Luceco PLC
LSE:LUCE

Watchlist Manager
Luceco PLC Logo
Luceco PLC
LSE:LUCE
Watchlist
Price: 128 GBX 1.59% Market Closed
Market Cap: 200.3m GBX
Have any thoughts about
Luceco PLC?
Write Note

Earnings Call Analysis

Summary
Q2-2022

Luceco Reports Strong Market Position Despite Short-Term Challenges

Luceco reported revenue of GBP 106.4 million, slightly down from last year due to customer destocking. Adjusted operating profit fell 40% to GBP 11.5 million, yet remains 60% above pre-COVID levels. The company anticipates that gross margins will strengthen in the second half, with expectations for full-year earnings to meet market forecasts. The outlook highlights potential growth from the EV charging market, expected to reach GBP 500 million by 2025, with revenue from acquired companies poised for significant increase. Overall, despite short-term softness in DIY markets, Luceco sees long-term growth opportunities driven by infrastructure and residential investments.

Earnings Call Transcript

Earnings Call Transcript
2022-Q2

from 0
Operator

Good afternoon, and welcome to the Luceco plc interim results investor presentation. [Operator Instructions]

Before we begin, I'd like to submit the following poll. And I'd now like to hand it to John Hornby, CEO. Good afternoon to you, sir.

J
Jonathan Hornby
executive

Thank you very much, and thank you very much, everybody, for joining this webcast of our first half results from 2022.

Turning to Slide 3. Our revenue in line with what we said in the July update at GBP 106.4 million, with operating profit of GBP 11.5 million. This compared to the pre-COVID period is an extremely strong result. However, disappointingly, it's not as good as we made in the first half of last year. As we know, there's been a significant slowdown in the DIY demand particularly. And as stated before, our customers overstocked in that period, and we are now feeling the effects of ongoing destocking. However, as I say, up against a 2019 prepandemic comparative, our revenue was up almost 30%, and our operating profit was up more than 60%. And we've well outperformed the market during that time.

Turning to the next slide. We are well positioned for the macroeconomic uncertainty ahead. We did a lot of work last year on passing on the inflation that we experienced in the likes of the commodity prices and also freight rates. And our gross margin in the second half of this year will be significantly stronger than in the first half.

We also made a successful entry into the EV charging market, which we think is a huge opportunity for the future, and about which, I will speak more later. And we also purchased an excellent lighting company called DW Windsor. We made a lot of progress on our low carbon footprint, which we believe will become an increasingly important differentiator in the market. And we have healthy balance sheet.

The outlook for the second half of this year -- well, since we last spoke to market, we have been trading in line with our expectations. The consumer DIY demand is expected to slow, but we have been expecting that for some time. However, the professional contractor remains strong, and therefore, we expect full year earnings to be in line with current market expectations. We are, therefore, emerging from the pandemic as a stronger business with significant long-term potential growth prospects.

And with that, I will hand over to Matt.

M
Matthew Webb
executive

Okay. Thank you, John. Good afternoon, everybody. Just before I take you through the detail of the financial performance, I just wanted to pull out some of the key highlights within our numbers on this slide. So for those of you that have followed the Luceco story, you will know that last year was an outstanding year for the group. Within those outstanding 2021 results, we flagged that first half -- the first half was particularly strong. We enjoyed buoyant sales at high margins. The buoyant sales were helped by the pandemic. In H1 2021, the furlough and vaccine programs combined to give consumers the confidence to spend, but sporadic lockdowns diverted that spending disproportionately towards home improvement and that obviously benefited us.

As -- and our margins at that stage, so the first half of 2021, were still healthy as they had not yet been meaningfully impacted by the way of input cost inflation created by the global increase in demand for goods. In the current half year, we have perhaps inevitably falling short of that record prior year performance as home improvement activity has begun to normalize post COVID. And normalization of both demand and supply this year prompted some of our large distributor customers to reduce their own inventory of our products in their supply chains. This left our first half sales temporarily lower, widening the gap to last year. I'll talk more about destocking in a moment.

