MRK Marks Electrical Group Plc

Marks Electrical Group plc

Annual financial results for the year ended 31 March 2024

Continuing to gain market share profitably and well positioned for the year ahead

Marks Electrical Group plc ("Marks Electrical" or "the Group"), a fast-growing online electrical retailer, today announces its full year audited results for the 12 months ended 31 March 2024 ("the year" or "FY24").

Financial highlights

·      Record full-year revenue of £114.3m (FY23: £97.8m) up 16.9% year on year, doubling the revenue we achieved in the year prior to listing (FY21: £56.0m).

·      Adjusted EBITDA⁽¹⁾ of £5.0m (FY23 £7.5m) in line as previously guided, maintaining strong cost control despite downward margin pressure as a result of consumers trading-down, and continuing our strategy of gaining market share profitably.

·      Adjusted EPS of 2.45p⁽³⁾ (FY23 4.82p), statutory EPS of 0.41p (FY23 4.91p).

·      Further improvements in working capital and a reduction in inventory days to 56 days in FY24 from 74 days in FY23, helping the Group achieve a closing net cash⁽⁴⁾ position of £7.8m, whilst making strategic investments in capacity across vehicles, equipment, facilities and systems.

·      Proposed final dividend of 0.66p per share, resulting in a total FY24 dividend payout of 0.96p (FY23: 0.96p). The dividend payout is being maintained year on year, despite the lower profitability, reflecting the Group's strong cash position and confidence in its future outlook.

Operational highlights

·      Growth in Major Domestic Appliances ("MDA") market share from 2.5% in FY23 to 2.8% in FY24, with our share in the online segment of the market growing from 4.7% to 5.3%⁽⁵⁾.

·      Growth in Consumer Electronics ("CE") market share from 0.3% in FY23 to 0.5% in FY24, with our share in the online segment of the market growing from 0.6% to 0.8%⁽⁵⁾.

·      Completed the development of the Marks Electrical Academy, a purpose-built training facility, where our drivers and installers are trained on integrated, gas, electrical and freestanding connections and appliance installations.

·      Successfully transitioned away from the Euronics ("CIH") buying group, providing greater opportunities to develop deeper relationships with our manufacturer brand partners and drive further growth in revenue and margin.

·      Maintained an excellent Trustpilot rating of 4.8, demonstrating the strength of our best-in-class customer proposition.

Current trading and outlook

·      Strong trading performance in April, May and June, with double-digit revenue growth and momentum starting to pick-up following the weaker January to March trading period, providing us with optimism for the year ahead.

Mark Smithson, Chief Executive Officer, commented:

"During what was a more challenging year for the Group, in an environment where consumers remained highly price-conscious, we continued to make good strategic progress across multiple fronts as a business. I am proud of the ongoing commitment and dedication of our entire team of customer-focused colleagues.

Over the past year we invested in our operations and systems to position the business for long-term success, navigated a trade-down in customer buying preferences, managed the inflation increases impacting our cost base and continued to make a profit. Having doubled revenue since IPO, we've also managed to grow our market share profitably, and thanks to our disciplined approach to capital allocation, we've consistently returned a dividend to our shareholders, whilst retaining a net cash position. Our strategy and approach leaves us very well positioned for a market recovery when it occurs.

Our relentless focus on operational excellence and customer service has enabled us to continue to gain share in a very competitive market, growing our share from 2.5% to 2.8% of the overall Major Domestic Appliances ("MDA") market and from 4.7% to 5.3% in the online segment, with huge opportunities ahead, both in MDA and in other segments of Consumer Electronics and Small Domestic Appliances.

Whilst I continue to be personally frustrated about our margin progression during the year, I remain confident in our long-term growth prospects, and continue to be impressed by our ability to deliver market share gains profitably, against a fiercely competitive backdrop, whilst maintaining the highest levels of customer service standards in the industry.

The first three months of FY25 have been encouraging and we have been pleased to see a return to double-digit growth during the period, providing us with a robust platform to continue driving profitable market share gains, and ultimately enabling the Group to deliver long-term value creation and become the UK's leading premium electrical retailer.

