Luceco Aktie

Good morning, everyone, and welcome to Luceco's Interim Results Presentation. My name is Thorsten Muller, and I was recently appointed as CEO of the company joining at the start of September. I've previously worked at Halma, where at one of the divisions within the safety sector. Before that, I served in senior leadership roles at ABB, Osram and Bosch.

Let's turn to the agenda for today. Will is later going to take you through the details of the first half that the team has delivered. I'll then share with you my first impressions and initial priorities as well as the outlook for the result of the year, followed by any questions you may have. Let me take the opportunity to express how excited I am to be joining such a high-quality business. The Luceco team has continued to deliver strong results during the first half, building on the momentum achieved in June 2025.

Starting with the headline numbers. H1 was a strong first half with performance accelerating across the group. Revenue was up 13.4% to GBP 142.6 million, driven by energy transition, where revenue more than doubled. This also means that the energy transition contribution to the half year revenue increased from GBP 2 million back in 2022 to GBP 18 million in 2026. That growth is converting into profit with adjusted operating profit up 14.5% to GBP 15.8 million, resulting in a return on capital invested improvement by 50 basis points to 20.5%.

Leverage remains comfortable at 1.5x bank EBITDA, allowing headroom for future M&A in line with our capital allocation policy. Reflecting the performance and our confidence in the outlook, we have increased the interim dividend by 16.7%.

With that, I will pass to Will to take you through the performance during the period.

Thank you, Thorsten. Good morning, everybody. I'll take you through the first half performance, starting with the financial review before moving on to the business review and the growth opportunities that support our medium-term outlook. Revenue for the first half, as Thorsten mentioned, was GBP 142.6 million, an increase of 13.4% on the prior year. Growth accelerated through the period with like-for-like growth of 12.9% in the first quarter and 14.9% in the second quarter. Energy transition activity was the principal driver, with revenue up 119.5%, while the remainder of the core business grew by 6.5%, all 3 operating segments, all 4 sales channels and each geography delivered growth.

Adjusted gross profit increased by GBP 59.8 million -- excuse me, adjusted gross profit increased to GBP 59.8 million and adjusted gross margin was 41.9%, broadly in line with the prior year despite increases in key material costs. We continue to benefit from strong manufacturing productivity and close cost control while maintaining a disciplined approach to pricing. We are working with our customers to pass through higher commodity costs. Adjusted operating costs increased by approximately GBP 5 million to GBP 44 million. The increase reflects targeted investments in EV infrastructure, marketing and technical capability, together with wage and salary increases.

We are also simplifying the operating footprint following recent M&A, including the consolidation of D-Line warehousing and associated labor into the wider group during the first half. Adjusted operating profit increased by 14.5% to GBP 15.8 million, and adjusted operating margin improved by 10 basis points to 11.1%. Adjusted net finance expense was broadly stable at GBP 2.9 million, resulting in adjusted profit before tax of GBP 12.9 million, an increase of 19.4%. The effective tax rate was higher than in the prior period when we benefited from the utilization of previously unrecognized tax losses. We expect the full year adjusted effective tax rate to remain below the U.K. corporation tax rate of 25%.

Adjusted earnings per share increased by 13.6% to 6.7p. Reflecting the group's strong first half performance and momentum for the full year, the Board will pay an interim dividend of 2.1p per share, an increase of 16.7%. This slide provides more detail on the composition of the 13.4% revenue growth in the first half. Currency was a GBP 0.6 million or 0.5% headwind, giving constant currency revenue of GBP 143.2 million and underlying like-for-like growth of 13.9%.

Wiring Accessories revenue increased by GBP 3.8 million, contributing 3% to group like-for-like growth, a robust performance aided by CMD. It's pleasing to report that CMD enters H2 with a healthy order book. Integration synergies are flowing through and aided by Luceco's competitive manufacturing and product sourcing, the excellent CMD sales team are winning key tenders. Portable Power was the standout contributor, adding GBP 12.8 million, driven by energy transition activity. The strength of our established wholesaler relationships are helping us bring our expanding energy transition range to a broader contractor base.

LED lighting added GBP 0.9 million, which included a strong first half performance from DW Windsor. We have seen some recovery in our overseas operations. As you would expect, our business based in Dubai has had a challenging 6 months from an operational standpoint. The team there did a great job over this period and still delivered growth in the first half. However, we do note that events in the region could delay significant investment projects in the second half.

Moving to adjusted operating profit. The group delivered an increase of GBP 2 million or 14.5% to GBP 15.8 million. Portable Power contributed an additional GBP 2.3 million and was the principal driver of group profit growth. The benefits from substantially higher energy transition volumes more than offset the additional investment in infrastructure, marketing and capability required to support this opportunity. Wiring accessories reduced by GBP 0.4 million. Although we saw strong top line revenue growth, profitability was temporarily affected by the timing of material cost increases.

We expect this effect to reverse over the forthcoming quarters as pricing actions take effect. LED lighting added GBP 100,000 and was broadly stable. Taken together, the bridge demonstrates that strong revenue growth was converted into a slightly improved group operating margin while we continue to invest for future growth. As normal, our business -- in our business, we expect our operational leverage to improve in the second half as a result of seasonal growth in our order book.

Turning to cash flow. Adjusted free cash flow was an outflow of GBP 2.1 million in the first half compared with an inflow of GBP 10.3 million in the prior period. You might recall that 2025 benefited from unusual timing of working capital movements between December '24 and January '25. This makes '25 a tough comparative when we reviewing '26. Adjusted EBITDA increased GBP 2.1 million to GBP 20.4 million. Working capital was a GBP 10.1 million headwind. We have consciously invested in the first half as we built stock to support expected second half trading. We increased capital expenditure by GBP 1.1 million to GBP 4.9 million, in line with our capital allocation policy.

Interest paid was unchanged at GBP 2.9 million, and tax paid was GBP 2.9 million compared with a GBP 0.4 million receipt in the prior period. We expect the usual stronger second half cash generation, though lower than 2025 due to timing of accounts receivable collection. Finishing on the numbers, this slide brings together our cash flow track record, working capital metrics and leverage. The group generated approximately GBP 52 million of adjusted free cash flow over the last 3 completed financial years. The phasing has varied, but cash generation has consistently been weighted towards the second half.

Average inventory days increased to 145 from 136 and inventory rose to GBP 71.2 million, reflecting higher volumes, the stock build to support second half trading and increasing mix of higher-value energy transition products. Debtor days improved to 76 from 78, demonstrating continued discipline in receivables management. Bank net debt was GBP 69.6 million at the half year compared with GBP 68 million a year earlier. Bank leverage improved to 1.5x EBITDA from 1.6x and remains in the middle of our target range of 1 to 2x. The group had GBP 44.4 million of undrawn facilities and the facility matures in May 2029.

We remained comfortably within our banking requirements, providing capacity to invest organically and pursue selective bolt-on acquisitions in line with our capital allocation policy. Now I can talk about some of the long-term structural growth markets in which we are participating. On the left, Electricity is expected to account for a materially greater share of consumer energy demand over time as transport and heating electrify. The big ticket items include EV chargers, heat pumps, solar panels and batteries.

However, these installations also require associated electrical infrastructure. Products such as enclosures, isolators, metering and circuit protection increase the electrical product content of a renewables-ready home by an estimated GBP 200 to GBP 300 compared with a traditional home. On the right, the U.K. EV charger market is forecast to grow at a sustained double-digit rate. Forecasts predict a compound annual growth rate in charger installations of 13% to 2030 and continued growth beyond this time with the potential to be another 3x larger.

