Billington Holdings (LSE:BILN) — Final Results Investor Presentation

0:02 Good afternoon and welcome to the BILLINGTON HOLDINGS PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll.

0:34 And I would now like to hand you over to CFO, Trevor Taylor and CEO, Mark Smith. Good afternoon to you both. Good afternoon. Hi, I'm Mark Smith and this is our executive summary, which provides some of the highlights of 2022. It's pleasing to observe that both revenue and profits increased in the year. Trading was biased towards the second half of the year as the impacts of the Ukraine conflict subsided. The momentum gained in the second half of twenty twenty two. This has continued into 2023 with further improvements in our management's forecast. BILLINGTON has weathered the challenges of the pandemic and the impact of the Ukraine conflict well. We are presenting a full year results that demonstrate the group has recovered strongly and well set to maximise upon the opportunities that lie ahead.

1:29 We continue the implementation and have further deployed our group strategic plan, which continues to yield financial benefits with much improved factory efficiencies within building structures. Pleasingly, the project is completed to date to improve overall efficiency reflected in the positive profit margin of 6.8%. Our strategic capital investment programme has three years remaining, whereby this will see all major pieces of CNC machinery replaced and upgraded. The company has been more focused in contract selection in the end. Larger contracts with reduced competition and the ability to add value have been targeted and remain a focus for the company moving forward.

2:14 Although we are alert of the current macroeconomic headwinds, we are pleased to have secured a very strong forward order book in buoyant robust sectors, which provides further confidence for the future. The creation of specialist protected coatings from the purchase of the trading assets of Ormat Coatings has been successfully integrated into the wider group, operation with significant investment made over the course of 2022. We're pleased to have rewarded our loyal investors with a dividend of 15.5p a share to be paid in July 2023. The dividend declared represents the largest in the group's history.

3:00 Trading for seventy five years, BILLINGTON is a group of construction related companies, The most significant group company is BILLINGTON Structures, the third biggest UK steelwork contractor, trading for three sites, two in Barnsley and one in Bristol. The company designs, manufactures and erects the largest steel frame structures in The UK and Europe. Peter Marshalls, a stair company and secondary steel manufacturing and construction business based in Leeds, contracts with steel fabricators and main contractors in a wide range of industries. Shafton Steel Services, trading from a site near Barnsley, offers a comprehensive range of steel processing services to steel fabricators, wider engineering and infrastructure markets.

3:46 HOLDINGS and its associated graphics division branded based in Barnsley offers a unique range of environmentally sustainable and reusable hauling solutions to its developer and main contractor client base. Easier, trading from Tuxford near Newark, highest of the construction sector, its market leading edge protection and related range of safety products. Specialist Protective Coatings located in Sheffield is a specialist paint application business and following significant investment in the end was successfully integrated into the group. We will provide further details later in the presentation.

4:27 We are very proud to have celebrated our seventy fifth year of trading in 2022 and mark the occasion with the tree planting at our head office in Barnsley. The group has continually developed over the years through both organic and acquisitive expansion to become a market leader in the provision of specialist construction solutions to a diverse client base. The group offers construction solutions as well as individual entity trading independently of its own customers. The synergies between each company provides increased competitiveness, efficiencies and much improved quality. BILLINGTON HOLDINGS was originally listed in Canada as AMCO Corporation PLC in the 1980s and transferred its listening to The UK upon formation of the end market.

5:18 In 1982, AMCO acquired BILLINGTON to help with the rapidly growing need for structural steelwork required in the local coal mines. The company became a UK listed company in September 1989 before changing its name to BILLINGTON HOLDINGS PLC in 2008. The group was formed by Henry Schmill, a German who came to The UK after World War Two. Although listed on the stock exchange, Henry maintained a significant shareholding in the group until after his death in 2003. Henry Smeal left circa 50% of the shares in the group to a family trust made up of his nephews and nieces and a further 25% of the shares were placed in a charitable foundation by the name of Tariff. Over the past few years, recognising the lack of trading liquidity in the shares, Gatenga and Tarrum have divested shares, these being purchased by a number of investors.