^Notes

^{(1) Adjusted EBITDA is a non-statutory measure defined as earnings before interest, tax, depreciation, and amortisation and adjusted for non-underlying items, share-based payment charges and buying group rebates receivable.}

^{(2) Adjusted EPS is a non-statutory measure of profit after tax, adjusted for non-underlying items (ERP implementation costs), share-based payment charges and buying group rebates receivable, over the total diluted ordinary number of shares in issue.}

^{(3) Net cash represents cash and cash equivalents less financial liabilities (excluding lease liabilities).}

^{(4) Based on the Group's analysis of GfK Market Intelligence sales tracking GB data, Major Domestic Appliances and Consumer Electronics.}

Enquiries:

Marks Electrical Group plc                                                                                              Via DGA Group:

Mark Smithson (CEO)                                                                                                                          Tel: +44 (0)20 7664 5095

Josh Egan (CFO)                                                                                                                 

DGA Group (Financial PR)

Jonathon Brill / James Styles / Nishad Sanzagiri                                                                                 Tel: +44 (0)20 7664 5095

markselectrical@dentonsglobaladvisors.com                                                                                                                                                                                                 

Canaccord Genuity (NOMAD and Broker)

Max Hartley / George Grainger                                                                                                            Tel: +44 (0)20 7886 2500                                                                                     

About Marks Electrical

Marks Electrical is a fast growing, highly scalable, technology driven e-commerce electrical retailer which sells, delivers, installs and recycles a wide range of household electrical products. The Group was founded in Leicester in 1987 by Mark Smithson and has scaled into a nationwide online retailer with a compelling growth track record, thanks to its vertically integrated, low-cost, high-quality operating model, supported by the ongoing structural shift of consumers to purchase online. The Group operates within the UK Major Domestic Appliances (MDA) and Consumer Electronics (CE) market, estimated to be worth approximately £7 billion.

Primarily through its simple, clear and intuitive website - markselectrical.co.uk - the Group offers over 4,500 products from over 50 leading brands across its main product categories, which include Cooking, Refrigeration, Washers & Dryers, Dishwashers and Audio-Visual. These products are sourced from UK distributors of the brands, with whom the Group maintains strong and direct relationships. Marks Electrical delivers direct to customers in its owned and branded vehicles, operated by the Group's skilled team of delivery drivers, who are also able to offer installation and recycling services.

For further information, visit the Marks Electrical corporate website: https://group.markselectrical.co.uk and its retail website: https://markselectrical.co.uk/.

Group Chief Executive Officer's review

We've faced a challenging but rewarding year in FY24:

·      Our revenue continued to grow, surpassing £100m for the first time in our history as a business, reaching £114.3m with  16.9% revenue growth year on year;

·      Our industry leading customer focus is proven in the maintenance of our excellent Trustpilot score at 4.8;

·      We continued investing in our long-term strategy through additional developments in our warehouse, expansion of our vehicle fleet and began the implementation of a new Enterprise Resource Planning system to fuel our future growth; and

·      We grew market share growth in both Major Domestic Appliances ("MDA") and Consumer Electronics ("CE") segments leaving us well positioned for future market recovery.

Whilst I am personally frustrated about our margin progression in FY24, I remain confident about our long-term growth prospects and continue to be impressed by our ability to deliver market share gains profitably, against a fiercely competitive backdrop, whilst maintaining the highest levels of customer service standards in the industry.

In the current trading environment, consumers remain highly price-conscious, which given our premium focus, continues to have an impact on our average order value, resulting in customer order volumes growing faster than revenue. This impact has limited our ability for margin expansion which we expect to continue in the short-term, when taking into account the relatively fixed cost of delivery. As we work tirelessly as a team to enhance our margin into FY25, I know from 37 years of trading that margin fluctuations are inevitable, they present us with an opportunity to learn, and will ultimately enable the Group to deliver long-term value creation and position us as the UK's leading premium electrical retailer.

Furthermore, during the year, we made further strides in our strategic plans and as we focus on positioning our business to deliver long-term growth and value creation, we made the decision to exit the Euronics buying group, which we believe represents the next logical step in our journey. This enables us to further build on the direct relationships we have with our brand partners, which we anticipate will lead to revenue and margin upside in the medium-term and in addition, improved flexibility as a national account.

Market share - a small share of a big opportunity

We are predominantly focused on the MDA market but have also been rapidly expanding our footprint in the CE market, primarily in the television category.

During our financial year, the MDA market declined by 1.3%, with the CE market declining by 3.9%. Despite this, we were able to increase our market share to 2.8% in MDA (FY23: 2.5%) and 0.5% in CE (FY23: 0.3%). Our consistent gains in market share are driven by our relentless focus on market-leading customer service.

