Luceco plc

Good morning, everybody, and thank you for attending this meeting this morning. As you can see from our results, we had an extremely strong performance in the first half of this year. Revenue growth of more than 51%, admittedly, against a weak the first half of last year, which was impacted by the pandemic. But our revenue was also up by more than 30% against 2019, the first half, which was obviously unaffected by the pandemic. So an extremely strong result on the revenue line and operating profit has more than doubled. And at 17.7% is in the middle of our stated range. That compares to 12.6% last year and 8.7% in 2019. So an extremely strong result at the operating profit level also. And an exceptionally high return on capital at more than 40%. Some other metrics on this first slide. So new business wins. So these are contracts which will be ongoing of almost 30 million pounds. Superior... channel access, by which we mean our strength with the likes of Screwfix and Toolstation and those hybrid accounts with very strong online and digital platforms. These businesses have been the out performers over the pandemic period. And these are the businesses with whom we are extremely strong. So our market share gains have been as a result of these customers also gaining share. I'd also like to point to the fact that owning our own factory in the Far East has meant that our product availability has been stronger than most of our competitors over the period. In fact, in the first half, we increased the production of our factory by over 50% against which was an extremely strong result. And I think also resulted therefore in our market share gains. With that, I'll hand over to Matt.

Okay, thank you, John. And good morning, everyone. If we can just move on to slide five, I'll give you a quick review of the P&L. So revenue for the half came in at 108.2 million, as John said, That was 50% higher than last year, but obviously relatively easy to beat that COVID disrupted comparative. What was more pleasing is that it was nearly 31% higher than our H1 2019 pre-COVID comparative. Now, undeniably, the market has been good, but not that good. And so therefore, I think what that says is that this has been another half in which Lucico has outperformed the market. There are three reasons why we were able to deliver that, and John has just alluded to them. So firstly, we picked up a lot of new business, particularly with our most strategic customers in our most profitable channels. Secondly, we are overweight with those customers who themselves are growing well during COVID. Those two factors combined created quite strong demand for our products. And this is where our third advantage came in. We were able to meet that demand with good product availability when others in the industry suffered with supply chain disruption. So if you put it together, you could say that we just made the very best of what was undeniably a good market. Now, what made the market good, it was both the quantum of the growth that we saw relative to the rest of the UK economy in particular, but also the breadth of the growth. So undoubtedly, residential RMI construction has performed relatively well since the second half of 2020 when the UK emerged from its first lockdown. So that has been strong throughout. What we have also seen, though, is that the commercial and institutional side of construction, which drives our LED project business, did return to growth in the second quarter of 2021. So therefore, we enter the second half with a broader base to call upon in terms of market growth, which is encouraging. Turn into gross margin. So that came in at 38.5% for the period. That was slightly better than what we saw in the first half of last year. However, it was lower than our H2 2020 record performance of 40.8%, which is what we expected. The reason being that we have experienced quite significant inflationary headwinds. We do expect to be able to offset these with price increases over time. It will just take a bit of time for those price increases to come through. The good news is that in the meantime, we've been able to plug a good chunk of the gap, in fact, fully plug the gap with both manufacturing efficiency gains as well as good operating leverage on good sales growth. The inflationary headwinds will increase as we get into the second half. And so therefore, I think it's reasonable to expect that we will see some gross margin compression in that half. I'm confident that we can continue to manage that. And certainly, once we have emerged from this COVID-driven inflationary phase, there is really no change in the group's long-term gross margin expectations. Okay, looking at operating profit and operating margin, very pleasing to see that we managed to protect that margin, that bottom line margin, despite cost inflation. So the operating margin percentage came in at 17.7%, which is actually better than our prior year record, full year record of 17.0%. So strong operating leverage on good sales growth, and that offset the gross margin compression that we saw. Now, improved profitability has been a key part of the Lucico story over recent periods. Mostly that's come from gross margin. It is actually quite pleasing to see that we're still able to advance our profitability, even when progress on gross margin becomes that little bit harder for different reasons. Okay, turning on to the next slide. So performance versus the market. So as I've mentioned, recent results that we published have really focused upon, quite rightly, the improvements in profitability and cash generation from the group. I think these results highlight something slightly different as well, though, and that is they highlight the good long-term growth potential of this business. And this slide is really designed to illustrate that. You know, clearly we have grown pretty well during COVID, but it's important to stress that growth is in Luceco's DNA. We have been doing it for a long time, long before COVID came along. Where does that growth come from? It comes from two things. Firstly, we operate in attractive, growing and stably growing markets. And that's because we're mostly exposed to RMI construction. RMI construction for various different socioeconomic reasons is structurally GDP plus and it is the most stable form of construction activity, certainly more stable than new construction. So it's a good market to be involved in. And most certainly we have outperformed that market over time. So this slide is really designed to illustrate that. So if you look on the slide here, you see two charts. On the left-hand side, I'm showing