6:13 The major investors being Close, Brothers, Otis Capital, Ruffer and GPIM. A Corrie and Trustees, the other major shareholder shown on the register, is the company's own share scheme. We're pleased to see that the share price increase increased 74% from the 01/01/2022, following the progression of the Group's trading results.

6:36 We move on to the visual highlights, which identify some of the prestige projects that have been successfully delivered, as well as the broad geographical and market sector spread of each group company, as you can see on the slide there.

6:57 Easy Edge sorry, I'm going to go back Peter Marshall's. I've enjoyed a very busy 2022 and about a very strong order book going forward. It can be noted here the wide range of clients as well as in group training with Billet instructions. It's good to note that a number of the recently secured projects within Billet instructions contain significant packages for Peter Marshall's as well as the other group companies.

7:23 Easy Edge has been impacted due to the softening of commercial office market. However, traders still remain buoyant and the company continues to make a valuable contribution to the group, again, as a broad range of clients as well as in group interest rate.

7:41 HOLDINGS has achieved a record performance in terms of sales volume in 2022. The company, which is now firmly established as a market leader in its field, continues to expand its broad range as it introduces a new division branded to the market in the year.

8:01 Branded, a division in audit, provides graphic solutions for the HOLDINGS product, as well as on third party systems. Since its introduction, it has noted a strong demand for its specialist services. Shafton Steel Services continues to service the most demanding steel processing projects for its wide ranging customer base. The division services all sectors of engineering and infrastructure markets, as well as providing specialist services to Burlington Structures.

8:37 SPC Specialist Protected Coatings are our new pavement treatment company and trades from a large site in Sheffield. This specialist facility supports the group's wider requirements for the application of high-tech treatments and bioprotective coatings. The group is starting to yield the benefit from a significant investment in automated equipment and modernisation programme during the year. SBC, as well as providing in group services, has maintained relationships from the previous company's external clients in the oil, gas and pipeline sectors. Good afternoon. We'll talk some of the financial highlights. As mentioned in our introduction, we are pleased to have secured a good forward order book, which extends to the end of twenty twenty three in the more robust market sectors such as energy from waste, data storage and the film industry, as well as still servicing the larger online retail distribution, storage centers, commercial offices, education and infrastructure projects.

9:42 Following the onset of the Ukraine conflict, the second half of the year noted a significant improvement in the trading environment, which has been reflected in the results for the year and provides increased confidence moving forward into 2023. The business continues to execute its capital investment program through investing in new machinery to expand its capacity, capability, improve its operational efficiency and product quality. There remains a further three years of capital replacement and expansion program and this will see all major items of equipment upgraded. The balance sheet remains underpinned with significant cash and property assets. The properties remain valued at their historical costs in the accounts and the pension scheme pleasingly remains in a significant surplus and we do not believe any cash reserves will be required to be injected into the scheme for the foreseeable future.

10:40 Following recent significant increases in the Bank of England base rate, the Group repaid its only remaining mortgage shortly after the year end and pleasingly now is debt free. The group's fixed price energy contracts are due to expire at the end of April twenty twenty three. With the recent softening in wholesale energy costs, the group has avoided the peak of the energy market turbulence. BILNERS and Structures has a record order book of high quality contracts and financially robust clients. HOLDINGS has had a record performance in 2022 and continues the momentum with a strong start to 2023. The dividend declared at £15.5 per share in respect of $20.22 pounds with a cover of £2.5 is consistent with the policy of prior years.

11:35 Applying this policy to the forecast trading result for 2023 would result in a dividend of 20p per share, being a yield of some 5.1%. Macroeconomic uncertainties and the forecast for increased insolvencies is being carefully monitored with credit insurance being maintained as far as is possible on our client base across the group.

12:01 Our income statement revenue has increased 4.7% in the year with a corresponding increase in underlying profits of some 348% as the quality of the contracts improved and the market stabilized following the pandemic and latterly the invasion of Ukraine. This slide gives a list of some of the capital expenditure projects that have been completed in 2022. The anticipated level of capital expenditure for 2023 will be in the order of 4,000,000 as the group's strategic plan continues to be implemented. Depreciation runs at £2,200,000 per year and the net capital expenditure is anticipated to be funded through operational profits.

