REG - Marks Electrical Grp - HY24 Interim Results
16/11/2023 07:00
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RNS Number : 6223T Marks Electrical Group plc 16 November 2023
Marks Electrical Group plc
Results for the six months ended 30 September 2023
Continued trading momentum driven by premium next-day service offerings
Marks Electrical Group plc ("Marks Electrical" or "the Group"), a fast growing
online electrical retailer, today announces its unaudited results for the six
months ended 30 September 2023 ("the Period" or "H1-24" or "first half").
Financial highlights
· Strong first half trading period with revenue growth of 24.8% to
£53.9m (H1-23 £43.1m)
· Adjusted EBITDA((1)) of £2.3m (H1-23 £2.7m), with the strategic
decision to introduce our own installation service, combined with inflationary
pressures in distribution costs impacting H1 margins, but expect this pressure
to ease over H2 as we benefit from improved operating leverage during the
seasonal peak trading period
· Continued focus on working capital management, reducing inventory
days from 82 in H1-23 to 64 in H1-24 and driving a strong operating cash
conversion of 145% (H1-23 189%)
· Free cash flow of £1.7m (H1-23 £4.5m), with £1.4m invested in
our vehicle fleet and distribution centre
· Adjusted EPS of 1.11p (H1-23 1.66p)((3)), Statutory EPS of 0.83p
(H1-23 1.66p)
· Robust, debt-free balance sheet with closing net cash position of
£10.9m (H1-23 £7.7m), supporting an interim dividend maintained at 0.30p per
share (H1-23 0.30p), to be be paid on 22 December 2023 to shareholders who are
on the register at the close of business on 1 December 2023, and shares will
be marked ex-dividend on 30 November 2023
Operational highlights
· Growth in Major Domestic Appliances ("MDA") market share from
2.4% in H1-23 to 2.9% in H1-24, with our share in the online segment of the
market growing from 4.5% to 5.4%((4))
· Growth in Consumer Electronics ("CE") market share from 0.3% in
H1-23 to 0.5% in H1-24, with our share in the online segment of the market
growing from 0.6% to 0.9%((4))
· Strong performance driven across all major product categories
with particularly high growth in televisions (+71%), washer-dryers (+74%) and
American fridge-freezers (+36%)
· Developed 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
· Rapid growth in our premium service offerings with the attachment
rate for installation and connection services having improved from 9% of all
orders in H1-23 to over 15% in H1-24
· Began the implementation of a new ERP system expected to complete
in FY25
· Proudly maintained our industry leading Trustpilot score of 4.8,
reaching over 55,000 reviews with 95% of those reviews being 4 and 5 star,
demonstrating the strength of our best-in-class customer proposition
Outlook
· Continued double-digit revenue growth in October and a strong
start to November leaves us well positioned for both the peak Christmas
trading period and to achieve our full year targets
Mark Smithson Chief Executive Officer, commented:
"We've made a strong start to the year with the Group's sales up 24.8%, whilst
also delivering multiple operational improvements to further enhance the
customer experience. This relentless focus on operational excellence and
customer service has enabled us to continue to gain share in a very
competitive market, growing our share in the first half from 2.4% to 2.9% of
the overall MDA market and from 4.5% to 5.4% in the online segment.
Our strategic decision to add in-house installation services to our offering
has strengthened the Group's premium service proposition, alongside the
creation of our own ME Academy training facility. These additions, whilst
margin dilutive in the short term, will enable the Group to deliver long-term
value creation and position us as the UK's leading premium electrical
retailer.
Despite the first half margin pressure, which occurred within distribution
costs, we continued to remain disciplined on marketing costs, maintained our
focus on overhead cost control and are continuing to gain market share
profitably, a key differentiator of our growth strategy.
Our market-leading customer service and next day delivery, combined with
in-house installation expertise through our vertically integrated operating
model, provides a compelling and unique offering, that sets us apart from the
competition.
As momentum builds going into the peak trading period, with continued
double-digit revenue growth in October and a strong start to November, our
focus on operational excellence and customer service, combined with our strong
net cash position, provides us with a robust platform to improve profitability
in the second half and achieve our full year targets."