you the growth of the business over the 18-year period from 2000 to 2018. And on the right-hand side, you basically got the growth in the COVID era, if you like. In each case, the graph is showing you UK GDP growth, UK construction RMI growth, and then the growth of the company. There are basically five conclusions to draw from this slide. The first is that the UK construction RMI market, which we are mostly exposed to, has offered really quite good growth through two economic cycles, 2000 to 2018. including inflation, it has averaged 4.1% per annum over that time period. Second conclusion is that we have grown twice as fast as that organically in the UK over the same time period. We have then supplemented that growth with acquisitions and growth overseas. The reason why we've outperformed in this way is because of various different factors. So firstly, high quality, low cost, agile vertically integrated manufacturing with a focus on china with a china advantage secondly uh really quite strong product development thirdly strong well-invested brands that we've been able to uh to expand into new product categories and finally probably most importantly an entrepreneurial can-do culture within the business that just finds a way to grow The third conclusion from these charts is that UK RMI construction has proved to be really quite resilient during times of economic hardship. If you look on the right-hand side, UK RMI construction has proved to be more resilient than the wider UK economy during COVID, for instance. Fourth conclusion is that you can clearly see on the right-hand side that our rate of market outperformance has doubled during COVID. So there's no doubt we've had a good COVID. However, final conclusion, you only have to look at the left-hand side to realize that we will continue to outperform the market even when COVID hopefully is in the rear view mirror. Okay, moving on to the next slide. So performance drivers. So I mentioned just a minute ago that our market outperformance has accelerated over the last two years. Why is this? There are three reasons. So firstly, new business wins. Secondly, superior channel access. And thirdly, superior product availability. And this slide really gives you some data on each of those. So top left, new business wins. These have been significant over the last two years. So they have total 27.5 million pounds worth of additional revenue. over a two year period. And it's not just any old 27.5 million, it's high quality business. So it's focused on wiring accessories and it just really demonstrates quite how competitive our offer is in that part of the business. It's focused or it's come mostly, not exclusively, but mostly from growing our share of wallet with existing strategic customers. It shows how much they have trusted us during COVID to deliver. And because of that, it really comes with relatively low additional costs to serve. So it's enhanced our profitability. Now, of course, we have lost some business as well. I mean, that is part of doing business. But the business that we've lost is of lower quality and lower margin than the business that we've won. Turning to superior channel access, John has mentioned that we are overweight with those customers that have grown, that continue to outperform the market. This is particularly true within the hybrid channel. The hybrid channel for us is really made up of mostly two customers, so Screwfix and Toolstation. Both of these two customers themselves have grown consistently faster than wider traditional electrical wholesale. And that gap has widened undoubtedly during COVID. This table really just illustrates the extent of their outperformance. Based on the numbers that these customers themselves have published, I estimate that they combined have grown on average by 16% in the COVID year in 2000. Now, of course, that's all of their sales, not just electrical products. They do sell other things. But I'm going to assume for this purpose that their total growth was consistent with their growth of electrical products. And I think for this purpose, that's a fair assumption to make. If you compare that growth to that of the wider electrical wholesale market, market research basically says that that market contracted by 16% in the same period. So therefore, our hybrid customers have outperformed the market in that year by 32 percentage points. Now, we estimate that they make up collectively 12% of the electrical wholesale market, However, if you look on the far right-hand side of that table, you can see they make up 32% of my Lucico UK sales. So in a nutshell, we are three times overweight with a group of customers that are growing 32% faster than the wider market. Clearly, that's an advantage to us. However, I stress that these customers have outperformed the market consistently long before the pandemic came along. And so there's no reason to suggest that this will be anything other than an advantage to us as we exit the pandemic. OK, superior product availability. There's two aspects to this. So firstly, manufacturing agility. We mentioned at last year end what a great job our team in China have done in terms of recovering production output after a quite significantly disrupted H1 2020, so COVID disrupted H1 2020, they've actually surpassed themselves in the first half of 2021. So new record manufacturing output, as John has mentioned, 50% higher than what we were able to get out of the same bricks and mortar pre-COVID. So a massive advantage to us. And then secondly, in terms of inventory buffer, it is taking a long time for us to get product from particularly our outsourced manufacturing partners. It is also taking roughly twice as long to get stuff on a boat from China into our selling markets. And that's true for everyone in the industry. So it's been important during this phase that we've been able to maintain customer service. We've responded to this challenge by increasing our inventory cover to make sure that we can guarantee products availability to the customer. Now, no CFO wants to necessarily see imagery increasing within their business. In this case, it's been the right thing to do. And I've got no doubt that we will be able to unwind this as supply chains hopefully return to normality. Okay, moving on to slide eight. So revenue by channel. We're going to spend a great deal of time on this. It's a very similar story to what you saw at the end of 2020. The strongest growth has come from the hybrid channel for the reasons I've just alluded to. But we also saw a strong recovery in professional wholesale this year. So they have increasingly found a way to work with