Billington Holdings (LSE:BILN) — Interim Results

0:00 Good afternoon, ladies and gentlemen. Welcome to the BILLINGTON HOLDINGS PLC Interim 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. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today, and we'll publish those responses on the Investor Meet company platform. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand

0:31 over to CEO, Mark Smith. Good afternoon. Good afternoon. Hi. I'm Mark Smith, chief executive officer for BILLINGTON HOLDINGS, and I and my colleague, Trevor Taylor, Chief Financial Officer, would like to welcome you to our 2023 interim results presentation. Our executive next page, please, Mark. Our executive summary provides some of the highlights of 2023 to date. Trading over 75, BILLINGTON is a group of companies consisting of one of the leading structural steel fabrication and construction businesses, BILLINGTON Structures, trading from three sites, two close to Barnsley and one near Bristol, a steel stair and secondary steel manufacturing and construction business, Peter Marshall Steel Stairs, based in Leeds, a heavy steel processing company, Shafton Steel Services, trading from a site near Barnsley, a unique site holding company called HOLDIT, an associated graphics division, Brandit, based near Barnsley, a construction safety barrier hire company called Easy Edge Trading from Tuxford near Newark, and more recently, a newly acquired paint treatment company called Specialist Protective Coatings based in Sheffield, all of which we'll provide more detail of later in the presentation.

1:51 2023 has been an excellent year to date with the BILLINGTON group achieving record first half results. We've been able to increase labor levels to meet production requirements, continue the implementation of our strategic investment program, which has generated further efficiencies and quality improvement whilst managing cash levels to fund high levels of work in progress. Our specialist treatment company, SBC, acquired in 2022, is now fully integrated in the business and operating at near full capacity and trading at expected levels. Next slide, please, Mark. The slide details the current significant shareholding of the group along with the share price movement over the last twelve months.

2:38 It is disappointing that whilst the group is delivering a record performance, the share price continues to be impacted through the current macroeconomic uncertainties surrounding The UK and global economies. Next slide. This divisional breakdown particularly shows the success of HOLDIT and its associated branding division, Brandit, over the past eighteen months, combined with the successful integration and progression of the Specialist Protective Coatings entity. Next slide.

3:12 The next few slides provide a snapshot of the projects carried out by the group companies. It can be seen that the BILLINGTON offering is delivering some of the largest, highest profile projects for the most reputable end user clients. From production facilities for Jaguar Land Rover to data centers for the world's leading software provider, from energy to waste power generation plants for a world known technology conglomerate to a factory supplying cans to the widest drinks brand, it's the real thing. As a reminder, Shaft and Steel Services, a division of BILLINGTON Structures Limited, provide market leading steel processing services to a diverse range of steel fabrication, construction, and wider engineering companies across The UK.

4:02 Next slide. Peter Marshall shown here have enjoyed a very busy 2023 and boast a strong order book going into the second half and further into '24. It can be noted here the wide range of clients Peter Marshall has as well as in group trading with BILNINGTON structures. Contracts secured by BILLINGTON structures in the power generation and data center market contain large packages of steel stairs and metalwork that Peter Marshall completes alongside BILLINGTON, providing program and cost benefits to its clients. Specialist Protective Coating shown, acquired in 2022, provides specialist paint treatment services to BILLINGTON structures alongside a diverse range of clients across many sectors.

4:51 The increased adoption of its off-site fire resistant paint treatments provides further confidence the demand for its services will continue to increase moving forward. The company operated from a site in Sheffield and is one of the best invested and capable off-site paint applicators in The UK. Next slide. Easy Edge has suffered slightly due to the softening of the commercial office market. However, trade has still been significant and the company has made a valuable contribution to the group in the first half. Again, there is a broad range of clients as well as in group inter trade.

5:31 HOLDIT continued to expand in 2022 to become the second largest within the group. Pleasingly, the momentum gained in 2022 has continued in 2023 with a strong first half result for the company. Brand It, a division of HOLDIT, has further progressed in the period as we seek to add additional margin enhancing services to the company's offering. Next slide.

5:58 In the first half, we have continued to deliver a number of successful projects in more robust sectors such as energy from waste, online retail distribution and storage, data storage and the film industry, as well as still servicing larger commercial offices, education, and infrastructure projects. Many of these projects have benefited from the investments made and have also fully utilized the various group companies, which has resulted in an excellent performance from all trading divisions. Having witnessed record material price increases in the last two years, partly due to the Ukraine conflict and high energy prices, the supply market has settled, material availability has improved, and prices softened during the period.

