Luceco (LSE:LUCE) — Full Year Results

0:01 Good morning, and welcome to the LUCECO PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:28 I'd now like to hand you over to John Hornby, CEO. Good morning to you. Hello. Good morning, and thank you very much, everybody, for attending this webcast. Our company overview on page three of the presentation, We are a designer and a manufacturer of electrical products, including wiring, accessory, LED lighting, portable power, and now EV charging. Our purpose is to help people harness power sustainably in everyday life. We sell to a mixture, of the professional contractor channel and the consumer end users. We sell through all of the distribution channels, including hybrids and retailers and electrical wholesalers.

1:16 We have an established we have an established customer base, and we have long held UK heritage brands. And more recently, we have been expanding overseas. Three reasons you should be thinking about investing in us is we operate in very attractive markets, high growth, high margin. We have an advantaged business model, and we have been consistently delivering highly compelling financial outcomes. Our strategy is to grow, to innovate, and sustain. Our culture, we are team focused, entrepreneurial, and results driven whilst all at the same time being highly principled. In The UK, our major operations are out of Telford, but we also have lighting businesses, in The Midlands and just outside of London, and we have our headquarters in London.

2:15 In China, we have our own factory that we built from scratch just outside of Shanghai, in a place called Jaxing. And then we have sales operations throughout the world in Spain, UAE, Mexico, Hong Kong, and South Africa. And we currently have about 1,600 employees worldwide. Turning to the next slide. We will go through our financial highlights for the year just ended, which was an extremely strong financial performance. Our sales were up over 30%, and our adjusted operating profit also up 30%. We have more than doubled the profit over the last two years and almost tripled earnings per share.

3:00 Our markets over lockdown and throughout the pandemic were, for the most part, exceptionally strong. However, we have made the most of those markets. Our vertical integration, owning our own manufacturing base was was a huge help, and our supply chain, was certainly better than our competitors. We have, however, seen a huge wave, as you will know, of commodity price inflation and also in the shipping costs. However, we believe that we have successfully passed all of that into the market, and our margins will be returning to the extremely high levels that we were achieving before. We've also bought some businesses.

3:47 We made an acquisition of an exceptional lighting company, DW Windsor, in the autumn. And earlier on last week, we announced that we had acquired an EV charging business called Sync EV, which is a huge opportunity for our group, and I can talk, more about that later. Last year also seed also saw an improved focus on ESG. We were carbon neutral, and now 2025% of our sales come from low carbon products. And with that, I will pass over to Matt to go through the numbers in a bit more detail. Okay. Thank you, John. Morning, everybody. Great to be back on the IMC platform once again.

4:36 So I'll just start by walking you through if I can get the slides to move forward. Yeah. There we go. Yes, just talking through some of the key highlights here. So little doubt that 2021 was an outstanding year for the group. So as John referenced, revenue grew by 30% to $228,000,000. That was the biggest quantum of increase in revenue that this group has ever produced. Adjusted operating profit also grew by 30% to GBP 39,000,000. And that means, of course, that we did a great job of converting that really healthy top line progress into bottom line earnings. And furthermore, despite almost unprecedented combination of inflationary forces, we succeeded in actually expanding our adjusted operating margin by 10 basis points to 17.1%.

5:31 I'll in more detail how we did that in a moment. And of course, that significant growth in profit resulted in a big increase in adjusted EPS to GBP 20.2, which naturally, we are delighted to share with shareholders via a dividend of GBP 8.1, which was 31 percent higher than the year before. Okay. Moving on to the income statement. I'll give you a little bit more color behind this outstanding performance. So now clearly, we were not alone in reporting strong revenue growth in 2021 against what is typically, for most businesses, a fairly weak COVID impact comparative. But what I think sets our performance apart this year is the progress that we also made against our pre COVID strong 2019 comparative.

