Annual Report 2016 and Notice of AGM

RNS Number : 0212D

Luceco PLC

21 April 2017

 

21 April 2017

Luceco plc

(the "Company')

Annual Report and Accounts 2016 and Notice of 2017 Annual General Meeting

Following the announcement on 3 April 2017 of its preliminary results for the year ended 31 December 2016, Luceco plc announces that it has today published its Annual Report and Accounts 2016.

The Company also announces that it will hold its Annual General Meeting at 1.00pm on Thursday 25 May 2017 at the offices of Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT.

Copies of the Annual Report and Accounts 2016 and the Notice of the 2017 Annual General Meeting are available to view on the Company's website at http://www.luceco.com/investors. They have also been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/nsm.

Copies of those documents, together with a form of proxy for use in connection with the 2017 Annual General Meeting, have been posted or made available to the Company's shareholders.

A condensed set of Luceco plc financial statements and information on important events that have occurred during the year and their impact on the financial statements were included in the Company's preliminary announcement on 3 April 2017.  The information contained in the preliminary announcement, together with the information set out below, all of which is extracted from the Annual Report for the year ended 31 December 2016 (the "Annual Report") constitute the requirements of DTR 6.3.5 which are to be communicated via a RIS in full unedited text.  This announcement is not a substitute for reading the full Annual Report.  Page and note references in the text below refer to page numbers in the Annual Report.

Principal risks and uncertainties

Below are details of the principal risks identified and actions taken to minimise their potential impact extracted from pages 23 to 25 of the Annual Report. This is not an exhaustive list but those the Board believes may have an adverse effect on the Group's cash flow and profitability.

Principal risk	Impact		Mitigation
Risk 1: Disruption to operations
The Group's key manufacturing operation is based in China. Any change to China's current political situation could impact the Group's ability to manufacture its products. The Group is reliant on the UK and Chinese sites remaining fully operational at all times. The Group is reliant on its IT systems to ensure its operations function efficiently. Any loss of IT service or compromise of IT security (through a cyber attack) could adversely impact the business.	·     The Group's Chinese operation and supply chain could be adversely affected if there is any disruption to legal, political, economic or social conditions in China. ·     If the key operational sites went offline for any reason or period of time, it would have a material adverse effect upon the Group's ability to manufacture and bring its products to market, severely impacting its business, financial position and future prospects. ·     Loss of sensitive data as a result of an IT security breach could negatively impact the Group's operations and reputation.		·     The Board and senior management team are in regular liaison with their Chinese counterparts and aware of any changing dynamics in the country. ·     The Group has an IT strategy and a disaster recovery plan in place to protect its operations. ·     The Chinese factory comprises separate buildings, reducing disruption. ·     Appropriate precautions are taken in all factories and warehouses to safeguard against theft and fire. ·     IT security systems in place, and tested regularly, to protect commercial and sensitive data. ·     IT technological and security developments are monitored regularly.
Risk 2: Input costs
Raw materials represent a significant cost to the Group. The Group faces risks from copper price volatility and is reliant on third party suppliers for some of its products and components.	·     Suppliers may increase product prices as a result of copper or other commodity price fluctuations, reducing profit margins. ·     Profitability will be negatively impacted if the Group is unable to pass price fluctuations on to its customers or there is a time lag in achieving a price increase. ·     Suppliers may not fulfil order requirements or products may be of poor quality, negatively impacting the Group's reputation, financial position and contractual commitments.		·     Copper prices are monitored regularly. Where fluctuations are severe, the exposure is determined and customer pricing is considered and adjusted accordingly. ·     Price fluctuations are passed on to customers as soon as practicable. ·     The Group has long‑term relationships, and some exclusive arrangements, with its suppliers who reliably fulfil orders to the required standard. ·     Quality control teams are in place at all key operational locations to ensure quality of supply.
Risk 3: Loss of market share
The Group could lose market share through the loss of one or more of its major customers with whom it does not have long‑term contracts, or if it is unable to maintain its innovative edge, particularly in the competitive LED lighting market where barriers to entry are low.		·     Any reduction in the Group's revenue or market share would have a material adverse effect on the Group's future prospects. ·     LED technology is constantly changing and customer demand rapidly evolving, giving risk of product obsolescence. ·     Any defence or claim against intellectual property ("IP") rights could be costly to instigate and pursue. ·     Infringement of third‑party IP would limit the Group's product offering and ability to compete. ·     Customers could stop trading with the Group at short notice as many agreements are on a rolling annual basis.		·     The Group invests heavily in R&D to remain at the forefront of capturing and delivering changing customer requirements and market trends. ·     The Group registers its designs with the design and patent office in the country of the market the product is sold in. ·     The Group has long-standing relationships with many of its customers and works closely with them to meet their requirements. ·     Dedicated customer support teams in all key trading locations maintaining excellent customer service.
Risk 4: Concentration
Approximately 86% of the Group's revenue is generated from the UK and profitability is directly influenced by the UK economic climate. The Group has a large number of customers but there is significant concentration within the customer base. This concentration presents a risk should one or more of the customers cease purchasing from the Group. Customer agreements are typically on a rolling annual basis.		·    Any economic downturn in the UK economy could adversely impact the Group's financial position if demand for its products reduces and there are limitations on its ability to increase or maintain its prices. ·    A significant proportion of the Group's trade is with a small number of customers that are not committed to purchasing the Group's products on a long-term basis. Customers could cease to purchase from the Group at relatively short notice negatively impacting trading and working capital as there would be a lag in adjusting manufacturing volumes.		·     Mitigation through innovation and product development as diversification of products enables the Group to grow by exploiting market gaps protecting it from any market downturn. ·     The economies and markets of all the Group's operations are reviewed regularly by the Board with mitigating action taken. ·     Continued international expansion will lessen reliance on any particular economy or customer. ·     The Group has long-standing relationships with its customers providing a strong competitive barrier. ·     The Group's ability to rapidly embrace new consumer trends and its distribution flexibility make it a valued supplier.
Risk 5: Financial impact of international operations
With its Chinese operation and FOB sales, the Group is exposed to exchange rate fluctuations of the CNY and US Dollar as a significant proportion of the Group's revenue is invoiced in US Dollars and the majority of costs are paid in CNY. The UK's referendum decision to leave the EU also presents a risk to the business. In the short term, the Group is managing the associated currency volatility but the longer-term risks of this decision are not yet clear. The Board continues to monitor the position closely.		·    Any weakening of Sterling relative to the US Dollar and CNY, could adversely affect profit. ·    There will be a time lag from the change in exchange rate to any recovery through pricing with a potential negative impact on profit. ·    The UK referendum decision and negotiations may cause further currency volatility, potentially adversely impacting profits.		·     The Group hedges excess CNY net outflows over US Dollar net inflows. ·     Currency fluctuations mitigated by hedging policy; pricing action is undertaken when appropriate. ·     Continued international diversification will dilute the impact of currency fluctuations.
Risk 6: Regulatory non-compliance
The risk of regulatory non-compliance is increasing as the Group is expanding rapidly into new territories, each with its own laws and regulations. Keeping up to date with changing laws and regulations is also a risk that the Group faces with its current operations.		·    Changes in the laws and regulations in the countries the Group operates in could result in incurring costs and adversely impact its reputation should it be found to be non‑compliant with any aspect. ·    The Group's third-party supply chain in China may not meet the Group's ethical resourcing standards, compromising its reputation.		·    The Board monitors the changing landscape of laws and regulations in the jurisdictions in which it operates. ·    The Board seeks appropriate advice before setting up operations in new territories. ·    The Group has long‑standing relationships with its suppliers and the Executive Directors frequently visit their operations.
Risk 7: Pursuit of the acquisition strategy
The acquisition strategy may incur substantial expense and divert management attention from the day-to-day business. The ability to pursue such a strategy is dependent upon the retention of key personnel to ensure that there is no disruption to the Group's operations.		·    Expenses may be incurred, whether or not an acquisition is completed, reducing profitability. ·    The cost and integration of an acquisition may reduce profit and increase indebtedness in the short-term. ·    Time required in pursuit of an acquisition may divert attention from other business concerns.		·    Costs are tightly controlled and cash flow is monitored daily. ·    The Board closely monitors the strategy and the resources required to deliver it. ·    The Group has an experienced senior management team in place to ensure that the day‑to‑day activities of the Group's business are managed effectively.

