BRCK Group (LSE:BRCK) — Full Year Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the Brickability Group PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review your questions submitted today, and we'll publish those responses where it's appropriate to do so on the investment company platform. Before we begin, we'd like to submit the following poll, and I'm sure the company will

0:31 be most grateful for your participation. And in the first instance, it gives me great pleasure to hand over to Chairman, John Richards. Good afternoon, John. Good afternoon. And I wonder, could you take us on to, slide two? Just introducing who will be presenting today, myself, John Richards, Chairman, as has been said, Alan Simpson, Group Chief Executive and Mike Gant, the Chief Financial Officer. Next slide, please. So our highlights for the year past. It was a strong performance across all of the group's divisions despite the tricky macroeconomic backdrop, particularly post September 2022 with all the struggles that that month brought us.

1:19 We're continuing to benefit from the strategic decision to broaden the group's product portfolio and become less dependent on housing. When bringability first floated around about 80% of its products went into new housing as we stand today, and that's around about 50%. So a significant change. For the twelve months ended 03/31/2023, revenue increased by £160,900,000 to GBP 681,100,000, a 30.9% on a reported basis, the increase there, and 4% increase on a like for like basis. Adjusted EBITDA increased by 30.4% to GBP 51,500,000. We acquired Modular Clay Products, ET Clay Products and Heritage Tiles during the financial year, and there is a strong pipeline of acquisitions available to us, which Alan will talk about in a little while. And I should say that modular clay products, ET clay products and heritage clay tiles, again, are businesses that take us further away from bulk private housing and further into architectural specification into other parts of the construction market.

2:34 Our ESG strategy and roadmap is established and progressing well. And the proposal is a final dividend of 2.15p per share, giving a total dividend of 3.16p for the full year, an increase of 5.3% on the prior year. The Board recognizes that we have significant headwinds and challenges, particularly in the housing sector and there particularly in the private housing housing sector. But the Board equally remains confident of the group's ability to deliver a long term shareholder value and trading in our current financial year has remained in line with Board expectations. New slide, please. We always like to, discuss, the market, in which we work.

3:25 And here we have some details on the housing market, partly because that's the one that's being talked about, so much right now because that's the one that is very, very dependent on the prevailing interest rates and thereby mortgage rates of the day. If you go to the top right chart, UK dwelling starts, you'll see that in 2022, just under 200,000 new homes were started in GB. That's going to fall this year. You'll be aware of all of that from that which you've seen in the press and from statements by Persimmon, Barrett, Taylor Windy, etcetera, etcetera. And while they're all saying slightly different things, the best guess at the moment is private housing starts to go to fall by about 20%, whereas affordable or public housing starts less so because it's a completely different funding model as you all know.

4:20 We're expecting that number of just under 200,000 to be around about 165,000,166,000 new starts this year. So a significant drop, but down to a level which we last saw in around about 2014, maybe as good as the numbers in 2015. What does that mean for BRCK dispatches? Well, the chart next door to it on its left shows that last year, 2022, 2,520,000,000 BRCKs were dispatched and used in GB, of which 1,940,000,000 were used in this country, the orange part of the bar chart, and 560,000,000 were imported BRCKs. That 560,000,000 was a record, the largest number ever.

5:12 The effect on the reduction in new house starts on our business and on the brick business generally would be probably to bring it down to around about 2,000,000,000 bricks dispatched and used during 2023.

5:28 New builds by property, type the chart on the bottom right. Well, that shows that in 2022, 31% were detached houses. We expect that to rise a little during this year. And the reason for that is that the 27% that apartments made up of the statistics in 2022, is likely to fall because first time buyers often go to apartments. And with, the removal of of Help to Buy two and the higher interest rates, it is the first time buyer segment that's being hardest hit. So proportionately, we expect that to fall, and we expect detached houses to rise a little. That's good for our business because a detached house uses more radiators, more bricks, more roof tiles, etcetera, etcetera, than does an apartment.