Key financial highlights: Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Revenue 53,858 43,146 97,754
Adjusted EBITDA((1)) 2,312 2,704 7,549
Adjusted EBITDA margin 4.3% 6.3% 7.7%
Adjusted EBIT 1,501 2,130 6,242
Adjusted EBIT margin 2.8% 4.9% 6.4%
Adjusted profit after tax 1,203 1,741 5,067
Adjusted earnings per share((3)) 1.11p 1.66p 4.82p
Operating profit 914 2,031 5,938
Operating margin 1.7% 4.7% 6.1%
Statutory profit after tax 873 1,738 5,157
Statutory earnings per share 0.83p 1.66p 4.91p
Operating cash flow for conversion((5)) 3,358 5,117 8,886
Operating cash conversion 145% 189% 118%
Free cash flow 1,703 4,523 7,117
Net cash((6)) 10,901 7,692 9,972
Return on Capital Employed((2)) 37% 49% 41%
( )
( )
(Notes)
((1) Adjusted EBITDA is a non-statutory measure defined as earnings before
interest, tax, depreciation, and amortisation and adjusted for exceptional
items, share-based payment charges and revaluation of investments.)
((2) Return on Capital Employed (ROCE) is defined as Adjusted EBIT / (Total
Assets - Current liabilities))
((3) Adjusted EPS is a non-statutory measure of profit after tax, adjusted
for exceptional items, ERP replacement project, share-based payment charges
and revaluation of investments, over the total diluted ordinary number of
shares in issue.)
((4) Based on the Group's analysis of GfK Market Intelligence sales
tracking GB data, Major Domestic Appliances. During the year GfK reclassified
floorcare from major domestic appliances to small domestic appliances. As such
the current year 2.9% is on the new definition and the prior year 2.0% has
been restated and is now 2.4%.)
((5) Operating cash flow for cash conversion is defined as cash generated
from operations less outflows for lease payments and exceptional items)
((6) Net cash/(debt) represents cash and cash equivalents less financial
liabilities (excluding lease liabilities))
Results presentations
A live online presentation for sell-side analysts hosted by Mark Smithson,
CEO, and Josh Egan, CFO, will take place at 9.30am this morning. Please
contact markselectrical@dentonsglobaladvisors.com
(mailto:markselectrical@dentonsglobaladvisors.com) for further information.
In addition, management will also provide a live online presentation for
investors at 2pm on 20 November 2023. The online event is open to all existing
and potential shareholders and registration is free. Questions can be
submitted during the presentation and will be addressed at the end. To
register, please go to: link to sign up
(https://www.equitydevelopment.co.uk/news-and-events/markselectrical-investor-presentation-20nov2023)
.
A recording of the presentation will be available shortly after the event at
this link: Marks Electrical content page
(https://www.equitydevelopment.co.uk/research/tag/marks-electrical) .
Enquiries:
Marks Electrical Group plc
Via Dentons Global Advisors:
Mark Smithson, CEO
Tel: +44 (0)20 7664 5095
Josh Egan,
CFO
Dentons Global Advisors (Financial PR)
Jonathan 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 (NOMAD) / Kit Stephenson
(Sales)
Tel: +44 (0) 207 886 2500
About Marks Electrical
Marks Electrical is a fast growing, highly scalable premium 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 and its retail website:
https://markselectrical.co.uk/.
Group CEO review
We've made a strong start to the year with the Group's sales up 24.8%, whilst
also delivering multiple operational improvements to enhance the customer
experience.
Our strategic decision to add in-house installation services to our offering
has strengthened the Group's premium service proposition, alongside the
creation of our own "ME Academy" training facility. These additions, whilst
margin dilutive in the short term, will enable the Group to deliver long-term
value creation and position us as the UK's leading premium electrical
retailer.
We proudly maintained our industry leading Trustpilot score of 4.8, reaching
over 55,000 reviews with 95% of those reviews being 4 and 5 star,
demonstrating the strength of our best-in-class customer proposition and the
continued focus that our teams across the business put into delivering an
excellent customer experience.
Market share
Our primary focus remains on the Major Domestic Appliances (MDA) segment,
where we gained 50bps of market share from 2.4% to 2.9% during our first half,
with a greater improvement in the online segment from 4.5% to 5.4%. This was a
strong performance against a relatively stable MDA market.
In Consumer Electronics (CE), we made further advances from 0.3% to 0.5%
market share, with our online market share growing from 0.6% to 0.9%. This
still represents a very small market share and we are excited about the growth
opportunities ahead.
