Results for the six months ended 30 September 2022

RNS Number : 5918F

Marks Electrical Group plc

08 November 2022

 

Marks Electrical Group plc

Results for the six months ended 30 September 2022

Continued trading momentum, resilient profit performance and strong market share gains

Marks Electrical Group plc ("Marks Electrical" or "The Group"), a fast growing online electrical retailer, today announces its unaudited results for the six months ended 30 September 2022 ("the Period" or "H1-23" or "first half").

Financial highlights

• Strong first half revenue growth of 15.1% to £43.1m (H1-22 £37.5m)
• Resilient profit performance in tough market conditions with Adjusted EBITDA⁽¹⁾ of £2.7m (H1-22 £3.0m), delivering a margin of 6.3% and keeping us on-track to deliver on our full year targets
• Continued focus on working capital management, improving inventory days and driving a strong operating cash conversion of 189%
• Free cash flow of £4.5m (H1-22 £5.9m), representing a free cash flow margin of 10%
• Adjusted EPS of 1.66p (H1-22 2.14p)⁽³⁾, Statutory EPS of 1.66p (H1-22 1.55p)
• Robust, debt-free balance sheet with closing net cash position of £7.7m (H1-22 £1.3m), supporting an interim dividend of 0.30p per share

Operational highlights

• Growth in Major Domestic Appliances ("MDA") market share from 1.6% in H1-22 to 2.1% in H1-23, with our share in the online segment of the market growing from 2.6% to 3.9%⁽⁴⁾
• Growth in Consumer Electronics ("CE") market share from 0.2% in H1-22 to 0.3% in H1-23, with our share in the online segment of the market growing from 0.4% to 0.6%⁽⁴⁾
• Strong performance driven across all major product categories, with A-rated energy efficient laundry appliances growing at over 35% in the period, versus less efficient models staying broadly flat
• Investments in on-screen, social media and out-of-home marketing activities drove improved brand awareness from 7% to 10%⁽⁷⁾
• Expanded our geographic footprint further into Glasgow, Edinburgh, Cornwall and further parts of Wales, where we have seen strong demand for our customer leading proposition
• Maintained industry leading Trustpilot score of 4.8, demonstrating our commitment to operational delivery and customer satisfaction

Outlook

• Acceleration of revenue growth in October and strong start to November leave us well positioned to achieve our full year targets

Mark Smithson Chief Executive Officer, commented:

"I'm proud of the performance we've delivered against a tough back-drop, with the Group's sales up 15.1% in a very challenging market where the online MDA and CE markets were down over 15% in our first half. This further demonstrates the resilience of our business model and the attractiveness of our market-leading customer offering.

Our focus on operational excellence, customer service, and improving brand awareness has enabled us to continue to gain share in a very competitive market, where our share grew from 1.6% to 2.1% of the overall MDA market and from 2.6% to 3.9% in the online segment. As more people across the UK come into contact with the Marks Electrical proposition and become customers, we are able to harness our highly efficient, single-site operational model to drive profitable market share growth.

The strong competitive activity we saw in pricing and marketing during the first half has begun to ease more recently and despite the margin pressure, we were able to achieve an Adjusted EBITDA margin of 6.3%, keeping us on track to achieve our full year objectives and continuing to demonstrate the differentiated margin proposition of our operating model.

As growth momentum continues to build going into the peak trading period, with an acceleration in October and a strong start to November, our focus on operational excellence and cash flow generation, combined with our net cash position, provides us with a robust platform to generate continued profitable market share growth and deliver on our full year targets."

Key financial highlights:		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Revenue		43,146	37,470	80,478
Adjusted EBITDA(1)		2,704	3,031	7,247
Adjusted EBITDA margin		6.3%	8.1%	9.0%
Adjusted EBIT		2,130	2,707	6,386
Adjusted EBIT margin		4.9%	7.2%	7.9%
Adjusted profit after tax		1,741	2,234	5,255
Adjusted earnings per share(3)		1.66p	2.14p	5.01p
Statutory profit after tax		1,738	1,626	3,288
Statutory earnings per share		1.66p	1.55p	3.22p
Operating cash flow for conversion(5)		5,117	6,578	8,616
Operating cash conversion		189%	217%	119%
Free cash flow		4,523	5,940	5,746
Free cash flow margin		10%	16%	7%
Net cash (6)		7,692	1,276	3,872
Return on Capital Employed (2)		49%	71%	57%

