REG - Marks Electrical Grp - Results for the six months ended 30 September 2022
08/11/2022 07:01
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RNS Number : 5918F Marks Electrical Group plc 08 November 2022
Marks Electrical Group plc
Results for the six months ended 30 September 2022
Continued trading momentum, resilient profit performance and strong market
share gains
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 2022 ("the Period" or "H1-23" or "first half").
Financial highlights
* Strong first half revenue growth of 15.1% to £43.1m (H1-22 £37.5m)
* Resilient profit performance in tough market conditions with Adjusted
EBITDA((1)) of £2.7m (H1-22 £3.0m), delivering a margin of 6.3% and keeping
us on-track to deliver on our full year targets
* Continued focus on working capital management, improving inventory days and
driving a strong operating cash conversion of 189%
* Free cash flow of £4.5m (H1-22 £5.9m), representing a free cash flow margin
of 10%
* Adjusted EPS of 1.66p (H1-22 2.14p)((3)), Statutory EPS of 1.66p (H1-22 1.55p)
* Robust, debt-free balance sheet with closing net cash position of £7.7m
(H1-22 £1.3m), supporting an interim dividend of 0.30p per share
Operational highlights
* Growth in Major Domestic Appliances ("MDA") market share from 1.6% in H1-22 to
2.1% in H1-23, with our share in the online segment of the market growing from
2.6% to 3.9%((4))
* Growth in Consumer Electronics ("CE") market share from 0.2% in H1-22 to 0.3%
in H1-23, with our share in the online segment of the market growing from 0.4%
to 0.6%((4))
* Strong performance driven across all major product categories, with A-rated
energy efficient laundry appliances growing at over 35% in the period, versus
less efficient models staying broadly flat
* Investments in on-screen, social media and out-of-home marketing activities
drove improved brand awareness from 7% to 10%((7))
* Expanded our geographic footprint further into Glasgow, Edinburgh, Cornwall
and further parts of Wales, where we have seen strong demand for our customer
leading proposition
* Maintained industry leading Trustpilot score of 4.8, demonstrating our
commitment to operational delivery and customer satisfaction
Outlook
* Acceleration of revenue growth in October and strong start to November leave
us well positioned to achieve our full year targets
Mark Smithson Chief Executive Officer, commented:
"I'm proud of the performance we've delivered against a tough back-drop, with
the Group's sales up 15.1% in a very challenging market where the online MDA
and CE markets were down over 15% in our first half. This further demonstrates
the resilience of our business model and the attractiveness of our
market-leading customer offering.
Our focus on operational excellence, customer service, and improving brand
awareness has enabled us to continue to gain share in a very competitive
market, where our share grew from 1.6% to 2.1% of the overall MDA market and
from 2.6% to 3.9% in the online segment. As more people across the UK come
into contact with the Marks Electrical proposition and become customers, we
are able to harness our highly efficient, single-site operational model to
drive profitable market share growth.
The strong competitive activity we saw in pricing and marketing during the
first half has begun to ease more recently and despite the margin pressure, we
were able to achieve an Adjusted EBITDA margin of 6.3%, keeping us on track to
achieve our full year objectives and continuing to demonstrate the
differentiated margin proposition of our operating model.
As growth momentum continues to build going into the peak trading period, with
an acceleration in October and a strong start to November, our focus on
operational excellence and cash flow generation, combined with our net cash
position, provides us with a robust platform to generate continued profitable
market share growth and deliver on our full year targets."
