Good morning, everybody, and welcome to the Luceco Full Year results for 2024. Thank you for attending this meeting, and all those online, thank you for attending also. We had a good year last year. It was the first year that the business began to emerge from the shadow of the pandemic. I think we sort of underestimated at the time quite the impact that that pandemic would have, both in terms of the extraordinary upside we enjoyed in the pandemic, but then the hangover subsequently has taken quite a while to work through. I think last year was the first year that the business returned to something like normality. Our revenue was up 16%. On a like-for-like basis, that's up almost 6% in a market which, and I'll talk about this more later, was off about 2.5%. A significant market share gain.
Operating profit improved by over 20%, up to GBP 29 million. On an operating margin, up half a percentage point. Operational leverage in the business, higher mix, and better sourcing across the group drove higher margins. Our net debt ratio of 1.6 in the middle of the range and a full-year dividend of GBP 0.05, giving adjusted EPS of 12.5 pence. Thank you, Will.
You're welcome.
Strong revenue overall, up 16%. We made a couple of acquisitions in the year, one in March, one in September. Some of that growth is obviously M&A-led, but organic growth of approximately 5.8%, and the market, as I said, was down about 2.5%. Particularly strong sales in the U.K. RMI sector, which, as you know, is a very important segment for us. Our residential EV charging business is growing particularly strongly. In Q1 this year, it is up about 100%. Last year also had a strong year. You will recall we bought a small business in 2022. It turned over at the time about GBP 5 million. Hopefully, this year, the sales will be somewhere between GBP 15-20 million. Significant growth, and it is growing very, very quickly.
We have a further innovation pipeline of exceptional new products, which we'll be launching later on this year, particularly in the space of the energy transition products, such as EV chargers and HEMS and batteries, which I'll talk more about later. The acquisitions that we did last year have been integrating well. We have some scope in our balance sheet for more M&A later on this year. The strong demand that we saw at the end of last year has continued into the start of this year. Our sales out of retailers, because we look at sales in and sales out, are approximately 10% up on last year, which is probably slightly better than the market. With that, Will, oh, sorry, I got one more slide. Our competitive advantage, historically, innovation has always been an extremely important driver of our growth.
The pandemic meant that our engineering teams, who are all based in the Far East, in China particularly, were operating without much U.K. interaction for a period of about three years. We were unable to go to China for three years. I think that had a major impact on the NPD program of our business. Since the end of the pandemic, we have been investing a lot more in the product development activity, and that is beginning to show through in our growth numbers. We have superior customer and supply chain. We deal with all the largest distributors in the U.K., and when we launch new products, we can nearly always get an extremely large distribution for those. Highest quality and the lowest cost. As you know, we have our own manufacturing base, which allows us to control the quality at the lowest cost.
The energy transition, which is happening across our product range, particularly we're going to talk about EV and also batteries, but also circuit protection and wiring accessories across the piece are going to be affected by the electrification of transport and heating in the residential environment, which will be driving structural growth across our markets. Finally, strong cash generation has allowed us to do five deals in the last six years, and we can continue with that program in the future. With that, I'll hand over to you, Will.
Thank you, John. Good morning, everybody. Let me start with a quick review of the income statement, which is on slide seven. Our revenue at GBP 242.5 million reflects a strong end to 2024, which we talked about in the recent trading update. Our retail channel and overseas businesses especially had a great end to the year.
The timing of the recent Chinese New Year meant our retail and trade customers needed to stock up before the end of 2024 to avoid empty shelves in early 2025. Even so, the level of our sales was beyond my expectations. The information we monitor, as John mentioned, covering demand for our products across certain customers, leads us to believe that they have not overstocked. A year ago, I spoke of the performance of our hybrid channel, which delivered a near 30% improvement in 2023. In 2024, the retail and international channels of the group have been the standout performers. As John mentioned, the recently added electric vehicle charger offerings grew very strongly. Quarter four EV charger sales were approximately 50% up on the equivalent period in 2023, and that division achieved nearly GBP 10 million of sales over the year.
Quarter four 2024 overall for the group ended over 20% ahead of last year on a like-for-like basis. As we said at the half year, our infrastructure-led outdoor LED businesses struggled somewhat in 2024. Local authority funding probably had an impact, though it is pleasing to see that both businesses have started 2025 in better shape following some self-help measures applied. House building took a big knock in 2024, as you are all aware. It remains in the region of only 5% of our total revenue, so the market decline did not have a material impact on the group. We are starting to see some positive demand indicators appearing in this sector. Gross margin for the year at 40.1%, a year-on-year improvement, and now the highest annual performance we have achieved.
This was delivered in spite of an uptick in some key raw material costs, for example, copper, which have been relatively stable throughout much of 2023. Sea freight was a challenge throughout much of the first half of 2024 and peaked in the summer. The problems in the Red Sea are well known. These costs eased somewhat during the second half, though left us with some additional costs to work through our inventory. Now, even with the extended journeys around South Africa, our sea freight is currently priced within about 25% of its long-term average. Our Jiaxing production facility continues to improve, delivering productivity benefits and overhead savings again in 2024. The US dollar represented a revenue headwind for us again in 2024. The RMB, though, has been declining against sterling, and we are seeing this benefit coming through in our cost base.
