junior management. This, combined with the FY23 LTIPs and
the market value options and free shares awarded in FY22 resulted in a P&L
charge of £0.4m (FY23: £0.3m). This charge and related professional fees are
removed from adjusted financial performance measures.
Depreciation and amortisation
Depreciation and amortisation increased by £0.5m to £1.8m during the year
(FY23: £1.3m), primarily due to the addition of various warehouse equipment
and new vehicles, as detailed in the cash flow review below.
Taxation
The underlying tax charge for FY24 was £0.9m (FY23: £1.3m) with an effective
underlying tax rate of 26.1%, 1.1% higher than the statutory corporation tax
rate. The current tax asset held on balance sheet at the year end was £0.5m
(FY23: liability of £0.3m) with a deferred tax liability of £1.0m (FY23:
£0.8m).
Earnings per share
Basic earnings per share ("EPS"), which is calculated for both the current and
comparative year based upon the weighted average number of shares in the year,
was 0.41p per share (FY23: 4.91p per share).
Adjusted EPS was 2.45p per share (FY23: 4.82p per share), with the material
reduction year on year being driven by lower gross product margin and higher
distribution costs. The table below shows the reconciliation between statutory
and adjusted earnings per share. See Note 3 in the Group's annual report and
accounts for further details.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 £000 %*/BPS
Profit for the financial year 427 5,157 (91.7)%
Statutory EPS 0.41p 4.91p (91.7)%
Add back:
ERP costs net of tax 2,045 - 100%
Underlying profit for the year 2,472 5,157 (52.1)%
Charges relating to share-based payments net of tax 365, 271 34.7%
Buying group rebate net of tax* (268) (361) (25.8)%
Adjusted profit for earnings per share 2,569 5,067 (49.3)%
Fully diluted number of ordinary shares 104,949 105,034 (0.1)%
Adjusted EPS 2.45p 4.82p (49.2)%
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified fair value gains to buying rebates receivable into
gross product margin.
Cash flow and statement of financial position
During the year the Group achieved an adjusted cash flow from operating
activities of £4.5m (FY23: £9.9m) with an adjusted operating cash flow for
conversion of £3.6m (FY23: £8.9m) at 71% (FY23: 118%) and free cash flow of
£0.9m (FY23: £7.1m), resulting in a closing net cash position of £7.8m
(FY23: £10.0m).
The Group invested £1.0m in its warehouse equipment, including two automated
dock-leveller loading bays, a Very Narrow Aisle Forklift system, multiple
racking and layout improvements and additional fork lift trucks. The benefits
of these upgrades have already come to fruition with significantly improved
unloading and loading efficiency, whilst further improving safety.
A further £0.1m was invested in creating the ME Academy, the Group's
training facility for all employees, as well as the addition of existing
office space for our expanding IT team.
Investments were made into the fleet during the year, with the addition of 30
new vehicles. 18 vehicles were purchased directly with cash, with a further 12
vehicles purchased using finance lease agreements. A significant cash outflow
during the year was for the development and implementation of the Group's new
enterprise resource planning ("ERP") software, Microsoft Dynamics 365, where
there has been a cash outflow of £2.1m to-date, with an additional £0.6m
accrued, on the implementation of this multi-year project. Further cash
outflows are expected in FY25.
During the year the Group saw a working capital outflow of (£0.5)m (FY23:
£2.3m inflow), as despite improvements in inventory days and payable days,
the Group receivables balances for rebates and commercial contracts increased
against the prior year. The exceptional working capital adjustments relate to
the timing impact of payments to the Group's ERP implementation provider.
The Group finished the year in a net cash position of £7.8m (FY23: £10.0m)
with no debt or long-term lending facilities outside of its finance leases.