6:25 Our revenue growth sorry, our revenue, should I say, is nearly 30% higher than it was before the pandemic began, and nearly all of that progress has been delivered organically. Now some of that did undoubtedly come from supportive conditions in our core repair and remodel or RMI construction market. But there is also little doubt that we have outperformed that market, and I will explain more about how we did that in a second. There is also no doubt that the group benefited from a broader base of growth from its increasingly diverse product and customer base. So for instance, as UK residential repair and remodel markets inevitably cooled down a bit as we got into the second half of twenty twenty one after a very, very buoyant start to the year, we saw our nonresidential and our overseas businesses come through with accelerated top line growth. And certainly, we hope to make this group increasingly diversified and therefore resilient as time goes by.

7:28 Now gross margin, it inevitably retreated slightly as expected to 37.1% in the face of industry wide input cost inflation. But we are satisfied with our selling price resetting plan, as John has mentioned. And that is now fully implemented and through which we expect to pass all of this inflationary effect in full. In terms of the long term outlook for gross margin, clearly, are inflationary pressures that remain across the economy. But I would just say that this business achieved a 40% gross margin before the recent COVID driven inflationary wave. And therefore, we remain confident that we can return to at least that level of performance over time.

8:16 Turning to overheads. These remained under tight control. To illustrate both the overhead control and the natural operating leverage in this business, we state here that in the last two years, we have needed only 1,400,000 of extra overhead to support £56,000,000 of extra sales. Indeed, all of that extra overhead actually came from acquisitions. So that means that we are now using less overhead to support an organic business, which is 30% bigger than it was two years ago. That strong operating leverage of overheads turned a gross margin compression into an operating margin expansion to 17.1%.

9:03 And expanding our profitability in these conditions, I believe, speaks to both the power of our brands as well as the quality of our business model. We also achieved another year of low taxes. So the natural tax rate for this group, given the countries we operate in, really should be about 19%. We have kept it below 17% for the last two years through sensible tax planning overseas. Okay. Moving on to the next slide, performance versus the market. I mentioned a moment ago that we had outperformed the wider construction market. So how did we do that? Well, the building blocks were similar to those that we set out in our half year investor presentation for those that were on the IMC platform at that time.

9:51 Firstly, we operate in attractive markets that are focused on RMI construction. And since the year 2000, RMI construction activity in The UK has grown faster than the wider economy, and it has also grown consistently, so in 18 of last twenty one years, in fact. And we estimate that these attractive RMI construction markets, both in terms of DIY and professionally installed construction, they both drive collectively 80% of our revenue. So as you can see in the top right, these markets also, not only have they outperformed the wider economy over the long term, they've outperformed during COVID as well. So but you can also see in that chart in the top right that we have performed better than the wider RMI market. So how have we done that? Well, in all in all honesty, we do have a greater share than our competition of the DIY and small contractor end of the RMI spectrum.

10:54 And it is that part of the RMI market that has been most buoyant as people have spent more money on their homes during COVID. But that's really only part of the story here. So as you can see in the bottom left, we have there's also been a lot of self help as well that has aided that outperformance. So we picked up £27,500,000,000 of new business wins and very profitable business at that. We've used our vertically integrated model to add inventory to combat supply chain disruption when some of our competitors found their warehouses to be empty. An investment in our fulfillment capability meant that we got more of our inventory into the hands of the customer on time, which when you're serving a professional customer is incredibly important.

11:46 Now, clearly, there is a good chance that our markets will not always be as supportive as they have been in 2021. But the good news is that we have the proven ability to outperform over time. So as you can see in the bottom right, we now have various ways of outperforming. So we started life many years ago as a UK based consumer focused, largely cable reel manufacturer. Over time, what we've become is an international, increasingly contractor oriented manufacturer of various electrical products, not just cable reels. Now our products can still be found in the home, but they can also be found in the office and the warehouse and the factory.