As I've said in the past, we follow a policy to place forward cover, which naturally delays the consequences of these currency movements. Overheads at GBP 68.2 million were up circa GBP 10 million on 2023. The majority of the increase year on year attributable to the newly acquired D-Line and CMD businesses. We also made some targeted investments in select overhead categories, notably marketing, which may well be behind some of the sales growth we saw towards the end of the year, and also in the electric vehicle charger team, which is clearly having an impact. Our wage cost inflation was in line with that seen in the wider economy in 2024. Adjusted operating profit was therefore GBP 29 million at the top end of the range that we shared with you back in January. Our tax rate has stepped up somewhat in 2024.
We are heavily weighted to the U.K. and increasing it with further U.K.-based acquisitions. Here, the headline corporate rate, as you know, is now 25%. We continue to take advantage of various government incentives that do mitigate some of the tax burden. The increase in our tax rate to just under 23%, together with the £1.3 million increase in our finance charge, reflecting the funds used to pay for the acquisitions partway through the year, has not prevented a creditable improvement in adjusted earnings per share of 12.6% to 12.5 pence. The board has consequently recommended the dividend be increased, as John mentioned, with a final of 3.3 pence taking the total for the year to 5 pence. Slide eight. This slide provides a bit more detail and the drivers of our revenue performance. The acquisitions of D-Line and CMD have caused the most significant change in revenue this year.
Both of these fit really well into our group and have increased group sales in the year by around GBP 24 million. D-Line arrived in late February and CMD at the end of September. It takes time to bed in acquisitions and to begin to realize synergies. We can already see D-Line is going to do very well in this score, and we're excited by CMD's prospects. Focusing on organic performance, our retail space, and within it specifically our wiring accessories offerings recorded a pleasing increase compared to 2023. Like-for-like growth of approximately 4% is a good achievement when seen against the background of a lackluster U.K. consumer spend through much of 2024. The team has delivered some positive product range extensions, which helped to mitigate the market impact.
We do now see signs of green shoots across our DIY-related channels, so perhaps the decline seen after the post-pandemic era may now be coming to an end. Our non-U.K. operations performed really well in 2024. We've been investing in these for a few years, and it's pleasing to see this paying off. Middle East and Mexican operations both delivered year-on-year growth of over 20%. Ireland recorded more like a 50% improvement. It's encouraging to see how successful Luceco can be when it gets a little help from an improving economic backdrop. The new house-build market has had another difficult year in 2024, and we've said before that we are underrepresented in this sector, and we've got a few initiatives underway that are helping us here. Infrastructure-driven external LED operations also found it tough in 2024.
We have some good self-help measures underway here, and it's looking as though it's starting to pay off already in 2025. Our EV chargers seem to be flying off the shelves. The second half of the year saw them up 50% on the same period the year before. Currency impact here is mainly the effect of the US dollar move against sterling on our FOB sales, the average rate across 2024 at 1.28, some four basis points worse than 2023, and reduced our sales by just over GBP 2.5 million. Moving on to the profit bridge slide, slide nine. This slide shows the key drivers of our adjusted operating profit performance. Once again, it's pleasing to share strong operating profit improvement with an increase of some 20% over 2023.
Volume helps at our gross margin levels, and the productivity initiatives at our Jiaxing China facility are showing through in our numbers.
A higher proportion of wiring accessories is manufactured in-house, so revenue growth in this segment improves utilization at Jiaxing. The acquisitions added nearly GBP 2 million to 2024 operating profit. We've lots of work underway to enable our factory to manufacture for these acquired businesses or to resource product for them. This does initially add cost in some of these projects, but the team has proven in the past that it's good at delivering these types of synergy benefits. We faced headwinds from elevated freight and material costs in 2024. The situation in the Red Sea means our freight between China and Europe is going around South Africa. This added cost and working capital, which I will discuss later. Copper picked up too in the year and is on the rise again just now.
I've said before that we carry a level of copper hedging that offers some short-term protection at times like this. Currency has helped with the costs in the year. Average RMB to sterling at 9.20 was some 4% favorable. We carry forward FX contracts that taper down up to about 12 months ahead at the moment. This delays the benefit when rates move in our favor, but of course, it also offers some protection when they move against us. The increase in the national insurance rates recently announced will add probably about GBP 1.2 million to our U.K. cost base in a full year. Slide 10, quick look at the last two years in six-month parts. You can see the pleasing growth, and we have said that December alone was GBP 8.5 million ahead of the year before without the acquisitions. November was in the same direction.
Our business is traditionally busier in H2, though we were concerned at the half year that the spike in freight and copper costs might prevent an increase in operating profits. I was perhaps a little cautious as we did end up at 12.3% in H2 versus the 12.2% the year before. Adjusted free cash flow, slide 11. At the half year, we mentioned in the region of GBP 6 million of additional stock in transit. At that stage, our accounts payable picked up some of this excess, though our payment terms meant we were expected to be carrying more working capital at the end of the year if the Red Sea situation continued. It has continued, and we are carrying more stock in transit, and so working capital is up as a consequence. Beyond this, the headline is we had impressive sales growth at the end of 2024.
