Luceco plc (LUCE) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the Luceco Full Year Results for 2024. Thank you for attending this meeting and all those online, thank you for attending also. We had a good year last year. It was the first year that the business began to emerge from the shadow of the pandemic. I think we sort of underestimated at the time quite the impact of that pandemic would have, both in plans and the extraordinary upside we enjoyed in the pandemic, but then the hangover subsequently has taken quite a while to work through. And I think last year was the first year that the business returned to something like normality. Our revenue was up 16%. On a like-for-like basis, that's up almost 6% in the market, which -- and I'll talk about this more later, was off about 2.5%, so a significant market share gain. Operating profit improved by over 20%, up to GBP 29 million. On an operating margin up 0.5 points. So operational leverage in the business, higher mix and better sourcing across the group with those higher margins. Net debt ratio of 1.6 in the middle of the range and a full year dividend of 5p, giving adjusted EPS of 12.5p. Thank you, Will. So strong revenue overall, up 16%. We made a couple of acquisitions in the year, one in March, one in September. So some of that growth is obviously M&A led, but organic growth of approximately 5.8% and the market, as I said, was down about 2.5%. And particularly strong sales in the U.K. RMI sector, which, as you know, is a very important segment for us. Our residential EV charging business is growing particularly strongly in Q1 this year, it's up about 100%. Last year also had a strong year. You will recall, we bought a small business in 2022. It turned over at the time about GBP 5 million. Hopefully, this year, the sales will be somewhere between GBP 15 million to GBP 20 million. So significant growth, and it's growing very, very quickly. We have a further innovation pipeline of exceptional new products, which we'll be launching later on this year, particularly in the space of the energy transition products such as EV chargers and HEMs and batteries, which I'll talk more about later. The acquisitions that we did last year have been integrating well. And we have some scope in our balance sheet for more M&A later on this year. And the strong demand that we saw at the end of last year has continued into the start of this year. Our sales out of retailers, because we look sells in and sell out, are approximately 10% up on last year, which is probably slightly better than the market. And with that, Will -- sorry, I've got one more slide. So our competitive advantage. Historically, innovation has always been an extremely important driver of our growth. The pandemic meant that our engineering teams who are all based in the Far East, in China, particularly, were operating without much U.K. interaction for a period of about 3 years. So we were able to go to China for 3 years. And I think that had a major impact on the [ NPD ] program of our business. So since the end of the pandemic, we have been investing a lot more in the product development activity, and that is beginning to show through in our growth numbers. We have superior customer and supply chain. So we deal with all the largest distributors in the U.K. And when we launch new products, we can nearly always get an extremely large distribution for those, highest quality and the lowest cost. As you know, we have our own manufacturing base, which allows us to control the quality at the lowest cost. And the energy transition, which is happening across our product range, particularly when you're talking about EV and also batteries but also circuit protection, and wiring accessories across the piece are going to be affected by the electrification of transport and heating in the residential environment, which will be driving structural growth across our market. And finally, strong cash generation has allowed us to do 5 deals in the last 6 years, and we can continue with that program in the future. With that, I'll hand over to you, Will.

