TIDMLUCE
RNS Number : 1123T
Luceco PLC
23 March 2021
23 March 2021
LUCECO PLC
2020 FULL YEAR RESULTS
Record 2020 results underline our potential
Luceco plc ("Luceco", or the "Group" or the "Company"), a
manufacturer and distributor of high quality and innovative wiring
accessories, LED lighting , and portable power products, today
announces its audited results for the year ended 31 December 2020
("FY 2020" or "the period").
Reported results Adjusted(1) results
Change Change
Year ended Change at constant Change at constant
31 December (GBPm) 2020 2019 (%) FX rate(2) 2020 2019 (%) FX rate(2)
===== ======= ======= ============ ===== ===== ======== ============
Revenue 176.2 172.1 2.4% 2.1% 176.2 172.1 2.4% 2.1%
Gross margin
% 39.8% 37.5% 2.3ppts 39.8% 36.2% 3.6ppts 2.7ppts
Operating profit 29.6 20.2 46.5% 30.0 18.0 66.7% 59.4%
Operating margin
% 16.8% 11.7% 5.1ppts 17.0% 10.5% 6.5ppts 5.8ppts
Profit before
tax 33.6 17.1 96.5% 28.7 15.8 81.6%
Profit after
tax 27.9 13.1 113.0% 24.0 12.1 98.3%
Basic earnings
per share 18.0p 8.3p 116.9% 15.5p 7.7p 101.3%
Net debt 18.3 27.4 (33.2%)
Net debt : EBITDA(1) 0.5 1.1 (51.8%)
Free cash flow 17.7 13.0 36.2% 22.7 18.9 20.1%
Return on capital
invested 35.7% 21.8% 13.9ppts
Dividend per
share (pence) 6.2p 2.3p(3) 168.6%
1. The definitions of the adjustments made and reconciliations
to the reported figures can be found in note 1 of the consolidated
financial statements
2. 2020 translated at 2019 exchange rates. These were 1.28 for
GBP: US dollar and 8.80 for GBP: RMB. Further details in note 10 of
the consolidated financial statements
3. Restated to include a dividend of 1.7 pence per share paid
during 2020 in lieu of the 2019 final dividend that was suspended
due to COVID-19
Financial highlights
-- Revenue increased by 2.4% to GBP176.2m:
o Ground lost to COVID-19 in H1 (-13.4%) more than compensated
by strong growth in H2 (+17.0%)
o Outperformed the UK market
-- Adjusted Gross Margin increased by 3.6 percentage points to 39.8%:
o 10.9 percentage point increase over the last three years
o Primarily driven by manufacturing efficiency gains, better
sourcing and improved sales mix
o The foundation of improved Group profitability
-- Adjusted Operating Profit increased by GBP12.0m to GBP30.0m:
o Strong profit growth in a low revenue growth environment
o Driven by gross margin expansion and diligent overhead
control
-- Adjusted Free Cash Flow increased by GBP3.8m to GBP22.7m,
another year of double-digit free cash flow margin
-- Net debt reduced by GBP9.1m to GBP18.3m and leverage by 0.6x
to 0.5x Adjusted EBITDA, providing capacity for future investment
in growth
-- Record Adjusted EPS of 15.5p (2019: 7.7p), double last year
-- Dividend payout increased to 40%, with 4.7p final dividend
proposed, in addition to the 1.5p interim dividend, in line with
revised dividend policy of 40-60% of earnings
Business highlights
-- Early and comprehensive response to COVID-19:
o Primary focus on employee wellbeing
o Actions taken to reduce costs and maximise liquidity
o UK furlough monies fully repaid, with no further government
support required
-- Business model and strategy provides a clear advantage during the pandemic
-- Strong contribution from our own manufacturing facility
providing operational agility throughout the year
-- Well positioned to benefit from the move to a net zero economy:
o Already selling energy efficient products
o Electrification of energy and transport presents significant
opportunities
o Clear priorities set for 2021
Commenting on the results, Chief Executive Officer, John Hornby
said:
"Our record-breaking performance in 2020 is a testament to our
structural resilience, operational agility and our committed, hard
working employees. I would like to take this opportunity to thank
my Luceco colleagues for their contribution and support during this
most challenging of years.
"We have started 2021 with strong momentum despite tighter
social distancing measures in some markets. Revenue growth has
accelerated from the high levels achieved at the end of last year
as new business wins, increased home improvement spending, superior
access to high growth channels and product availability combine to
sustain further market share gains.
"We have seen inflation in raw material and freight costs in
2021 as economies recover from COVID-19. These can be expected to
create some temporary gross margin pressures for all manufacturers
until they are passed through the value chain or otherwise subside.
However, we expect our strong sales momentum and tight control of
overheads to mitigate the impact of inflation on operating margins,
which should be similar to those achieved in 2020. We therefore
remain confident of further revenue and profit progression in
2021."
There will be a conference call on the results at 9:30am today
for analysts and investors. Please contact Florence Mayo at MHP
Communications on 020 3128 8572 or email luceco@mhpc.com for
details.
Luceco will also be presenting via the Shares and AJ Bell
investor evening webinar on 24th March 2021 at 18:00 GMT. If you
would like to register to join the webinar, please use this link:
https://www.sharesmagazine.co.uk/events/event/shares-investor-evening--webinar-240321
Luceco is also pleased to announce that management will make a
presentation on the Company's full year results for the year ended
31 December 2020 on 29 March 2021 at 11:00 GMT on the Investor Meet
Company ("IMC") platform. This online presentation is freely
available to all existing and potential shareholders. They can sign
up to the IMC platform free of charge via
https://www.investormeetcompany.com/luceco-plc/register-investor
Questions can be submitted prior to the event using the IMC
'dashboard', or at any time during the presentation using the IMC
'Ask a Question' function. Please note regulatory constraints may
prevent the Company from answering every question it receives. The
questions and answers from the event will be published on the IMC
platform at the earliest opportunity. Investors may also submit
feedback directly to management after the presentation using the
IMC platform.
Luceco plc Contact
============================= ======================================
John Hornby, Chief Executive 020 3128 8572 (Via MHP Communications)
Officer
Matt Webb, Chief Financial 020 3128 8572 (Via MHP Communications)
Officer
MHP Communications Contact
============================= ======================================
Tim Rowntree 020 3128 8572
James Bavister 020 3128 8572
Florence Mayo 020 3128 8572
Business summary
Luceco is a manufacturer and distributor of high quality and
innovative wiring accessories, LED lighting and portable power
products for a global customer base.
The Group supplies trade distributors, retailers, wholesalers
and project developers with a wide range of products which broadly
fall into the following market recognised brands:
-- British General ("BG"): wiring devices including switches and
sockets, circuit protection and cable management products;
-- Luceco and Kingfisher Lighting: energy efficient internal and
external LED lighting products and accessories; and
-- Masterplug: cable reels, extension leads, surge protection, timers and adaptor products;
Luceco's long-established BG brand commands a loyal following
amongst professional electrical contractors in both the UK and
overseas. It is synonymous with quality, safety, innovation and
value for money. The production of BG wiring accessories is the
main focus of the Group's Chinese manufacturing facility, allowing
it to control product quality, cost and availability.
The Luceco and Kingfisher LED lighting brands combine to present
a comprehensive range of indoor and outdoor LED lighting solutions
that is well positioned to benefit from growth in the net zero
economy. The range focuses largely on professionally installed
products with an emphasis on performance and quality. The Group is
able to support these products by offering customers access to its
in-house installation design team.
Masterplug is the market leading brand in the UK Portable Power
category. It is sold largely to consumers through retail
distribution and online. Its products are offered in a wide range
of global electrical standards and they are sold in every territory
in which the Group operates.
Forward-looking statements
This announcement contains forward -- looking statements that
are subject to risk factors associated with, among other things,
the economic and business circumstances occurring from time to time
in the countries, sectors and markets in which the Group operates.
It is believed that the expectations reflected in these statements
are reasonable, but they may be affected by a wide range of
variables which could cause actual results to differ materially
from those currently anticipated. No assurances can be given that
the forward -- looking statements in this announcement will be
realised.
The forward -- looking statements reflect the knowledge and
information available at the date of preparation of this
announcement and the Company undertakes no obligation to update
these forward -- looking statements. Nothing in this announcement
should be construed as a profit forecast.
CHAIRMAN'S STATEMENT
2020 saw a record performance that suggests greater long-term
potential
I am pleased to introduce the Company's results for the year
ended 31 December 2020, a year in which Luceco overcame the
challenges of COVID-19 to deliver record profits. 2020 saw a
significant step forward in performance and marks an important step
towards realising Luceco's long-term potential.
Performance
The Group's record performance was delivered against a
challenging market backdrop which served to highlight Luceco's key
competitive advantages.
An early and agile response to COVID-19 from our experienced
management team allowed the Group to safeguard its employees,
minimise disruption and maximise performance throughout the
year.
Control of its own manufacturing meant the Group could closely
match product supply to rapidly changing demand, maximising
efficiency and gaining market share.
The Group's diverse range of products and routes to market
insulated it from COVID-19's uneven effect across the economy
and actions taken to improve profitability, both before and
throughout the year, ensured strong earnings momentum in a low
growth environment.
These key advantages resulted in revenue growth in the year of
2.4%, outperforming the market, which was converted into Adjusted
Operating Profit growth of 66.7%. Adjusted Operating Profit for the
year was GBP30.0m whilst statutory operating profit was
GBP29.6m.
People
I am pleased to report that COVID-19 has not caused any serious
illness amongst the Group's c.1,650 strong workforce. I would like
to thank both the Group's management team for their operational
preparedness for the pandemic and the wider workforce for their
diligent application of our safeguarding arrangements.
I am proud that Luceco was able to contribute to the wider
communal COVID-19 response by continually supplying customers
providing essential electrical services and participating in the
fit-out of UK NHS Nightingale hospitals.
In a period in which COVID-19 has forced many companies to take
difficult decisions, I am pleased to report that the Group made no
COVID-19 related headcount or full-year pay reductions. Since the
year end the Group repaid in full amounts initially received under
the UK Government's Coronavirus Job Retention Scheme ("CJRS"). It
received no other forms of UK Government support.
The Group saw improved employee engagement and satisfaction
scores following a concerted effort to closely monitor employee
feedback and communicate openly during the pandemic.
We welcomed Pim Vervaat as the incoming Senior Independent
Director in September 2020. I am sure his extensive international
manufacturing experience gained in public companies will prove
invaluable in these uncertain times.
Pim succeeded John Barton, who left the Board to devote more
time to his wider business interests. I would like to thank John
for four years of wise counsel during an important time in the
Group's development.
Strategy
Luceco made good progress strategically despite some inevitable
COVID-19 disruption.
We saw another year of notable improvement at the Group's
Chinese manufacturing facility. The facility's new senior
management team, brought in during 2019, delivered improved
efficiency and record production output in difficult
circumstances.
The responsiveness of the China facility, combined with new
business wins, allowed the Group to significantly increase its
sales of Wiring Accessories to professional installers in the year
- a key strategic priority for the Group.
The Group delivered healthy growth in sales and profits in key
international markets despite generally tougher social distancing
measures overseas.
The Group made further investments in its UK fulfilment
capabilities to improve service levels and lower cost.
Strong cash generation in the year freed up additional capacity
for potential future acquisitions, for which the management team
has a clear and compelling strategy.
Environment, Social and Governance ("ESG")
The Group already contributes significantly to carbon reduction
through its sale of energy efficient products. LED lighting is on
average 70% more energy efficient than the lighting method it
replaces, avoiding carbon emissions. The Group estimates that the
greenhouse gas emissions ("GHG") thereby avoided by the LED
products it sells each year are approximately ten times greater
than the emissions it produces.