6:19 In terms of brick manufactured stocks and production in GB, if you look at the bottom left chart, you'll see that at the end of twenty twenty two, there were three zero five million bricks in stock in GB at British manufacturers. That number today is already 530,000,000. It's rising by 40,000,000, per month. However, we do need the number to be much higher. A good working stock, in GB or bricks in factories is around about 700,000,000. And that's the sort of number that gives the right sort of inventory so that good customer service can be provided. So we have a few more months to go where we can afford, to keep putting extra into stock to build that inventory beyond that manufacturers may have to slow, some of their factories for a period of time.

7:17 Move on to the next slide, please. I want to briefly mention our ESG strategy is very, very important to the business. We are committed, and signed up to the quoted, company alliance. We're doing an awful lot with our carbon footprint. Our electric vehicle rollout for company cars has already taken place. We're encouraged by some of our major customers to join the supply chain sustainability school, which we did and we achieved gold level membership. We have committed to net zero by 2030 in our operations. And in the last year, we appointed two independent female non executive directors.

8:04 So on to some of the numbers, Mike.

8:11 Just bear with us, Mike. If you just, allow us to turn on the, camera microphone, that'd be great. Thank you. Do both of this. Just one second, John, while we just bring, the guys back in. Thank you. I'll just take your camera down for one moment, John, whilst we bring, Mike and, Alan back in. Go ahead, Mike and Alan. The floor is yours, sir. Have you have we lost JR? No. JR is is just camera down while you're presenting, sir. I'll bring him back up now.

8:56 Has he finished then? He's finished, sir. Yes. Please move on to your slides. Thank you, Alan. Apologies. We lost you there. Sorry. So it's it's also, like, I'm just going through these financial sides. Thank you, everybody. So as you see on slide seven, FY twenty three was another significant year of growth for BRCK GROUP PLC. Group revenue for the year increased by $161,000,000 to $681,000,000 an increase of 30.9. Adjusting for the impact of acquisitions, year on year revenue grew on a like for like basis by 4%. Our timber business had an exceptional performance in FY 'twenty two as we previously reported. And so as expected during FY 'twenty three, revenue fell back.

9:53 Group revenue across all categories excluding timber grew by 15.4% on a like for like basis. Gross profit increased by $26,000,000 to $113,000,000 increase of 30% and gross profit margin reduced by just 10 basis points to 16.6. And that margin dilution resulted from the additional three months of contribution from Taylor Maxwell Group, which compared to the prior year, which operates at a margin lower than the group average margin. And the normalization of timber margins was also a factor as well. And these were largely offset by the contribution of recent acquisitions, which operate at higher than average group margin and the margin recovery within our contracted business.

10:46 Adjusted EBITDA of $51,500,000 was an increase of 30.6% and adjusted EBITDA margin at 7.6% remained constant year on year. Adjusted profit before tax was 44,600,000, leading to an adjusted earnings per share of 11.93p, an increase of 18.6%. There is a slide coming on in the detail. I actually don't know if you've been sent in the pack or not, but there is a slide that explains our other items that you can see on this financial summary. But they are mainly acquisition related and noncash in nature. Net debt at the year end was $8,000,000 And I've got a slide later in the presentation where we'll go through a few of the key movements there. And finally, this slide, John has already said, proposed final dividend for the year is 2.15p, which takes the total dividend for the year to 3.16 p, an increase of 5.3% and a cover of 3.8 times. If you could move me on to the next slide, please.

11:56 So this slide really brings to life the transformation that the group has seen, particularly in the last two years, but, you know, certainly since IPO. Since IPO, the company has successfully acquired 11 businesses, set up a joint venture in Germany, various startups, and developed and launched a range of new products. Revenue has more than tripled. EBITDA has pretty much tripled. EPS has increased by a compound annual growth of 18%, and the company pays a meaningful dividend. Disappointing from our point of view that none of this is reflected in our current share price, but that therefore leads to the opportunity. And next slide, please. So building on the previous slide, this chart shows, that BRCK ability hasn't just grown, but it's diversified as well, bringing significant exposure to a number of categories now, which are in high growth themselves, such as solar, renewables, cladding,

13:00 balconies, product segments that we talked about and have the potential to be significant segments themselves in the future. Since IPO, revenue has grown by almost £500,000,000 $377,000,000 has come from the post IPO acquisitions I mentioned before, and £117,000,000 therefore has grown organically. That's compound growth rate of 13.5% per annum. Can we move on to the next slide, please? Thank you. So returning back to the FY 'twenty three results, this slide shows a segmental analysis of group performance. As you can see from the first table, the group has delivered revenue growth across each of its four divisions.

