Luceco plc

Okay, good morning everybody and welcome to the Lusico H1 2024 results presentation. Highlights in what was a difficult period as far as market demand, we think we've executed well. Our revenue up just over 8% of which 3.6% on a light for light organic basis in a market which has declined by approximately 3%. This resulted in an operating profit up almost 17% and an operating margin almost 1% higher. Our free cash flow was also strong, leaving our net debt ratio just over one times. EPS was up over 12%, and our dividend also up slightly. Some highlights I will pick up. Some other highlights I can pick up here. Operating profit, as I say, up 16% to 12.6 million. And historically, we've always been a business which has made a higher operating margin in the second half of the year. We are therefore on track. to perform for the full year in line with market expectations. Our residential EV charging business is also growing strongly and we're extremely excited about the launch of our first EV chargers for commercial applications, some images of which are on the right-hand side here, and also our home integrated management system, which integrates batteries with EV chargers and solar systems and heating controls, and I will speak more about this later. The acquisition of D-Line which occurred earlier this year has gone extremely well and the integration of the business is well on track. And with that, I shall hand over to Will to go through the financial review.

Thank you, John. And good morning, everybody. Let me start by pulling out some of the key themes within our numbers. Overall revenue at 109.6 million pounds grew 8.4% or on a light for light basis, an increase of 3.6%. A good achievement against the backdrop of the challenging market, especially the pleasing growth of 10% we achieved in the residential RMI sector, given that market is expected to record another year of decline in 2024, though a more modest decline than we saw in 2023. As expected, D-Line contributed just under £6 million to the revenue in the four months that it has now been in the Group. Our infrastructure businesses of Kingfisher Lighting and DW Windsor are having a more difficult time in 2024. These are both projects operations and so can be vulnerable to the flow of construction projects which slowed coming into 2024. Our success in the residential space is more than making up for this much smaller element of the group. Our gross margin for the half was 41%. Our raw material bill, with the exception of copper, reduced and factory efficiency improved. Production volumes were better at our manufacturing facility and, as a consequence, overhead recovery levels improved. In addition, the new leadership there has taken some cost reduction activities that are further helping with the facility's competitiveness. This has compensated so far for the increases in shipping costs caused by vessels travelling around the south of Africa rather than through the Red Sea. I expect gross margins to ease a little from this high level as we head through the second half We have some freight headwinds and although our sales pattern is usually second half weighted, product mix is a little less favorable. Operating costs grew again in 2024, though by a slower rate than the prior year. Pleasing to again report an improvement in operating margin now up to 11.5%, which is a creditable performance at a low point in the cycle. We make over 80% of our profits in the UK, so the increase in the UK corporation tax rate to 25% has affected us. I've mentioned previously that as a consequence we expected our effective tax rate to rise. It now sits at approximately 21.5%. Even with this, we're pleased to report a 14% improvement in first half earnings per share. Our board has consequently increased the interim dividend to 1.7p, an increase of 6.3%. This slide provides a bit more detail on drivers of our revenue performance. The most significant organic improvements to our revenue for this half compared to the first half of 2023 occurred in our retail space. The team has delivered some positive product range extensions, which are helping to mitigate the impact of the overall sluggish demand in the DIY space. And our portable power offering is enjoying some better volumes this half year. Internal LED has continued to make progress, though not quite enough to offset the reduction in our external LED businesses I mentioned earlier. EV charger sales are accelerating, especially more recently where growth over this summer has been strong. I've said before that it's difficult for us to be precise about our exposure to new house building because we don't have perfect sight of our distributors and customers. We do, though, estimate that our overall exposure to new house building is under £15 million of sales in a full year. We look forward to when this sector returns to growth. Acquisitions and closures shows the near six million revenue generated by our new D-Line business in the four months since it was acquired. The acquisition is integrating well and we are encouraged by the opportunities to utilise our JX facility and its local supply partners as part of this programme. The adverse currency noted here is a consequence of the FOB sales we make in US dollars. This slide shows the key drivers to our adjusted operating profit performance. Pleasing progress in organic adjusted operating profit this half. We're seeing efficiencies coming through the factory in Jiaxing, and there has been good progress on costs for some sourced products, as well as assistance from some currency tailwinds. Copper and sea freight costs have been challenging this half. Copper began to rise quite rapidly at the end of the first quarter, peaking in the second half of May before settling around 10% up since the start of the year. We have some forward cover in place, which offers a level of short-term protection from volatility in copper market. The sea freight capacity issues have been well reported. Our experience has been nothing like what we saw during and shortly after the pandemic, but we are keeping a close eye on the situation. D-Line's life within the Luceco Group has seen a good start and we look forward to the further improving contribution it will make as we jointly deliver on the synergies. Looking more deeply into our P&L comparison back to 2023 shows the continuing progress in gross margin. It's pleasing to see our gross margins now into the 40s%. delivered through raw material cost reduction efficiencies at the Jiaxing manufacturing facility, now able to operate at sensible volume levels and so make good use of the automation equipment that has been installed there over recent times. This improvement was in part countered by the increasing cost of living, especially in the UK. We mentioned last year that coming into 2023, The median pay rise for the UK was 7.5%, with the lower earners gaining over 10%. We increased salaries by less than this coming into 2024, and UK inflation has since eased materially. We have decided to make select investments in certain overhead areas which we believe will improve the business going forward. These include marketing and a more focused EV charger team to pursue opportunities there. These have and will add cost in 2024 but should provide revenue benefit in the future. Luceco has historically enjoyed higher sales in H2 than in H1. We expect this year to follow the normal pattern, but this year because of freight and copper headwinds, it may not deliver a stronger bottom line margin though. Looking into our segment shows the progress in our wiring accessories segment, which now includes D-line and in portable power. Much of our wiring accessories products are made in our in-house facility in China, and so better utilisation there can be very helpful. Portable Power enjoyed a strong improvement compared with the first half of 2023. As you know, this segment includes our EV charger range. We have an enviable product offering in this space now and are enjoying some good growth. I mentioned earlier that we've also invested in the team to support this. LED splits into two camps. Our Luceco branded internal LED sales are continuing to enjoy good momentum. As I mentioned earlier, our external realm LED operations, which are more susceptible to project timing, have had a more difficult first half of 2024. We have taken some self-help cost reduction actions here, and we remain optimistic that project order pipelines will improve. Finishing up on the numbers, this slide summarises our working capital cash flow and debt performance. Lusico's working capital profile reflects the seasonal nature of some of the business. The bank net debt and the adjusted free cash flow charts here show the extent of this where working capital sits around £10 million higher in the middle of the year than it is at the year end. This year the position also reflects the greater level of inventory in transit as sea journeys avoid the Red Sea. At the end of June we had in the region of £6 million additional stock in transit. At this stage our accounts payable picks up some of this excess, though our payment terms mean I expect us to be carrying more working capital at the end of the year if the Red Sea situation continues. Luceco is a manufacturing and distribution business, and so product availability is highly important for our continuing success. With the exception of 2021, which was affected by the pandemic, Luceco has typically experienced working capital cash outflows during the first half of each year and an inflow in H2. 2024 began as a typical year in this respect, however, the sea freight position means I expect our usual second half working capital cash inflow to start later this year, as I expect to see the higher inventory levels continuing into Q4. The bank debt position here at June of just under 40 million pounds sits comfortably within our 80 million borrowing facilities. With that, I'll hand you back to John to talk through our business review and outlook. Thank you, Will.