The continued market share growth we have seen, regardless of such a challenging backdrop is the fuel that encourages us to work hard every day, delivering for customers and taking comfort in the fact that we have such a small share of an enormous market with significant scope for future market share gains.

Our strategy for growth

Our strategic approach is very clear - we put the customer at the heart of everything we do and have four key elements to our strategy for growth:

Customer proposition

Our operating model continues to be unique across the MDA sector in that we consistently offer free next day delivery for in-stock items over set values, throughout our wide range of products, to over 90% of the UK population. In addition, our expanded installation service offering now provides customers with the ability to add integrated, gas, electric and television installation services to their order, which can be carried out within a rapid time frame.

This proposition centres around the vertical integration of our delivery model, with our own fleet, employed drivers and installers, in-house training academy, and our centralised single-site distribution centre, maximising efficiency and improving financial returns.

During the period we have made further advancements in developing our customer proposition, including:

·      Developing the ME academy, our leading in-house product installation facility for driver, installer and customer service training;

·      Introducing alternate customer communications, improving the speed and efficiency at which our customer services team can resolve problems for customers;

·      Further developing our website to continually improve the customer journey; and

·      Maintaining our excellent Trustpilot score of 4.8.

Throughout the year we have strengthened our brand relationships in order to deliver the best quality products to customers and furthermore we expect these relationships to grow even deeper having exited the Euronics buying group as we establish direct trading across all our brands.

Brand awareness

A key to our success is to grow our brand awareness.

During the year we have carried out continued brand awareness activities focused on brand building across digital, television, out-of-home, radio and social media channels, helping us to improve our reach and visibility across the UK.

This activity and continued customer focus has resulted in elevated order growth in key geographical locations. Whilst we are proud of the progress we have made, we also recognise that there is significant opportunity for further brand awareness growth, as more people across the UK come into contact with our brand for the first time.

During the year we have also spent time developing our relationships with our brand partners' marketing teams, in order to offer them innovative opportunities to advertise with us. Our agile and creative approach has proved highly complementary during the year and we look forward to building on these relationships in the years ahead, ensuring that the activities that we carry out are mutually beneficial for us and our brand partners.

Operational capacity

Across the four pillars of our strategy, operational capacity is one that has been in significant focus in FY24. We've made sizeable investments across our distribution centre and vehicle fleet, including but not limited to:

·      Two automated dock-leveller loading bays;

·      A very narrow aisle forklift system;

·      Multiple racking and layout improvements and additional fork lift trucks; and

·      Increased fleet capacity with a range of different vehicle types.

By making these investments, we have increased our efficiency and capacity, allowing us to minimise additional headcount, improve throughput and scale further in our current facility, without requiring additional warehousing. It also remains important for us to continue to modernise our fleet in order to increase capacity and minimise operational downtime.

We continue to believe that investing across our business in people, processes and equipment will ensure that we retain talent and provide them with the best tools to give customers an excellent service.

Financial performance

We continued to deliver strong revenue growth in FY24 whilst gaining new customers and increasing market share. This was, however, at lower profitability levels than in the prior year, as a result of lower gross product margin and higher distribution costs. We held advertising & marketing expenses flat as a percentage of sales and kept a sharp focus on other operating expenses to mitigate some of the external profitability challenges but were frustrated by the outcome of our bottom line margin, despite all the hard work across our teams throughout the year.

Despite this, we have been able to continue to demonstrate that gaining market share can be done so profitably and with good cash generation to invest in our future growth prospects.

We made continued progress on working capital management, reducing inventory days from 74 to 56 and improving terms with suppliers, however some commercial arrangements with suppliers led to higher year end rebate balances weakening our operational cash conversion year on year. We continue to expect that in the long-term, our operating cash conversion should consistently be in the range of 90-110%.

The strong focus on cash has allowed us to pay our annual dividend, invest £2.2m in selected capital projects to underpin our growth, and a further £2.1m in the replacement of our legacy enterprise resource planning system.

We believe this combination of profitable market share growth, high return on capital and dividend income provides a compelling proposition to drive attractive long-term shareholder returns and despite lower profitability in the current year, we are focused on driving improvements in FY25 and have already taken multiple steps to do so.

Outlook - focused on delivering profitable market share growth

We believe that our current share of the UK MDA market of 2.8% (FY23: 2.5%) and online share of 5.3% (FY23: 4.7%), with an even smaller share in CE, continues to provide significant scope and opportunity for growth, regardless of the economic backdrop. Our market-leading customer service and free next day delivery for the majority of items, combined with in-house installation expertise, provides a compelling and unique offering, that sets us apart from the competition.

