Facilities By Adf (LSE:ADF) — Interim results for the six months to 30 June 2023

0:00 Good morning, and welcome to the Facilities BY ADF 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 via the Q and A tab situated on the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question and press send. Before

0:24 we begin, we'd like to submit the following poll. I'd now like to hand you over to John Richard, Chairman. Good morning, sir. Good morning, and good morning all. Presenting with me today on the far side, Marcin Proctor, chief executive, and in the middle, Neil Evans, chief financial officer. I'd like to begin before passing on to Larsen and Neil by just talking through a few highlights on the following slide, please. Facilities BY ADF PLC, we work with the world's largest production companies like Netflix, Amazon, Sky, Disney, Apple, and many others in the film and in particularly particularly the high end TV arena. We now have over 700 vehicles, costume trailers, artist trailers, makeup, production offices, diners, school school rooms, rooms, toilets, technical trailers, and our tractor units. And this compares to around about 500 at our point of IPO in January 2021.

1:27 We're We're a high volume Albert approved operator, very important because Albert approval is the gold standard in sustainability demanded by most of these studios now. And we have a fully managed 20 365 service. The industry worth 6,300,000,000 in The UK last year, and this is anticipated to grow to over 11,000,000,000 by 2026. Half one two thousand twenty three, we have revenues of 21,800,000, 73% ahead of half one twenty twenty two and EBITDA of GBP 5,800,000,117% ahead of half one twenty two.

2:08 We acquired Location One Limited in December 2022, and that's proved to be a real success for us. We've opened new facilities for them in Bridgend, Glasgow and Longcross in Surrey, we're looking at new and diverse acquisitions to utilizing our funds raised at IPO. We opened our new flagship operational hub in Longcross, Surrey during the first half of this year, and that's proving to be a great success. Great location. It's near Elm Street and Pinewood and Longcross and Sheffordon, etcetera, etcetera, and it's built for purpose. Very, very important for us. We're proposing interim dividend of 0.5p per share and the full year 2022 interim dividend by comparison was 0.46p per share.

2:57 It's important to note that half two revenues of this year are impacted by the current artist and writer strike in The United States. As it says, revenue is expected to be no less than 35,000,000 for the full year, but it's important to note that that's going on. And I believe all parties are sitting down in California today and discussing, hopefully, a a way forward very soon and an end to that strike. But moving on to our market and more details of our business in the first half of this year, CEO, Marston Proctor. Okay. Okay. Good morning, everybody. So as you're aware, as John alluded to, the team in the film industry in The UK has been experiencing industrial action. The Writers Guild of America has been on strike since the May 2 with the screen actors guild joining the strike action on the July 14.

3:48 Now the ongoing labor dispute with the Alliance and Motion Picture and Television producers, which is the streamers and studios, is based around increased contracts, salaries, residuals, limiting the use of artificial intelligence and health care. The strike has caused significant disruption in general to The UK TV and main industry along with several high profile US productions that ADF were working on had booked in when the strikes were announced back in July. These, as a consequence, were put on hiatus. Over the course of the following weeks, many other shows were put on hold or pushed back to early twenty twenty four. This means that there will be the inevitable knock on effect with all future productions now in a holding pattern until the strikes are resolved.

4:33 Conversely, while The US strikes affect many productions in The UK, there is still a large number of productions unaffected that are going ahead with UK writers and actors. To put some perspective on that, we would normally be servicing between 20 to 24 productions at any one time. And at present, it's around 15, which is extremely positive when you take into consideration our main competitors are doing between two and three productions each. ADF has a current pipeline of confirmed and very likely to win work between now and the end of the year, which will generate full year sales of 35,000,000. There were some positive news last Friday when the unions announced they'll resume talks for the studio this week. As John alluded to, they met yesterday. It's reported the talks were very encouraging. Several top CEOs joined the talks of Igor of Disney, Ted Sarandas of Netflix, and Donna Langley of NBCUniversal.