The natural impact of this is that our trade working capital absorbed cash. We have said previously it is likely that our working capital will absorb some cash if market conditions improve and the DIY sector returns to growth. The strong trading in Q4 means that over the year, our trade receivables absorbed some GBP 17 million of our operating cash flow, GBP 8.5 million of this down to December alone. This compares to the just GBP 3 million it absorbed across the whole of 2023. Thank you, Tim. It is great news on trading, but short-term, it does affect our free cash flow. By the way, the strength of our customer base means we have confidence about the collectibility of these receivables and, in fact, the quality of our trade receivables book improved over the year.
Conclusion is we see 2024's free cash flow performance as a one-off and expect cash flow to improve in the future, though probably not in the first half of 2025, given our usual seasonal working capital build ahead of the summer months. With the exception of 2021, which was affected by the first phases of the pandemic, Luceco has typically experienced a working capital cash outflow during the first half of each year and an inflow in H2. At this stage, 2025 is expected to show the usual pattern. We see the short-term absorption under these circumstances as a healthy sign that the business is enjoying some organic growth. Finishing up on the numbers, this slide, slide 12, summarizes our working capital cash flow and debt performance overall. Working capital management is in a good place.
The small uptick in inventory days is a response to the Red Sea disruption and the necessity of ensuring our products are available on our shelves. We do not want to miss further growth opportunities if these green shoots turn into a sustained recovery. Bank net debt ratio of 1.6 times is comfortably within our range in spite of spending nearly GBP 38 million on acquisitions in the year. The ratio will increase as we move towards the first half of 2025 towards the upper end of our policy range, as there is a seasonal nature to our trading, and I expect this year to follow the usual pattern. We will remain comfortably within our lender's covenants. As part of the funding for the CMD acquisition, we increased our GBP 80 million bank facility to GBP 120 million.
Even though our facilities do not mature until September 2026, we are already well advanced with our lenders with plans to refresh. With that, I will hand back to John to talk our business review and outlook.
Thanks, Will. Underlying demand, you can see top left, the green line, home improvement spend, some improvement in the second half of last year, which we hoped for, probably not quite the improvement we were anticipating, but certainly better as a trend. It would appear that that, as I said earlier, has continued into this year. In the top right, housing transactions, they are still below trend, but as you can see again, improving.
You can see they fell off a cliff in the first half of 2023 following the mini budget, and the housing market went into major decline, and housing starts, which is the other important metric for us, basically stopped for a bit. That is all recovering slowly, although you can see recently has been a little bit weak again, but the overall trend is improving. In the bottom left, you can see how we split our business between the various different segments and what we think happened to the market in those segments. You can see overall, we think our markets were about 2.4% down, which in the light of our organic growth of almost 6%, that shows a pretty significant market share gain. We would say that the pandemic basically pulled forward demand.
Over and above the dynamics I'm sharing here, I think particularly in the DIY segment, there was a pull forward from future years into those lockdown periods. I always thought it would take probably two or three years for that to wash itself through. I believe now the DIY demand is starting to normalize. That is why we can grow our business above the overall market trend. New wiring regs come out roughly every two years, and they mandate various upgrades that affect our product portfolio, whether that's in circuit protection or wiring accessories or lighting. For example, buildings need to be, as you know, ever more efficient, which means ever more efficient lighting, which means higher spec lighting. There is a constant upgrade in our product portfolio. This obviously drives higher revenue. The EV opportunity, I think, is particularly exciting for Luceco.
Roughly 6 million new EVs in the next five years will be bought in the U.K. We currently have a market share of about 8% in residential EV charging. When we bought the business, it was called Sync EV, and it had a market share of about 5%. We have increased it, and actually the rate of increase is accelerating in terms of our market share gain. I think there's no reason we can't push our market share significantly higher in a market where we anticipate the demand should grow about 4%-500%. Roughly 20% of cars being purchased now require a home EV charger. By 2030 something, depending on the government regulation, that will be 100%. The market size for residential EV chargers will increase by approximately 4%-500%.
If we can maintain our market share or increase it, this should become a very significant business for us. Actually, over the next slide, I show some of the innovation that we have done within this product portfolio. We bought the business, and it had the square product on the far left. Since then, we have actually launched about four different upgrades. Each time we have improved the product and reduced the cost. We moved the production into our own factory because originally the product was coming from Bulgaria in 2021. Last year, we launched these commercial chargers, the tall thin ones. Our recent innovation that we have not actually launched yet is a socket that you can flush mount to the outside of your house, and you can drill a hole through the wall, and you can put the box with the EV charger somewhere separate.
At the moment, everyone has the EV charger and the socket in a sort of ugly box that you put on the outside of your house, which does not make a great deal of sense. What we have done is to separate the actual socket from the charger electronics. What you put on the outside of your house does not need to be an ugly-looking box anymore. It can be a beautiful socket, and you hide the ugly-looking box in the garage or under your stairs. We are the only people who have done this. We have a patent on it, and we think this could be an extremely successful innovation. This is just a sort of, and it also gives you an example of the kind of innovation that we do across our product portfolio.