In terms of the numbers themselves, you can see that revenue came in at GBP 106.4 million, which was within 2% of last year's level. And that was the function of a reduction in like-for-like sales, broadly offset by new sales contributed by acquisitions. Adjusted operating profit came in at GBP 11.5 million, which was 40% lower than last year, reflecting that reduction in like-for-like sales. And the reduction in EPS at the bottom of the page broadly mirrored that of adjusted operating profit.

Now, obviously, it was a bit disappointing to fall short of last year's numbers, but we do need to put this into the appropriate context. So as our markets normalize, it is useful, we believe, to compare our results to the last set that we published pre-COVID, namely H1 2019. We have made this comparison on the slide, as you can see. And as can be seen, the broader context of these results is that our performance remains well ahead of prepandemic levels, underlining the strategic progress that we have made over recent years. And John will expand upon that later in the presentation.

Okay. So moving on to the next slide. I just wanted to give you a bit more color behind the profit performance. Once again, here we provide an H1 2019 pre-COVID comparison. As I mentioned a moment ago, revenue of GBP 106.4 million was the product of 2 factors: so firstly, a circa 17% like-for-like sales decline; and secondly, revenue added by the acquisition of DW Windsor and Sync EV. One factor broadly offset the other, leaving group revenue only 1.7% lower than last year. But revenue remains nearly 29% higher than H1 2019, meaning we have undoubtedly gained share during the pandemic.

Gross margin came in at 34%, which was certainly lower than last year's record first half performance of 38.5%. This was largely due to the decline in like-for-like sales. So last year, we saw particularly strong demand for wiring accessories, which is our highest margin product category and one which we make ourselves in-house. This means our manufacturing overhead at that time was being spread over a very high production output and that benefited gross margin. This year, of course, we have seen the opposite effect, holding back margins. Some of the reduction in wiring accessories volume this year has come from the impact of customer destocking that I referenced earlier. And of course, destocking is fundamentally temporary in nature, meaning the production utilization and therefore, margin should improve once customers have rebalanced their own imagery levels of our product.

We are also seeing margins benefit from the evolution of cost inflation. We saw the selling price increases that we put in place to combat inflation come through in full effect during the first half. And the input cost inflation itself now seems to be reversing in areas that most impact us, BG commodity prices and sea container rates, although clearly, the situation is quite fluid. Collectively, this means we exited the half at a gross margin of 36.5%, and that was higher than what we achieved on average for the half as a whole, which is obviously encouraging momentum as we start the second half.

Turning to overheads. These were kept in tight control. Acquisitions added GBP 3.7 million of overheads to our half yearly overhead bill, but total overheads only increased by GBP 2.2 million, meaning that we lowered overheads across the rest of the group, and this was thanks to lower variable pay and controlled discretionary spending. The net result of all of this was an adjusted operating profit of GBP 11.5 million. That was 40% lower that are truly exceptional H1 2021 performance, but still 60% ahead of where we were pre-COVID. We were able to make some good progress on the tax line. So our adjusted effective tax rate has dropped steadily over recent years as we have managed our tax matters better, and this year was no exception to that trend. We achieved an effective tax rate of 14.3% for H1 and should be able to maintain a tax rate of 15% for the year as a whole.

Okay. So this slide provides a bit more detail on the drivers of the revenue evolution. I mentioned earlier that our performance was impacted by customer stock movements. This drove the majority of the like-for-like revenue decline that you can see at the top of the slide. So let me just explain this in a bit more detail. So the construction products industry as a whole has experienced strong market conditions since the second half of 2020, particularly in the home improvement sector. However, production and supply chain capacity in the market has not always been sufficient to fully meet that demand having been reduced in the early days of COVID. In H1 2021, distributors serving the industry, i.e., our customers, responded to tight supply chain conditions by stocking up to maintain service levels and meet expected future demand increases. In short, they bought more of our products than they sold, and obviously, that boosted our sales.