13:45 Excluding timber, bricks and building materials like for like growth was 17.1%. Importing includes the three acquisitions that were made in year and contracting benefits for the full year of Beacon Roofing, which was acquired at the end of March twenty twenty two. As you can see from the bottom table, contracting EBITDA margin has improved year on year, and this has been the input price recovery that we've seen throughout the year following a massive increase in input prices the previous year. Distribution margin has been diluted by the growth of the businesses within the division that operate that was operating above the average group margin, the lower than the highest margin business within that division, which is our tower ads business, which has a significant gross profit margin. So as I say, the margin move down there is just simply because those are the businesses within the division have grown significantly.

14:49 Next slide, please. So this slide shows the analysis of cash flow. We started the year with net funds of 400,000. The operating cash flow before working capital was £46,200,000. On this analysis, I've moved an item of deferred consideration, which, for accounting reasons, sits within other creditors, therefore, within working capital. I've moved that out to a bar and added to our other deferred consideration numbers. And so what this shows is a a working capital inflow of 3,000,000 in the first half. The three in year acquisitions amounted to 12,000,000, net of the cash acquired. Tax was 11,100,000.

15:37 We spent 9,800,000 on fixed assets, mostly property, which is EU Plastics branches and a warehouse for our EU Power business, also a yard in Glasgow, a few other things as well. And then the loan and further investment in our German joint venture was 3,400,000. Bank and lease interest paid was 2,100,000. Finance leases were were 2,800,000, and deferred consideration, which includes the amount I just referred to before, which has been reclassified in this analysis, amounted to 7,800,000.

16:16 Dividends paid were 9,100,000, giving us a net debt at the end of the year of 8,000,000, which is 0.45x on a net debt to EBITDA basis. Our current RCF is 60,000,000 with a 25,000,000 accordion. And with that, I'll hand over to Alan who'll take you through the operational highlights. Thanks, Mike.

16:42 In the last two years, we've we've seen a significant increase in scale and also the expansion of our range of solutions and our customer base with an increase of 500,000,000 of revenues over that period. We've diversified the multi business strategy and continued with three further acquisitions. As mentioned previously, there have been growth across all four divisions. Significant year on year price inflation has been mitigated. The financial reviews with prices, in in volume two. Timber volumes and prices fell back from exceptional highs as expected and are back now to normal levels. Our cladding division, I know that's performed very strongly in the year, and our ESG strategy has established and progressing well, as John mentioned earlier.

17:34 If move to the next page, new Bricklink yard in Glasgow. We didn't have a stocking operation out there at Bricklink, and he's building a strong merchant in place. Also being the the sole area for the James Hardie Hardie planning. Architect of SAS partnership with Austin Crop UK with balconies is successfully through the testing stage with inquiries for year '24. Very encouraging. The important division has been strengthened with further acquisitions. The Bespoke BRCK GROUP PLC program received our by our IBA accreditation. Bespoke have also invested in a sustainability school and showroom to showcase the group's sustainable focused products that we offer.

18:20 Contracting also saw good demand and margins improved, through cost inflation recovery.

18:28 Next page, please. Thank you. New power, our solar renewable, business, first full year of operation within the group continues to win major contracts. We bought a new warehouse. Partel legislation is effective from the June 15 this year, and we've signed up with Barrett's, Taylor Wimpey, Morris Holmes, work to deliver 14,000 roofs over the next year. We've opened two new branches for used plastics, which just James Harden bought as well, plus fascia, soffit and guttering. Tower Elves has bought underfloor heating in house. We used to. This will increase margins on that part of the business. The Sharon Becker factory, is operational towards the end of this year, making plain clay tiles, during a challenging period over last summer due to fluctuating, gas prices.

19:24 We've also invested in people with recruitment of both group and divisional level to support the growth of the business moving forward. And we've also employed 10 apprentices across the group, which will be rolling out on on a yearly basis. We're also rolling out the new IT system to standardize it across the group.

