Lords Group Trading (LSE:LORD) — Trading Update

0:01 Good afternoon, ladies and gentlemen, and welcome to the LORDS GROUP TRADING PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just 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 of the questions submitted today and publish responses where it's appropriate to do so. Before we

0:32 begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Shankar Patel. Good afternoon, sir. Good afternoon. Thank you. Welcome, everyone, to our first trading update of 2023, which will cover our our estimated results for the full year of 2022. I'll leave you to read our disclaimer at your leisure, which is posted above. The agenda for today is that I'll be presenting the highlights. My name is Shankar Patel. I'm the CEO of LORDS GROUP TRADING PLC. My colleague, Chris Day, who is the CFO, will present the financial year '22 financial highlights. And between me and Chris, we will go through a few slides on our equity story and the outlook for 2023.

1:19 We will follow that up with some q and a after the presentation is over.

1:25 In terms of the highlights, you'll see a few bullet points here, and and one of the fame the first comments that I have is that we have delivered on our IPO commitments in our first full year as a listed business. And we really are delighted with the with the results of full year 2022. What we're also seeing is that the demand in our RMI sector is still proving to be resilient, and it's therefore providing us with a recurring revenue base. We also believe that any potential downturn in our business could be mitigated by the organic growth opportunities that exist for us in either new product ranges, new geographies or new customers. And therefore, we also remain confident of our acquisition opportunities and are delighted with the acquisitions that we made in h one twenty twenty two, which are performing to management's expectation so far.

2:24 On the next slide, I'll let Chris go through the financial highlights. Yeah. Good afternoon, everybody. Delighted to present the FY 2022 highlights. I'll bring you through a couple of slides. So first of all, I think as as Shankh said, really, really pleasing set of results across all metrics, which are across the board ahead of consensus and expectation. Running through the through the table line by line, revenue initially, revenue comes in at 450,000,000 for FY '22, which is a separate year on year of 86,700,000 or 23.9% in in total percentage growth. That flows through into adjusted EBITDA of 28,300,000 against the comparative 22.3.

3:14 So an extra 6,000,000 adjusted EBITDA and a and a growth of 26.9%. You can see that delta in in the percentage change, and then that drops through into adjusted EBITDA margin, which continues to accrete 6.3% for the full year '22 against 6.1 for the full year '21, so point 2% improvement. And since IPO in so over over a two year period, that's now a point 9% improvement in our in our EBITDA margin. Adjusted profit before tax stands at 16,000,000, and and I should say the gold column is is not less than position as we head into full year audit. So not less than 16,000,000 against an f y '21 of 12.3.

3:59 So 3,700,000 step up and a 30.1% improvement. The other point to call out here is is bullet point three. So we we finish December 31 with a net debt position of 23,500,000 on a pre IFRS basis, so just over one times EBITDA. That's a position we're very comfortable with. We think we think there's headroom, and we we retain balance sheet strength to pursue further growth initiatives, whether they're organic or or acquisitive led. So overall, for the group, some some really strong progression. I think clear market outperformance in in the revenue growth, and you'll see the like for likes in a in a second and and kind of real evidence of executing the strategy and and on target to hit those medium term numbers in terms of revenue of 500,000,000 and EBITDA margin of 7.5%.

4:56 Stepping down into the first division being merchanting, I think absolutely fantastic performance. Revenue of just under 221,000,000 at 17.4% like for like, which is something we're we're absolutely delighted with the with the teams and the manner in which they've achieved that. And overall, that's 90,300,000 incremental revenue in f y twenty two or 69.2% overall revenue growth. That that really is kind of particularly the like for like is is testament to the service and products led proposition that we have. So, you know, we're offering that superior service and and product knowledge through our exceptional colleagues is is really driving extra footfall and customer acquisition in in our direction.

5:45 Product price inflation has clearly been prevalent throughout f y twenty two. We we spoke about it in in all of our updates last year. It has softened towards the back end of f y twenty two and and and definitely kind of softening into f y twenty three, and and we are the success rate of passing through those inflation repressures is has improved as well through the year. So something we're we're we're really pleased with. And then merchanting as a whole for 2022 completed three acquisitions. You can you can look back at previous presentations on on the website or investor meet company. Advanced Roofing in January 22, which brought for the first time kind of credibly brought the roofing offer to our general builder population across the merchanting business, AWLearn, which operates at two locations in in Tamworth and Dewsbury, and the build base asset purchase that went through in April 22.

