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RNS
Luceco PLC  -  LUCE   

Half-year Report

Released 07:00 11-Sep-2017

RNS Number : 2920Q
Luceco PLC
11 September 2017
 

 

11 September 2017

 

Luceco plc

("Luceco" or the "Group" or the "Company")

 

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

Strong start to the year, with a strong order book for the second half of 2017

 

Luceco plc, a manufacturer and distributor of high quality and innovative LED lighting products, wiring accessories and portable power products, today announces its unaudited interim results for the six months ended 30 June 2017 ('H1 2017').

 

 Financial highlights 


 Unaudited

Unaudited


Audited


30 June

30 June


31 December


 2017

2016

Change

2016

Revenue

£75.3m

£60.0m

25.5%

£133.8m

Gross profit

£26.4m

£21.2m

24.5%

£47.8m

Gross margin

35.0%

35.3%

(0.3%)

35.7%

Adjusted operating profit1

£9.0m

£7.2m

25.0%

£17.6m

Adjusted operating margin1

12.0%

12.0%

-

13.2%

Operating profit

£9.0m

£7.2m

25.0%

£15.0m

Operating margin

12.0%

12.0%

-

11.2%

Adjusted profit after tax1

£6.5m

£4.0m

62.5%

£12.3m

Profit after tax

£6.5m

£4.0m

62.5%

£9.7m

Adjusted basic and diluted EPS2

4.0p

2.8p3

42.8%

8.5p

Basic and diluted EPS

4.0p

2.8p3

42.8%

6.7p

 

Net Debt

£26.1m

£47.9m


£29.4m

Net debt/ adjusted EBITDA3

1.1x

2.8x


1.4x

DPS

0.8p

n/a


0.3p

1Adjusted operating profit, adjusted operating margin and adjusted profit after tax represent operating profit, operating margin and profit after tax adjusted for exceptional IPO costs of £2.6m which arose in H2 2016

2Adjusted, unadjusted basic and diluted EPS for 30 June 2016 has been calculated on the revised number of shares in issue as at the IPO

3Adjusted EBITDA represents the last 12 months results

 

·     Revenue increased for the first six months of the year by 25.5% to £75.3m (H1 2016: £60.0m)

·     On a constant currency basis, revenue grew by 17.3% 

·     Operating profit increased by 25.0% to £9.0m (H1 2016: £7.2m)

·     Gross margin broadly unchanged at 35.0% (H1 2016: 35.3%)

·     Basic and diluted EPS increased 42.8% to 4.0p per share (H1 2016: 2.8p per share)

·     Strong balance sheet with net debt of £26.1m (FY 2016: £29.4m)

·     Interim dividend declared of 0.8p per share, which represents 20% of profit after taxation for the first six-months (H1 2016: £nil)

 





Operational and strategic highlights

 

·     Strong revenue growth across all product categories

·     Consistent operating margins

·     Continuing expansion of Chinese manufacturing capacity

·     Continuing investment in expanded sales teams at all operations

·     Expansion of product ranges and a strong pipeline of new product launches

·     Continued growth in International businesses

·     Strong order book

 

 

Commenting on the results, Chief Executive Officer, John Hornby said:

"The momentum reported at the Group's full year results has continued with significant year-on-year growth in revenue and profit. Growth has been driven by strong market share gains within the key brands in the UK and other newer international markets, both of which have been bolstered by ongoing expansion of the product ranges.

 

Our growth strategy is built upon increasing our market share of the established brands in existing markets via new customer acquisition and the expansion of the product ranges.  In addition, we continue to internationalise the product ranges to allow the development of new distribution channels and to invest in our Chinese manufacturing centre to increase our competitive advantage, whilst actively assessing opportunities to acquire new distribution channels via selected M&A activity.

 

The Board expects that the Group's full year results will be in line with market expectations"

 

Commenting on the results, Chairman, Giles Brand said:

"With expanding product ranges and ongoing investments in product development, the Group has strengthened its offering in its key markets across the UK, Europe and the Americas and enhanced its ability to grow, thereby delivering shareholder value in the medium to long term."

 

 

Further enquiries:

 

Luceco plc

John Hornby, Chief Executive Officer

David Main, Chief Financial Officer

 

via MHP Communications

020 3128 8100

MHP Communications

Tim Rowntree

James White

Ollie Hoare

Reace Novello

 

020 3128 8100

Numis Securities

Stuart Skinner

Oliver Hardy

Toby Adcock

 

020 7260 1000

 

Business summary

Luceco is a rapidly growing manufacturer and distributor of high quality and innovative LED lighting products and wiring accessories for a global customer base.

 

The Group supplies trade distributors, retailers, wholesalers and project developers with a wide range of products which broadly fall into the following market recognised brands:

 

·        Luceco: energy efficient LED lighting products and associated accessories;

·        British General (BG): wiring accessories (including switches, sockets), circuit protection and cable management products;

·        Masterplug: cable reels, extension leads, surge protection, timers and adaptor products; and

·        Ross: television wall mounts, audio visual accessories and other items.

 

The Luceco LED lighting brand continues to benefit from the disruptive shift away from mature lighting technologies because of the material advancement in LED technology in recent years.  The brand has continued to successfully leverage the Group's existing customer base and low-cost Chinese manufacturing facility.  Consequently, it remains well positioned to build on its impressive organic growth trajectory to date.

 

In the electrical wiring accessories market, Luceco's BG and Masterplug brands have continued to reinforce their market leading positions through further new product development initiatives, expanding into new product adjacencies and gaining market share. 



 

 

Executive Review

1 Overview

The Group continued its strong performance in the first half of the year.