Year ended Year ended
31 March 31 March
2024 2023 Change
£000 £000 %*/BPS
Underlying profit before tax 3,343 6,423 (48.0)%
Add back:
Finance costs 39 67 (41.8)%
Finance income (167) (71) 135.2%
Loss/(profit) on disposal of fixed assets 71 (41) (273.2)%
Depreciation and amortisation 1,716 1,347 27.4%
Buying group rebates (357) (481) (25.8)%
Share based payment expense 362 304 19.1%
Decrease in inventories 1,185 189 527%
(Increase) in receivables (3,535) (1,826) 93.6%
Increase in payables 2,101 3,461 (39.3)%
Exceptional WC adjustments (248) 481 (151.6)%
Adjusted cash flow from underlying operating activities 4,510 9,853 (54.2)%
Less:
Outflows for principal lease payments (948) (967) (2.0)%
Underlying operating cash flow for conversion 3,562 8,886 (59.9)%
Operating cash conversion 71% 118%
Investing activities (1,925) (918) 109.7%
Tax paid (743) (784) (5.2)%
Interest paid (42) (67) (37.3)%
Underlying free cash flow 852 7,117 (88.0)%
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified balances within the statement of financial position,
impacting movements within the cash flow for the year ended 31 March 2023.
Refer to Note 5 for further details.
Events after the reporting period
Following the reporting period end on 31 March 2024, we have successfully
exited Combined Independents (Holdings) Limited "Euronics" buying group. This
exit will enable the Group to establish closer, direct relationships with its
manufacturer partners, which will provide further opportunity to drive growth
and margin in the future, and is the next natural step in our growth
ambitions.
Current trading and outlook
Despite the continuing pressures on customers trading-down we are very pleased
with the growth in our order volumes and new customer acquisitions and the
double digit growth we have seen in the first three months of FY25, giving us
confidence that our fundamental strategy of continued profitable market share
gains and excellent customer service will support us in delivering further
growth.
Dividend Declaration
We delivered an adjusted EPS of 2.45p during the year and are recommending a
final dividend of 0.66p per share, whilst this represents a higher payout
ratio than our stated 20% objective, we see this as a signal of confidence in
the future prospects of the Group and our current net cash position. The final
dividend will be paid (subject to shareholder approval at the AGM) on 15
August 2024 to shareholders who are on the register at the close of business
on 12 July 2024, and shares will be marked ex-dividend on 11 July 2024.
For further information on dividends, see Note 12 to the financial
statements.
Josh Egan
Chief Financial Officer
Consolidated Statement of comprehensive income
Year ended 31 March 2024
Notes Year ended
Year ended Year ended Year ended 31 March
31 March 31 March 31 March 2023
2024 2024 2024 Statutory
Underlying Non-underlying Statutory *restated
£000 £000 £000 £000
Revenue 114,262 - 114,262 97,754
Cost of Sales* (85,230) - (85,230) (71,062)
Gross profit 29,032 - 29,032 26,692
Distribution costs* (11,089) - (11,089) (7,249)
Administrative expenses (14,728) (2,727) (17,455) (13,024)
Operating profit 3,215 (2,727) 488 6,419
Finance income 167 - 167 71
Finance expenses (39) - (39) (67)
Profit before income tax 3,343 (2,727) 616 6,423
Tax on profit (871) 682 (189) (1,266)
Profit for the financial year 2,472 (2,045) 427 5,157
Total comprehensive income for the period 2,472 2,045 427 5,157
Earnings per share
Statutory basic and diluted earnings per share 3 0.41p 4.91p
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified balances within the statement of comprehensive income
for the year ended 31 March 2023. Refer to Note 26 of the Group's annual
report and accounts for further details.
All the results arise from continuing operations.
Consolidated Statement of financial position
At 31 March 2024
Notes Year ended Year ended
Year ended 31 March 31 March
31 March 2023 2022
2024 *restated *restated
£000 £000 £000
Assets
Non-current assets
Property, plant and equipment 2,671 1,559 841
Right-of-use assets 1,152 1,418 2,328
Trade and other receivables* 71 1,716 1,293
3,894 4,693 4,462
Current assets
Inventories 13,015 14,200 14,389
Trade and other receivables* 9,172 3,982 2,627
Current tax assets 461 - -
Cash and cash equivalents 7,817 9,972 3,872
30,465 28,154 20,888
Total assets 34,359 32,847 25,350
Liabilities
Current liabilities
Trade and other payables 18,501 16,545 13,067
Lease liabilities 621 921 938
Current tax liabilities - 302 145
19,122 17,768 14,150
Non-current liabilities
Lease liabilities 534 473 466
Deferred tax liabilities 991 782 1,324
Total liabilities 20,647 19,023 15,940
Net assets 13,712 13,824 9,410
Shareholders' equity
Called up share capital 6 1,049 1,049 1,049
Share premium 6 4,815 4,694 4,694
Treasury shares 6 (3) (4) (4)
Merger reserve 6 (100,000) (100,000) (100,000)
Retained earnings 6 107,851 108,085 103,671
Total shareholders' equity 13,712 13,824 9,410
* When preparing the financial statements for the year ended 31 March 2024,
the Company reclassified balances within the statement of financial position
for the year ended 31 March 2023. Refer to Note 26 of the Group's annual
report and accounts for further details.