New electric vehicle sales regained momentum in the first half, supporting the long-term requirement for residential and commercial charging infrastructure. Crucially, Luceco can participate in both parts of this opportunity, directly through sync energy charging products and through the broader range of electrical accessories required to enable the transition. Demand flexibility provides an additional recurring revenue opportunity from the installed base of connected chargers. As more transport and heating are electrified, peak electricity demand will rise significantly and less consumption can be shifted to different times.

An EV battery can hold several days' worth of the electricity used by a typical home, which illustrates both the load created by widespread charging and the value of managing when the charging takes place. Managed EV charging, including vehicle-to-grid capability is therefore expected to be an important source of flexibility for the electricity system. The regulatory framework for distributed assets is now in place following changes to the balancing and settlement code in November '24 and November '25. We moved to an in-house charger management platform in the fourth quarter of 2024 and achieved COP-11 metering certification in the first quarter of 2026, with the certification applicable to the installed base.

More than 30,000 chargers are currently active in demand flexibility. Changes to the regulated mechanism have been phased in during Q3. Growth in the active base more than offset changes in the mechanics. This remains an evolving regulatory market, so the value per charger may change over time. Nevertheless, demand flexibility is strategically attractive because it adds a recurring revenue stream to the initial hardware sale with the opportunity growing as we expand the installed base and the functionality of the platform.

Bringing the financial and business review to a close, this slide shows the progress made since 2022 and the profile implied by the market consensus for 2026 before today. Revenue increased from GBP 206.3 million in 2022 to GBP 271.4 million in 2025, while adjusted net operating profit increased from GBP 22 million to GBP 33.8 million. Over that period, adjusted operating margin improved from 10.7% to 12.5%. The consensus figures shown for 2026 before this morning's announcement are approximately GBP 310 million of revenue, GBP 41 million of adjusted operating profit and a 13% adjusted operating margin.

Including self-funded acquisitions, this represents a 4-year revenue compound annual growth rate of 10.8% and a 230 basis point improvement in adjusted operating margin since 2022. The progression reflects the combination of continued growth in the core business, the increasing contribution from energy transition and disciplined management of the cost base. Further operational consolidation and efficiency opportunities provide additional support to the margin over time. Our objective is to sustain this combination of growth and improving returns while retaining the balance sheet capacity to invest in the most compelling organic and inorganic opportunities.

With that, I will hand you back to Thorsten for his first impressions of the group and his initial priorities.

Thank you, Will. As you'll be aware, I started in post 3 weeks ago, but I thought it would be beneficial for you to run through my first impressions and the priorities for the next few weeks. As Will outlined, Luceco has built significant momentum over the last few years and has delivered consistent compounding growth during that time. The business benefits from its strong foundation, generating sustainable commercial advantages. This is based on 4 pillars. An innovative portfolio of products, services and brands across all its segments, well-established routes to market with a profound understanding of our customers and their needs, a highly agile, vertically integrated supply chain that allows us to respond to market conditions at pace, bringing new products to customers at a remarkable speed. And finally, a strong team with entrepreneurial and customer-centric mindset.

These 4 pillars drive an attractive financial profile. Our market position in established categories provide a sustainable and predictable base of revenue and cash flow. This allows us to address and invest into any attractive structural growth opportunities offered by the energy transition. This is evident in the work the team has done in EV charging, a segment that has its origin in the highly accretive targeted acquisition of Sync EV 4 years ago.

Since then, we organically grew the segment through focused and agile product development, which has unlocked recurring revenue streams that provide additional upside, albeit in an evolving regulatory environment. Product innovation has been core to Luceco's growth strategy for many years. This slide highlights the breadth of the 2026 pipeline across our core categories, supported by product development teams in both the U.K. and China. With energy transition, the pipeline now includes high-power DC charging as well as vehicle-to-grid capable and a smart portable EV charger. DC charging broadens our proposition beyond our established AC residential offering, while vehicle-to-grid capability reflects the expected future direction of the market, allowing the vehicle battery to support household energy use as well as to transport.

In wiring accessories and portable power launches include 3-phase and HVAC circuit protection, grid-light modular as well as luxury switches, 65-watt integrated USB charging and home office power products. These developments extend the range into further attractive professional and consumer applications and create additional opportunities through our established customer relationships and routes to market.

Dynamis Stadium lighting and Hinged trunking are different products that demonstrate the same approach, applying our product development and sourcing capabilities to adjacent categories where our brands and channel access can support growth. This momentum, underpinned by Luceco's business model, market position and financial profile provide a strong platform for us to build on in the coming months and years. I will present my thoughts more fully in March at our full year results. In the meantime, my 3 priorities over the coming months are going to be focus and stringent capital allocation, ensuring that Luceco is focused on the most compelling opportunities for future growth across all our markets, products and channels.

Process excellence by defining and implementing best-in-class processes and technology to serve our customers and partners in an efficient and accommodating manner, making sure that these systems reflect the group's scale and future growth prospects and structure, ensuring that Luceco is a team-led organization, having a decentralized and lean operating model and a strong talent base in place that allows seamless scaling to facilitate our future growth ambitions. So let me turn to the outlook for the full year.

The group continues to experience strong demand across key product categories, channels and territories with revenue in our core business growing 6.5% in the first half of the year. Demand flexibility is delivering a recurring revenue stream. Our success in delivering growth of EV charger sales will also improve our demand flexibility revenue. We, therefore, expect that our adjusted operating profit will be ahead of market expectations.

Good morning, everybody. Thank you for attending the Luceco plc results presentation for 2025. Our highlights. Revenue was up 12%, operating profit up almost 17%, adjusted operating margin up 0.5 percentage point, and our net debt ratio 1.2x down from 1.6x, our full year dividend of 6p, which is up 20% on last year and our adjusted EPS of 15p, also up by 20% on last year.

Okay. The further highlights slide. Like-for-like revenue growth of 2% in the first half and actually close to 7% in the second half, which has accelerated further in Q1 of this year. This is despite subdued activity in our core overall markets.

Approximately 2/3 of last year's organic growth was from the EV charging category as a result of ongoing market share gains in a structurally growing segment. EV charger sales were up 85% in the year, and it is continuing to be strong this year. Operating profit margin was up to 12.5%, which is a 0.5% increase on last year, which was a further 0.5 point increase on the previous year.

Hence, operating profit 17% higher, giving us a 3-year operating profit compound average growth rate north of 15%. There was very strong cash generation of GBP 30 million. Since 2019, our free cash flow has totaled GBP 140 million on GBP 1.5 billion of sales, which equates to a free cash flow percentage of sales of approximately 9.5%.

have we achieved this in parallel with strong economic growth.

As per our strategy, we can use some of the cash from this core business to invest in M&A and our 2 most recent deals, our D-Line and CMD are both performing excellently with the integration work of which will be completed by the end of this year.

Thank you, Jon, and good morning, everybody. Let me start with a quick review of our income statement. Our revenue at GBP 271.4 million reflects a strong end to 2025, which we talked about in our recent trading update. Almost 12% up with 4.6% like-for-like growth is a creditable performance in a market like ours.

Our hybrid and professional wholesale channels had an especially strong year, growing over 11% with over 8% like-for-like growth. The EV charger products that the group now offers are clearly attractive. Growth of almost 85% year-on-year is ahead of the EV market and another excellent performance.