 

During the period, revenue increased by 25.5% to £75.3m (H1 2016: £60.0m), gross profit increased by 24.5% to £26.4m (H1 2016: £21.2m) and operating profit increased by 25.0% to £9.0m (H1 2016: £7.2m).  On a constant currency basis, revenue was £70.4m, generating a gross profit of £25.6m and operating profit of £9.0m. 

 

The UK recorded growth in revenue of 22.2% to £62.8m (H1 2016: £51.3m) driven by the full year impact of H2 2016 business wins and increased market penetration.  European revenue increased by 67.6% to £4.1m (H1 2016: £2.5m). 

 

Revenue for the rest of the world increased by 36.1% to £8.4m (H1 2016: £6.2m), with the USA performing particularly strongly.

 

Gross margin in H1 2017 dropped slightly to 35.0% (H1 2016: 35.3%) principally due to product sales mix.

 

Operating profit margin remained at 12.0% (H1 2016: 12.0%), reflecting strong revenue and gross profit growth despite on-going investment in sales and marketing to support the Group's future growth strategy.

 

 

2 Segmental review

LED Lighting (Luceco)

LED lighting delivered another period of strong revenue growth. The Group maintained investment in product range expansion and continued to benefit from the rapidly growing LED lighting market - which the Group estimates is now worth more than £1bn in the UK alone.

 

LED lighting sales increased by 22.4% to £17.0m (H1 2016: £13.9m). The strong growth in LED lighting follows the expansion of the product range, the decision to move more production in-house, thereby aiding competitive pricing and increasing investment in project sales teams focused on LED retrofits.  Within the LED segment there was the expected change in product mix with sales of lamps (bulbs) declining, whereas sales of higher margin luminaires (light fittings) increased by more than 60%.

 

Wiring Accessories (BG)

Wiring Accessories delivered strong performance for the period with revenue growth of 13.6% to £34.9m (H1 2016: £30.7m) largely driven by market share gains through on-going product development and range expansion.

 

Continued focus on improving the manufacturing process and increased automation at the Chinese facility will enhance quality, reduce cost and increase capacity thereby extending our advantage as UK market leader in this category.

 

Portable Power (Masterplug)

Portable Power revenue in the period increased by 52.2% to £20.2m (H1 2016: £13.3m), as a result of new business wins in the UK, Europe and USA.

 

Masterplug is the dominant market leader in the UK and had an estimated market share approaching 50%. 

 

3 New product introduction

New product development and range expansion has been a key driver of our strong growth and continues to be a major focus for the Group. In H1 2017 there were many successful new product launches especially within the LED luminaire category and the ongoing internationalisation of the Masterplug range.  The Group maintains a strong pipeline of new product launches for H2 2017 and beyond.

 

4 Strategy

The Group's strategy remains unchanged and the Board remains focused on executing these growth plans. Luceco's growth has resulted from investment in its Chinese facility, product range expansion, and sales and marketing activities both in the UK and internationally. The creation of an increasingly wholly-owned supply chain has enabled the Group to reduce the cost and improve the quality of its products and customer service and allowed ongoing investment in process and product range improvements. The Group will continue to invest in this way to drive further strong organic growth at the same time as actively assessing opportunities to acquire new distribution channels via selected M&A activity.

 

5 Outlook

"The momentum reported at the Group's full year results has continued with significant year-on-year growth in revenue and profit. Growth has been driven by strong market share gains within the key brands in the UK and other newer international markets, both of which have been bolstered by ongoing expansion of the product ranges.

 

Our growth strategy is built upon increasing our market share of the established brands in existing markets via new customer acquisition and the expansion of the product ranges.  In addition, we continue to internationalise the product ranges to allow the development of new distribution channels and to invest in our Chinese manufacturing centre to increase our competitive advantage, whilst actively assessing opportunities to acquire new distribution channels via selected M&A activity.

 

The Board expects that the Group's full year results will be in line with market expectations"

 

 

 

 

 

Financial review

Overview

The Group has made a positive start to the year.

 

Unaudited

Unaudited

 

Audited

 

30 June

30 June

 

31 December

 

Revenue by geography

2017

£000

2016

£000

 

Growth

 2016

£000

UK

62,757

51,342

22.2%

114,757

Europe

4,130

2,464

67.6%

5,961

Middle East

2,808

3,340

(15.9%)

4,874

Americas

2,511

904

177.8%

2,075

Asia Pacific

2,480

1,267

95.7%

4,177

Africa

626

678

(7.7%)

1,909

 

75,312

59,995

25.5%

133,753

 

Revenue for H1 2017 increased to £75.3m (H1 2016: £60.0m), a growth of 25.5% (constant currency 17.3%)

 

UK revenues have grown strongly, increasing 22.2% during the year to £62.8m (H1 2016: £51.3m).  This growth has been driven by the full period impact of significant new business wins in 2016 and successful new product launches in H1 2017 along with continuing market share gains.

 

International revenues have grown by 45.3% to £12.5m (H1 2016: £8.6m) as Luceco's international presence gains momentum and now represents 16.6% of total revenues (H1 2016: 14.3%)

 

Fixed costs in H1 2017, which were 23.1% of sales (H1 2016: 23.3% of sales), increased by £3.4m or just 24.1% whilst sales increased by 25.5% compared to H1 2016, thus maintaining the Group's targeted fixed costs ratio. The Group will continue to invest in its resources to support growth in revenue.

 

The Group continues to invest heavily in R&D to remain at the forefront of changing customer requirements and market trends.  The Group has a substantial specialist research and development function in China, supported by a smaller team in the UK.  R&D overhead in the period was £1.3m (H1 2016: £0.9m), of which £1.2m (H1 2016: £0.8m) was capitalised in line with IFRS accounting standards and consistent with prior periods.

