Marks Electrical Group PLC

Welcome to not so sunny Leicester. A bit overcast here today. So thanks for taking the time to come and listen to us. Hopefully you'll start buying into our story, which is, you know, we're doing exceptionally well. So we'll just run through some key highlights to start off with. So if we look on there, we can see 15% growth year on year. I'll just run through the numbers pretty quickly and then we'll put some colour on the numbers as we go through the presentation. So 15% growth, which is okay. We're relatively happy with that. Considering the market was backwards almost 15%, so we've done all right. Sales, 43 million. We've finished with a net cash position of just shy of 8 million, which is very good. Our margin wasn't quite where we wanted it to be, but that will, Josh, will put some... flavour on that. We're expecting to get to the reported number by the end of the year. We paid an interim dividend in August. So it's a maiden dividend that we paid. So we're still finished with the cash position being very strong. Our Trustpilot rating is 4.8 still. We're trying to obviously improve that and trying to strive for 4.9. It's very, very difficult to actually even maintaining that. And that's all driven through our free next day delivery, seven days a week. And I must add, it is still free. We've looked at it and our competition are all signed to charge. We felt it's a little bit immoral sort of bolting on a delivery charge when a company can run profitably without sort of piling more misery on the people who are, for example, buying a £200 or £300 product. You then stick £20, £30 on top of that. It's thought, excuse me, it seems unfair. So we decided we're not going to do that. Excuse me. Houston, we have a problem. Phone ringing. And we've got over 35,000 SKUs in stock, or boxes in stock. In fact, almost 40,000 items in stock. 4,000 SKUs plus in stock. That's different models. This time last year, we only had 3,500 SKUs in stock. So we've improved the breadth of stockholding there considerably, which has helped drive our sales. We've got just over 200 employees now and over 50 brands. Next, please, Hannah. Here you can see the market. You can see how it's been contracting through HY23 compared to HY22. So the MDA market has shrunk somewhat. So we're still doing okay. The first quarter was very, very difficult, but we certainly pulled it back around. I'll explain to you the reasons behind that later in the presentation. You can see the market share overall. has grown from 1.6 to 2.1%. That's in the MBA market. And our online share has grown from 2.6 to 3.9%. So we're making headway. Our aim is to get to 10% of the overall market, sort of ASAP. That's what we want to do, strive for that. The consumer electronics, you can see that's down as well. We're making headway there, albeit we are still such a minute player in this. in this sector. So we were at 0.1%. We're now at 0.3%. So we're growing it. Plenty of work to do there, but it's great, exciting what we're doing. We're making inroads there, which is great. We've got some great deals set up for Black Friday as well, particularly on TV. Next, please, Anna. Josh will fire through the financials.

So as Mark mentioned, we were up 15.1% in the first half, and the online market for MDA, which is our primary market, was down over 15%. That drove to 43 million, and as Mark mentioned, we had what we call a resilient margin of 6.3% EBITDA, down from 8.1% in the prior year. and I'll come on to that a little bit more in the following slides. We maintained our overheads at 6.2%, which we were happy with, and that's within our targeted range of 5.5 to 6.5, and we should be able to improve that as a percentage of sales even more in the second half. We had a strong operating cash flow, and as Mark mentioned, a closing net cash position of 7.7 million, which is up significantly on the prior year, and our return on capital employed was 49%, which is down slightly versus the prior year, but that's largely driven by the increase in the cash asset balance. Next one, please. So having a look at the P&L in a little bit more detail, you can see here the gross margin was 18.1%. That was down 110 basis points versus the prior year at 19.2. This was largely driven by some challenges in the first quarter where we saw some severe competitor discounting and we had to follow suit. So that really impacted the gross margin in the first half. Our gross margin is post-delivery costs, so the other cost challenges that we saw were the fuel costs increased significantly year on year, and we had the national insurance increase of 1.25% on the driver's wages. Moving into the second half, we do believe that the gross margin can improve. We haven't run any discount sales recently. We didn't run one discount sale at all in October and we saw an improved gross margin. And we expect that to continue in the second half as the competitive discounting seems to have abated somewhat. And we're seeing gross margin come through at higher levels currently. On advertising and marketing, this was a strategic decision to spend a little bit more on marketing in the first half to make sure that people had heard of us before the peak trading period, which is now. And it definitely seems to have worked because we're seeing some strong sales growth now. And we'll come on to it later, but we've improved our brand awareness from 7% at the end of last year. to 10% now. So our brand awareness and our marketing has been working 5.6% of sales, so 50 bits versus the prior year. But we're looking to bring that down in the second half and land around the targeted 5% of sales, which we're aiming for, for the full year. On the overhead side, as mentioned, we managed to keep that broadly flat at 6.2% of sales. Worth noting that in the 6.1% of the previous year, there