As I say, EV sales in Q1 are roughly twice what they were in the same period last year. The business is really growing strongly now. Yeah, home energy management systems. We've spoken about this in the past. We actually launched this product yesterday. It's the battery that you can see in the middle of the chart on the left-hand side. The chart is an attempt to illustrate what it does and how it works. It basically sits in between solar and electrical loads, one of which is an EV charger and the grid. It basically controls the energy flow. If you have a solar panel array on your roof, if you sell the energy back into the grid, you don't get much for it.
If you can store the energy in a battery and use it when you're at home in the morning or in the evening, then the economics of a solar install are roughly twice as good as they are without it. The payback without a battery, residential solar, can be up to 8-10 years. With a battery, you can halve it because you use the electricity that you generate rather than selling it back to the grid at a very low price. I believe that every house with a solar panel on the roof will end up with a battery in the garage. I believe that a lot of houses will end up with solar panels on the roof. In fact, new homes, by law, will have to have solar in the roof.
If you install the solar at the point of constructing the house, it's obviously much, much cheaper because you're up on the roof anyway. In fact, solar panels are so cheap now, they are almost less than the cost of a roof tile. On the right-hand side, the chart shows how we estimate the market will grow. The other important point to me is the cost of the batteries will come down. Currently, we'll be selling these things for approximately GBP 4,000, but it's anticipated over the next five years the cost of the batteries will halve, which means that obviously the payback will become much shorter. I think it'll become a must-have product for most residential homes.
Even if you do not have solar, a battery allows you to charge up in the middle of the night when power is obviously much cheaper, and then you use it in the daytime when it is generally more expensive. That is a very exciting new product launch for us. As I say, the product's landed yesterday. We have not yet sold any. We have not really forecast it, but it could really be something. In terms of the M&A that we did last year, we did two deals, one slightly larger than the other, but I think they are both going to be enormously successful. We can reduce the cost of sales of both of these businesses by approximately 30%. That is re-engineering in some cases, redesigning, but mainly integrating it with the group supply chain.
Making products in our own factory in the Far East, using the supply base that we have and the sourcing strategies that we have across the group, we can reduce the cost of sales of these businesses by about 30%. We can also grow them. D-Line operates in the retail space where we have very strong relationships and actually leveraging the relationships that we've got. We have already had some significant new business wins with the D-Line product offer. Likewise, with CMD, they supply office electrics, like the kind of stuff you'd get on this desk under that piece of wood, but they don't supply lighting. The plan is to leverage their customer relationships for office fit-out to sell our lighting product. So far, we're very happy with both those acquisitions. M&A, we think, can be a significant driver of growth over the next few years.
By 2029, using some basic assumptions, we calculate we can invest approximately GBP 100 million in further M&A. EBITDA multiples of roughly six to seven times, aiming for 15% ROCE. Acquisitions that will improve group operating margins in segments which are adjacent to us, so either basically buying products or buying customers and possibly buying other low-cost manufacturing. Although we have moved a significant amount of our sourcing out of China into Vietnam, particularly for our US market. All of our US sales are now coming from products that are sourced outside of China for obvious reasons. Finally, to the outlook slide. As I said earlier, the strong demand that we experienced towards the end of last year has carried through into the first quarter of this year. We hope that the wider economy will improve.
We think that the sort of pandemic hangover is going more into the rearview mirror. We have also got, as I said, some extremely exciting new product launches, particularly batteries and the like, which could drive significant upside. I think that's basically it. I can hand over to any questions. Hopefully, someone's got one.
We have Kevin here.
Kevin, loyally. He has got a list of planted questions, I hope.
Thanks very much, Kevin Fogarty from Deutsche Numis. Two, if I could, please. Just on the energy transition piece, it is obviously quite a bit in today's presentation. I guess for what was going to Sync EV, why do you think you are sort of winning as much against the sort of current market backdrop there? The rebranding, I guess, to kind of Sync Energy, is that the sort of nod to the sort of wider portfolio and the sort of wider offering? As part of that, how does HEMS now be sort of commercialized as you sort of move forward? How should we expect that in terms of kind of sales channels, etc.? I've got a second question, if I can do in a second.
Okay. Why are we winning? We have a good product, but I mean, it's not a special product. It's an OCPP smart product, but that's kind of industry standard. We have a very good cost base. We make it at our own Chinese factory. Most EV competitors are not doing that. They might be making it in someone else's Chinese factory, or they might be making it in their own European factory. Some of our largest competitors are using an even worse combination of someone else's European factory. We have a very good cost base. We have invested a lot in the app, in the cloud control, in the user interface.
I think the most important point, Kevin, is that we have a very wide distribution network in the U.K. We can leverage our customer relationships into particularly the electrical wholesale channel, into the house builder segments, to push another product as part of the portfolio. We already do GBP 70 million into U.K. electrical distributors. This is not including people like Screwfix. I am talking about sort of Rexel, Edmundson Electrical, what we call the electrical wholesale channel. We are doing GBP 70 million of other products. This just becomes another part of that offer. We have some very, very strong relationships in that channel. I think it's a combination of product, but also distribution. We are market leaders in U.K. residential sockets, something I've often said. We sell more sockets into more homes than anybody else.
