Thorpe(F.W.) PLC Final Results (4059C)

TIDMTFW

RNS Number : 4059C

Thorpe(F.W.) PLC

11 October 2022

Results

for the year ended 30 June 2022

FW Thorpe Plc - a group of companies that de sign, manufacture and supply professional lighting systems - is pleased to announce its preliminary results for the year ended 30 June 2022.

Key points:

 
Continuing operations                          2022       2021                      Exc. 
                                                                                   Zemper 
                                                                                 Acquisition 
-------------------------------------------  ---------  ---------  -----------  ------------ 
Revenue                                      GBP143.7m  GBP117.9m     21.9%         9.9% 
                                                                     increase     increase 
Operating profit (before 2021 exceptional    GBP24.7m   GBP19.2m      28.5%        20.3% 
 item)                                                               increase     increase 
Profit before tax (before 2021 exceptional   GBP24.1m   GBP18.6m      29.8%        25.6% 
 item)                                                               increase     increase 
Profit before tax                            GBP24.1m   GBP20.1m      19.7%        15.8% 
                                                                     increase     increase 
                                                                      26. 5        23.1% 
Basic earnings per share                      17.16p     13.57p     % increase    increase 
-------------------------------------------  ---------  ---------  -----------  ------------ 
 
   --      Total interim and final dividend of 6.15p (2021: 5.80p) - an increase of 6.0% 
   --      Final dividend of 4.61p (2021: 4.31p) - an increase of 7.0% 
   --      Strong revenue and orders growth across the majority of the Group

-- Solid operating profit growth despite challenges with component supply and inflationary cost pressures

   --      Zemper, acquired in October 2021, has been successfully integrated 
   --      Entered into a joint venture investment in Ratio Electric

-- Net cash generated from operating activities, despite increasing stock levels, remained strong - GBP19.7m (2021: GBP21.9m)

   --      Solid start to 2022/23, with operating performance ahead of the start of last year

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR) as supplemented by The Market Abuse (Amendment) (EU Exit) Regulations (SI 2019/310) ("UK MAR").

For further information please contact:

 
FW Thorpe Plc 
Mike Allcock - Chairman, Joint Chief Executive   01527 583200 
Craig Muncaster - Joint Chief Executive, Group 
 Financial Director                              01527 583200 
 
     Singer Capital Markets - Nominated Adviser 
Steve Pearce /James Moat                         020 7496 3000

Chairman's statement

Another year has passed without a return to a more stable business climate, and with one crisis being replaced by another. Nevertheless, I am again pleased to report that the Group has increased its revenue and profitability (before and after the effects of its acquisition of Zemper).

This positive performance is especially admirable considering most companies in the Group suffered severe component shortages throughout the financial year, hampering production output and efficiency, and softening year-end results. Most Group companies continue to face supply shortages, particularly for electronic components and microchips, whilst having substantial order books.

Component scarcities have inevitably affected the Group's enviably high levels of customer service, but I hope the situation is at last improving. In addition, of course, the Group is also contending with significant cost inflation of materials, wages and utilities.

The Annual Report and Accounts contains a more detailed appraisal of each company's individual achievements and challenges.

Group Results

Revenue increased by 22% to GBP144m, or by 10% excluding revenue associated with the acquisition of Zemper. Operating profit increased by 29% to GBP25m, or by 20% on a like-for-like basis excluding the addition from Zemper and last year's exceptional item. A 17% operating profit return on revenue is a good achievement, under the circumstances, but the Board thinks that improvements can be made, and all businesses are targeted to improve.

A high proportion of growth within the Group is again attributable to Thorlux Lighting in the UK and Famostar in the Netherlands.

There was a notable downturn at TRT Lighting due to the lack of a sizeable one-off project during the year and some factory efficiency issues. TRT's order book has now returned to a good level. A new operations director started at TRT in mid-August and is addressing manufacturing performance.

Zemper made a solid start within the Group, despite facing similar issues to other companies as referred to throughout this report.