As momentum continues to develop and our brand awareness increases, our focus on operational excellence and cash flow generation, combined with our healthy net cash position, provides us with a robust platform to generate continued profitable market share growth and become the UK's leading premium electrical retailer.

Mark Smithson

Chief Executive Officer

Financial review

The Group continued its trajectory of profitable market share growth in a challenging market backdrop resulting from the cost of living crisis. While profitability was lower than the prior year due to lower gross product margin and higher distribution costs, we maintained a tight control on advertising and marketing expenses and other operating expenses. This demonstrates that market share growth can continue to be achieved whilst delivering profit and cash flow improvements, allowing us to further invest in our growth.

We maintained a tight control on working capital, improving inventory days and credit terms, however this was offset by an increase in trade receivables at the year end. Working capital decline to 1.3% of revenue from 1.7% in FY23 and the cash flow we generated was invested in selected capital investment opportunities for our warehouse and fleet, as well as the development of the Group's new ERP software, Microsoft Dynamics 365, where there has been a cash outflow of £2.1m to-date, with an additional £0.6m accrued of this multi-year project. Further cash outflows, in addition to the £0.6m accrual are expected in FY25.

Despite the lower profitability, our focus on selective capex investments to fuel our future growth and tight cash flow control resulted in a closing net cash position of £7.8m and a return on capital employed of 21%.

Financial Highlights

The Group's statutory revenue for the year was £114.3m, up 16.9% from £97.8m in FY23. Gross profit for the year was £29.0m, up 8.8% from £26.7m in FY23, with a gross margin of 25.4%, down 190 bps from FY23. The key driver of the fall in gross margin was a trade-down into less premium products where our rebate structures were not as favourable.

Statutory operating profit was down to £0.5m from £6.4m in FY23. The primary reason for the decrease in operating profit was due to the lower trading profitability as well as the impact of the costs incurred to replace our legacy enterprise resourcing planning system with Microsoft Dynamics 365.

Statutory profit before tax was £0.6m driven by the non underlying costs referenced above, as well as the weaker trading profitability.

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified balances within the statement of comprehensive income for the year ended 31 March 2023. Refer to Note 5 of the Group's annual report and accounts for further details.

** Adjusted EBIT, adjusted EBITDA, operating cash conversion, return on capital employed and adjusted earnings per share are alternative performance measures, definitions of which are set out on page [119] of the Group's annual report and accounts.

Revenue and gross product margin

The Group has continued to grow, achieving revenue of £114.3m which represents a growth rate of 16.9% against FY23 (FY23: £97.8m). This result was achieved against a declining MDA market and a declining CE market. The continuation of customer acquisition, brand awareness improvements and order volume growth demonstrates the sustainability of the strategic approach to customer service being of paramount importance to the Group.

Growth in the first two quarters of the year was particularly strong at 24.8%, followed by 17.9% in the third quarter and a lower growth rate of 2.0% in the final quarter of the year. The final quarter saw much higher volume growth but this was at a lower average order value, thereby not translating into revenue at the same rate, as a result of the higher interest rates and inflationary environment impacting consumers' propensity to spend on premium products.

Our definition of gross margin has changed in order to improve comparability and understanding of the financial results. Presented below we are now showing gross product profit, which represents the profit made on products and services, less transaction fees. This now excludes the cost of distribution which is presented separately below.

During the year, we saw a decline in our gross product margin to 25.4% (FY23: 27.3%) as a result of lower rebate levels due to sales mix. Unfortunately during the year, we saw a trade-down to less premium products where our rebate structures were not as a favourable from the outset of the financial year.

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified fair value gains to buying rebates receivable into gross product margin.

Distribution costs

For improved clarity we have now separated distribution costs from gross product margin and will be reporting this way moving forward. During the year we saw a significant increase in our distribution costs, as a result of three primary elements:

·      Decreased average order value leading to the requirement to deliver more for less revenue per order;

·      Increase in driver pay and reward to remain competitive in the current inflationary environment; and

·      Full year of in-house installation services which provides added-value to customers with significantly shorter waiting times and improved service delivery, but comes at a higher cost of fulfilment.

Advertising and marketing costs

During the year the Group continued to utilise its marketing spend to acquire new customers and promote the Marks Electrical brand. Total advertising costs were £5.8m (FY23: £4.9m) and advertising as a percentage of revenue was maintained at 5.0% (FY23: 5.0%).