6:46 We feel that supply side has now stabilized, providing good visibility for all future contracts. We have reported previously on our strategic capital investment program, and we are pleased to advise that this has continued as planned with the installation of state of the art sawdrill line machinery and the extension of our steel processing offering at our Yate and Shafton facilities. We are mindful of the current macroeconomic environment and the failings of a few high profile principal contractors. We remain vigilant, working with the most financially robust clients to manage risk and maximize the credit insurance cover available to ensure risk is minimized. Cash has been well managed during the period despite record high levels of work in progress.

7:36 The dividend paid, combined with continued high levels of work in progress in Q3, will see a period of cash usage before an anticipated increased cash position by the end of the year. We are very comfortable that we have the cash resources to continue from the business and its anticipated growth. Next page, please. As Marcus mentioned, the first half of twenty twenty three represents a record trading result for the BILLINGTON group. The positive levels of trading have continued into the second half. And as a result, the anticipated statutory profit outturn for 2023 has been revised upwards by 24%. The first half revenues of 60,000,000, the group has achieved an operating profit of 4,600,000 with an associated margin of 7.6%.

8:32 The return on capital employed is a market leading 38% with further enhancements anticipated in the second half of the year. The group repaid its remaining debt in the period to mitigate any impact of rising interest rates. The group is now debt free. Cash has been managed well, And with the significant levels of work in progress are delivered in the second half, further growth in the cash balance is expected at the year end. Earnings per share for the half year was 28.8, an increase of 231% from the first half of twenty twenty two. Next slide, please.

9:20 The income statement. Revenue has increased 30% from h $120.22 to 60,000,000. EBITDA and operating profit margins at nine point four percent and seven point six percent, respectively, both saw significant progression from 2022 with increases of 141245%. Statutory profit before tax at $4,600,000 for the half year and forecast by the brokers to be 9,940,000 for the full year highlights an improving backdrop and our confidence in the current trading levels. This represents an upgrade of 24% on the previous broker's forecast.

10:10 Next slide, please. The group's balance sheet remains robust and is underpinned with significant property and cash assets. The group owns the majority of its properties, and these are held within the accounts at historical cost. The market value of the properties is significantly higher than they are held on the balance sheet. The cash balance at June 30 was 10,800,000 and was largely consistent with the balance at the previous year end after considering the debt repayment made in January. High levels of work in progress combined with the significant dividend paid in July of £2,000,000 will see a reduced cash balance during quarter three before increased balance in quarter four.

11:01 The group has a legacy final salary pension scheme, which as of December 31 was, unlike many of our UK industrial company peers, in gross surplus of 2,300,000. The investments within the scheme were derisked in 2021 and are largely held in government bonds. The latest value is as of December 22. We don't revalue the scheme at the half year, although I would not anticipate a material

11:34 change from the level of surplus at the year end. Our robust balance sheet provides stability, certainty and ability to capitalize on opportunity as they present themselves. Next slide, please. This slide gives a list of some of the capital expenditure projects that have been completed or were in progress at June 30. The anticipated level of capital expenditure for 2023 will be in the order of 3,500,000, a level that is anticipated to continue for a further three years while the capital investment program continues to be delivered. Depreciation is in the order of $2,250,000 per annum, and the capital expenditure is anticipated to be funded through operational profits over the three year period.

12:26 Next slide, please. This slide provides the movements in the cash balance from the year end to the half year. Next slide, please.

12:41 The wider steel market. Following a volatile period with steel price escalation and material supply constraints in 2022, it is pleasing that stability has returned to the market, Reduced energy costs, combined with a reduction in global demand, has resulted in a softening steel price during the first half of the year. It is anticipated that steel prices will remain stable for the foreseeable future, providing confidence to developers and end users for their projects. The group has a balanced steel supply from UK and overseas manufacturers and stockholders to ensure that risk is mitigated through a spread of supply. Next slide, please.

13:29 The level of recently secured project is encouraging, and we highlight here the forward order book for our largest group company, BILLINGTON structures. This provides confidence for the full year. The future pipeline remains strong in more robust sectors, and work is secured into Q2 twenty twenty four.

13:48 Within the appendix is a graph of future anticipated structural steel output. This graph depicts a breakdown of the market sectors for the constructional steelwork industry. The forecasts published by the Construction Steelwork Association, the BCSA, predict a contraction to The UK market of 3% in 2023 before returning to growth in 2024. The power generation, infrastructure and data center markets remain buoyant with significant opportunities for the group moving into 2024. These markets provide work prospects for all of our group companies. As government policy is refined, it is anticipated that increased projects in the health and education areas will provide further opportunities for the steelwork sector.