Key financial highlights: Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Revenue 43,146 37,470 80,478
Adjusted EBITDA((1)) 2,704 3,031 7,247
Adjusted EBITDA margin 6.3% 8.1% 9.0%
Adjusted EBIT 2,130 2,707 6,386
Adjusted EBIT margin 4.9% 7.2% 7.9%
Adjusted profit after tax 1,741 2,234 5,255
Adjusted earnings per share((3)) 1.66p 2.14p 5.01p
Statutory profit after tax 1,738 1,626 3,288
Statutory earnings per share 1.66p 1.55p 3.22p
Operating cash flow for conversion((5)) 5,117 6,578 8,616
Operating cash conversion 189% 217% 119%
Free cash flow 4,523 5,940 5,746
Free cash flow margin 10% 16% 7%
Net cash((6)) 7,692 1,276 3,872
Return on Capital Employed((2)) 49% 71% 57%
( )
( )
(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, share-based payment charges and revaluation of
investments, over the total diluted ordinary number of shares in issue. The
number of ordinary shares as at 5 November 2021 through to 31 March 2022 have
been used as the basis for the current and prior periods adjusted earnings
per share calculation. The shares in issue since IPO represents an
indication of the future weighted average number of ordinary shares for
evaluating the performance of the Group)
((4) Based on the Group's analysis of GfK Market Intelligence sales
tracking GB data;)
((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))
((7) All figures, unless otherwise stated, are from YouGov Plc. Total
sample size was 3,728 adults. Fieldwork was undertaken between 25 October - 2
November 2022. The survey was carried out online. The figures have been
weighted and are representative of all England adults (aged 18+).)
Results presentations
An in-person presentation for sell-side analysts hosted by Mark Smithson, CEO,
and Josh Egan, CFO, will take place at 09.30am 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 12.30pm on 10 November 2022. 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/marks-electrical-investorpresentation-10nov22)
.
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 / Fern Duncan
Tel: +44 (0)20 7664 5095
markselectrical@dentonsglobaladvisors.com
(mailto:markselectrical@dentonsglobaladvisors.com)
Panmure Gordon (NOMAD and Joint Broker)
Oliver Cardigan / Dougie McLeod (Corporate Finance)
Tel: +44
(0) 207 886 2500
Erik Anderson (Corporate
Broking)
Berenberg (Joint Broker)
Matthew Armitt / Michelle Wilson / Richard Bootle (UK Investment
Banking) Tel:
+44 (0) 20 3207 7800
About Marks Electrical
Marks Electrical is a fast growing, highly scalable, technology driven
e-commerce electricals 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 up 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 £8.0 billion.
Primarily through its simple, clear and intuitive website -
markselectrical.co.uk - the Group offers over 4,000 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 CEO review
We made a strong start to FY23, with first half revenue growth of 15.1% and an
Adjusted EBITDA margin of 6.3%, setting us on-track for delivery of our
financial targets.
We achieved this against a particularly challenging market back-drop and with
the online Major Domestic Appliances (MDA) and Consumer Electronics (CE)
markets being down over 15% in the first half.
Our focus on operational excellence, customer service, and improving brand
awareness has enabled us to continue to gain share in a very competitive
market, where our share grew from 1.6% to 2.1% of the overall MDA market and
from 2.6% to 3.9% in the online segment.
Market share - a significant growth runway
As a business we are predominantly focused on the MDA market and have also
been expanding our footprint in the CE market, primarily in the television
category.
During the first half of our financial year, the online market for both MDA
and CE has been challenging with the first quarter (April to June) showing a
decline of over 20% and the second quarter (July to September) a decline of
over 10%. Continuing the trends seen in FY22, the online markets for MDA and
CE have been in successive decline year on year for over 12 months now, yet
despite the challenging market dynamics, we have grown consistently throughout
this period.
It's these statistics that are truly exciting; we have a tiny share of an
enormous market which has allowed us to be agile and flexible in navigating
this challenging period, but also provides us with confidence for the future,
given the huge runway to grow profitably.
Our market-leading customer service, free next day delivery offering and
differentiated operating model, gives us a compelling customer proposition and
leaves us in a position of strength to take further market share across the
UK.
Our strategy for growth
We put the customer at the heart of everything we do and have four key
elements to our strategy for growth:
1. Customer proposition
Our operating model is unique across the Major Domestic Appliances sector in
that we consistently offer free next day delivery for in-stock items
throughout our wide range of products, across over 90% of the UK population.
Our ability to achieve this unique proposition centres around the vertical
integration of our delivery model, with our own fleet, employed drivers and
installers, and our centralised single-site distribution centre, maximising
efficiency and improving financial returns.