COVID and avoided the kind of branch closures that punctuated 2020 for them. So good recovery in professional wholesale. Professional projects, which is in the bottom right-hand side there, It didn't quite get back to pre-COVID levels in the half, but it did return to growth in the second quarter. So we are quite well set up as we head into H2. Okay, moving on to slide nine, inflationary impact. So these are the same four charts I shared with you last year, and they represent the biggest inflationary drivers within our business. So the US dollar, RMB exchange rate, the price of copper, plastic, and a 40-foot sea container from China to the UK. Now, at year end, we were estimating that these drivers would add about 15 million pounds to our cost base. Our estimate has increased. So it's increased from 15 million to 20 million, as you can see at the bottom of the slide there. If you look at the charts, you can see the reasons for this. So top right, copper, you can see at year end, copper was trading at about 60,000 RMB per tonne. It has since increased to 70,000 RMB per tonne. So that's the first driver. Second driver is container rates. So if you look at year end on that chart, you can see that container rates had actually plateaued, if anything, slightly had decreased at around about $10,000 a container. Unfortunately, since then, they've scooted up to $16,000 a container. So not necessarily something that we expected and certainly something that adds cost to our business this year. Now, of the 20 million that we now expect to see, we estimate that 13 million will come through this year. Seven million will come through in later years as a consequence of different hedging arrangements that we have in place. In terms of the selling price plans that we have in place to offset this, 75% of those plans will be in place by Q4. The remaining 25% will come through in early 2022. There will be a slight lag between putting those plans in place and then seeing the benefit to invoicing. Now, one word of caution as you think about gross margin for the second half. Even if we fully pass on this cost inflation, we're into selling prices, the gross margin percentage will inevitably reduce. And the reason being, our gross profit will stay the same because it's fully protected, but the revenue will be higher. And to illustrate that, what we point out in the R&S is that if I had the full force of this cost inflation in the first half, and if I had fully passed that on to customers, the gross margin percentage would have been 36.2%. not 38.5%. So I think it's reasonable to expect some gross margin compression as we move into H2. And that compression does not mean to say that we are somehow not protecting our gross profit. Okay, moving on to the next slide. So slide 10, profitability bridge. Inflation did impact us in the first half. If you look in the second column from the left in that bridge, you can see we're calling out product cost inflation totaling 3 million. Over towards the right-hand side of that table, you can see that was supplemented by around about a million pounds worth of adverse FX movements as well. So you could say that between those two, we are seeing roughly 4 million of the total 20 million of cost inflation that we expect. We offset 2.6 million of that through a combination of selling price increases, as well as manufacturing efficiency gains. And we plug the remaining gap with good operating leverage on strong sales growth, as you can see in the middle of the table there. And as a consequence, we ended up with operating margin that was better than last year's full year. Now, if cost inflation was 4 million H1, and I expect 13 million for the year, I'm definitely communicating that inflation is going to increase in H2. In fact, it's going to, broadly speaking, double in magnitude as we get into H2. The good news is that price increase benefits will also accelerate. But as I've mentioned a second ago, even though we do that, it is reasonable to expect some gross margin compression. But operating leverage on sales growth should allow us to protect the operating margin in a similar way to what we've done in the first half. So it's reasonable to expect operating margin of about 17% in H2. Okay, very quickly on overheads. I'm not going to say a lot about this. Bottom line is that overheads, sorry, this is slide 11. So overheads remain pretty well controlled. We did see a 1.8 million pound increase in half yearly overheads from where they were at the second half of 2020, but there are good reasons for this. So we've invested in M&A activity and we certainly hope that will bear fruit in the fullness of time. We have accrued additional bonus that would be payable on this stronger group performance. And if you strip those two things out, underlying discretionary spend on things like entertainment and travel remains just as good a control as it was last year during COVID. Okay, moving on to slide 12, cash generation. So you'll recall that we increased our free cash flow target range up to between 10 and 15% at the end of last year. We did fall a little bit short of that in the first half of 2021. So we delivered a 4.6% free cash flow margin. There was one simple reason for that, and that is that we increased our investment in inventory to offset supply chain disruption, which was the right thing to do. And even though that was the right thing to do, we did our very best to self fund that. So we accelerated the collection of cash from our customers. On average now we are collecting cash nine days faster than we did last year, which is particularly impressive. But nevertheless, that still left us with an additional working capital investment to make. And that therefore resulted in a slightly increased net debt at the half year, but no increase in net debt leverage. So that remains at 0.5 times EBITDA. and provides at least 80 million pounds worth of headroom for investment in M&A. And we will gain access to that headroom in the second half when we complete a scheduled refinancing. Okay, final slide from me before I hand back to John. So balance sheet, which is slide 13. So nothing really extra to cover other than to highlight the increase in inventory And the reduction in receivables that I've just described, I would highlight, as John has done, the really quite sparkling return on capital at 42.5%. That's actually above our targeted range of 30% to 40%, despite the fact that we're having to carry more inventory. All I would say is that you can expect that to naturally reduce as hopefully the group executes its M&A strategy. With that, I will hand you back to John.