5:27 They concluded late afternoon with a plan to continue to go out negotiations today. Once resolved, we believe that there will be a very heavily up demand as experienced post pandemic. Yet despite the ongoing strikes, there was a strong and resilient market in The UK. You have world class facilities and studios and English language environment. A long history of experience of filmmaking and highly skilled domestic workforce unlike our American friends, non unionized, a compact, low risk geography with a wealth of accessible landscape, cities, scenery, and heritage locations. The UK government offers favorable tax incentives at 25% for TV and film productions, which was reconfirmed in the spring budget.

6:15 And with Europe being so easily accessible, it gives productions the opportunity to dip into other territories take advantage of their tax incentives. So the underlying market conditions draw and drivers are still providing a high level of confidence that ADF services will continue to to grow for the foreseeable future. The continued growth in pre in paid for streaming services in The UK is forecast to overtake traditional paid for services, BT, Sky, etcetera, by 2025. Streamers and studio owners are continuing with their relentless procurement and development of new studio space. If we could move on to the next page, please. So our customer base, in the first six months of twenty three, we have completed 46 productions, and we expect to complete 90 by year end.

7:06 We have currently 79 productions either completed, currently filming, or booked in, and the average revenue per production for H 1 was 361,000, an increase of 85,000 on H 12022, which does not include Location 1. And during the first half of twenty three, ADF and location one jointly pitched for and won nine production. The largest platform, as in most recent years, was Netflix with 21% of revenue, and the booking lean lead time was circa seven months prior to the strike. The full year order book for '23 was extremely strong prior to the start of the strike with several new and repeat large productions booked in. The strike has undoubtedly impacted FY '23 revenue outlook, which is currently forecast at no less than 35,000,000.

7:57 Next slide, please.

7:59 So moving on to our growth strategy. ADF continued with its strategy to grow its footprint and market share with a high level of capital spend in '23. The objective was to reach circa 750 assets by year end. At the start of '23, we had 602. And by the end of h one, this had increased to 700. We accelerated the orders in the first half of the year in advance of the anticipated withdrawal of the 130130% super deduction capital allowance regime at the end of March, which was subsequently continued in the similar format. And since the onset of the strike, we've put the remaining orders on hold until this is resolved. Next slide, please. So moving on to our growth strategy. Location one, our first acquisition is now fully integrated into ADF systems and processes and delivering the expected efficiencies.

8:50 We've consolidated IT systems, insurance, HR support, finance procedures and reporting, sales and CRM platform. We've subsequently opened two new depots at ADF sites in Wales and Longcross and a joint new site at Pioneer Studios in Glasgow. And we're continuing to assess our acquisition opportunities in line with our investing criteria and IPO commitments. And with currently five or six opportunities at various stages of development with parallel or diversified business activities, but still centrally focused in the TV and film industry. And with that, I'll hand over to Neil on the next slide, please. Okay. Quick run through the numbers, starting with our p and l. So as John mentioned earlier, we had a really great start of the year, falling on from the back end of last year with generally bigger and longer productions.

9:42 Revenue was up 9,200,000 compared to h one last year, an increase of 73%. 5,200,000 of the increase came from our new acquisition location one, which was in line with what we expected from them. And 4,000,000 of the increase came from the core business, which like for like was 32% up on h one last year. The productions we worked on were more concentrated around the big London studios and the other regional locations that we could more easily service. Now that meant transport and agency labor costs were a lower percentage of sales, and hence, margins improved from 33 in h one last year to 39% in h one this year, which is exactly what we expected with the move to long cross from our old base in board in Hampshire.

10:32 So adjusted EBITDA was up at 5,800,000, 27%, and ahead of h one last year, which was two point six million 21%. There's no corporation tax charge payable because ADF's got excess capital allowances. So the tax charge is there. It's just deferred tax. And the profit after tax, therefore, was 2,500,000, just under 12%. As John mentioned, in terms of dividends, we paid a final dividend of 0.9p per share in relation to last year in June this year. And we proposed to pay an interim dividend of 0.5p per share for this year, which compared to 0.46p per share last year. Start will paid on the October 27 to shareholders on the register at October 6.