During the period we have made substantial progress in developing our customer
proposition, including:
* Expanding our delivery areas to Cornwall, Glasgow, Edinburgh, and throughout
all of Wales;
* Developing our range of SKUs across MDA and CE, whilst starting the
development of our computing category;
* Adding additional third-party finance offerings to provide new credit
solutions and interest free options for customers;
* Developing our new integrated installation offering with our own employed team
of installation engineers; and
* Maintaining our industry leading Trustpilot score of 4.8.
We are focused on providing a market leading customer service proposition that
sets us apart from the competition and allows us to continue to gain
profitable market share.
2. Brand awareness
During the period we updated our brand awareness study which demonstrated that
only 10% of the population in England had heard of Marks Electrical. This was
an increase of 3 percentage points against the study we carried out at the end
of FY22, demonstrating the growth in brand awareness and the opportunity to
continue growing this over time. Our focused brand building activities across
on-screen and across social media helped us improve awareness, and this,
coupled with our expanded delivery areas will continue to enable us to grow
awareness of Marks Electrical across the UK.
We strongly believe that our market-leading service drives strong repeat
business and once we have acquired the customer, they will make further
purchases from us. This is exemplified in our strong repeat customer rate,
which was 26% in H1-23 and we were proud to serve over 4,000 returning
customers in the month of September, a first for the business!
Our marketing activities are geared towards developing our brand and we are
deploying a range of both digital and non-digital campaigns to strengthen our
proposition and capture more attention in the months ahead.
3. Operational capacity
During the period we have made further improvements to our warehouse to add
additional mezzanine flooring and raise ceiling heights, allowing for a higher
level of capacity. In addition, we have improved inventory days allowing us to
make better use of our existing space as we increase throughput to achieve
higher revenue levels during the peak period.
We have moved our operational warehouse teams to a four on four off shift
pattern, allowing us to operate 24/7 and align the shift patterns with our
delivery teams. Alongside this we have continued to add roles in our customer
services, sales and administrative teams.
As part of our improvements across our operational capacity, we have started
to develop our own in-house installation team, by recruiting experienced
installation engineers, allowing us to bring in-house, integrated, gas and
electrical appliance installation services that were historically outsourced.
This service offering is now ramping up rapidly and we are excited about its
prospects.
As we prepare for future growth we have ordered 10 new installation vehicles
and 12 additional delivery vehicles that will arrive during late 2022 and in
2023. We are confident in our future prospects and are therefore investing in
our people, processes and capacity to continue our growth.
4. Financial performance
The strong competitive activity we saw in pricing and marketing during the
first half has begun to ease more recently and despite the margin pressure
this has had we were able to achieve an Adjusted EBITDA margin of 6.3%, along
with revenue growth of 15.1%. This keeps us on track to achieve our full year
targets and continues to demonstrate the differentiated margin proposition of
our operating model.
We made continued progress on working capital management and delivered an
operational cash conversion of 189%, demonstrating the highly cash generative
nature of our earnings model and enabling us to finish the period with a net
cash position of £7.7m and a Return on Capital Employed of 49%.
This strong cash performance means we can reinvest in the growth of the
business, whilst remaining debt free, and simultaneously provide returns for
shareholders through dividends. We were proud to pay our maiden dividend in
August 2022 and are declaring our first interim dividend for FY23 in December
2022 of 0.30p.
We believe this combination of profitable growth, high return on capital and
dividend income provides an attractive proposition for total shareholder
returns.
Outlook - well placed to deliver profitable market share growth
We believe that our current share of the UK MDA market of 2.1% and online
share of 3.9%, continues to provide significant scope and opportunity for
growth. Our market-leading customer service and free next day delivery,
combined with in-house installation expertise, provides a compelling and
unique offering, that sets us apart from the competition.
As momentum continues to build going into the peak trading period, with an
acceleration of revenue growth in October and a strong start to November, our
focus on operational excellence and cash flow generation, combined with our
net cash position, provides us with a robust platform to generate continued
profitable market share growth and achieve our full year targets.