^Notes

^{(1)   Adjusted EBITDA is a non-statutory measure defined as earnings before interest, tax, depreciation, and amortisation and adjusted for exceptional items, share-based payment charges and revaluation of investments.}

^{(2)   Return on Capital Employed (ROCE) is defined as Adjusted EBIT / (Total Assets - Current liabilities)}

^{(3)    Adjusted EPS is a non-statutory measure of profit after tax, adjusted for exceptional items, share-based payment charges and revaluation of investments, over the total diluted ordinary number of shares in issue. The number of ordinary shares as at 5 November 2021 through to 31 March 2022 have been used as the basis for the current and prior periods adjusted  earnings per share calculation. The shares in issue since IPO  represents an indication of the future weighted average number of ordinary shares for evaluating the performance of the Group}

^{(4)    Based on the Group's analysis of GfK Market Intelligence sales tracking GB data;}

^{(5)    Operating cash flow for cash conversion is defined as cash generated from operations less outflows for lease payments and exceptional items}

^{(6)    Net cash/(debt) represents cash and cash equivalents less financial liabilities (excluding lease liabilities)}

^{(7)    All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 3,728 adults. Fieldwork was undertaken between 25 October - 2 November 2022. The survey was carried out online. The figures have been weighted and are representative of all England adults (aged 18+).}

Results presentations

An in-person presentation for sell-side analysts hosted by Mark Smithson, CEO, and Josh Egan, CFO, will take place at 09.30am this morning. Please contact [e-mail] for further information.

In addition, management will also provide a live online presentation for investors at 12.30pm on 10 November 2022. The online event is open to all existing and potential shareholders and registration is free. Questions can be submitted during the presentation and will be addressed at the end. To register, please go to: link to sign up .

A recording of the presentation will be available shortly after the event at this link: Marks Electrical content page .

Enquiries:

Marks Electrical Group plc  Via Dentons Global Advisors:

Mark Smithson, CEO                                                                                                                    Tel: [phone]

Josh Egan, CFO     

Dentons Global Advisors (Financial PR)

Jonathan Brill / James Styles / Fern Duncan                                                                                Tel: [phone]

[e-mail]          

Panmure Gordon (NOMAD and Joint Broker)

Oliver Cardigan / Dougie McLeod (Corporate Finance)                                                                Tel: [phone]

Erik Anderson (Corporate Broking) 

Berenberg (Joint Broker)

Matthew Armitt / Michelle Wilson / Richard Bootle (UK Investment Banking)  Tel: [phone]

About Marks Electrical

Marks Electrical is a fast growing, highly scalable, technology driven e-commerce electricals retailer which sells, delivers, installs and recycles a wide range of household electrical products. The Group was founded in Leicester in 1987 by Mark Smithson and has scaled up into a nationwide online retailer with a compelling growth track record, thanks to its vertically integrated, low-cost, high-quality operating model, supported by the ongoing structural shift of consumers to purchase online. The Group operates within the UK Major Domestic Appliances (MDA) and Consumer Electronics (CE) market, estimated to be worth approximately £8.0 billion.

Primarily through its simple, clear and intuitive website - markselectrical.co.uk - the Group offers over 4,000 products from over 50 leading brands across its main product categories, which include Cooking, Refrigeration, Washers & Dryers, Dishwashers and Audio-Visual. These products are sourced from UK distributors of the brands, with whom the Group maintains strong and direct relationships. Marks Electrical delivers direct to customers in its owned and branded vehicles, operated by the Group's skilled team of delivery drivers, who are also able to offer installation and recycling services.

For further information, visit the Marks Electrical corporate website:  https://group.markselectrical.co.uk  and its retail website:  https://markselectrical.co.uk/ .

Group CEO review

We made a strong start to FY23, with first half revenue growth of 15.1% and an Adjusted EBITDA margin of 6.3%, setting us on-track for delivery of our financial targets.

We achieved this against a particularly challenging market back-drop and with the online Major Domestic Appliances (MDA) and Consumer Electronics (CE) markets being down over 15% in the first half.