This is just another kind of socket, right? It's a clever socket. It's a high-powered socket. It's hopefully quite a good-looking socket, but it's still a socket. We should therefore be able to sell a lot of them. We don't yet have any major house builder contracts. We've got some smaller house builder contracts, but we are working on some major house builder contracts. That could change the dial. We are also working with some other large energy companies. I'm not going to name them, but we are quite close on a few of those, which, again, could move the dial. The final point to make, it's a very high-margin business for us.
We only sell boxes. Some of our competitors are selling installs. We're not doing that. We are just selling hardware made in our own factory in China. It's very high margin, way higher than the group margin. It has been very successful. The reason we changed it to be called Sync Energy is because we plan to major on the batteries as well. Sync EV does not lend itself so well to batteries.
Could I just have a second question?
Yeah.
Just on the international side of the business, which is obviously a kind of large proportion of the growth during 2024, is it possible to kind of pick through, I guess, why they kind of step up internationally? What's happening there? Is it sort of more effort on your side? How much of that is market? Just a little bit more color on that, if you could, too.
I wouldn't say it's more effort on our side. We continue to work hard. The businesses that did well was the Middle East business, particularly. We've got a lighting projects business there. It's relatively young. It's beginning to get some traction with the major customers and win some major projects. It just takes time. It's a startup. Our business in Mexico is also growing strongly. Again, it was a startup. It takes time to get a reputation, to get a brand into the market. It'll be interesting to see what happens to Mexico now. It's on, off, on, off. Currently, the business is performing well. They hadn't performed so well in the pandemic, coming out of the pandemic, some of these businesses. I think it's more of a recovery on that. Our US market is also going strong.
We think that because we've hopefully got ahead of some of our competitors by sourcing products from Vietnam outside of China, thereby avoiding some of these tariffs, we maybe can have a bit of a competitive advantage there.
Great. That's helpful.
I think it's also fair to say Spain is doing a bit better too in 2024. Of course, Ireland, although it's quite small for us. The Irish economy was reasonably buoyant in 2024. Those guys took good advantage of that.
Yeah, Ireland is an area, actually, where we probably have been trying a bit harder. We were a bit under-indexing Ireland up until three or four years ago. We got a new sales guy, a new sales manager. We've now recruited quite a decent team. We don't have an operation in Ireland. I mean, we don't have a warehouse. We supply it all from the U.K., but we do an increasing amount of sales there, and it is growing strongly.
Yeah. Great. Thanks for that. Thank you.
Thanks. Morning. Sam Cullen from Peel Hunt. I've got a couple as well. First one is on, I think it was Will mentioned, the new build sector. Can you give us a sense of when you're selling into a house builder, how much you're selling into them? Are there categories where you're doing all the sockets, but none of the light switches? Clearly, you're going to try and look to add EVs and possibly HEMS units moving forward. Just, yeah, what you're doing now, what categories you're weakening, and what the opportunity is.
Yeah, you can basically split it into circuit protection, which is fuse boards, lighting, wiring accessories, and EV. If you do circuit protection for a house builder, you do all of it. You do most of the lighting, wiring accessories. You would not be selling the sockets and not the switches. You do the whole lot and EV. I reckon it is about GBP 15 million business for us. We do not always know exactly where our stuff ends up. We sell it mainly through the electrical distributor. We have central deals with house builders. It is a segment that we have grown recently in the last sort of five years. We are doing about GBP 1 million of EV into it only. It should be a lot more, and I think hopefully will be a lot more. We have got some large contracts for wiring accessories and circuit protection.
With those customers, we do not have the EV business. For example, Barratt's, Redrow. We do wiring accessories. EV is up for tender. There are various areas where I think we could have some wins by leveraging the relationships that we've got. It tends to be lower margin. It is a head office negotiation with a house builder. It tends to be lower margin. Sure, it is easy volume if you can get it. We are also underway in the social housing sector, which is another new focus for us.
Thanks. The second one I had was on marketing spend. I think you said it ticked up in the year. Do you expect that to continue to increase going forward? Will the marketing be a bit more consumer-focused going forward as you try to grow the EV side of the business or Sync Energy?
Yeah, we increased marketing by about GBP 2 million last year. We're not currently planning on increasing it by another GBP 2 million this year, but we'll increase it by a bit. Consumer marketing, we don't do much of that, to be honest, Sam. I mean, Amazon obviously do a lot. We do a lot with Amazon. We do a lot with those consumer channels, and they push hard into that space. I think batteries, we won't be targeting consumers. We mainly target installers. Trying to funnel customers off sort of Google AdWords into buying EV chargers. We have done some of that. It's very expensive. It's what some of our competitors do. Our strength is the relationship with the installer and the distributor.
We'll do advertising on, I don't know, Fix FM, which is the radio station for installers, rather than sports channels, right? Because we're mainly targeting installers. Installers often make the buying decision.
Yeah, you're right. Even the grumpy guys in accounts were happy with the marketing spend going up a bit.
I mean, the challenge is making it measurable. [crosstalk] Yeah. Certainly, significantly above market organic growth last year would indicate that maybe some of it worked. Just don't know which half.