was zero PLC costs because we hadn't IPO'd at that point. We now obviously have. a fully fledged board and brokers and LSE fees and other types of PLC costs, which we've managed to absorb in that overhead base and keep it at 6.2% of sales. Definitely lots of opportunity as the business grows to get some really good operating leverage on the overhead base as it's largely fixed. But we're looking in the second half to see some good operating leverage come through on that base and improve that to below 6% of sales in the second half to again be around 6% for the full year. So that results in the margin of 6.3%. And as Mark mentioned, we've also declared an interim dividend of 0.3p, which will be payable in December for holders on the register on the 18th of November. Go to the next slide, please. Just a quick reiteration of what I mentioned on the previous slide. So the bridge from 8.1% to 6.3%, 110 basis points in the price discounting that we experienced, that impact in the gross product margin and the additional fuel costs, 50 bits more on advertising, which was a strategic decision. And then the 50 bits of PLC costs offset a little bit with 30 basis points of operational leverage on that overhead base, landing us at 6.3. In the second half, the margin roughly needs to be at about 9% in the second half to get us for our 8% consensus overall target for the full year. And we believe that that is achievable based on some of the things that I talked about in the previous slide. So we're feeling comfortable at the moment in terms of our full year targets. Finally, on the balance sheet and cash generation, we saw some really strong cash conversion in the first half. You can see that we've got an increase in payables here as we were able to extend credit lines with our suppliers as the business is becoming bigger and more healthy, the credit is increasing and the suppliers are happy to increase the credit lines. So that led to an inflow of 3.3 million and we managed to keep inventories broadly flat. We closed March with 14 million in inventory and we closed September with around 14 million in inventory. So very little increase, but we managed to improve the inventory turn during the period as well. CAPEX was very light in the first half, just £87,000. We expect the CAPEX to be H2 weighted, where we will probably spend in the region of £800,000 to £900,000. We've got the delivery of 10 new vehicles to help with our installation offering, which Mark will come on to shortly. We will pay for those in cash, given the prevailing interest rates. And we've also got some further site changes to our property just to improve for operational capacity. So we expect to finish the year with a closing net cash position in the range of about 9 million, which interestingly puts us about one year ahead of analyst forecasts at the point of IPO in terms of our cash position. So that's what we're aiming for. Next one, please.

Thanks, Josh. Just one point I'd like to make, by the way, regarding our H1 is that Q1, so April, May and June were really poor. They're always a poor quarter, but it was particularly poor. And that's because we made a couple of errors. We bought a lot of product, a lot of tumble dries in particular. We ordered them in December and January when tumble dry sales were flying. And we still should have continued to fly, but they were actually delayed. We didn't get, it normally takes about four weeks for delivery. And these ended up appearing in March and April. And there was a lot of containers of this stock. With hindsight, we should have... cancelled the order and said no you're too late on delivery we're not taking them but they were a really good price we thought no let's take them in then of course we had the heat wave through the summer so we've got all these tumble dries in stock you couldn't give them away for free to be perfectly honest so it was a bit of a mistake but you never stop learning so that blockaded the warehouse and bringing in a lot of the correct lines of stock So that was a bit of an error. But anyway, we needed to press the reset button and quickly take some action. The problem we got was in Q1 was that we got this massive competitive marketplace for bidding on Google. So, I mean, the Google bill was almost double what it was in October, this October, which just shows the strength of competition on bidding. It's caused so few sales. And everybody was chasing a few orders. So it made it difficult to queue one. We turned it round. We took some money away from Google, spent more on our advertising, our brand awareness. Like Josh was saying, we've taken that to just shy of 10%. We didn't actually quite believe we'd got it up to 10%, but we conducted another poll in England. It came out 11%. So we were rather pleased with that, to say the least. So queue two was very strong. Our exit rate in q2 is very very good indeed um so we're very pleased with that and then it's continued through into october and november we've not had a sale like josh was saying since september as in a site-wide sale we've still got lots of offers on um and we're particularly competitive in the market. Our pricing software tracks up the whole market to make sure we're always on the money, but we're not offering any discounts or wide sales, which helps boost the margin. Like Josh was saying, we're expecting to land on the numbers that are out there, up to 8%. Obviously, we want to do better than that, but we get to that sort of level and we feel like we're achieving the right sort of position. But this here, the installation, This is really, really strengthening our position as a business. We used to offer it at time of float, and we were doing it all the way through until August, and we were using a third-party company called Caboodle, which weren't particularly great. So a lot of our