In H1 2022, normality has begun to return to both demand and supply, allowing our distributor customers to reduce their stock levels, buying less from us than they have sold. We know this because with help from our customers, we have been able to compare their sales of our products to end users with our sales of our products to them. Any difference between the two is a stock movement. We believe the net effect of these stock movements was circa GBP 15 million reduction in revenue relative to H1 2021, which is obviously significant. Customer stock changes, therefore, drove the majority of the reduction in like-for-like sales. Absent these actions by our customers, our like-for-like sales would have declined by approximately 2.5%, not the 16.5% that you can see at the top of the slide. I'm pretty sure this was happening to some extent across the industry, but the impact on us is large because, a, we have large customers serving the hottest construction market, namely home improvement; and b, these customers buy from us directly in China on what's called an FOB basis. So that means they buy products on long lead times and long lead times require them to hold a lot of inventory.

In 2021, we were not fully aware that this was happening. Manufacturers like us generally don't have great visibility of stock of their product elsewhere in their supply chain, but we have worked hard over the last few months to get and keep the visibility that we need. This destocking phase will continue into the second half of this year and into early 2023, but there is some good news within this. Firstly, the destocking phase -- this destocking phase, like all destocking phase, is fundamentally temporary in nature. And this one is most unusual in terms of its size and duration. It is very much a function of the unprecedented circumstances created by the pandemic. And secondly, end user demands for our products is clearly better than our revenue line currently suggests.

Okay. So there's no question that temporary customer destocking meant that our sales underperformed at a wider market in the period, but the key question really is, how do we perform versus the market absent destocking? This is relevant because this is the performance that we will see when destocking inevitably comes to an end. In short, we believe our addressable market slowed by 2% in the period. Admittedly, that's a 2% decline net of a big price increase driven by cost inflation across the industry. And given our selling prices are on average 12% higher than a year ago, we believe -- and we believe we fundamentally followed the market on price. This really says that market volumes are about 14% lower than a year ago, and clearly, that's a fairly significant slowdown.

The majority of the slowdown, as you can see at the top there, came within the DIY market as consumers rediscovered old ways to spend their money, i.e., on travel and entertainment. Whereas the professional residential RMI market, i.e., the residential electrician, was by contrast -- that [ bottom ] market was, by contrast, flat. We believe this held up better since electricians continued to complete residential renovation work that they won last year. Nonresidential and infrastructure sectors were more active than last year, which is very encouraging. And we saw the benefit of this in our LED project installed businesses. As I mentioned earlier, we estimate that our like-for-like sales decline, absent customer destocking, in other words, the decline in end-user demand for our products, was 2.5%. This means end-user demand for our products has broadly evolved in line with the wider market over the last 12 months.

Taking a longer-term perspective, we believe we have increased our share of the market during COVID, i.e., since H1 2019 for 2 reasons: firstly, we have added revenue and gained share by recommencing our M&A strategy; and secondly, on the previous page, you may have noticed that our sales have grown by 12.8% on a like-for-like basis since 2019. And this is despite a strong temporary headwind from customer destocking right now. Were it not for that, we estimate that we would have grown by 21% over the same time period. And we believe that, that level of growth is faster than the market.

Okay. On the next slide, this effectively mirrors the slide that you saw before for revenue, but this time showing operating profit. In the top chart, you can see we experienced a GBP 6.1 billion like-for-like reduction in OP. We believe all of this is attributable to customer stock changes. Indeed, we estimate that if that demand had mirrored end-user demand, our profits would have actually grown slightly year-over-year. And this is thanks to the progressive recovery of input cost inflation, which I'll talk more about in a moment.

Customer stock changes had a significant impact on revenue and profit. This is because they largely involved the same high-margin wiring accessory product category sales that I referenced earlier. As you can see in the bottom chart, the group has delivered significant like-for-like profit growth during the pandemic. And again, this was despite a temporary headwind of customer destocking, and therefore, profit will benefit when destocking inevitably comes to an end.

Okay. So this slide provides an update on an all favorite, if you've been a party to Luceco webcast in the past. So this is input cost inflation. My last update on this was back in March. At that time, I said that input cost inflation and currency movements collectively, and these are effects that have occurred during the pandemic, they were on course to add GBP 25 million to our annual cost base. The good news is that inflation is now moving in our favor overall, but clearly, the situation is fairly fast moving.