 

 

Impact of foreign exchange movements

A summary of the Condensed Statement of Consolidated Income on a constant currency basis is below (with current year balances translated at last year's average exchange rates), demonstrating the impact of the volatility in exchange rates during 2017.

 

 

As reported1

Constant

Currency2

 

Variance

H1 2016

Variance

 

£'m

£'m

£'m

£'m

Revenue

75.3

70.4

4.9

10.4

Cost of sales

(48.9)

(44.8)

(4.1)

(6.0)

Gross profit

26.4

25.6

0.8

4.4

Operating costs

(17.4)

(16.6)

(0.8)

(2.6)

Adjusted operating profit1

9.0

9.0

-

1.8

12017 translated at average exchange rates for the period. These were 1.29 for £:US dollar and 8.70 for £: CNY.

22017 translated at 2016 average exchange rates. These were 1.43 for £:US dollar and 9.38 for £: CNY.

 

The exchange rate movement in revenue, denominated mainly in US dollars, is almost entirely offset by an opposite movement in cost of sales, denominated primarily in CNY, creating a natural hedge at operating profit level as the CNY is largely pegged against the US dollar.

 

The Chinese facility contributes significantly to the overhead costs and the exchange loss noted of £0.8m in operating costs is due to the fluctuation in the CNY rate over the period.

 

Exchange rates are monitored regularly and CNY is purchased at forward exchange rates to minimise the impact on the Group's results.

 

 

 

 

 

Operating segment review

 

LED Lighting

 

Unaudited

Unaudited

 

Audited

 

30 June

30 June

 

31 December

 

2017

2016

Growth

 2016

Revenue

£17.0m

£13.9m

22.4%

£33.0m

Operating profit

£1.5m

£1.0m

48.5%

£2.3m

Operating profit margin

8.9%

7.4%

1.5%

7.0%

 

The strong growth in LED lighting follows the expansion of the product ranges and sales teams and the decision to move more production in-house, thereby aiding competitive pricing and technological know-how. At constant currency, revenue grew by 26.2%.

 

Operating margin profit of LED products has increased from 7.4% to 8.9% due to a maturing of the investment in the sales teams.

 

Wiring Accessories

 

Unaudited

Unaudited

 

Audited

 

30 June

30 June

 

31 December

 

2017

2016

Growth

 2016

Revenue

£34.9m

£30.7m

13.6%

£62.2m

Operating profit

£5.5m

£4.9m

12.6%

£11.3m

Operating profit margin

15.8%

15.9%

(0.1%)

18.2%

 

Wiring Accessories accounted for 46.3% of the Group's revenue in the period (H1 2016: 51.2% of the Group's revenue) due to general market share gains. At constant currency, revenue grew by 6.9%.

 

Portable Power

 

Unaudited

Unaudited

 

Audited

 

30 June

30 June

 

31 December

 

2017

2016

Growth

 2016

Revenue

£20.2m

£13.3m

52.2%

£33.2m

Operating profit

£1.6m

£1.0m

57.8%

£3.4m

Operating profit margin

7.8%

7.6%

0.2%

10.2%

 

The increase in Portable Power revenue is a result of significant new business wins with major customers in the UK, Europe and Americas, following the ongoing internationalisation of the product range.  At constant currency, revenue grew by 30.6%.

 

 

Ross and other

 

Unaudited

Unaudited

 

Audited

 

30 June

30 June

 

31 December

 

2017

2016

Growth

 2016

Revenue

£3.2m

£2.1m

51.5%

£5.3m

Operating profit

£0.3m

£0.2m

57.0%

£0.6m

Operating profit margin

10.7%

10.4%

0.3%

11.3%

 

Revenues mainly comprise TV brackets under the Group's Ross brand, which have increased as the Group re-engineered the product range to reduce product costs. At constant currency, revenue grew by 33.3%.

 

Operating profit has seen enhanced margins because of the improved product range at competitive prices.

 

Interest costs

Interest costs are lower than the prior period at £0.8m (H1 2016: £1.8m). Following the IPO in October 2016, net debt reduced to £29.4m as at 31 December 2016 from £47.9m the previous year and the interest costs reduced because of the repayment of loans.

 

Balance sheet

Non-current assets

Luceco continues to increase its investment in product development and capitalises specific people and non-people costs which meet the relevant criteria in-line with the Group's IFRS accounting policies.  These costs are then amortised against future volume from the sale of these products / technologies.  Product development costs are typically amortised over a 5-year period and are regularly reviewed for any signs of impairment.   The net book value of capitalised product development costs as at 30 June 2017 was £3.7m (H1 2016: £2.5m), equivalent to 4.9% of revenue (H1 2016: 4.2%). 

 

In H1 2017, the Group acquired tangible fixed assets amounting to £2.4m (H1 2016:  £4.2m) mainly relating new product tooling, capacity expansion, automation and other process improvements at the Group's manufacturing facility in China.

 

 

 

Working capital

Net working capital has increased by £3.4m compared to 2016, which represents 24.5% of the last twelve months of revenue (H1 2016: 25.7%).  Stock stands at £40.0m at 30 June 2017 (H1 2016: £34.3m) represents stock days of 144 (H1 2016: 145 days). Debtor days have reduced to 58 days (H1 2016: 68 days).  Creditor days have remained consistent at 96 days (H1 2016: 97 days) as the Group undertakes to pay its suppliers in line with agreed credit terms.