14:37 Next slide, please. BILLINGTON believes that operating in a sustainable and responsible manner is key to the growth and success of the group. The company created an ESG focused group that reports into the board to ensure that our environmental and social endeavors are front and center of all of our decisions. The reduction of carbon is very much a focus of the group, and the road map has been established to achieve net zero by 2050

15:07 in line with steel zero. Next slide, please. That being said, following a number of carbon reduction initiatives, including lighting, heating, machine adaptions and transitioning the vehicle fleet, the company has committed to the provision of green energy tariffs and has subsequently offset its remaining carbon consumption through Carbon Neutral Britain. BILLINGTON Structures has been certified carbon neutral by Carbon Neutral Britain, and it is anticipated that the remaining group companies will reach carbon neutral status in the near future. This represents a significant milestone for the Group. Next slide, please. The group has a defined strategy to drive long term growth focused on both organic and inorganic development.

16:01 We continue to focus on margin improvement and driving efficiencies with our targeted capital expenditure program and other margin improvement projects, together with increases in direct labor recruited from both The UK and overseas. We continue to focus on training and developing skilled labor locally, working in partnership with a number of education

16:23 providers. Europe presents a further opportunity for growth, together with expanding the markets we serve and focuses on larger, higher margin contracts. The Specialist Protective Coatings acquisition last year has demonstrated the benefits to the group from acquiring complementary businesses that can diversify and increase our offerings to our customers. We continue to look at further acquisitions and will undertake these where appropriate. Next slide, please. In summary, the structural steelwork market is set to increase in the sectors we are most active. Billiton structures, with the support of our group companies, provide services to the largest tier one contractors and, with the strong financial resources and much improved efficiencies, are confident of improved margins and good return of investment.

17:18 Close relationships with our steel supply partners and broadening supply opportunities will put us in a good position to manage materials, supply, and price volatility. We continue on our journey of structured capital expenditure, which will serve to modernize our facilities, increase our capabilities, and improve our efficiencies.

17:40 Hard work and foresight, along with diverse thinking, will see the group benefit from the recent influx of skilled staff to aid delivery. This is all underpinned by a very strong balance sheet. We 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 are willing to receive your questions either directly or through our representatives whose contact details are on all of our announcements. Next slide, please. That's great, Mark. Trevor, thank you very much indeed for updating investors, and I will just bring your camera back up. And thank you for your time this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. I just want Mark and Trevor to just take a couple of moments to review the questions submitted already. I'd just like to remind you the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

18:41 Firstly, thank you to everybody for your engagement

18:43 this afternoon. Mark, Trevor, you can see you've had a number of questions from investors this afternoon. If I may just hand back to you to read out those questions, and then I'll pick up from you at the end. Sure. Thank you very much. The first one I can read is how would you further increase capacity? Really, we see this, we're in a good cash position, and, we've been able to, be inquisitive, in securing businesses to assist with our, growth. How can we increase capacity within BILLINGTON structures?

19:20 In the main, as part of our capital expenditure plan, we've been, looking at replacing key items of of equipment. This will enable us if we choose to and we get foresight to look at, additional shift patterns within BILLINGTON structures. We have been on a program then of of securing increased resource in terms of labor and our allegiance with, a training organization called Better World, which is recruiting UK labor and training, is now going to be operating for our facility in Shaftern, hence providing a good supply of UK labor of which we will consume in full time employment once they have successfully been trained. K. Thank you.

20:08 Next question. Can you give us some further details on the capital investment program? We've spoken about this previously. This was a five year plan to modernize principally the Billington and Shafton facilities, two in Barnsley, one in Bristol. The machines that we need for the process largely have a fifteen to twenty year life cycle. Some of the machines are somewhat aged, out of date, an opportunity provided really for efficiency improvements to the processes the machines can complete.

20:50 Needed to be a structured plan, which, as I say, we've just completed year two of that five year program. There's three years left. We anticipate levels of about 3,500,000 a year for the remaining three years. Put that into context, depreciation runs a little over £2,000,000 a year. So we are anticipating and forecasting a cash usage throughout the group of about 1,500,000 a year for the next three years that will be funded through the operating profits during that period. At the end of that period, CapEx will normalize to much lower levels below the level of depreciation for a significant period, five to ten years, while the new machines, run off their useful economic life. Okay.

21:45 Next question. Are you seeing cross selling opportunities in the protective coatings business? Yes. It's all in timing, really. We spied this acquisition and the creation of SPC, Specialist Protective Coatings, because the application of fire retardant paint is an ever increasing requirement in the structures for BILLINGTON structures as well as the treatment of stairs for Peter Marshall steel stairs. The change of building regulations will see an increase in the requirement of fire resistant paint, and this facility at SBC services that requirement for building structures in group. However, we have managed to retain a number of the cherished clients in SBC treating large vessel and tank structures into other sectors. And so we're proud to say that that business now is operating efficiently and effectively after a program of capital expenditure and is now in profit in line with, expectations.