My latest estimate, as you can see top right, is that inflation will now add GBP 21.5 million to our annual cost base, not the GBP 3.5 million -- sorry, GBP 3.5 million less than before. And to be clear, this is due to reductions in price, not volume. Our rate of spend has obviously slowed this year as activity in the business has slowed, but that's not a factor here. So for this purpose, I have kept activity levels constant throughout this analysis. Up until this year, the impact of cost inflation was largely confined to the cost of products, but we are about to see this expand into the cost of labor and services, i.e., overheads. It's very difficult to say at this stage what the cost of this will be. In my latest inflation estimate at the top of the page, I have shown what I think is a fairly conservative view, and that is namely a GBP 3.2 million or 7% increase in our overhead base, excluding depreciation. We will obviously do what we can to minimize that whilst retaining the talent that we need within the business.

The good news here is that we have the selling prices in the market today that can accommodate this amount of inflation in aggregate, as the bottom charts attempt to show. So looking at the right-hand chart, the selling price increases we have in place today will generate approximately GBP 22.5 million of extra annual income. And the prices are set, I say, they are in the market as we speak. The only thing that needs to happen from here is, we need to see a small annualization benefit from the prices that we have in place. Comparing to the left-hand chart, the GBP 22.5 million of income is actually GBP 1 million more than the total annual inflationary build that we expect to see. And obviously, that provides a little bit of room for maneuver as inflation evolves.

While selling price increases and cost inflation are fairly well balanced in total, the bottom charts also show the lag we have seen between experiencing the inflation and passing it through. So to expand on that, up until the end of 2021, which is the dark green bars, our annual cost base had increased by GBP 16.5 million, and GBP 7 million of this had been offset by selling price increases. And that, therefore, means that by the end of last year, cost inflation had reduced our annual profit by just under GBP 10 million. Now that's a big number, but it reflects quite how unusually sharp and widespread the inflation was. The good news is that the selling prices have now broadly caught up with inflation, as we said that they would. So in 2022, we have reversed the GBP 10 million profit headwind, and therefore, insulated our gross profit from inflationary forces. This catch-up in the recovery of input cost inflation helped with our underlying profit progression in the period. It's very difficult to say what happens next. If aggregate inflation impacting us continues to reverse, we are likely to see the same lag effect in reverse, i.e., cost deflation leading selling price deflation. And therefore, that should theoretically give us a temporary profit boost in the future.

Okay. So just finishing up on the numbers. This slide shows working capital, cash flow and net debt performance. As you can see on the top left, supply delivery lead times in the first half were longer than they were on average in 2021, but not actually any worse than they were at the very end of last year. In fact, if anything, we've seen lead times shorten as 2022 has progressed with port and container congestion becoming much less of a problem. We did keep our inventory cover fairly high in early 2022, but supply chain normalization now gives us the opportunity to bring this down. And we are, therefore, targeting a circa GBP 10 million reduction in inventory over H2.

The chart on the bottom left shows our historic free cash flow generation by half year. Cash generation is naturally weighted towards H2 in this business. So H1 is never really a high point for us. But H1 2022 was certainly not our best, to be honest, and this was really due to keeping inventory high, but this should turn around in H2, as I've described. Our borrowing and debt leverage increased in the half. We did make fairly large tax and dividend payments against strong prior year earnings in the period. But plus, of course, we completed the acquisition of Sync EV. I've got every confidence that debt will reduce in H2 as inventory reduces, and cash flows benefit from our improved gross margins that we're carrying into the half. But overall, I feel like we have a healthy balance sheet with ample committed facility headroom and leverage in the middle of our targeted range of 1 to 2x EBITDA. So we're well prepared for any macro headwinds that may come our way.

And with that, I will hand you over to John.

J
Jonathan Hornby
executive

Thank you, Matt, for that excellent summary. As Matt has said, it's obviously disappointing to be presenting results weaker than the same period last year, but as per this slide, I think it's important to keep it in the context of the period before the pandemic. So revenue up almost 30%; operating profit up 60%; operating margin, 2.5% higher; and EPS up as much as 87%, which is a pretty excellent performance in that context. And I'm just going to go through some of the other areas of the business where we have made significant progress. But before I do that, some of the longer-term market drivers. So we like the industries that we're in, and these are some of the reasons why. Every few years in the U.K., there are new electrical standards, and these are driving product innovation and more demanding regulations, which increase the value of our products.