12:36 And increasingly, by virtue of two acquisitions, they can be found on the street. So we're an increasingly diverse business. And you can see the benefits of that in the second half of twenty twenty one in the bottom right when all of our sales channels, four main sales channels, were delivering healthy growth. Okay. Moving on to the next slide, performance by segment. For us, segments are product categories. You can see all of those product categories, all three delivered healthy top line growth and bottom line growth. And all I would say about this is that we now enjoy really quite healthy positions within each of those product categories, and that has been aided by the share that we have taken organically during COVID as well as sensible bolt on M and A to expand into adjacent product categories, such as the recent acquisition of DW Windsor that John mentioned that we completed last year.

13:37 Okay. Moving on to inflation. So this is obviously a subject that is on many people's radars right now. I'm sure you're keen to get an update from us on how inflation is impacting impacting us. Well, now we've always closely monitored this. So let me give you the latest impact. So at current prices, we basically believe that input cost inflation between currency, freight and commodities will cost us GBP 25,000,000

14:07 on an annualized basis in total. And roughly half of that impact came through in 2021, with the rest to come through in later years. Now we do expect the selling price increases already agreed with our customers or implemented will offset this amount in full, albeit with a slight time lag. And the inflationary backdrop is fluid, so we will continue to monitor the situation as closely as ever. And of course, we'll respond accordingly. Now the time lag between experiencing the inflation and passing it through to the customers did temporarily compress our margin in 2021, but this should begin to reverse from 2022 onwards.

14:53 The final point I'll make on this slide is that the fact that we have found a home for GBP 25,000,000 worth of cost inflation, which is greater in quantum the entire profit made by the company two years ago, I think, speaks to the strength of our brands in the marketplace, the leverage we have within the channel and how far we have come as a business in managing these inflationary impacts. Okay. Moving on to the next slide, which is the profit bridge. Clearly, what I've just said about inflation and the quantums involved, it did have a significant impact on our profit progression. So you can see through the the bars in the chart there that we passed through £7,000,000 of the total £13,600,000 of input cost inflation that arose in the year, and that, therefore, left a £6,600,000 temporary profit gap.

15:50 This gap will close from next year onwards. Now we were, however, able to close this profit gap in the year through strong operational execution. So continued investment in our production facility in China delivered a further GBP 1,900,000 of manufacturing efficiency gains. And we also put a lot more volume through our existing sales and supply chain infrastructure, meaning very high conversion of strong sales growth into profit. This allowed us to fully protect, indeed slightly expand our bottom line profit margin. Okay. So this next slide just gives you the latest trends in the biggest inflationary drivers that impact us as a business. So the U. S.

16:40 Dollar, Chinese renminbi exchange rate, the cost of copper and plastic, which obviously play a key part of our products, and the cost of a 40 foot sea container transporting goods from China to The UK. Now in terms of the latest trends, we did actually see a more docile inflationary environment in the fourth quarter of last year and the start of the first quarter of this year until, of course, the most recent terrible events in The Ukraine. Now we do expect to see, all things being equal, a further easing of the C container rate, notwithstanding the potential for some port disruption as China continues to pursue a zero COVID strategy.

17:25 But notwithstanding that, we do expect the C container rate to continue to reduce. But we could see further increases in the commodity costs. So any commodities linked to energy, such as plastic and copper. And of course, we stand ready to react to that if it occurs. Okay. So moving on to Slide 13, overhead evolution. So this gives you a bit more color on the operating leverage that we achieved over the last two years. So the headline here is that we have deployed no extra overheads outside of acquisitions to support GBP 52,500,000 of organic sales growth. So how have we achieved that? Well, it's really been achieved by maximizing the returns from our core businesses, particularly in The UK.

18:13 We have maximized our sales of existing products to existing customers through the consistent execution of our advantaged business model. And this is an obvious but sometimes overlooked source of profitable sales growth. We have also leveraged our existing r and d overheads to develop adjacent products to sell to existing customers. And we've leveraged our highly experienced sales team and sales overheads as well as our reputation to over new customers. So this sharp focus on getting the very most from our existing overheads before we start adding new ones has led us to conclude that we should exit the German market and close our operations in France in the year, as you can see in the bottom half of the slide.