The Group is well positioned to make an increasing contribution
to society's climate objectives as the inevitable electrification
of energy presents new business opportunities.
Luceco's ESG priorities for 2021, appropriately reflected in
Executive compensation plans, are as follows:
-- Eliminate or offset Scope 1 and 2 GHG emissions by year end
-- Quantify Scope 3 GHG emissions
-- Commence participation in the Carbon Disclosure Project
-- Launch a comprehensive ESG strategy
-- Commit to science-based climate targets
The Board looks forward to reporting the Group's progress in
this area.
Dividend
The last few years have proven the Group's cash-generating
credentials. It has the means to support an increased dividend
whilst investing in its ongoing growth strategy.
As previously announced, the Board has therefore approved a new
dividend policy with the payout ratio increased from 20-30% to
40-60% of Adjusted Profit After Tax. It is recommending a final
dividend of 4.7p per share, which with the interim dividend of
1.5p, is consistent with a 40% payout, payable on 28 May 2021 to
shareholders on the register on 23 April 2021. The final date for
elections under the Company's dividend reinvestment plan will be 7
May 2021.
Conclusion
My last Chairman's Statement at the start of the pandemic
explained my belief that the Group's business model, performance
and balance sheet would allow it to withstand the forthcoming
challenges of COVID-19.
The past year has shown that my confidence was, and indeed
remains, well-founded, thanks in large measure to an outstanding
contribution from the Group's employees.
The pandemic has demonstrated the advantages of Luceco's
business model and accentuated its key qualities of experience,
relationships, teamwork, and execution. These attributes will
outlast the pandemic and I am confident that they will continue to
sustain the Group's progress as the world gets to grips with
COVID-19 and as Luceco continues to realise its potential.
GILES BRAND
Chairman
23 March 2021
CHIEF EXECUTIVE OFFICER'S REVIEW
2020 has vindicated our long-term strategy and highlighted our
short-term agility and decisiveness
COVID-19 response
COVID-19 impacted our supply chain in China at an early stage in
the pandemic and offered a forewarning of its potential impact on
the Group. We prepared early and in earnest.
Supply-side disruption was quickly overcome by swift
implementation of social distancing measures in both our China
production facility and those of our key suppliers.
The protocols used successfully by our China team were
implemented across the rest of the Group ahead of the arrival of
the coronavirus.
As COVID-19 arrived in our sales markets, we quickly ensured our
distribution operations were COVID-19 secure. We took swift action
to protect our financial position by reducing our costs and
maximising our liquidity whilst ringfencing long-term initiatives
such as product development. As demand recovered, we eased cost
constraints gradually whilst preserving the more efficient ways of
working introduced during the pandemic.
The COVID-19 driven slowdown in the first half gave way to very
strong demand in the second half. I am very proud of the way in
which the Luceco team pulled together to ensure customers' needs
were met. Colleagues at both our Chinese manufacturing facility and
UK distribution centre worked tirelessly to maximise product flow.
We served the market better than the competition and consequently
gained market share.
I am pleased that our strong second half performance and healthy
liquidity allowed us to rightly refund amounts initially received
under the UK furlough scheme, meaning we are now not in receipt of
any UK Government support.
2020 has been a year like no other. I would like to thank my
colleagues for their professionalism, stoicism, and adaptability in
a challenging and fast-moving environment. These traits will stand
us in equally good stead as we look forward to a period with
hopefully less COVID-19 disruption.
Business performance
We entered the year with strong profit momentum and high
confidence. Actions taken to lower product cost throughout 2019
resulted in increased margins and good profit growth at the start
of 2020.
COVID-19 began to impact us in the middle of the first
quarter.
A national lockdown temporarily closed our Chinese factory in
mid-February and severely limited its output until March due to
displaced workers. Production capacity had returned to normal by
April thanks to the professionalism of our factory management
team.
The first UK national lockdown at the end of March had a
dramatic initial impact on demand as many customers cancelled
orders and cautiously closed their branch networks to implement
social distancing measures. However, the impact was
short-lived.
Whilst COVID-19 undoubtedly dampened commercial construction, it
was pleasantly surprising to see residential demand remain strong
as consumers spent an increased share of their income on home
improvement. We were very well placed to meet this demand.
Multi-channel distributors, particularly those serving the
professional installer, continued to service residential demand
throughout the pandemic when more traditional "bricks and mortar"
channels closed. Our disproportionate share with such distributors,
built strategically over many years allowed us to gain market share
as they did. COVID-19 has merely accelerated a pre-existing market
shift towards multi-channel service and as such, I believe we will
retain much of the gains we have made in the year as we emerge from
the pandemic.
The gradual reopening in the second half of traditional
wholesale channels and the economy more generally also benefited
us. It released additional pent-up demand for product which the
industry struggled to meet, particularly in the fourth quarter. Our
vertically integrated manufacturing and distribution model meant
that we could add capacity quicker than those reliant on outsourced
models, adding to our market share gains. We were also helped by
new business wins negotiated before COVID-19, particularly in the
circuit protection category.
As encouraging as our performance has been during COVID-19, the
pandemic has created both bright and dark spots. Project-driven LED
sales, typically made into commercial or institutional settings,
remained understandably lacklustre throughout the year. We were
also held back by generally tougher lockdown measures overseas. The
resulting Group revenue growth of 2.4% outperformed the market but
was lower than our expected range of 5-10%. I am therefore
confident that we can continue to grow, perhaps at an accelerated
rate, as the world emerges from the pandemic. COVID-19 has also
highlighted the relative resilience offered by the Group's
diversified product portfolio and sales channel access, even during
a global economic shock.
The most pleasing aspect of our performance was the way in which
we delivered another year of strong growth in profit and cash in a
relatively low revenue growth environment.
We have worked hard over the last three years to improve gross
margins, by 10.9 percentage points to 39.8% for the year. We
updated selling prices in early 2018 in response to industry-wide
cost inflation but have kept prices stable since. We have
consistently lowered product costs by improving the efficiency of
our own factory and designing and procuring lower cost versions of
high quality outsourced products. Continuing momentum in this area
will help us as we enter a period in which a combination of
pandemic recovery and monetary policy is spurring renewed cost
inflation.
Our early and robust response to COVID-19 allowed us to reduce
overheads by GBP3.2m in the first half, of which GBP1.0m was
retained in the second half, despite the pressure of high activity
levels, as we embraced more efficient ways of working.
The product of these efforts was a 66.7% increase in Adjusted
Operating Profit to GBP30.0m (2019: GBP18.0m) and operating profit
increased from GBP20.2m to GBP29.6m. We also grew our Adjusted Free
Cash Flow by 20.1% to GBP22.7m (2019: GBP18.9m).
Strong cash generation allowed us to reduce net debt to 0.5x
Adjusted EBITDA (2019: 1.1x), below our capital structure target of
1.0-2.0x. This provides us with significant balance sheet capacity
for investment in future growth, both organically and by
acquisition. Kingfisher Lighting has proven to be a valuable
addition to the Group since its purchase in 2017 and I am excited
by the role that acquisitions can play in the next phase of the
Group's development.
Progress against priorities
Professional sales
One of our key priorities has been to increase our sales to
customers serving professional installers. Professionals value the
high quality, design and value for money offered by our products.
16.0% revenue growth in Wiring Accessories, typically a
professionally installed product, underlines the progress we have
made. I am confident this will continue as demand returns to
commercial construction.
International sales
Our strategy over recent years has been to maximise the sale of
existing products, particularly in the lighting category, by
selling them into attractive international markets.
Our strategy delivered another year of revenue growth of 4.5%
and 55.8% in Europe and the Americas respectively, despite COVID-19
disruption. Progress in the Middle East was held back as COVID-19
had a particularly disruptive impact on oil-based economies.
We continually review the allocation of resources between
markets. This resulted in the merger of our French operations into
Spain and the closure of our Hong Kong office in the year without
any meaningful loss of sales.
Manufacturing efficiency and effectiveness
I have prefaced above the critical role our manufacturing had in
the year. Our Chinese facility was able to increase its output 20
fold from a COVID-19 disrupted trough in February to a record high
in December. Cost savings through manufacturing efficiencies were
in part offset by increases in raw material cost.
Fulfilment
We continued to invest in our UK distribution centre. We
upgraded warehouse equipment and will launch our new warehouse
management IT system in the first half of 2021.
Outlook
We have started 2021 with strong momentum despite tighter social
distancing measures in some markets. Revenue growth has accelerated
from the high levels achieved at the end last year as new business
wins, increased home improvement spending, superior channel access
and product availability combine to sustain further market share
gains.
We have seen inflation in raw material and freight costs in 2021
as economies recover from COVID. These can be expected to create
some temporary gross margin pressures for all manufacturers until
they are passed through the value chain or otherwise subside.
However, we expect our strong sales momentum and tight control of
overheads to mitigate the impact of inflation on operating margins,
which should be similar to those achieved in 2020. We therefore
remain confident of further revenue and profit progression in
2021.
JOHN HORNBY
Chief Executive Officer
23 March 2021
CHIEF FINANCIAL OFFICER'S REVIEW
Strong progress this year, despite tough conditions, means we
are able to aim higher
Use of alternative performance measures
The commentary in the Chief Financial Officer's Review uses
alternative performance measures, which are described as
"Adjusted". Definitions of these measures can be found in note 1 of
these financial statements and in the 2020 Annual Report And
Accounts. The measures provide additional information for users on
the underlying performance of the business, enabling consistent
year-on-year comparisons.
Overview
My last Chief Financial Officer's Review explained my firm
belief in the Group's attractive market positioning and advantaged
business model. I outlined that these attributes had the potential
to support a sustainable improvement in the Group's financial
performance over time. I quantified the potential by setting a
series of near-term financial goals.
The following table summarises our 2020 performance versus my
original goals. It also serves as a summary of the Group's
financial performance for the year.
I am pleased to report that the Group's excellent progress in
2020 has meant that some of our key targets have already been
exceeded despite COVID-19 and have been reset accordingly:
Component Metric Original 2020 results New target(1)
goal(1)
------------------------------ ------------------------------------- --------- ------------ -------------
Revenue Total revenue growth 5 to 10% 2.4% 5 to 10%
------------------------------ ------------------------------------- --------- ------------ -------------
Profit Adjusted Operating Margin % 10 to 15% 17.0% 15 to 20%
------------------------------ ------------------------------------- --------- ------------ -------------
Cash Adjusted Operating Cash Conversion % >100% 113.7% >100%
Adjusted Free Cash Flow Margin % 5 to 10% 12.9% 10 to 15%
-------------------------------------------------------------------- --------- ------------ -------------
Dividends Earnings payout ratio 20 to 30% 40.0% 40 to 60%
------------------------------ ------------------------------------- --------- ------------ -------------
Capex Net capital expenditure as % revenue 3 to 4% 2.5% 3 to 4%
------------------------------ ------------------------------------- --------- ------------ -------------
Capital structure and returns Return on Capital Invested % 20 to 30% 35.7% 30 to 40%
Net Debt : Adjusted EBITDA 1.0 to 0.5x 1.0 to
2.0x 2.0x
Adjusted Net Cash Flow as % revenue 5.0% 8.6% 5.0%
-------------------------------------------------------------------- --------- ------------ -------------
1. Expected performance range through the economic cycle for the
existing business excluding the impact of acquisitions.
COVID-19 resulted in 2020 revenue growth falling slightly short
of our normal expectations, as can be seen. However, I am confident
that we will return to our targeted range of 5 to 10% in normal
market conditions, supported by our acquisition strategy.