Consolidated Statement of changes in equity
Year ended 31 March 2024
Notes Called up share capital Share premium Treasury shares Merger reserve Retained earnings Total shareholders' equity
£000 £000 £000 £000 £000 £000
At 31 March 2022 1,049 4,694 (4) (100,000) 103,671 9,410
Profit for the financial year - - - - 5,157 5,157
Contributions by and distributions to owners:
-Dividends paid 5 - - - - (1,017) (1,017)
-Share options and LTIP charge - - - - 274 274
At 31 March 2023 1,049 4,694 (4) (100,000) 108,085 13,824
Profit for the financial year - - - - 427 427
Contributions by and distributions to owners:
-Dividends paid 5 - - - - (1,007) (1,007)
-Share options and LTIP charge - - - - 346 346
-Sale of treasury shares 6 - 121 1 - - 122
At 31 March 2024 1,049 4,815 (3) (100,000) 107,851 13,712
All the results arise from continuing operations.
Consolidated Cash flow
Year ended 31 March 2024
Notes Year ended Year ended
31 March 31 March
2024 2023
£000 *restated
£000
Cash flows from operating activities
Profit for the year 427 5,157
Adjustments for non-cash items:
Depreciation of property, plant and equipment 758 326
Depreciation of right-of-use assets 958 1,021
Loss/(profit) on disposal of property, plant and equipment 71 (41)
Share-based payment expense 362 304
(Interest income) (167) (71)
Interest expense 39 67
Taxation charged 189 1,266
Movements in working capital:
Decrease in inventories 1,185 189
Increase in receivables* (3,535) (1,826)
Increase in payables 2,101 3,461
Cash flow generated from operations 2,388 9,853
Corporation tax paid (743) (784)
Net cash flow generated from operations 1,645 9,069
Cash flows from investing activities
Purchase of property, plant and equipment (2,023) (1,049)
Deposits on right-of-use assets (144) (33)
Proceeds from sale of property, plant and equipment 52 45
Proceeds from sale of right-of-assets 33 -
Income from investments - 58
Interest received 157 61
Net cash used by investing activities (1,925) (918)
Cash flows from financing activities
Sale of shares 6 122 -
Interest paid on lease liabilities (42) (67)
Principal repayment of lease liabilities (948) (967)
Equity dividends paid 5 (1,007) (1,017)
Net cash used by financing activities (1,875) (2,051)
Net (decrease)/increase in cash and cash equivalents (2,155) 6,100
Cash and cash equivalents at the beginning of the year 9,972 3,872
Cash and cash equivalents at end of the year 7,817 9,972
*When preparing the financial statements for the year ended 31 March 2024, the
Group restated balances within the statement of cash flows for the year ended
31 March 2023, with fair value gains reducing by £481,000 and the movement in
trade receivables increasing by £481,000. Refer to Note 26 of the Group's
annual report and accounts for further details.
Notes to the financial statements
Year ended 31 March 2024
1 General Information
The financial statements of Marks Electrical Group plc ("Company") for the
year ended 31 March 2024 ("FY24") were authorised for issue by the Board of
Directors on 25 June 2024 and signed on its behalf by Josh Egan.
The Company is a public limited company, limited by shares, incorporated in
the United Kingdom under the Companies Act 2006 (registration number
13509635). The Company is domiciled in the United Kingdom and its registered
address is 4 Boston Road, Leicester, LE4 1AU, England. The Company's ordinary
shares are listed on the AIM market, of the London Stock Exchange.
The principal activity of the Company and its subsidiaries ("Group")
throughout the period is the supply of domestic electrical appliances and
consumer electronics in the United Kingdom.
2 Accounting policies
2.1 Basis of preparation
This consolidated financial information has been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The financial information has been prepared on a going concern basis under the
historical cost convention unless otherwise specified within these accounting
policies. The financial information and the notes to the financial information
are presented in thousands ('£'000') except where otherwise indicated. The
functional and presentation currency of the Group is pound sterling.