Despite the growth in our TV business being over 70%+ in the first half, and
with this being typically lower margin sales than our core MDA business,
thanks to our tight operational grip, we were able to maintain our gross
product margin at 24.9% with the minor decline from 25.2% in H1-23 being
driven by the CE mix impact.
Strategic growth initiatives
Our strategy is to become the UK's leading premium electrical retailer. To
achieve this, we split our focus into four key areas:
1. Customer proposition
Our unique operating model distinguishes us in the Major Domestic Appliances
sector, consistently providing next-day delivery services for in-stock items
to over 90% of the UK population. Along with this, our installation services,
covering gas, electric, integrated and television installations, further
enhance our customer proposition and are available to over 70% of the UK
population.
During H1-24 we have seen significant growth in our premium next-day service
offerings with installation services achieving over 7,000 installation orders
in the first half, vs. 2,500 in the prior year (+180%), and over 11,000
freestanding connection services vs. 5,000 in the prior year (+120%). All of
this whilst maintaining our industry leading Trustpilot score of 4.8.
Our strategic partnerships with a diverse range of premium brands, combined
with our focus on best-in-class, in-house installation and connection
services, enables us to deliver an excellent customer offering and positions
us favourably to continue gaining profitable market share.
Our customer proposition centres around the vertical integration of our
delivery model, using our own fleet of vehicles, employed drivers and
installers, enhanced by our in-house training facility ME Academy, enabling us
to deliver high standards of installation and connection training to improve
the customer experience.
2. Brand awareness
We have continued to invest in our brand awareness campaigns during H1-24,
with further activity in television, radio and out-of-home advertising,
including:
· Continued investment in television marketing, including Sky and
Channel 4, introducing a range of new adverts throughout the period featuring
our mascot MRK 1;
· Strategically investing in radio ads with stations that fit our
customer demographic, to target premium product sales;
· Out-of-home focus located in areas of strategic importance for
maximum impact; and
· Increased presence on social media platforms.
We served over 100,000 customers during H1-24 with 24.5% of these being
returning customers. This demonstrates our market leading customer service
levels driving repeat business once someone has come into contact with the
Marks Electrical brand.
3. Operational capacity
In H1-24, we completed significant enhancements to our warehouse and
distribution centre. We invested in improved racking and very narrow aisle
(VNA) systems, optimising capacity and expediting order picking. Additionally,
we increased our loading and unloading capacity by introducing new dock
levellers. These levellers allow for efficient rear unloading of HGVs,
substantially reducing unloading times, and increasing our stock throughput
capacity for outbound loading.
We developed our in-house vehicle maintenance centre by acquiring new
equipment and expanding our team, resulting in increased vehicle availability
and reduced fleet downtime, with fewer vehicles off-site for extended periods.
We increased our delivery capacity by adding 20 new vehicles, supporting the
rapid growth of our installation team. Additional delivery vehicles are
scheduled for delivery in H2-24, further enhancing our delivery capacity and
demonstrating our confidence in the growth opportunities ahead.
4. Financial performance
Our financial performance has been robust with 24.8% revenue growth and gross
product margin of 24.9% in H1-24, highlighting the strength of our product and
customer value proposition.
The strategic decision to introduce our own installation service, combined
with inflationary pressures in distribution costs impacted H1-24 margins, but
we expect this pressure to ease over H2-24 as we benefit from improved
operating leverage during the peak trading period.
Our laser-focus on working capital management continued and we were able to
improve inventory efficiency, reducing inventory days from 82 days in H1-23 to
64 days in H1-24. We have delivered an operational cash conversion of 145%,
finishing the period with a net cash position of £10.9m, demonstrating the
highly cash generative nature of our operating model.
We believe that the combination of profitable growth, high return on capital,
and dividend income offers an attractive proposition for total shareholder
returns.
Outlook - well placed to deliver profitable market share growth
Our current share of the UK MDA market of 2.9% and online share of 5.4%
continues to provide significant scope and opportunity for growth. Our
market-leading customer service and next day delivery, combined with in-house
installation expertise through our vertically integrated operating model,
provides a compelling and unique offering, that sets us apart from the
competition.
As momentum builds going into the peak trading period, with continued
double-digit revenue growth in October and a strong start to November, our
focus on operational excellence and customer service, combined with our net
cash position, provides us with a robust platform to improve profitability in
the second half and achieve our full year targets.