This year's step change in profitability has allowed us to
target higher "through the cycle" operating margin, free cash flow
margin and return on capital.
Income Statement
Revenue
Group revenue increased by GBP4.1m (2.4%) to GBP176.2m. The
primary drivers are shown below:
Change
Group revenue bridge: GBPm %
----------------------- ----- ------
2019 revenue 172.1
----------------------- ----- ------
Currency movements(1) (0.5) (0.3%)
Like-for-like increase 4.6 2.7%
----------------------- ----- ------
Total movement 4.1 2.4%
----------------------- ----- ------
2020 revenue 176.2
----------------------- ----- ------
1. Year ended 31 December 2019 translated at 2020 exchange rates
to calculate constant exchange rates impact.
Like-for-like growth of 2.7% was heavily influenced by the
pandemic. Tight restrictions during the first European lockdowns
resulted in a like-for-like revenue decline of 14.4% in the first
half. A gradual easing of lockdown restrictions, superior sales
channel access, new business wins and rapidly increasing
manufacturing output allowed us to outperform the market
increasingly as the year progressed, resulting in like-for-like
growth of 18.5% in the second half.
We group our customers into the following sales channels:
-- Retail: Distributors serving consumers only, including DIY
sheds, pure-play online retailers and grocers
-- Hybrid: Distributors serving both consumers and
professionals, typically with multi-channel service options
-- Professional Wholesale: Distributors serving professionals
only, largely via a branch network
-- Professional Projects: Sale agreed by Luceco direct with
professionals, but fulfilled via Professional Wholesale
The uneven impact of COVID-19 on economic activity and customer
behaviour resulted in a disparate performance by channel, as shown
below. Our diverse channel access offered insulation from this
uneven effect.
2020 2019 Change
Revenue by channel: GBPm GBPm %
----------------------- ----- ----- -------
Retail 59.9 60.1 (0.3%)
Hybrid 42.6 34.3 24.2%
Professional Wholesale 46.9 46.9 0.0%
Professional Projects 26.8 30.8 (13.0%)
----------------------- ----- ----- -------
Total revenue 176.2 172.1 2.4%
----------------------- ----- ----- -------
The Hybrid channel performed well throughout the year, with
sales growth of 24.2% contributing significantly to the Group's
overall result. The advanced multi-channel capabilities of Hybrid
customers provided a continuous distribution point for the
professional electrician when the first UK lockdown temporarily
closed more traditional Professional Wholesalers.
The Professional Wholesale channel consequently experienced a
difficult first half but recovered strongly in the second once
branch networks were reconfigured to provide COVID-19 security. The
Wiring Accessories industry struggled to meet the pent-up demand
this released, but we provided an enhanced service due to our agile
vertically integrated model. The Professional Wholesale channel
carried good sales momentum into 2021.
Professional Projects revenue declined by 23.9% in the first
half as LED project activity was reduced by a combination of
economic uncertainty in commercial and institutional markets and
limited construction site access. Market conditions improved
thereafter, with second half revenue broadly in line with the prior
year.
Retail revenue was similar to the prior year as strong demand
from DIY and pure-play online customers replaced reduced lower
margin grocer business.
2020 2019(1) Change
Revenue by geographical location of customer: GBPm GBPm %
---------------------------------------------- ----- ------- -------
UK 140.3 135.1 3.8%
Europe 18.4 17.6 4.5%
Middle East and Africa 7.0 9.0 (22.2%)
Americas 6.7 4.3 55.8%
Asia Pacific 3.8 6.1 (37.7%)
---------------------------------------------- ----- ------- -------
Total revenue 176.2 172.1 2.4%
---------------------------------------------- ----- ------- -------
1. Prior year comparatives have been updated to fully reflect
the drop-ship location of each order.
UK growth of 3.8% was underpinned by progress in the Hybrid
channel as detailed above.
European markets were hampered by generally more stringent
lockdown conditions than the UK, however, we maintained our recent
record of continuous growth in the region via new business wins in
the Retail channel.
Sales to Middle East and Africa customers declined by 22% as
regional construction projects were delayed by COVID-19 and the
economic uncertainty created by low oil prices.
Strong growth in the Americas was driven by our developing LED
project business in Mexico and increased sales of Portable Power
products to US retailers.
Sales in the Asia Pacific region were heavily disrupted by a
COVID-19 impact that started early and lasted throughout the
year.
Gross margin
At the end of 2017, we set out to deliver a material improvement
in the Group's gross margin. The initial objective was to overcome
prevailing currency and commodity inflation, which was achieved
quickly. Thereafter, the Group targeted and successively delivered
further sustained reductions in product cost from improved sourcing
and manufacturing. The outcome to date has been a near 11
percentage points improvement in gross margin over three years,
which has been a key driver of improved Group profitability.
The table below illustrates that the Group delivered continuous
margin improvement throughout 2019, with some initiatives
annualising benefit into 2020. This allowed the Group to deliver
improved margins in the first half of 2020 despite COVID-19
disruption creating under-used manufacturing capacity. Margins
improved significantly in the second half as strong high margin
Wiring Accessories sales drove high factory utilisation.
H1 2019 H2 2019 FY 2019 H1 2020 H2 2020 FY 2020
------------------------------------ ------- ------- ------- ------- ------- -------
Adjusted Gross Margin % 35.0% 37.4% 36.2% 38.4% 40.8% 39.8%
Applicable currency rates:
USD : GBP 1.29 1.26 1.28 1.26 1.31 1.28
RMB : GBP 8.76 8.85 8.80 9.04 8.79 8.92
Applicable copper price RMB (tonne) 48,226 48,270 48,248 48,000 50,000 49,000
------------------------------------ ------- ------- ------- ------- ------- -------
The second half gross margin improvement was achieved despite
input cost inflation. Inflation has continued in 2021 driven by
economic recovery and monetary stimulus. At current prices, it is
expected to add approximately GBP10m to our annual cost base in
2021 and a further GBP5m thereafter as hedging arrangements are
renewed. We have robust plans in place to offset the cost increase
in full through various means, albeit that there may be a timing
difference in 2021 as our plans are put in place. Industry-wide
increases such as these are typically distributed appropriately
within the value chain.
Operating costs
Adjusted Operating Costs were GBP40.2m, a 9.3% reduction over
the prior year and operating costs were GBP40.6m. The Group acted
swiftly to reduce costs and preserve cash as COVID-19 took hold at
the end of the first quarter of the year. Overheads were gradually
reintroduced in the second half as demand recovered, but the Group
maintained lower discretionary spending in areas such as travel and
entertainment and will continue to do so in 2021. The result for
the year was achieved without recourse to mitigating actions such
as government-funded COVID-19 support, redundancies or pay
reductions. In the first half of the year, the Group received
GBP1.0m from the UK Government's CJRS. The Group's strong second
half performance allowed this to be repaid in early 2021, with the
associated cost accrued in 2020.
Operating margin
Strong progress on gross margins and tight control of overheads
throughout the year allowed the Group to grow Adjusted Operating
Profit in a low revenue growth environment by 66.7% to GBP30.0m
(2019: GBP18.0m). This resulted in record Adjusted Operating Margin
of 17.0% (2019: 10.5%) and an increase in our targeted margin
performance range to 15-20%. Operating margin was 23.0%.
Net finance expense
Another year of strong cash generation from increased
profitability helped reduce net debt from GBP27.4m to GBP18.3m.
Reduced borrowing and lower interest rates resulted in a reduction
in Adjusted Net Finance Expense to GBP1.3m (2019: GBP2.2m).
Taxation
The effective tax rate on Adjusted Profit Before Tax reduced
from 23.4% in 2019 to 16.4% in 2020 due to better tax planning and
a greater proportion of Group profits being taxed at lower rates in
the UK. The effective tax rate on profit before tax reduced from
23.4% to 17.0%.
Adjusted Free Cash Flow
Adjusted(1) Adjusted(1)
GBPm 2020 2019
------------------------------ ----------- -----------
Operating Profit 30.0 18.0
Depreciation and Amortisation 6.1 7.9
------------------------------ ----------- -----------
EBITDA 36.1 25.9
Changes in working capital (3.1) 1.0
Other items 1.1 0.3
------------------------------ ----------- -----------
Operating Cash Flow 34.1 27.2
------------------------------ ----------- -----------
Operating Cash Conversion(2) 113.7% 151.1%
Net capital expenditure (4.4) (3.6)
Interest paid (1.3) (2.1)
Tax paid (5.7) (2.6)
------------------------------ ----------- -----------
Free Cash Flow 22.7 18.9
------------------------------ ----------- -----------
Free Cash Flow as % Revenue 12.9% 11.0%
------------------------------ ----------- -----------
1. A reconciliation of the reported to Adjusted results is shown
within note 1 of the consolidated financial statements.
2. Adjusted Operating Cash Conversion is defined as Adjusted
Operating Cash Flow divided by Adjusted Operating Profit.
The Group once again converted all its Adjusted Operating Profit
into Adjusted Operating Cash Flow. Rapid sales growth and
associated industry-wide supply chain constraints in the fourth
quarter resulted in a temporary increase in working capital towards
the end of the year. Widely reported port delays in China and in
the UK due to Brexit meant some finished goods were not delivered
until early 2021 and there were delays in the issuance of port
documents required to collect payments from customers. This
temporarily increased year-end inventory days to 107 days (2019:
105 days) and receivable days to 105 (2019: 89 days). Port delays
are now reducing, and I expect working capital levels to normalise
in 2021. Trade payable days also increased, due to the increased
activity in Q4, from 75 days to 95 days.
The Group delivered strong Adjusted Free Cash Flow of GBP22.7m
(2019: GBP18.9m), representing 12.9% of revenue (2019: 11.0%).
Capital expenditure
The Group's net capital expenditure consists of capitalised
product development costs and the purchase of physical assets. It
increased by GBP0.8m to GBP4.4m (2019: GBP3.6m). It equalled 2.5%
of revenue (2019: 2.1%), below our targeted range of 3-4%. COVID-19
inevitably slowed the delivery of planned investment in automation
at the Group's manufacturing facility and in new enabling IT
projects, such as our new warehouse management system and B2B
website. They remain a priority in 2021. I therefore expect capex
to return to the targeted range from 2021 onwards.
Capital structure and returns
Return on capital
Return on Capital Invested improved from 21.8% in 2019 to 35.7%
in 2020 thanks to improved profitability and tight control of capex
and working capital.
The Group continually reviews the deployment of its capital to
ensure it is invested in areas with the greatest opportunity for
future returns. It has set clear investment criteria for the
deployment of additional capital. Its investment in product
development activities is focused on the low-risk expansion of
ranges sold through existing distribution channels. It continually
invests in projects that improve internal efficiency and deliver a
quick, relatively assured payback. Through these means, it aims to
improve its return on capital over time.
Capital structure
Adjusted Free Cash Flow of GBP22.7m (2019: GBP18.9m) was used to
repay all remaining non-recourse debt factoring of GBP5.0m in the
year, consistent with the Group's previously stated objective, and
fund the Group's increased dividend policy. Cash income remaining
thereafter of GBP9.1m (2019: GBP4.8m), equal to 5.2% of revenue,
was used to pay down debt but similar surpluses expected in future
years could be used to acquire additional revenue growth now that
the Group's balance sheet is adequately de-levered.
The table below illustrates the underlying progress made if the
prior year position is normalised for non-recourse debt factoring.
It shows that normalised net debt reduced by GBP14.1m and leverage
reduced by 0.8x in comparable terms.