19:06 And our aim is essentially to gradually enrich the quality of this group and the quality of our business as we grow by focusing very keenly on those markets where we have the greatest advantage. Okay. Moving on to Slide 14. So just a summary of cash and leverage in the business. Cash was one years, point really. So as you can see in the top left, we did have to add GBP 12,000,000 of extra inventory in the first half. This limited our free cash flow margin in that period. As you can see in the bottom left, we only did this to ensure continued customer service when supplier lead times lengthened due to well publicized supply chain disruption.

19:54 Were pleased to be able to fund some of this with quicker cash collection from customers, as you can see in the debt of days number. And, of course, we'll unwind this inventory position as and when lead times begin to normalize.

20:07 By by the time we got into the second half, the supply chain situation was getting not normal, but more predictable. And with that, we were able to get back into the 10% to 15% free cash flow margin range that perhaps you would if you follow us, that is what you associate with what we're able to

20:27 produce. But that temporary slowdown in cash generation did not prevent us from maintaining a very healthy capital structure. So net debt leverage, which we now define to be excluding IFRS 16 leases, ended the year at only 0.7 times EBITDA, and that was despite £80,000,000 invested on acquisitions and therefore leaving £84,000,000 of additional borrowing capacity to invest in M and A, part of which, £8,000,000 of which, we have spent completing the acquisition of Sync EV last week, as John as John mentioned.

21:07 Okay. Moving on to, the balance sheet. Not much more ready to say here other than just a point to our return on capital performance, which you can see two thirds of the way down the table. So it's slightly improved to 36.4% in the year, and that is in the middle of our target range of 30% to 40%.

21:30 This is, I would say, the best in our sector. It's amongst the best in any sector, certainly any manufacturing sector, and underlines how seriously we, as a management team, take the management of money that others have entrusted to us. Okay. Moving on to the next slide, just summarizing our performance versus our public targets. So as John said at the start, we do pride ourselves on the consistent delivery of of compelling financial performance. And we we put our long term performance expectations into the public domain for the first time back in 2019. The fact that we have largely met or surpassed these targets since despite COVID highlights the underlying quality of this business.

22:20 We originally stated our targets as performance ranges to be maintained through an economic cycle, but this could imply the fact that we stated it as a range could imply that

22:31 there is a limit to our long term ambition, which I can assure you doesn't exist. So we have just simply chosen to restate our targets, as you can see on the right hand side, as minimum performance expectations, which gives us the confidence to aim high and investor investors' confidence in our resilience. Okay. The final slide for me is Slide 17 here. So

22:59 there's no question that we have made great strides over the last two years, and the numbers speak to that. It does perhaps beg the question in some people's minds as to whether this can be sustained. Now I believe the answer to that question lies on this chart. So the answer is that this group has a long track record, both before and after listing, of sustained profitable market outperformance.

23:24 Our culture, our business model and our balance sheet are ideal for it, and I look forward to rescaling this chart to accommodate further market outperformance in future years. And then with that, I will hand you over to John. Okay. Thanks, Matt, very much. So how have we managed to grow the business over multiple years,

23:46 in the way that we have? Our investment case is to grow, innovate, and sustain. So, Matt, you're gonna do the you do wanna do the slides? Okay. I can do the slides. So on slide 20, we operate in attractive markets. The market size that we currently have available in The UK is about 3,500,000,000. We've grown that opportunity consistently over years by innovating into new product ranges and expanding our offer. I mean, LED lighting was just,

24:22 one example of what we've done. We have grown that business organically, although we've made some acquisitions recently. But there are other examples where we, have moved horizontally into new categories. I can come on and talk about those. The attractiveness of of our market. Obviously, The UK is a very stable place to be operating, and construction is a growing activity as the population increases and becomes richer. And construction r RMI, I which is mainly in the residential space, is also growing as people, for example, live in smaller households.

25:09 And electrical construction within that is growing even faster as there's more innovation and technology coming into the category.