Our energy transition sales, of which EV chargers are the majority, delivered GBP 18.1 million sales in 2025, up from GBP 9.8 million the year before. The information we monitor covering demand for our products across certain customers leads us to believe that the strong performance we saw towards the end of 2025 is continuing into '26.

A year ago, I spoke of the strong performance in our overseas operations, which delivered a near 23% improvement in '24. They found '25 more challenging as the wider economic events that you are all aware of had an impact. Our outdoor LED lighting businesses struggled in 2024 with an impact from local authority funding.

But it's pleasing to see that DW Windsor has recovered strongly in '25, following some self-help measures, and this is continuing into the new year. The housebuilding market has been a more difficult place again this last year. It only represents approximately 5% of revenue, although our team are achieving impressive market share growth.

The 2024 acquisitions of D-Line and CMD have been integrated well, and synergies are starting to show through. CMD previously sourced a significant level of componentry from overseas third-party suppliers, and our in-house manufacturing facilities are especially well suited to the production of these components more competitively.

The D-Line warehouse facility in the North of England will be closed in the summer as its operations are being integrated into the existing footprint of Luceco. Gross margin for the year was 41.8%, a year-on-year improvement and the highest annual performance we have achieved.

This was delivered in spite of an uptick in some key raw material costs, for example, copper. Sea freight costs were relatively calm through much of 2025. I will speak about the current experience shortly. Our containers from Asia to Europe have been traveling around the Cape for over 18 months. So we are not seeing a direct impact on routings as a result of the Iran conflict. However, we are clearly experiencing indirect effects.

Journeys around the Cape keep our inventory goods in transit balance around double its historic levels at circa GBP 12 million. Our Jiaxing production facility continues to improve, delivering productivity, benefits from operational leverage and overhead savings, again in 2025, assisting our gross margin. The U.S. dollar represents a revenue headwind for us again in '25.

The RMB has been declining against sterling, and we saw the benefit coming through our cost base. As I've said in the past, we follow a policy to place forward cover, which delays the consequences of currency movements. Overheads at circa GBP 80 million were up circa GBP 11 million on 2024. The majority of the increase was attributable to the newly acquired D-Line and CMD businesses representing GBP 6.6 million.

We made some targeted investments in select overhead categories, notably in energy transition-related activities such as marketing, technical and support. Our wage cost inflation was in line with that seen in the wider U.K. economy in 2025. Adjusted operating profit was GBP 33.8 million, above the indication we shared in our January trading update and over 16% ahead of the prior year.

Pleasing to see that our adjusted operating profit margin has now moved from 11.5% in 2023 to 12% in 2024 and now 12.5% in 2025, good, consistent improvement. We've managed to unlock some previously unusual losses, giving us a onetime benefit to our 2025 tax charge of some GBP 1.6 million.

We are heavily weighted to the U.K. and increasing it with further U.K.-based acquisitions. Here, the headline corporation tax rate is now 25%. We continue to take advantage of various U.K. and overseas government incentives that mitigate some of the tax burden, though I expect our rate in 2026 to be materially above that in 2025.

The reduction in our tax rate in 2025 to circa 19%, together with the GBP 1.9 million increase in our finance charge, reflecting the funds used to pay for the acquisitions partway through '24, means our adjusted operating profit improvement delivers a pleasing increase in adjusted earnings per share of 20% to 15p.

The Board has consequently recommended the dividend be increased with a final of 4.2p, taking the total to the year to 6p, 20% ahead of the previous year. This slide provides a bit more detail on the drivers of our revenue performance. The acquisitions of Dine and CMD have driven the most significant change in our revenue this year. Both of these fit well into our group and the impact of a full year of ownership has increased group sales by around GBP 21 million. D-Line arrived in late February 2024 and CMD at the end of September that year.

We have previously said that we will begin to see the synergy benefits in our P&L between 18 to 24 months following completion. It takes time to design, tool and commence component production in our facilities, and we remain on plan with CMD. We are making progress and the benefits of the D-Line acquisition are already showing through.

Focusing on organic performance, our hybrid and trade channel space and within them, specifically our EV charger offerings recorded an excellent increase. Our non-U.K. operations performed less well in 2025 against a tough comparative given their success in 2024. The Middle East performed well in '25, much of it weighted towards the last quarter of the year, but clearly, business may be challenged in 2026.

Our Mexican operations found 2025 very tough. U.S. tariffs are having an impact on the projects market that we sell to in Mexico. Back in the U.K., the new house build market had another challenging year in 2025 and appears to be recording further deterioration in early '26.

We are enjoying some good market share gains, but we remain cautious. Infrastructure-driven external LED operations are benefiting from some good self-help measures underway. Currency impact is mainly the effect of the U.S. dollar move versus sterling on our FOB sales. Average rates across 2025 at $1.32 were 4 basis points worse than 2024 and reduced our year-on-year sales by just over GBP 3.2 million.

This slide shows the key drivers of our adjusted operating profit performance. Once again, it is pleasing to share strong operating profit improvement with an increase of some 16.6% over 2024, which follows the 21% improvement in the year before. 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 are manufactured in-house. So revenue growth in this segment improves utilization at Jiaxing. Production of CMD products there further helps in the future. The full year impact of our acquisitions added some GBP 2.6 million to 2025 operating profit.

We have lots of work underway to enable our factory to manufacture for their acquired businesses or to resource product for them. The team has a proven track record in delivering these types of synergy benefits.

Freight costs were relatively benign in 2025. They have ticked up recently as the market experiences some indirect disruption from the Iran conflict. We saw elevated copper and silver prices towards the end of the year. I've said before that we carry a level of copper hedging that offers some short-term protection at times like this.

The situation in the Red Sea means our freight between China and Europe was already going around South Africa. This added cost and working capital, but has become the norm. Currency has helped in 2025. Average RMB to sterling at over 9.4 was almost 3% favorable.

We carry forward FX contracts that taper down up to 12 months ahead at the moment. This delays the benefit when rates move in our favor. Of course, it also offers protection when they move against us. The increase in national insurance rates to 15% implemented in April 2025 added approximately GBP 1 million to our U.K. cost base.

A quick look at the last 3 years in 6 months sections. You can see the pleasing consistent profit growth improving from GBP 24 million in 2023 through GBP 29 million in 2024 and now GBP 33.8 million in 2025, a compound annual growth rate of 19%. This also pleasingly translates to an improving trend in operating profit margin from 11.5% in 2023 through 12% in 2024 and now 12.5% in 2025.

By the way, our business continues to be H2 weighted. This slide compares how the key drivers of free cash flow were different in 2025 against 2024. We delivered a lower free cash flow of just GBP 3.5 million in 2024. I explained that much of the working capital change in 2024, which caused the temporary deterioration in our traditionally strong free cash flow was caused mainly by 2 key factors that year.

The transition in sea freight to avoid the Red Sea increased our stock in transit by some GBP 6 million, which while now normalized was a onetime effect on free cash flow in 2024. The other was that we had a very impressive sales growth right at the end of 2024. Trade receivables in 2024, therefore, absorbed GBP 17 million of our operating cash flow.

This compared to the just GBP 3 million it absorbed across the whole of 2023. We said this time last year, we expected cash flow to improve, and it is pleasing to share the excellent cash generation achieved in 2025 as our working capital position corrected.

It may have, to some extent, overcorrected because we enjoyed stronger trading in Q3 this time, which does flatter the year-end working capital position. You will note from the CFO review in this morning's RNS, a comment that Luceco has delivered an average of GBP 20 million free cash flow over the last 5 years.