Reported
------------------------------
2020 2019 Change
-------------------------------------- -------- -------- ----------
Reported net debt GBP18.3m GBP27.4m (GBP9.1m)
Add: Non-recourse debt factoring - GBP5.0m (GBP5.0m)
Normalised net debt GBP18.3m GBP32.4m (GBP14.1m)
Normalised net debt : Adjusted EBITDA 0.5 1.3 (0.8)
-------------------------------------- -------- -------- ----------
At 31 December 2020, the Group's non-utilised facilities
totalled GBP27.8m. They are committed until 31 March 2023. The
Group has significant capacity to fund future mergers and
acquisitions activity. It has not made use of any government-funded
debt facilities, despite being eligible.
The Company's covenants and headroom are summarised as
follows:
2020 full-year covenant Covenant Actual Headroom
-------------------------------------- -------- ------ -------------------------------------
Net debt : Adjusted EBITDA 2.5 : 1 0.5 Net debt headroom: GBP72.0(1) m
Adjusted EBITDA headroom: GBP28.8m
-------------------------------------- -------- ------ -------------------------------------
Adjusted EBITDA : Net finance expense 4.0 : 1 27.8 Adjusted EBITDA headroom: GBP30.9m
Net finance expense headroom: GBP7.7m
-------------------------------------- -------- ------ -------------------------------------
1. Headroom with increased facility. Current facility headroom is GBP27.8m.
The key measures which management use to evaluate the Group's
use of its financial resources and capital management are set out
below:
Adjusted Adjusted
31 December 31 December
2020 2019
----------------------------------- ----------- -----------
Earnings Per Share (pence) 15.5 7.7
Net debt : Adjusted EBITDA (times) 0.5 1.1
Free Cash Flow (GBPm) 22.7 18.9
----------------------------------- ----------- -----------
Note 1 in the notes to the consolidated financial statements
provides an explanation of the Group's alternative performance
measures.
The Group complied with its covenant requirements throughout the
year with significant headroom on all metrics. The Group has
conducted a full going concern review and this is outlined in note
1 of the consolidated financial statements. The Group has a very
strong balance sheet and significant facility headroom under even a
realistic worst case downside scenario. No covenant breaches occur
in any of our realistic downside cases, all of which are before any
mitigating actions, illustrating our financial resilience.
Dividends
Improved profitability and consistently strong cash generation
mean that the Group can support a higher dividend payout whilst
fully funding its unchanged growth strategy and capital structure
policy. As previously announced, the Board has therefore approved a
new dividend policy, with the payout ratio increased from 20-30% to
40-60% of Adjusted Profit After Tax. It is proposing a final
dividend of 4.7p per share which, with the interim dividend of 1.5p
per share, is consistent with a 40% payout.
Operating segment review
The revenue and profit generated by the Group's operating
segments are shown below. Operating profits are stated after the
proportional allocation of fixed central overheads. The profit
contribution for each segment, before fixed central overheads, is
also shown to illustrate the likely profit impact of future
growth.
Wiring Accessories
Adjusted(1) Reported
---------------------------- ---------------------------
2020 2019 Change 2020 2019 Change
---------------------- -------- -------- -------- -------- -------- -------
Revenue GBP81.3m GBP70.1m 16.0% GBP81.3m GBP70.1m 16.0%
---------------------- -------- -------- -------- -------- -------- -------
Contribution profit GBP29.5m GBP19.6m 50.5% GBP29.5m GBP21.1m 39.8%
---------------------- -------- -------- -------- -------- -------- -------
Contribution margin % 36.3% 28.0% 8.3ppts 36.3% 30.1% 6.2ppts
---------------------- -------- -------- -------- -------- -------- -------
Operating profit GBP23.0m GBP12.7m 81.1% GBP23.0m GBP14.3m 60.8%
Operating margin % 28.3% 18.1% 10.2ppts 28.3% 20.4% 7.9ppts
---------------------- -------- -------- -------- -------- -------- -------
1. Further details of adjustments are in note 1 of the consolidated financial statements.
Wiring Accessories is the Group's largest and most profitable
segment.
COVID-19 disruption meant that the UK Wiring Accessories market,
into which nearly all this segment's sales are made, contracted by
6.0% in the year. We significantly outperformed this market
contraction by delivering segmental revenue growth of 16.0% in the
year in tough conditions.
We have gained an increasing share of this market over an
extended period thanks to our advantaged business model. However,
the accelerated out performance this year was particularly driven
by: our high share of the successful Hybrid channel, business wins
in the circuit protection category and superior product
availability, principally thanks to our vertical integration, in
the second half's recovering market.
We expect market share gains to continue in 2021.
LED Lighting
Adjusted(1) Reported
--------------------------- ---------------------------
2020 2019 Change 2020 2019 Change
---------------------- -------- -------- ------- -------- -------- -------
Revenue GBP49.5m GBP54.2m (8.7%) GBP49.5m GBP54.2m (8.7%)
---------------------- -------- -------- ------- -------- -------- -------
Contribution profit GBP5.7m GBP5.1m 11.8% GBP5.3m GBP5.7m (7.0%)
---------------------- -------- -------- ------- -------- -------- -------
Contribution margin % 11.5% 9.4% 2.1ppts 10.7% 10.5% 0.2ppts
---------------------- -------- -------- ------- -------- -------- -------
Operating profit GBP2.8m GBP1.2m 133.3% GBP2.4m GBP1.7m 41.2%
Operating margin % 5.7% 2.2% 3.5ppts 4.8% 3.1% 1.7ppts
---------------------- -------- -------- ------- -------- -------- -------
1. Further details of adjustments are in note 1 of the consolidated financial statements.
The Group entered the lighting market in 2013 as the industry
adopted LED technology.
The Group has developed a wide range of products which it sold
initially through UK channels and subsequently through its wider
overseas network. It has built a circa GBP50m revenue business in
seven years, largely organically but bolstered by the acquisition
of Kingfisher Lighting in 2017.
It continues to invest in both its product line and in the sales
resources necessary to grow the business. The focus for future
growth in this segment is on professional-grade products and
expansion in international markets.
This investment inevitably takes time to mature, which holds
back margins in the short term.
The segment reached a significant milestone in 2020 by achieving
a double-digit contribution margin despite reduced activity levels.
As COVID-19 disruption diminishes and LED project activity returns
to Commercial and Institutional markets, we are confident that
further improvements in profitability can be made.
Portable Power(2)
Adjusted(1,2) Reported
----------------------------- -----------------------------
2020 2019 Change 2020 2019 Change
---------------------- -------- -------- --------- -------- -------- ---------
Revenue GBP45.4m GBP47.8m (5.0%) GBP45.4m GBP47.8m (5.0%)
---------------------- -------- -------- --------- -------- -------- ---------
Contribution profit GBP7.5m GBP8.7m (13.8%) GBP7.5m GBP8.9m (15.7%)
---------------------- -------- -------- --------- -------- -------- ---------
Contribution margin % 16.5% 18.2% (1.7ppts) 16.5% 18.6% (2.1ppts)
---------------------- -------- -------- --------- -------- -------- ---------
Operating profit GBP4.2m GBP4.1m 2.4% GBP4.2m GBP4.2m nil%
Operating margin % 9.3% 8.6% 0.7ppts 9.3% 8.8% 0.5ppts
---------------------- -------- -------- --------- -------- -------- ---------
1. Further details of adjustments are in note 1 of the consolidated financial statements.
2. The Ross/Other business was merged into Portable Power in
2020. Segmental comparatives for 2019 have been restated
accordingly.
The Group enjoys a leading position in the UK portable power
market.
The Group exited some low margin UK business in the year, which
was replaced by rapid expansion in Europe and into the nascent US
cable reel market. The latter represents a significant growth
opportunity, into which the Group invested some margin in the
period.
Impact of foreign exchange movements
A summary of the consolidated income statement on a constant
currency basis is shown below. Current period balances have been
translated at the prior year's average exchange rates and
demonstrate the impact of the movement in exchange rates during the
period (see note 19 of the consolidated financial statements in the
2020 Annual Report and Accounts).
Adjusted Constant currency
2020
at Constant
currency(2)
Currency impact variance to 2019 Adjusted
----------------- --------------------
Adjusted 2019 actual
2020
actual(1)
GBPm GBPm % GBPm GBPm % GBPm
------------------- ---------- ------ --------- ------------ ------- ----------- -----------
Revenue 176.2 0.5 0.3% 175.7 3.6 2.1% 172.1
Cost of sales (106.0) 0.8 0.7% (106.8) 3.0 2.7% (109.8)
------------------- ---------- ------ --------- ------------ ------- ----------- -----------
Gross profit 70.2 1.3 2.1% 68.9 6.6 10.6% 62.3
Gross margin % 39.8% 0.9ppts 38.9% 2.7ppts 36.2%
Operating costs (40.2) - - (40.2) 4.1 (9.3%) (44.3)
------------------- ---------- ------ --------- ------------ ------- ----------- -----------
Operating profit 30.0 1.3 4.5% 28.7 10.7 59.4% 18.0
Operating margin % 17.0% 0.7ppts 16.3% 5.8ppts 10.5%
------------------- ---------- ------ --------- ------------ ------- ----------- -----------
1. Year ended 31 December 2020 translated at 2020 average exchange rates.
2. Year ended 31 December 2020 translated at 2019 average exchange rates.
The Group's main currency exposures are with the US dollar
("USD") and Chinese Renminbi ("RMB"). The average USD rate
experienced by the Group was unchanged from last year. The RMB
weakened slightly against sterling, lowering the cost of our
products and improving margins.
The commentary above focuses on Adjusted metrics (see note 1)
which, the Board believes are a better indicator of performance.
Our Reported performance surpassed our Adjusted performance thanks
largely to an increase in the fair value of currency hedging. The
following table summarises Reported key lines from the Consolidated
Income Statement:
Reported Reported
Summary of results (GBPm) 2020 2019
-------------------------- -------- --------
Revenue 176.2 172.1
Operating profit 29.6 20.2
Profit before tax 33.6 17.1
Taxation (5.7) (4.0)
-------------------------- -------- --------
Profit for the year 27.9 13.1
-------------------------- -------- --------
Going concern and viability statement
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and as such have applied the going concern
principle in preparing the 2020 Annual Report and Accounts. This is
considered in more detail in note 1. The Group's Viability
Statement can be found on pages 42 to 44 and the Group's Going
Concern Statement can be found on page 107 of the 2020 Annual
Report and Accounts.
MATT WEBB
Chief Financial Officer
23 March 2021
PRINCIPAL RISKS AND UNCERTAINTIES
The Board is responsible for identifying, reviewing and managing
business and operational risk. It is also responsible for
determining the level of risk appetite it is prepared to take in
the ordinary course of business to achieve the Group's strategic
objectives and to ensure that appropriate and sufficient resource
is allocated to the management and mitigation of risk.
In addition to the risk management framework, the Board has
delegated responsibility to the Audit Committee for reviewing the
overall process of assessing business risks and managing the impact
on the Group. The Group's risk management process is set out
below.
The principal risks identified, and actions taken to minimise
their potential impact are included below. This is not an
exhaustive list but those the Board believes may have an adverse
effect on the Group's cash flow and profitability.
See also pages 36 to 41 in the 2020 Annual Report and
Accounts.
In determining whether it is appropriate to adopt the going
concern basis in the preparation of the financial statements, the
Directors have considered these principal risks and uncertainties.
The Viability Statement on pages 42 to 44 of the 2020 Annual Report
and Accounts considers the prospects of the Group should a number
of these risks crystallise together.
Risk management process
The senior management team maintains a register of identified
business risks (financial and non-financial) which it categorises
in terms of probability of occurrence and the potential impact on
the Group should the risk crystallise. Mitigating actions
undertaken and recommendations for further reduction of risk are
also included. Recommended actions are put forward to the Executive
Directors for consideration.