 

Cash flow

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£'m

£'m

£'m

Adjusted operating cash flow before movement in working capital1

10.8

8.7

20.8

Adjusted cash from operations1,2

10.2

5.4

6.6

Tax paid

(0.4)

(0.2)

(1.3)

Financing cash flows

(2.7)

(1.3)

4.2

Dividends paid

(0.5)

-

-

Capital expenditure

(3.6)

(6.3)

(7.7)

Net cash flow before exceptional IPO costs and exchange rate fluctuations

3.0

(2.4)

1.8

Exchange rate fluctuations

(0.7)

1.2

0.1

Exceptional IPO costs paid

-

-

(2.5)

Net cash flow

2.3

(1.2)

(0.6)

Cash conversion3

35.4%

(30.0%)

(7.2%)

1 Adjusted operating profit, adjusted operating margin and adjusted profit after tax represent operating profit, operating margin and profit after tax adjusted for exceptional IPO costs of £2.6m which are in H2 2016

2Adjusted cash from operations is defined as adjusted EBITDA (or operating cash flow) plus/minus movements in working capital

3Cash conversion is defined as net cash flow divided by profit after taxation

 

The Group's adjusted cash from operations increased by £4.8m compared to the six months ended 30 June 2016. Net cash flow increased from the year ended 31 December 2016 by £2.9m.  

 

Cash conversion has increased to 35.4% at the period end compared to the previous period cash conversion rate of (30.0%), as the Group continues to effectively manage working capital and improve conversion of its profit to cash.

 

Funding and covenants

The Group has committed borrowing facilities in place in the UK comprising a £12m revolving credit facility ("RCF"), which was drawn down in full at the year ended 31 December 2016 and at 30 June 2017, and a maximum £30m invoice discounting facility with HSBC, of which the Group had drawn £20.4m as at 30 June 2017.

 

Net debt at 30 June 2017 stood at £26.1m, (H1 2016: £47.9m), representing 1.1x adjusted last twelve months EBITDA and the Group continues to report headroom against its covenant requirements. 

 

Dividend

The Board is pleased to declare an interim dividend of 0.8p per share (H1 2016: nil) payable on 27 October 2017 to shareholders on the register on 22 September 2017. The dividend expense to the Group amounts to £1.3m. The Board confirms that the Company will continue to pursue a dividend policy representing approximately 20% of retained profit after tax.

 

Going concern

The Group's projections for the next three-year period show that the Group will be able to operate within its existing bank facilities and meet its debt covenants. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and as such has applied the going concern principle in preparing the Annual Report and Financial Statements.

 

Currency movements

The continuing weakness of Sterling versus the US Dollar has a material effect on the presentation of our financial results. The average rate for the US Dollar against Sterling has moved from 1.43 in first half of 2016 to 1.29 in the first half of 2017. Approximately 52.1% of the Group's revenues are denominated in US Dollars and the translation of these revenues into Sterling for reporting purposes has had a beneficial effect.

 

Principal risks and uncertainties

The Group is subject to risk factors both internal and external to its business, and has a well-established set of risk management procedures. The following risks and uncertainties are those that the Directors believe could have the most significant impact on the Group's business:

 

 

·              market competitiveness;

·              disruption to operations

·              input costs;

·              concentration of consumer trends;

·              financial impact of international operations; and

·              regulatory non-compliance.

 

For greater detail of these risks, please refer to pages 22 to 25 of the Luceco plc Annual Report and Accounts 2016 - which is available on the Group's website www.luceco.com.

 

Forward looking statements

This announcement contains forwardlooking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forwardlooking statements in this announcement will be realised.

 

The forward-looking statements reflect the knowledge and information available at the date of preparation of this announcement and the Company undertakes no obligation to update these forwardlooking statements. Nothing in this announcement should be construed as a profit forecast.

 

Condensed Statement of Consolidated Income

for the period ended 30 June 2017

 

 

 

Unaudited

Unaudited

Audited

 

 

 

30 June

30 June

31 December

 

 

 

2017

2016

2016

 

 

Notes

£000

£000

£000

Revenue                                                                                                                                          

 

4

75,312

59,995

133,753

Cost of sales

 

 

(48,929)

(38,815)

(85,927)

Gross profit                                                                                                                           

 

 

26,383

21,180

47,826

Distribution expenses

 

 

(7,721)

(6,230)

(11,011)

Administrative expenses before exceptional IPO costs                                             

 

5

(9,688)

(7,796)

(19,170)

Operating profit before exceptional IPO costs

 

 

8,974

7,154

17,645

Exceptional IPO costs

 

 

-

-

(2,635)

Administrative expenses

 

 

(9,688)

(7,796)

(21,805)

Operating profit                                                                                                                

 

4

8,974

7,154

15,010

Finance income

 

 

-

-

82

Finance expenses

 

 

(848)

(1,816)

(2,893)

Net financing expense

 

 

(848)

(1,816)

(2,811)

Profit before tax                                                                                                                   

 

 

8,126

5,338

12,199

Taxation                                                                                                                             

 

 

(1,623)

(1,344)

(2,542)

Profit for the period

 

 

6,503

3,994

9,657

Earnings per share (pence)                                                                                 

 

 

 

 

 

Basic and diluted                                                                                                         

 

7

4.0p

2.8p*

6.7p

Adjusted earnings per share (pence)                                                                       

 

 

 

 

 

Basic and diluted                                                                                                         

 

7

4.0p

2.8p*

8.5p

 

* Adjusted and unadjusted basic and diluted EPS for 30 June 2016 has been calculated on the revised number of shares in issue as at the IPO

 

 

Condensed Statement of Consolidated Comprehensive Income

for the period ended 30 June 2017

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Profit for the period

6,503

3,994

9,657

Other comprehensive income - amounts that may be reclassified to profit or loss in the future:

 

 

 

Foreign exchange translation differences - foreign operations

(1,754)

670

1,797

Total comprehensive income for the period

4,749

4,664

11,454

 

All results are from continuing operations.