Hi, it's Ed Prest from Berenberg. Just a couple of sort of one and a half, I guess. With regards to margins, you've seen sort of steady increase in margins over the last couple of years. Where do you see these going in a return to more normalized volumes? Sort of where are you thinking roughly? On a related note, what's the current how much spare capacity have you got in the Chinese factory?
Yeah, I mean, gross margin, operating margin. Gross margins, we've been below 40, just below 40 for a while. We're currently just above 40%. We've been investing in higher margin segments. We've been investing in more smart products, more sort of tech-orientated products. In the lighting space, we no longer sell commodity light bulbs, for example. We sell more lighting control systems. We've made a conscious effort to pivot the business in that direction. On the acquired businesses, we can grow the gross margin a lot. As I said, we can reduce the cost of sales of each of them by about 30%. So there's a mixed element. To your point, there's an operating margin and an operating leverage element. Our operating margin in the pandemic went to 17% as a result of very, very high volumes through our factory on very high margin, on very high margin products.
We are thinking our range is sort of maybe 12-15 at this point in the cycle, because although we've done quite well last year, it was still a very, very weak point in the economic cycle. We think that 12 was a reasonable result. As some volume returns and we get some operating leverage through our business, that should naturally push up towards 15. I think we can do, I mean, I'm hoping we can do 13 this year. Will won't thank me for saying that. We'll wipe it from the tape a little bit. Next year, with the savings coming through on the acquired businesses, even if the demand environment remains very weak, we should be able to push the gross margin and therefore operating margin a bit higher.
I think we can get back to 15 when the economy improves. And possibly, if we sell as much EV as I hope we will, it could even push beyond that. Because that's mainly over a fixed cost base. We're using existing commercial teams to sell this stuff.
It's very capacity in Jiaxing? I mean, still got plenty of space. Peak pandemic was probably 30-40% beyond what we're currently at. We can flex the labor to the extent we need. We have capacity to be able to further ramp up. As John said, at these gross margins, especially in the EV channel, that extra volume is very helpful.
You can also increase capacity by investing in the process. Faster machines, more automation, better ways of doing things. You can increase the throughput without having to increase the physical space. Thanks, Ed.
Hi, James Wood from Canaccord. Two from me, please. The first one on the retail growth, obviously very strong. Interest in, I guess, the price volume mix drivers there. Is it kind of predominantly restocking or is there also kind of some broadening of products coming through that would be of interest? The second one's more on kind of trying to understand the level of innovation coming through. I guess a key KPI there. Do you have a percentage of new products in terms of revenue or anything like that? That would be interesting to know. Thanks.
Yeah, retail growth. I mean, as I said earlier, there was a lot of destocking running up to this year. So 2022, our big retailers destocked by approximately GBP 20 million. 2023, they also destocked somewhere between GBP 5-10 million. Some of the growth is an absence of destocking. I do not think there was any restocking. We know that because we look at sales in and sales out. We can see how their stock levels are moving. We certainly won some new business. We got some new ranges. Screwfix is a particularly strong relationship of ours. If we launch new products, they will generally take them. We won some business elsewhere in a pretty sticky market, which, as I said, in the second half, improved. I think it has improved further in the first quarter.
We are looking at, as I said earlier, plus 10% on sales out of our retailers, which is really quite strong. In terms of price, our margins were similar. There was not much movement in price last year, really. There was a big hit in terms of freight costs because of when the Red Sea thing happened and the Houthis got going, freight rates spiked a lot. We mainly absorbed that. We did not pass it into the market. Thankfully, shipping costs have come all the way back down again. There will be a bit of a tailwind on margin. We were talking about margin earlier. There will be a bit of a tailwind for this year if that does not happen again. I do not think it could happen in this one.
Yeah. [crosstalk] Subject perhaps to where copper ends up because copper is picking up a little bit, but these things are manageable. Copper is mainly hedged for this year. Percentage of new products. I mean, the definition of a new product. We do a lot of wall sockets. Sometimes we launch them in a different color or a different finish. Is that a new product? I mean, it's still a wall socket. Percentage of sales from new, new products, i.e., not an improved product, not a product variant, not a sort of reiteration of an existing product, would be probably 10-15%, I guess, in a year. But percentage of sales from improved products would be much higher than that. Because we're constantly improving the efficiency of our lights or the look and feel of our sockets or the specification of our products because of the wiring regulations.
That doesn't necessarily, I don't know if you define that as a new product or not. It's a new SKU, but it might not be a new product. Thanks, James.
Hi there, Max Campbell at Longspur Capital. Just one on EV charging. Residential's obviously going well. Just wanted to get your thoughts on how the public and commercial landscape is looking at the moment and going forwards.
Yeah, thanks, Max. I mean, we don't do much in the public space at all, okay? What we are doing is what we're calling commercial chargers. If I just whiz forward back, rather, it's these. They are three-phase. They have a payment terminal on them, so you can pay with your Apple phone if you want. They are connected to a back office, which means that you can charge. For example, you can put them in a pub car park, and the pub can charge their punters for can charge them money as well as charging their cars, I'm trying to say. We are not, as yet, putting them in the public realm.