Thank you, John, and good morning, everybody. Let me start with a quick review of the income statement, which is on Slide 7. Our revenue at GBP 242.5 million reflects a strong end to 2024, which we talked about in the recent trading update. Our retail channel and overseas businesses, especially had a great end to the year. The timing of the recent Chinese New Year and our retail and trade customers needed to stock up before the end of 2024 to avoid empty shelves in early '25. But even so, the level of our sales was beyond my expectations. The information we monitor, as John mentioned, covering demand for our products across certain customers leads us to believe that they have not overstocked. A year ago, I spoke of the performance of our hybrid channel, which delivered a near 30% improvement in 2023. In 2024, the retail and international channels of the group have been the standout performance. As John mentioned, the recently added electric vehicle charger offerings grew very strongly. Quarter 4, EV charges sales were approximately 50% up on the equivalent period in 2023, and that division achieved nearly GBP 10 million of sales over the year. Quarter 4, 2024 overall for the group ended over 20% ahead of last year on a like-for-like basis. As we said at the half year, our infrastructure-led outdoor LED businesses struggled somewhat in 2024. Local authorities funding probably had an impact. So it's pleasing to see that both businesses have started 2025 in better shape, following some self-help measures applied. Housebuilding took a big mark in '24, as you're all aware. It remains in the region of only 5% of our total revenue, so the market decline did not have a material impact on the group. We're starting to see some positive demand indicators appearing in this sector. Gross margin for the year at 40.1%, a year-on-year improvement and now the highest annual performance we've achieved. This was delivered in spite of an uptick in some key raw material costs, for example, copper, which have been relatively stable throughout most of 2023. Sea freight was a challenge throughout much of the first half of 2024, and peaked in the summer, the problems in the Red Sea are well known. These costs eased somewhat during the second half, though left us with some additional costs to work through our inventory. Now even with the extended journeys around South Africa, our sea freight is currently priced within about 25% of its long-term average. Our Jiaxing production facility continues to improve, delivering productivity benefits and overhead savings again in 2024. The U.S. dollar represented a revenue headwind for us again in '24. The RMB though has been declining against sterling, and we have seen this benefit coming through in our cost base. As I've said in the past, we follow a policy to place forward cover, which naturally delays the consequences of these currency movements. Overheads at GBP 68.2 million were up circa GBP 10 million on 2023. The majority of the increase year-on-year attributable to the newly acquired D-line and CMD businesses. We also made some targeted investments in select overhead categories, notably marketing, which may well be behind some of the sales growth we saw towards the end of the year. And also in the electric vehicle charger team, which is clearly having an impact. Our wage cost inflation was in line with that seen in the wider economy in 2024. Adjusted operating profit was therefore GBP 29 million at the top end of the range that we shared with you back in January. Our tax rate has stepped up somewhat in 2024. We are heavily weighted to the U.K. and increasing it with further U.K.-based acquisitions. Here, the headline corporate rate, as you know, is now 25%. We continue to take advantage of various government incentives that do mitigate some of the tax burden. The increase in our tax rate to just under 23%, together with the GBP 1.3 million increase in our finance charge, reflecting the funds used to pay for the acquisitions partway through the year has not prevented a creditable improvement in adjusted earnings per share of 12.6% to 12.5p. The Board has consequently recommended the dividend to increase, as John mentioned, with the final of 3.3p taking the total for the year to 5p. Slide 8. This slide provides a bit more detail on the drivers of our revenue performance. The acquisitions of D-Line and CMD, of course, the most significant change in revenue this year. Both of these fit really well into our group and have increased group sales in the year by around GBP 24 million. D-Line arrived in late February and CMD at the end of September. It takes time to embed in acquisitions and to begin to realize synergies. We can already see D-Line is going to do very well in this score. And we're excited by CMD's prospects. Focusing on organic performance, our retail space and within it, specifically, our wiring accessories offerings recorded a pleasing increase compared to 2023. Like-for-like growth of approximately 4% is a good achievement when seen against the background of a lackluster U.K. consumer spend through much of '24. The team has delivered some positive product range extensions, which helped to mitigate the market impact. We do now see signs of green shoots across our DIY-related channels. So perhaps, the decline seen after the post-pandemic era may now be coming to an end. Our non-U.K. operations performed really well in 2024. We've been investing in these for a few years, and it's pleasing to see this paying off. Middle East and Mexican operations have both delivered year-on-year growth of over 20%. Ireland recorded more like a 50% improvement. It's encouraging to see how successful Luceco can be when it gets a little help from an improving economic backdrop. The new housebuild market has had another difficult year in 2024, and we've said before that we are underrepresented in this sector and we've