Our focus on operational excellence, customer service, and improving brand awareness has enabled us to continue to gain share in a very competitive market, where our share grew from 1.6% to 2.1% of the overall MDA market and from 2.6% to 3.9% in the online segment.

Market share - a significant growth runway

As a business we are predominantly focused on the MDA market and have also been expanding our footprint in the CE market, primarily in the television category.

During the first half of our financial year, the online market for both MDA and CE has been challenging with the first quarter (April to June) showing a decline of over 20% and the second quarter (July to September) a decline of over 10%. Continuing the trends seen in FY22, the online markets for MDA and CE have been in successive decline year on year for over 12 months now, yet despite the challenging market dynamics, we have grown consistently throughout this period.  

It's these statistics that are truly exciting; we have a tiny share of an enormous market which has allowed us to be agile and flexible in navigating this challenging period, but also provides us with confidence for the future, given the huge runway to grow profitably.

Our market-leading customer service, free next day delivery offering and differentiated operating model, gives us a compelling customer proposition and leaves us in a position of strength to take further market share across the UK.

Our strategy for growth

We put the customer at the heart of everything we do and have four key elements to our strategy for growth:

1.  Customer proposition

Our operating model is unique across the Major Domestic Appliances sector in that we consistently offer free next day delivery for in-stock items throughout our wide range of products, across over 90% of the UK population.

Our ability to achieve this unique proposition centres around the vertical integration of our delivery model, with our own fleet, employed drivers and installers, and our centralised single-site distribution centre, maximising efficiency and improving financial returns.

During the period we have made substantial progress in developing our customer proposition, including:

• Expanding our delivery areas to Cornwall, Glasgow, Edinburgh, and throughout all of Wales;
• Developing our range of SKUs across MDA and CE, whilst starting the development of our computing category;
• Adding additional third-party finance offerings to provide new credit solutions and interest free options for customers;
• Developing our new integrated installation offering with our own employed team of installation engineers; and
• Maintaining our industry leading Trustpilot score of 4.8.

We are focused on providing a market leading customer service proposition that sets us apart from the competition and allows us to continue to gain profitable market share.

2.  Brand awareness

During the period we updated our brand awareness study which demonstrated that only 10% of the population in England had heard of Marks Electrical. This was an increase of 3 percentage points against the study we carried out at the end of FY22,  demonstrating the growth in brand awareness and the opportunity to continue growing this over time. Our focused brand building activities across on-screen and across social media helped us improve awareness, and this, coupled with our expanded delivery areas will continue to enable us to grow awareness of Marks Electrical across the UK.

We strongly believe that our market-leading service drives strong repeat business and once we have acquired the customer, they will make further purchases from us. This is exemplified in our strong repeat customer rate, which was 26% in H1-23 and we were proud to serve over 4,000 returning customers in the month of September, a first for the business!

Our marketing activities are geared towards developing our brand and we are deploying a range of both digital and non-digital campaigns to strengthen our proposition and capture more attention in the months ahead.

3.  Operational capacity

During the period we have made further improvements to our warehouse to add additional mezzanine flooring and raise ceiling heights, allowing for a higher level of capacity. In addition, we have improved inventory days allowing us to make better use of our existing space as we increase throughput to achieve higher revenue levels during the peak period.

We have moved our operational warehouse teams to a four on four off shift pattern, allowing us to operate 24/7 and align the shift patterns with our delivery teams. Alongside this we have continued to add roles in our customer services, sales and administrative teams.

As part of our improvements across our operational capacity, we have started to develop our own in-house installation team, by recruiting experienced installation engineers, allowing us to bring in-house, integrated, gas and electrical appliance installation services that were historically outsourced. This service offering is now ramping up rapidly and we are excited about its prospects.

As we prepare for future growth we have ordered 10 new installation vehicles and 12 additional delivery vehicles that will arrive during late 2022 and in 2023. We are confident in our future prospects and are therefore investing in our people, processes and capacity to continue our growth.

4.  Financial performance

The strong competitive activity we saw in pricing and marketing during the first half has begun to ease more recently and despite the margin pressure this has had we were able to achieve an Adjusted EBITDA margin of 6.3%, along with revenue growth of 15.1%. This keeps us on track to achieve our full year targets and continues to demonstrate the differentiated margin proposition of our operating model.

