Operating and Business Review

Corporate strategy

The Board seeks to enhance shareholder value over the medium to long term.  Our strategy to achieve this is to focus resources on business activities which can generate profitable and sustainable growth. 

In doing so, we ensure that risk is carefully managed, and that high standards of corporate governance and transparency are maintained.  Where a suitable investment opportunity is identified, we invest within the bounds of internally generated cash flow and bank facilities where appropriate. 

Business strategy

The Group has operated for many years as a distributor of specialised materials to the PCB industry in the UK and continental Europe.  The European PCB industry has strengths in the defence, aerospace, automotive and medical sectors.  The Group acts as an exclusive supplier of technically sophisticated products to this sector, providing technical support and local warehousing of stock. The Group views the PCB business as a steady revenue stream, but not one which will provide significant growth to the Group.  However, the Group does expect future strong growth from the LCS divisions.

The Group's LCS products range from the sale of lighting components to supporting customers with the design and assembly of complete light engines.  LCS divisions also offer a complete ecosystem of wireless control solutions, project services and data analytic solutions.  The Group's lighting components strategy is to provide a competitive premium product range and value-added services to lighting manufacturers in our markets.  The Group's wireless lighting controls strategy is to focus on the specification of the wireless technology, as well as all project and data analytic services to lighting specifiers, consultants and building engineering companies.

Market Overview

PCB revenues and results in 2022 were lower mainly due to customers reducing stock levels over the year.  PCB revenue from the continuing business decreased by 18.3% from £3.3m to £2.7m and operating profitability decreased from £554,000 to £184,000.  2021 profitability had been enhanced by exceptional market conditions and as a result we regard the PCB return as satisfactory.

LCS divisions in 2022 achieved a 26.6% improvement in revenue: however, the additional costs from our investment in staff, technology and product development adversely impacted results, particularly in the first half of the year.  The operating result for LCS divisions was a loss of £253,000 (2021: profit £32,000).

Business Review

2022 was an exciting year in terms of our development and growth of the LCS divisions.  Highlights included the following:

·    Successful implementation of large commercial, industrial, retail and hospitality projects with wireless lighting controls hardware provided by the Group, as well as a full range of project services.  

·    Implementation of new wireless emergency lighting technology into large scale projects, for the first time.

·   Launch of Generation 2 of our Holders Analytics platform.  Using the wireless lighting control infrastructure, we are able to supply customers with energy, lighting, occupancy and environmental data.

·    Development of Holders own brand products for use on our projects.

·   Broadening of our range of wireless lighting control products and supplier relationships, to ensure the largest portfolio of products available in our markets. 

·    Further investment in knowledgeable and experienced sales and technical staff, across the Group.

Conclusion

In 2023, we expect our PCB business to have continuing demand for the products we offer.  For the LCS business, we plan to focus on converting the business opportunity available to us in our markets and investing in our own product development to enhance our product portfolio as well as technology to support the growth of the business.

Victoria Blaisdell

Group Managing Director

23 March 2023

Financial Review

Key performance indicators

The Board believes that the following key performance indicators are most significant in assessing the Group's performance and financial position:

· Revenue

The turnover level is an important indication of the strength of the Group's product range and coverage. 

· Profitability

Profitability is largely a function of the gross margins achieved and management's success in containing administrative expenses in relation to turnover. 

· Liquidity

The Group operates in a cyclical industry and the directors have consistently adopted a conservative approach to financing the Group's activities.  The key measure is net liquid funds, as described below.

· Efficiency

Production efficiency is important in a competitive PCB market.

Revenue

Group revenue from continuing operations increased from £7.7m to £8.3m.  Overall PCB revenue from the continuing business decreased by 18.3%, whilst Lighting and Controls revenue increased by 26.6%. 

Profitability

The operating result was a loss of £238,000 compared to an operating profit of £469,000 in 2021.  (Note that the 2021 presentation differs from that shown on the Income Statement.)  The gross profit margin was 34.8% compared to 31.2% in 2021.  Administration costs decreased from £3.0m to £2.9m, however they increased as a proportion of revenue from 24.2% in 2021 to 35.4% in 2022.  

Post tax result

The result for the financial year after tax, attributable to equity shareholders was a loss of £259,000 (2021: profit of £695,000).  The basic and fully diluted loss per share was 6.13p (2021: 16.45p earnings per share).   

Principal risks and uncertainties

The directors believe that the following are the principal risks and uncertainties faced by the Group:

· Competition

Both the PCB and Lighting and Controls sectors are highly competitive, and the Group faces competition from a wide range of companies.  The Group continually seeks the most cost-effective sources for its products in order to remain competitive.

· Customers

The Group is exposed to the risk of bad debts.  Within the major European markets, the Group uses credit analysis data to monitor customer risk levels and maintain appropriate credit limits.  Credit insurance is used for UK and European customers whenever it is economically available.

· Suppliers

As with any distribution business, the Group is dependent on maintaining supply.  The Group has diversified its product range and sources in order not to be overly dependent on any single supplier.

· Key Management

In order to ensure retention of key management, the Group offers competitive remuneration, a stimulating working environment and clear two-way communication.

· Business Interruption

In order to minimise the impact of business interruption, the Group offers dual capacity in UK and Germany, and holds appropriate business interruption insurance.

· Financial Control

Internal controls and multiple authorisation levels, with monthly review of results and cash, are used to combat fraud and potential misstatement of results.

· Inflation

Inflation risk is an inherent feature of the business. Prices are continuously monitored and managed with suppliers and customers to ensure that margins are maintained. When an opportunity arises, the Group will purchase inventory at an advantageous price.

Cash flow, liquidity and financing

The Group's cash position decreased during the year, from £3,192,000 to £2,270,000.  The decrease principally arose from the operating loss plus increases in working capital, capital expenditure, and dividends paid to shareholders.

The Group does not currently require or maintain an overdraft facility.  A trade financing facility is used for occasional letters of credit.

At 30 November 2022 the Group had net liquid funds (trade and other receivables plus cash minus current liabilities excluding lease liabilities) of £2.4m (2021: £3.1m).  Net assets per ordinary share at 30 November 2022 were £0.99 (2021: £1.07).

Derivatives and other financial instruments

Operations are financed from retained profits.  The Group's financial instruments, other than forward currency contracts, comprise cash and items, such as trade receivables and payables that arise directly from its operations.  The main purpose of these instruments is to provide finance for operations if necessary.  It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken.

Currency risk and exposure

The Group enters into forward currency contracts that are used to manage the currency risks arising from purchases from foreign suppliers where the products are sold in local currencies. 

The overseas sales operations during the year were predominantly in the European Union.  The Group has currency exposures primarily in US dollars and Euros.  Although daily transactional exposures are regularly covered by forward contracts, the Group has an underlying exposure, particularly to the Euro.  Currency contracts at the year-end are detailed in note 21. 

Net assets

Net assets at the 2022 year-end were £4,172,000 (2021: £4,528,000). 

Conclusion

The Group enters 2022 with a strong balance sheet and increased capacity for investment as new opportunities are identified.

Paul Geraghty

Group Finance Director

23 March 2023

Group income statement for the year ended 30 November 2022

Group statement of comprehensive income for the year ended 30 November 2022