19:47 Year 23 actions and updates, modular products for 4,750,000 increased our presence in the specification sector in London, also brought access to a new range of European manufacturers, which Brickability and Taylor Maxwell didn't have access to. ET clay and Heritage clay tiles, 11,600,000, gained wider access to a range of overseas manufacturers in tiles and various types of bricks, increasing our import capacity. And it also has two yards where we can stock products in in The UK. 24 acquisition update pipeline precision facades with part of SBS, of the group, very small acquisition, patented freight and system for cladding was was finalized.

20:35 And then moving forward, we're looking at the specialist cladding business in the North and one in the South, further roofing contractor and a roofing contractor group, which will diversify us again, reducing

20:52 our exposure to just the house building market. Thank you. Over to you, John. Thanks. So in terms of outlook, the significant increases in interest rates are impacting housing starts and completions. But the general construction market is strong, and it is set to grow further. Recovery forecast in the housing market was forecasted from late two thousand twenty three to early two thousand twenty four. It's all dependent on interest rates. But as many of you you will have seen today, inflation was was the rate of inflation was less high than what forecasted. And so the interest rate maxing out at 6% is now forecast to max out slightly less at around about 5.75%, which is, while a small reduction still encouraging in the right direction.

21:47 The market fundamentals for housing remain strong in just about all of them. Very, very strong indeed. The need for housing is huge. We've underbuilt for so many years. The population increase, the rate of household formation, the aging housing stock in The UK. And if I told you that every new house built today, bearing in mind the rate of house building, every new house has to last six hundred years. And clearly, it won't anything like that. So that's the strength of the requirement for home building that we have. As Alan has just mentioned, the group continues to very much diversify its offering and more of that on the next slide. And trading to repeat this, trading in the current financial year to date has remained in line with board expectations.

22:36 Next slide, please.

22:39 Up until this round of roadshows, we'd always just use the image on the right hand side, the complete residential solution pointing out all the different parts of a house, that can be constructed using BRCK ability group products. But as we've diversified our end user customer base more and more and indeed the products that go in to those customer bases, we thought it appropriate to show, an office block here we can supply metal cladding or insulation or brickslip cladding or stone cladding or balconies or solar panels. These are all things that we didn't have going into the general construction sector going back three or four years, but today we do, and those things are going to be growing. So, the case that we have, we believe, on the next slide, is that we are a market leader in construction material supply and contracting services.

23:37 We have a strategy of growing and diversifying. Since IPO, revenues grow by $500,000,000 while the proportion of BRCK revenue has shifted downwards from about 80% to about 60%. Our growth strategy is driving EPS with it having grown from full year 2020 7.27p to full year 2023, 11.93p CAGR of 18%, 11 acquisitions since IPO. Since IPO, dividend per share has increased from 1.95 to 3.16p. And our ESG credentials, particularly, with our new UPOWER business, leading the field in solar panels, car chargers, etcetera, big future for this business in sustainability.

24:29 So we pause, for questions, and I'll start by pressing That's the great, John. Let me just give you a couple of moments to access the platform, and you can see the questions submitted from investors. But 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. That's why John, Alan and Mike take a few moments to review the questions submitted already. I'd just like to remind you that a recording of this presentation along with a copy of the slides and the Q and A, will be available via your Investor Meet company dashboard. John, Alan, Mike, you can see you've had a number of questions from investors. So firstly, thank you to everybody for your engagement. If I can just make sure that you guys got the Q and A tab open and you can see the questions? Yeah. Are you alright there? So maybe, Mike, if I maybe hand back to you if you want to start reading out any of the questions where you feel it's appropriate and then maybe dish them out. Or John, you can do the same. Yeah. Well, I'm gonna I'm gonna start off give me time to read through the ones that I'm gonna start off with a question that's, for for John and Alan. It says, why do brick manufacturers drop ship by brickability?

25:32 Surely, they could just sell direct and take your margin away. Can Mike, I'm sorry. I can't find that one. Can you I've got it. I Yeah. Dropship, Okay. Why why did why did I get rid of it? Why yeah. Yeah. I've got it. Why, yeah, why the brick manufacturers drop ship? As you may or may not know, I used to be at the Ipstock business, the biggest of the British brick brick manufacturers. And we did use to sell some of our bricks direct to house builders. Indeed, I was the instigator of the majority of those deals to to Barrett, to to Red Road, to Taylor Wimpey, for example.