Finishing up on the numbers, this slide summarizes our working capital cash flow and debt performance overall. Working capital management is in a good place. I mentioned the small uptick in inventory days last year, a response to the Red Sea disruption. As you can see, our debtor days metric shows a further improvement, and I appreciate our great accounts receivables team back at base.

Bank net debt ratio, 1.2x is comfortably within our 1x to 2x range and shows great progress since we spent the nearly GBP 38 million on acquisitions in 2024. Our bank facilities were replaced during 2025 and now run to September 2028 with 2 1-year extension options, which would take it to September 2030.

With that, I'll hand you back to Jon to talk through our business review and outlook.

Turning to our competitive advantages. We are well positioned to deliver above-market growth. We have market-leading brands and distribution, especially in the U.K. We have vertically integrated manufacturing, and we have a culture of innovation and a proven product development resource.

We have a highly cash generative core business and a strong track record of accretive M&A. This, combined with the structural opportunities from the energy transition segment. Local generation via solar, local storage via batteries, electrification of heating by heat pumps and the electrification of transport via EV chargers are the pillars of the energy transition.

And we, as you know, are able to offer batteries and EV chargers. We are also able to offer all the accessories needed for the other product segments. We, therefore, have a clear strategy to increase our presence in these markets, which have high structural growth by expanding our product ranges and via M&A.

Now I will talk about some of the product innovation highlights from last year. Our platform lighting controls offer is an app that we have been developing over many years, which allows our project and commercial lighting segment to offer energy saving via lighting controls. This has been growing year-on-year and is becoming a major part of our lighting business.

Our Sierra Solar street lighting is a very interesting innovation. We have designed the product such that the solar panel can be angled in the direction of the sun. This is highly patented, and we're the only people offering this. And because we can angle the solar panel to the sun, we can increase the efficiency of the product by approximately 60%.

A smart Wi-Fi dimmer, updated pro chargers, our flow battery system that we've spoken about before and our Link EV charger, where we have separated the charging socket from the charger electronics, which means on the outside of the house, you just have a flush-mounted smart-looking EV charger, as you can see there.

We spent approximately GBP 6.3 million on R&D last year. We have 96 engineers in China supporting a team of 48 in the market-facing businesses. Innovation and product development has been a core part of our growth strategy for many years.

On the next slide, I can show you some of the highlights of the pipeline for this year. We have recently launched a range of DC chargers. Up until now, we only had AC chargers, but we have more high-power DC chargers, which we have white labeled from a Chinese manufacturer. We have vehicle to grid capable of residential chargers.

This is the way the market will be going in future. You will be able to park your car outside your house and use it as a battery from which you will be able to run the electricity supply for your house. This will mean you can charge your car when electricity is cheap and you can use it, obviously, when it's expensive.

This will become the standard of EV charging in the future. We have a column EV charger that we'll be selling into local authorities, particularly via our DW Windsor business that has great relationships in that space. I'm not going to go through all of these, but you can see some of the very exciting new product launches that we're planning for later on this year.

Now I can talk about some of the long-term structural growth markets in which we are now participating. The graph on the left-hand side shows what proportion of U.K. consumer energy demand will be provided from electricity. As you can see, it increases very significantly as the path over to net zero by 2050.

The big ticket items to make this happen are heat pumps, solar panels, also batteries and EV chargers. As you know, we are actively selling batteries and EV chargers. But we also sell all the downstream accessories that are used, for example, in heat pumps and solar panels. Accessories will add approximately GBP 200 to GBP 300 to the cost of a renewable house against a traditional home. And we are able to participate in all of that.

On the right-hand graph, you can see U.K. EV charger installations and how they are forecast to grow. This year, we will sell approximately 75,000 residential EV chargers, giving us a market share of approximately 15%. This has increased from approximately 5% when we bought the business in 2022. And you can see at maturity, the market will be approximately 6x larger than it is now.

Okay. To the next slide, recurring demand flexibility. You can see from the graph on the left-hand side, this is attempting to show what happens to peak electric demand in the U.K. without flexibility. That is the dotted line at the top. But if the grid is able to move the demand in a flexible way, we can reduce the overall peak of electricity that is required.

And the green section is the demand flexibility that will be provided by EV charging. The orange is going to be provided by other devices. And you can see, as a result of increasing demand flexibility, we can greatly reduce the peak electricity requirement for this country. This is why EV electric charging demand flexibility is so important.

It's important to understand that an EV car requires a huge amount of electricity. For example, my car has a 100-kilowatt hour battery. The average amount of electricity used in a residential environment is approximately 10 kilowatt hours per day. So my car uses approximately 10 days' worth of electricity demand for a normal U.K. residential house.

Once all cars have become electric and are plugged in and charged overnight, there will be huge demand, therefore, on the grid and the value in being able to move the charging around so we can shave the peak demand means we won't have to build more power stations, either nuclear or gas. This is obviously extremely valuable.

We currently have approximately 10,000 chargers actively enrolled in the wholesale demand flexibility market, and we are adding more every month. This has the potential to be a very significant new revenue stream for Luceco. However, it is a nascent regulatory environment we are operating in and the formula upon which the value per charger is calculated is controlled by Ofgem, it is very hard to forecast how that might change and when that might change.

It is, therefore, very difficult for us to forecast how much this new revenue stream may be worth, but it could be significant. As I said earlier, the core business is highly cash generative. We have the ability by 2030 to invest over GBP 100 million in M&A, and we have an experienced and proven integration capability.

We can buy a combination of brands, technology and distribution. Recent thinking is to buy international routes to market for our energy transition portfolio of products. Hence, we would pay lower multiples than if we bought an existing energy transition business, which tend to command a premium valuation.

We look at a lot of opportunities, but we are not currently actively engaged in any processes. And now to the outlook. Our momentum from the end of last year has continued into the first quarter of this year, with like-for-like double-digit revenue growth for the first 2 months of 2026. This has been driven by a strong performance in the majority of our categories, our channels and our territories.

While the Board remains mindful of the recent global economic disruption and the impact of the conflict of the Middle East is not yet known, the group is well placed to manage its operations with appropriate resilience and contingency measures.

The impact of the growth with the benefit of operationally leveraged manufacturing and distribution, investments in manufacturing efficiency and the delivery of acquisition synergies supports further operating margin progression. As such, the Board now expects adjusted operating profit for 2026 to exceed GBP 37 million with the potential for further significant outperformance dependent upon demand flexibility, underpinned by the strength and resilience of our core business.

Thank you very much for listening, and we look forward to updating shareholders as we proceed through the year.

Good morning, everybody, and welcome to Luceco's first half results presentation for 2025. Thank you, everyone who is joining on the webcast.

Revenue approximately GBP 126 million, up almost 15% on last year. Operating profit of circa GBP 14 million, up almost 10% on last year. Adjusted operating margin of 11%. This is slightly down on last year, reflecting the investments we are making in the future growth, especially in the energy transition business. This is mainly engineering activity, but also further software development. And the benefits of this will start to come through in the second half.

Thus, I expect the full year operating margin to be ahead of last year. As we know, our second half is always significantly stronger for us than the first half. And this year, that will be particularly so. Leverage of 1.6%, our dividend up almost 6% and EPS slightly ahead of last year.

As I said, first half revenues up almost 15%. This is partly due to M&A, but also extremely strong growth within the EV category. When we bought the business in the 12 months up to acquiring it in 2022, I think EV turned over GBP 4 million, and this year, it should be closer to GBP 18 million.