12:50 The group's capital expenditure strategy is a further three years to go and will see all equipment replaced and upgraded. The first half of twenty twenty two noted the deployment of some of the cash reserves through the forward purchasing of some of the raw material requirements in order to protect and enhance contract margins. As the turbulent environment associated with the Ukraine conflict stabilized in the second half of the year, the working capital utilized began to unwind and pleasingly normalized by the year end. Cash balance is anticipated to further increase to GBP 15,000,000 as we progress through to the end of twenty twenty three. The strong cash balance provides the group with the ability and the flexibility to take advantage of opportunities that present themselves to further expand and diversify the offering of the group.

13:51 Steel material input costs have been volatile with a number of significant price increases being noted in 2022, which in the main have been able to be passed through. The Russia Ukraine conflict significantly affected the availability of steel plate and subsequently noted price escalation. However, we were able to secure supply and fixed prices during this period, which has supported our own projects and customers alike. We were able to use cash resources wisely and forward purchase material, increasing stock levels significantly to the betterment of project margins. The latter part of 2022 and into 2023 noted a more stable steel price environment. Although British Steel still remains our dominant steel supply partner, we are broadening our steel purchase to achieve a more balanced spread of supply.

14:47 The momentum gained during the second half of twenty twenty two has continued into 2023. The order book within Billington Structures continued to increase since the year end with larger, higher margin contracts with a record order book being noted at March 2023 and providing increased confidence in the year ahead. The order book contains significant contracts in the buoyant power infrastructure and in the industrial sectors that we are seeing remaining robust. The overall market is anticipated to contract 3% in 2023, following an increase in output of 12% from 2022 before returning back to growth in 2024.

15:33 The company has created an ESG focus group that reports into the PLC board to ensure that our environmental and social endeavours are front and centre. The reduction of carbon is also very much a focus of the group and the roadmap has been established to achieve net zero by 2050 in line with our Steel Zero commitment.

15:57 Our strategy plan to improve margins through increased efficiency and modernisation continues. Significant progress is being made with the installation and start of state of the art machinery at both Billington Structures, factories in Woonwell and Yate and further process equipment at Sheffield and Steel Services. We're once again reviewing opportunities within the European market, mainly focused around data centre and online retail distribution facilities.

16:24 As part of our succession and expansion plan, we're joined forces with a local welding trainees group. We will soon be providing training facilities at BILLINGTON, which will not only service the Linton Structures and Peace Marshall Steel Stairs, but will provide a service for the wider local community. Recognising that there is a skill shortage, we have made significant progress in the recruitment of overseas labour and are pleased to welcome a larger number of production and professional staff into the business in 2022. We have shown in the past being a healthy financial position with a strong balance sheet allows the group to be open to M and A opportunities that would be beneficial to the core interests of the group. In summary, the structural steelwork market remains robust in the sectors we are most active in.

17:15 BILLINGTON structures, with the support of our group companies, provide service to the largest tier one contractors and with the strongest financial resources and much improved efficiency are confident of improved margins

17:28 and good return on investment. Close relationship to our supply steel partners and broadening supply opportunities will put us in a good position to manage material supply and price volatility. We continue on our journey of structured capital expenditure, which will serve to modernise our facilities, increase our capabilities and improve our efficiencies. The hard work and foresight, along with the diverse thinking, will see the group's benefit from an influx of skilled staff to aid delivery. This is all underpinned by a very strong balance sheet. Thank you for the time you've taken to listen to us today. The appendix in this presentation provides further information for your perusal and as ever, we're willing to receive your questions either directly or through our representatives.

18:19 That's great Mark, Trevor. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. Mark, Trevor, as you can see, we have received a number of questions throughout today's presentation. If I may now hand back to you and kindly ask you to read out the questions and give responses where appropriate to do so. And I'll pick up from you both at the end. One second, we're just trying to get the questions up. Here we are. Let me just zoom this up to the top and we have got a number of questions.

19:06 Number one, could you please give some colour to the order book split by September for 2023? Right, I have got that available. 2023 presents 12.5% of commercial offices, which is good to see a good increase in that compared to 2022. Energy from waste, which we mentioned, has been a focus going forward, has increased from 1.4 in '22 to 22.8% leisure and film. We were always active in 2022 and this 2023 provides 9%. Industrial food, high-tech manufacturing as well. That actually is 4.8% of our trade.