Mark Smithson
Chief Executive Officer
Financial review
The Group made a strong start to FY24, against a broadly flat market
back-drop. Sales growth was widespread across product categories, with notable
increases in televisions, washer dryers, ovens, and energy-efficient major
domestic appliances. Throughout this period, we maintained our focus on
profitable market share expansion, despite headwinds in distribution and
installation costs. While these factors put pressure on H1-24 margins, we
expect this to ease over H2-24 as we benefit from operating leverage in the
peak trading period.
In order to help improve understanding of the income statement dynamics, we
have added additional disclosure and are now reporting gross product profit
margin and distribution and installation costs as separate line items.
Revenue and gross product profit
In H1-24 the Group delivered a strong revenue performance, up 24.8% to £53.9
million. Gross product profit margin was 24.9%, down 30bps from H1-23, driven
by product mix as a result of our 70%+ growth in television which typically
attracts a lower margin than Major Domestic Appliances (MDA).
We expect an improvement in gross product profit margin in H2-24, as we enter
the peak trading period.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Revenue 53,858 43,146 97,754
Cost of Sales* (40,471) (32,294) (71,543)
Gross product profit 13,387 10,852 26,211
Gross product profit margin 24.9% 25.2% 26.8%
*The presentation of cost of sales and gross profit has been redefined in the
H1-24 results and comparatives have been amended. This change splits our gross
product profit and distribution and installation costs. This decision was made
to aid the understandability of movements within gross margin for the users of
the financial statements.
Distribution and installation costs
The strategic decision to introduce our own installation service, combined
with inflationary pressures in driver costs impacted our H1-24 distribution
and installation cost base. The 200bps cost increase from 7.1% of sales to
9.1% of sales was the main contributor to the overall Group EBITDA margin
decline in the first half.
Whilst the addition of in-house installation services are margin dilutive in
the short term, the services are now break even, whereas outsourcing the
services in the prior year was a loss-making activity in order to generate the
product sale, which we considered to be unsustainable. As the business grows
and density improves, there will be improved operating leverage on the
installation cost base.
Long-term, having this service vertically integrated strengthens our
proposition, enhancing the overall value opportunity and assisting in
positioning us as the UK's leading premium electrical retailer.
We expect distribution and installation costs in H2-24 to be broadly similar
to H1-24, as a percentage of sales.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Distribution & installation costs (4,907) (3,043) (7,249)
Distribution & installation costs as % of revenue 9.1% 7.1% 7.4%
Advertising and marketing costs
During H1-24, advertising and marketing costs remained consistent
year-on-year, at 5.6% of revenue. Marketing was allocated across various
channels, including digital marketing, social, TV, radio and out-of-home
campaigns in order to ensure we managed the correct mix of performance
marketing and brand awareness.
We anticipate a slightly lower level of investment in advertising &
marketing in H2-24 to keep us on track for our 5.0% of sales target and to
leverage the investments made in the first half.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Revenue 53,858 43,146 97,754
Advertising and marketing costs (2,995) (2,421) (4,906)
Advertising and marketing as % of revenue 5.6% 5.6% 5.0%
Other operating expenses (excluding depreciation)
Other operating expenses decreased as a percentage of revenue to 5.9% in H1-24
versus 6.3% in H1-23, and 6.7% in FY23, as we retained a tight control on our
operating cost base.
We anticipate improved operating leverage in H2-24, keeping us in line with
stated full year target of 5.5 - 6.5% of revenue.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Revenue 53,858 43,146 97,754
Other operating expenses (3,173) (2,684) (6,507)
Other operating expenses as % of revenue 5.9% 6.2% 6.7%
Adjusted earnings before Interest, Tax, Depreciation and Amortisation
("EBITDA")
The Group achieved Adjusted EBITDA for the period of £2.3m representing a
margin of 4.3%, down 200bps against H1-23. This decrease in margin year on
year is a direct result of the increase in distribution and installation costs
as previously detailed.
We anticipate an improvement in Adjusted EBITDA margin in H2-24, as we benefit
from peak trading and improved operating leverage.
