10
Strategic Report
Financial Review
The Group’s exceptional performance in 2020 continued in 2021 with improved sales, profit before tax of £42.2m (2020: £27.1m), increased cashflow and net assets despite the impact of Covid-19, which provides the Group with firm foundations to assess strategic investments in support of opportunities within existing and new markets. Whilst we anticipate that the ongoing pandemic, increasing impact of rising commodity prices, supply chain issues and inflation will place further pressure on some of our core markets with reduced profitability in 2022, and into 2023 until pricing benefits from new contracts are realised, we expect demand and profitability to recover in line with our underlying longterm plans. The Group’s key performance indicators (‘KPIs’) on page 7 underline the Group’s positive progress.
Covid-19 The Group’s operations, like most businesses, continued to be impacted by the global pandemic and by resultant government actions which inhibited business activity. Within the UK, the Group has not participated in any of the UK Government’s business support programmes during the year.
Revenue Group sales for the year were a record £263.8m (2020: £204.0m), an increase of 29% on last year or 36% on an Organic Constant Currency (OCC) basis. Sales in the first half of the year were strong although sales in the second half were lower and below the equivalent period last year. Demand in certain markets continues to be adversely impacted by the continuing pandemic. Rental income increased during the year by 3.1% to £8.2m and occupancy levels were unchanged. The annual passing rent of our portfolio now stands at £8.5m split 90:10 between residential and commercial tenancies.
Gross Margin Gross margin at 30% remained unchanged compared to last year as higher volume,
Annual Report and Accounts
improved product mix and increased utilisation of the Groups’ manufacturing facilities were offset by higher material input costs.
costs of £1.5m (2020: £2.0m) representing a year on year increase in profit before tax of 56%.
Material cost as the largest element of cost of sales, continues to be closely monitored with a combination of increased commodity prices, inflation and freight costs leading to higher input costs particularly during the second half of the year. Procurement savings and the ongoing value engineering programmes provided a partial offset against these increases.
Taxation
Direct labour costs increased in absolute terms although they have reduced as a percentage of sales due to improved productivity. Our diverse business units and product portfolios means breaking this down further is both complex and commercially confidential.
Overheads Overhead costs increased by 12% compared to 2020 and on an OCC basis they increased by 16% after excluding currency movements. These cost increases reflect higher business activity, supply chain inflation and the return towards a more normal business environment despite the ongoing pandemic. Product development programmes continue to be adversely impacted by the pandemic with internationally recognised European test stations having limited availability. No development expenditure has been recognised as an intangible asset this year.
Operating profit The Group reported an operating profit before net valuation gains of £39.5m (2020: £26.0m) largely due to increased sales and a favourable product mix. There was a net valuation gain on the Group’s investment property assets of £4.2m (2020: £3.2m) reflecting a stronger Oxford residential property market resulting in an operating profit after net valuation gains for the year of £43.7m (2020: £29.1m).
Profit before tax Profit before tax for the year was £42.2m (2020: £27.1m) after charging net finance
The Group has an overall tax charge of £10.8m for the year, comprising a UK tax charge of £2.6m and an overseas tax charge of £1.6m. Deferred tax on the revaluation of investment properties was £1.2m for the year and there were £0.4m of other timing differences and allowances. Additionally, as mentioned in last year’s report the UK government enacted legislation changing the long term corporation tax rate from 19% to 25% creating a deferred tax charge of £5.2m in the year. The Group’s tax strategy seeks to ensure that the key tax risks are appropriately mitigated and that the Group’s reputation as a responsible taxpayer is safeguarded.
Dividends The Board recommends an increased final dividend of 140 pence per share, which taken together with the interim dividend of 93 pence per share gives a full year dividend of 233 pence per share (2020 normalised full year dividend: 215 pence per share) representing an 8% increase. There were also two special dividends paid during the year of 125 pence per share and 150 pence per share relating to the Group’s strong performance during 2020 and 2021 respectively. Our dividend policy is to grow core dividends at least in line with the Retail Price Index (RPI) and to supplement core dividends with special dividends when the Board considers it appropriate after reviewing both profits and cash requirements.
Acquisitions There were no business combinations in the year. The integration of Lawson Fuses was completed during the year following the end of the earn out period. The Group has a strategy of growing through