11:22 Next slide, please. I've got the balance sheet. As Miles mentioned, you know, we've really accelerated our CapEx plans right from the start of this year to take advantage of the, super deduction capital allowance regime that was in place for the last two years over COVID, which was due to come to an end in March, but it's not being held over for another couple of years by Jeremy Hunt, more or less in the same time. In the first six months, we spent 9,400,000 and acquired a 108 units. We sold a handful of older assets in the year, so the net increase in the six months was a 100 units. And in terms of CapEx pipeline, we currently have undelivered orders for this year of about £5,000,000 that we put on hold in agreement with our suppliers to deliver after the strikes are resolved, which probably be, you know, the early part of next year now.

12:20 We always aim to fund about 50% of our CapEx by high purchase, individual high purchase agreements secured on specific assets, and that's the only debt we have in the business. The high purchase balances at the end of June was 17,200,000, And the cash on the balance sheet, if I take, was 7,300,000. So the net debt in the business, high purchase less the cash, was just under 10,000,000, 9,900,000. And that's that's really it on the balance sheet. Next slide, please. Quick look at the cash flow. Overall, there was a net cash inflow of 4,500,000 from operating activities, and that includes a negative movement in work capital of 1,400,000 for h one from the underlying increase in sales levels with location one now part of the group and also the payments and legacy tax liabilities provided for at the time of the IPO.

13:17 Of the 9,400,000 CapEx I mentioned, we paid 3,400,000 VAT in cash, and the rest, 6,000,000, was paid by a high purchase. In six months, the total high purchase lease repayments were 2,600,000. And as mentioned, we paid a dividend for last year of 725,000. So that all meant to the cash at the half year end was 7,300,000. Over to John to summarize. Yeah. So we are very much the leading provider of premium production facilities, and I think that's accepted within the group in the industry. We have we progressive dividend policy, and that's exactly what we're we're delivering.

14:07 There is a limited supply of top end premium production facilities in The UK giving us a strong commercial advantage. And as Martin has emphasized, the The UK remains and is increasing to be a world leading destination for film and high end TV production. The market drivers are very strong, and there's a real platform for growth. To repeat myself, £6,300,000,000 in this industry in The UK in 2022, rising to over 11,000,000,000 by 2026.

14:37 People want to do productions here. We have great earnings visibility as quite often things are booked up nine months or more in advance. We do have some current market headwinds as we had during COVID, but they're expected to be short lived. And once these strikes are resolved, the team expect a surge of film and high end TV production to suddenly come our way. We've invested in the right teams and the right resources to enable us to scale, and our acquisition,

15:08 as Marcin said, location one has been a huge success, not just in the services they provide, but in high quality people as well. We We still still have some of our IPO proceeds giving us the opportunity to execute on that growth strategy, and we aspire to GBP 100,000,000 of revenue by 2026, and we're looking for complementary acquisitions as part of that strategy as we speak. So we pause for questions. Fantastic. Look, thank you very much indeed for the presentation. Ladies and gentlemen, as John said, please continue to submit your questions using the Q and A tab just on the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question, press send. Just want the team to take a few moments to review those questions submitted today. I'd like to remind you that recording the presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard.

15:59 John, as you can see, we've had a number of questions come through throughout today's presentation. If I may just ask you to click on that q and a tab and start at the top. Just read out the question where appropriate to do so, and I'll pick up from you at the end. Okay.

16:20 Well, the first one that I can see here is from Andy, Andy m. What market share do you currently have, and can you talk about the win rate in pitches? Well, I can tell you that we're around about a 27% market share. But in terms of the success of our pitches, a proportion that we get, that's probably best answered by Marston, please.