Thanks, Matt. Very comprehensive. I will just quickly run through our major product categories and then I will talk about other initiatives that the business has embarked on in the first half of this year. So wiring accessories, On page 15 of the presentation, an extremely strong performance in the first half, operating margins of near 30 percent, market share gains, as I said earlier, predominantly driven by the strength of the hybrid channel and our early partnership with those businesses who, as it happens, have performed very well over the pandemic. Circuit protection, I'd just like to highlight, we launched that in 2010. It's now over 30 million pounds annual sales. We grew entirely organically and give some indication of what we might be able to do later in the EV charger market. We have approximately 10% market share of UK circuit protection. All wiring accessories are made at our own factory in the Far East, and we've invested a lot in the manufacturing process. I will go on to talk about that later. And for the most part, that has offset the inflationary pressures that we've experienced in the period. Turning over the page, LED lighting, about a quarter of group revenue. Again, a big performance at the operating profit level. Our target is to get this over 10% in the near term. and it doubled against last year in the period. Having said that, the project sector was slower to recover from the pandemic shock and was quite weak at the beginning of the year, but is now much stronger. But margins here in the second half will be disproportionately impacted by the fact that these sort of large products are impacted relatively badly by the cost of the shipping, which, as Matt said, has increased by almost five times. So portable power, again, a quarter of group revenue, a strong performance in the retail channel, particularly within the DIY sheds. In fact, we've been out of stock for this product for most of the year because the demand has been so strong. I think a lot of people spending money on their gardens, on their homes generally, rather than spending it on holidays and the like, and the operating margin, as you can see, also improved. There are other activities for the business. We have made a major investment in the first half in our UK distribution center. We have implemented and executed a warehouse management system, which will result in a big improvement in our customer service levels. We feared a few years ago that we might have to move out of the Telford site because it was too small, which would have been a large capex bill. But we now think because of this extra efficiency gain that we won't have to move for the foreseeable future. We've also invested in the overall customer experience, particularly in the area of digital marketing, our social media strategy, our contractor training. We conducted a large survey of our customers to understand more how they felt about the brand and the products. And later on this year, we'll be launching new websites across all of our major brands. turning over to the slide 20. This slide is some examples of the kind of automation activities that we have been investing in at the factory in China. There are some larger ones on the top here and there are some smaller ones on the bottom. I think this year we will have invested over two million pounds in automation and in factory sort of process improvement the average payback of which is under two years so i think over time uh our competitive advantage um will have been um significantly enhanced by the fact that we own our own factory in china whereas most of our competitors don't So I think once the dust has settled on the shipping costs and on the raw materials, we'll actually be able to push our margin even higher than it was before. The following slide 21, some of our ESG progress, we will have offset by the year end all of our scope one, scope two, greenhouse gas emissions, and we'll come back to market with a plan for scope three. At the bottom of this slide, there's a bit of information on the EV charging opportunity We are the largest supplier into UK residential of electrical products. If we're able to get our market share of this new activity, it ought to be a very decent number. And we've got a whole new range of products that we'll be launching in the second half of this year. So moving on towards the outlook on slide 23, some of these indicators Matt's spoken about before, I mean, as he said, the market has been very strong and continues to be very strong, but I think some of the construction activities are being now hindered by a lack of sort of other raw materials that we read about in the press and our growth rate has definitely slowed down in the second half. As Matt said earlier, we have grown at 31% in the first half, but July, August, that has reduced to 12%. But the other indicators would indicate that the market does remain very strong. The outlet slide 24, we have reiterated our guidance at 39 million, but we think because of the inflationary pressures that we spoke about earlier, we are now unlikely to beat that. But we do believe that as that situation normalizes, the strong market should believe that, sorry, should result in us having a strong performance into next year as the margin will come back.