We lost approximately 1% of the group revenue in the first half due to tariff issues in the U.S. and other international weakness was a timing issue, which will come back in the second half. There was an FX headwind because of the weaker dollar. Chinese New Year holiday in January this year was particularly early, which meant that strong FOB shipments were pushed to the end of last year as we were concerned about possible disruption. This impacted the first quarter's revenues and hence, like-for-like growth of only 0.6% in Q1 versus 3.2% in Q2.

H1 was also impacted by some supply issues, which are now resolved. We have seen a further pickup in demand in Q3, which I think is most likely market share gains. And so hope to finish the year with like-for-like growth closer to our 5% organic target. As I said, the primary driver is the energy-related products, the energy transition-related products.

We have recently launched our new battery system, more about which later and have been awarded Hive EV chargers into Centrica. This is a large project on which we have been working for a long time. It is mainly a software project because we have to get our product to integrate with the Hive ecosystem. The integration of the recently acquired businesses is also going well, and we are on track to achieve the targeted synergies, which mainly come about through integration with the group supply chains.

And within D-Line, we have also been successful in winning significant new business as a result of leveraging group customer relationships.

And with that, Will, I'll hand over to you.

Thank you, John. Good morning, everybody. Let me start by pulling out some of the key themes within our numbers. You will have seen the top line numbers from the announcement this morning, but the key points for me would be continued progress, albeit with some seasonality in the first half temporarily suppressing our margin.

Slide 6, income statement. Overall revenue of GBP 125.7 million grew 14.7%. A strong contribution from our recent acquisitions was complemented by like-for-like growth of 2%, a good achievement against the backdrop of a lackluster market environment. We're seeing increasing demand for our DIY products. At this stage, we anticipate modest market growth this year, and so we expect to be able to continue to deliver above-market growth.

As expected, D-Line and CMD contributed just under GBP 23 million to revenue in this half year. Both integrations are progressing well, and we look forward to seeing further benefits flowing through our results over the coming year.

Our infrastructure business, DW Windsor, is having a much better time in 2025. We're very pleased with its first half performance. You will recall, we discussed how by its nature as a projects operation, it can be vulnerable to the flow of construction projects, which has slowed this time last year. John has already mentioned the success of our electric vehicle charger offering, which continues to grow at an excellent pace. We saw over 90% growth in the first half of 2025 as EV charger sales hit GBP 8.3 million.

We also expect this to continue into the second half and beyond as the new Hive contract begins to bring volumes through. Our gross margin for the half was 42%. Our raw material bill remained well controlled and factory efficiency continues to improve. Our goods continue to travel around the south of Africa rather than through the Red Sea. This has become more the norm now, and so we have not seen spikes in freight costs this year.

We expect our usual second half weighted sales pattern this year, though you'll remember gross margins can sometimes be a little lower due to less favorable mix in the second half. Operating costs are up in 2025, the majority of the increase coming from the acquisitions of D-Line and CMD.

An operating margin of 11% is a good performance at a low point in the market cycle, slightly below this time last year because some seasonal factors accelerated revenue back into 2024. I said at our full year results meeting in March that the timing of the Chinese New Year meant our retail and trade customers needed to stock up before the end of 2024 to avoid empty shelves in early '25. The impact is noticeable in a half-on-half comparison. However, I expect we won't notice in the full year performance.

Our interest bill has increased as expected following the additional borrowings we incurred to fund last year's acquisitions. We've secured a new revolving credit facility totaling GBP 120 million, which will give us the necessary capacity to continue to pursue our strategy. We make over 80% of our profits in the U.K., so the increase in the U.K. corporation tax rate to 25% has affected us. I have mentioned previously that as a consequence, we expected our effective tax rate to rise. This half year, however, we have seen a reduction in our tax charge because we are now able to access some historic tax losses in the U.S.A., a helpful side benefit from the D-Line acquisition.

We're pleased to report a 3.5% improvement in first half earnings per share, and our Board has consequently increased the interim dividend to 1.8p, an increase of almost 6%.

Revenue bridge. This slide provides a bit more detail on the drivers of our revenue performance. The most significant improvement for this half compared to the first half of 2024 is the additional GBP 15.5 million from CMD and D-Line. Both are performing well. D-Line has been with us long enough now to be realizing some revenue synergies, which John may well discuss a bit later.

Our like-for-like increase of 2% reflects a 3.6% growth in the U.K., a solid market outperformance in our core market, helped by excellent EV charger progress. Our organic overseas operations in the Americas and the Middle East have had a slower time in the first half of 2025.

I have confidence that our Middle East team will again deliver a strong second half. The organic Mexican and U.S. operations, though, are experiencing the direct and the indirect impacts of the new tariff environment. Fortunately, they are relatively small parts of our business today.

The seasonal factors I mentioned earlier impacted our organic Wiring Accessories segment much more than the others, leaving it somewhat below the performance it delivered in the first half of 2024. The segment now includes the contributions from CMD and D-Line, which is why overall, Wiring Accessories revenue is up some GBP 50 million half-on-half. The adverse currency noted here is the consequences of the FOB sales that we make in U.S. dollars.

Profit bridge. This slide shows the key drivers of our adjusted operating profit performance. D-Line's and CMD's lives within Luceco have seen good starts. We look forward to further improving contribution as we jointly deliver on the synergies.

As we have said, the synergies associated with the sourcing of product to the Luceco in-house manufacturing center in Jiaxing will take time to come through into our results. We had planned to make more use of our China sourcing capability in support of D-Line, but this makes a bit less sense in the current tariff environment. So alternative cost opportunities are also being pursued.

Less progress in organic adjusted operating profit this half. However, we continue to see the benefits of efficiencies coming through the factory. Copper and sea freight costs have been more contained this half, but the seasonal split between H1 and H2 is expected to be a bit more pronounced at operating profit level than last year.

Our organic operating costs have increased by GBP 1.9 million, driven by labor inflation, but also targeted investments to secure additional future sales.

Very pleasing to see the LED segment delivered a 6% operating margin in this first half, a substantial improvement on the first half of 2024.

Improving trends. Looking more deeply into our P&L comparison back to 2023 shows the continuing progress in gross margin. It's pleasing to see our gross margins now up to 42%, delivered through raw material cost control and efficiencies at the Jiaxing manufacturing facility. This improvement was in part countered by the increasing cost of living, especially in the U.K. and the select investments in certain overhead areas, which we believe will improve the business going forward.

We've mentioned in the past the decisions to increase marketing spend and a more focused EV charger team to pursue opportunities. These have and will add cost, but should provide revenue benefit in the future. Luceco has historically enjoyed higher sales in H2 than in H1. We expect this year to follow this normal pattern.

Adjusted free cash flow bridge. Luceco's working capital profile reflects the seasonal nature of some of the business. This is ordinarily reflected with a higher requirement in the middle of the year. I mentioned at the full year results that certain customers increased their deliveries in November and December last year, creating an unusual sizable increase in our accounts receivable.

From a cash flow perspective, it's pleasing to see this reversing during the first half of 2025. As I've mentioned, our interest bill increased when we acquired the 2 businesses last year. We have since secured a new bank facility with capacity to allow us to continue our organic and M&A strategy.

The majority of the cash tax benefit was caused by a refund from 2022-'23 and our RDEC receipt, which we'll keep. The remainder is timing, which I expect to reverse in H2. The cash flow benefit from our ability to now utilize the U.S. tax losses, though, will help our future cash tax flows.