25:22 Increasingly, obviously, decarbonization is gonna be a huge agenda item for many households. And with the cost of electricity going up and up, we believe there's big opportunity for us to get more involved in these kind of activities. EV charging, which I will come on, to talk about later, is a huge opportunity for our group. We have extremely strong market positions in these attractive markets. Wiring accessories, we are number two. LED lighting, we are now in the top 10. And portable power, we are number one.

26:10 How we have grown our opportunity, as I say, is by moving into new categories, organically for the most part. On the left hand side, you can see some examples where we have expanded our offer and our market potential. In fact, 50% of our revenue is developed from new products that we've launched in the last three years. The, EV charger opportunity, and we bought a small business last week, is absolutely enormous for the group. If we are able to get our market share in UK residential and the EV charging market, like we have for our wiring accessories and circuit protection businesses, the market for us would be worth about 100,000,000.

27:02 We have been developing a new product range in this category in our own Chinese factory, and we will we which we will be launching in the next month or so. The current business that we bought turns over approximately £10,000,000 per year, but that has been basically doubling every six months. And we believe that when we combine our expertise

27:33 in marketing and manufacturing and distribution and all of our customer relationships with their brand and position in the market, it will be an extremely strong opportunity for our business. But it's not only new products that, have been fueling our growth, also new customers. In the last seven years, we have acquired £42,000,000 of new customer wins. M and A activity increasingly is going to play an important part in in the group's growth. We have an unlevered balance sheet, and we currently have about 80,000,000 of spare capacity that we could spend on further acquisitions, and we are looking at some very exciting possibilities.

28:27 So one example of an acquisition that we made recently on the next slide is the acquisition of DW Windsor. This is a legacy heritage lighting brand operating just outside of London that we bought for approximately eight times earnings. It is, as I say, extremely well established, particularly with local authorities. And we believe that by combining our sourcing, and manufacturing expertise, we can improve their margins yet further. It has about a 14% market share of a £300,000,000 market. So if we can improve that competitive position, which we believe they can, we should be able to grow their sales significantly. The advantage business model.

29:14 So the lights have just gone out in here. The advantage business model that we have, as I say, innovation range extension and product development has been a huge strength of our company over many years. We design our own products. We make them at our own factory in the Far East, and that's, and this means that we can invest in the manufacturing process. We can invest in automation. We can invest, in better ways of doing things. And this is a big advantage that we have over our competitors who mostly buy from third party OEMs. In terms of marketing, activities, we've been doing a huge amount of work, on our digital assets. We've launched the LUCECO Academy whereby we train the next generation of installers so that they become highly familiar and want to use our products.

30:19 And we've also been investing in our warehousing and fulfillment operations. In terms of, ESG focus, as I said earlier, we had carbon neutral operations in 2021, and we joined the CDP. And in 2022, we shall join the SMP IT. We believe, as I said, that there's a big opportunity for us, taking part in the decarbonization of particularly residential energy use. And we have a we have set ourselves a target of a 100,000,000 pounds of low carbon products to be sold by 2025.

31:16 So the outlook. As Matt said earlier, we have joined we have been enjoying reasonably kind markets for us. So the lockdowns and the DIY boom definitely had a benefit on our revenue line in 2020 and then more particularly in 2021. So we have forecast that in the first half of this year, our sales will be flat, but that is after the acquisitions we have made. So we are actually forecasting a revenue decline of approximately 10%.

32:03 The first half of twenty twenty one, however, was particularly strong for various one off reasons. But without those one off reasons, our sales in the first half of this year would be flat against sales in the first half of last year on an organic basis. Therefore, overall, they would be up approximately 10%. In terms of margin, as we said earlier, we have passed on into the market all of the price that we need to pass on. However, some of those price increases will not impact until the and till the second quarter of this year, which means that the margin in the first half will be slightly weaker than it needs to be. And, obviously, there is a lot more uncertainty in the world than there was only a few months ago.