So with that, I can hand over to any questions.

Thank you.

If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Again, that's star one to ask a question. And we'll take our first question. It comes from Kevin Fogarty of Numus.

Good morning, guys. Thank you for the presentation. Just a couple for me. I guess just to clarify, in terms of the new business wins you flagged, how much of that is new customers or as opposed to sort of extending your kind of product portfolio with existing customers? Just as a point of clarification, And then when we think about product development, obviously you've got the EV charging capability sort of coming on stream. Just in terms of how that might be commercialized going forward, a bit more sort of granularity on that would be quite useful. And then finally, just in terms of M&A prospects, I just wondered if there was any sort of change in your priorities for the group where you'd see that change

uh that sort of part going in terms of in terms of what you'd like to do uh with m&a and just perhaps you know any views on what the end market is like for m&a currently um okay thanks kevin i mean i can take the first two matt and i'll let you do the um do the m&a um the new business wins were almost entirely with the existing customers um frankly we pretty much trade with every uk um UK possible customer. So there aren't really new customers for us to get in the UK, but we have extended our reach into large existing customers for example screw fix for example tool station um for example you know b and q um we have a very strong relationship with the kingfisher group generally we are in fact screwfix's largest supplier i think across all categories not only within electrical um and we have year on year managed to grow our penetration of their business um There are some new customers overseas. Our Spanish businesses were doing particularly well. Our Middle East business continues to grow. So there would be some wins in those areas. But for the most part, it's with the existing customers. The EV charger opportunity. I think all new homes with off-street parking will have an EV charger. We supply most of the major house builders with something. If we can supply our share of the major house builders with an EV charger, that's a big number just by itself. And I think most residential consumers will order these things via their local electrician who they use for other jobs. And those electricians will buy them from Screwfix or from electrical wholesalers. And the BG brand is very highly recognized and respected in that space. these EV chargers will plug into a consumer unit, which is a circuit protection device where we have a market share, as I said earlier, of about 10%. So 10% of the EV charging market would be a big number. And we would like in time to think that we can do more than that. So it's a big opportunity, not just in residential, also hotels, schools, hospitals. Workplace, I think nearly every workplace, you know, parking spot in time will have an EV charger attached to it. You know, lampposts, it actually fits in quite well with Kingfisher. Sort of bollards, I mean, they sell, you know, these kind of things as well. So it's a natural evolution for us. And there are obviously other people, you know, playing in this on this field, but I don't think any of the EV businesses have the kind of distribution and market access that we have got. They have EV brands, but they don't have a brand which is recognized by the wider contracting community. So I think we're very optimistic that we can really make a splash in this area. And Matt, M&A.