Finishing up on the numbers. This slide summarizes our working capital cash flow and debt performance. Starting at the top left of this chart, our inventory levels are usually higher in the middle of the year than at the year-end. Midyear 2024, our inventories stood at GBP 54 million. Since then, we gained some GBP 5.3 million of additional inventory through the acquisition of CMD.

You will recall that we gained some GBP 5.6 million inventory as we acquired D-Line earlier last year. And the shipping route around the south of Africa continues to leave our stock in transit at some elevated levels. Luceco's working capital profile usually reflects the seasonal nature of some of the business.

I've said before that our bank net debt and adjusted free cash flow historically show working capital sits around GBP 10 million higher in the middle of the year than at the year-end. This year, the unusually high accounts receivable balance we arrived with into 2025 has offset most of the cash cost of the normal inventory build.

The bank net debt position at June of some GBP 68 million sits comfortably within our GBP 120 million borrowing facilities.

And with that, I'll hand you back to John to talk through our business review and outlook.

Thank you, Will. We at Luceco believe we are well positioned to deliver growth ahead of the market. And this slide indicates how we think we can do that. Our sustainable competitive advantage is our ability to innovate and manufacture high-quality, low-cost branded products, thus ever expanding the portfolio into our extensive distribution networks. And we have a strong track record of doing this across multiple different product categories.

And we can further accelerate the growth by using our cash generative model to fund further product and/or distribution expansion via M&A. There are structural growth opportunities that exist for our industry due to the electrification of energy sources, heating and transport. For example, if a heat pump is installed in a property, that will require an upgrade to the main power system utilizing our hardware.

And more specifically, we now have approximately an 8% market share and growing of new installs of cloud-connected residential electric vehicle charging points. Our strategy is, therefore, to strengthen our position in these high-growth segments while continuing to grow our market share in the core business and can be summed up as product innovation combined with our extensive distribution network, which we can both expand organically and via M&A.

Slide 4 illustrates some of the high-growth structural markets that we are now exposed to. And you can particularly see on the right-hand side that the residential EV market, in which we have a growing market share, is in its infancy. And if we can continue to grow our share, which I believe we can, then only the EV segment of the energy transition piece should be a very significant category for the group.

Moving on to the next slide. So most of these products that I'm talking about and all of the EV charging and home energy management systems products are made in our own factory in China, just outside Shanghai. And we have a video here that shows the operation.

[Presentation]

And so we built that from scratch. We bought a field in 2007. There was nothing in Jiaxing at all at that time. And now we have a business that turns over almost GBP 100 million. But it's combining our manufacturing capability and our innovation capability with our unrivaled distribution network.

And here, you can see some of the customers and the channels in which we operate. Architects, consultants, contractors, developers, end users, electrical wholesalers; we basically deal with them all; hybrids from which we mean the likes of Screwfix and Toolstation. Screwfix, as we know, is a very large account for us.

Then we have the online and the retail piece. Amazon is increasingly important, but we have unique positions within Wickes, Argos, B&Q, et cetera. I think in the U.K., we have something approaching 10,000 distribution points for our products.

Next slide, the strong track record of innovation. I'm going to illustrate here with another video. This is a product that we launched last month. We looked at the EV charging category. What everyone else does is they put a big ugly box on the outside of your house. And the socket is inside that ugly box and the electronics and the communications, because all these things are cloud connected, sit inside that big ugly box that you put on the outside of your house.

What we thought is why don't we separate just the socket from the ugly sort of box of electronics. So we created a product called Link. No one else has done this. We've managed to patent the idea, and we're now going to show a video.

[Presentation]

Yes. So that voice is entirely AI. Quite interesting, what you can do. But anyway, we launched that product last month. We airfreighted over a small amount of stock that we sold out very quickly. The main shipment arrives like now. It's had an extremely strong feedback response from the market, and we think will be very successful.

We're in the process of launching this month, home energy management systems, our battery solution. And I have another video here that we're going to show about that.

[Presentation]

Very good. So mainly these new areas are about software and about sort of cloud connectivity, which has some other benefits, which we'll talk about more later. But it's quite a new area for Luceco. A few years ago, we were sort of a mechanical switch specialist. More and more, we are becoming a solutions and a system specialist. And we've been making big investments in this area, the benefits of which will come through in the future.

Additionally, our core, as I said earlier, is highly cash generative, and we have a track record of doing M&A. We did a couple of deals last year. We haven't done a deal this year. The main rationale is a sales synergy or a product synergy to buy distribution or to buy technology. In Sync EV, we bought distribution and technology. In CMD, we bought a whole new office power customer base, which we didn't have before. And with D-Line, we bought a product, which we can sell into our existing networks.

All of those acquisitions are performing as we hoped they would. I mean the -- for example, the product cost synergies on CMD look like being something like GBP 2.5 million, which is about 25% of their cost of sales or about 10% of their revenue. So their gross margin goes from almost 50% to 60%.

We, at 1.6x leverage, obviously have room in our capital structure, but we don't have any deals that we're working on currently. But we say here that by 2030, we could spend approximately GBP 100 million on further M&A, making some assumptions, obviously. The areas that we are looking at mostly now are in this energy transition space because we believe that we need more of a structural growth story.

Finally, on the outlook, in line with expectations. So the sales out of the retail hybrids, especially the online channels have been very strong recently. Larger projects are hard to predict. High volumes are hard to predict, but we are very confident that the business will perform in H2 at least as well as required.

And with that, I will hand over to any questions.

Kevin?

Kevin Fogarty from Deutsche Numis. If I can just kick off with 2, please. In terms of the Hive announcement this morning accompanying the interims, it kind of feels like it's sort of a different channel for you guys in terms of -- to serve. I wonder if you could just talk about how different a sale it is into a customer like that. Could you sort of quantify perhaps where it could go or what it could be or just give a view in terms of materiality?

Sure. Thanks, Kevin. Yes, it was quite a complicated process to get it over the line. I mean it's mainly a software play because we need to integrate our charger with their ecosystem, as I said earlier, and we've been working on it for about the last 9 months.

Materiality, I mean, Hive have very big ambitions to be the ecosystem of choice in the residential home for heating controls, for EV controls, for solar battery controls. I think they're currently doing about 10,000 units, which is what we'll take on, and they're hoping to grow at sort of 20% to 30% a year.

That equates to roughly next year, somewhere probably in the region of GBP 2 million to GBP 3 million of sales. We think in the second half of this year, it could be somewhere between GBP 0.5 million and GBP 1 million. So it's material. It's not huge, but it's growing. And I think more than that, it indicates our technical expertise and the credibility that we now have in the market as a supplier of these products.

Sure. And presumably, it opens up that sort of markets to you with other customers.

Yes. I mean we're speaking to lots of the majors in this space. Yes. And also potentially batteries, obviously, would be a much bigger opportunity if and when that happens.

And just as a second question, in terms of the acquisition integration, could you just sort of quantify where we are in terms of -- obviously, there's been investment in Jiaxing. Where are we in terms of kind of tooling being set up to sort of create that supply chain?

Well, I mean if I -- okay. So I'll talk about the 2. I'll talk about -- well, I mean, if I talk about the 3, I mean, Sync EV has entirely moved now into our own factory. They were originally using third parties in Bulgaria, actually. But we moved that quite quickly into our own factory. And it's a very high-margin segment for us as a result, and we renamed it Sync Energy, as you can see. So D-Line was the next one. I mean the production synergy has taken a bit longer than we would have hoped, the quality of the product, the sort of technical aspect of it. Although it's a simple product, it's not entirely straightforward to manufacture, but that will all be in place for next year.