There is a new regulation that says that any car park with more than 10 spaces that is undergoing work, as in a relay out or refurbishment, whatever, has by law to have an EV charger built into it, one for every 10 spaces. We do a lot of car parks because we do a lot of outdoor lighting. Kingfisher Lighting and DW Windsor are basically specialists in outdoor lighting doing a lot of car parks, apart from other stuff. What you need to do with these products is to get them specified. You need to work with the contractors and the consultants who are designing stuff and get them specified in early to quite early on in the design process. It takes time to build a market. You can't just launch these things and expect sales.
You have to get them specified with the consultants and the contractors. We launched in October. I think we'll do close to GBP 100,000 this month, and it's growing. We have some major projects, hopefully, coming through. It is a slow build, but in time, it will be a very big market because every pub, every hotel, every hospital, every railway car park, every place you leave your car for an extended period of time will have a bunch of these things. They are made in our own factory. They are highly competitive. They work. We think, in time, it will be a good market for us. I do not think it will be as large as the residential space because that is where Luceco has a wider distribution and stronger relationships.
In the overall public market, sort of the stuff that you get by the side of motorways, like the high-power stuff, we're not in that market at all. Nor do we intend to be. Because we're not a charge point operator. We're a hardware seller.
That's a useful distinction. Can I ask you a question? Yeah. How do you target, if at all, the person who buys his first EV car at the time he gets the keys handed over?
Okay. There is a market that we're not involved in, or rather, there's a customer funnel that we're not involved in, which is the auto OEMs and the auto dealers. Generally, when you go and buy your new Audi e-tron, Audi will say, "If you want a charger, go to this or that brand." Then this or that brand will do the whole sort of turnkey solution, including an install. That is not a market that we are in because we do not do installs. It is a market that we are looking at, but so far, no one is making money in that space. Some people are managing to lose a fortune in that space. It is not only that competitor losing a fortune; everyone is.
Because to manage an install, and when it goes wrong, you have to send somebody back, and you are on the hook for it, is quite a lot of management. Even if you do not have your own installers, so we would not work with our own installers.
You'd work with a third-party installer, but it's still a lot of management. The cost and the price in the market for an EV install, it's about GBP 1,000, which probably sounds like quite a lot of money. Actually, we think the margin at the end of the day after it's gone wrong a few times probably isn't there. The results of our competitors would imply that. We are investigating. We are doing more work on it. The other thing you do, Tim, is you buy your car, or rather, you order your car. You know you need a charger. You've got a relationship with your local Sparky. You don't go via the auto OEM. You call your local Sparky and say, "I need an EV charger." He knows about Sync EV. He goes down to his wholesaler.
If he does not know about Sync EV, he goes to his local wholesaler where he buys all his kit and says, "I need an EV charger." By the way, he might not have installed one before because it is relatively new, right? He will go into his wholesaler, and they will say, "Have this wonderful product from Sync EV." There is a land grab sort of moment going on because there are 200,000 installers in this country. The majority of them are not installing EV currently. Over the next five years, they will all be installing EV regularly. We need to make sure that we get as many of those installers loyal to our product as we can in the next year or two. This is why I describe it as a land grab.
Because once an installer has a product that he likes and he knows and he knows how to install it quickly, he'll generally stick to it. It's quite sticky, this business. Our brand's generally quite sticky because installers, they like to use what they know. They don't want to go off and take a risk on a new brand. At the moment, it's all about capturing as many installers as we can and winning their loyalty. Hopefully, we'll have their business for the next however many years. These things don't last forever, which is obviously great. They're all going to change as well because currently, all these things can do is charge a car. In future, there'll be something called vehicle-to-grid or vehicle-to-home. You'll be able to use your car battery to power your home.
It will go the other way. That technology is not really out there at the moment. All the chargers we're selling now will hopefully be obsolete in a few years' time when everyone wants to go back the other way as well. That's the theory.
Any more in the room? Do we have any other questions online?
Can I ask one more?
One second.
Sorry. Kevin Fogarty from Deutsche Numis again. One for Will, please. The flip side, I guess, of the strong Q4 is the debtor book, which at the year-end, I think, is a kind of year-end high for you guys. Your presentation talked to improving quality of that. I guess, what would you say to anyone thinking about the debtor risk there? What's your definition in terms of sort of improving quality, I guess? Could you put it a bit more clever?
I guess the risk that we see associated with the collectibility of it reduced 2024 and 2023. I think a number of household names have disappeared over the last few years that we considered to be something of a risk: Homebase, Wilko, people like that. We target more solid, significant customers. I think you know who our sort of top 10 are. It's reasonably public information. More often than not, we go through the wholesale channel as well, which means that you spread the risks rather than going directly to contractors. Yeah, we feel like, although clearly it subscribed cash as we went out at the end of the year, we don't have concerns about it.
Great. Thank you for that.
Yeah. I mean, I'll just add. I mean, we anticipated Homebase, so we'd run our business with them almost down to nothing. We lost a little bit at the end. I would say outside of that, our bad debt total is less than GBP 100,000 a year. Will, is that fair?