We made continued progress on working capital management and delivered an operational cash conversion of 189%, demonstrating the highly cash generative nature of our earnings model and enabling us to finish the period with a net cash position of £7.7m and a Return on Capital Employed of 49%.

This strong cash performance means we can reinvest in the growth of the business, whilst remaining debt free, and simultaneously provide returns for shareholders through dividends. We were proud to pay our maiden dividend in August 2022 and are declaring our first interim dividend for FY23 in December 2022 of 0.30p.

We believe this combination of profitable growth, high return on capital and dividend income provides an attractive proposition for total shareholder returns.

Outlook - well placed to deliver profitable market share growth

We believe that our current share of the UK MDA market of 2.1% and online share of 3.9%, continues to provide significant scope and opportunity for growth. Our market-leading customer service and free next day delivery, combined with in-house installation expertise, provides a compelling and unique offering, that sets us apart from the competition.

As momentum continues to build going into the peak trading period, with an acceleration of revenue growth in October and a strong start to November, our focus on operational excellence and cash flow generation, combined with our net cash position, provides us with a robust platform to generate continued profitable market share growth and achieve our full year targets.

Mark Smithson

Chief Executive Officer

Financial review

The Group made a strong start to FY23, against a particularly challenging market back-drop. Sales growth was driven across the board, with more significant gains in televisions, cookers, vacuums and energy efficient major domestic appliances. We have maintained our focus on profitable market share growth, against heightened levels of competitor discounting and marketing and whilst this put pressure on H1-23 margins, we expect this to ease over H2-23 given reduced competitor discounting in recent months, our tight focus on cost control and improved operating leverage during the peak trading period.

Revenue and gross margin

Revenue has increased 15.1% year on year to £43.1m, whilst during the same period the online MDA and CE markets were down over 15%. This relative outperformance resulted in our share of the MDA market increasing by 50bps from 1.6% in H1-22 to 2.1% in H1-23.

Revenue growth in H1-23 has been driven by investments in brand awareness, an increased focus on having a wider breadth of in-stock SKUs and our improved customer proposition.

Gross margin was 18.1%, down 110bps from H1-22, primarily driven by increased competitor discounting during Q1-23, increased fuel costs throughout the period and the increased national insurance on drivers' wages.

The margin pressure due to competitor discounting eased toward the end of Q2-23 and we have seen further improvements during October. As a result, w e anticipate an improved gross margin in H2-23, with stronger product margins, a reduction in fuel costs as a percentage of sales, lower national insurance on drivers' wages, and better leverage over the fleet and driver-installer cost base.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Revenue		43,146	37,470	80,478
Cost of Sales		(35,338)	(30,270)	(64,583)
Gross profit		7,808	7,200	15,895
Gross margin		18.1%	19.2%	19.8%

Advertising and marketing costs

Advertising and marketing costs were 5.6% of revenue in H1-23 versus 5.1% in H1-22 as a result of increased investments made in brand building activities to drive improved brand awareness prior to the peak trading period.

In digital advertising, we continued our focus on paid media and search engine optimisation, ensuring that we directed our investments carefully for maximum return during a period of heightened competitor spend levels.

In brand building, in order to improve our brand awareness, we carried out further on-screen campaigns across Sky, ITV, Channel 4 and YouTube. Social media activity was an increased focus in H1-23 in order to develop our brand across key social channels, including Facebook, Instagram and TikTok. Our focus in H2-23 is to develop our out-of-home display activities in order to reach a wider audience in targeted locations, whilst continuing our on-screen and social media presence.

We anticipate a slightly lower level of investment in advertising & marketing in H2-23 to keep us on track for our 5.0% of sales target and to leverage the investments made in the first half.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Revenue		43,146	37,470	80,478
Advertising and marketing costs		2,421	1,900	4,004
Advertising and marketing as % of revenue		5.6%	5.1%	5.0%

Other operating expenses (excluding depreciation)

Other operating expenses were broadly flat at 6.2% of revenue in H1-23 versus 6.1% in H1-22. The changes during the period were a result of plc related costs that were not incurred in H1-22, national insurance increases on employee wages, and increased business rates following COVID-19 reliefs coming to an end. These were partially offset by operating leverage on the overhead base.

