Thorpe Regulatory News (TFW)

Results

for the year ended 30 June 2021

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 2021.

Key points:

· Total interim and final dividend of 5.80p (2020: 5.66p) - an increase of 2.5%

· Final dividend of 4.31p (2020: 4.20p) and special dividend of 2.20p (2020: nil) - last paid in 2016

· Revenue surpassed last year's high - supported by large scale orders and by services

· Operating profit recovered strongly from prior year, no impact from fire at Lightronics

· Profit before tax includes exceptional profit due to insurance claims from the fire of £1.6m

· Net cash generated from operating activities remained strong - £21.9m (2020: £19.4m)

· Solid start to 2021/22, operating performance in line with 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").

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Chairman's Statement

After a year of very difficult trading conditions for many companies, I would like to start by thanking the management and workforce across FW Thorpe Plc for their total commitment to Group operations in the last 12 months. Without their dedication, I would not be able to report the improved operating results below.

Whilst I am pleased with the improved performance under such circumstances, there is an element of wondering what could have been, for a second year running, had the Group not encountered, and continued to encounter, difficulties associated with the COVID-19 pandemic, the ongoing fallout from Brexit in the UK, and worldwide supply shortages.

On a positive note, within the Group we have once again started the new financial year with a very strong order book, exceeding our expectations in most companies, especially Thorlux Lighting, and we look forward to more normal trading conditions returning soon.

The Annual Report and Accounts contains a more detailed overview of the COVID situation and how it is being dealt with across the Group, together with a closer appraisal of the performance of each Group company.

Group Results

Year-end revenue grew again in the year, despite various operational difficulties, culminating in an overall increase of 4.0%, at £118m. A high proportion of the growth is attributed to Thorlux Lighting, but there were notable performances too from TRT Lighting, exceeding £10m revenue for the first time, and Solite and Portland Lighting, recovering well from reduced levels last year, and truly solid performances from the Dutch contingent, especially Lightronics, having to cope with the near-total destruction of its manufacturing facility early in autumn 2020. More on this later.

Philip Payne's market, of high-end hospitality venues and central London offices, was adversely affected the most in the Group by the pandemic, with no traditional large scale orders materialising. A solid year of battening down the hatches and controlling costs resulted in a subdued but profitable year overall.

Final Group operating profit (before exceptional item) for the year ended up 17.7% at £19m - another creditable result, all things considered.

The Group's continued robust balance sheet and strong cashflow performance allows the Board to recommend a final dividend of 4.31p per share (2020: 4.20p) for the year to 30 June 2021, which gives a total of 5.80p (2020: 5.66p) and an increase of 2.5%. It has been a number of years since the Group paid a special dividend, so I am pleased to recommend a special dividend of 2.20p per share (2020: nil).

General Overview

All businesses have targeted further growth this year, and early signs are positive, with order intake overall for the Group at record levels. The Group has found it particularly hard to forecast the ongoing stability of orders, given the uncertainty of the general economic situation. Orders have certainly held up better than expected; within the Group, we believe that during uncertainty customers have been less inclined to take chances with lesser known brands and have stuck with tried and tested and more local manufacturers. Certain export markets have improved, such as Germany and Norway, but generally export projects have been harder to win, reinforcing the point made above. Nevertheless, Group companies' overall resilience to various adverse trading conditions has again been proven throughout the financial year.

The Group's use of technology has been good, rolling out new up to date systems such as Office 365 just before the pandemic. For sales people, however, there is nothing like a face to face meeting, and it is only recently that these have restarted on a gradual basis. This has, for example, made it harder for general new starters in the sales team, and specifically for a new venture for Philip Payne attempting to increase, with new recruits, its sales efforts into end users.

In coming months there are significant challenges to deal with, especially related to component shortages affecting everyone in the Group. All companies are dealing with severe shortages and rising costs for many of the basic components necessary for making Group luminaires, such as steel, plastics, cardboard, electronic components and microchips. Although the Group has a strong cash position and can afford to stock up, the reality is that this has not been possible and stocks have reduced. Not receiving reliable delivery dates from suppliers, even for goods planned months in advance, is making day to day operations tense and frustrating. Individual companies' service levels have declined - particularly at Thorlux Lighting, which is now quoting significantly longer lead times than are normal or desirable.