The Group focusses on both online marketing and offline brand building activities, with each playing an important role in driving the topline growth during FY24.

Online marketing spend was focused on search engine optimisation, strategic pay-per-click activities, affiliate programmes and marketplace fees. We continued to improve our online presence across our SKUs and improved our search result rankings whilst also benefiting from improved sales on marketplaces. We continued our out-of-home campaigns during the year with investments made in specific geographies to drive improved brand awareness, which resulted in faster sales growth in those locations. We carried out a range of non-digital activities, including static visual campaigns across multiple locations, television, and radio.

Other operating expenses (excluding depreciation)

Given the impact of lower product margin and higher distribution costs, it was imperative that other operating expenses were tightly controlled. This laser-focus on overhead expenses resulted in a modest increase of 4.9% year on year to £6.8m, despite revenue growth reaching 16.9%, thereby reducing the operating expenses as a percentage of revenue to 6.0% (FY23: 6.7%).

As a business, our focus on minimising other operating expenses is key to us driving operating leverage in the future as the business scales.

Adjusted earnings before Interest, tax, depreciation and amortisation ("adjusted EBITDA")

The Group achieved adjusted EBITDA in the year of £5.0m (FY23: £7.5m). Margin decreased by 330bps to 4.4% from FY23 due to the following reasons:

·      190bps decline in gross product margin as a result of lower rebate levels due to sales mix;

·      230bps decline as a result of higher distribution costs as outlined above; and

·      Offset by a 70bps improvement in operating expenses due to tight operating cost control.

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified fair value gains to buying rebates receivable into gross product margin.

Statutory profit after tax

Statutory profit after tax in the year was £0.4m (FY23: £5.2m). The decrease year on year is due to the lower trading profitability as well as the impact of the cost incurred to replace our legacy enterprise resourcing planning system with Microsoft Dynamics 365.

Share-based payments

The Group issued further awards under its long-term incentive plan during the year to senior and junior management. This, combined with the FY23 LTIPs and the market value options and free shares awarded in FY22 resulted in a P&L charge of £0.4m (FY23: £0.3m). This charge and related professional fees are removed from adjusted financial performance measures.

Depreciation and amortisation

Depreciation and amortisation increased by £0.5m to £1.8m during the year (FY23: £1.3m), primarily due to the addition of various warehouse equipment and new vehicles, as detailed in the cash flow review below.

Taxation

The underlying tax charge for FY24 was £0.9m (FY23: £1.3m) with an effective underlying tax rate of 26.1%, 1.1% higher than the statutory corporation tax rate. The current tax asset held on balance sheet at the year end was £0.5m (FY23: liability of £0.3m) with a deferred tax liability of £1.0m (FY23: £0.8m).

Earnings per share

Basic earnings per share ("EPS"), which is calculated for both the current and comparative year based upon the weighted average number of shares in the year, was 0.41p per share (FY23: 4.91p per share).

Adjusted EPS was 2.45p per share (FY23: 4.82p per share), with the material reduction year on year being driven by lower gross product margin and higher distribution costs. The table below shows the reconciliation between statutory and adjusted earnings per share. See Note 3 in the Group's annual report and accounts for further details.

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified fair value gains to buying rebates receivable into gross product margin.

Cash flow and statement of financial position

During the year the Group achieved an adjusted cash flow from operating activities of £4.5m (FY23: £9.9m) with an adjusted operating cash flow for conversion of £3.6m (FY23: £8.9m) at 71% (FY23: 118%) and free cash flow of £0.9m (FY23: £7.1m), resulting in a closing net cash position of £7.8m (FY23: £10.0m).

The Group invested £1.0m in its warehouse equipment, including two automated dock-leveller loading bays, a Very Narrow Aisle Forklift system, multiple racking and layout improvements and additional fork lift trucks. The benefits of these upgrades have already come to fruition with significantly improved unloading and loading efficiency, whilst further improving safety.

A further £0.1m was invested in creating the ME Academy, the Group's training facility for all employees, as well as the addition of existing office space for our expanding IT team.

Investments were made into the fleet during the year, with the addition of 30 new vehicles. 18 vehicles were purchased directly with cash, with a further 12 vehicles purchased using finance lease agreements. A significant cash outflow during the year was for the development and implementation of the Group's new enterprise resource planning ("ERP") software, Microsoft Dynamics 365, where there has been a cash outflow of £2.1m to-date, with an additional £0.6m accrued, on the implementation of this multi-year project. Further cash outflows are expected in FY25.