The Executive Directors review and challenge the content of the
risk register and the recommendations. Risk mitigation actions are
agreed, and a plan is created. Each action is assigned an owner who
is responsible for carrying out the required action within an
agreed timescale. The Executive Directors review the progress made
against any actions that have been carried forward.
The Audit Committee regularly reviews risk management and is
provided an update in respect of progress made in the reduction of
existing risks, summary of newly identified risks and the actions
agreed to reduce them to an acceptable level.
These risks are reviewed in conjunction with the Audit
Committee's other responsibilities including the internal control
framework, external audit process and financial reporting.
The Audit Committee provides an update and appropriate
recommendation to the Board, where required, for the Board to
consider in conjunction with the strategic objectives of the
Group.
Independent assurance is provided through the annual statutory
audit and the periodic internal control reviews and the monitoring
of', and adherence to, policies and procedures by an external
assurance provider.
Senior management Executive Directors Audit Committee The Board Independent assurance
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Reviews and updates Review and challenge Monitors and reviews Holds overall Periodic internal
the risk register for the risks identified the risks in responsibility for control reviews and
new risks, identifies and the actions conjunction with the effective internal monitoring of
mitigations in place proposed to mitigate internal control control, risk adherence to policies
and recommends them; approve framework, audit management and the and procedures by
actions to reduce and monitor agreed process risk an external audit and
risk. actions. and financial appetite of the Group. assurance provider.
reporting. Statutory audit by a
registered auditor.
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Principal risks
Risks associated with the coronavirus
---------------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* Risk of unexpected changes in product demand Regular review of local virus case data to
respond to emerging threats to operations
COVID-19-secure protocols are in place at all
* Operational disruption limits the rate of product key sites and Government guidance is followed
supply in full
Sales order book and access to customer sales
data gives visibility of changing demand patterns
* Communication and corporate alignment are compromised Virtual communication tools ensure close collaboration
by remote working and/or inability to travel to Increased communication with team members during
international operating sites the pandemic
------------------------------------------------------------ -------------------------------------------------------
Concentration risks associated with operations
---------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* The Group's products are overwhelmingly sourced from UK buffer stock is held in the event of supply
one country (China) and a large proportion are made disruption in China
in one location (Jiaxing) All suppliers are provided with visibility
of forward orders and supply issues are discussed
upfront
* Disruption to our Jiaxing facility could compromise Production facilities in China are spread
our ability to serve our customers across multiple buildings on the same site
to mitigate risk
The Group owns its product designs and production
* General disruption to trading between China and our tooling, allowing manufacturing to be moved
selling markets (particularly UK) could increase our between suppliers more easily
costs or limit our ability to serve our markets Business Continuity Plans are in place for
Jiaxing site
Business Interruption Insurance is in place
for the Jiaxing site and our OEM supplier
of Portable Power products
----------------------------------------------------------- --------------------------------------------------
Concentration risks associated with customers and products:
----------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* The Group has a number of key customers representing Key customers typically follow a tender process,
circa 50% of Group revenue. Loss of a key customer providing visibility of business wins and
could result in reduced sales and profits losses
Large customers typically take 6-12 months
to implement a large range change throughout
* The Group's committed order book extends 2-3 months their networks, giving us time to react
forward. Orders thereafter are uncommitted The cost of range changes for large customers
is high, reducing the likelihood of occurrence
Relationships with the Group's large customers
* The Group has a material exposure to movements in the are particularly established
USD:RMB FX rate. An adverse move could reduce short Capacity at our factory and at our OEM partners
term profits and/or long-term competitiveness in China can be changed quickly and cost
effectively
The Group hedges its USD:RMB and copper exposures
* The Group has a material exposure to the purchase according to a Board-approved policy. The
price of copper. An adverse move could reduce profits hedging matches the duration of any fixed
and/or price competitiveness selling price commitment offered to customers
Application of the hedging policy is reviewed
by the Board
------------------------------------------------------------ --------------------------------------------------
Macroeconomic, political and environmental:
-------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* The Group has a concentrated exposure to the UK The Group is diversified by market segment
market within the UK, reducing risk
The Group is largely exposed to the RMI cycle,
which is less susceptible to macroeconomic
* Macroeconomic headwinds in the UK could reduce forces
profits The Group's overseas businesses are expected
to grow faster than the UK, diluting the
UK exposure
* A deterioration in trade relations between the UK and UK buffer stock is held in the event of supply
China could disrupt product supply and/or increase disruption in China
costs Airfreight can be used to expedite deliveries
if required
Management liaises closely with investors
* A failure to adequately respond to changes in and customers to understand their future
customers' and/or investors' ESG requirements could ESG needs and responds accordingly
result in reduced profits or a reduced share price
------------------------------------------------------------ -----------------------------------------------
Loss of IT / data:
-----------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* Loss of IT functionality would compromise operations, Market-leading cyber security tools are in
leading to increased costs or lost sales place
Market-leading data backup tools are in place
IT disaster recovery plans are in place throughout
* Loss of sensitive data from our IT environment would the Group
expose the Group to regulatory, legal or reputational We conduct regular penetration testing
risk IT incidents are reported to the Board
------------------------------------------------------------ ---------------------------------------------------
Loss of key employees:
---------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* Loss of key employees could damage business Key relationships are typically shared between
relationships or result in a loss of knowledge more than one employee
The Group's service offering is multi-faceted,
reducing the risk that the loss of an employee
would result in lost sales
Retention of key employees is driven by long-term
personal development and incentive plans.
These plans are reviewed by the Nomination
and Remuneration Committees
Workforce engagement surveys ensure employee
needs are identified and addressed, promoting
retention
----------------------------------------------------- --------------------------------------------------
Acquisitions:
-------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* An ill-judged acquisition could destroy shareholder Our acquisition strategy is set by the Board
value Board members possess significant M&A experience
The acquisition strategy is implemented by
an experienced in-house team
* The Group's acquisition strategy could The Group's key markets are relatively stable,
compromise/distract the execution of strategy in meaning acquisition targets typically have
other areas an established track record
Individual acquisitions are typically small
relative to the size of the Group, reducing
the impact of each deal and reducing potential
distraction
The Group conducts extensive due diligence
prior to acquisition
All acquisitions are approved by the Board
---------------------------------------------------------- -------------------------------------------------
Legal and Regulatory
--------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* The Group could infringe upon the IP of others, The Group receives IP advice from external
leading to legal claims experts
The Group's products are certified for use
prior to launch by external experts
* The Group's products could fail to meet regulatory The Group has extensive quality assurance
requirements or experience quality failures, resources in the UK and China
resulting in legal claims and/or reputational damage Suppliers are required to adhere to a strict
Code of Conduct
Supplier compliance with the Code of Conduct
* The Group's businesses could fail to meet regulatory is audited by our in-house teams
requirements in their countries of operation Product liability claims are reported to
the Board
Product liability insurance is in place globally
* The Group could fail to comply with local tax laws, The Group's transfer pricing policies are
particularly regarding transfer pricing reviewed regularly with the help of external
experts
----------------------------------------------------------- -------------------------------------------------
Finance and treasury
------------------------------------------------------------------------------------------------------------
Risk and impact: Mitigation
* The Group could fail to provide sufficient funding The Group has a clear Capital Structure policy
liquidity for its operations that is designed to provide sufficient liquidity
The Capital Structure policy is implemented
by Treasury experts and monitored by the
* The Group could fail to report its financial Board
performance accurately, leading to inappropriate The Treasury team prepares regular cash flow
decision-making and regulatory breaches forecasts
The Group's financial statements require
relatively few judgements or estimates, reducing
* The Group could suffer fraud across its widespread the risk of misstatement
operations The Group's accounting policies and internal
accounting manual are approved by the Board
The Group operates two main accounting centres
in the UK and China, which are overseen closely
by the Group Finance team
The Group has invested in market-leading
financial accounting and reporting software
--------------------------------------------------------- -------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following statement will be contained in the 2020 Annual
Report and Accounts.
We confirm that to the best of our knowledge:
The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole; and
The Strategic Report includes a fair review of the development
and performance of the business and the position of the issuer and
the undertakings included in the consolidation, taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
JOHN HORNBY
Chief Executive Officer
MATT WEBB
Chief Financial Officer
23 March 2021
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2020
GBPm Note Adjusted Adjustments(1) 2020 Adjusted Adjustments(1) 2019
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Revenue 2 176.2 - 176.2 172.1 - 172.1
Cost of sales (106.0) - (106.0) (109.8) 2.3 (107.5)
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Gross profit 70.2 - 70.2 62.3 2.3 64.6
Distribution expenses (8.6) - (8.6) (8.5) - (8.5)
Administrative expenses (31.6) (0.4) (32.0) (35.8) (0.1) (35.9)
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Operating profit 30.0 (0.4) 29.6 18.0 2.2 20.2
Finance income - 5.3 5.3 - - -
Finance expense (1.3) - (1.3) (2.2) (0.9) (3.1)
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Net finance income/ (expense) (1.3) 5.3 4.0 (2.2) (0.9) (3.1)
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Profit before tax 28.7 4.9 33.6 15.8 1.3 17.1
Taxation 4 (4.7) (1.0) (5.7) (3.7) (0.3) (4.0)
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Profit for the year 3 24.0 3.9 27.9 12.1 1.0 13.1
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
Earnings per share (pence)
Basic 5 15.5p 2.5p 18.0p 7.7p 0.6p 8.3p
Fully diluted 5 15.2p 2.5p 17.7p 7.7p 0.6p 8.3p
------------------------------ ---- -------- -------------- ------- -------- -------------- -------
1. Definition of the adjustments made and reconciliations to the
reported figures can be found in note 1 of the consolidated
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2020
GBPm 2020 2019
----------------------------------------------------------------------------------------------- ---- -----
Profit for the year 27.9 13.1
Other comprehensive income - amounts that may be reclassified to profit or loss in the future:
Foreign exchange translation differences - foreign operations 0.8 (2.3)
----------------------------------------------------------------------------------------------- ---- -----
Total comprehensive income for the year 28.7 10.8
----------------------------------------------------------------------------------------------- ---- -----
All results are from continuing operations.
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED BALANCE SHEET
at 31 December 2020
GBPm Note 2020 2019
---------------------------------------------------- ---- ----- -----
Non-current assets
Property, plant and equipment 7 17.8 17.0
Right-of-use assets 2.7 3.0
Intangible assets 8 21.5 22.6
Financial assets held for trading 1.4 -
Deferred tax asset 0.5 -
---------------------------------------------------- ---- ----- -----
43.9 42.6
---------------------------------------------------- ---- ----- -----
Current assets
Inventories 37.2 32.2
Trade and other receivables 71.8 43.6
Financial assets held for trading 4.1 -
Cash and cash equivalents 6.7 1.4
---------------------------------------------------- ---- ----- -----
119.8 77.2
---------------------------------------------------- ---- ----- -----
Total assets 163.7 119.8
---------------------------------------------------- ---- ----- -----
Current liabilities
Trade and other payables 63.6 39.0
Current tax liabilities 3.1 2.8
Financial assets held for trading 0.5 0.3
Other financial liabilities 1.2 1.1
---------------------------------------------------- ---- ----- -----
68.4 43.2
---------------------------------------------------- ---- ----- -----
Non-current liabilities
Interest-bearing loans and borrowings 9 22.2 26.0
Other financial liabilities 1.6 1.7
Deferred tax liability - 1.0
Provisions 1.1 0.8
---------------------------------------------------- ---- ----- -----
24.9 29.5
---------------------------------------------------- ---- ----- -----
Total liabilities 93.3 72.7
---------------------------------------------------- ---- ----- -----
Net assets 70.4 47.1
---------------------------------------------------- ---- ----- -----
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium 24.8 24.8
Translation reserve (0.1) (0.9)
Treasury reserve (6.8) (4.1)
Retained earnings 52.4 27.2
---------------------------------------------------- ---- ----- -----
Total equity 70.4 47.1
---------------------------------------------------- ---- ----- -----
The accompanying notes form an integral part of these financial
statements.