The financial information set out in this preliminary announcement does not
constitute the Group's statutory financial statements for the years ended 31
March 2024 or 31 March 2023 as defined in section 435 of the Companies Act
2006 (CA 2006). The financial information for the year ended 31 March 2024 has
been extracted from the Group's audited financial statements. Statutory
financial statements for the year ended 31 March 2023 have been delivered to
the Registrar of Companies, the auditors reported on those accounts; their
report was unqualified and did not contain a statement under either Section
498(2) or Section 498(3) of the Companies Act 2006.
The principal accounting policies adopted in the preparation of the financial
statements are set out below. Other than the restatements disclosed within
note 26 of the Group's annual report and accounts, these policies have been
consistently applied to all the periods presented, unless otherwise stated.
2.2 Going concern
The Group has remained profitable during the year, delivering sales growth of
16.9%, whilst achieving a 0.4% operating margin and net operating cash flow of
£1.6m.
Management have prepared detailed financial projections for the period to 31
July 2025. These projections are based on the Group's detailed annual business
plan. Sensitivity analysis has been performed to model the impact of more
adverse trends compared to those included in the financial projections in
order to estimate the impact of severe but plausible downside risks.
The key sensitivity assumptions applied include:
· A material slow-down in e-commerce sales;
· A significant increase in goods sold.
Mitigating actions available to the Group were applied and the Board
challenged the assumptions used.
The Board of Directors has completed a rigorous going concern assessment and
taken the following actions to test or enhance the robustness of the Group's
liquidity levels for the period to 31 July 2025. As part of its assessment,
the Board has considered:
· The cash flow forecasts and the revenue projections for the
Group.
· Reasonably possible changes in trading performance, including a
severe yet plausible downside scenario and other extreme scenarios which are
not plausible.
· The Group's robust policy towards liquidity and cash flow
management.
· The Group's ability to successfully manage the principal risks
outlined in this report.
· The current cost of living crisis.
· Inflation pressures facing the Group and its employees.
· The impact of leaving CIH
In total, six stress tests were performed on the base case with varying
severities and multiple combinations, under the severe yet plausible scenario
the Group remains in a cash positive position, with no mitigating actions
required. Only in the extreme, not plausible, scenario referenced above, is
where mitigating action would be required. The mitigating response that would
be necessary is short-term inventory level management, which would not be
considered to have any long-term impacts on the Group's performance.
After reviewing the forecasts and risk assessments and making other enquiries,
the Board formed the judgement at the time of approving the financial
statements that there was a reasonable expectation that the Group had adequate
resources to continue in operational existence for at least twelve months from
the date of approval of these financial statements
2.3 Consolidation
The Group financial statements include those of the parent Company and its
subsidiaries, drawn up to 31 March 2024. Subsidiaries are entities over which
the Company obtains and exercises control through voting rights. Income,
expenditure, unrealised gains and intra-Group balances arising from
transactions within the Group are eliminated.
At the time of the Company's admission to trading on the AIM market of the
London Stock Exchange ("IPO"), the acquisition of the trading subsidiaries was
achieved by way of share for share exchange and the difference between the
par value of the shares issued and the fair value of the cost of investment
was recorded as an addition to the merger reserve. Following impairment, the
parent Company statement of financial position shows a merger reserve of £nil
and an investment of £60,657,000.
On a Group basis, an accounting policy was adopted based on the predecessor
method as this is not a business combination but rather a group
re-organisation and thus falls outside the scope of IFRS 3. IFRS does not
specifically state how group re-organisations are accounted for. Therefore,
in accordance with IAS 8, the Directors have considered the accounting for
group re-organisations using merger accounting principles, as set out in FRS
102, The Financial Reporting Standard applicable in the UK and Republic of
Ireland. Under this method, the financial statements of the parties to the
combination are aggregated and presented as though the combining entities had
always been part of the same group. The investment by Marks Electrical Group
plc in Marks Electrical Limited was eliminated and the difference between the
fair value and nominal value of the shares was adjusted through the merger
reserve in the Group statement of financial position.
2.4 Revenue recognition
Product and services revenue
Revenue from contracts with customers is recognised when or as the Group
satisfies a performance obligation by transferring a promised good or service
to a customer. A good or service is transferred when the customer obtains
control of that good or service.