22:54 K. Thank you, Mark. Next question. Have you seen inflationary costs stabilize, and have those been passed through in price increases? We categorize our costs, principal costs, steel, as well as general overhead costs within a contract. Steel prices, of course, the main input cost on a contract are generally hedged upon the inception, of a contract to the company. What we mean by that is we seek to agree a price for the materials as we secure the contract for the life of the contract. So we pass that risk over to either the steel manufacturer or the stockholder that's chosen for that contract.

23:44 General overhead price increases are not hedged. We do try to build these into the overhead cost base at the start of each year. And if those prices rise higher than we have anticipated, there will be a shortfall within the contracts. Generally, I hope the results show that we have been successful in, predicting those to quite accurate levels. Have prices stabilized? Still, as we've mentioned in the presentation, has seen a softening, over the recent six, nine months. Other costs within the business, we have seen stabilize significantly.

24:29 Labor, of course, has continued to run high relative to current inflation levels, and we've have sought to give, increased price of living or cost of living increases to our staff in the year to assist in the cost of living for our staff. Thank you. Next question. Are there any additional bolt on value added businesses you would look at? Any specific areas of focus? Well, you can see from the history of the company, we've we've continually analyzed our spend, our subcontract spend, and it's been no surprise that we've we've enhanced the group offering to accommodate some of these subcontract spends. I wouldn't say we're finished looking. We are inquisitive.

25:18 However, at the moment, we're more likely to look into sectors, that we're not quite covering with BILLINGTON structures that utilize our in group, companies such as maybe infrastructure, that remains attractive to us. We will continue to be inquisitive. However, at the moment, looking at bringing in other subcontract businesses probably isn't that high on the focus as we speak at the moment. We've kind of fulfilled that requirement. As you've noticed there, though, that all of our group companies are badged up as individual businesses. And one of the unique offerings is as much as BILLINGTON structures can offer construction solutions, assuming these subcontracts into their main business.

26:11 Those individual companies also tender to our competitors and their clients directly outside of BILLINGTON's. And BILLINGTON's will assume those at a competitive rate as well as the client could directly. So in that way, we we enhance that offering from the group companies. Thank you, Mark. Next question. There was one off boosts to margins reported in h two twenty two and h one twenty three. What is the outlook for margin in 2024? Your broker is forecasting a fall. As we've reported in the presentation and in the announcements today, part of the margin earned in 2023 forecast for the full year, a one off additions relating to steel prices and energy gains.

27:08 These are forecast to be nonrepetitive as we move hopefully into a more stable environment. So the forecast, of the brokers in 2024 is actually forecasting a cons, a consistent trading, result of that of 2023 once those one off non reoccurring items are removed from the results. Next question. What is your share of The UK market? The UK market for structural steelwork, I think there's a graph in the appendix, is about between eight hundred and eight hundred and fifty thousand tons per annum. BILLINGTON's currently processes 50,000 tons per year.

27:58 So that gives us a market share of the overall structural steelwork output in The UK of a little over 6%. I think there's a couple more here. What are the prospects for European orders? Have you bid on projects and what is the obstacle to success? Well, we've got a history, a group history of, delivering projects into Europe and Scandic countries. And so this doesn't really present so much of a challenge. We we completed successfully a large data center in Belgium just before Brexit, and we decided to take breath whilst the export market and its, new method of working were realized.

28:47 We're now in a position where we're looking at opportunities now currently to go back into Europe, and I think that will feature in our 2024 workload. It will be in the same markets that we've successfully delivered for in the past, and we'll be delivering for UK clients that have an activity in Europe. So it's a well known client to us. It wouldn't surprise you to realize that that that that actually is it features higher now opportunities, especially if we're looking at what's coming forward in The UK market. I think that's that's probably it, is it? Yeah. I think that's all we feel able to answer today. That's great, Trevor and Mark. Thank you very much indeed. And if any other questions do make themselves available, we can make those available to you post today's call.

29:39 Mark, Trevor, I know investor feedback is particularly important to you both. I'll shortly redirect everybody on the call to give you their thoughts and expectations. But before doing so, I wondered if I may, Mark, maybe just come back to you just for a few closing comments. And then as I say, I'll redirect investors to give you their feedback. I'd just like to to thank everybody for their interest in this in the presentation and the company to date. We are in a good position. This is a cracking set of interim results that gives a good view as to how we're we're progressing both in growth and, the success of our, strategic capital investment. We're pleased then to look at what's an emerging good pipeline of orders going forward, and we're confident of a good full year set of results going forward.

30:29 The strong pipeline into 2024 gives us confidence again. And I'd just like to thank all of our investors, our shareholders, for the loyalty, and encourage them to, to keep investing. That's great. Mark, Trevor, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations. So it'll take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of BILLINGTON HOLDINGS PLC, we'd like to thank you for attending the presentation this afternoon. Good afternoon to you all. Thank you. Thank you.