got a few initiatives underway that are helping us here. Infrastructure driven external LED operations also found it tough in 2024. We have some good self-help measures underway here, and it's looking as though it's starting to pay off already in 2025. Our EV chargers seem to be flying off the shelves. The second half of the year saw them up 50% on the same period the year before. Currency impact here is mainly the effect of the U.S. dollar move against sterling on our FOB sales, the average rate across '24 at [ 1.28 ], some 4 basis points worse than 2023 and reduced our sales by just over GBP 2.5 million. Moving on to the profit bridge side, Slide 9. This slide shows the key drivers of our adjusted operating profit performance. Once again, it's pleasing to share strong operating profit improvement with an increase of some 20% over 2023. Volume helps at our gross margin levels and the productivity initiatives that our Jiaxing China facility are showing through in our numbers. A higher proportion of wiring accessories is manufactured in-house. So revenue growth in this segment improved utilization of Jiaxing. The acquisitions added nearly GBP 2 million to 2024 operating profit. We've lots of work underway to enable our factory to manufacture for these acquired businesses or to resource products for them. This does initially add cost in some of these projects. So the team has proven in the past, it's good at delivering these type of synergy benefits. We face headwinds from elevated freight and material costs in 2024. The situation in the Red Sea means our freight between China and Europe is going around South Africa. This added cost and working capital, which I will discuss later. Copper picked up too in the year and it is on the rise again just now. I've said before that we carry a level of copper hedging that offers some short-term protections at times like this. Currency has helped with the cost in the year. Average RMB to sterling at [ RMB 9.20 ] was some 4% favorable. We carried forward FX contracts that taper down up to about 12 months ahead at the moment. This delays the benefit when rates moved in our favor, but of course, it also offers some protection when they move against us. The increase in the national insurance rate recently announced will add probably about GBP 1.2 million to our U.K. cost base in a full year. Slide 10. Quick look at the last 2 years in 6-month parts. You can see the pleasing growth. And we have said that December alone was GBP 8.5 million ahead of the year before without the acquisitions. November was in the same direction. Our business is traditionally busier in H2, though we were concerned at the half year that the spike in freight and copper costs might prevent an increase in operating profits. I was, perhaps, a little cautious as we did end up at 12.3% in H2 versus the 12.2% in the year before. Adjusted free cash flow Slide 11. At the half year, we mentioned in the region of GBP 6 million of additional stock in transit. At that stage, our accounts payable picked up some of the success. So our payment terms meant we were expected to be carrying more working capital at the end of the year if the Red Sea situation continues -- it has continued. And we are carrying more stock in transit, and so working capital is up as a consequence. Beyond this, the headline is we had impressive sales growth at the end of 2024. The natural impact of this is that our trade working capital absorbed cash. We have said previously, it is likely that our working capital will absorb some cash if market conditions improve and the DIY sector returns to growth. The strong trading in Q4 means that over the year, our trade receivables absorbed some GBP 17 million of our operating cash flow, GBP 8.5 million of this down to December alone. This compares to the just GBP 3 million is absorbed across the whole of 2023. It's great news on trading, but short term, it does affect our free cash flow. By the way, the strength of our customer base means we have confidence about the collectibility of these receivables and in fact, the quality of our trade receivables book improved over the year. Conclusion is we see 2024 free cash flow performance as a one-off and expect cash flow to improve in the future. They're probably not in the first half of 2025, given our usual seasonal working capital build ahead of the summer months. With the exception of 2021, which was affected by the first phases of the pandemic, Luceco has typically experienced a working capital cash outflow during the first half of each year and an inflow in H2. At this stage, 2025 is expected to show the usual pattern. We see the short-term absorption under these circumstances as a healthy sign that the business is enjoying some organic growth. Finishing up on the numbers. This slide, Slide 12, summarizes our working capital, cash flow and debt performance overall. Working capital management is in a good place. The small uptick in inventory days is a response to the Red Sea disruption and the necessity of ensuring our products are available on ourselves. We don't want to mess further growth opportunities if these green shoots turn into a sustained recovery. Bank net debt ratio of 1.6x is comfortably within our range in spite of spending nearly GBP 38 million on acquisitions in the year. The ratio will increase as we move towards the first half of 2025 towards the upper end of our policy range as there is a seasonal nature to our trading, and I expect this year to follow the usual pattern. We will remain comfortably within our lenders covenants. As part of the funding for the CMD acquisition, we increased our GBP 80 million bank facility to GBP 120 million. And even though our facilities don't mature until September 2026, we are already well advanced with our lenders with plans to refresh. And with that, I'll hand back to John to talk our business review and outlook.