The transfer of electrical appliances and consumer electronics sold by the
Group coincides with the delivery of the item to the customer and the
customer taking physical possession. The Group principally satisfies its
performance obligations at a point in time and recognises revenue on delivery
to the customer. This policy therefore applies to all products delivered to
customers as well as services provided upon the day of delivery such as
delivery fees, waste removal and installation of products.
Revenue is measured at the fair value of the consideration received, excluding
sales taxes or duty. Revenue includes a provision for anticipated returns,
which is based upon historical returns performance, the provision is held
within trade and other receivables.
Amounts received in advance for electrical appliances sales are recorded as
contract liabilities within trade and other payables (net customer advances)
and revenue is recognised as the performance obligations are met.
Commission revenue
Commission revenue is revenue the Group has achieved through acting as an
agent for a third party. The Group currently acts as an agent selling product
protection plans for Domestic and General ("D&G").
The Group introduces the customer to D&G for the product protection plan,
at which point the Group has met its performance obligation. The product
protection plans are rolling agreements whereby the end customer
pays a monthly fee for the plan. The Group receives commission for these
plans annually in advance.
Revenue from commissions on product protection plans is accounted for based on
the fair value of anticipated future commissions receivable throughout the
estimated duration of the plan, plus the initial commission received.
Recognition of revenue occurs upon the Group fulfilling its responsibilities
to the customer at the time of sale. These recognised amounts are determined
by factors such as the plan's duration, historical customer attrition rates as
provided by D&G and are held as a contract asset on the balance sheet
within trade and other receivables and discounted accordingly.
2.5 Estimate - Buying group rebates receivable
Estimates and assumptions are used to determine the carrying value of a
long-term rebate receivable held at fair value
through statement of comprehensive income. The rebate receivable from Combined
Independents (Holdings) Limited
("CIH") entitles the Group to a share of profit based on purchases made during
any given period. The rebate is made up of
accumulated share of profits accrued since entering the buying group, less any
distributions made during that time. Due to
the timing of CIH producing their annual results, the Group estimates the
current period's profit share based on a percentage
of total purchases from CIH. The accumulated fund from CIH is seldom
distributed; however, the Group left CIH on 31 March
2024, therefore the total accrued profits including the initial buy-in cost
have become receivable in full. The calculation to
estimate the rebate receivable in the period is based on historical averages
of rebates over total purchases. The estimate
made in the year ended 31 March 2023 was within 0.2% accuracy. Further details
of this calculation are available in Note 15 of the Group's annual report and
accounts.
3. Earnings per share
3.1 Statutory earnings per share
(a) Earnings
Year ended
31 March Year ended
2024 31 March
£000 2023
£000
Statutory earnings 427 5,157
(b) Number of shares
Year ended
31 March Year ended
2024 31 March
£000 2023
£000
Basic weighted average number of shares 104,949,050 104,949,050
Dilutive effect of share options and awards - 85,183
Diluted weighted average number of shares 104,949,050 105,034,233
(c) Earnings per share
Year ended
31 March Year ended
2024 31 March
2023
Statutory earnings
Basic statutory earnings per share 0.41p 4.91p
Diluted statutory earnings per share 0.41p 4.91p
3.2 Non-Statutory earnings per share
(a) Earnings
Year ended
31 March Year ended
2024 31 March
£000 2023
£000
Statutory earnings 427 5,157
Add:
Non underlying costs net of tax 2,045 -
Share based expenses net of tax 365 271
Less:
Buying group rebate (268) (361)
Adjusted earnings 2,569 5,067
(b) Number of shares
Year ended
31 March Year ended
2024 31 March
2023
Basic weighted average number of shares 104,949,050 104,949,050
Dilutive effect of share options and awards - 85,183
Diluted weighted average number of shares 104,949,050 105,034,233
(c) Earnings per share
Year ended
31 March Year ended
2024 31 March
2023
Adjusted earnings
Basic adjusted earnings per share 2.45p 4.83p
Diluted adjusted earnings per share 2.45p 4.82p
Adjusted earnings per share is a non-statutory measure the Group is using to
provide comparability and ease of understanding to the users of the financial
statements. This includes adjustments to the earnings and the number of
shares.