We anticipate a similar level of spend in H2-22 keeping us in line with our 5.5 - 6.5% of revenue target.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Revenue		43,146	37,470	80,478
Other operating expenses		2,684	2,271	4,644
Other operating expenses as % of revenue		6.2%	6.1%	5.8%

Adjusted earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA")

The Group achieved Adjusted EBITDA for the period of £2.7m representing a margin of 6.3%, down 180bps against H1-22.

This decrease in margin year on year is a direct result of events aforementioned, namely:

· 110bps reduction in gross margin due to competitor discounting and increased fuel & national insurance costs;

· 50bps increase in advertising & marketing costs as we maintain our focus on expanding brand awareness prior to the peak trading period;

· 50bps in relation to additional costs of operating as a plc; and

· 30bps savings as a result of cost control and operating leverage.

We anticipate an improvement in Adjusted EBITDA margin in H2-23, as we benefit from reduced discounting during the peak trading period and improved operating leverage.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Profit after tax		1,738	1,626	3,288
Addback:
Tax		379	443	477
Finance costs		32	30	65
IPO related costs		-	727	2,676
LTIP costs		99	-	75
Less:
Revaluation of investments		(118)	(119)	(195)
Adjusted EBIT		2,130	2,707	6,386
Depreciation and amortisation		619	317	878
(Profit)/Loss on disposal of fixed assets		(45)	7	(17)
Adjusted EBITDA		2,704	3,031	7,247
Adjusted EBITDA margin		6.3%	8.1%	9.0%

Depreciation

Depreciation has increased to £0.6m (H1-22 £0.3m), this was driven by:

· Fleet modernisation and growth to accommodate the increase in sales volumes, thereby increasing right of use assets depreciation by £0.1m;

· On 30 September 2021 the Group's property was disposed of on a sale and leaseback arrangement, leading to an increase in property right of use assets depreciation by £0.2m; and

· Other property, plant and equipment depreciation charges have remained broadly flat.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Right of use assets: vans		228	115	304
Right of use assets: property		283	103	385
Property, plant and equipment		108	99	189
Total Depreciation		619	317	878
Depreciation as % of revenue		1.4%	0.8%	1.1%

Cashflow and statement of financial position

During H1-22 the Group achieved cash flow from operations of £5.6m and free cash flow of £4.5m. This strong performance demonstrates the highly cash generative nature of our earnings model.

During the period, capital expenditure has been relatively light as significant investments were made in FY22. We have spent £80,000 on warehouse improvements during H1-23, including further extension of the mezzanine floor, raising ceiling heights and improving the lighting and layout to enable a more efficient operation.

We have made additional investments in the fleet acquiring three new delivery vans on finance leases with a capital value of £111,000, including a cash outflow for deposits of £33,000. We expect to receive an additional 10 installation vans before the year end.

The Group closed the period in a net cash position of £7.7m versus £3.9m at the FY22 year end and £1.3m at the H1-22 period end, primarily as a result of strong EBITDA conversion and continued working capital improvements.

		Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Profit before tax		2,117	2,069	3,765
Addback:
Finance costs		32	30	65
(Profit)/Loss on disposal of fixed assets		(45)	7	(17)
Depreciation and amortisation		619	317	878
Revaluation of investments		(118)	(119)	(195)
LTIP costs		99	-	75
Release of provision		-	-	(155)
(Increase)/decrease in inventories		60	(112)	(2,957)
(Increase)/decrease in receivables		(542)	917	212
Increase/(decrease) in payables		3,379	2,936	4,926
Cash flow from operating activities		5,601	6,045	6,597
Addback:
Outflows relating to IPO costs		-	727	2,676
Less:
Outflows for lease payments		(484)	(194)	(657)
Operating cash flow for conversion		5,117	6,578	8,616
Operating cash conversion		189%	217%	119%
Investing activities		(82)	(447)	(774)
Tax paid		(475)	(171)	(2,042)
Interest paid		(37)	(20)	(54)
Free cash flow		4,523	5,940	5,746

Current trading and outlook

The resilient performance delivered in the first half provides us with solid foundations to deliver our strategic objectives in H2-23.

The business has continued to prosper during the start of the second half, with an acceleration in sales momentum in October and a strong continuation into November. As we benefit from improved gross margin and operating leverage during the peak trading period, we expect to improve our Adjusted EBITDA margin in H2-22 and remain on track to achieve our full year targets.