Thanks, Will. So underlying demand, you can see top left, the green line, home improvement spend, some improvements in the second half of last year, which we hope for, probably not quite improvement we were anticipating but certainly better as a trend. And it would appear that, as I said earlier, has continued into this year. In the top right, housing transactions, they are still below trends. But as you can see, again improving, you can see they fell off a cliff in the first half of 2023, following the mini budget and the housing market went into a major decline and housing starts, which is the other important metric for us, basically stopped for a bit. That is all recovering slowly, although you can see recently has been a little bit weak again, but the overall trend is improving. In the bottom left, you can see how we split our business between the various different segments and what we think happened to those, to the market in those segments. So you can see, overall, we think our markets were about 2.4% down, which in light of our organic growth of almost 6%, that shows a pretty significant market share gain. We would say that the pandemic basically pulled forward demand, so over and above the dynamics we're showing here, I think, particularly in the DIY segment, that was a pull forward from future years into those lockdown periods. And I always thought it would take probably 2 or 3 years for that to wash itself through. And I believe now the DIY market is starting to normalize. So why we can grow our business above the overall market trend. So new wiring regs this come out roughly every 2 years, and they mandate the various upgrades that affect our product portfolio, whether that's in circuit protection or wiring accessories or lighting. For example, building need to be, as you know, ever more efficient, which means ever more efficient lighting, which means higher spec lighting. So there's a constant upgrade in our product portfolio. This obviously drives higher revenue. The EV opportunity, I think, is particularly exciting for Luceco. Roughly 6 million EVs in the next 5 years will be bought in the U.K. We currently have a market share of about 8% in residential EV charging. When we bought the business, it was called Sync EV, and had a market share of about 5%. So we have increased it and actually, in the pace of increase is accelerating in terms of our market share gain. So I think there's no reason we can't push our market share significantly higher in a market where we anticipate demand should grow about 400% to 500%. Roughly 20% of cars being purchased now require a home EV charger by 2030 something, depending on the government regulation, that will be 100%. So the market size in residential EV chargers will increase by approximately 400% to 500%. And to maintain our market share or increase it, but this should become a very significant business for us. And actually, over the next slide, I show some of the innovation that we've done within this product portfolio. So we bought the business and it had the square products on the far left. And since then, we've actually launched about 4 different upgrades. Each time we've improved the product and reduced the cost. We moved the production into our own factory because originally, the product was coming from Bulgaria in 2021. Last year, we launched these commercial chargers, the tall thin ones. And our recent innovation that we haven't actually launched yet is a socket that you can flush mount to the outside of your house and you can drill a hole through the wall and you can put the box with the EV charger somewhere separate. At the moment, everyone has the EV charger and the socket in a sort of ugly box that you've got on the outside of your house, which doesn't make a great deal of sense. So what we have done is to separate the actual socket from the charger electronics. So what you put on the outside of your house doesn't need to be an ugly looking box anymore, only a beautiful socket, and you hide the ugly looking box in the garage or under your stairs. And we are the only people who have done this. We have a patent on it. And we think this could be an extremely successful innovation. But this is just sort of -- and it also give you an example of the kind of innovation that we do across our product portfolio. As I say, EV sales in Q1 are roughly twice what they were in the same period last year. So the business is really growing strongly in there. Yes, home energy management systems. We've spoken about this in the past. We actually launched this product yesterday. It's the battery that you can see in the middle of the chart on the left-hand side. And the chart is an attempt to illustrate what it does and how it works. So it basically fits in between solar and electrical nodes, one of which is an EV charger and the grid. And it basically controls the energy flows. So if you have a solar panel array on your roof, if you sell the energy back into the grid, you don't get much for it. If you can store the energy in a battery and use it when you're at home in the morning or in the evening, then the economics of the solar install are roughly twice as good as they are without it. So the payback without a battery residential solar can be up to sort of 8 to 10 years. With the battery, you can have it because you use the electricity that you generate rather than selling it back to the grid at a very low price. So I believe that every house with a solar panel on the roof will end up with a battery in the garage, and I believe that a lot of houses will end up with solar panels on the roof. In fact, new homes, by law, will have to have solar in the roof. And if you install the solar at the point of constructing the house, it's obviously much, much cheaper because you're up on the roof anyway. In fact, solar panels are so cheap now, they are almost left in the cost of a roof tile. On the right-hand side of the chart shows how we estimate the market will grow. And the other important point to me is the cost of the batteries will come down. So currently, we'll be selling these things for approximately GBP 4,000. But it's anticipated over the next 5 years, the cost of the battery will half, which means that, obviously, the payback will become much shorter. And I think it will become a must-have product for most residential homes. Even if you don't have solar, a battery allows you charge out in the middle of the night when power is out. It's obviously much cheaper and then you use it in the daytime when it's generally more expensive. So that's a very exciting new product launch for us. As I said, the product landed yesterday. We haven't yet sold any, haven't really forecast it, but it could really be coming. In terms of the M&A that we did last year, we did 2 deals, one slightly larger than the other. But I think that's basically been enormously successful. We can reduce the cost of sales of both of these businesses by approximately 30%. So that is reengineering in some cases, redesigning mainly integrating it with the group supply chain. Making products in our own factory in the Far East, using the supply base that we have and the sourcing strategies that we have across the group, we can reduce the cost of sales of these businesses by about 30%. We can also grow them to D-Line, operate in retail space, where we have very strong relationships and actually leveraging the relationships that we've got, we have already had some significant new business wins with the D-Line product offer. Likewise, with CMD, they supply office electric like the kind of stuff you'd get on this desk under that piece of wood, but they don't supply lighting. So what the plan is to leverage their customer relationships for office fit-out to sell our lighting product. And so far, we're very happy with both those acquisitions. So M&A, we think, can be a significant driver of growth over the next few years. By 2029, using some basic assumptions, we can calculate, we can invest approximately 100 million in further M&A. EBITDA multiples of roughly 6x to 7x, aiming for a 15% ROCE, acquisitions that will improve group operating margins in segments which are adjacent to us, so either basically buying products or buying customers and possibly by other low-cost manufacturing although we have moved a significant amount of our sourcing out of China into Vietnam, particularly for our U.S. market. So all of our U.S. sales are now coming from products that are sourced outside of China for obvious reasons. And finally, to the outlook slide. As I said earlier, the strong demand that we experienced towards the end of last year has carried through into the first quarter of this year. We hope that the wider economy would improve we think that the sort of pandemic hangover is going more into the rearview mirror. We've also got some extremely exciting new product launches, particularly batteries and the like, which could drive significant upside. And I think that's basically it. So I can hand over to any questions, if someone's got one.