During the year the Group saw a working capital outflow of (£0.5)m (FY23: £2.3m inflow), as despite improvements in inventory days and payable days, the Group receivables balances for rebates and commercial contracts increased against the prior year. The exceptional working capital adjustments relate to the timing impact of payments to the Group's ERP implementation provider.

The Group finished the year in a net cash position of £7.8m (FY23: £10.0m) with no debt or long-term lending facilities outside of its finance leases.

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified balances within the statement of financial position, impacting movements within the cash flow for the year ended 31 March 2023. Refer to Note 5 for further details.

Events after the reporting period

Following the reporting period end on 31 March 2024, we have successfully exited Combined Independents (Holdings) Limited "Euronics" buying group. This exit will enable the Group to establish closer, direct relationships with its manufacturer partners, which will provide further opportunity to drive growth and margin in the future, and is the next natural step in our growth ambitions.

Current trading and outlook

Despite the continuing pressures on customers trading-down we are very pleased with the growth in our order volumes and new customer acquisitions and the double digit growth we have seen in the first three months of FY25, giving us confidence that our fundamental strategy of continued profitable market share gains and excellent customer service will support us in delivering further growth.

Dividend Declaration

We delivered an adjusted EPS of 2.45p during the year and are recommending a final dividend of 0.66p per share, whilst this represents a higher payout ratio than our stated 20% objective, we see this as a signal of confidence in the future prospects of the Group and our current net cash position. The final dividend will be paid (subject to shareholder approval at the AGM) on 15 August 2024 to shareholders who are on the register at the close of business on 12 July 2024, and shares will be marked ex-dividend on 11 July 2024. For further information on dividends, see Note 12 to the financial statements. 

Josh Egan

Chief Financial Officer

Year ended 31 March 2024

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified balances within the statement of comprehensive income for the year ended 31 March 2023. Refer to Note 26 of the Group's annual report and accounts for further details.

All the results arise from continuing operations.

At 31 March 2024

* When preparing the financial statements for the year ended 31 March 2024, the Company reclassified balances within the statement of financial position for the year ended 31 March 2023. Refer to Note 26 of the Group's annual report and accounts for further details.

Consolidated Statement of changes in equity

Year ended 31 March 2024

All the results arise from continuing operations.

Consolidated Cash flow

Year ended 31 March 2024

*When preparing the financial statements for the year ended 31 March 2024, the Group restated balances within the statement of cash flows for the year ended 31 March 2023, with fair value gains reducing by £481,000 and the movement in trade receivables increasing by £481,000. Refer to Note 26 of the Group's annual report and accounts for further details.

Notes to the financial statements

Year ended 31 March 2024

1        General Information

The financial statements of Marks Electrical Group plc ("Company") for the year ended 31 March 2024 ("FY24") were authorised for issue by the Board of Directors on 25 June 2024 and signed on its behalf by Josh Egan.

The Company is a public limited company, limited by shares, incorporated in the United Kingdom under the Companies Act 2006 (registration number 13509635). The Company is domiciled in the United Kingdom and its registered address is 4 Boston Road, Leicester, LE4 1AU, England. The Company's ordinary shares are listed on the AIM market, of the London Stock Exchange.

The principal activity of the Company and its subsidiaries ("Group") throughout the period is the supply of domestic electrical appliances and consumer electronics in the United Kingdom.

2        Accounting policies

2.1        Basis of preparation

This consolidated financial information has been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The financial information has been prepared on a going concern basis under the historical cost convention unless otherwise specified within these accounting policies. The financial information and the notes to the financial information are presented in thousands ('£'000') except where otherwise indicated. The functional and presentation currency of the Group is pound sterling.

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the years ended 31 March 2024 or 31 March 2023 as defined in section 435 of the Companies Act 2006 (CA 2006). The financial information for the year ended 31 March 2024 has been extracted from the Group's audited financial statements. Statutory financial statements for the year ended 31 March 2023 have been delivered to the Registrar of Companies, the auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.

The principal accounting policies adopted in the preparation of the financial statements are set out below. Other than the restatements disclosed within note 26 of the Group's annual report and accounts, these policies have been consistently applied to all the periods presented, unless otherwise stated.

2.2        Going concern

The Group has remained profitable during the year, delivering sales growth of 16.9%, whilst achieving a 0.4% operating margin and net operating cash flow of £1.6m.