Consolidated Statement of comprehensive income

Six months ended 30 September 2022

	Notes	Six months ended 30 September 2022 £000	Six months ended 30 September 2021 £000	Year ended 31 March 2022 £000
Revenue		43,146	37,470	80,478
Cost of Sales		(35,338)	(30,270)	(64,583)
Gross profit		7,808	7,200	15,895
Administrative expenses		(5,678)	(4,493)	(9,509)
Share based payment expenses		(99)	-	(75)
Operating exceptional charges		-	(727)	(2,676)
Total administrative expenses		(5,777)	(5,220)	(12,260)
Operating profit		2,031	1,980	3,635
Fair value gains through the profit and loss		118	119	195
Finance expenses		(32)	(30)	(65)
Profit before income tax		2,117	2,069	3,765
Tax on profit	4	(379)	(443)	(477)
Profit for the financial period		1,738	1,626	3,288
Other comprehensive income		-	-	-
Total comprehensive income for the period		1,738	1,626	3,288

Consolidated Balance sheet

At 30 September 2022

	Notes	At 30 September 2022 £000	At  31 March 2022 £000
Non-current assets
Property, plant and equipment		832	841
Right-of-use asset		1,929	2,328
Investments		1,410	1,293
		4,171	4,462
Current assets
Inventories		14,329	14,389
Trade and other receivables		3,168	2,627
Cash and cash equivalents		7,692	3,872
		25,189	20,888
Total assets		29,360	25,350
Current liabilities
Trade and other payables		16,434	13,067
Lease liabilities		952	938
Current tax liabilities	4	48	145
		17,434	14,150
Non-current liabilities
Lease liabilities		925	1,324
Deferred tax	4	466	466
Total liabilities		18,825	15,940
Net assets		10,535	9,410
Shareholders' equity
Called up share capital		1,049	1,049
Share premium		4,694	4,694
Treasury shares		(4)	(4)
Merger reserve		(100,000)	(100,000)
Retained earnings		104,796	103,671
Total equity shareholders' funds		10,535	9,410

The interim financial statements of Marks Electrical Group plc were approved by the Board on 8 November 2022 and signed on its behalf by:

Josh Egan

Chief Financial Officer

Consolidated Statement of changes in equity

Six months ended 30 September 2022

	Notes	Called up share capital £000	Share premium £000	Merger reserve £000	Treasury shares £000	Revaluation reserve £000	Retained earnings £000	Total shareholders' equity £000
At 31 March 2021		100,000	-	(99,994)	-	1,235	9,132	10,373
Total comprehensive income for the period		-	-	-	-	-	3,288	3,288
Contributions by and distributions to owners:
-Dividends paid		-	-	-	-	-	(3,884)	(3,884)
-Dividends in specie		-	-	-	-	-	(5,175)	(5,175)
-Issue of shares		49	4,954	-	(4)	-	-	4,999
-Costs of share issue			(260)					(260)
-Capital reduction		(99,000)	-	-	-	-	99,000	-
-Cancellation of E shares		-	-	(6)	-	-	-	(6)
-Share based payment charge		-	-	-	-	-	75	75
Sale of property		-	-	-	-	(1,235)	1,235	-
At 31 March 2022		1,049	4,694	(100,000)	(4)	-	103,671	9,410
Total comprehensive income for the period		-	-	-	-	-	1,738	1,738
Contributions by and distributions to owners:
-Dividends paid		-	-	-	-	-	(703)	(703)
-Share based payment charge		-	-	-	-	-	90	90
At 30 September 2022		1,049	4,694	(100,000)	(4)	-	104,796	10,535

All the results arise from continuing operations.