We've got Kevin here.

Kevin, loyally, he's got a list of planted questions, I hope.

Kevin Fogarty from Deutsche Numis. Two, if I could, please. Just on the energy transition piece. There's obviously quite a bit in today's presentation. I guess for what was kind of Sync EV, why do you think you're sort of winning as much against the current market backdrop there? And the rebranding, I guess, Sync Energy, is that the sort of nod to the sort of wider portfolio and the sort of wider offering? And as part of that, how is HEMs now be sort of commercialized? As you sort of move forward, how should we expect that in terms of kind of sales channels, et cetera? I've got a second question, if I can. Do you want the second?

Okay. So why are we winning? We have a good product. I mean it's not a special product. It's an [ OCPP ] smart product, but that's kind of industry standard. We have a very good cost base. We make it in our own Chinese factory. Most EV competitors are not doing that. They might be making it in someone else's Chinese factory or they might be making it in their own European factory. Some of our largest competitors are using the worst combination of someone else's European factory. So we have a very good cost base. We've invested a lot in the app, in the cloud control, in the user interface. I think the most important point, Kevin, is that we have a very wide distribution network in the U.K.. So we can leverage our customer relationships into the -- particularly the electrical wholesale channel into the housebuilder segment to push another product as part of the portfolio. So we already do GBP 70 million into U.K. electrical distributors, and this is not including people at Screwfix, I'm talking about sort of Rexel, Edmundson Electrical, what we call electrical wholesale channel. So within GBP 70 million of other products, so this just becomes another part of that offer. We've got some very, very strong relationships in that channel. So I think it's a combination of product but also distribution. We are market leaders in U.K. residential sockets, something I've often said. We sell more sockets into more homes than anybody else. And this is just another kind of socket, right? It's the kind of socket, it's a high-powered socket, it's a hopefully quite good looking socket, but it's still a socket. And we should definitely sell a lot of them. We don't yet have any major housebuild contracts. We've got some smaller house builder contracts, but we are working on some major housebuilding contracts, so that could change the dial. We are also working with some other large energy companies. I'm not going to name them, but we are quite close on a few of those, which again could move to dial. And the final point to make, it's a very high-margin business for us. We only sell boxes. Some of our competitors are selling in stores. We're not doing that. We are just selling hardware made in our own factory in China, it's very high margin, way higher than the group margin. So it's been very successful. And the reason we changed it to be called Sync Energy is because we plan to major on the batteries as well. And Sync EV doesn't lend itself so well to batteries.

Could I just have a second question, just on the international side of the business, which is obviously a large proportion of the growth during 2024. Is it possible to kind of pick through, I guess, wider kind of step up internationally? What's happening there? Is it sort of more effort on your side? How much of those markets? Just a little bit more color on that, if you could?

I wouldn't say, it's more effort on our side. We continue to work hard. The businesses as well with the Middle East business, particularly we've got a lighting project business there, it's relatively young. It's beginning to get some traction with the major customers and win some major projects. It just takes time, it's a start up. Our business in Mexico is also growing strongly, again, it's a start up. It takes time to get a reputation, to get a brand into the market. It will be interesting to see what happens in Mexico now. It's on off, on off. But currently, the business is performing well. They hadn't performed so well in the pandemic, coming out of the pandemic, some of these businesses. And I think it's more of a recovery on that. And our U.S. market is also going strong and we think that because we hopefully got ahead of some of our competitors by sourcing products from Vietnam outside of China, that by avoiding some of these tariffs, we maybe can have a bit of a competitive advantage there.

That's helpful.

I think you talked about sustaining it better, too, in 2024. And then, of course, Ireland, although it's quite small for us. The Irish economy was reasonably buoyant in '24. So those guys took good advantage of that.

Yes, Ireland is an area actually where we probably have been trying a bit harder. We were a bit under indexing Ireland up until 3 or 4 years ago. We got a new sales guy, new sales manager. We have now recruited a decent team. We don't have an operation in Ireland. I mean, we don't have a warehouse. We supply all from the U.K., but we do an increasing amount of sales on it, it's growing strongly. Yes.

Sam Cullen from Peel Hunt. I've got a couple as well. First one is on, I think as Will mentioned, the new build sector. Can you give us a sense of when you're selling into a house builder, how much are you selling in some other categories that you're doing all the socket, but not the light switches and clearly, you're going to try and look to add EVs and possibly HEMs units moving forward to just see what you're doing now. What countries have weakened and what the opportunity is?