Management have prepared detailed financial projections for the period to 31 July 2025. These projections are based on the Group's detailed annual business plan. Sensitivity analysis has been performed to model the impact of more adverse trends compared to those included in the financial projections in order to estimate the impact of severe but plausible downside risks.

The key sensitivity assumptions applied include:

·      A material slow-down in e-commerce sales;

·      A significant increase in goods sold.

Mitigating actions available to the Group were applied and the Board challenged the assumptions used.

The Board of Directors has completed a rigorous going concern assessment and taken the following actions to test or enhance the robustness of the Group's liquidity levels for the period to 31 July 2025. As part of its assessment, the Board has considered:

·      The cash flow forecasts and the revenue projections for the Group.

·      Reasonably possible changes in trading performance, including a severe yet plausible downside scenario and other extreme scenarios which are not plausible.

·      The Group's robust policy towards liquidity and cash flow management.

·      The Group's ability to successfully manage the principal risks outlined in this report.

·      The current cost of living crisis.

·      Inflation pressures facing the Group and its employees.

·      The impact of leaving CIH

In total, six stress tests were performed on the base case with varying severities and multiple combinations, under the severe yet plausible scenario the Group remains in a cash positive position, with no mitigating actions required. Only in the extreme, not plausible, scenario referenced above, is where mitigating action would be required. The mitigating response that would be necessary is short-term inventory level management, which would not be considered to have any long-term impacts on the Group's performance.

After reviewing the forecasts and risk assessments and making other enquiries, the Board formed the judgement at the time of approving the financial statements that there was a reasonable expectation that the Group had adequate resources to continue in operational existence for at least twelve months from the date of approval of these financial statements

2.3        Consolidation

The Group financial statements include those of the parent Company and its subsidiaries, drawn up to 31 March 2024. Subsidiaries are entities over which the Company obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-Group balances arising from transactions within the Group are eliminated.

At the time of the Company's admission to trading on the AIM market of the London Stock Exchange ("IPO"), the acquisition of the trading subsidiaries was achieved by way of share for share exchange and the difference between the par value of the shares issued and the fair value of the cost of investment was recorded as an addition to the merger reserve. Following impairment, the parent Company statement of financial position shows a merger reserve of £nil and an investment of £60,657,000.

On a Group basis, an accounting policy was adopted based on the predecessor method as this is not a business combination but rather a group re-organisation and thus falls outside the scope of IFRS 3. IFRS does not specifically state how group re-organisations are accounted for. Therefore, in accordance with IAS 8, the Directors have considered the accounting for group re-organisations using merger accounting principles, as set out in FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under this method, the financial statements of the parties to the combination are aggregated and presented as though the combining entities had always been part of the same group. The investment by Marks Electrical Group plc in Marks Electrical Limited was eliminated and the difference between the fair value and nominal value of the shares was adjusted through the merger reserve in the Group statement of financial position.

2.4        Revenue recognition

Product and services revenue

Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service.

The transfer of electrical appliances and consumer electronics sold by the Group coincides with the delivery of the item to the customer and the customer taking physical possession. The Group principally satisfies its performance obligations at a point in time and recognises revenue on delivery to the customer. This policy therefore applies to all products delivered to customers as well as services provided upon the day of delivery such as delivery fees, waste removal and installation of products.

Revenue is measured at the fair value of the consideration received, excluding sales taxes or duty. Revenue includes a provision for anticipated returns, which is based upon historical returns performance, the provision is held within trade and other receivables.

Amounts received in advance for electrical appliances sales are recorded as contract liabilities within trade and other payables (net customer advances) and revenue is recognised as the performance obligations are met.

Commission revenue

Commission revenue is revenue the Group has achieved through acting as an agent for a third party. The Group currently acts as an agent selling product protection plans for Domestic and General ("D&G").

The Group introduces the customer to D&G for the product protection plan, at which point the Group has met its performance obligation. The product protection plans are rolling agreements whereby the end customer pays a monthly fee for the plan. The Group receives commission for these plans annually in advance.

Revenue from commissions on product protection plans is accounted for based on the fair value of anticipated future commissions receivable throughout the estimated duration of the plan, plus the initial commission received. Recognition of revenue occurs upon the Group fulfilling its responsibilities to the customer at the time of sale. These recognised amounts are determined by factors such as the plan's duration, historical customer attrition rates as provided by D&G and are held as a contract asset on the balance sheet within trade and other receivables and discounted accordingly.