To add to these difficulties, Brexit has resulted in a number of workers from Group factories returning home to mainland Europe. There is a reduced pool of labour in the UK to replace them, which is not helpful during a period in which the Group is recruiting heavily to support its requirement to ramp up production output. Various improvement plans are in place, but there may be some disruption in output and service levels until later in the autumn. Brexit also created operational difficulties in the early part of the calendar year, with finished goods for delivery to the EU extensively stuck in ports for long periods, and inbound component supplies hampered in a similar way. Some customers in Germany have actively moved away from the Group as a result, although within the Group we have managed to successfully route some orders through Lightronics to mitigate some of the trading impacts.

I am pleased to report that the Group has successfully completed the earn-out period with the investors and management team in the Netherlands. I am also delighted to report that the Group has successfully secured the ongoing services of the management team. I take this opportunity to thank all the Group's Dutch colleagues for their excellent work in recent years - a successful example of just what can be achieved, working collaboratively, that the Group aspires to with all its companies and future investments.

As mentioned in my interim statement, Lightronics suffered a devastating fire in September 2020. It is of credit to the local management that, on the morning following the fire, new temporary premises were secured and a recovery plan codenamed Project Restart commenced. Production output soon recovered and overall, incredibly, Lightronics managed to achieve similar performance to that of the prior year, even improving margins slightly through material cost reductions. Plans for the new building, which will have around 75% more manufacturing space than the previous unit, have received planning consent, and construction will commence shortly. Insurance claims have been recovered, as expected. Famostar, too, is actively developing its site for future expansion, with a greater warehouse area planned and plans generally for a larger operation in the future.

Indeed, all companies have developed individual plans for growth. For example, Portland Lighting, whose customer base has been in steady decline for the last few years, has developed new products into two completely new market sectors to strengthen its own resilience to market movements in a similar way to the Group as whole.

On the sustainability front, within the Group we continue to develop and implement strategies to improve our credentials even further - an activity first started in earnest with an improvement programme back in 2010. A few months ago, I visited the Group's tree planting scheme in Devauden, Monmouthshire, some 10 years on from when I ceremonially planted the first tree there with the government minister for the environment and sustainable development. Currently 149,849 saplings have been planted, with many well on their way to reaching maturity, with the scheme winning independent awards in the process. Fewer trees will be planted in future, as the Group will have less grid supplied energy to offset, having completed a project during the year to fit solar PV panels to most Group company factory roofs, with a target of self-generating around 40 to 50% of the Group's energy. Many Group directors, me included, have switched to fully electric vehicles; of course, during the daytime, whilst we are sitting at our desks working, our cars are charging, pollution free, in front of the building. Apart from the obvious green benefits, the Group's solar investments are expected to pay back in as little as five years, so it is good news for lowering our cost base too.

All Group companies, on the product front, are taking circularity seriously, further minimising the use of plastics and environmentally damaging materials, targeting even longer lifetimes, and making products simpler to upgrade or recycle at the end of their lifetime. More and more of the Group's customers demand solutions that are kind to the environment - good news for local manufacturing wherever possible.

The Group is undergoing a three year improvement programme, using an external third party assessor, to better measure and improve its green credentials and certify them to appropriate standards in an independent and reliable way. The Board feels this is important, because the credibility of some claims in the market is generally questionable.

Throughout the pandemic, FW Thorpe has continued its policy of independence and has not claimed government assistance such as furlough monies at any stage. Even during periods of layoff and during COVID-related absences, employees have been paid in full. I am proud of what has been achieved by everyone concerned - those working diligently from home, and those arriving daily at the Group's busy and COVID-secure factories.

Investments in lighting controls technology, and in particular in the ability of those systems to co-communicate with other systems, continues at pace. Later in the year, Thorlux will release the second generation of SmartScan, building on the reliable and successful SmartScan system first launched in 2016, which won the 2019 Queen's Award for Enterprise in the Innovation category. The system, now being used extensively by many companies across the Group, will be faster and smarter, and importantly will provide more data and analytics for customers to use in new ways to help streamline their operations, using the Group's luminaires as a method of collecting and transporting information. Investments this year in new improved electronics, especially but not limited to those for outdoor areas, have brought cost downs, enabling customers to achieve paybacks in shorter times.

Acquisition

I mentioned last year that the Group remained acquisitive but was waiting until business again stabilised to some extent. I am pleased to report that, having put acquisition projects on hold last spring and following further discussions, on 4 October 2021 FW Thorpe acquired a majority stake in Electrozemper S.A., trading as Zemper, which has manufactured emergency lighting luminaires in Ciudad Real, Spain, since 1967.