 

The notes on pages 7 to 18 are an integral part of these condensed consolidated interim financial statements.

 

Condensed Statement of Consolidated Financial Position

at 30 June 2017

 

 

 

Unaudited

Unaudited

Audited

 

 

 

30 June

30 June

31 December

 

 

 

2017

2016

2016

                                                                                                                                         Notes

 

 

£000

£000

£000

Non-current assets

 

 

 

 

 

Property, plant and equipment                                                                                      

 

9

21,031

19,308

20,598

Intangible assets                                                                                                           

 

10

13,695

12,357

12,898

Deferred tax asset

 

 

127

-

202

 

 

 

34,853

31,665

33,698

Current assets

 

 

 

 

 

Inventories                                                                                                                       

 

 

39,955

34,257

38,462

Trade and other receivables  

 

 

29,311

29,690

29,339

Cash and cash equivalents

 

 

6,385

3,589

4,145

 

 

 

75,651

67,536

71,946

Total assets

 

 

110,504

99,201

105,644

Current liabilities

 

 

 

 

 

Interest-bearing loans and borrowings                                                                        

 

11

20,359

29,081

21,279

Trade and other payables

 

 

35,075

36,440

33,272

Other financial liabilities

 

 

289

1,026

610

 

 

 

55,723

66,547

55,161

Non-current liabilities

 

 

 

 

 

Other interest-bearing loans and borrowings                                                             

 

11

12,000

24,603

12,000

Other financial liabilities

 

 

148

74

145

Deferred tax liability

 

 

-

761

-

 

 

 

12,148

25,438

12,145

Total liabilities

 

 

67,871

91,985

67,306

Net assets

 

 

42,633

7,216

38,338

Equity attributable to equity holders of the parent

 

 

 

 

 

Share capital

 

 

80

70

80

Share premium

 

 

24,772

450

24,772

Translation reserve

 

 

(337)

290

1,417

Retained earnings  

 

 

18,118

6,406

12,069

Total equity

 

 

42,633

7,216

38,338

 



 

 

Condensed Statement of Consolidated Changes in Equity

for the period ended 30 June 2017

 

 

 

 

 

 

 

 

 

Share

Share

Translation

Retained

Total

 

 

capital

premium

reserve

earnings

equity

 

 

£000

£000

£000

£000

£000

Balance at 1 January 2016

 

70

450

(380)

2,412

2,552

Total comprehensive income

 

 

 

 

 

 

Profit for the period

 

-

-

-

3,994

3,994

Other comprehensive loss

 

-

-

670

-

670

Total comprehensive income for the period

 

-

-

670

3,994

4,664

Balance at 30 June 2016

 

70

450

290

6,406

7,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

Share

Translation

Retained

Total

 

 

capital

premium

reserve

earnings

equity

 

 

£000

£000

£000

£000

£000

Balance at 1 January 2017

 

80

24,772

1,417

12,069

38,338

Total comprehensive income

 

 

 

 

 

 

Profit for the period

 

-

-

-

6,503

6,503

Other comprehensive loss

 

-

-

(1,754)

-

(1,754)

Total comprehensive income for the period

 

-

-

(1,754)

6,503

4,749

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

Dividends paid

 

-

-

-

(482)

(482)

Share-based payments charge

 

-

-

-

28

28

Total transactions with owners in their capacity as owners

 

-

-

-

(454)

(454)

Balance at 30 June 2017

 

80

24,772

(337)

18,118

42,633

 



 

 

Condensed Statement of Consolidated Cash Flow

for the period ended 30 June 2017

 

 

 

Unaudited

Unaudited

Audited

 

 

 

30 June

30 June

31 December

 

 

 

2017

2016

2016

                                                                                                                                  Notes

 

 

£000

£000

£000

Cash flows from operating activities

 

 

 

 

 

Profit for the period

 

 

6,503

3,994

9,657

Adjustments for:

 

 

 

 

 

Depreciation and amortisation                                                                                

 

5

1,838

1,507

3,198

Financial income

 

 

-

-

(82)

Financial expense

 

 

848

1,816

2,893

Taxation                                                                                                                      

 

 

1,623

1,344

2,542

Share-based payments charge                                                                                                                      

 

 

28

-

-

Operating cash flow before movement in working capital

 

 

10,840

8,661

18,208

Exceptional IPO costs

 

 

-

-

2,635

Operating cash flow before movement in working capital and exceptional IPO costs

 

 

 

10,840

 

8,661

 

20,843

Movement in trade and other receivables

 

 

24

(7,801)

(7,514)

Movement in inventories                                                                                         

 

 

(1,493)

(8,062)

(12,267)

Movement in trade and other payables

 

 

867

12,595

5,555

Cash from operations

 

 

10,238

5,393

6,617

Exceptional IPO costs paid

 

 

-

-

(2,567)

Adjusted operating cash flow

 

 

10,238

5,393

4,050

Tax paid

 

 

(378)

(211)

(1,348)

Net cash from operating activities

 

 

9,860

5,182

2,702

Cash flows from investing activities

 

 

 

 

 

Acquisition of property, plant and equipment                                                        

 

9

(2,441)

(5,622)

(6,018)

Acquisition of other intangible assets                                                                   

 

10

(1,241)

(685)

(1,688)

Net cash used in investing activities

 

 

(3,682)

(6,307)

(7,706)

Cash flows from financing activities

 

 

 

 

 

Proceeds from new loans

 

 

-

250

128

Repayment of interest-bearing loans and borrowings

 

 

(673)

-

-

Dividends paid

 

 

(482)

-

-

Interest paid

 

 

(848)

(1,524)

(3,005)

Repayment of borrowings

 

 

(1,157)

-

(17,213)

Payment of finance lease liabilities

 