Yes, you can basically -- you can split it into circuit protection, which is fuse boards, lighting, wiring accessories and EV. And if you do circuit protection for a house builder, you do all of it, you do most of the lighting, wiring accessories, you wouldn't be selling the sockets and not the switches. You do a whole lot and EV. It's about, I reconcile it, GBP 15 million business for us. You don't always know exactly where our stuff ends up. We sell it mainly through electrical distributor. We have central deals with house builders. It's a segment that we've grown recently in the last sort of 5 years. We're doing about 1 million of EV into it only, should be a lot more, and I think hopefully will be a lot more. We've got large contracts for wiring accessories and circuit protection. And with those customers, we don't have the EV business. For example, Barratt Redrow, we do wiring accessories, EV is up for tender. There are various areas working, we could have some wins by leveraging the relationships that we've got. It tends to be lower margin. It's a head office negotiation with the house builder. They tend to -- it tends to be lower margin. But sure, it's easy volume, if you can get it. And we're also underway in the social housing sector, which is another new focus for us.

The second one I had was on marketing spend. I think you ticked up in the year. Do you expect that to continue to increase going forward? And will the marketing be a bit more consumer focused going forward as you're trying to grow the EV side of the business, sort of more Sync Energy?

Yes, we increased marketing by about GBP 2 million last year. We're not currently planning on increasing it by another GBP 2 million this year, but we will increase it by a bit. Consumer marketing, we don't do much of that, to be honest. I mean Amazon obviously do a lot. We do a lot with Amazon and we do a lot with their consumer channels, and they push hard into that space. I think batteries, we won't be targeting consumers, we mainly target installers. So trying to funnel customers of sort of Google AdWords into buying EV charges. And we have done some of that. It's very expensive. It's what some of our competitors do. Our strength is the relationship with the installer and the distributor. So we'll do -- we'll do advertising on a fixed FM, which is the radio station for installers rather than sports channels, right, because we're mainly targeting installers. And installers often make the buying decision.

Yes. You're right. Even the grumpy guys in accounts are happy with the marketing spend.

I mean the challenge is making it measurable. Yes. But certainly, significantly above-market organic growth last year would indicate that maybe some of it works.

[indiscernible]. Just a couple of -- sort of 1.5, I guess. With regard to margin, do you see sort of steady increase in margins over the last couple of years? Where do you see this going in a return to more normalized volume, sort of where you're taking roughly? And on a related note, what's the current -- how much spare capacity have you got in the Chinese factory?

Yes. I mean gross margin, operating margin. So gross margins, we've been below 40, just below 40 for a while. We currently just above 40. We've been investing in higher-margin segments. So we've been investing in more smart products, more sort of tech-orientated products in the lighting space. We no longer sell commodity light bulbs, for example. We sell more lighting control systems. We've made conscious effort to pivot the business in that direction. On the acquired businesses, we can grow the gross margin a lot. As I said, we can reduce the cost of sales of each of them by about 30%. So yes, there's a mix element. And then to your point, there's an operating margin and operating leverage element. Our operating margin in the pandemic went to 17%, as result of very, very high volumes through our factory on very high margins -- on very high-margin products. We are thinking our range is sort of maybe 12 to 15. And next year with the savings coming through on the acquired businesses, even if the demand environment remains very weak, we should be able to -- we should be able to push the gross margin and therefore, operating margins a bit higher. So I think we can get back to 15 when the economy improves. And possibly, if we sell as much EV as I hope we will, it could even push beyond that because that's mainly over a fixed cost base, we're using the existing commercial teams to sell this stuff.

All right. Capacity in Jiaxing? So I mean [indiscernible].

Plenty of space. Peak pandemic was probably 30% or 40% beyond what we're currently at. And we can flex the labor to the extent we need. So we have capacity to be able to further ramp up. And as John said, at these gross margins, especially in the EV channel, the actual volume is very helpful. And you can also increase capacity by investing in the process to faster machines, more automation, better ways of doing things, you can increase the throughput without having to increase the physical space.

James Wood from Canaccord. Two for me, please. The eleven on the retail growth, it's obviously very strong. Interested in, I guess, the price volume mix drivers. So is it kind of predominantly restocking or is there also kind of some broadening of products come through, that would be of interest? And then the second one is more on kind of trying to understand level of innovation coming through. So I guess a key KPI there. Do you still have a percentage of new products in terms of revenue or anything like that, that would be interesting to know.

Yes, retail growth. I mean, as I said earlier, there was a lot of destocking running up to this year. So 2022, our big retailers destocked by approximately 20 million. 2023, they also destocked somewhere between 5 million to 10 million. So some of the growth is in absence of destocking. I don't think there was any restocking. I mean we know that because we look at sales in and sales out so we can see how their thought levels are moving. We certainly won some new business. We've got some new ranges. I mean, Screwfix is a particularly strong relationship of ours. If we launch new products, they will generally take them. And we won some business elsewhere in a pretty sticky market, which, as I said, in the second half, improved and I think it's improved further in the first quarter. I mean we're looking at, as I said earlier, plus 10% on sales out from our retailers, which is really quite strong. And it has a price, I mean our margins was similar, there wasn't much movement in price last year, really. There was a big hit in terms of freight costs because of the -- when the Red Sea thing happened and Houthis got going, freight rates spiked a lot, but we mainly absorb that. We didn't pass it into the market. And thankfully, shipping costs have come all the way back down again. So there will be a bit of a tailwind on margins, we talked about margin earlier. But there will be a bit of a tailwind for this year if that doesn't happen again. I don't think it could happened on this one.