General Overview

All companies in the Group have significantly increased their stock levels during the year - from a low point of GBP20m to GBP29m on a like-for-like basis - to support their large order books as well as to further mitigate the ongoing supply chain risk. It is important that this stock is carefully managed to avoid overshoot and obsolescence in coming months. Whilst stock has increased significantly overall, it is rare for a fully populated bill of materials to reach the assembly areas, causing the delays mentioned and dampening Group performance as a whole.

Whilst order delivery lead times have increased dramatically, for example at Thorlux Lighting, within the Group we are striving to deliver on time where possible, notwithstanding the supplier issues mentioned.

All companies have been affected by significant cost increases. Whilst the intention has been to recover cost increases by making selling price increases in a fair manner, some Group companies were better than others in achieving this in a timely fashion. Within the Group we need to be agile and react to market conditions, being prepared to reverse price rises if the cost base changes again, as well as driving through efficiency savings where practical.

Electrozemper S.A. (trading as Zemper) has settled nicely into the Group. The timing of Zemper's financial reporting is now aligned with that of the Group; consequently, only nine months of its figures are included in this year's final results. The results presented are dampened by the required acquisition accounting adjustments. Technical teams from around the Group have embarked on several synergy projects and some common sustainability and circularity work. I hope this will improve productivity and enhance margins too.

As mentioned in my interim report, in December 2021 the Group purchased a 50% stake in Ratio Electric BV from the Netherlands - a company that designs and manufactures electric vehicle chargers, connecting leads and electrical wiring accessories. Figures for Ratio are not included in the operating results of the Group, with our share of profits included within profit before tax. Revenue growth, as expected, has been significant, even though Ratio has experienced component shortages like other companies. Profitability has grown only slightly, but is in line with expectations due to the investments required to develop the more high technology chargers especially suited to the UK market and some of the Group's commercial customers. Ratio now has a developing UK operation with five employees, distribution and manufacturing space, and new ranges of cloud-connected chargers which are targeted to be ready in late autumn this year. These are exciting times for all concerned.

FW Thorpe has successfully adapted to rapid changes in its market in recent years, including the wholesale change to LED technology, and now the change to wireless-enabled high technology solutions that provide not only energy savings but many other benefits such as energy and status reporting and data collection. The Thorlux SmartScan system, for example, continues to mature and, in my opinion, is the leading solution for the UK market and beyond. The first-generation system was launched in 2016, and in 2019 won a Queen's Award for Enterprise in the Innovation category. Generation 2 is now available, following successful site trials over the last 12 months. The most recent system offers a raft of new features to keep it ahead of the competition, and provides customers with freedom to manage and communicate with their lights in a much faster, more complete and even more robust way. The new generation SmartScan system was developed in collaboration with Thorlux's biggest customer and resulted in Thorlux winning the lighting contract for one of the largest factories in Europe, in central Germany. The majority of the software is developed in house with Thorlux's own engineers and, as such, is now exclusively in use in most Group companies.

The next challenge for FW Thorpe, which is certainly topical in its industry, is the global one of sustainability. To that end, within the Group we have a good head start, having commenced our programme in 2010. In order to remain in a prime position, FW Thorpe needs to continue to invest in greener solutions for its factories, better sourcing and control of components, more circularity to designs, and more energy efficient product solutions. Apart from the well-publicised ongoing tree planting projects, FW Thorpe will continue to roll out solar solutions for its numerous factory roofs. Through good foresight and, probably, fortunate timing, last year, before the energy crisis and availability issues, FW Thorpe bought a further 3,000 large 2.094 by 1.038 metre PV panels at a cost of around GBP0.9m to cover the roof of the main Thorlux facility in Redditch. These are in a warehouse on standby for fitment. Prior to being able to mount them to the 30-year-old roof, significant enabling works are being completed - at a further cost of

GBP0.7m. At the time of writing, with such enormous rising electrical costs, it is hoped that the panels will be commissioned soon - hopefully they will be online around the time of this year's AGM in November.