Consolidated Cash flow

Six months ended 30 September 2022

	Notes	Six months ended 30 September 2022 £000	Year ended  31 March 2022 £000
Cash flows from operating activities
Profit for the period		1,738	3,288
Adjustments for non-cash items:
Depreciation of property, plant and equipment		108	189
Depreciation of right-of-use assets		511	689
(Profit)/loss on disposal of property, plant and equipment		(45)	(17)
Fair value gains		(118)	(195)
Share based payment expense		99	75
Interest expense		32	65
Taxation charged		379	477
Release of provisions		-	(155)
Movements in working capital:
(Increase) in inventories		60	(2,957)
Decrease/(increase) in receivables		(542)	212
Increase in payables		3,379	4,927
Cash flow generated from operations		5,601	6,598
Corporation tax paid		(475)	(2,042)
Net cash flow generated from operations		5,126	4,556
Cash flows from investing activities
Purchase of property, plant and equipment		(99)	(583)
Deposits on right-of-use assets		(33)	(304)
Proceeds from sale of property, plant and equipment		45	65
Income from investments		5	48
Net cash used by investing activities		(82)	(774)
Cash flows from financing activities
Interest paid		-	(11)
Issue of ordinary share capital		-	4,740
Repayment of borrowings		-	(1,537)
Interest paid on lease liabilities		(37)	(54)
Principal repayment of lease liabilities		(484)	(657)
Equity dividends paid		(703)	(3,884)
Net cash used by financing activities		(1,224)	(1,403)
Net increase in cash and cash equivalents		3,820	2,379
Cash and cash equivalents at the beginning of the period		3,872	1,493
Cash and cash equivalents at end of the period		7,692	3,872

Notes to the unaudited financial statements

Six months ended 30 September 2022

1  General Information 

Mark's Electrical Group plc is listed on AIM, a market operated by the London Stock Exchange. The Group is domiciled in the UK and its registered office is 4 Boston Road, Leicester, LE4 1AU.

The principal activity of the Group throughout the period is the supply of domestic electrical appliances and consumer electronics in the United Kingdom.

2  Accounting policies

2.1  Basis of preparation

The financial statements of Marks Electrical Group plc for the six months ended 30 September 2022 were authorised for issue by the Board of Directors on 8 November 2022 and signed on its behalf by Josh Egan.

This consolidated financial information has been prepared in accordance with UK adopted international accounting standards.

There are no new standards, interpretations and amendments which are not yet effective in these financial statements, expected to have a material effect on the Group's future financial statements.

The financial information has been prepared on a going concern basis under the historical cost convention. The financial information and the notes to the financial information are presented in thousands of pounds sterling ('£'000'), the functional and presentation currency of the Group, except where otherwise indicated.

2.2  Going concern

The Group has traded positively during the year, delivering sales growth of 15.1%, whilst maintaining a 4.7% operating margin and net cash flow of £3.8m.

Management have prepared detailed financial projections for a period of 12 months from the date of signing the financial statements ('Review Period'). These projections are based on the Group's detailed annual business plan. Sensitivity analysis has been performed to model the impact of more adverse trends compared to those included in the financial projections in order to estimate the impact of severe but plausible downside risks.

After reviewing the forecasts and risk assessments and making other enquiries, the board has formed the judgement at the time of approving the financial statements that there is a reasonable expectation that Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of these financial statements.

2.3  Consolidation

The Group financial statements include those of the parent company and its subsidiaries, drawn up to 30 September 2022. Subsidiaries are entities over which the Group obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-Group balances arising from transactions within the Group are eliminated.

At the time of the IPO, the acquisition of the trading subsidiaries was achieved by way of share for share exchange and the difference between the par value of the shares issued and the fair value of the cost of investment was recorded as an addition to the merger reserve. The parent company statement of financial position shows a merger reserve of £59,999,999 and an investment of £159,999,998.

On a Group basis, an accounting policy was adopted based on the predecessor method as is not a business combination but rather a group re-organisation and thus falls outside the scope of IFRS 3. IFRS does not specifically state how group re-organisations are accounted for. Therefore, in accordance with IAS 8, the Directors have considered the accounting for group re-organisations using merger accounting principles, as set out in FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under this method, the financial statements of the parties to the combination are aggregated and presented as though the combining entities had always been part of the same group. The investment by Marks Electrical Group plc in Marks Electrical Limited was eliminated and the difference between the fair value and nominal value of the shares was adjusted through the merger reserve in the Group statement of financial position.

Notes to the unaudited financial statements (continued)

2.4  Operating exceptional charges

The Group presents exceptional items on the face of the statement of comprehensive income those material items of income and expense which the Directors consider, because of their size or nature and expected non-recurrence, merit separate presentation to facilitate financial comparison with prior periods and to assess trends in financial performance. Exceptional items are included in Administration expenses in the consolidated statement of comprehensive income but not considered to be part of the underlying trading performance of the business.

