Luceco plc

Thank you very much. And thank you very much, everybody for attending this webcast. As you can see from our smiles on page two, we're extremely happy with our results from last year. And on page three of the presentation, I'll take you through some of the highlights. Extremely strong financial performance. We grew our revenue by more than 30% and our operating profit also more than 30%. And we have more than doubled our profit over the last two years. Our business model has shown its extraordinary strength throughout the pandemic. Our vertical integration, owning our own factory in China was a huge help with the supply chain difficulties. We had a huge amount of inflation. The cost of raw materials and shipping has been particularly difficult, but we have managed to increase our selling prices and our operating margin actually improved over the previous year. We have also grown our business via acquisition. As you can see, we made an excellent acquisition of the DW Windsor lighting business. And only this morning we have announced a further acquisition of a small EV charging business called Sync EV. We've also entered the commercial power market with a whole new range of products that we have built organically. And we've improved a lot on our ESG focus. We were carbon neutral last year, and now 25% of our products are classified as extremely low carbon products. And with that, I will hand over to Matt, who will take you through the results.

Okay. Thank you, John. Morning, everybody. Let me just... Start by taking you through some of the detail of the financial performance for the year. So I wanted to pull out some of the key highlights first on slide five. So obviously there's really little doubt that 2021 was an outstanding year for the group. So revenue grew, as John said, by 30% to just over 228 million. That was the biggest increase in revenue that this group has ever produced. Adjusted operating profit also grew. by 30% to 39 million. And of course, that means that we did a great job of converting that healthy top line progress into bottom nine earnings. Furthermore, despite almost unprecedented inflation, we succeeded in expanding our adjusted operating margin by 10 basis points to 17.1%. I'll explain more about how we did that in a moment. And of course, that increase in profit resulted in a big increase in adjusted EPS to 20.2p, which naturally we're delighted to share with investors via a dividend of 8.1p, which was 31% higher than the year before. Okay, moving on to the income statement on slide six. Here I'll give you some more color behind this outstanding performance. So the first thing to say is obviously we were not alone or we are not alone in reporting strong revenue growth for 2021 against what is typically a weak COVID impacted comparative for most other businesses. I think what sets our performance apart though is the progress that we've made against our strong pre-COVID 2019 comparative. our revenue is now nearly 33 percent higher than it was before the pandemic and nearly all of that growth has come organically now some of it has undoubtedly come from supportive conditions in the uk rmi construction market but there's also little doubt that we have outperformed that market and i will explain how we have done that in a moment There's also no doubt that the group has benefited from a broader base of growth from its increasingly diversified products and customer base. So, for instance, as UK residential RMI markets inevitably cooled a bit as we got into the second half, after a very buoyant start to the year, we saw our non-residential and overseas businesses come through. with accelerated top line growth. And we hope to make this a group over time and increasingly diversified and therefore resilient group as time goes by. Gross margin inevitably retreated slightly as expected to 37.1%. And that was in the face of industry wide cost input cost inflation. However, we are satisfied with our selling price resetting plan. which is now fully implemented and through which we expect to pass on that inflation in full. In terms of our long-term outlook on gross margin, clearly there are inflationary pressures across the economy, but I would just say that this business has achieved 40% gross margin before the recent COVID-driven inflationary wave, and therefore we remain confident that we can return to those kind of levels over time. Turning to overheads, these remained under tight control. So to illustrate both the overhead control and natural operating leverage in this business, we state here that in the last two years, we have needed only 1.4 million of extra overhead to support 56 million pounds of extra sales. Indeed, all of that extra overhead actually relates to acquisitions, meaning that we are now using less overhead to support an organic business that is 30% bigger than it was before COVID. And that strong leverage of overheads basically turned gross margin compression into operating margin expansion to 17.1%. Expanding our profitability in these conditions, I believe, speaks to both the power of our brands as well as the quality of our business model. And then finally on this page, we achieved another year of low taxes. So the natural tax rate for this group, given the jurisdictions that we operate in, should be about 19%. We've kept it below 17% for the last two years, and that has been achieved through sensible tax planning overseas. Okay, moving on to slide seven. I mentioned a moment ago that we had outperformed the wider construction market. So how did we achieve that? Well, the building blocks of it were very similar to those that we set out at the time of our half year presentation. So firstly, we operate in attractive markets that are focused on the RMI side of construction. And since the year 2000, that RMI construction market has grown in the UK, has grown faster than the wider UK economy. And it's also grown consistently. So it's grown in 18 of the last 21 years. And we estimate that these attractive RMI construction markets, both in terms of DIY and professional, drive 80% of our top line. As you can see in the top right, these markets have also performed well during COVID over the last two years. So better than the wider UK economy. And you could also see that we have performed better than the wider RMI market. So how have we achieved that performance? Well, in all honesty, we do have a greater share than our competition of the DIY and small contractor end of the RMI spectrum. And it's that part of the RMI market that has been most buoyant as people have spent more money on their homes during COVID. But that's really only part of the story. As you can see in the bottom left, there's been a lot of self-help as well. So we've picked up 27.5 million pounds of new business wins, and it's been very profitable business at that. We've used our vertically integrated model to add inventory to combat supply chain disruption when some competitors found their warehouses empty. And investment in our fulfillment capability meant that we got more of our imagery into the hands of the customer on time, which has been particularly valuable during this disrupted supply chain period. Now, clearly, there's a good chance that our markets will not always be as buoyant as they have been in 2021. But the good news is that we have the proven ability to outperform. As you can see in the bottom right, we now have various ways of doing this. So we started life as a UK-based, consumer-focused cable reel manufacturer. Over time, what we have become is an international, increasingly contractor-oriented manufacturer of various electrical products. Our products can certainly still be found in the