19:56 Small percentage of infrastructure and miscellaneous, no residential in 2023. Retail, surprisingly only 1%. Moving on to warehousing, which has softened from 39% in 2022 to 10.5% in 2023. Data, as we said, a high activity for us in this sector and sees 44.1%, an increase to 23.3% in data in 2023. Education 4.3% and manufacturing 11.5%. Now hopefully that all adds up to 100% but I'm hoping nobody is actually doing the same Second question, have you considered buying out the defined benefit pension scheme?

20:47 The second time I've been asked this today. The company is undertaking a review of the pension scheme as a precursor to obtaining a quote from the relevant insurers. As part of that process you have to undergo a formal review of the scheme to ensure it's compliant with all relevant legislation. That will be completed imminently before then we can seek to obtain a quote. Now, we don't ultimately know as yet as to what the result will be as to whether the current surplus will be sufficient. We hope it will and we will take a decision once we have that information.

21:33 We will likely be able to make that decision throughout 2023. Okay, next is at the interim results you indicated that energy costs will increase by around £1,000,000 per annum. Following the reduction in wholesale energy costs since then. Are you still expecting a similar increase? Okay. You are right. That was the position at the time. As we've said, our energy price contract completes at the end of April. Of course, we are expecting a fairly sizable increase as with everybody. However, we do now anticipate it to be somewhat below the GBP 1,000,000 level. So whereas we've been anticipating and have budgeted for a number of £1,000,000 in additional costs, it will be a fair proportion lower and we're currently out for revised fixed price contracts.

22:30 Are you seeing any weakness in your competition? Can you consolidate and increase buying power? Are there additional upsell opportunities you can bolt on? I guess, firstly, are you seeing any weakness in your competition? The answer for that, I would probably say is, we are competing at the very top end of our market and as such, there are some robust competitors. We always think we've got a unique selling point and we offer construction solutions that others might not be able to. And so in terms of that, we think we're offering a service and a product that is better than our competitors. Can you consolidate and increase buying power? We don't see the need to consolidate at the moment.

23:18 We've got a record order book ahead of us and we're looking at projects that are running into 2024 and some beyond. So from that point of view, we are quite confident of where we are in the position, although again, very mindful of macroeconomic issues in the market. Are there additional upsell opportunities you can bolt on? We are always interested in opportunities ahead of us. As you can see from the development of the group over the seventy five years, we've always had an eye to acquisition and market creation, as well as expansion into other markets. So yes, there are some opportunities of which we're investigating. When do you think you'll be able to open a European office and start quoting for EU contracts?

24:10 I think as Mark's mentioned or alluded to in the presentation, we have historically done substantial contracts in Europe Finland, Holland, France, Belgium, Germany. Brexit, we were taking breath to see what the legislation was regarding the movement of goods and people. We are now actively seeking to partner with some of our UK customer base to identify more contracts within Europe. We feel that once one of those is secure and partnered with one of our customers, will then seek to progress the opening of a European office. We have undertaken piece of work to identify the likely location and the restrictions that may exist in certain countries.

25:02 Holland would likely be the preferred country to open an office. I think that brings us to the end of the questions. That's great, Mark, Trevor. And I think you have addressed those questions you can for investors today. And, of course, the company will review all questions submitted today. We will publish those responses on the Investor Meet company platform. But Mark, perhaps before redirecting investors to provide you with their feedback, which I know is particularly important to you and the company, could I please ask you for a few closing comments? I'd just like to thank everybody for taking the time to listen to us today. You can see the company is in a strong position having recovered well after the pressures of the pandemic and the Ukraine conflict. We've got a record order book ahead of us. We're debt free and we're in a position then to maximise the opportunities that are ahead of us. So we look forward to a robust and profitable 2023.

25:58 And we sit here today and looking forward to opportunities lie ahead. Thank you. Thank you very much. That's great, Mark and Trevor as well. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of BILLINGTON HOLDINGS PLC, we would like to thank you for attending today's presentation. That concludes today's meeting. Good afternoon to you.