Six months ended Six months ended
30 September 30 September
2023 2022
£000 £000
Statutory profit after tax 873 1,738
Addback:
Tax 291 379
Net finance (income)/costs (55) 32
ERP costs 439 -
Share based payment costs 149 99
Less:
Revaluation of investments (195) (118)
Adjusted EBIT 1,502 2,130
Depreciation and amortisation 772 619
(Profit)/Loss on disposal of fixed assets 38 (45)
Adjusted EBITDA 2,312 2,704
Adjusted EBITDA margin 4.3% 6.3%
Statutory Profit after tax
During the year statutory profit after tax was £0.9m, down £0.8m versus
H1-23 at £1.7m. This decrease is primarily due to increased distribution and
installation costs and exceptional costs incurred in relation to our ERP
implementation project.
ERP implementation project
During the period we incurred costs of £0.4m in relation to our ERP
implementation project, which is anticipated to span FY24 and FY25. For the
purposes of aiding comparability, these costs are removed from adjusted
financial performance measures. During the period the project had a cash
outflow of £0.2m due to invoice timing.
Share-based payments
The Group issued new awards under its long-term incentive plan during the year
to senior and junior management. This,
combined with the market value options and free shares awarded in FY23
resulted in a P&L charge of £0.1m (2023: £0.1m).
This charge and related professional fees are removed from adjusted financial
performance measures.
Depreciation
Depreciation has increased to £0.8m (H1-23: £0.6m), this was driven by:
· Fleet modernisation and growth to accommodate the increase in
sales volumes; and
· Leasehold improvements including; office refurbishment to
increase capacity, dock levellers, the ME Academy training facility and new
racking to improve warehouse efficiency.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Right of use assets: vans 203 228 455
Right of use assets: property 282 283 566
Property, plant and equipment 287 108 326
Total Depreciation 772 619 1,347
Taxation
Tax expense is recognised based on management's best estimate of the average
annual income tax rate expected for statutory
the pre-tax income of the interim period. The expense for the six months ended
30 September 2023 is £291,000 (H1-23: £379,000). The Group's adjusted
consolidated effective tax rate for the six months ended 30 September 2023 is
25.0% (H1-23: 17.9%) in line with the increase in the corporation tax rate
from 19% to 25% effective from 1 April 2023. The deferred tax liability is
expected to reverse within 36 months.
Earnings per share
Basic earnings per share ("EPS"), which is calculated for both the current and
comparative period based upon the weighted average number of shares in the
year, is 0.83p per share (H1-23: 1.66p per share).
Adjusted EPS is 1.11p per share (H1-23: 1.66p per share), the table below
shows the reconciliation between statutory and adjusted earnings per share.
See Note 3 to the financial statements for further details.
Six months ended Six months ended
30 September 30 September
2023 2022
£000 £000
Statutory profit after tax 873 1,738
Addback:
Exceptional items 439 -
Tax effect of exceptional items (110) -
Underlying profit for the period 1,202 1,738
Charges relating to share-based 111 99
payments net of tax
Fair value gains net of tax (146) (89)
Adjusted profit for earnings per share 1,167 1,748
Fully diluted number of ordinary shares 105,248,083 104,949,050
Adjusted earnings per share 1.11p 1.66p
Cashflow and statement of financial position
During H1-24 the Group achieved and adjusted cash flow from operations of
£3.8m and free cash flow of £1.7m. This operational cashflow generation is
primarily due to working capital improvements, including the negotiation of
new terms with suppliers enabling a £2.5m increase in payables, and improved
efficiency in inventory turn through a reduction in inventory days.
During the period, the Group has made selected capital investments to
accommodate growth, including the conversion of a new office space, increased
fleet capacity through the addition of 20 more vehicles, and warehouse
improvements to increase efficiency and stock capacity. In addition to
operational improvements, during the period we developed the ME Academy, a
bespoke, purpose-built in-house training centre for our drivers and
installers. In H1-24 the total capital expenditure amounted to £1.4m (H1-23:
£0.08m).
The Group closed the period in a net cash position of £10.9m versus £10.0m
at FY23 and £7.7m at H1-23.