These financial statements were approved by the Board of
Directors on 23 March 2021 and were signed on its behalf by:
JOHN HORNBY
Chief Executive Officer
MATT WEBB
Chief Financial Officer
Company registered number: 05254883
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2020
Share Share Translation Retained Treasury
GBPm capital premium reserve earnings reserve Total equity
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Balance at 1 January 2019 0.1 24.8 1.4 15.8 (1.2) 40.9
Total comprehensive income
Profit for the year - - - 13.1 - 13.1
Foreign currency translation differences on -
investments in the year
overseas entities - - (1.4) - - (1.4)
Currency translation differences - - (0.9) - - (0.9)
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Total comprehensive income for - - (2.3) 13.1 - 10.8
Transactions with owners in their capacity as owners
Dividends - - - (1.9) - (1.9)
Purchase of own shares - - - - (2.9) (2.9)
Share-based payments charge - - - 0.2 - 0.2
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Total transactions with owners in their capacity as
owners - - - (1.7) (2.9) (4.6)
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Balance at 31 December 2019 0.1 24.8 (0.9) 27.2 (4.1) 47.1
Total comprehensive income
Profit for the year - - - 27.9 - 27.9
Foreign currency translation differences on
investments in overseas entities - - 0.3 - - 0.3
Currency translation differences - - 0.5 - - 0.5
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Total comprehensive income for the year - - 0.8 27.9 - 28.7
Transactions with owners in their capacity as owners
Dividends - - - (4.9) - (4.9)
Purchase of own shares - - - - (2.7) (2.7)
Deferred tax on share-based payment transactions - - - 1.2 - 1.2
Share-based payments charge - - - 1.0 - 1.0
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Total transactions with owners in their capacity as
owners - - - (2.7) (2.7) (5.4)
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
Balance at 31 December 2020 0.1 24.8 (0.1) 52.4 (6.8) 70.4
----------------------------------------------------- ------- ------- ----------- -------- -------- ------------
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2020
GBPm Note Adjusted Adjustments(1) 2020 Adjusted Adjustments(1) 2019
------------------------------------------- ----- -------- -------------- ------ -------- -------------- ------
Cash flows from operating activities
Profit for the year 24.0 3.9 27.9 12.1 1.0 13.1
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Adjustments for:
Depreciation and amortisation 6.1 0.4 6.5 7.9 0.4 8.3
Financial income - (5.3) (5.3) - - -
Financial expense 1.3 - 1.3 2.2 0.9 3.1
Taxation 4.7 1.0 5.7 3.7 0.3 4.0
Loss on disposal of tangible assets 0.1 - 0.1 0.1 - 0.1
Share-based payments
charge 1.0 - 1.0 0.2 - 0.2
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Operating cash flow before movement in working
capital 37.2 - 37.2 26.2 2.6 28.8
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
(Increase)/decrease in trade and other receivables (23.5) (5.0) (28.5) 4.7 (7.4) (2.7)
(Increase)/decrease in inventories (4.8) - (4.8) - - -
Increase/(decrease) in trade and other payables 25.2 - 25.2 (3.7) (1.1) (4.8)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Cash from operations 34.1 (5.0) 29.1 27.2 (5.9) 21.3
Tax paid (5.7) - (5.7) (2.6) - (2.6)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Net cash from operating activities 28.4 (5.0) 23.4 24.6 (5.9) 18.7
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Cash flows from investing activities
Acquisition of property, plant and equipment (3.3) - (3.3) (2.0) - (2.0)
Acquisition of other intangible assets (1.1) - (1.1) (1.6) - (1.6)
Disposal of tangible assets - - - - - -
------------------------------------------- ----- -------- -------------- ------ -------- -------------- ------
Net cash used in investing activities (4.4) - (4.4) (3.6) - (3.6)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Cash flows from financing activities
Proceeds from new loans - - - 5.0 - 5.0
Repayment of borrowings (3.8) - (3.8) (14.6) - (14.6)
Interest paid (1.3) - (1.3) (2.1) - (2.1)
Dividends paid (4.9) - (4.9) (1.9) - (1.9)
Finance lease liabilities (1.1) - (1.1) (1.3) - (1.3)
Purchase of treasury
shares (2.7) - (2.7) (2.9) - (2.9)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Net cash used in financing activities (13.8) - (13.8) (17.8) - (17.8)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Net increase/(decrease) in cash and cash
equivalents 10.2 (5.0) 5.2 3.2 (5.9) (2.7)
Cash and cash equivalents at 1 January 1.4 4.2
Effect of exchange rate fluctuations on cash held 0.1 (0.1)
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
Cash and cash equivalents at 31 December 6.7 1.4
-------------------------------------------------- -------- -------------- ------ -------- -------------- ------
1. Definition of the adjustments made and reconciliations to the
reported figures can be found in note 1 of the consolidated
statements.
The Group has adjusted trade receivables by GBP5.0m (2019:
GBP7.4m) reflecting the repayment of non-recourse debt factoring.
There was no non-recourse debt factoring at 31 December 2020.
The accompanying notes form an integral part of these financial
statements.
Notes to the Consolidated Financial Statements
for the year ended 31 December 2020
1 Basis of preparation
Luceco plc (the 'Company') is a company incorporated and
domiciled in the United Kingdom. These consolidated financial
statements for the year ended 31 December 2020 comprise the Company
and its subsidiaries (together referred to as the 'Group'). The
Group is primarily involved in the manufacturing and distribution
of high quality and innovative LED lighting and wiring accessories
to global markets (see note 2).
The financial information is derived from the Group's
consolidated financial statements for the year ended 31 December
2020, which have been prepared on the going concern basis in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union. The financial statements have
been prepared on the historical cost basis except for certain
financial instruments which are carried at fair value.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2020
and 31 December 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the Registrar of
Companies, and those for 2020 will be delivered in due course. The
Auditors have reported on the 2020 statutory accounts; their report
was (i) unqualified and (ii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The text of the
Auditors' report can be found in the Company's full 2020 Annual
Report and Accounts on pages 95 to 102.
The 2020 Annual Report and Accounts and the Notice of the 2020
Annual General Meeting will be published on the Company's website
at http://www.lucecoplc.com as soon as practicable. They will also
be submitted to the National Storage Mechanism where they will be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
The Group's accounting policies can be referred to in note 1 of
the consolidated financial statements in the 2020 Annual Report and
Accounts.
Going concern
The Directors have concluded that it is reasonable to adopt a
going concern basis in preparing the financial statements. This is
based on an expectation that the Company and the Group have
adequate resources to continue in operational existence for 15
months from the date of signing these accounts. The Group has
reported a profit before tax of GBP33.6m for the year to 31
December 2020 (2019: GBP17.1m), has net current assets of GBP51.4m
(2019: GBP34.0m) and net assets of GBP70.4m (2019: GBP47.1m), net
debt of GBP18.3m (2019: GBP27.4m) and cash generated from
operations of GBP23.4 (2019: GBP18.7m). Both bank facilities mature
on 31 March 2023 as detailed below:
The capital resources at the Group's disposal at 31 December
2020 and 28 February 2021 were as follows:
-- A revolving credit facility of GBP30.0m, GBP13.6m drawn at 31
December 2020 and GBP13.9m drawn at 28 February 2021
-- An invoice financing facility of GBP20.0m, GBP8.6m was drawn
at 31 December 2020 and GBP6.3m drawn at 28 February 2021
The revolving credit facility requires the Group to comply with
the following quarterly financial covenants:
-- Closing net debt of no more than 2.5 times Adjusted EBITDA
for the preceding 12-month period
-- Adjusted EBITDA of no less than 4.0 times Adjusted Net
Finance Expense, both for the preceding 12--month period
The Directors ran scenario tests on the severe but plausible
downside case. The assumptions in this scenario were as
follows: Concentration risks with associated operations (25%
reduction in revenue for 3 months followed by 50%
reduction for 3 months and 20% increase in shipping costs during
the period) and macroeconomic, political and
environmental risks (18-month recession with a 10% reduction in
revenue and gross profit). This severe but plausible
downside scenarios do not lead to any breach in covenants nor
any breach in facility. All modelling has been
conducted without any mitigation activity. There have been no
changes to post balance sheet liquidity positions.
The Directors are confident that the Group and Company will have
sufficient funds to continue to meet its liabilities as they fall
due for at least 15 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
Statutory and non-statutory measures of performance
The financial statements contain all the information and
disclosures required by the relevant accounting standards and
regulatory obligations that apply to the Group.
The Group's performance is assessed using a number of financial
measures which are not defined under IFRS (the financial reporting
framework applied by the Group). Management uses the adjusted or
alternative performance measures (APMs) as a part of their internal
financial performance monitoring and when assessing the future
impact of operating decisions. The APMs disclose the adjusted
performance of the Group excluding specific items. The measures
allow a more effective year-on-year comparison and identification
of core business trends by removing the impact of items occurring
either outside the normal course of operations or as a result of
intermittent activities such as a corporate acquisition. The Group
separately reports acquisition costs, other exceptional items and
other specific items in the Consolidated Income Statement which, in
the Directors' judgement, need to be disclosed separately by virtue
of their nature, size and incidence in order for users of the
financial statements to obtain a balanced view of the financial
information and the underlying performance of the business.
In following the guidelines on Alternative Performance Measures
(APMs) issued by the European Securities and Markets Authorities,
the Group has included a Consolidated Income Statement and
Consolidated Cash Flow Statement that have both Statutory and
Adjusted performance measures. The definitions of the measures used
in this results are below. The definition of EBITDA used in the net
debt : EBITDA measure on the Highlights page is shown in note 20 of
the consolidated financial statements in the 2020 Annual Report and
Accounts.