poor reviews came from using this third-party for doing installation of integrated appliances. We didn't realise what a problem it was creating, and a lot of the issues with our customer service were The fact that they couldn't do the installation quick enough, it was like two, three, even four weeks sometimes before they could get to carry out the installation. And the way it worked was that we would deliver to one of their three depots around the country. And then they would then ring the customer and arrange to speak to Mrs. Smith, sorry, speak to Mrs. Smith and arrange for the installation of a Miele integrated dishwasher. And they had no real incentive for completing these jobs because they'd just charge us again if the customer wasn't in or there was a reason why they couldn't do the job. Whereas we thought, hang on, this is creating a problem. So we bit the bullet and decided to set up our own installation offering, which was very, very difficult because you basically get trying to employ trades people and get them to work weekends as well. because that's how our workforce is deployed on a shift pattern of four days on and four days off. That's how all the logistics operate. So we went out to the market trying to find unicorns, which is effectively someone who's got gas safe experience and can do, has some electrical certification as well for doing, you know, induction cookers and electric hobs, et cetera. But then also have some experience in fitting Steve Tombson, Building kitchen appliances, that was a real task right sharp but they found two unicorns. Steve Tombson, And then we said well Okay, well, these guys we don't just want working Monday to Friday, they have to work on a four days on four days off, which we had a big push back there, but we insisted, and I was so glad that we actually did insist. And they actually like doing it now. We've now got 22 of these fitters. Nine of them are gas safe. There's obviously a lot more people want electrical appliances now with the issues with gas. People want to future prove themselves by taking out maybe a gas range cooker and installing an electric induction cooker. So what we're seeing there is a massive uptake. We've got 10 new vans that we ordered. We ordered one van, then another van. It was like, hang on a minute, this is like... getting almost out of control, the growth in this installation, which was fantastic. So we ordered 10 new vehicles, but I've just been on the phone now and ordered another four installation vans. You don't know that yet, Josh, but I thought the way this is growing, we really need to get a skates on there. And the area that we actually do the installation is within that green, let's call it almost an oval rectangular shape in the centre of England. And that covers about 90% of the chimney pots in England. So this service not only means we don't have to offer any discount or very little discount, it cements the sale. So where they can go to another retailer, they might be able to deliver the appliance, but they very rarely can offer the installation, especially not at weekends, which we do. There's no extra charge for a weekend installation like our competition charge. So it's the same price whether you have it on a Wednesday or a Sunday. and with a lot of people going back to work now instead of working from home we're finding a lot of people taking up the installation offering at weekends which is great so that has been a real string to our boat so we don't have to offer so much discount we're seeing a massive increase in sales due to this additional offering and we're unique with the suppliers now the brands out there because we almost don't fit any of their price list because we tick every single box we deliver nationally we've got our own installation team we hold lots of stock and we work with the suppliers so they're really keen on giving us more marketing money and even offering to to take up or pay us for doing a free installation offering on their products on their range which is which is great so it also gives an angle for asking for better discount from the suppliers as well so we're seeing a constant procession of suppliers, the top brass, the CEOs, the vice presidents all wanting to come and see us. We had Samsung in a couple of days ago wanting to come and see us and they brought all the head honchos in because they can't believe the growth in our business. So very exciting times. This will be a real key to our business that no one else really does it like us. And so we've also expanded the geographic footprint. So That's probably enough of the installation, but we'll answer more questions on that at the end. But you can see we've also introduced Devon and Cornwall, which Penzance is five hours from our HQ, our single site in the middle of England. It's also five hours to Glasgow. So we thought, you know what, let's try Glasgow and Edinburgh as well. Albeit the additional fuel costs are there, but it's passive sales because we don't actually advertise in those areas. So it's It's almost free sales. And yes, it costs more to get there. We do like an overnight trunking system. So we go bi-weekly stroke three times, which works very well. So that's incremental business. And we also have now introduced Anglesey and Haverford West, the far reaches of Wales, which was a bit reticent to do. So I didn't think we'd get many orders. But the first day we switched on Anglesey, we had five sales in one day in Anglesey, which I was pleased to see. So the expanded geographic footprint certainly working well and it's helping us build our our sales so even though the market's going backwards we're still going forward when times are tough and we're seeing massive growth since we introduced the installation which is fantastic so nothing's going to stop us now right next slide please hannah