Consumer units, for example, last year had a major upgrade, and more and more as EV charging and solar installations are installed, more and more consume units will need to be changed and updated, for example. Other new technologies as an example here of a plastic wall socket that we used to sell for about GBP 1. Now we sell a USB socket for approximately GBP 8. As we sell millions of sockets, this is an example of where innovation has greatly increased the value of the category. Furthermore, ongoing investment in the housing stock in our country has been driving. U.K. residential RMI spending well above average rates of GDP. In fact, over the last 20 years, U.K. resi RMI has been approximately 4% per year, and annual house prices have been in excess of 5% per year. And because of the pandemic, more and more people are obviously spending more time working from home. This, we believe, will be driving further investment in the housing stats. Also worth pointing out that as many as 4 million homes in the U.K. fall below the decent homes standard and will require further investments.

And finally, the climate emergency. The electrification of transport and the electrification of heating will require a general upgrade to the residential electrical systems, which will require more of our products and more of the accessories and peripheries that we sell, and therefore, should benefit us over the longer term.

So a review of how we have grown against the prepandemic comparator. As I said before, we have grown almost 30%. That's a market, which has grown at only 15%, so new business wins. And we've been overweight with successful customers such as Screwfix and ToolStage, and also some excellent M&A,[indiscernible] talk about later. Particularly, the EV opportunity where we purchased a small business called Sync EV earlier this year, which will give us access to a market that we believe, by 2025, will be worth GBP 0.5 billion. We've also become more of a diversified business with less exposure to the consumer channel. As you can see in the table in the top right, our professional projects and our professional wholesaler business where we are supplying the contractor has grown as a percentage of the overall turnover. Also in the period, we have closed underperforming businesses in France and Germany, and now all of our overseas startup businesses are making decent returns. This has enriched our overall group operating margin.

This is some examples of the innovation circuit protection. As I said earlier, a whole new range of regulations came out last year and that has driven the increases in the value of this category. We are constantly investing in our product ranges, and historically, this has been a major driver of the group's growth. On the top right, you can see some examples of the product innovation we've done in the business called Kingfisher Lighting that we bought in 2017. When we bought that business, it had turnover of approximately [ GBP 11.7 million ] and was making about GBP 1.2 million profit. This year, the turnover should reach approximately GBP 17.5 million, and we should make profits in excess of GBP 2.5 million. So that has been a hugely successful acquisition from us, and we are hoping that we can do the same with the DW Windsor [indiscernible]. There's some information on the EV charging business that we bought. We are launching new products, particularly higher [ voltage ] phase 3 products later on into next year.

Move to slide. Other areas of the business where we have been moving forward, we have invested a lot in the training, on apprenticeships and [indiscernible]. We believe that if we invest in the next generation of contractors and we educate them in the wider market, but also on using our products particularly that we can increase their loyalty to our brands. On the climate side, as you can see in the graph on the top right, we have one of the lowest carbon intensity in our sector, and we have recently joined the science-based target initiative. This is an area where we think our green credentials can also help us in the market as more and more our customers and contractors are highly conscious of the climate impact of all the products that they are buying. And lastly, we have invested a lot in our people. We have a 7% improvement in our employer satisfaction survey, and we've invested over 7,000 hours in employee training.

And now I'll just update a little more on the acquisitions. So DW Windsor is an outdoor lighting business in the public realm. So major lease selling to local authorities has roughly a 14% market share [ out of ] GBP 300 million market, and it's highly complementary with the Kingfisher business, which I mentioned earlier. We paid approximately 7x EBITDA, and last year, it had revenues of approximately GBP 23 million, which it will have similar revenues this year. The progress to date has been excellent. We've been integrating it with the group's sourcing ability. We have reengineered products, and we believe we can significantly improve the gross margin of this business going forward. It has an excellent brand, an excellent team and an excellent position in the market, and we think long term will prove to be an excellent addition to the group.