And the cost saving there is somewhere between GBP 0.5 million and GBP 1 million. Additionally, with D-Line, we've won about GBP 3 million of new high-margin business. So we will have more than doubled the profitability of that business within 2 years of owning it. And CMD, I mean, I mentioned a number of GBP 2.5 million on the product cost savings. There will be other sort of back office synergies, but that will take probably 18 months to enjoy. And then you've got a supply chain full of stock, et cetera.

So we'll get, I would think, at least half of the impact of that next year and then all of it the following year.

Adam Forsyth from Longspur. Just a second one on Hive for me. Just on the integration you talked about, is there any material cost of that? Is that something we might see in H2?

No. I mean it's internal resources. There's no third-party cost. Yes, it's been a big project. Yes, it has taken a lot of resource on our side, but it's normal course of business, yes.

And in some ways, there's a lot that Hive does that feels quite similar to the Sync app. I mean, are they -- do you see that as competition or...

Ultimately, it is competition.

And Centrica are happy with that at present.

Well, I'm happy with that.

That's good.

I mean, yes, look, I mean, Hive have a very successful ecosystem, which they're building out. And ultimately, they'll want to control heating, heat pumps, EV batteries, the whole lot. I mean, I would think maybe we'll end up wanting to do that as well. But there are an awful lot of homes in the U.K., and I don't expect anyone will have all of them. So hopefully, there's a bit to share.

Could you actually be supplying Hive controllers? Could that be a business line for you?

We're talking to Hive about other products. We've spoken to them in the past about other products. We are working with them with other products, but it's early days on that. Yes.

And if I could just ask a different question on tariffs on the Chinese -- the impact of tariffs around China. Are you seeing any second order effects from that? I mean, is there any sign of other Chinese manufacturers dumping products in your markets?

Second order effects impacting us would be weakness in the Mexican economy. We have a business in Mexico, which has been growing at 20% compound year-on-year, which is not going to grow this year because uncertainty has not been helpful for the Mexican economy. We haven't seen Chinese dumping or any other impact really in our market.

I mean, as you know, China to Europe hasn't changed. And the product that goes into the U.S. in our category is not the same as the product that goes into Europe, and definitely not the product that goes into the U.K. The U.K. wiring standards is very different.

So there's not a whole load of American switches that can tap here because they're totally different. So we haven't seen an impact of that, no.

I mean the statistics show that we're continuing to win market share, so I guess, so far.

But it will -- I mean, it has -- there is a tariff from U.K. into America. So it has impacted the D-Line business a bit, which has an American operation. So some of the cost savings that we've been able to make from resourcing, we've had to give back because of a higher tariff from Europe into the U.S. So it's had an impact on our business, but not a big one.

I mean I should add, we moved some stuff from China to Vietnam thinking we were trying to be quite clever. And then, of course, Vietnam got hit with quite a significant tariff. So we're just working that through. I mean there may be -- the Vietnam tariff on our products into America is 20%. In China, it's 45%. So by moving -- it might be possible that the Vietnamese thing is affordable, and we can get some price increases, and that's an option.

Ed Prest from Berenberg. Firstly, EVs. Are you -- the growth has obviously been strong there so far this year and sort of going back a couple of years. Have you seen any change in competitor behavior? Have there been any new entrants into the market, anyone sort of cutting prices to look to take share?

There are lots of new entrants, Ed. But these things are quite complicated and they take quite a lot of support. They're all cloud connected. You have to have, therefore, a support team talking to customers all the time if they're having difficulties. We haven't seen anyone being super cheap and our market share grows, which would indicate that we can beat what competition is coming in.

And I think probably it's likely that there will be a thinning out of competition actually. I think a lot of people in this space aren't making money. You saw what happened to Pod Point. I mean Pod Point have changed their business model very much now. It's a sort of subscription model.

We have the ability to be very competitive on these things if we want to be because we're making them in our own Chinese factory, which I don't sure many -- well, I don't think any of our competitors are doing, but we're choosing to make quite good margins. And the market continues to grow, maybe not as fast as forecast, but it definitely continues to grow.

And we got our first order this morning from the Middle East. So I mean, currently we're only talking about U.K. I think there's international opportunities as well. As I said earlier, I think if we can continue to grow our market share slightly and the market explodes like it will, this should be a very big business for us.

Q3 trading, you've said that performance has been strong so far. Is that a continuation of the same in Q1 and Q2? Or is there anything else different driving it?

Well, I mean, it's probably fair to say that Q1 was a bit impacted by what might have gone into November and December last year because of the timing of Chinese New Year. So I guess the fact that Q2 was stronger than Q1 is probably more -- Q1 was a bit light. The order book going into Q3, yes, is left in a great place. So yes, we're quite pleased with where we sit at the moment.

And as I mentioned earlier, we had a few supply issues, I mean, sort of technical sort of plating and other problems on some of our decorative wiring accessory finishes in H1, which impacted sales a bit. We just had a few issues, which we've now resolved.

We track sales out of our major customers. We've always spoken about what we call EPOS. And it remains strong. And if anything, has improved. We've done a lot of work on digital assets. So we've done a lot of work on our online presence. So how our products look online. I mean, those videos we built in-house.

We've invested a lot in marketing activities, and we've had a particularly concerted push on, as I say, our online presence. So the likes of Screwfix, Amazon, those customers with big online multichannel offerings are doing well. And I think maybe we're doing better because of that activity that we've been working on.

We increased our marketing spend as a business by a couple of million quid over the last few years. And I think that's beginning to come through.

Yes, makes a lot of sense.

So yes, Q3, I think, is going to be quite strong. And then Q4, there are some projects knocking around, which may or may not happen. If they happen, we might have quite a strong end to the year.

And then leverage, are you happy to take it towards the top end of the 1x to 2x range in the current environment? Or would you prefer to be delevering at this point?

Is that a question for both of us or...

The current environment implies you think there's something wrong with the environment. Maybe you think the environment might get worse. Does it get worse? I mean, maybe it gets a little bit worse, but it's not -- I think it's quite -- our markets are quite weak. I doubt they get much worse.

And I'm the cautious one of the pair, as you know. But I mean, I'm very happy to say that if you looked at the second half of '22, which was actually when things really got a bit tough for Luceco, the top line declined to some extent. We had some destocking amongst the customer base. But in that 6-month period, the business delivered GBP 30 million of cash flow.

So the nature of the balance sheet that we have means that if life does get tough, this business is able to turn it into positive cash. So it gives you quite a level of confidence. So I'm happy at the leverage level that we have at the moment. I'm happy with the policy of 1x to 2x. John's extremely successful history came from a private equity world that lived with much, much higher levels of leverage than that. I mean the business generates very nice strong cash flows.

Yes. I mean our policy is 1x to 2x, not 1x to 1.5x. So I guess until we change that policy, that probably is the answer to your question. But yes, I mean, I think we wouldn't want to push it too high unless we had quite a clear path back down quite quickly, not because of what we think, because of what your clients think.

Sam Cullen from Peel Hunt. I've got a few also. You talked about software a few times. How should we think about software and software services going forward? Is there a potential for that to be a revenue-generating part of the business in terms of all the data you're collecting? Can you sell that to someone? Is it worth cash to some other customers? Or is it a pay to play, and this is what you have to do and invest in to access that market that's going to grow 4x or 5x over the next...