Related party transactions

At 31 December 2016, the Group had the following liabilities owing to EPIC Investments LLP "EPIC"), which holds 24.30% (2015: 48.89%) of the Group's issued share capital:

• Series A notes 2017 - Eurobond - £nil (2015: £6,935,726)

• Loan facility 2016 - £nil (2015: £3,201,729)

During the year, interest and finance charges accrued on the above liabilities of £544,924 (2015: £723,787). Interest and capital payments of £10,682,379 (2015: £1,958,109) were made in the year.

During the year, the Group incurred monitoring and rechargeable expenses of £75,000 (2015: £100,000) from EPIC Private Equity LLP, adviser to EPIC Investments LLP.

At 31 December 2016, the Company had the following liabilities owing to John Hornby, CEO, who holds 20.77% (2015: 23.07%) of the Company's issued share capital:

• Shareholder loans of £246,832 (2015: £2,498,298)

During the year, interest accrued on the above liabilities of £179,445 (2015: £341,594). Interest and capital payments of £2,431,361 (2015: £1,992,532) were made in the year.

Shareholder loans due to John Hornby, as detailed above, include £nil (2015: £1,492,311) due to Mrs P Hornby, John Hornby's wife. Mrs P Hornby holds 1.43% of the Company's issued share capital.

Transactions with key personnel

The compensation of key management personnel, including the Executive Directors, is included in note 4 of the Notes to the Consolidated Financial Statements (on pages 80-81 of the Annual Report).

Statement of Directors' Responsibilities

The Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

·           The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole

·           The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

We consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

John Hornby, Chief Executive Officer

David Main, Chief Financial Officer

3 April 2017

For further information, please contact

Luceco plc John Hornby, Chief Executive Officer David Main, Chief Financial Officer	via MHP Communications 020 3128 8100
MHP Communications Tim Rowntree James White Ollie Hoare Rossina Garcia	020 3128 8100
Numis Securities Stuart Skinner Oliver Hardy Toby Adcock	020 7260 1000

Notes to the Editors

About Luceco plc

Luceco is a rapidly growing manufacturer and distributor of high quality and innovative LED lighting products and wiring accessories for a global customer base. The Group supplies a blue chip and diversified customer base of trade distributors, retailers, wholesalers and project developers with a wide range of products which broadly fall into the market recognised brands of Luceco (LED Lighting), British General (Wiring Accessories), Masterplug (Portable Power) and Ross (AV Accessories).

Luceco operates a fully integrated operating model which includes wholly-owned manufacturing and product development facilities in the UK and China that enables the Group to maintain strong control over its cost base and the quality of its products while allowing Luceco to bring products to market quickly and at low cost.

The Group is well positioned for future growth with recent investment made in the expansion of its Chinese manufacturing facility and sales network, both in the UK and internationally, to support the Group's existing and new product ranges.

 

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