M&A, yeah. So Kevin, no change in our priorities. So just as a reminder, buying another wiring accessory brand across Europe would be extremely helpful. Actually, particularly if that came with an existing nearshoring manufacturing base, I think that's probably going to be something is going to be quite important to the to the group's long future a little bit of manufacturing based diversity is something that we need to i think we need to do not not you know pressing immediate but something that we need to do so if it came with an issue that would be great um secondly a high-end highly specified lighting brand within the uk market would bolt quite nicely onto onto what we've got. And then thirdly, using M&A to move into an adjacent professional product category. That would also be great. So those remain the sort of three priorities. I think the only additional bit would be the nearshoring angle. In terms of the market, well, we're involved in three processes at the moment. Two of those three are opportunities that we found. So not necessarily assets that were on the market. I think the market is better than where it was perhaps 12 months ago, that's for sure. There are more assets becoming available, but it still requires the person who wants to buy to go form the relationship with the person who doesn't necessarily yet want to sell. So they need to be dug out a little bit. But we're doing a good job of that. And we're quite happy with the three processes that we're involved with. Not to say that they're all going to convert. Obviously, you never know until you've done it. But I think we're confident with the progress that we've made.

Sure, okay, now that's helpful. And just sort of a quick follow-up, I guess, has the diversification of manufacturing base, has that sort of been highlighted, the need for that been highlighted because of the logistics issues and supply chain kind of conditions the world finds itself in post-COVID?

Yeah, I think that's fair. We also worry about a sort of general trend sort of change in sentiment towards China, what may happen with Taiwan, what is happening with Hong Kong and the Uyghurs and how that might affect consumer feelings towards manufacturing in China. And China's not as cheap as it was. I mean, that's happening year on year. Having said that, we are committed to maintaining our factory in China. We're investing in our factory in China. But I think for wiring accessories, actually the shipping costs is not such a big issue because the volume density is quite low relative to the value. I mean, a wall socket is quite a small thing. For other products, for Masterplug particularly, the volume density is quite low and the shipping cost is becoming very high. I mean, we don't expect shipping costs to remain at $15,000 a container forever. We don't, however, think they're going to go back to $2,000 anytime soon. You know, somewhere like Turkey, inside the customs union, you can get to it with a truck, you know, in about four days, is maybe an increasingly good idea. So we're looking at Eastern Europe, we're looking at Turkey. We might want to make an acquisition in order to get ourselves a footprint. But I think 90% reliance on China is becoming a questionable place to be.

Can I just add to that, John? I think that's absolutely right. I think we are a little unusual in as much as we have one manufacturing base serving the group. And we like that base. So we're going to continue to invest in that base. But I think there was always going to, regardless of your view on the geopolitical future of the world, I think there was always going to come a point at which the group would need to just diversify a little bit its manufacturing base. So there's an element of that as well.

Yeah, I think that's very fair. Yeah.

Sure.

Okay, understood. Okay, thanks for that. That's really good.

Our next question comes from Christian Heinricher of Liberum.

John, Matt, good morning. Two questions, if I may, both on the product portfolio, actually. Firstly, your release points to good growth in the Americas, notably within portable power products sold into the US DIY channel. Just interested in how we should think about your strategy here in what's clearly quite a sizable market. And then secondly, perhaps on your Nexus brand, which obviously is fairly early stage, but obviously interested in an update in terms of its expansion and whether there's been any difficulties given a more sluggish recovery in office fit-outs with professional projects still down versus 2019. Thank you.

Um, yeah, thanks. I mean, to be honest, our us portable power activity is quite opportunistic. Um, we have a distributor, uh, but actually the major growth this year has come from, has come from two sheds. Um, we service them out of Hong Kong. Um, one in particular has been very strong. Um, it's not fantastic margin. It's not really where I see the future of the business. Um, so I don't, you know, we, we actually closed our us operation in 2018. Um, we still have us customers. We have, as I say, a distributor, we have no boots on the ground. We don't have a, have an office or any salespeople in the region. So, um, If we win business, we supply and we're happy to do that, but it's not a strategic focus for the group. Commercial power is a strategic focus for the group. Actually, I think the transition to sort of hot desking, you know, smaller offices with people coming and going. not people having full-time offices, actually probably means this space is going to be quite busy, I would guess. We have, I'm afraid, had a few technical issues with the product, which has slightly delayed our launch. We're actually launching it now. I mean, literally now. We hope to have launched it in the first half of this year, but... we had to switch suppliers and some of the quality levels that we're trying to achieve in the cosmetics and the finishes of these very visible products. So we had to switch suppliers on a certain component and that actually held the thing up. We still very much believe that there's a good future for us here. It's very high margin. We think the market is not very well served. we think that we have developed a very strong offering. And hopefully, you know, this time next year, we can be reporting some good progress.