Yes. Subject perhaps to where copper ends up becayse copper is picking up a little bit, but these things are manageable.

Copper is mainly hedged for this year. Percentage of new products. I mean the definition of a new product. So we do a lot of wall socket. Sometimes we launch them in a different color or a different finish is that a new product and instead of a wall socket. Percentage of sales from new, new products, i.e., not an improved product, not a product variant, not a sort of reiteration of existing products would be probably 10% to 15%, I guess, in a year. But percentage of sales from improved products will be much higher because they're constantly improving the efficiency of our lights or the look and feel of our sockets or the specification of our products because of the wiring regulation. So that doesn't necessarily that you define as a new product. It's a new SKU. But it might not be a new product.

Max Campbell at Longspur Capital. Just one on the EV charging. Residential is obviously going well. Just wanted to get your thoughts on how the public and commercial landscape is looking at the moment and going forward?

Yes. Thanks, Max. I mean we don't do much in the public space at all, okay? But what we are doing is what we're calling commercial chargers? And if I just whiz forward, [indiscernible] it's these -- so there are 3 phases. They have a payment term on them. So you can pay with your Apple phone, if you want. They're connected to a back office, which means that you can charge. So for example, you can out them in a pub car park, and the park can charge that [indiscernible], can charge the money as well as charging their cars, I'm trying to say. But we're not, as yet, included in the public realm. But there is a new regulation that says that any car park with more than 10 spaces that is undergoing work, as in a re-layout or refurbishment whatever, has to, by law, to have an EV charger built into it, 1 for every 10 spaces. So we do a lot of car park because we do a lot of outdoor lighting. So Kingfisher Lighting and DW Windsor are basically specialists in outdoor lighting, doing a lot of car parks apart from other stuff. But what you need to do with these products to get specified. So you need to work with the contractors and the consultants who are designing stuff and getting specified in early, quite early on in the design business. So it takes time to build the market. You can't just launch these things and expect sales. You have to get them satisfied with the consultants and the contractors. But we launched in October, I think we'll do close to 100,000 this month and its growing. And we we've got some major projects hopefully coming through. So it's a slow build but in time, it will be a very big market because every pub, every hotel, every hospital, every railway car park, every place you leave your car for an extended period of time will have a bunch of these things. They're made in our own factory, they're highly competitive, they work. And we think in time, it will be a good market for us. But I don't think it will be as large as the residential space because that's where Luceco has a wider distribution and stronger relationships. And in the overall public market sort of the stuff that you get by decided most ways, but the high-power stuff, we're not in that market at all nor we intend to be because we're not a charge point operator. We're a hardware seller. That's a useful distinction.

How do you target, if at all, the person who buys his first EV car at the time you get the keys are handed over.

Okay. So there is a market that we're not involved in or there's a customer funnel that we're not involved in, which is the auto OEMs and the auto dealers. So generally go and buy your new Audi e-tron, Audi I will say, if you want a charger, go to this or that brand. And then this or that brand will do the whole to the turn key including an install. That's not a market that we're in because we don't do installs. It's a market that we are looking at, but so far, no one is making money in that space. Some people are managing to lose a fortunate in that space. And it's not only that competitor losing a fortune, everyone is because to manage an install -- and when it goes well, you've got to send somebody back. You're on the hook for it, needs quite a lot of -- quite a lot of management. Even if you have your own installers, so you wouldn't work with our installers, you work with a third-party installer, but it's still a lot of management. And the cost and the price in the market for the EV install is about GBP 1,000, which probably sounds quite a lot of money, but actually, we think the margin at the end of the day after it's gone wrong a few times probably isn't there, and the results of our competitors would imply that. But we are investigating, but we are doing more work on it. The other thing you do, [ Tim ], is you buy your car or whether you order your car, you know you need a charger. You've got a relationship with your local sparky. You don't go by the auto OEM You call your local sparky, I need an EV charger. And he knows about Sync EV. He goes on to his wholesaler. And if he doesn't know about Sync EV, you go through this local wholesaler where he buys all his kit and says, I need an EV charger. And by the way, you might not have thought about this before, because it's relatively new, right? And you're going to wholesaler and they'll say, have this wonderful product, from Sync EV. So yes, there is a land grab sort of moment going on because there are 200,000 installers in this country. The majority of them are not installing EV currently. Over the next 5 years, they will all be installing EV regularly. So we need to make sure that we set as many of those installers loyal to our products as we can in the next year or 2? And this is why I describe it as a land grab? Because whilst an installer has a product that he likes and he knows how to install it quickly, he'll generally stick to it. And it's quite sticky in this business. Our brand is generally quite sticky because installers, they like to use what they know and they don't want to go off and make -- take a risk on a new brand. So at the moment, it's all about capturing as many installers as we can and winning their loyalty. And then hopefully, we'll have that business for the next how many years. And these things, they last forever, which is obviously great. And they're all going to change as well because currently, all these things can do is charge a car. In future, there'll be something called vehicle to grid or vehicle to home. So you've got to use your car battery to charge your -- to power your home. So it will go the other way. But that technology is not really out there at the moment. So all the chargers we are selling now will hopefully be obsolete in a few years time when everyone wants to go back the other way as well. That's the theory.