Six months ended Six months ended
30 September 30 September
2023 2022
£000 £000
Underlying profit before tax 1,603 2,117
Addback:
Finance (income)/costs (55) 32
(Profit)/Loss on disposal of fixed assets 38 (45)
Depreciation and amortisation 772 619
Revaluation of investments (195) (118)
Share based payment cost 148 99
(Increase)/decrease in inventories 227 60
(Increase)/decrease in receivables (993) (542)
Increase/(decrease) in payables 2,533 3,379
Payables movement in relation to ERP (236) -
Underlying cash flow from operating activities 3,842 5,601
Less:
Outflows for lease payments (484) (484)
Underlying operating cash flow for conversion 3,358 5,117
Operating cash conversion 145% 189%
Investing activities (1,350) (82)
Tax paid (350) (475)
Interest received/(paid) 45 (37)
Underlying free cash flow 1,703 4,523
Events after the reporting period
There have been no material events to report after the end of the reporting
period.
Current trading and outlook
Whilst the addition of in-house installation services and driver cost
increases added pressure to the first half margin, we believe that long-term,
having these services vertically integrated enhances the overall value
creation and assists in positioning us as the UK's leading premium electrical
retailer. Furthermore, as we benefit from improved gross product profit margin
and operating leverage during the peak trading period in H2-24, we expect to
improve our Adjusted EBITDA margin and remain on track to achieve our full
year targets.
Consolidated Statement of comprehensive income
Six months ended 30 September 2023
Notes Six months ended Six months ended Six months ended Six months ended Year ended
30 September 30 September 30 September 30 September 31 March
2023 2023 2023 2022 2023
Underlying Non-underlying Statutory Statutory Statutory
£000 £000 £000 £000 £000
Revenue 53,858 - 53,858 43,146 97,754
Cost of Sales * (40,471) - (40,471) (32,294) (71,543)
Gross product profit * 13,387 - 13,387 10,852 26,211
Distribution costs* (4,907) - (4,907) (3,043) (7,249)
Gross profit * 8,480 - 8,480 7,808 18,962
Administrative expenses (6,979) - (6,979) (5,678) (13,024)
Share based payment expenses (148) - (148) (99) -
Operating exceptional charges 6 - (439) (439) - -
Total administrative expenses (7,127) (439) (7,566) (5,777) (13,024)
Operating profit 1,353 - 914 2,031 5,938
Fair value gains through the profit and loss 195 - 195 118 481
Finance income 79 - 79 - 71
Finance expenses (24) - (24) (32) (67)
Profit before income tax 1,603 (439) 1,164 2,117 6,423
Tax on profit 4 (401) 110 (291) (379) (1,266)
Profit for the financial period 1,202 (329) 873 1,738 5,157
Other comprehensive income - - - -
Total comprehensive income for the period 1,202 (329) 873 1,738 5,157
Earnings per share
Statutory basic and diluted earnings per share - - 0.83p 1.66p 4.91p
*The presentation of cost of sales and gross profit has been redefined in the
H1-24 results and comparatives have been amended. The change made splits our
gross product profit and distribution and installation costs. This decision
was made to aid the understandability of movements within gross margin for the
users of the financial statements.
Consolidated Balance sheet
At 30 September 2023
Notes At At
30 September 31 March
2023 2023
£000 £000
Non-current assets
Property, plant and equipment 2,667 1,559
Right-of-use asset 915 1,418
Investments 1,911 1,716
5,493 4,693
Current assets
Inventories 13,973 14,200
Trade and other receivables 4,985 3,982
Cash and cash equivalents 10,901 9,972
29,859 28,154
Total assets 35,352 32,847
Current liabilities
Trade and other payables (19,146) (16,545)
Lease liabilities (862) (921)
Current tax liabilities 4 (243) (302)
(20,251) (17,768)
Non-current liabilities
Lease liabilities (48) (473)
Deferred tax 4 (782) (782)
Total liabilities (21,081) (19,023)
Net assets 14,271 13,824
Shareholders' equity
Called up share capital 1,049 1,049
Share premium 4,815 4,694
Treasury shares (3) (4)
Merger reserve (100,000) (100,000)
Retained earnings 108,410 108,085
Total equity shareholders' funds 14,271 13,824
The interim financial statements of Marks Electrical Group plc were approved
by the Board on 15 November 2023 and signed on its behalf by:
Josh Egan
Chief Financial Officer
Consolidated Statement of changes in equity
Six months ended 30 September 2023
Notes Called up share capital Share premium Merger reserve Treasury shares Retained earnings Total shareholders' equity
£000 £000 £000 £000 £000 £000
At 31 March 2022 1,049 4,694 (100,000) (4) 103,671 9,410
Total comprehensive income for the period - - - - 5,157 5,157
Contributions by and distributions to owners:
-Dividends paid - - - - (1,017) (1,017)
-Share based payment charge - - - - 274 274
At 31 March 2023 1,049 4,694 (100,000) (4) 108,085 13,824
Total comprehensive income for the period - - - - 873 873
Contributions by and distributions to owners:
-Dividends paid - - - - (693) (693)
-Share based payment charge - - - - 145 145
-Sale of treasury shares - 121 - 1 - 122
At 30 September 2023 1,049 4,815 (100,000) (3) 108,410 14,271
All the results arise from continuing operations.