Mark Smithson
Chief Executive Officer
Financial review
The Group made a strong start to FY23, against a particularly challenging
market back-drop. Sales growth was driven across the board, with more
significant gains in televisions, cookers, vacuums and energy efficient major
domestic appliances. We have maintained our focus on profitable market share
growth, against heightened levels of competitor discounting and marketing and
whilst this put pressure on H1-23 margins, we expect this to ease over H2-23
given reduced competitor discounting in recent months, our tight focus on cost
control and improved operating leverage during the peak trading period.
Revenue and gross margin
Revenue has increased 15.1% year on year to £43.1m, whilst during the same
period the online MDA and CE markets were down over 15%. This relative
outperformance resulted in our share of the MDA market increasing by 50bps
from 1.6% in H1-22 to 2.1% in H1-23.
Revenue growth in H1-23 has been driven by investments in brand awareness, an
increased focus on having a wider breadth of in-stock SKUs and our improved
customer proposition.
Gross margin was 18.1%, down 110bps from H1-22, primarily driven by increased
competitor discounting during Q1-23, increased fuel costs throughout the
period and the increased national insurance on drivers' wages.
The margin pressure due to competitor discounting eased toward the end of
Q2-23 and we have seen further improvements during October. As a result, we
anticipate an improved gross margin in H2-23, with stronger product margins, a
reduction in fuel costs as a percentage of sales, lower national insurance on
drivers' wages, and better leverage over the fleet and driver-installer cost
base.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Revenue 43,146 37,470 80,478
Cost of Sales (35,338) (30,270) (64,583)
Gross profit 7,808 7,200 15,895
Gross margin 18.1% 19.2% 19.8%
Advertising and marketing costs
Advertising and marketing costs were 5.6% of revenue in H1-23 versus 5.1% in
H1-22 as a result of increased investments made in brand building activities
to drive improved brand awareness prior to the peak trading period.
In digital advertising, we continued our focus on paid media and search engine
optimisation, ensuring that we directed our investments carefully for maximum
return during a period of heightened competitor spend levels.
In brand building, in order to improve our brand awareness, we carried out
further on-screen campaigns across Sky, ITV, Channel 4 and YouTube. Social
media activity was an increased focus in H1-23 in order to develop our brand
across key social channels, including Facebook, Instagram and TikTok. Our
focus in H2-23 is to develop our out-of-home display activities in order to
reach a wider audience in targeted locations, whilst continuing our on-screen
and social media presence.
We anticipate a slightly lower level of investment in advertising &
marketing in H2-23 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
2022 2021 2022
£000 £000 £000
Revenue 43,146 37,470 80,478
Advertising and marketing costs 2,421 1,900 4,004
Advertising and marketing as % of revenue 5.6% 5.1% 5.0%
Other operating expenses (excluding depreciation)
Other operating expenses were broadly flat at 6.2% of revenue in H1-23 versus
6.1% in H1-22. The changes during the period were a result of plc related
costs that were not incurred in H1-22, national insurance increases on
employee wages, and increased business rates following COVID-19 reliefs coming
to an end. These were partially offset by operating leverage on the overhead
base.
We anticipate a similar level of spend in H2-22 keeping us in line with our
5.5 - 6.5% of revenue target.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Revenue 43,146 37,470 80,478
Other operating expenses 2,684 2,271 4,644
Other operating expenses as % of revenue 6.2% 6.1% 5.8%
Adjusted earnings before Interest, Tax, Depreciation and Amortisation
("EBITDA")
The Group achieved Adjusted EBITDA for the period of £2.7m representing a
margin of 6.3%, down 180bps against H1-22.
This decrease in margin year on year is a direct result of events
aforementioned, namely:
· 110bps reduction in gross margin due to competitor discounting
and increased fuel & national insurance costs;
· 50bps increase in advertising & marketing costs as we
maintain our focus on expanding brand awareness prior to the peak trading
period;
· 50bps in relation to additional costs of operating as a plc; and
· 30bps savings as a result of cost control and operating leverage.