32:54 We are, however, extremely confident that by investing in the new areas, particularly EV charging, but also investing it in our business model, in our factory, in our fulfillment capabilities, we can continue to outperform in the longer term as we have done over many years. And, Matt, I think you're gonna you're gonna make some summing up words, and then we'll hand over for any questions. Well, I think perhaps questions. Should we do the questions and then make something up? Yeah. John, Matt, thank you very much for your presentation. Ladies and gentlemen, please do continue like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed by your investor dashboard.

33:42 Matt, as you can see, we've received a number of questions throughout today's presentation, and thank you to all the investors for submitting those. Can I just ask you to read out the questions and then give response to where it's appropriate to do so, then I'll pick up from you at the end? Yes. Sure thing. Okay. Right. So the first question is, what is the current status of the Jiaxing manufacturing facility in China? Is it fully operational, and are there any foreseeable COVID related issues? So It is currently fully operational. It has been it has been fully operational since April 2020. It closed down for approximately three weeks in April 2020 and has been running smoothly since then. Everyone would have read about the situation with COVID in China.

34:30 There is a lockdown, in half of Shanghai. We are about a 150 kilometers away from Shanghai. Currently, there is not much COVID in our area, but it is possible. I wouldn't say likely, but I say it's possible that we may suffer some supply interruption as a result of COVID in China in the foreseeable future. Yeah. But just to if I can just add to that, John. I mean, obviously, with there is you know, we're doing whatever we can to to to mitigate the risk. So all of our office workers in the factory now are are working from home.

35:19 We're looking at whether we can come up with some kind of pod arrangement for our factory workers so that they can continue to to manufacture even if the factory itself is in in lockdown. So we're investigating that. And we also you know, investors should note that we do have decent imagery cover right now. So if there is a supply interruption, doesn't necessarily mean lost sales. It wouldn't be helpful, but it doesn't mean to say that we would lose any custom. Okay. The next question is and, John, you're in prime place to answer this given the old air this morning. So is the recent acquisition of DW Windsor performing in line with financial forecasts with the financial forecast that were in place at the time of the acquisition? Acquisition? Yes.

36:04 In short. In fact, the last three months, we've had order intake above what we were forecasting. I'm not saying there aren't improvements that we can make because I think there are a lot, but we bought the business with a plan for it to make approximately £2,000,000 of operating profit this year, and we believe it will do that. However, we also believe there's a big opportunity to improve its margins by by better sourcing, better purchasing, possibly better manufacturing techniques, utilizing group resources more. And, therefore, we believe that in future years, we can improve the profitability further.

36:54 But so far, so good. Yeah. Okay. So next one is for each product category, have you a sense at what point price increases will start to impact demand? Yeah. Good question. I think wiring accessories is not a discretionary purchase. I mean, generally, if you need a new consumer unit or you need a new light switch or now if you need an EV charger, I think, you know, you need those I mean, those things are relatively small cost as part of a larger activity. So I don't think the cost of a wiring accessory impacts the cost of the of the kitchen extension in a meaningful way. Whether or not the kitchen extension goes ahead in inflationary times is a is a different question.

37:53 The consumer products that we sell, the cable reels, we've not yet seen any weakness in market demand as a result of the price increases that we've put through, And I hope that remains the case. Okay. Right. So next question is, what was it about the German market that made it so difficult? Matt, why don't you? Yeah. So so Germany is quite unique in as much as it has a very traditional attitude to brands. So there's a lot of loyalty in the in the contractor base to heritage brands and, in particular, German heritage brands.

38:40 And the distribution model from a UK context is a bit old fashioned as well. So both retailers and wholesalers, you know, they don't really have central distribution, and they therefore want their manufacturer to be distributing the product to their, you know, to their branch network. Now, of course, we're perfectly happy to to deal with our customers that way, but it does rather increase the cost of entry. So you have to invest a lot of time and money and effort in building up your brand to compete with a German equivalent, and you have to put a lot of fulfillment resources into the market to be able to serve the biggest customers and deliver to their branch network. So it's not to say that it we could not have been successful in in Germany. We could have been, but it would have come with a very big check, and it would have been a bit a bit of an up uphill battle.