2.5  Significant accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

IFRS 13 fair value fixed asset investments

Estimates and assumptions are used to determine the carrying value of unlisted investments at fair value through statement of comprehensive income. The fixed asset investment in CIH ("Euronics") entitles the Group to a share of profit based on purchases made during any given period. The fixed asset investment is made up of an initial buy-in cost plus share of profits accrued since entering Euronics. Due to the timing of Euronics producing their annual results, the Group estimates the current periods profit share, based on a percentage of total purchases from Euronics. The profits from Euronics are seldom distributed; however, if the Group were to leave Euronics, the total accrued profits including the initial buy-in cost would become payable in full.

Long-term equity incentive plans

In calculating the charge in the statement of comprehensive income for the share-based remuneration for employees and Directors, estimates and judgements must be made on various inputs to valuation model to determine a theoretical fair value. A Black-Scholes pricing model is used to measure the fair value of the employee share options using six variables, the volatility, type of option, share price on issue, time, strike price and the risk-free rate. Other conditions which are required to be met in order for an employee to become fully entitled taken into consideration, such as employee attrition rates.

Notes to the unaudited financial statements (continued)

3.  Earnings per share

(a)  Earnings

		Six months ended 30 September 2022 £000	Year ended 31 March 2022 £000
Statutory earnings		1,738	3,288

(b)  Number of shares

		Six months ended 30 September 2022	Year ended 31 March 2022
Basic weighted average number of shares		104,949,050	101,979,620

(c)  Earnings per share

		Six months ended 30 September 2022	Year ended 31 March 2022
Statutory earnings
Basic statutory earnings per share*		1.66p	3.22p

Notes to the unaudited financial statements (continued)

3.1  Non-Statutory earning per share

(a)  Earnings

		Six months ended 30 September 2022 £000	Year ended 31 March 2022 £000
Statutory earnings		1,738	3,288
Add:
Exceptional costs1		99	2,125
Less:
Fair value gains net of tax		(96)	(158)
Adjusted earnings		1,741	5,255

(b)  Number of shares

		Six months ended 30 September 2022	Year ended 31 March 2022
Shares in issue following IPO		104,949,050	104,949,050

(c)  Earnings per share

		Six months ended 30 September 2022	Year ended 31 March 2022
Adjusted earnings
Basic adjusted earnings per share*		1.66p	5.01p

Adjusted earnings per share is a non-statutory measure the Group is using to provide comparability and ease of understanding to the users of the financial statements. This includes adjustments to the earnings and the number of shares.

Adjusted earnings exclude all exceptional costs, plus the add back of the revaluation in the investment of the Group's buying group, as disclosed above.

The number of ordinary shares as at 31 March 2022 through to 30 September 2022 has been used as the basis for the current and prior periods adjusted earnings per share calculation.

^{1 - Exceptional items include costs relating to the Initial Public Offering (IPO) of Marks Electrical Group plc in period ending 31 March 2022 and long term incentive plans (LTIP) shares in period ending 31 March 2022 and 30 September 2022.}

4.  Taxation

Income tax expense is recognised based on management's best estimate of the average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period. The income tax expense for the six months ended 30 September 2022 is £379,000 (H1-22: £442,630). The Group's adjusted consolidated effective tax rate for the six months ended 30 September 2022 is 19.0% (H1-22: 19.0%). The deferred tax liability is expected to reverse within 36 months. The finance bill 2021, published March 2021, announced an increase to the corporation tax rate from 19% to 25% from 1 April 2023. Deferred tax has been recognised at 25%.

Notes to the unaudited financial statements (continued)

5.  Dividends paid

	Six months ended 30 September 2022 £000	Year ended 31 March 2022 £000
Dividends declared during the period:
Dividends paid during the period	703	3,884
Dividend in specie	-	5,175
	703	9,059

All prior year dividends paid, were done so by Marks Electrical Limited not Marks Electrical Group plc and were disclosed due to this being the first year reporting under merger accounting. Dividends paid and issued during the period totalled £703,159 (FY22: £9,059,471). The dividend in specie related to a group restructure prior to Admission, the consideration for the dividend in specie was the transfer of 100% of the share capital of Mavrek Properties (previously an indirect subsidiary of the Group).

 

END

 

 

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