We anticipate an improvement in Adjusted EBITDA margin in H2-23, as we benefit
from reduced discounting during the peak trading period and improved operating
leverage.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Profit after tax 1,738 1,626 3,288
Addback:
Tax 379 443 477
Finance costs 32 30 65
IPO related costs - 727 2,676
LTIP costs 99 - 75
Less:
Revaluation of investments (118) (119) (195)
Adjusted EBIT 2,130 2,707 6,386
Depreciation and amortisation 619 317 878
(Profit)/Loss on disposal of fixed assets (45) 7 (17)
Adjusted EBITDA 2,704 3,031 7,247
Adjusted EBITDA margin 6.3% 8.1% 9.0%
Depreciation
Depreciation has increased to £0.6m (H1-22 £0.3m), this was driven by:
· Fleet modernisation and growth to accommodate the increase in
sales volumes, thereby increasing right of use assets depreciation by £0.1m;
· On 30 September 2021 the Group's property was disposed of on a
sale and leaseback arrangement, leading to an increase in property right of
use assets depreciation by £0.2m; and
· Other property, plant and equipment depreciation charges have
remained broadly flat.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Right of use assets: vans 228 115 304
Right of use assets: property 283 103 385
Property, plant and equipment 108 99 189
Total Depreciation 619 317 878
Depreciation as % of revenue 1.4% 0.8% 1.1%
Cashflow and statement of financial position
During H1-22 the Group achieved cash flow from operations of £5.6m and free
cash flow of £4.5m. This strong performance demonstrates the highly cash
generative nature of our earnings model.
During the period, capital expenditure has been relatively light as
significant investments were made in FY22. We have spent £80,000 on warehouse
improvements during H1-23, including further extension of the mezzanine floor,
raising ceiling heights and improving the lighting and layout to enable a more
efficient operation.
We have made additional investments in the fleet acquiring three new delivery
vans on finance leases with a capital value of £111,000, including a cash
outflow for deposits of £33,000. We expect to receive an additional 10
installation vans before the year end.
The Group closed the period in a net cash position of £7.7m versus £3.9m at
the FY22 year end and £1.3m at the H1-22 period end, primarily as a result of
strong EBITDA conversion and continued working capital improvements.
Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Profit before tax 2,117 2,069 3,765
Addback:
Finance costs 32 30 65
(Profit)/Loss on disposal of fixed assets (45) 7 (17)
Depreciation and amortisation 619 317 878
Revaluation of investments (118) (119) (195)
LTIP costs 99 - 75
Release of provision - - (155)
(Increase)/decrease in inventories 60 (112) (2,957)
(Increase)/decrease in receivables (542) 917 212
Increase/(decrease) in payables 3,379 2,936 4,926
Cash flow from operating activities 5,601 6,045 6,597
Addback:
Outflows relating to IPO costs - 727 2,676
Less:
Outflows for lease payments (484) (194) (657)
Operating cash flow for conversion 5,117 6,578 8,616
Operating cash conversion 189% 217% 119%
Investing activities (82) (447) (774)
Tax paid (475) (171) (2,042)
Interest paid (37) (20) (54)
Free cash flow 4,523 5,940 5,746
Current trading and outlook
The resilient performance delivered in the first half provides us with solid
foundations to deliver our strategic objectives in H2-23.
The business has continued to prosper during the start of the second half,
with an acceleration in sales momentum in October and a strong continuation
into November. As we benefit from improved gross margin and operating leverage
during the peak trading period, we expect to improve our Adjusted EBITDA
margin in H2-22 and remain on track to achieve our full year targets.