16:43 We get probably around 75%, and that's primarily because in our industry, we're it's a it's a small industry, and our customers are producers, line producer and production executives. So we have a strong customer base, and a lot of our work is repeat business. So things like the crown, we've done six series of the crown. It's things like Peaky Blinders, five series of Peaky Blinders, etcetera, etcetera.

17:14 Thank you, Marcin. And from Jonathan c, for how many more years of The UK tax in in incentives, 25% guaranteed to continue? Well, I don't think we know the number of years, but what I can tell you is this. These incentives first in Blair's final administration. They were perpetuated under Gordon Brown. They were then perpetuated under the coalition government and through all of the administrations since the large large number of conservative prime ministers all get them going. The fact is that there's cross party political support that realizes that this is a growing business for The UK. They want it here as well as the

17:52 tax revenues it does bring in as well as the jobs it does create. It's actually quite a matter of national pride to have so such a booming industry, you know, a world leading industry, in fact. So it's very hard to see any administration of whatever color, blue or red, changing those incentives. Other than that, Jonathan, I don't know what the guarantees are, but it would be hugely surprising if it were if it if it would change.

18:20 For NDM, are there additional services you would look at to acquire organically or through acquisition?

18:27 And and, well, location one was a parallel business, so I think that's best answered by Marcin. But, yes, we would look at other businesses. Yep. So we are the idea is we we become a one stop shop for production companies. So we're looking in the areas of prop storage sustainable routes for reuse and disposable of props, driving agencies, props, and technical transport. Also, there are some other areas in terms of lighting and also catering. And we're also looking at areas involving events, festivals, and TV and film.

19:11 Thank you, Marston. And from, Stab Jay, I presume you're tendering for the new Harry Potter series. When do you envisage the tender process to end? Well, Marston, I know you're right in the middle of this, so best answered by you, I would say. Yeah. Unfortunately, at the moment, no tendering because I've got no fixed dates to start filming, but we're in very close contact with the production company. It'll be made by a company called Bronte Film for the BBC, which is JK ruling its own production company. We do a lot of work with them. I don't know if you're familiar with a series called Cat, Korma and Strike, the detective series that's on television. So we've done the first three books of those, and we start filming another one of their productions in January.

19:58 So we're very close to the production team and just awaiting dates for when they're actually gonna start filming, and then we'll be tendering. So I think we're hopefully in a strong position, Marcin, because Very, very strong position. Yeah. It's the production teams in any film or high end TV who hand out the work and award those contracts. So Correct. The fact that that Marston's so close to them is hugely important. For Rosita, can you insure against strikes and COVID, etcetera? What can't you insure against, and is it worth it anyway? Over to you, Neil. The answer is no, really, because the strikes are sort of forced out by force majeure contracts. So we've never really been able to to cover just like it was in a way with with COVID was sort of outside the outside the the remit to get, you know, cover, unfortunately.

20:59 Thanks, Neil. And, John, I think that's covered for the the questions that we've had through. Of course, any further questions that do come through, the team will be able to review those questions, and we'll publish responses back on that the Investor Meet company platform. John, just on that basis, if I may, just before redirecting investors to revise you with your feedback, which I is particularly important to you and the team, just ask for a few closing comments. Yeah. I think it's important to note that this is a a well funded, growing business that's acquisitive, that's growing organically, and it is doing all of that in an industry that's growing very, very fast in The UK because The UK one of the best places on this planet in which to produce a film and high end TV. So a growing business in a growing and robust market. We have a few headwinds at the moment, but ladies and gentlemen, that truly is temporary. And like just after COVID, once this strike is resolved, a tsunami of work will be coming this industry's way, and we're prepared to take full advantage of that.

21:59 That's fantastic. Thank you very much indeed. John, Marston, Neil, thanks for updating investors today. Could I please ask investors not to close the session to be automatically redirected to provide your feedback in order the team can better understand your views and expectations? Only take a few moments to complete. I'm sure it's greatly valued by the company. On behalf of the management team of facilities by ADF PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you. Thank you very much.