26:22 But what you have to remember is, several things. Firstly, it's hugely expensive for manufacturers to sell direct. Hugely expensive. You need a very big sales force, which manufacturers don't have. You need a lot of boots on the ground. You need a lot of technical expertise people, which manufacturers don't have. So it cost them a lot more in terms of overhead, to sell direct. They would need credit control departments many times the size of the ones that they have now. But there's another reason. And that is that the lowest prices you get as a brick manufacturer are direct from the major house builders. They nail you to the wall in terms of price. So if you take a stock, for example, they will only want to sell a certain proportion of their annual output direct to house builders because it cost them all to do it, and they get less than thousand bricks when they do do it. That's what distributors like Brickability bring to brick manufacturers.

27:24 And for furthermore, a major house builder can order from the likes of an Ipstock or a Forterra, but it's not binding. And if they like if they walk away to a cheaper offer or they just sell less houses that year, then the likes of Ipstock are left holding those bricks. Brickability don't do that. When we make a commitment to Ipsk or Forterra or, let us say, a Vina Burger, then we deliver what we promise to deliver. We take those products. We we pay them on time, and we look after the credit control for those sales, etcetera, etcetera. So it is a no brainer. It's a no brainer to use distribution. I tried it both ways as a manufacturer, and that's one of the reasons I came here because using distribution for a brick manufacturer works.

28:14 Jay, I don't know if you can see, but there's one directly underneath that question that's sort of connected to the market. Is that how fragmented the market is? Okay. So in terms of BRCK distribution, the market used to be incredibly fragmented, full of lots of owner occupied businesses right throughout the country. We stand today, it is really very much more consolidated. I'll put the major builders' merchants aside because they tend to hold bricks for housing extensions, the odd single property basis for conservatories, garage extensions, etcetera, etcetera. So if you take pure BRCK distributors like Brickability, there used to be one major similarly sized competitor, Taylor Maxwell, that's part of the Brickability Group. There was a midsized competitor, E. H. Smith, who still exists, but the majority of the distribution market is now merged or acquired and it is very much consolidated apart from odd geographic outposts.

29:23 What makes us different? Well, firstly, scale. It means that anybody, who buys from us knows they're getting the best prices because whether it's Ipskopf, Forter, Vina Burger, we tend to get the most advantageous prices because we buy so many bricks from them. Secondly, we get the maximum levels of rebates again because we buy so many bricks from from them. Them. So we're always extremely competitive. Although in terms of rebate, we keep that and let that flow through to our bottom line. What else makes it makes us different in times of real short supply of product because of our scale. Again, people like Ibsot, Forterra, and Vina Burger ensure that we're the first to get served with products and maybe some of the very small regional competitors are not. So if we've made a commitment to an end user that we will supply, we know and they know that we will get that product from the manufacturers and we will be able to supply. That makes us different.

30:25 Right. JR, I'm going to try and talk through some of these questions and answer some financial ones. There's a question about a outlook and a downturn and what that would impact us. I just wanted to reiterate and answer that question, just kind of reiterate the point that John made at the start that we are planning on a 20% reduction in housing units in the private starts in the year that's built into our numbers that are in the forecast. So we've already assumed that in our numbers. Think that sort of answers that question. There's a question, I lost it there, but there was a question about loans and borrowings and also a similar question about the cash flow, working capital cycle and payment terms and such. So I'll try and amalgamate a number of different questions together.

31:25 Effectively, as you see me say, our net debt at the end of the year was £8,000,000 Our general cycle is that throughout the year is that by the half year, we tend to have a cash outflow. It's not so much coming from trading. It's just the way, which we do various different payments, through through the business outside of, the general sort of cash flow, including deferred consideration, acquisitions, various other things. Generally speaking, the half year, we have a cash outflow, and then overall, the cash comes back in the second half of the year. There was a question about borrowings as well, which is related to that. And as I say, it's leading to that same thing.