Sync EV is a business that we invested in last year, and we completed the acquisition of in March this year, primarily focused on home and residential EV charging devices. It has only a 2% market share so far of the market, which is forecast to increase extremely quickly up to GBP 500 million by 2025. We paid approximately GBP 10 million, and the business turned over GBP 3 million last year. This year, however, that will more than double up to GBP 7 million, and we think we can double it again to approximately GBP 15 million next year. We are using our existing commercial teams for the distribution of this product, and as a result, it has an extremely high operating margin.

So the outlook for the future. Just before I go into that in specific detail, here are some of the market trends that we are experiencing currently. So residential DIY, this is the area which was particularly strong in the pandemic as people working from home and locked down at home spent an unusually high amount of money on DIY. As well as an increase in demand, we also saw a significant pull forward of demand, and therefore, after such a busy period, there is inevitable weakness. On the residential side, on the professional contractor, again, it is weaker than before, but it's still significantly ahead of 2019. However, the nonresidential and infrastructure side of our business have been performing very strongly, and the market actually continues to be highly robust. For example, Kingfisher Lighting I mentioned before, [ their sales ] are up over 30% this year.

So the outlook for the rest of the year. Trading has been in line with expectations in the second half so far. We were anticipating the consumer DIY activity to slow, and it has been doing so. But as I said earlier, the professional contractor market has remained reasonably strong and broadly stable. Improving gross margins will mean that our second half profit will be considerably ahead of the same period in the pre-COVID in 2019 comparison. Indeed, our gross margins in the second half of this year will be considerably higher than in the first half. Therefore, we expect our full year earnings to be in line with current market expectations.

And with that, I will hand over to any questions.

Operator

[Operator Instructions] I'd like to remind you, the recording of this presentation along with the slide and the published Q&A can be accessed by our invested dashboard.

John, Matt, as you can see, we've received questions throughout today's presentation. Thank you to the investors for submitting that. We just got another one coming as well. Could I just ask you to read out the questions and give response to where appropriate to do so, and I'll pick up from you at the end.

M
Matthew Webb
executive

Okay. Yes. Happy to do that. So John, the first question appears to come from yourself. So from John H. So why does Sync EV get such poor customer views? 80% of trust pilot reviews are one star.

J
Jonathan Hornby
executive

Yes. I mean that's a very fair question. They were a victim of their own success. So the business grew very strongly last year, and it was a very small team. The sales exploded at the end of last year and the early part of this year before we made the acquisition, and they didn't have enough technical support and aftersales in order to keep all of their customers happy. Since acquisition, we've increased the [ merger ] technical support and aftersales customer service considerably from actually 1 person up to 5 person. And we've also improved the products in terms of reliability and the software installation. So I'm very confident that we can improve the trust pilot reviews from here on in. So the new products that we've launched that we've actually made in our own factory in China have been very well received by the market. And as I say, we've adequately resourced the aftersales and customer service element of the business, which, prior to our acquisition, was lacking.

M
Matthew Webb
executive

Okay. So next question from Ian. What do you see as the biggest opportunity and the biggest challenge in the coming year?

J
Jonathan Hornby
executive

Well, I think the biggest opportunity would be EV. We have a very significant market share of U.K. residential electrical. We sell more sockets than anyone else in this country, particularly into, as I said, in residential space where EV charges are primarily going to be located. So if we can convert some of that market share into a meaningful market share in the EV charging category, it should result in a very large and successful business for us. The biggest challenge is, no doubt, the wider economic macro situation. That's obviously changing by the hour as the new government makes their plans, and we will see how that plays out. But there's no doubt that the economic backdrop for next year is going to be more challenging than it's been for a while. So we'll have to see how that plays out.

Matt, do you want to add anything to that?

M
Matthew Webb
executive

No. I think it's a great summary. And then the final question we have so far is from Mark. So thank you, Mark. With the EV charging market, how do you see the competitive pressures in growing share?

J
Jonathan Hornby
executive

Yes. I mean, look, we have a competitive product in terms of price and cost. We're manufacturing it at our own factory in China. We have a competitive position in the marketplace in terms of our brand. Our BG brand is highly accepted by the contractors. There are 10,000-plus contractors using our products at any time, and so we've dual branded the Sync EV product with a BG, Sync EV brand. We have the route to market. We have thousands of electrical distributors who stock our products. We have very strong relationships with the likes of Screwfix and others. So we definitely have a route to market. I think there's every reason we should be successful.