39:37 And the reality is that we have such strong presences elsewhere, neither, you know, me, John, or the board could really justify it as a good use of our resources. So, ultimately, ultimately, that's why we chose to exit. Okay. Next question. Regarding M and A, are you looking at a significant sized opportunity that would substantially move you away from Chinese reliance or a number of smaller deals to achieve the same in a piecemeal fashion? I think substantially moving away from China is a long term possible requirement.

40:23 I think what we wanna be able to be able to do is if we need to move away from China, have a an ability to do so reasonably quickly. I don't personally feel that there's a there's a pressing need to actually move out of China. I just think there's a pressing need to be able to move out of China. We are looking at acquiring near shore businesses with manufacturing operations in our applicable categories that would be able to expand in the event that we needed to move out of China. And that may be as a result of making a larger acquisition or making a smaller acquisition and then expanding onto that manufacturing platform.

41:20 Matt, I don't know you wanna add anything to that. No. I mean, I think I think I I suppose that the the origin of that strategy is is that, you know, we we feel like the true geopolitical risk of China is not that great. So that there there is a, you know, an issue, and there obviously would be a significant issue if China decided to do something vis a vis Taiwan. You know, we feel like that risk is relatively low and perhaps even lower as a consequence of the West's response to what's happened in Ukraine. Probably what's more of a potential risk is, you know, there being increasing economic disincentive for the West to deal with China. So similar to what Trump did back in 2017 vis a vis imports from China into The US. I mean, that's a that's a probably an increased risk, and that kind of risk kind of materializes over time. It doesn't happen all of a sudden. So it gives us a bit of time to, as John said, build an alternative source of supply to at least mitigate that risk, should occur.

42:37 Okay. What's the next question is, what's your biggest concern for the coming year? Yeah. Well, we've spoken about the COVID risk in China. But as Matt says, I think there's enough stock in the supply chain that even a factory shutdown would be manageable, and I don't think would necessarily result in a loss of sales and, therefore, loss of profit. I think the biggest concern of a lot of businesses in in our position would be that the squeeze on living standards and disposable incomes that we are no doubt gonna experience in The UK may cause, you know, general economic weakness.

43:26 There's not a huge amount we can do about that, obviously, other than, you know, do the best we can at holding prices and and being more competitive. But I think there is certainly more uncertainty about the about the macroeconomic position. I mean, personally, you know, I'm working very hard to make sure that we we make the best of the of the EV opportunity, which I think is is huge. And I think we can if we successfully execute, you know, we can we can mitigate weakness, you know, possible weakness elsewhere. And even against the backdrop of a of a weak economy, we can continue to grow our business.

44:13 I mean, I traded the business through through 2007, 2008, which obviously was the last, you know, major economic event of of of this type. And, actually, you know, the trading wasn't that bad. Our sales declined by roughly five to 10%. So I do worry about the about the economic outlook. But as I say, I don't think the effects on our business would be would be that dramatic. Okay. Next question is and I'm happy to take this, John, if you think it's progress. So what caused profits and the share price to collapse in 2018?

45:02 And could it happen again? Okay. So what I mean, this was slightly well, the origin of slightly predates my my time in the business. But, obviously, I I'm sort of very familiar with with the sequence of events. So there was a bit of a slowdown in the sort of retail side of our business towards the end of twenty seventeen. That's the first thing. Second thing is, and this is probably more meaningful, there was an inflationary cycle. So there was a significant increase in input costs driven by movements in currency and copper. Now ordinarily, the business would have responded to that and clearly has demonstrated its ability to respond to that fundamentally.

45:48 It didn't respond to it quickly enough. The reason why it didn't was because it didn't really fully see the impact because there were some accounting errors that just happened to be happening at exactly the same time. So what should have been seen as gross margin compression was not seen because the accounting errors were masking it. So when the business then realized what was happening, it then responded, just in the same way as we have done over the last twelve months with a significant selling price increase. And it turned the profitability around and put the business actually more than back where it was before that episode started. So the sort of share price reduction and the reduction in profit that occurred in twenty second half of twenty eighteen, profitability, cash generation, etcetera, had been restored.