Consolidated Statement of comprehensive income
Six months ended 30 September 2022
Notes Six months ended Six months ended Year ended
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Revenue 43,146 37,470 80,478
Cost of Sales (35,338) (30,270) (64,583)
Gross profit 7,808 7,200 15,895
Administrative expenses (5,678) (4,493) (9,509)
Share based payment expenses (99) - (75)
Operating exceptional charges - (727) (2,676)
Total administrative expenses (5,777) (5,220) (12,260)
Operating profit 2,031 1,980 3,635
Fair value gains through the profit and loss 118 119 195
Finance expenses (32) (30) (65)
Profit before income tax 2,117 2,069 3,765
Tax on profit 4 (379) (443) (477)
Profit for the financial period 1,738 1,626 3,288
Other comprehensive income - - -
Total comprehensive income for the period 1,738 1,626 3,288
Consolidated Balance sheet
At 30 September 2022
Notes At At
30 September 31 March
2022 2022
£000 £000
Non-current assets
Property, plant and equipment 832 841
Right-of-use asset 1,929 2,328
Investments 1,410 1,293
4,171 4,462
Current assets
Inventories 14,329 14,389
Trade and other receivables 3,168 2,627
Cash and cash equivalents 7,692 3,872
25,189 20,888
Total assets 29,360 25,350
Current liabilities
Trade and other payables 16,434 13,067
Lease liabilities 952 938
Current tax liabilities 4 48 145
17,434 14,150
Non-current liabilities
Lease liabilities 925 1,324
Deferred tax 4 466 466
Total liabilities 18,825 15,940
Net assets 10,535 9,410
Shareholders' equity
Called up share capital 1,049 1,049
Share premium 4,694 4,694
Treasury shares (4) (4)
Merger reserve (100,000) (100,000)
Retained earnings 104,796 103,671
Total equity shareholders' funds 10,535 9,410
The interim financial statements of Marks Electrical Group plc were approved
by the Board on 8 November 2022 and signed on its behalf by:
Josh Egan
Chief Financial Officer
Consolidated Statement of changes in equity
Six months ended 30 September 2022
Notes Called up share capital Share premium Merger reserve Treasury shares Revaluation reserve Retained earnings Total shareholders' equity
£000 £000 £000 £000 £000 £000 £000
At 31 March 2021 100,000 - (99,994) - 1,235 9,132 10,373
Total comprehensive income for the period - - - - - 3,288 3,288
Contributions by and distributions to owners:
-Dividends paid - - - - - (3,884) (3,884)
-Dividends in specie - - - - - (5,175) (5,175)
-Issue of shares 49 4,954 - (4) - - 4,999
-Costs of share issue (260) (260)
-Capital reduction (99,000) - - - - 99,000 -
-Cancellation of E shares - - (6) - - - (6)
-Share based payment charge - - - - - 75 75
Sale of property - - - - (1,235) 1,235 -
At 31 March 2022 1,049 4,694 (100,000) (4) - 103,671 9,410
Total comprehensive income for the period - - - - - 1,738 1,738
Contributions by and distributions to owners:
-Dividends paid - - - - - (703) (703)
-Share based payment charge - - - - - 90 90
At 30 September 2022 1,049 4,694 (100,000) (4) - 104,796 10,535
All the results arise from continuing operations.
Consolidated Cash flow
Six months ended 30 September 2022
Notes Six months ended Year ended
30 September 31 March
2022 2022
£000 £000
Cash flows from operating activities
Profit for the period 1,738 3,288
Adjustments for non-cash items:
Depreciation of property, plant and equipment 108 189
Depreciation of right-of-use assets 511 689
(Profit)/loss on disposal of property, plant and equipment (45) (17)
Fair value gains (118) (195)
Share based payment expense 99 75
Interest expense 32 65
Taxation charged 379 477
Release of provisions - (155)
Movements in working capital:
(Increase) in inventories 60 (2,957)
Decrease/(increase) in receivables (542) 212
Increase in payables 3,379 4,927
Cash flow generated from operations 5,601 6,598
Corporation tax paid (475) (2,042)
Net cash flow generated from operations 5,126 4,556
Cash flows from investing activities
Purchase of property, plant and equipment (99) (583)
Deposits on right-of-use assets (33) (304)
Proceeds from sale of property, plant and equipment 45 65
Income from investments 5 48
Net cash used by investing activities (82) (774)
Cash flows from financing activities
Interest paid - (11)
Issue of ordinary share capital - 4,740
Repayment of borrowings - (1,537)
Interest paid on lease liabilities (37) (54)
Principal repayment of lease liabilities (484) (657)
Equity dividends paid (703) (3,884)
Net cash used by financing activities (1,224) (1,403)