Nature of Related IFRS Related IFRS Definition Use/relevance
measure measure source
----------------- ------------------------ ------------------
Adjusted Gross Profit Consolidated Based on the Allows management
Gross Profit Margin Income Statement related IFRS to
Margin measure but excluding assess the performance
the of the business
adjusting items. after
A breakdown of removing large/unusual
the items or transactions
adjusting items that
from 2020 are not reflective
and 2019, which of the
reconciles underlying business
the adjusted operations
measures to
statutory figures,
can be
found on the
following page
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted Operating Consolidated
Operating Gross profit Income Statement
Costs less Operating
profit
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted Operating Consolidated
Operating profit Income Statement
Profit
----------------- ------------------------ ------------------
Adjusted Basic EPS Consolidated
Basic EPS Income Statement
----------------- ------------------------ ------------------ ------------------------- ------------------------
Constant Allows management
Currency to identify the
relative
year-on-year
performance
of the business
by removing
the impact of
currency
movements that
are outside
of management's
control
----------------- ------------------------ ------------------ ------------------------- ------------------------
EBITDA Operating Consolidated Consolidated Provides management
profit Income Statement earnings before with an approximation
interest, tax, of cash generation
depreciation from the Group's
and amortisation operational activities
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted Operating Consolidated Consolidated Provides management
EBITDA profit Income Statement earnings before with an approximation
interest, tax, of cash generation
depreciation from the Group's
and amortisation underlying activities
and the adjusting
items excluded
from Adjusted
Operating Profit
aside from the
amortisation
of acquired intangibles
----------------- ------------------------ ------------------ ------------------------- ------------------------
Contribution Operating Consolidated Contribution Provides management
profit profit and Income Statement profit is after with an assessment
operating allocation of of profitability
costs adjusted operating by operating
expenses for segment
each operating
segment
----------------- ------------------------ ------------------ ------------------------- ------------------------
Contribution Operating Consolidated Contribution Provides management
margin profit and Income Statement margin is contribution with an assessment
operating profit, as above, of margin by
costs divided by revenue operating segment
for each operating
segment
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted Cash flow Consolidated Adjusted Operating Provides management
Operating from operations Income Statement Cash Flow is with an indication
Cash Flow the cash from of the amount
operations but of cash available
excluding the for discretionary
cash impact of investment
the adjusting
items excluded
from Adjusted
Operating Profit
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted Net increase/(decrease) Consolidated Adjusted Free Provides management
Free Cash in cash and Income Statement Cash Flow is with an indication
Flow cash equivalents calculated as of the free cash
Adjusted Operating generated by
Cash Flow less the business
cash flows in for return to
respect of investing shareholders
activities, interest or reinvestment
and taxes paid in M&A activity
----------------- ------------------------ ------------------ ------------------------- ------------------------
Adjusted None Consolidated Operating Cash Allows management
Operating Cash Flow Conversion is to monitor the
Cash Conversion Statement defined as Adjusted conversion of
and Consolidated Cash from operations operating profit
Income Statement divided by Adjusted into cash
Operating Profit
----------------- ------------------------ ------------------ ------------------------- ------------------------
Return on None Operating Adjusted Operating To provide an
Capital profit and Profit divided assessment of
Invested Net assets into the sum how profitability
("ROCI") of net assets, capital is being
net debt and deployed in the
non-recourse bsuiness
debt factoring
(average for
the last two
years) expressed
as a percentage
----------------- ------------------------ ------------------ ------------------------- ------------------------
The following tables indicate how alternative performance
measures are calculated:
2020 2019
Adjusted EBITDA GBPm GBPm
---------------------------------------- ----- -----
Adjusted Operating Profit 30.0 18.0
Adjusted Depreciation and Amortisation 6.1 7.9
---------------------------------------- ----- -----
Adjusted EBITDA 36.1 25.9
---------------------------------------- ----- -----
2020 2019
Adjusted Operating Cash Conversion GBPm GBPm
------------------------------------------------------- ------- -------
Cash from operations (from Consolidated Cash Flow
Statement) 29.1 21.3
Adjustments to operating cash flow (from Consolidated
Cash Flow Statement) 5.0 5.9
------------------------------------------------------- ------- -------
Adjusted Operating Cash Flow 34.1 27.2
------------------------------------------------------- ------- -------
Adjusted Operating Profit 30.0 18.0
------------------------------------------------------- ------- -------
Adjusted Operating Cash Conversion 113.7% 151.1%
------------------------------------------------------- ------- -------
2020 2019
Adjusted Free Cash Flow GBPm GBPm
---------------------------------------------------------- ------ ------
Adjusted Operating Cash Flow (see table above) 34.1 27.2
Net Cash used in investing activities (from Consolidated
Cash Flow Statement) (4.4) (3.6)
Interest paid (from Consolidated Cash Flow Statement) (1.3) (2.1)
Tax paid (from Consolidated Cash Flow Statement) (5.7) (2.6)
---------------------------------------------------------- ------ ------
Adjusted Free Cash Flow 22.7 18.9
---------------------------------------------------------- ------ ------
Revenue 176.2 172.1
---------------------------------------------------------- ------ ------
Adjusted Free Cash Flow as % revenue 12.9% 11.0%
---------------------------------------------------------- ------ ------
2020 2019
Return on Capital Investment GBPm GBPm
------------------------------------------------ ------ ------
Net assets 70.4 47.1
Net debt 18.3 27.4
Non-recourse debt factoring - 5.0
------------------------------------------------ ------ ------
Capital invested 88.7 79.5
------------------------------------------------ ------ ------
Average capital invested (from last two years) 84.1 82.6
------------------------------------------------ ------ ------
Adjusted Operating Profit (from above) 30.0 18.0
Return on Capital Invested (Adjusted Operating
Profit/average capital invested) 35.7% 21.8%
------------------------------------------------ ------ ------
The following table reconciles all adjustments from the reported
to the adjusted figures in the income statement:
Amortisation
of acquired Re-
intangibles measurement
and related to fair
value
acquisition of hedging 2020 2020
GBPm 2020 costs(2) portfolio(3) Adjustments Adjusted
-------------------------------------- ------- ------------ ------------ ----------- --------
Revenue 176.2 - - - 176.2
Cost of sales (106.0) - - - (106.0)
-------------------------------------- ------- ------------ ------------ ----------- --------
Gross profit 70.2 - - - 70.2
-------------------------------------- ------- ------------ ------------ ----------- --------
Distribution expenses (8.6) - - - (8.6)
Administrative expenses (32.0) 0.4 - 0.4 (31.6)
-------------------------------------- ------- ------------ ------------ ----------- --------
Operating profit 29.6 0.4 - 0.4 30.0
-------------------------------------- ------- ------------ ------------ ----------- --------
Finance income 5.3 - (5.3) (5.3) -
Finance expense (1.3) - - - (1.3)
-------------------------------------- ------- ------------ ------------ ----------- --------
Net finance (expense)/income 4.0 - (5.3) (5.3) (1.3)
-------------------------------------- ------- ------------ ------------ ----------- --------
Profit before tax 33.6 0.4 (5.3) (4.9) 28.7
Taxation (5.7) - 1.0 1.0 (4.7)
-------------------------------------- ------- ------------ ------------ ----------- --------
Profit for the year 27.9 0.4 (4.3) (3.9) 24.0
-------------------------------------- ------- ------------ ------------ ----------- --------
Gross margin % (gross profit/revenue) 39.8% 39.8%
-------------------------------------- ------- ------------ ------------ ----------- --------
Amortisation
of acquired Re-
intangibles measurement
Closure and related to fair
value
of US acquisition of hedging Cost VAT 2019 2019
GBPm 2019 operations(1) costs(2) portfolio(3) recovery(4) repayment(5) Adjustments Adjusted
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Revenue 172.1 - - - - - - 172.1
Cost of sales (107.5) - - - (1.4) (0.9) (2.3) (109.8)
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Gross profit 64.6 - - - (1.4) (0.9) (2.3) 62.3
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Distribution
expenses (8.5) - - - - - - (8.5)
Administrative
expenses (35.9) (0.3) 0.4 - - - 0.1 (35.8)
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Operating profit 20.2 (0.3) 0.4 - (1.4) (0.9) (2.2) 18.0
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Finance income - - - - - - - -
Finance expense (3.1) - - 0.9 - - 0.9 (2.2)
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Net finance
(expense)/
income (3.1) - - 0.9 - - 0.9 (2.2)
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Profit before
tax 17.1 (0.3) 0.4 0.9 (1.4) (0.9) (1.3) 15.8
Taxation (4.0) - (0.1) (0.2) 0.4 0.2 0.3 (3.7)
Profit for the
year 13.1 (0.3) 0.3 0.7 (1.0) (0.7) (1.0) 12.1
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
Gross margin %
(gross
profit/revenue) 37.5% 36.2%
---------------- ------- ------------- ------------ ------------ ----------- ------------ ----------- --------
1. Costs of closing US operations comprising inventory
provisions, severance costs, asset write-downs and onerous lease
costs (partially released in 2019).
2. Relating to Kingfisher Lighting.
3. Relating to currency hedges.
4. The recovery of amounts owed to the Group's Chinese
subsidiary by two former employees. These amounts relate to the
historic overpayment of salary and under-recovery of asset sale
proceeds from third parties.
5. HMRC VAT repayment of overpaid output tax arising from
settlement discounts taken by customers.
Standards and interpretations issued
Standards that are effective from 1 January 2020:
-- Amendment to IFRS 3 Business Combinations - Definition of a business
-- Amendments to IFRS 9, IAS 39 Financial Instruments:
Recognition and Measurement and IFRS 7 Financial Instruments:
Disclosures - Interest rate benchmark reform
-- Amendments to IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Definition of material
-- Revised Conceptual Framework for Financial Reporting
IASB effective for annual periods beginning on or after 1 June
2020:
-- Amendment to IFRS 16 Leases
IASB effective for annual periods beginning on or after 1
January 2021:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform - Phase 2
IASB effective for annual periods beginning on or after 1
January 2022:
-- Amendments to IFRS 3 Business combinations
-- Amendments to IAS 16 Property, plant and equipment Amendments
to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Annual improvements - cycle 2018-2020
IASB effective for annual periods beginning on or after 1
January 2023:
-- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current
Based on their initial assessments, the Directors anticipate
that adoption of these Standards and Interpretations in future
periods will not have a material impact on the financial statements
of the Group.
Critical accounting judgements and estimates
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. The following are the
judgements and key estimates used in these financial
statements.
Other judgements
The Directors do not consider there to be any key judgements in
preparing the financial statements. The judgements outlined below
formed the main areas of focus for the Directors throughout the
year. The other judgement considered by the directors is
development capitalisation.
Other Estimates
The Directors do not consider there to be any key estimates in
preparing the financial statements. The estimates outlined below
formed the main areas of focus for the Directors throughout the
year. The other estimate considered by the directors is inventory
valuation.
2 Operating segments
The Group's principal activities are in the manufacturing and
supply of wiring accessories, LED lighting, and portable power
equipment. For the purposes of management reporting to the Chief
Operating Decision-Maker (the Board), the Group consists of three
operating segments which are the product categories that the Group
manufactures and distributes. In previous years Ross's home
entertainment products have been shown as a separate segment. In
2020 the Group combined its Ross business with Portable Power and
these operating segments have now been merged into one. This has
been reflected in both the current and prior year segmental
results. A reconciliation of Ross before and after this change is
included in note 2 of the 2020 Annual Report and Accounts.
The Board does not review the Group's assets and liabilities on
a segmental basis and, therefore, no segmental disclosure is
included. Inter-segment sales are not material. Revenue and
operating profit are reported under IFRS 8 Operating Segments.
Adjusted Reported Adjusted Reported
2020 Adjustment 2020 2019 Adjustment 2019
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------ ------------- ------------------------- ----------- ------------- ---------
Revenue
Wiring Accessories 81.3 - 81.3 70.1 - 70.1
LED Lighting 49.5 - 49.5 54.2 - 54.2
Portable Power 45.4 - 45.4 47.8 - 47.8
176.2 - 176.2 172.1 - 172.1
------------------------- ------------ ------------- ------------------------- ----------- ------------- ---------
Operating profit
Wiring Accessories 23.0 - 23.0 12.7 1.6 14.3
LED Lighting 2.8 (0.4) 2.4 1.2 0.5 1.7
Portable Power 4.2 - 4.2 4.1 0.1 4.2
Operating profit 30.0 (0.4) 29.6 18.0 2.2 20.2
------------------------- ------------ ------------- ------------------------- ----------- ------------- ---------
The following table provides an analysis of adjustments made to
each segment.