2.5        Estimate - Buying group rebates receivable

Estimates and assumptions are used to determine the carrying value of a long-term rebate receivable held at fair value

through statement of comprehensive income. The rebate receivable from Combined Independents (Holdings) Limited

("CIH") entitles the Group to a share of profit based on purchases made during any given period. The rebate is made up of

accumulated share of profits accrued since entering the buying group, less any distributions made during that time. Due to

the timing of CIH producing their annual results, the Group estimates the current period's profit share based on a percentage

of total purchases from CIH. The accumulated fund from CIH is seldom distributed; however, the Group left CIH on 31 March

2024, therefore the total accrued profits including the initial buy-in cost have become receivable in full. The calculation to

estimate the rebate receivable in the period is based on historical averages of rebates over total purchases. The estimate

made in the year ended 31 March 2023 was within 0.2% accuracy. Further details of this calculation are available in Note 15 of the Group's annual report and accounts.

3.      Earnings per share

3.1     Statutory earnings per share

(a)   Earnings

(b)   Number of shares

(c)    Earnings per share

3.2     Non-Statutory earnings per share

(a)   Earnings

(b)   Number of shares

(c)    Earnings per share

Adjusted earnings per share is a non-statutory measure the Group is using to provide comparability and ease of understanding to the users of the financial statements. This includes adjustments to the earnings and the number of shares.

Adjusted earnings exclude all non-underlying items, expenses relating to share-based payments, plus the add back of the buying group rebate receivable and costs related to the on-going implementation of the new Enterprise Resource Planning system.

The number of ordinary shares during the year ended 31 March 2024 have remained constant. At the year end, there was no dilutive effect on the Group's shares. The 85,183 shares that have been treated as potentially dilutive in the prior year, relate to employee share options. The options are dependent on contingent criteria being met and this tranche had met the criteria at the prior year end.

4.      Operating segments

IFRS 8 'Operating Segments' requires the Group to determine its operating segments based on information which is provided internally. Based on the internal reporting information and management structures within the Group, it has been determined that there is only one operating segment, being the Group, as the information reported includes operating results at a consolidated Group level only. There is also considered to be only one reporting segment, which is the Group, the results of which are shown in the consolidated statement of comprehensive income.

Management has determined that there is one operating and reporting segment based on the reports reviewed by senior management which is the chief operating decision-maker. Senior management is made up of Executive Directors and heads of department. Senior management is responsible for the strategic decision-making of the Group.

5.      Non-underlying costs

ERP system implementation costs

During the year, the Group began the implementation of a new ERP system. All costs associated with this implementation that will not be ongoing costs once the implementation is complete have been categorised as non-underlying costs. The non-underlying costs in relation to ERP in the year totalled £2,727,000 being made up of £2,496,000 consultancy fees, £76,000 in wages and salaries, £93,000 in technology costs and £62,000 in other legal and professional fees.

6.      Dividends

(1) The Board is recommending a final dividend of 0.66p per share (£692,664) that will be subject to final approval by shareholders at the 2024 AGM.

The 0.66p represents a typical two-third share of the annualised amount. The dividend has not been accrued into the consolidated statement of

financial position.

7.      Share capital and reserves

Share Capital

Share capital comprises the nominal value of the Company's shares of £0.01 each.

Share premium

The share premium reserve is the premium paid on the Company's £0.01 ordinary shares. During the year ended 31 March 2022, 4,545,454 shares were issued for £1.10 each, resulting in a net premium of £4,694,000 consisting of £4,954,000 premium paid less £260,000 placing costs. During the year, the Company sold treasury shares at a premium to the purchase price leading to a £121,000 increase in share premium.

Merger reserve

The merger reserve relates to the merger relief under section 612 of the Company's Act, on the acquisition of Marks Electrical Limited, a 100% owned subsidiary of the Group.

On 8 October 2021, Marks Electrical Group plc acquired the 100 ordinary shares (100% of the share capital) in Marks Electrical Limited, in return for the issue of 99,999,999 ordinary shares with a nominal value of £1.00 each, at a price of £1.60 each, bringing the total consideration to £160,000,000. This transaction falls under section 612 of the Companies Act and merger relief was applied. On consolidation under the predecessor method a merger reserve of £100,000,000 was recognised.

Treasury shares

Treasury reserve relates to shares acquired by the Group's employee benefit trust. At the year end the Group held 259,961 (FY23: 403,596) treasury shares.

Retained Earnings

Retained earnings are the accumulated profits and losses of the Group net of dividends and other adjustments.