 

(82)

(32)

(14)

Net proceeds from share issue

 

 

-

-

24,332

Net cash from financing activities

 

 

(3,242)

(1,306)

4,228

Net increase/(decrease) in cash and cash equivalents

 

 

2,936

(2,431)

(776)

Cash and cash equivalents at 1 January

 

 

4,145

4,787

4,787

Effect of exchange rate fluctuations

 

 

(696)

1,233

134

Cash and cash equivalents at 30 June

 

 

6,385

3,589

4,145

 



 

 

Notes to the Condensed Consolidated Financial Information

for the period ended 30 June 2017

 

1 Reporting entity

Luceco plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. These condensed consolidated interim financial statements ('interim financial statements') as at and for the six months ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the 'Group'). The Group is primarily involved in the manufacturing and distributing of high quality and innovative LED lighting products and wiring accessories to global markets (see note 4).

 

2 Basis of preparation

The annual financial statements of Luceco plc are prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS.  The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.

 

The accounting policies adopted in the preparation of the condensed consolidated interim financial information are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2016. A new accounting policy has been adopted for the six-month period ended 30 June 2017 with regards share-based payments charge and is stated below.

 

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

 

This condensed consolidated interim financial information has been reviewed, not audited.

 

Share-based payment transactions

The Group issues equity-settled share options to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of instruments that will eventually vest with a corresponding adjustment to equity. Options under the new LTIP 2017 award that were granted during the period have been valued using the Monte Carlo model (given the increased uncertainty around the potential vesting of share options). The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations.

 

Non-vesting and market vesting conditions are considered when estimating the fair value of the option at grant date. Service and non-market vesting conditions are considered by adjusting the number of options expected to vest at each reporting date.

 

Options over the Company's shares granted to employees of subsidiaries are recognised as a capital contribution by the Company to the subsidiaries.

 

Cancelled or settled options are accounted for as an acceleration of vesting.  The unrecognised grant date fair value is recognised in profit or loss in the year that the options are cancelled or settled.

 

Where the terms of the options are modified and the modification increases the fair value or number of equity instruments granted measured immediately before and after the modification, the incremental fair value is spread over the remaining vesting period.

 

Risks and uncertainties

An outline of the key risks and uncertainties faced by the Group is described in the 2016 financial statements, including exposure to foreign exchange rate fluctuation, the weakness of Sterling relative to the US Dollar and the Euro and the US Dollar to the Chinese Renminbi.  Risk is an inherent part of doing business and with the strong global position of the Group, together with the expected underlying profitability of the core business in the full year, this leads the Directors to believe that the Group is well placed to manage the key risks it faces. 

 

New standards, amendments and interpretations

The Group did not apply the following standards and interpretations that have not yet been adopted by the European Union as of June 30, 2017 or that were not mandatory for January 1, 2017:

 

Standards adopted by the European Union:

·      IFRS 15 - Revenue from Contracts with Customers

 

Standards not adopted by the European Union:

·      IFRS 16 - Leases

·      Amendments to IAS 7: Statement of Cash Flows - Disclosure Initiative

·      Annual improvements to IFRSs 2014-2016 Cycle (December 2016)

·      IFRIC 23 - Uncertainty over Income Tax Treatments

·      IFRIC 22 - Foreign Currency Transactions and Advance Consideration 

·      Amendments to IFRS 2: Share-based payments, Classification and Measurement

·      Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses

 

Finally, the standards applied by the Group as of June 30, 2017 are consistent with the IFRS standards issued by the International Accounting Standards board (IASB). 

 

The Group is currently assessing the potential effect on the Group's consolidated financial statements of the standards not yet applicable. At this stage of the analysis, the Group does not expect the impact on its consolidated statements to be material, except for IFRS 15 (effective 2018) and IFRS 16 (effective 2019) for which main effect would be, in 2019, the inclusion of lease commitments for operating leases into financial debt.

 

Regarding IFRS 15, no significant impact is expected with regards to current practice, for transactional and services revenue. Regarding long-term contracts, analyses are currently being performed to assess the potential accounting impacts. At this stage of the analysis, the Group does not expect any significant impacts.

 

3 Critical accounting judgements and estimates

The preparation of the condensed interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2016.

 

4 Operating segments

The Group's principal activities are in the manufacturing and supply of LED lighting, wiring accessories, portable power equipment and Ross (home entertainment products). For the purposes of management reporting to the Chief Operating Decision-Maker (the Board), the Group consists of four operating segments which are the product categories that the Group manufactures and distributes. The Board does not review the Group's assets and liabilities on a segmental basis and, therefore, no segmental disclosure is included. Inter-segment sales are not material.



 

 

 

 

 

 

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Revenue

 

 

 

Wiring Accessories

34,890

30,706

62,172

Portable Power

20,207

13,280

33,236

LED Lighting

16,981

13,874

33,037

Ross and other

3,234

2,135

5,308

 

75,312

59,995

133,753

Operating profit before exceptional IPO costs

 

 

 

Wiring Accessories

5,526

4,908

11,277

Portable Power

1,586

1,005

3,448

LED Lighting

1,515

1,020

2,285

Ross and other

347

221

635

 

8,974

7,154

17,645

Exceptional IPO costs

-

-

(2,635)

Operating profit

8,974

7,154

15,010

Finance income

-

-

82

Finance expense

(848)

(1,816)

(2,893)

Profit before tax

8,126

5,338

12,199

Taxation

(1,623)

(1,344)

(2,542)

Profit after tax

6,503

3,994

9,657

Revenue by location of customer

 

 

 

UK

62,757

51,342

114,757

Europe

4,130

2,464

5,961

Middle East

2,808

3,340

4,874

Americas

2,511

904

2,075

Asia Pacific

2,480

1,267

4,177

Africa

626

678

1,909

 

75,312

59,995

133,753

 

 

5 Expenses recognised in the Condensed Statement of Consolidated Income

Included in the Condensed Statement of Consolidated Income  are the following:

 

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Research and development costs expensed as incurred

180

50

193

Operating lease charges:

 

 

 

  Plant and machinery

57

40

115

  Other assets

505

207

564

Depreciation of property, plant and equipment

1,394

1,206

2,435

Amortisation of intangible assets

444

301

763

 

Research and development costs expensed as incurred has almost tripled from H1 2016 largely due to the increase in the R&D team both at the Chinese Development centre and in the UK Technical department.