Sam, there's something called DSR, demand-side response, which we're going to talk more about later when it's a more material number in our business. But basically, the grid will pay he who controls an EV charger to have control of that charger in an emergency situation. So there are and there will be revenues that having our own cloud app infrastructure controlling these EV chargers, there will be revenues that result from that.

Now up until beginning of this year, we were using a third-party cloud infrastructure and app to control the chargers. We've built our own now. Part of the reason for doing that is to take advantage of these revenues from the grid. Now we -- it's early days. We have got some money so far, but we're just learning all about it.

It's what Pod Point talked about a lot. They called it their flex revenues. So basically, the -- so EV chargers take a huge amount of power. They basically take as much power as the rest of your home. If you're charging your car, that's as much power as your house will use for the whole day, actually more probably. The ability for the grid to be able to flex the energy in these chargers is very useful.

And if you have control of the chargers, which we will do if they're on our app, on our cloud system, you will get paid for that. And we'll talk more about that later. But yes, I think that will more than cover the cost of the software development.

The second one was on the M&A front. I'm conscious here, you said there's nothing in the funnel as it were at the moment. But are there areas of distribution that you feel you're weak in and would like to move further into or flanks on the map that you're missing?

Well, not -- I mean, our U.K. distribution is pretty extensive, and I would say, almost complete. Our international distribution is, as you know, quite limited. So for a distribution play, it's probably more likely to be international. For a product play, it could be anything.

We look at a lot of stuff. We get a lot of -- when I said there's nothing that we're actually actively working on now. That doesn't mean we're not looking at a lot of stuff because we're constantly obviously receiving NDAs and IMs and we're constantly looking at businesses. But we obviously say -- we say no to a lot of stuff, and we want to get the right thing. So I'll see.

And we're quite interested in the energy transition space, clearly, which John has talked about. So some opportunities in that space, if they're affordable, could be quite interesting.

Yes. So international distribution for these new products would clearly be interesting. We don't need to buy that in the U.K. because we've got all the relationships we need here, but we don't necessarily have those relationships elsewhere.

And the last one is on -- is to Will, the last one. U.S. tax losses. You've obviously made use of them in the first half. How much more is there to go on that, I guess?

I don't think we've actually disclosed the total amount, but...

[indiscernible] your moment.

Yes. I have a practice of trying to keep new information to written documents. It will run for many years. So Luceco in the past did have its own presence in the U.S.A. We exited that some time ago. And yes, the fact that we now have -- which was one of the reasons that D-Line was an interesting opportunity. We now have a new facility in Kentucky and that enables the existing Luceco business to be reasonably profitable over there as well. So quite a few years to come.

James Wood from Canaccord. A question quickly on EV, just the replacement cycle and the charges. If you could remind us what that is, please? And then just one on gross margins, really good progress, obviously, in the first half. Where do you think they can get to for the full year and beyond?

Well, the residential EVs we sell have a 3-year warranty. So we hope they will fail after 3 years and 1 month. We'll see. I mean they are switching quite a lot of power. They are generally sitting outdoors. I mean that Link thing might last a bit longer actually.

But it's early days. We don't -- we've only been in the market for 4 years. There will be some innovation. I mean, so vehicle to grid or vehicle to home. So basically using your car battery to power your home because car batteries are going to be large, I mean they are large, will probably mean that all the chargers we're putting in now get replaced by that upgrade at some point in the future.

So I mean, how long are they going to last? I mean they're not going to last as long as a mechanical light switch, but they should probably last 3 to 5 years, I would guess. But I'm slightly guessing. It depends how well they're installed, where they're installed, how much they use, blah, blah, blah.

But there could be a major technology change because currently, these are only one way. So currently, they're going from home or grid power into car. The next evolution is to come back from car into home and/or grid power. So that will probably mean that all the ones we're selling now will become obsolete if that new innovation is required.

And there will be a drive from utilities [indiscernible] a new generation chargers, I guess, once that happens, it will make their infrastructure more efficient?

It's an ability, it allows the grid to smooth demand, which becomes an increasing problem when you have renewables because renewables are unreliable. And the same -- that's part of the advantage of having one of our flow batteries, but you've got a big battery sitting in your driveway. So being able to access that as well through the charger. Yes, so there will hopefully be a very healthy replacement cycle.

And then just on the gross margin, sorry?

Yes. I mean, Will mentioned weaker H2. I mean that historically has sometimes been the case. I think the synergies that we're making on some of the M&A, also product mix, EV is a very -- the EV category for us is high margin. One of the reasons that the group gross margin has improved is because of more EV.

And the sort of project nature of some of the businesses. So things like CMD are more project driven. We've made some investments and we've grown our LED project side. I mean the nature of the project side of the business is often it's a higher gross margin, but clearly you have a higher cost to serve. So we end up with a bit more overhead base, but the gross margin because clearly, customers are happy to pay for something that's been specifically engineered for them. So...

I mean if the quantum of the synergies come through as per the numbers I gave earlier, you can work out the impact on gross margin is not immaterial. I mean, it maybe pushes next year's gross margin a bit higher. There are other variables. I mean the Chinese currency is a bit stronger than it was, particularly against the dollar.

The dollar is quite weak. So there are -- copper is quite strong. So we're going to have to do some price activity. We hedge copper, but obviously not forever. There may be a little bit of margin erosion around some of those movements. So there are quite a few moving parts.

Freight is actually very cheap and it's going down in cost. The world seems to have got around to going -- have got used to going around the bottom. But it's not always only within our control, right? There are a few external factors on that.

But certainly, I would have thought next year, I would be disappointed if the margin didn't improve further, mainly because of the synergies on the acquisitions plus the product mix more towards higher-margin EV and stuff.

Charlie Campbell at Stifel. Just one actually about EV chargers and batteries and the role they might play in the future home standard in new homes in the U.K. sort of, I suppose, from next year onwards, whether that's an opportunity?

Yes, I think it's a big opportunity. I mean, as you know, by law, all new homes have to have EV chargers now built into them. The Link product is particularly good for new homes because if you're putting it in at the point of constructing the home, it's an easier install.

And we think for higher-end developments, the Link will be a very good product. But also new homes have been mandated to have solar. And solar only really works well if you have a battery because you want to obviously store the energy when the sun is shining and use it when it's not. And if you sell the energy back to the grid, you don't get much for it. Therefore, you're much better off using the energy that you've got from the sun rather than putting it elsewhere.

And to do that, you need a battery. But they're quite expensive, these batteries. So I think higher-end homes maybe will put them in as standard. I think most homes will probably put them in as an option. But equally, if you've managed to get your EV charger on the wall, you're very likely -- ultimately, when it comes to someone putting in a battery, they're likely to put in your battery because they need to work together. So I think the fact that solar has been mandated on to new homes is a big opportunity. We were expecting that, and it indeed has happened. It'd be interesting to see what happens with future governments, they might have a different view.

I think that's it from the [indiscernible] webcast.

Do we have any online questions? Are we not taking them?

[indiscernible].

Okay. Great. Will, do you want to make the closing statements?

Yes. So I guess pleasing set of numbers. Some elements of the outside market are not in a fabulous place. But again, Luceco is able to demonstrate through its key competencies, its competitive advantages that we can again outperform and continue to deliver. So -- and we're -- as you've heard from John, we're very excited about the further growth and further future for EV chargers.

Pleasing to see a recognition from a customer such as Hive, which demonstrates the excellent product that the team have created within Luceco. And we look forward to some of the further opportunities that may come from the likes of HEMs. So it's quite an exciting time to be involved in Luceco, I would say.

Thank you very much for your questions and your time this morning.