And as I think I've said elsewhere, in August, we did [ GBP 800,000 ] of revenue in the EV category. There are lots of other products that we're developing in and around the category because it's not just the charger we can sell with all the periphery and accessories. So I think we should be able to build a significant business here.

Matt, do you want to add anything?

M
Matthew Webb
executive

It's good. Okay. Well, that's...

J
Jonathan Hornby
executive

There's one more.

M
Matthew Webb
executive

Yes, there is. Okay. So again another one from Ian. So are you at the optimal size and product mix? Or do you see there being a need for further acquisitions and additional product sectors?

J
Jonathan Hornby
executive

I don't know. I mean optimal -- I mean I think -- I mean our market shares in many categories is very small. I mean our market share in U.K. lighting would be sub-5%. Our market share in international wiring accessories would be 0. Our market share in other categories is quite high, and it's probably sufficient to drive the operational leverage that we need to make a good return. And you can see that in our numbers. U.K. wiring accessories is a highly profitable business for us. U.K. lighting, not so much. So certainly, we want to grow our business. We want to grow organically and inorganically. And we will continue to invest in new products, in new markets and in new acquisitions.

Matt, do you want to...

M
Matthew Webb
executive

Yes. So I mean there is a slide in this deck, and I think it was actually shown as part of John's section where we just sort of remind everybody that we sell GBP 200 million worth of stuff. But ultimately, the biggest market that, that is sold into is electrical wholesale, and that is a market worth many billions. So there's a lot of room for us to move into in terms of products that are ultimately installed by professional contractors. And that's a part of the market, which is high margin, is attractive, is sticky, is branded. It's the kind of part of a market where you probably have to acquire your way in. I see a lot of potential for the group to use its cash from operations to gradually build out a portfolio of professionally installed electrical products. And EV charging is, but one example, but there are many others.

J
Jonathan Hornby
executive

Matt, can I also add? I mean we've been talking a lot about our U.K. business. We do also have international businesses. We have a business in Mexico, which is small, but is highly successful and is growing. We have a business in Spain. We have a business in the Middle East, based in Dubai. I mean all of these are actually subscale businesses, i.e., they're not the optimal size that they need to be to make a really excellent return. So definitely investing more in those businesses and growing them up to be that size would be one of our key objectives.

M
Matthew Webb
executive

Okay. So the next question is from Scott. Thank you, Scott. Are you still considering acquisitions to diversify manufacturing away from China?

J
Jonathan Hornby
executive

Yes. I mean I was in Poland yesterday, in fact, looking at a possible acquisition in Poland, where we could move some of our manufacturing from China. I'm not necessarily sure that, that particular solution is the right one, but yes, I mean, we are very cognizant of people's concerns around our concentration risk on the sourcing side, particularly from China. And it's high on our agenda to try and mitigate that in the coming years.

M
Matthew Webb
executive

Okay. Well, there are no further questions showing for now. Mark, I think -- I guess we're back to you. Sorry [indiscernible].

Operator

John, Matt, thank you very much. I think you actually manage to address all those questions from investors. And of course, the company will review all questions submitted today and will publish those responses on the Investor Meet Company platform. But just before we direct investors to provide with their feedback, which I know is particularly important to you both, John or Matt, can I just ask one of you for a few closing comments?

M
Matthew Webb
executive

Yes. Sure. Well, thanks, everyone, for joining in this afternoon. I think this is certainly not the first time that we've been on the IMC platform. We're always pleased to join you here. It's an important part of our investor outreach strategy. I think it is the first time that we've managed to do this on the same day that we published our results, and that's quite right. So thank you very much for your time. Thank you for listening to our results and story, and we'll see you in 6 months' time.

Operator

John, Matt, thanks once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This only takes a few moments to complete, but I'm sure will be greatly valued by the company.

On behalf of the management team of Luceco plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.

J
Jonathan Hornby
executive

Thank you.

All Transcripts

2022
Back to Top