Efforts continue within the Group to improve companies' sustainability credentials and move sooner towards Net Zero - which, apart from being the right thing to do, will bring commercial advantages. Initial third-party support and assessment is now complete. I hope to be able to share the estimated CO(2) e (total carbon footprint) number for the Group as a whole when the Group is more certain of its direction. It has taken months of work to collect and collate accounts for emissions from all Group activities in scope 1, 2 and 3; the estimated CO(2) e number not only includes emissions due to the Group's sales, manufacturing and distribution activities, but also the emissions from the Group going about its normal business - for example, including emissions from the supply chain and from downstream use of products by customers and the electrical energy the luminaires consume. To be able to say the Group is Net Zero seems a distant dream, but every watt saved in Group factories and saved by making its lights more efficient is another watt that does not have to be reduced and offset.

Apart from electrical energy consumption, sustainability involves many other factors such as material selection, reduction, re-use and recycling. Within the Group, all employees are involved: they are being trained and developed, and receive a frequent chairman's sustainability newsletter, with contributions from around the Group; some employees have even been awarded with a 'Net Zero Hero' tee shirt for special achievements. Many of the efficiency gains in Group factories and at product level reduce costs, make Group companies more successful at winning orders, and improve the Group's reputation. For example, Thorlux was awarded Manufacturer of the Year at the prestigious Lux Awards in 2020, with specific mention of its tree planting and solar PV works in the judges' comments.

Acquisition

I mentioned above that, following significant design and engineering effort, the Group won a major German factory lighting project, involving around 10,000 luminaires on the Thorlux SmartScan generation 2 platform. The German customer for this project, SchahlLED Lighting GmbH, has rapidly become the Group's largest customer over the last 3 years or so. SchahlLED's independent majority shareholder approached FW Thorpe to discuss the sale of its shares; it was natural for FW Thorpe to have a keen interest, as well as for SchahlLED's management to want to continue to build on the trading relationship of the last few years. Although members of the Board of FW Thorpe had planned for a few years to be quieter on the acquisition front, we approached this situation in both a defensive capacity to protect existing work, but also in an opportunistic way, as we see good growth potential in SchahlLED's business model of focusing on energy saving payback projects, and think they could be adopted in some other territories. So, I am pleased to announce that on 26 September 2022, FW Thorpe acquired an 80% shareholding in SchahlLED GmbH, with the remaining shares to be acquired subject to performance conditions over the next 3 years. FW Thorpe paid an initial consideration from cash reserves, with the remaining shares available in due course with certain earn-out conditions.

Last year, SchahlLED's revenue, which has grown rapidly in recent years, was EUR15.9m, with an EBITDA of EUR2.8m. The company has solid growth plans and will continue to focus on selling high technology wireless lighting systems, in future supplied almost exclusively by the Group.

Personnel

I would like to thank all Group employees for their dedication and commitment throughout the financial year. All areas of the business have been under significant pressure from dealing with the current economic climate, including issues related to sourcing difficulties and manufacturing capacity. Engineering teams have faced the constant pressure of re-designs to accommodate alternative components, and those facing customer service issues have had their patience stretched. The diligence of Group employees does not go unnoticed and is sincerely appreciated.

Dividend

Performance as a whole for the year to 30 June 2022 allows the Board to recommend an increased final dividend of 4.61p per share (2021: 4.31p), which gives a total for the year of 6.15p (2021: 5.80p excluding special dividend).

Outlook

The dramatic rising cost of energy is a catalyst for customers to study their lighting energy consumption and look for ways to reduce it. In the media there is often mention of turning lights off to reduce usage, but of course commercially, in most cases, doing so is simply not practical and may be dangerous. The whole Group, and especially Thorlux, is focused on designing energy saving products; therefore, I anticipate that orders should be resilient if a recession becomes inevitable. Customers' energy costs have trebled in some instances, which means investment payback periods could be one third of those a year ago.

FW Thorpe has a broad portfolio of customers; those in government or blue-chip industries have usually found the capital to invest in their assets when times get more difficult.

Within the Group we have taken actions to cover rising costs: we continually strive to achieve better margins without unfairly penalising our customers, ensuring long term retention rates. We strive for further efficiency improvements and have the cash to invest in energy saving and sustainability projects.

The Group has started the financial year with a robust order book and some healthy projects on the horizon. The Group sees an improving supply and operations picture and, as such, the Board expects a good first half performance despite ongoing pressures on operating costs.

Mike Allcock

Chairman and Joint Chief Executive

11 October 2022

Consolidated Results

Consolidated Income Statement