Yeah, so as I said earlier, a difficult market in terms of underlying demand. As you can see in the graph at the top left, the Barclay car consumer spend on DIY products has been very weak. It has improved a little bit over the summer, but you can see well down from where it was from the beginning of last year. We would, however, point to the improving trend of UK residential property transactions the graph on the right hand side, you can see that really from the beginning of this year, the trend has started to improve. And we would think of that as a leading indicator for the RMI market in which we are heavily exposed. But overall, as you can see from the graph in the bottom left, the table rather, we think our market's declined by approximately 3%. Our organic growth, therefore, of 3.6%, points to excellent execution in very difficult markets. harnessing power sustainably in everyday life. That is what at Luceco we are doing. And innovation, as you know, has always been at the heart of how we have successfully grown this business over many years. There is no doubt that in the pandemic, our NPD activity was impacted because our engineers were not able to freely travel. And since the easing of those restrictions, we can definitely see an improvement in the overall activity of NPD in our business. I'm more excited now by the current level of activity, especially in the energy transition space than I have been for many years. As mentioned, we are imminently launching our first commercially focused EV chargers. So far, we've only been concentrating on the residential segment. Expansion of the EV charger range for international markets and also the home energy management system, which I will talk a bit more about in a minute. as well as ongoing activities to improve our core offering. So we are a big believer in local energy generation and management in the residential environment. So we are launching a home energy management system that will integrate with our EV chargers also with our batteries, which some images of them here, and hot water controllers in the residential space. The graph on the left-hand side, you can see the forecast and the enormous growth in this market, both in terms of EV installs, but also from the solar PV space. So currently the payback on residential solar is about five to ten years, depending on various different aspects. However, if you add batteries, you can basically halve that. And even where you don't have a solar PV array, having a battery enables you to buy power overnight when it is cheap and use it throughout the day when it is much more expensive. So the payback on a battery on its own, even without solar PV, is about five years now. So we forecast this to be an enormous market in the future. batteries is just one example of where we believe we can benefit from the ongoing upgrade to the residential electrical systems which is required with the transition away from hydrocarbons in the transport and heating arenas. For example, a heat pump installation will require significant electrical works, such as a new consumer unit, et cetera, as does an EV charger or an EV install. And we will be able to offer all of the products that you use, other than the solar panels themselves. On top of that, there is an ongoing requirement to invest in the UK housing stock with approximately 4 million homes below the decent home standard. And the energy transition, as we know, is going to require a huge capital expenditure, some of which will be happening in the homes itself. All of this leads us to believe that our through the cycle growth of our markets should be significantly ahead of the overall rate of GDP growth. And at the bottom here, you can see some of the markets in which our products are currently sold. some other information on other ongoing investment activities in the business. In January we invested 2.5 million in the purchase of a new warehouse facility for our Kingfisher lighting business to enable it to achieve its next leg of significant growth. The acquisition of D-Line has proved highly successful and the synergies are ahead of what we were originally targeting. These activities together with ongoing investment in our people will continue to sustain our competitive advantage. And this is an illustration of how our products fit together on the pathway to net zero. Our capital allocation policy is unchanged. And with our relatively unlevered balance sheet, we are actively pursuing further M&A activity on top of the D-line acquisition that we closed earlier this year. And finally, to the outlook slide, as I said at the beginning, the business continues to perform in line with expectations. We believe that we've executed well in an extremely difficult market, and we believe that as the market improves, so will our performance. And we think we are at the bottom of the cycle, or if not at the bottom, we are very close to the bottom. Our share of the residential EV charger business has grown since the acquisition of Sync EV just over two years ago. The revenue of that business has doubled in that period, and we are well placed to take advantage of this highly growing segment. And as I say, we are extremely excited about the imminent launch of our integrated residential batteries, as well as EV chargers for commercial applications. And we're also excited about how further M&A could enhance the group's earnings. And with that, I will take any questions. Yes.