It is not a number that we actually disclose, but it is quite modest. [crosstalk] It is tiny. It is tiny. I guess we have disclosed a few of the numbers today as well, so it is fine. It is tiny.
I have a very good credit control team that I am extremely proud of. That would be the reason. Not because we only deal with great customers, which might be the other reason. The reason I was—I mean, strong Q4 sales was nearly all into—it was mainly FOB, partly because of early Chinese New Year. That meant a bit of stuff came in earlier. It is all to blue chip names that you would be familiar on, none of whom are in financial distress. I think there is zero chance of an uptick in bad debt because of that. Not zero, though.
Okay. We have got a couple of questions from the webcast. I'll start with James Hall. What is the scale of your ambition in EV charging and HEMS and the wide energy transition space? Will you report this as a separate segment in the near future?
Yes, I think we will report it as a separate segment when it is large enough to warrant it. This year will be somewhere between GBP 15 million-GBP 20 million. As I said earlier, I think the market will grow 400%-500% over the next five years. I think we can increase our market share. The math should be quite simple. We are not experiencing any margin erosion or any major price erosion in the market. Actually, I think there will probably be a thinning out of suppliers in the market because there are a lot of new entrants who are not making any money. Some incumbents are not making any money either. Hopefully, the pricing will remain where it is. That is just in the U.K. We are launching products across our wider distribution.
As you know, we have businesses in Spain. We have businesses in the Middle East. It is quite a strong business in the Middle East. We have businesses in Asia. We are going to be looking to internationalize our product offer, and I think that could drive significant further volume. I would like to think within—I mean, if I was to say I would like to be doing GBP 100 million in EV by 2029, I mean, that maybe sounds a bit ambitious, but if you do the maths on the market size of market share growth, that should be achievable. In batteries, I mean, EV chargers we sell for a few hundred pounds. Batteries we'll be selling for a few thousand pounds. In theory, batteries should be a lot larger. Obviously, not every home is going to have solar.
Every home is not going to have a battery. It is very hard to forecast for us. We have not sold any yet. The stock landed yesterday. It could be anything. I would not want to—I would not want to guess on that. Ask me in a couple of years' time, and I might know something.
Great. The next one's from Mark Inns. What's the approximate market shares by category: wiring accessories, LED lighting, domestic and infra, and portable power?
I think we actually, at the back of this presentation, we used to—Will, do we still?
We don't really do market shares. [crosstalk] Remove market shares. It's very difficult, and certainly the wiring accessories, to talk about market shares.
Yeah, I can do that. I mean, wiring accessories, I would say—so switches and sockets, I would say roughly 20%. Circuit protection, I would say nearer 10%. Lighting, we operate in so many—and these are U.K. market shares, not global market shares, obviously. But we do operate in other international markets, but I'm just talking U.K. market shares. So switches and sockets, wiring accessories would be 20%. Circuit protection would be 10%. EV, I mentioned earlier, it's about 8%. Masterplug is about 40% U.K. market share. Lighting is a huge market, and there are lots of different segments. You've got residential, you've got outdoor commercial, you've got indoor commercial, you've got architectural, you've got local authority, you've got tunnel lighting, you've got anti explosion-proof lighting for oil rigs. There are lots and lots of different segments, some of which we operate in, some of which we don't.
In the ones in which we operate in, our market shares are even then quite small. I mean, our lighting business is relatively new. We started it organically in 2013, which might sound a while ago, but in the context of some of the brands operating in the space, that is quite young. We've obviously bought a couple of lighting businesses: Kingfisher Lighting and DW Windsor. Kingfisher Lighting's market share is about 15% in their segment. DW Windsor, I would say, is a bit more, about 20%.
Our market share in lighting projects, I mean, it would be small. It'd be about 5%. Our market share in resi would be probably even smaller. There is a lot of scope to grow our lighting business. Some segments are higher margin and better margin than others. That is generally where we have been trying to focus. Lighting projects where we are doing a warehouse fit-out or an office or commercial premises or a school or a hospital, and you are winning it as a project, that tends to be a high-margin business for us. That actually is a business that we have been focusing a lot of effort on, and it is currently growing quite well.
Our market share is probably only 5%. We will do about GBP 15 million in that space in the U.K. this year. That is over and above the Kingfisher Lighting and the DW Windsor business. The market is a lot, lot larger than that. It is about $600 to $700 million. There is a lot of room to grow our lighting business, which we need to because the operating margin in it is too low. One of the reasons it is too low is because it is a young business, and it has not yet got the scale that it needs to drive a decent operating margin.
Great. There are no more questions on the webcast. I will hand back for closing remarks.
Will, do you want to do the closing remarks?
Sure. A really pleasing end to 2024. Outperformed. I guess in spite of still noises about U.K. consumers, we are seeing some green shoots at the start of 2025, which gives us some encouragement for further prospects. I think, as John said, we are very pleased with the acquisitions that we made in 2024. Lots of opportunities to improve those, which we'll do over time. We see M&A being a key part of our future as well. We see further opportunities to grow. With that, thank you very, very much for coming along and making it so interactive. I am hoping that John did not tell too many secrets today. Anything you want to say?
No, that's great. Thanks, Will. Thank you, everybody. Thank you.