Adjusted earnings exclude all non-underlying items, expenses relating to
share-based payments, plus the add back of the buying group rebate receivable
and costs related to the on-going implementation of the new Enterprise
Resource Planning system.
The number of ordinary shares during the year ended 31 March 2024 have
remained constant. At the year end, there was no dilutive effect on the
Group's shares. The 85,183 shares that have been treated as potentially
dilutive in the prior year, relate to employee share options. The options are
dependent on contingent criteria being met and this tranche had met the
criteria at the prior year end.
4. Operating segments
IFRS 8 'Operating Segments' requires the Group to determine its operating
segments based on information which is provided internally. Based on the
internal reporting information and management structures within the Group, it
has been determined that there is only one operating segment, being the Group,
as the information reported includes operating results at a consolidated Group
level only. There is also considered to be only one reporting segment, which
is the Group, the results of which are shown in the consolidated statement of
comprehensive income.
Management has determined that there is one operating and reporting segment
based on the reports reviewed by senior management which is the chief
operating decision-maker. Senior management is made up of Executive Directors
and heads of department. Senior management is responsible for the strategic
decision-making of the Group.
5. Non-underlying costs
ERP system implementation costs
During the year, the Group began the implementation of a new ERP system. All
costs associated with this implementation that will not be ongoing costs once
the implementation is complete have been categorised as non-underlying costs.
The non-underlying costs in relation to ERP in the year totalled £2,727,000
being made up of £2,496,000 consultancy fees, £76,000 in wages and salaries,
£93,000 in technology costs and £62,000 in other legal and professional
fees.
6. Dividends
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Dividends paid during the year:
Final dividend for 2023: 0.66p (2022: 0.67p) 692 703
Interim dividend for 2024: 0.30p (2023: 0.30p) 315 314
Dividends paid 1,007 1,017
Final dividend for 2024 ((1)) : 0.66p (2023: 0.66p) 693 692
(1) The Board is recommending a final dividend of 0.66p per share (£692,664)
that will be subject to final approval by shareholders at the 2024 AGM.
The 0.66p represents a typical two-third share of the annualised amount. The
dividend has not been accrued into the consolidated statement of
financial position.
7. Share capital and reserves
At 31 At 31 At 31 At 31
March March March March
Allotted, called up and fully paid 2024 2024 2023 2023
£ Number £ Number
Ordinary shares of £0.01 each 104,949,050 1,049,491 104,949,050 1,049,491
104,949,050 1,049,491 104,949,050 1,049,491
Share Capital
Share capital comprises the nominal value of the Company's shares of £0.01
each.
Share premium
The share premium reserve is the premium paid on the Company's £0.01 ordinary
shares. During the year ended 31 March 2022, 4,545,454 shares were issued for
£1.10 each, resulting in a net premium of £4,694,000 consisting of
£4,954,000 premium paid less £260,000 placing costs. During the year, the
Company sold treasury shares at a premium to the purchase price leading to a
£121,000 increase in share premium.
Merger reserve
The merger reserve relates to the merger relief under section 612 of the
Company's Act, on the acquisition of Marks Electrical Limited, a 100% owned
subsidiary of the Group.
On 8 October 2021, Marks Electrical Group plc acquired the 100 ordinary shares
(100% of the share capital) in Marks Electrical Limited, in return for the
issue of 99,999,999 ordinary shares with a nominal value of £1.00 each, at a
price of £1.60 each, bringing the total consideration to £160,000,000. This
transaction falls under section 612 of the Companies Act and merger relief was
applied. On consolidation under the predecessor method a merger reserve of
£100,000,000 was recognised.
Treasury shares
Treasury reserve relates to shares acquired by the Group's employee benefit
trust. At the year end the Group held 259,961 (FY23: 403,596) treasury shares.
Retained Earnings
Retained earnings are the accumulated profits and losses of the Group net of
dividends and other adjustments.
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 SEMFUIELSEDMRecent news on Marks Electrical
See all newsREG - Marks Electrical Grp - FY25 Pre-close Trading Statement
AnnouncementREG - Marks Electrical Grp Frasers Group PLC - Holding(s) in Company
AnnouncementREG - Marks Electrical Grp - Director/PDMR Shareholding
AnnouncementREG - Marks Electrical Grp Frasers Group PLC - Holding(s) in Company
AnnouncementREG - Marks Electrical Grp - Director/PDMR Shareholding
Announcement