Thorpe Regulatory News (TFW)

Results

for the year ended 30 June 2022

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

Key points:

· 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 - £19.7m (2021: £21.9m)

· 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: 

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 £144m, or by 10% excluding revenue associated with the acquisition of Zemper. Operating profit increased by 29% to £25m, 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 £20m to £29m 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 £0.9m 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 £0.7m. 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 CO2e (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 CO2e 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 €15.9m, with an EBITDA of €2.8m. 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 AllcockChairman and Joint Chief Executive

11 October 2022

Consolidated Results

Consolidated Income Statement For the year ended 30 June 2022

Earnings per share from continuing operations attributable to the equity holders of the Company during the year (expressed in pence per share)

Consolidated Statement of Comprehensive Income For the year ended 30 June 2022

Consolidated Statement of Financial Position

For the year ended 30 June 2022

Consolidated Statement of Changes in Equity.

For the year ended 30 June 2022

Consolidated Statement of Cash Flows For the year ended 30 June 2022

Notes

1 Basis of preparation

The consolidated and company financial statements of FW Thorpe Plc have been prepared in accordance with UK adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards, with future changes being subject to endorsement by the UK Endorsement Board.

The financial statements have been prepared on a going concern basis, under the historical cost convention except for the financial instruments measured at fair value either through other comprehensive income or profit and loss per the provisions of IFRS 9 and contingent consideration that is measured at fair value.

There are no other standards that are not yet effective that are expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional and presentation currency, rounded to the nearest thousand.

The preparation of financial information in conformity with the basis of preparation described above requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's and Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial information, are disclosed in the critical accounting estimates and judgements section.

The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the Company income statement.

The directors confirm they are satisfied that the Group and Company have adequate resources, with £35.5m cash and £5.1m short term deposits, to continue in business for the foreseeable future, including the effect of increased costs caused by the Ukraine and Russia conflict, where the Group has no sales, and other global events. They have also produced a severe, but plausible downside scenario that demonstrates that the Group could cover its cash commitments over the following year from approving these accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts.

The financial information set out in this document does not constitute the statutory financial statements of the Group for the year end 30 June 2022 but is derived from the Annual Report and Accounts 2022. The auditors have reported on the annual financial statements and issued an unqualified opinion.

2 Segmental Analysis

(a) Business segments

The segmental analysis is presented on the same basis as that used for internal reporting purposes. For internal reporting FW Thorpe is organised into eleven operating segments based on the products and customer base in the lighting market - the largest business is Thorlux, which manufactures professional lighting systems for industrial, commercial and controls markets. The businesses in the Netherlands, Lightronics and Famostar, are material subsidiaries and disclosed separately as Netherlands companies. The businesses in the Zemper Group are also material and disclosed separately as the Zemper Group.

The seven remaining operating segments have been aggregated into the "other companies" reportable segment based upon their size, comprising the entities Philip Payne Limited, Solite Europe Limited, Portland Lighting Limited, TRT Lighting Limited, Thorlux Lighting L.L.C., Thorlux Australasia Pty Limited and Thorlux Lighting GmbH.

FW Thorpe's chief operating decision-maker (CODM) is the Group Board. The Group Board reviews the Group's internal reporting in order to monitor and assess performance of the operating segments for the purpose of making decisions about resources to be allocated. Performance is evaluated based on a combination of revenue and operating profit. Assets and liabilities have not been segmented, which is consistent with the Group's internal reporting.

Inter segment adjustments to operating profit consist of property rentals on premises owned by FW Thorpe Plc, adjustments to profit related to stocks held within the Group that were supplied by another segment and elimination of profit on transfer of assets between Group companies.

(b) Geographical analysis

The Group's business segments operate in four main areas, the UK, the Netherlands, the rest of Europe and the rest of the World. The home country of the Company, which is also the main operating company, is the UK.

3 Income Tax Expense

Analysis of income tax expense in the year:

The tax assessed for the year is lower (2021: higher) than the standard rate of corporation tax in the UK of 19.00% (2021: 19.00%). The differences are explained below:

The effective tax rate was 16.72% (2021: 21.49%). Adjustments in respect of prior years' relate to refunds received for prudent assumptions on additional investment allowances and patent box relief in the tax calculations. 

The UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020. The UK corporation tax rate increase from 19% to 25% from 1 April 2023, was substantively enacted in May 2021. Deferred tax assets and liabilities have been calculated based on a rate at which they are expected to crystalise. 

In the Netherlands the rate of corporate income tax was increased from 25% to 25.8%, this has resulted in an increase in tax costs of £31,000. The recently announced intention in the UK to reverse the decision to increase the corporation tax rate from 19% to 25% will reduce deferred tax liabilities by £303,000.