 

 

6 Taxation

The effective tax rate is 19.0% for H1 2017 (H1 2016 effective tax rate of 25.2%). The reduction in the tax rate is because of effective tax planning conducted in the second half of the year in 2016 to utilise previously trapped losses and the benefit for the Group of favourable tax rates in some international countries versus the UK and China.

 



 

 

7 Earnings per share

Adjusted earnings per share measure is calculated based on the profit for the period attributable to the owners of the Company before adjusting for exceptional items as follows:

 

 

 

 

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Earnings for calculating basic and diluted earnings per share

6,503

3,994

9,657

Adjusted for:

 

 

 

Exceptional IPO costs

-

-

2,635

Earnings for calculating adjusted basic and diluted earnings per share

6,503

3,994

12,292

 

 

 

 

 

 

Number

Number

Number

 

000

000

000

Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share

160,800

140,000

144,123

Weighted average number of ordinary shares in issue

160,800

140,000

144,123

 

 

2017

2016

2016

 

Pence

Pence

Pence

Basic and diluted earnings per share

4.0

2.8

6.7

Basic and diluted adjusted earnings per share

4.0

2.8

8.5

 

Basic and diluted EPS is calculated by dividing the earnings attributable to ordinary owners of the parent by the weighted average number of shares outstanding during the period.  

 

 

8 Dividends

The Company did not pay a dividend during the period ended 30 June 2016. In respect of the year ended 31 December 2016, the directors recommended the payment of a final dividend of 0.3 pence per share payable on 2 June 2017 to shareholders on the register on 5 May 2017.  This dividend was approved by shareholders at the Annual General Meeting on 25 May 2017.  The total 2016 dividend paid was 0.3 pence per share which cost approximately £482,000. The Directors have proposed an interim dividend of 0.8 pence per ordinary share, representing 20% of profit after tax for the period, at a cost to the Company of £1.3m.

 

 

9 Property, plant and equipment

 

Acquisitions and disposals

During the six months ended 30 June 2017, the Group acquired assets with a cost of £2.4m (six months ended 30 June 2016: £5.6m, full year ended 31 December 2016: £6.0m) mainly relating to test equipment to increase the range of tests the Group's technical team can perform in house to provide greater certainty to passing and to accelerate product certification timescales. The Group has not included any borrowing costs within additions in H1 2017 (H1 2016: £nil, FY 2016: £nil). There were no funds specifically borrowed for the assets and the amount eligible as part of the general debt instruments pool (after applying the appropriate capitalisation rate) is not considered material.

 

There were no disposals during the period.

 

 

10 Intangible assets and goodwill

Intangible assets comprise development expenditure capitalised when it meets the criteria laid out in IAS 38, "Intangible Assets". During the six months ended 30 June 2017, the Group incurred internally generated development costs of £1.2m (six months ended 30 June 2016: £0.7m, full year ended 31 December 2016: £1.7m) and externally purchased patents of £0.1m (six months ended 30 June 2016: £0.1m, full year ended 31 December 2016: £0.2m). This amount excludes capitalised borrowing costs.

 

There has been no impairment to goodwill following a review since the year ended 31 December 2016. Goodwill has been allocated to cash-generating units, or Group of CGU's, and can be referred to on pages 84 to 85 of the Group's 2016 Annual Report.



 

 

 

11 Loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to interest rate and foreign currency risk, please refer to pages 88 to 92 of the Group's Annual Report for the financial year ended 2016.

 

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Non-current liabilities

 

 

 

Bank term loan

12,000

12,000

12,000

Shareholder loan notes

-

2,467

-

Deep discount bond

-

3,202

-

Eurobond

-

6,934

-

 

Current liabilities

 

 

 

Shareholder loan notes

-

-

247

Chinese mortgage loan

-

6,729

-

Secured bank loans

20,359

22,352

21,032

 

20,359

29,081

21,279

 

The Shareholder loan notes as at 30 June 2016 of £2.5m within non-current liabilities, related to amounts owing to John Hornby, CEO. Post the IPO, the balance outstanding at the year ended 2016 was £0.2m, which was fully repaid during H1 2017.

 

Secured bank loans are secured by a fixed and floating charge over the assets of the Group. They include funds advanced under invoice discounting arrangements from HSBC Finance (UK) Limited of £20.4m (six months ended 30 June 2016: £20.7m, full year ended 31 December 2016: £21.0m) and Industrial and Commercial Bank of China Ltd of £nil (six months ended 30 June 2016: £1.7m, full year ended 31 December 2016: £nil), which are secured by legal charges over the Group's book debts

 

 

12 2017 long term incentive plan ("LTIP")

The share-based payments charge of £28,000 (H1 2016: £nil) included in the Condensed Statement of Consolidated Income within administrative expenses is attributable to the 2017 LTIP nominal cost options.

 

Awards have been granted to the Chief Executive Officer and the Chief Financial Officer and other key management personnel within the Group, under the Luceco 2017 Performance Share Plan ("PSP"), which was approved by shareholders at the Company's AGM held on 25 May 2017.