Consolidated Cash flow
Six months ended 30 September 2023
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£000 £000 £000
Cash flows from operating activities
Profit for the period 873 1,738 5,157
Adjustments for non-cash items:
Depreciation of property, plant and equipment 287 108 326
Depreciation of right-of-use assets 485 511 1,021
(Profit)/loss on disposal of property, plant and equipment 38 (45) (41)
Fair value gains (195) (118) (481)
Share based payment expense 148 99 304
Interest (income)/expense (55) 32 (4)
Taxation charged 291 379 1,266
Movements in working capital:
(Increase) in inventories 227 60 189
Decrease/(increase) in receivables (993) (542) (1,345)
Increase in payables 2,533 3,379 3,461
Cash flow generated from operations 3,639 5,601 9,853
Corporation tax paid (350) (475) (784)
Net cash flow generated from operations 3,289 5,126 9,069
Cash flows from investing activities
Purchase of property, plant and equipment (1,367) (99) (1,049)
Deposits on right-of-use assets - (33) (33)
Proceeds from sale of property, plant and equipment 17 45 45
Income from investments - 5 58
Interest received 69 - 61
Net cash used by investing activities (1,281) (82) (918)
Cash flows from financing activities
Sale of treasury shares 122 - -
Interest paid on lease liabilities (24) (37) (67)
Principal repayment of lease liabilities (484) (484) (967)
Equity dividends paid (693) (703) (1,017)
Net cash used by financing activities (1,079) (1,224) (2,051)
Net increase in cash and cash equivalents 929 3,820 6,100
Cash and cash equivalents at the beginning of the period 9,972 3,872 3,872
Cash and cash equivalents at end of the period 10,901 7,692 9,972
Notes to the unaudited financial statements
Six months ended 30 September 2023
1 General Information
Marks Electrical Group plc (the "Company") is a public limited company
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. 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 (the "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. There are no new standards,
interpretations and amendments which are not yet effective in these financial
statements, expected to have a material effect on the Group's future financial
statements.
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 figures for the period to 30 September 2023 and the comparative period to
30 September 2022 have not been audited or reviewed. The figures for 31 March
2023 have been extracted from the financial statements for the year to 31
March 2023, which have been delivered to the Registrar of Companies. The
interim financial statements do not constitute statutory accounts within the
meaning of the Companies Act 2006.
The policies have been consistently applied to all periods presented, unless
otherwise stated. The principal accounting policies adopted in the preparation
of the financial statements are set out below. These policies have been
consistently applied to all the periods presented, unless otherwise stated.
2.2 Going concern
The Group has traded positively during the period, delivering sales growth of
24.8%, whilst remaining profitable with a closing cash position of £10.9m.
Management have prepared detailed financial projections for the period to 30
November 2024. 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 input costs, including goods sold and
distribution costs.
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 30 November 2024. 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 severe yet
plausible downside scenarios
• An assessment of historical forecasting accuracy by comparing forecast
cash flow to those actually achieved by the Group
• The Group's robust policy towards liquidity and cash flow management
• The Group's ability to successfully manage the principal risks
• The current cost of living crisis
• Inflation pressures facing the Group and its employees
After reviewing the forecasts and risk assessments and making other enquiries,
the Board has formed the judgement at the time of approving the financial
statements that there is a reasonable expectation that the Group has 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 2023. 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 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. The parent company statement of
financial position shows a merger reserve of £59,999,999 and an investment of
£159,999,998.
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 Operating exceptional charges
The Group presents exceptional items on the face of the statement of
comprehensive income these are material items of income and expense which the
Directors consider, because of their size or nature and expected
non-recurrence, merit separate presentation to facilitate financial comparison
with prior periods and to assess trends in financial performance. Exceptional
items are included in Administration expenses in the consolidated statement of
comprehensive income but not considered to be part of the underlying trading
performance of the business.