Net increase in cash and cash equivalents 3,820 2,379
Cash and cash equivalents at the beginning of the period 3,872 1,493
Cash and cash equivalents at end of the period 7,692 3,872
Notes to the unaudited financial statements
Six months ended 30 September 2022
1 General Information
Mark's Electrical Group plc is listed on AIM, a market operated by the London
Stock Exchange. The Group is domiciled in the UK and its registered office is
4 Boston Road, Leicester, LE4 1AU.
The principal activity of 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
The financial statements of Marks Electrical Group plc for the six months
ended 30 September 2022 were authorised for issue by the Board of Directors on
8 November 2022 and signed on its behalf by Josh Egan.
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. The financial information and the notes to the
financial information are presented in thousands of pounds sterling
('£'000'), the functional and presentation currency of the Group, except
where otherwise indicated.
2.2 Going concern
The Group has traded positively during the year, delivering sales growth of
15.1%, whilst maintaining a 4.7% operating margin and net cash flow of £3.8m.
Management have prepared detailed financial projections for a period of 12
months from the date of signing the financial statements ('Review Period').
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.
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 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 30 September 2022. Subsidiaries are entities over
which the Group 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 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.
Notes to the unaudited financial statements (continued)
2.4 Operating exceptional charges
The Group presents exceptional items on the face of the statement of
comprehensive income those 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.
Notes to the unaudited financial statements (continued)
3. Earnings per share
(a) Earnings
Six months ended
30 September Year ended
2022 31 March
£000 2022
£000
Statutory earnings 1,738 3,288
(b) Number of shares
Six months ended
30 September Year ended
2022 31 March
2022
Basic weighted average number of shares 104,949,050 101,979,620
(c) Earnings per share
Six months ended
30 September Year ended
2022 31 March
2022
Statutory earnings
Basic statutory earnings per share* 1.66p 3.22p
Notes to the unaudited financial statements (continued)
3.1 Non-Statutory earning per share
(a) Earnings
Six months ended Year ended
30 September 31 March
2022 2022
£000 £000
Statutory earnings 1,738 3,288
Add:
Exceptional costs(1) 99 2,125
Less:
Fair value gains net of tax (96) (158)
Adjusted earnings 1,741 5,255
(b) Number of shares
Six months ended
30 September Year ended
2022 31 March
2022
Shares in issue following IPO 104,949,050 104,949,050
(c) Earnings per share
Six months ended
30 September Year ended
2022 31 March
2022
Adjusted earnings
Basic adjusted earnings per share* 1.66p 5.01p
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 2022 through to 30 September 2022
has been used as the basis for the current and prior periods adjusted earnings
per share calculation.
(1 - Exceptional items include costs relating to the Initial Public Offering
(IPO) of Marks Electrical Group plc in period ending 31 March 2022 and long
term incentive plans (LTIP) shares in period ending 31 March 2022 and 30
September 2022.)
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 2022 is £379,000 (H1-22: £442,630). The Group's
adjusted consolidated effective tax rate for the six months ended 30 September
2022 is 19.0% (H1-22: 19.0%). The deferred tax liability is expected to
reverse within 36 months. The finance bill 2021, published March 2021,
announced an increase to the corporation tax rate from 19% to 25% from 1 April
2023. Deferred tax has been recognised at 25%.
Notes to the unaudited financial statements (continued)
5. Dividends paid
Six months ended Year ended
30 September 31 March
2022 2022
£000 £000
Dividends declared during the period:
Dividends paid during the period 703 3,884
Dividend in specie - 5,175
703 9,059
All prior year dividends paid, were done so by Marks Electrical Limited not
Marks Electrical Group plc and were disclosed due to this being the first year
reporting under merger accounting. Dividends paid and issued during the period
totalled £703,159 (FY22: £9,059,471). The dividend in specie related to a
group restructure prior to Admission, the consideration for the dividend in
specie was the transfer of 100% of the share capital of Mavrek Properties
(previously an indirect subsidiary of the Group).
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