Sorry, Kevin Fogarty from Deutsche Numis, again. One for Will, please. The flip side I guess, on the strong Q4 is the debtor book, which at the year-end, I think, is kind of a year-end high for you guys. Your presentation talked to improving quality of that. I guess, what would you say to anyone thinking about the debtor risk there? What's your destination in terms of sort of improving quality, I guess? Could you say anything about that?

Yes. The risk that we see associated with the collectibility that reduced '24 and '23. I think a number of household names have disappeared over the last few years that we considered to be something of a risk, homebase, Wilko, people like that. We target more solid significant customers. I think you know who are sort of the top 10 are it's reasonably public information. And more often than not, we go through the wholesale channel as well, which means that you spread the risk somewhat rather than going directly to contractors. So yes, we feel like, although clearly, it's absorbed cash as we went out at the end of the year, we don't have concerns at that.

Yes. I mean, I mean, we anticipated a homebase. So we run our business with them almost down to nothing. We lost a little bit at the end. But I would say, outside of that, our bad debt total is less than GBP 100,000 a year, well, is that fair?

It's not a number that we actually disclosed.

But it's tiny. It's tiny.

I gues we've disclosed a few other numbers today as well. So it's fine. And I have a very good credit control team that I'm extremely proud of.

That will be the reason. No because we only deal with great customers, it might be the other reason. The reason -- I mean, strong Q4 sales was nearly all into -- it was mainly FOB, partly because early Chinese New Year, that meant a bit of stuff came in earlier. It's all to blue chip names that you'd be familiar on, none of them were in financial distress. So I think there is a 0 chance of an uptick in bad debt because of that.

We have got a couple of questions from the webcast. I'll start with [ James Hall ]. What is the scale of your ambition in EV charging and HEMs and the wide energy transition space? Will you report this as a separate segment in the near future?

Yes. We will report it as a separate segment when it is large enough to warrant it. This year, we'll be somewhere between GBP 15 million to GBP 20 million. As I said earlier, I think the market will grow 400% to 500% over the next 5 years. And I think we can increase our market share. So the math is should be quite simple. We're not experiencing any margin erosion or any major price erosion in the market. Actually I think there will probably be thinning out of suppliers in the market because there are a lot of new entrants who are not making any money, some incumbents are not making any money either. So hopefully, the pricing will remain where it is. And that's just in the U.K. So we're launching products across our wider distribution. As you know, we have businesses in Spain. We have businesses in the Middle East, quite a strong business in the Middle East. We have businesses in Asia, too. We're going to be looking to internationalize our product offer, and I think that could drive significant further volume. So I would like to say, I mean in it, if I would say I would like to be doing GBP 100 million in EV by 2029, I mean that maybe sounds a bit ambitious. But if you do the math on the market size and market share growth, that should be achievable. In batteries, I mean EV chargers we sell for a few hundred pounds. Batteries, we'll be selling for a few thousand pounds. So in theory, battery should be a lot larger, obviously, not every home is going to have solar, every home is not going to have a battery built. But it's very hard to forecast for us. We haven't sold any yet, then it landed -- the stock landed yesterday. It could be anything. I wouldn't want to guess on that. Ask me in a couple of year's time and I might know something.

There are no more questions from the webcast. I'll hand back for closing remarks.

Will, do you want to do the closing remarks?

Sure. So a really pleasing end to '24, outperformed. And I guess, in spices, still a noise about U.K. consumer where we're seeing some green shoots at the start of '25, which gives us some encouragement for further prospects. And I think as John said, we are very pleased with the acquisitions that we made in '24. Lots of opportunities to improve those, which we'll do over time. And we see M&A being a key part of our future as well. So we see further opportunities to grow. So with that, thank you very, very much for coming along and making it so interactive. And I'm hoping that John didn't tell too many secrets today. Anything you want to say?

No, that's great. Thanks, Will. Thanks, everybody.

Thank you.