4 Dividends

Dividends paid during the year are outlined in the tables below:

A final dividend in respect of the year ended 30 June 2022 of 4.61p per share, amounting to £5,403,000 (2021: £5,028,000) is to be proposed at the Annual General Meeting on 17 November 2022 and, if approved, will be paid on 25 November 2022 to shareholders on the register on 28 October 2022. The ex-dividend date is 27 October 2022. These financial statements do not reflect this dividend payable.

5 Property, Plant and Equipment

* Acquisition of subsidiary are the assets acquired from the purchase of the Zemper companies.

6 Intangible Assets

* Acquisition of subsidiary are the assets acquired from the purchase of the Zemper companies, excluding goodwill.

7 Short-Term Financial Assets

The short-term financial assets consist of term cash deposits in sterling with an original term in excess of three months.

8 Earnings Per Share

Basic and diluted earnings per share for profit attributable to equity holders of the Company

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares.

9 Cash Generated from Operations

10 Business Combination

In October 2021, the Group acquired 63% of the share capital of Electrozemper S.A., an emergency lighting specialist in Spain. The company was acquired for an initial consideration of £19.9m (€23.1m) with a deferred consideration of £1.0m (€1.1m) payable during 2022. There is a fixed commitment to acquire the remaining shares, based on current best estimates, a further £16.3m (€18.9m) could be payable which is subject to future performance conditions. Amounts recognised in respect of this acquisition are:

A fair value exercise has been performed; the book value of all assets and liabilities except for raw materials and warranties are considered to represent fair value. For raw material inventories and provisions for warranties, reductions of €0.4m (£0.3m) and €0.1m (£0.1m) were to reflect slow moving stock lines and potential customer claims, respectively.

Fair value of intangible assets was assessed and determined on the basis of the technology, brand name and customer relationships acquired. Technology was determined using an industry typical royalty rate over an eight years period; brand name elements were determined using an industry typical royalty rate over a ten years period and customer relationships were determined using an industry typical royalty rate over a fifteen years period, all discounted to the present day.

The goodwill relates to the on-going level of profitability of the business model, opportunity to sell existing Group products into the Spanish and French markets, sale of Electrozemper products in other markets and potential sourcing benefits for the Group companies.

For the nine months to 30 June 2022 the Electrozemper companies contributed €16.7m (£14.2m) to Group revenue and €0.8m (£0.8m) to Group profit before tax for the current financial year.

If the acquisition had occurred on 1 July 2021 the consolidated pro-forma revenue and profit before tax for the year ended 30 June 2022 would have been £148.0m and £24.6m respectively. These amounts have been calculated using the subsidiary's results and adjusting them for:

· differences in accounting policies between the Group and the subsidiary; and

· The additional depreciation and amortisation that would have been charged, assuming that the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 July 2021, together with the consequential tax benefits.

11 Events after the Statement of Financial Position date

In September 2022, FW Thorpe acquired 80% of the share capital of SchahlLED Lighting in Germany, a turnkey provider of intelligent energy saving lighting products for the industrial and logistics sector. The acquisition is expected to enhance earnings per share in the financial year ending 30 June 2023, solidifying our business in Germany and providing further growth opportunities. FW Thorpe has paid an initial consideration of €14.6m (circa £12.8m) and could pay an additional amount to be determined by SchahlLED's EBITDA performance in the year ending 30 June 2023. The initial consideration has been funded from the Company's existing cash reserves, these reserves and the cash generated from SchahlLED over the next few years will fund the purchase of the remaining share capital in the future.

On 12 September 2022, the Group paid the second tranche of payments for the acquisition of Electrozemper S.A. totalling €6.1m (£5.3m).

12 Cautionary statement

Sections of this report contain forward looking statements that are subject to risk factors including the economic and business circumstances occurring from time to time in countries and markets in which the Group operates. By their nature, forward looking statements involve a number of risks, uncertainties and future assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied by the forward looking statements. No assurance can be given that the forward-looking statements in this preliminary announcement will be realised. Statements about the Chairman's expectations, beliefs, hopes, plans, intentions and strategies are inherently subject to change, and they are based on expectations and assumptions as to future events, circumstances and other factors which are in some cases outside the Company's control. Actual results could differ materially from the Company's current expectations. It is believed that the expectations set out in these forward looking statements are reasonable but they may be affected by a wide range of variables which could cause actual results or trends to differ materially, including but not limited to, changes in risks associated with the Company's growth strategy, fluctuations in product pricing and changes in exchange and interest rates.

13 Annual report and accounts

The annual report and accounts will be sent to shareholders on 14 October 2022 and will be available, along with this announcement, on the Group's website (www.fwthorpe.co.uk) from 14 October 2022. The Group will hold its AGM on 17 November 2022.