2020 2019
Amortisation Amortisation
of acquired of acquired
intangibles Closure intangibles
and related of US and related Cost VAT
Total costs(2) Total business(1) costs(2) recovery(3) Repayment(4)
---------------
Analysis GBPm GBPm GBPm GBPm GBPm
of adjustments GBPm GBPm
--------------- -------- ------------ ------------ ----------- ------------ ----------- -------------
Cost of
sales
Wiring
Accessories - - 1.6 - - 1.0 0.6
LED lighting - - 0.6 - - 0.3 0.3
Portable
Power - - 0.1 - - 0.1 -
Gross profit - - 2.3 - - 1.4 0.9
--------------- -------- ------------ ------------ ----------- ------------ ----------- -------------
Administrative
expenses
Wiring - - - - - - -
Accessories
LED lighting (0.4) (0.4) (0.1) 0.3 (0.4) - -
Portable - - - - - - -
Power
Total (0.4) (0.4) (0.1) 0.3 (0.4) - -
--------------- -------- ------------ ------------ ----------- ------------ ----------- -------------
Operating
profit (0.4) (0.4) 2.2 0.3 (0.4) 1.4 0.9
Operating
profit:
Wiring
Accessories - - 1.6 - - 1.0 0.6
LED lighting (0.4) (0.4) 0.5 0.3 (0.4) 0.3 0.3
Portable
Power - - 0.1 - - 0.1 -
Operating
profit (0.4) (0.4) 2.2 0.3 (0.4) 1.4 0.9
--------------- -------- ------------ ------------ ----------- ------------ ----------- -------------
1. Costs of closing US operations comprising inventory
provisions, severance costs and asset write-downs and onerous lease
costs (partially released in 2019).
2. Relating to Kingfisher Lighting.
3. The recovery of amounts owed to the Group's Chinese
subsidiary by two former employees. These amounts relate to the
historic overpayment of salary and under-recovery of asset sale
proceeds from third parties.
4. HMRC VAT repayment of overpaid output tax arising from
settlement discounts taken by customers.
2020 2019
Revenue by location of customer GBPm GBPm
UK 140.3 135.1
Europe 18.4 17.6
Middle East and Africa 7.0 9.0
Asia Pacific 6.7 4.3
Americas 3.8 6.1
--------------------------------- ------ ------
Total revenue 176.2 172.1
--------------------------------- ------ ------
The prior year comparatives have been restated to fully reflect
the drop-ship location of each order. Revenues exceeded 10% or more
of total revenue for one customer. This customer's revenue
represents 31%% (2019: 29%) of total revenue and is across all
operating segments.
2020 2019
Non-current assets by location GBPm GBPm
-------------------------------- ----- -----
UK 29.2 26.9
China 14.1 13.9
Other 0.6 1.8
-------------------------------- ----- -----
Total non-current assets 43.9 42.6
-------------------------------- ----- -----
3 Expenses
Included in the Consolidated Income Statement are the
following:
2020 2019
GBPm GBPm
----------------------------------------------------- ----- -----
Research and development costs expensed as incurred 2.2 2.4
Depreciation of property, plant and equipment 4.3 6.0
Amortisation of intangible assets 2.2 2.3
----------------------------------------------------- ----- -----
During the first half of the year the Group received GBP1.0m
from the UK Government's CJRS. The Group's strong second half
performance allowed this to be repaid in early 2021, with the
associated costs accrued in 2020.
4 Taxation
2020 2019
GBPm GBPm
--------------------------------------------------- ------ ------
Current tax expense
Current year - UK 5.4 2.8
Current year - overseas 1.0 1.6
Adjustment in respect of prior years (0.4) (0.5)
--------------------------------------------------- ------ ------
Current tax expense 6.0 3.9
--------------------------------------------------- ------ ------
Deferred tax expense/(credit)
Origination and reversal of temporary differences (0.1) (0.1)
Adjustment in respect of prior years (0.2) 0.2
--------------------------------------------------- ------ ------
Deferred tax expense/(credit) (0.3) 0.1
--------------------------------------------------- ------ ------
Total tax expense 5.7 4.0
--------------------------------------------------- ------ ------
2020 2019
Reconciliation of effective tax rate GBPm GBPm
----------------------------------------------------------------- ------ ------
Profit for the year 27.9 13.1
Total tax expense 5.7 4.0
----------------------------------------------------------------- ------ ------
Profit before tax 33.6 17.1
----------------------------------------------------------------- ------ ------
Tax using the UK corporation tax rate of 19.0% (2019: 19.0%) 6.4 3.2
Effect of tax rates in foreign jurisdictions 0.1 1.1
Non-deductible expenses 0.3 0.5
Income not taxable - (0.4)
Adjustment in respect of previous periods (0.6) (0.2)
Recognition of previously not recognised deferred tax - (0.2)
Deferred tax on share-based payments (0.3) -
Utilisation of unrecognised overseas brought forward tax losses (0.2) -
----------------------------------------------------------------- ------ ------
Total tax expense 5.7 4.0
----------------------------------------------------------------- ------ ------
A tax reduction of GBP0.2m within overseas tax occurred in the
period due to the utilisation of brought forward overseas trading
losses previously not recognised as a deferred tax asset due to it
being deemed unlikely that they could be utilised. The adjustment
in respect of previous periods of GBP0.6m relates to differences
between the Group's tax provisions at the date of the accounts
being signed and the completion of the final Group's tax
returns.
Factors which may affect future current and total tax
charges
In the 3 March 2021 Budget it was announced that the UK tax rate
will increase to 25% from 1 April 2023. This will have a
consequential effect on the group's future tax charge. If this rate
change had been substantively enacted at the current balance sheet
date the deferred tax asset would have increased by GBP0.2m to
GBP0.7m
5 Earnings per share
Earnings per share is calculated based on the profit for the
year attributable to the owners of the Group. Adjusted earnings per
share is calculated based on the adjusted profit for the year, as
detailed below, attributable to the owners of the Group. These
measures are divided by the weighted average number of shares
outstanding during the period.
2020 2019
GBPm GBPm
----------------------------------------------------------------------- ------ ------
Earnings for calculating basic earnings per share 27.9 13.1
Adjusted for:
VAT repayment - (0.9)
Cost recovery in Chinese subsidiary - (1.4)
Closure of US operations - (0.3)
Amortisation of acquired intangibles and related acquisition costs 0.4 0.4
Remeasurement to fair value of hedging portfolio (5.3) 0.9
Income tax on above items 1.0 0.3
----------------------------------------------------------------------- ------ ------
Adjusted earnings for calculating adjusted basic earnings per share 24.0 12.1
----------------------------------------------------------------------- ------ ------
2020 2019
Number Number
Weighted average number of ordinary shares Million million
Basic 154.7 156.9
Dilutive effect of share options on potential ordinary shares 2.7 1.1
--------------------------------------------------------------- -------- --------
Diluted 157.4 158.0
--------------------------------------------------------------- -------- --------
2020 2019
Pence Pence
------------------------------------- ------ ------
Basic earnings per share 18.0 8.3
Diluted earnings per share 17.7 8.3
Adjusted basic earnings per share 15.5 7.7
Adjusted diluted earnings per share 15.2 7.7
------------------------------------- ------ ------
6 Dividends
Amounts were recognised in the financial statements as
distributions to equity shareholders as follows:
2020 2019
GBPm GBPm
-------------------------------------------------------- ----- -----
Interim dividend in lieu of the final dividend for
the year ended 31 December 2019 1.7p (2018: 0.6 pence)
per ordinary share 2.6 0.9
-------------------------------------------------------- ----- -----
Interim dividend for the year ended 31 December 2020
of 1.5p (2019: 0.6 pence) per ordinary share 2.3 1.0
-------------------------------------------------------- ----- -----
Total dividend recognised during the year 4.9 1.9
-------------------------------------------------------- ----- -----
The Board is proposing a final dividend for the year ended 31
December 2020 of 4.7p which is a GBP7.2m cash payment (2019:
GBPnil).
7 Property, plant and equipment
During the year, the Group purchased assets at a cost of GBP3.3m
(2019: GBP2.0m). The majority of the expenditure related to plant
and equipment and tooling at the manufacturing facility in China.
Total depreciation for the year was GBP3.1m (2019: GBP5.1m). Assets
with net book value of GBP0.1m (2019: GBP0.1m) were disposed of in
the year for net proceeds of GBPnil (2019: GBPnil). Net book value
at 31 December 2020 was GBP17.8m (31 December 2019: GBP17.0m).
The Group has a carrying value of GBP2.7m for right-of-use
assets (2019: GBP3.0m).
The Group has not included any borrowing costs within additions
in 2020 (2019: GBPnil). There were no funds specifically borrowed
for the assets and the amount eligible as part of the general debt
instruments pool (after applying the appropriate capitalisation
rate) is not considered material.
For further information refer to note 9 of the consolidated
financial statements in the 2020 Annual Report and Accounts.
8 Intangible assets and goodwill
Development expenditure is capitalised and included in
intangible assets when it meets the criteria laid out in IAS 38,
"Intangible Assets". During the year, the Group incurred internally
generated development costs of GBP1.1m (2019: GBP1.6m). The Group
has not included any borrowing costs within capitalised development
costs. There were no funds specifically borrowed for this asset and
the amount eligible as part of the general debt instruments pool
(after applying the appropriate capitalisation rate) is not
considered material. Amortisation totalled GBP2.2m (2019: GBP2.3m)
with the increase arising from Development cost charges . Fully
amortised development costs totalling GBP4.5m were written-off
during the year. Net book value at 31 December 2020 was GBP21.5m
(31 December 2019: GBP22.6m).
Goodwill impairment is reviewed annually. Further details on the
review conducted at 31 December 2020 can be found in note 10 to the
2020 Annual Report and Accounts. No impairment charge was recorded
in either 2020 or 2019.
9 Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings, which are
measured at amortised cost. For more information about the Group's
exposure to interest rate and foreign currency risk, see note 19 in
the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
---------------------------------------- ----- -----
Non-current liabilities
Revolving credit facility 13.6 24.8
Secured bank loans - Invoice financing 8.6 1.2
22.2 26.0
---------------------------------------- ----- -----
Bank loans and overdrafts are secured by a fixed and floating
charge over the assets of the Group. Bank loans and overdrafts
include funds advanced under invoice financing arrangements from
HSBC Finance (UK) Limited of GBP8.6m (2019: GBP1.2m), which are
secured by legal charges over the Group's book debts.
10 Exchange rates
The following significant exchange rates were applied during the
year:
Reporting date
Average rate spot rate
2020 2019 2020 2019
----- ------- ------ -------- -------
USD 1.28 1.28 1.36 1.32
EUR 1.12 1.14 1.11 1.18
RMB 8.92 8.80 8.91 9.19
----- ------- ------ -------- -------
11 Related party transactions
The Group has a related party relationship with its subsidiaries
and its Directors. Transactions between Group companies, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Transactions with key personnel
Key personnel include executive and non-executive Board members
and the senior management team. The compensation of key management
personnel, including executive Directors, is as follows:
2020 2019
GBPm GBPm
------------------------------------------- ----- -----
Remuneration (including benefits in kind) 7.2 3.6
Element of share-based payments expense 1.0 0.2
------------------------------------------- ----- -----
8.2 3.8
------------------------------------------- ----- -----
Defined contribution pension scheme retirement benefits are
accruing to one Director at the year-end (2019: one).
12 Annual General Meeting
The 2021 AGM will take place on 13 May 2021 at the Group's
registered office. The notice of AGM and any related documents will
be sent to shareholders within the prescribed timescales. Under the
UK Government's current guidance on social distancing and
prohibiting gatherings it will not be possible for shareholders to
attend the AGM in person. Shareholders will be encouraged to submit
their proxy votes online.
13 Date of approval of financial information
The financial information covers the year 1 January 2020 to 31
December 2020 and was approved by the Board on 23 March 2021. A
copy of the 2020 Annual Report and Accounts will be published on
the Luceco plc investor relations website, www.lucecoplc.com as
soon as practicable.
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END
FR DKBBQNBKBNNB
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