2.5 Significant accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
IFRS 13 fair value fixed asset investments
Estimates and assumptions are used to determine the carrying value of unlisted
investments at fair value through statement of comprehensive income. The fixed
asset investment in CIH ("Euronics") entitles the Group to a share of profit
based on purchases made during any given period. The fixed asset investment is
made up of an initial buy-in cost plus share of profits accrued since entering
Euronics. Due to the timing of Euronics producing their annual results, the
Group estimates the current periods profit share, based on a percentage of
total purchases from Euronics. The profits from Euronics are seldom
distributed; however, if the Group were to leave Euronics, the total accrued
profits including the initial buy-in cost would become payable in full.
Long-term equity incentive plans
In calculating the charge in the statement of comprehensive income for the
share-based remuneration for employees and Directors, estimates and judgements
must be made on various inputs to valuation model to determine a theoretical
fair value. A Black-Scholes pricing model is used to measure the fair value of
the employee share options using six variables, the volatility, type of
option, share price on issue, time, strike price and the risk-free rate. Other
conditions which are required to be met in order for an employee to become
fully entitled taken into consideration, such as employee attrition rates.
3. Earnings per share
(a) Earnings
Six months ended
30 September Year ended
2023 31 March
£000 2023
£000
Statutory earnings 873 5,157
(b) Number of shares
Six months ended
30 September Year ended
2023 31 March
2023
Basic weighted average number of shares 104,949,050 104,949,050
Dilutive effect of share options and awards 299,033 85,183
Diluted weighted average number of shares 105,248,083 105,034,233
(c) Earnings per share
Six months ended
30 September Year ended
2023 31 March
2023
Statutory earnings
Basic statutory earnings per share 0.83p 4.91p
Diluted statutory earnings per share 0.83p 4.91p
3.1 Non-Statutory earning per share
(a) Earnings
Six months ended Year ended
30 September 31 March
2023 2023
£000 £000
Statutory earnings 873 5,157
Add:
ERP costs net of tax 329 -
Share-based payments net of tax 111 271
Less:
Fair value gains net of tax (146) (361)
Adjusted earnings 1,167 5,067
(b) Number of shares
Six months ended
30 September Year ended
2023 31 March
2023
Basic weighted average number of shares 104,949,050 104,949,050
Dilutive effect of share options and awards 299,033 85,183
Diluted weighted average number of shares 105,248,083 105,034,233
(c) Earnings per share
Six months ended
30 September Year ended
2023 31 March
2023
Adjusted earnings
Basic adjusted earnings per share* 1.12p 4.83p
Diluted adjusted earnings per share 1.11p 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 exceptional costs, plus the add back of the
revaluation in the investment of the Group's buying group, as disclosed above.
The number of ordinary shares as at 31 March 2023 through to 30 September 2023
has been used as the basis for the current and prior periods adjusted earnings
per share calculation.
4. Taxation
Income tax expense is recognised based on management's best estimate of the
average annual income tax rate expected for the full financial year applied to
the pre-tax income of the interim period. The income tax expense for the six
months ended 30 September 2023 is £291,000 (H1-23: £379,000). The Group's
adjusted consolidated effective tax rate for the six months ended 30 September
2023 is 25.0% (H1-23: 17.9%).
5. Dividends paid
Six months ended Year ended
30 September 31 March
2023 2023
£000 £000
Dividends paid during the period:
Final dividend for 2023: 0.66p (2022: 0.67p) 693 703
Interim dividend for 2024: Nil (2023: 0.30p) - 314
Dividends paid 693 1,017
Final dividend for 2024: Nil (2023: 0.66p) - 693
Dividends paid and issued during the period totalled £692,586 (2023:
£703,159).
An interim dividend has been proposed to be paid 22 December 2023 for 0.30p
per share totalling £314,746.
6. Operating exceptional charges
During the period the Group began the implementation of a new ERP system. The
ERP implementation is expected to be complete in FY25 and the Group will incur
professional fees in relation to the set up and integration of the new system
until completion. All costs are expected to be expensed through the statement
of comprehensive income and in order to aid comparability, will be disclosed
separately as non-underlying items. During H1-24 £439,000 was incurred as an
expense with a tax benefit of £110,000.
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