Zemper has a complete range of emergency lighting, an area of business well liked by FW Thorpe for being somewhat niche and specialised. The factory is self-contained, with its own plastic moulding production, electronic printed circuit board assembly lines, robotic assembly techniques and end of line testing.

Generally, Zemper operates in markets where the Group currently only has a very small market share. Zemper's largest revenue is derived from Spain, France and Belgium. Zemper's annual revenue is €20m, with EBITDA over €4m. The deal structure is similar to that agreed for the Dutch acquisitions, and management is part of the ongoing project.

The Board sees long term synergies and collaboration possibilities with other companies in the Group whilst further penetrating wider geographical markets.

I welcome to FW Thorpe Plc the employees of Zemper and wish them long and successful careers as part of the team.

Personnel

I would like to thank my whole team for their continued support and diligence through such challenging times. I hope that some stability will return in this financial year, and I look forward to being able more regularly to visit Group operating sites again soon.

Outlook

Whilst still carrying some increased manufacturing costs, all companies are capable of producing increased revenue in the coming year. As mentioned earlier, the Group as a whole commenced the new year with a good order book, especially at Thorlux Lighting.

There remain some difficulties, though, caused by component supply shortages, some capacity restraints and ongoing COVID-related disruption.

Mike AllcockChairman and Joint Chief Executive

5 October 2021

Consolidated Results

Consolidated Income Statement

For the year ended 30 June 2021

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 2021

Consolidated Statement of Financial Position

As at 30 June 2021

Consolidated Statement of Changes in Equity

For the year ended 30 June 2021

Consolidated Statement of Cash Flows

For the year ended 30 June 2021

Notes

1 Basis of preparation

The consolidated and company financial statements of FW Thorpe Plc have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 IFRS9.

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 £52.3m cash and £23.6m short term deposits, to continue in business for the foreseeable future factoring in the expected impact of Covid-19. They have also produced an analysis that demonstrates that the Group could cover its cash commitments even if there was a reduction of 33% in sales 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 2021 but is derived from the Annual Report and Accounts 2021. 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 ten 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 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, 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 higher (2020: lower) than the standard rate of corporation tax in the UK of 19.00% (2020: 19.00%). The differences are explained below:

The effective tax rate was 21.49% (2020: 16.49%). Adjustments in respect of prior years relates 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. This has led to an increase in the deferred tax assets and liabilities at 30 June 2021 as these values have been calculated based on a rate at which they are expected to crystalise.

4 Dividends

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

A final dividend in respect of the year ended 30 June 2021 of 4.31p per share, amounting to £5,028,000 (2020: £4,886,000) and a special dividend of 2.20p, amounting to £2,567,000 (2020: nil) is to be proposed at the Annual General Meeting on 18 November 2021 and, if approved, will be paid on 25 November 2021 to shareholders on the register on 29 October 2021. The ex-dividend date is 28 October 2021. These financial statements do not reflect this dividend payable.

5 Property, Plant and Equipment

* Disposals includes the write off of assets as a result of the Lightronics fire.

6 Intangible Assets

Write-offs relate to development assets where no further economic benefits will be obtained.

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 Events after the Statement of Financial Positions date

On 21 September 2021 the Group completed its commitment to purchase the outstanding share appreciation rights in the subsidiaries Lightronics Participaties B.V. and Famostar Emergency Lighting B.V. The settlement was executed by a cash payment of the outstanding liability.

On 4 October 2021, the Group acquired 63% of the share capital of Electrozemper S.A. (Zemper), an emergency lighting specialist in Spain. The company was acquired by FW Thorpe Plc for initial consideration of €20.3m (£17.5m), plus €4.2m (£3.6m) for cash, working capital and property adjustments, with an additional €1.1m (£1.0m) payable subject to EBITDA performance 2021/22. The acquisition has been funded from the cash reserves of FW Thorpe Plc.

For the financial year to June 2021, Zemper achieved revenue of €20.3m (£17.4m) and operating profit of €3.8m (£3.3m). A fair value exercise will be performed in the next 12 months to determine the value of goodwill and other intangible assets that have arisen from this acquisition.

11 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.

12 Annual report and accounts

The annual report and accounts will be sent to shareholders on 12 October 2021 and will be available, along with this announcement, on the Group's website (www.fwthorpe.co.uk) from 12 October 2021. The Group will hold its AGM on 18 November 2021.