32:11 Borrowings of the first half of the year tend to go up a little bit as we pay more money out, pay the dividend out and various other things. And then the cash flows back in the second half of the year. There was a question somewhere. I can't find it now on here about noncurrent payables, I think it is, and that would be mostly relating to contingent consideration payments. So this is payments for earn outs or acquisitions. Trying to there was a question about are we planning any share buybacks or not. And there was a question somewhere about the returns on our, I think, our investments and acquisitions.

32:58 And it's not something we quote to disclose, but to give some guidance, generally, we are our returns are 20% plus on our acquisitions and related investments, if that gives you some sort of guidance within the range of what we what we say to people. IT, there's a few things about IT and the IT systems and rollouts. So, yes, we're rolling out a core IT back end ERP system. We're doing it in a very managed way at the moment, rolled it out across service. It's already a it's already a IT platform. It's that we have in the business where we acquired Taylor Maxwell. It's Microsoft Great Plains. So we already have a base there, and we're rolling it out across our the rest of our states. So it's in 19 businesses at the moment, currently about 60% of our revenue.

33:56 And the person asking the question notes the rest, and, yes, we're aware that, obviously, IT rollouts can be risky, but I think we're doing it in a managed way and so far so good. It's been fine. And again, we haven't disclosed the cost investment associated with that, but it's not hugely significant because we're doing it with our in house resources. Jay, I don't know if you can see it. Yeah. Got here, Mike. Jay, have you seen major builders increasing working directly with manufacturers? I think we've answered that already. The answer is no. The opposite is happening. The major brick manufacturers are coming more and more to us, to sell their wares.

34:42 And why is the share price grinding lower despite company executing well? Is management aware of any significant factor impacting the share price? Well, frankly, know that we're subject to market conditions like anybody else and shares generally and shares on AIM particularly are not in a great place in GB right now. However, in terms of the share price, because we have executed well, everything we've said we would we would do, we have done. We've usually exceeded, I think, every single year. We've had we've increased our guidance, increased our guidance again in terms of adjusted EBITDA. We said that we would acquire businesses. We said we would diversify. We've done all of these things. We really haven't got anything wrong thus far. So the fact that the share price has grinded lower is hugely frustrating for us. And are we aware of any significant factor? No. We are aware of our huge frustration with the share price, though.

35:49 There's another question. To what extent does RMI repairs and maintenance offset declining new builds? Not a huge amount in this business. Only about 5% of our turnover goes into RM and I. However, what does offset it somewhat is the great increase that we have of product going into general construction, architectural specification construction and infrastructure. I think that's most of the questions now, Joe. Is that okay there, John, Mike, Alan? If there if there are any other questions that you wanna take on, we can provide those post the meeting. And then, of course, we'll publish anything further to investors at the appropriate time.

36:41 If there are no further questions that you guys have there to address, I know investor feedback will be important to you. What I'll do shortly is I'll redirect those on a call to give you their thoughts and their expectations via feedback. But, John, before doing so, maybe if I could just come back to you just to ask you just for a few closing comments to wrap up with, after which, of course, we'll redirect investors to give you their feedback. Well, I I think I would say that we have to have well, I've just said that we find the share price frustrating because we have a track record where we've delivered everything that we we promised. At the moment, we do recognize the headwinds and challenges that face us. It's quite clear. Private housing is going to be significantly down this year. But remember, only 50% of our business goes directly into private housing these days and the rest of the construction market is looking and feeling strong and our numbers would tend to reflect that.

37:41 And once inflation does get to a degree under control and mortgage rates start falling, as is always the case after a slight slowdown, very, very quickly, the housing market can catch fire in this country and always that happens, following a slight turndown. And particularly, when the fundamental need for housing, is so very, very strong as it is in this country right now. And we don't fear any change of government. Government tend to know that housing is extremely important for the GB economy. And for the last ten years, for the first time in my working life, housing has tended to have cross party political support. That's it. Thank you. That's great. John, Alan, and Mike, thank you very much indeed for your time and for updating investors this afternoon. Could I please ask investors on this call not to close the session as we're now automatically redirect you so you can provide your feedback in order the management team can better understand your views and expectations?

38:45 This will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of Brickability Group PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.