home. But they can also be found in the office, warehouse, or factory, and of course, increasingly also on the street. So we are now an increasingly diversified business, and you can see the benefits of that in the second half of 2021, when all of our sales journals delivered healthy growth. Okay, turning on to slide eight, you can also see the benefits of that diversity within our performance by product segment. So all segments deliver top line and bottom line growth, and we now enjoy healthy positions within each product category, aided by the share we have taken organically during COVID, as well as sensible bolt on M&A to expand into adjacent product categories, such as the recent acquisition of DW Windsor. Okay, moving on to slide nine, I'm sure many of you are keen to get an update from us on inflation. We have closely monitored the cost of this industry-wide issue during the year, and I've always transparently shared my latest thoughts on this with you. So just by way of update, at current prices, we continue to believe that input cost inflation across currency, freight and commodities will cost us £25 million on an annualised basis in total. Roughly half of that arose in 2021, with the rest expected in later years. And we expect that our selling price increases already agreed with our customers will offset this amount in full. albeit with a slight time lag. The inflationary backdrop is, of course, quite fluid at the moment, so we continue to monitor this situation closely and we will respond accordingly. The time lag that I referenced temporarily compressed our gross margin in 2021, but this should begin to reverse from 2022 onwards. And I think the final point to make on this slide is that the fact that we have found a home for £25 million worth of cost inflation, which is greater in quantum than the entire profit made by the company two years ago, I think speaks to both the strength of our brands, as well as how far we have come as a business in managing inflationary impacts. Okay, moving on to slide 10, obviously the pass-through of inflation had a significant impact on our profit progression. So in summary, we passed through 7 million pounds of the 13.6 million pounds of impact cost inflation arising in the year, and that therefore left a 6.6 million pound temporary profit gap. This gap will close from next year onwards. We were able to more than close this profit gap, though, with strong operational execution. So continued investment in our production facility delivered a further 1.9 million pounds of manufacturing efficiency gains. We also put a lot more volume through our existing sales and supply chain infrastructure, meaning high conversion of strong sales growth into profit. And this allowed us to protect, in fact, indeed, slightly expand our overall profit margin. OK, moving on to slide 11, you've seen me share this slide with you before, so it shows the latest trends in our four largest inflationary drivers within the business. In terms of latest trends, we did, in fact, see more docile inflationary conditions at the end of 2021 and the start of 2022, of course, only until the most recent terrible events in Ukraine. We do expect to see further easing in the sea container rate, notwithstanding the potential for some COVID-driven disruption, port disruption in China. However, we could also see further increases in commodities that are linked to energy, such as plastic and copper, which, of course, we are ready to react to. Okay, moving on to slide 12. This just gives you a bit more color on the operating leverage that we have achieved over the last two years. So the headline being that we have deployed no extra overheads outside of acquisitions to support the 52.5 million pounds of organic sales growth. So how have we achieved that? Well, mostly by maximizing the returns from our core businesses, particularly in the UK. So firstly, we've maximized our sales of existing products to existing customers through the consistent execution of our advantage business model, an obvious but sometimes overlooked and very profitable source of growth. We've leveraged our existing R&D overheads to develop adjacent products to sell to our existing customers. And we've also leveraged our existing highly experienced sales teams as well as our hard-won reputation to win over new customers. And this sharp focus on getting the very most from our existing overheads before adding new ones has led us to exit the German market and close our operations in France in the year as shown at the bottom of the slide. Our aim is to gradually enrich the quality of our business as we grow by focusing on those markets where we have the greatest advantage. Okay, moving on to slide 13, covering cash and debt. Cash was very much a year of two halves. So as you can see in the top left, we had to add 12 million pounds of extra inventory in H1. This inevitably slightly limited our free cash flow margin in that period. As you can see in the bottom left, we only did this to ensure continued customer service when supplier lead times lengthened due to well-publicized supply chain disruption. We were pleased to be able to fund at least some of this with quicker cash collection from customers as shown. We will unwind the imagery position as and when supply and lead time shorten. By the second half, the situation was normalizing and we got back into the 10 to 15% free cash flow margin range that you would associate with us. But this did not prevent us from maintaining a healthy capital structure Net debt leverage, which we now define excluding IFRS 16 to align with our new bank deal, ended the year at only 0.7 times EBITDA, despite £18 million spent on acquisitions, and that therefore left £84 million in additional borrowing capacity for M&A, some of which we have invested in the acquisition of Sync EV today. Okay, moving on to the balance sheet slide 14, there's not much more to say here other than to point out that our ROI slightly improved to 36.4% in the middle of our target range of 30 to 40%. This is almost certainly the best in our sector and amongst the best I would say in any sector and underlines how seriously we take the management of money that others have entrusted to us. Okay, moving on to slide 15, performance versus targets. We pride ourselves on the consistent delivery of compelling financial performance. We put our long-term performance expectations into the public domain for the first time in 2019. And the fact that we have largely met or surpassed these targets since then, despite COVID, highlights the underlying quality of this business. We originally stated our targets as performance ranges to be maintained through the economic cycle. This could imply some sort of limits on our long-term ambition, which I can assure you does not exist within the business. So we have chosen to restate our targets as minimum performance expectations, giving us the confidence to aim high and investors confidence in our resilience. Okay, final slide from me, slide 16. There is no question that we have made great strides over the last two years. It does perhaps beg the question in some people's minds as to whether this can be sustained. I think the answer to this lies on this chart. So the answer is that this group has a long track record both before and after listing on the stock exchange of sustained profitable market outperformance. Our culture, our business model and our balance sheets are ideal for it. I look forward to hopefully rescaling this chart to accommodate further market outperformance in future years. And with that, I'll hand you back to John to talk you through the strategy, business review and outlook.

John, I think you're on mute.