Very clear. Thank you, John. And I think, did you have another question?

Can I give that to Matt? It was just two. Just two, okay.

No, it's just the two on product portfolio, yeah.

Yeah, thank you. And our next question comes from Daniel Conleth of Liberum.

Hi, good morning, Matt. Good morning, John. Hope you're well. Just a question on the M&A. Obviously, spoken quite a bit, increasingly sort of vocal on M&A potential. I think you flagged 80 million headroom. And sort of in the release, talk about paying around about nine times EBITDA, which is works out roughly 15 to 20 million, 15 to 20% lift to earnings next year. That's, I guess my question is that on the quantum of M&A, sort of the sizing of potential deals really, should we think about sort of that

sort of over the next few years smaller bolt-ons um or is it sort of more near-term sort of larger opportunities just just really on the on the quantum i mean there's three we're looking at for mna yeah yeah i mean three we're looking at one's quite small one is sort of mid-sized by which i would say revenue of around 25 mil um and the other one is actually of a similar size um If we executed all three, we'd be spending 60, 70 million. So for larger deals, we'd have to maybe issue some equity, which we would only wanna do, for a very good deal. I mean, I don't think, I don't think Dan, we want to do, we want to do deals for the sake of it. You know, we want to do the right deal that fits well, has got all the right characteristics, high operating margin, highly defensible, um, particularly in a, in a inflationary period, or, you know, one has to make sure these businesses have pricing power. Um, but we would be disappointed not to get something done, you know, this year. Um, But we don't feel that this 80, 90 million of availability is burning a hole in our pocket just yet. So we do want to do the right deal. Having said that, you know, you're right. You know, we can enhance earnings by, you know, by getting on with it. So we're not going to hang around forever.

Understood. Very clear. Thanks very much.

We'll now hand back to the webcast for questions.

Thank you. Our first question from the webcast is, has the momentum of the hybrid channel, tool station, et cetera, changed at all on a two-year basis? Is it still 70% plus?

The hybrid channel... gained market share in the pandemic because the traditional electrical wholesale channel closed branches, didn't have a good online capability, didn't have a click and collect. I mean, there was a period when Screwfix, I think, was only operating on a click and collect basis. So they definitely gained share. How much of that share they hold on to when the rest of the world goes more back to normal remains to be seen. We don't expect our growth within that channel to remain at those elevated levels. But we do expect Screwfix to be the standout performer and to continue to grow their market share and you know, that automatically gives us a certain amount of organic growth. Likewise, ToolStation is a very successful, well-run business. But the sort of one-off acceleration in the move towards online sort of digital platforms will clearly decelerate in a more sort of normalized environment. Matt, do you want to add anything to that?

Yeah, I think that's right. And I think it's important to stress that we have not seen, even though the contractors obviously now have their choice of where they get their product from, we haven't seen a material reversal, haven't seen a particular slowdown. I think there has been some surveys of contractors on this. And I think when asked, contractors say they'd like the multi-channel online experience that they've had during covid and want to continue to to use it um and then you know finally i would say that you know we do have some visibility into the sales that these kind of customers are making of our products so it's quite a good leading indicator so we can sort of see epos etc um again no particular sign of a of a reversal

No, I mean, there's no sign of a reversal, but there is a slowdown in the rate of growth. But I think, you know, Screwfix are continuing to open stores. They are continuing to invest in their platform. They are continuing to, they're actually also opening stores all over continental Europe, which may be interesting as well. So my guess is that the Screwfix business will grow for the foreseeable. And as I say, as a large percentage of our revenue, that automatically gives us good organic growth. Because we are overweight with GUFIX relative to the rest of the market. So then taking market share is good for us.

We have no more further questions on the webcast. So I would like to hand back to the management team for any closing remarks.

Don't really have any other than to say thank you very much for attending. Matt, do you have any closing remarks?

No, not at all. Thank you to everyone for their time this morning.