46:49 So you could say, and I showed you that graph earlier, right? I mean in the previous 11 of financial performance, you can almost draw a straight line all the way up through the progression. There is really only one out outlier. That is 2018, and that outlier was only one half of 2018. And then sort of in answer to the question, could it happen again? Well, it's sort of just the circumstances have just happened again in many ways. We've just been through. We are going through another period of inflation. This one is way bigger. So if you look back at 2018, the business was trying to pass through about 8,000,000 or £9,000,000 worth of input cost inflation. Now it's passing through £25,000,000 and it has done so without any adverse impact on its overall profitability.

47:41 So I could go into all the detail of all the things that we've done, or I could just say to you, in answer to your question, I don't see it likely as happening again because it's not happening now. Okay. That's that one. Moving on to the next one. So given supply chain and geopolitical tensions, was it a mistake moving production to China? And is relocating production to, say, Turkey a good idea to speed up supply and make it less risky? I think we sort of somewhat answered this question already. But was, I suppose, the other point of it was was it a mistake to move to China? Yeah. In 1998, when we took the decision to move our wiring accessory business to China, think it turned over 8,000,000.

48:30 The entire industry moved. Those those brands that actually didn't move no longer exist. At that point, there wasn't really anywhere else that anyone was moving to. And the move has greatly increased our market share and greatly increased our quality and our range offer and the profitability of our wiring accessory business. So I don't think that moving in 1998 was a mistake. I went to Turkey in the autumn. If it didn't have its own macroeconomic challenges, like a almost 40% inflation rate, then I think that would be a good option. And we did look at buying some Turkish businesses, and that might be a road that we decide to go down once the situation in Turkey becomes more stable.

49:24 But I think, you know, definitely, as we have said, being in a position to to move production out of China if we need to is a priority for the group. Okay. So this is the last question now. So there has been significant insider company share disposals or insider slash company share disposals in the last twelve months. Can you explain this? Not sure I've been company share disposals. But Yeah. I think it's so really insider. Or maybe that's they're asking the question of of myself. So eighteen months ago, whenever it was, two years ago, I I sold my shares or half my shares into investment company, which crystallized a capital gains tax.

50:21 And I sold some shares a few months ago to pay that capital gains tax bill. I didn't actually take any additional funds other than the funds required to pay the bill. So since IPO in 2016, I've sold a net net 4,000,000 shares out of a total of 35,000,000. So I've sold in the last five years about 12%, I guess, maybe a bit more of my personal holding, which I think, you know, demonstrates my confidence and future in the business.

51:16 And currently, as I said earlier, I'm, you know, particularly infused by the opportunity of new product categories, particularly EV charging, but also the opportunity that our balance sheet and our cash flow creates in terms of other potential m and a. So I would like I hope it doesn't show that, you know, we're no longer as motivated as we have been before. John, Matt, thank you. I think you've actually managed to address all those questions from investors, then start company. Company. Start Yeah. Sure. Well, I mean, firstly, thanks to everyone for for joining the webcast this morning.

52:12 It's a pleasure for us to to participate in the IMC platform. I think it's maybe the third time that we've done this now, and it and it sort of fits well within our overall sort of investor outreach strategy. Obviously, great performance period for us, so significant progress during the pandemic. But, hopefully, we've also demonstrated today that this is really not just a flash in the pan. I mean, LUCECO has delivered significant progress over many years and consistently. However, I think we've also been transparent that 2021 does set quite a high bar. And it could be that 2022, the year that we're currently in, is a bit of a year of consolidation against that fantastic performance. I mean, I think we're open and transparent about that. If you look beyond 'twenty two, 'twenty two into 2023, this business has everything that it needs to continue to grow and outperform and succeed, and we're very excited by that longer term future.

53:22 Matt, John, thank you very much for updating investors today. Can 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 will only take a few minutes to complete, and I'm sure it 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 morning to you all.