 

The following awards have been granted in the form of nominal cost options over the number of ordinary shares of 0.05 pence in the Company under the terms of the PSP, as set out on pages 52 to 58 within the 2016 Annual Report:

 

Board Directors

                                                                                    Role

Number of shares awarded

John Hornby

 Chief Executive Officer

145,331

David Main

Chief Financial Officer

72,665

 

Each award has a linked tax qualifying option over 12,457 shares at an exercise price of £2.408. On exercise, the number of shares under the nominal cost option will be reduced proportionally to take account of the exercise of the tax qualifying option such that the individual will not receive a greater number of shares than is subject to the nominal cost option.

 

The awards will vest subject to the satisfaction of performance conditions measuring the Company's earnings per share ("EPS") and total shareholder return ("TSR") performance. The extent to which awards will vest will depend on the extent to which the performance conditions are satisfied over the performance period, which runs from 1 January 2017 to 31 December 2019. No consideration was paid for any of the awards

 

Options under the 2017 award have been valued using the Monte Carlo model (given the increased uncertainty around potential vesting) with the following assumptions:

 

Directors' and Employee share options LTIP award 2017

 

2017

3-day average share price before options were issued (pence)

 

238.50

Average expected volatility

 

34%

Expected life

 

3 years

Risk free rate

 

0.08%

13 Exchange rates

Average exchange rates are summarised below:

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£

£

£

Average for the period

 

 

 

US Dollar: Chinese Renminbi

$6.79

$6.54

$6.64

GBP Sterling: US Dollar

1.29

1.43

1.36

GBP Sterling: Chinese Renminbi

8.70

9.38

8.98

GBP Sterling: Euro

1.13

1.28

1.22

GBP Sterling: Arab Emirates Dirham

4.62

5.26

4.98

GBP Sterling: Mexican Peso

23.13

25.91

25.26

 

 

14 Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks that include currency risk, interest rate risk, credit risk and liquidity risk.

 

These financial statements do not include all financial risk management information and disclosures required in the annual financial statements which should therefore be read in conjunction with the Group's financial statements for the year ended 31 December 2016.  There have been no changes to the risk management policies since the year ended 31 December 2016.

 

The Group's bankers perform the valuations of financial derivatives for financial reporting purposes.

 

The table below analyses financial instruments into a fair value hierarchy based on the valuation technique used to determine fair value.

 

·     Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

·     Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

·     Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

 

There are no level 1 instruments. The only Level 2 instruments are forward exchange contracts and interest rate swaps.

 

 

Unaudited

Unaudited

Audited

 

30 June

30 June

31 December

 

2017

2016

2016

 

£000

£000

£000

Foreign exchange contracts

46

277

93

Interest rate swaps

243

622

433

 

289

899

526

 

Except for forward exchange contracts and interest rate swaps, the fair values of financial assets and liabilities are considered the same as the carrying amounts for the Group.

 

 

15 Related party transactions

During the period a decision was taken to exit from sales to the domestic Chinese market.  This market had not been a priority for the Group and was one in which the Group had struggled to compete on price, given the focus on UK and European standards of quality in the Group's product range.  In order to give effect to an orderly transfer and exit, the rights to the Ross trademark and relevant patent (which were carried at £nil net book value) were transferred for £nil consideration to Jiaxing Ross Trading Limited.  Based on a third-party valuation, finished goods inventory was sold for £0.240m, realising a loss on sale of £0.217m to the same entity.  Jiaxing Ross Trading Limited is a related party as at the time of the transactions it was wholly owned by a member of the Group's key management personnel.  Since the initial transfer and during the remainder of the period, the Group has made sales of £0.57m including mark up to Jiaxing Ross Trading Limited.  During the period Jiaxing Ross Trading Limited was sold on to its largest customer with no gain to any employee of the Group.

 

At the start of the period £247,000 was owed under shareholder loan notes to John Hornby, CEO, this balance was fully repaid during the period no interest was received by John Hornby CEO. No balances are owed at the period end. 

 

 

16 Date of Approval of financial information

The interim financial information covers the period 1 January 2017 to 30 June 2017 and were approved by the Board on 8 September 2017.  Further copies of the interim financial information can be accessed on the Luceco plc investor relations website, www.luceco.com.

 

Responsibility Statement

 

 We confirm to the best of our knowledge:

 

·      the consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

 

·      the Interim Executive Review includes a fair review of the information, required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and

 

·      the interim results include a fair view of the information required by DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

At the date of this statement, the Directors are those listed in the Group's 2016 Annual Report.

 

Approved by the Board on 8 September 2017 and signed on its behalf.

 

 

 

 

John Hornby                                                                         David Main

Chief Executive Officer                                                           Chief Financial Officer

 

 

 



 

 

Additional information

 

Financial calendar

Ex interim dividend

22 September 2017

Interim Dividend payment

27 October 2017

Half year end

30 June 2017

Half year interim management statement

11 September 2017

Year end

31 December 2017

Full year preliminary statement

March 2018

 

Company's registered office

Luceco plc

Building E Stafford Park 1

Stafford Park

Telford

TF3 3BD

www.luceco.com

info@luceco.com

 

Independent auditor

KPMG LLP

Statutory Auditor

Chartered Accountants

One Snowhill

Snow Hill Queensway

Birmingham

B4 6GH

 

Financial advisor and broker

Numis Securities

The London Stock Exchange Building

10 Paternoster Square

London

EC4M 7LT

 

Principal Bankers

HSBC Bank plc

8 Canada Square

London

E14 5HQ

 

Registrars

Capita Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

 

Company Secretarial services

Capita Asset Services

1st Floor

40 Dukes Place

London

EC3A 7NH

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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