6:47 On to plumbing and heating, and and I guess it's easier to see the in in merchanting with that strong light for light, but we we think plumbing and heating has also had a had a really strong year. The visibility of that is is slightly masked through the revenue position. It's well documented that there's been an industry wide boiler supply issue throughout the year. Again, softened through the year. You can see that in the in the like for likes. If you look at the half year versus the full year, you can see that that position has improved substantially. But at a revenue level, that that leaves negative 9.1% revenue growth and negative 1.6, including the benefits of the DH and P direct heating and HRP TRADE acquisitions from April 22.

7:33 So the reason we're so pleased with with with that performance is actually go back to the half year, and and we were showing EBITDA growth and EBITDA margin growth. And and think it's fair to assume that when the full year results come through, that that that kind of traction and momentum will will still be there. We're achieving that by adding accretive margin products. So the extended product range benefits from enjoying a stronger gross margin. It benefits from having a lower cost to serve because we're already delivering product to those customers. It's take an incremental basket of products to the same customer as a low incremental cost to serve. We're we're definitely seeing the continuation of of of growing demand around energy efficient products, I think, for for reasons that would be well understood. But that's coming from both our customers and also suppliers who recognize that the unique position we we hold in the supply chain and and our ability to deliver next day nationwide, whether that's to the independent merchant, the installer, or the homeowner.

8:34 We continue to realize pricing opportunities. We spoke in the half year again about business intelligence tools that have gone on top of a new ERP system, and that's definitely helping us make smarter customer pricing decisions. And the acquisition of of DH and P is is trading in line with expectations, and and we're we're absolutely kind of delighted with the size made in in the business and the synergies that exist between between, particularly, between HRP TRADING and APP wholesale. Get back to Shankar for a slide on on our equity story. Thank you, Chris.

9:20 We thought that we would reiterate to the market our equity story. And firstly, you know, what what we're saying is that we fundamentally believe that, you know, we have a great equity story to offer. We reiterate our position as a leading distributor of building materials in The UK. Our story is factored around six key areas. First, being our unique customer first proposition. I won't call out each bullet point, but a few to mention. And and the first one is that, fundamentally, we believe that engaged colleagues lead to a differentiated customer service proposition, And that is the essence of our of our business, a customer focused business, and we deliver that customer focus for the benefit of our customers through our engaged colleagues. We spend a a substantial amount of time ensuring our colleagues remain engaged.

10:15 We also, therefore, create long term loyal customer relationships. We're in markets where we have repeat customers risk repeat custom from a wide variety of customers fragmented right across our geographies and our product portfolios. So it allows us a tremendous amount of loyalty from our from our customers.

10:36 In terms of this next block, the the organic and and margin accretive growth, four key areas. You'll see us repeat this consistently. New locations. We have an opportunity to grow many of our brands in in new geographies, and we shall be doing that over the coming years. We have digital initiatives that provide us with new customers or allow repeat customers to trade with us continuously in a very efficient and and customer service high high customer service levels. We're also in pursuit of new products as we have the distributive capability Chris has just mentioned for taking on energy efficient products or new technologies because we have the distribution backbone right across the country to take products from from our warehouses to our customers without much incremental cost.

11:23 And then we are also focused on the growing penetration of these decarbonized products, I. E, boiler replacement products, energy efficient products, and and that's a focus area, which, allows us to to offer substantial margin and organic growth. In terms of our m and a history, we have a strong record of acquisition discipline. I once again reiterate something that I've said many times that you can change everything about an acquisition once you buy it except for the price that you pay for it. And discipline on on m and a still remains at the core of what we do. Our markets are still fragmented, and therefore, we have considerable opportunity for further acquisitions. Independent merchants of between 2 to 100,000,000 turnover still only hold 40% of the market, and there are many for us to to to to acquire in in due course.

12:18 And the other point on acquisitions is that we believe we remain an attractive buyer for family businesses who are keen on ensuring that once they sell their business, it continues and it continues to develop. We believe we're good buyer of these sort of assets. In terms of our strong financial profile, we're on track record to deliver our revenue targets by 2024. We are highly cash generative that allows us the freedom to grow our business and invest in it. And we believe for our investors, the fact that we are dividend paying and we have a progressive dividend policy further reiterates our equity story. In terms of the final bullet point of the management track record, we we hope that we have demonstrated that we do what we say we're going to do.

13:12 We also believe that we are aligned with all of our shareholders via management holding a significant majority shareholding in the business.

13:23 I'll hand over to Chris to talk through our medium term targets. Thank you. So I think regular followers will will recognize the slides. We we've we've got two meet two targets out there at the moment in in terms of medium term aspiration or albeit on the left hand side, it it's coming very quickly. So when we when we came to IPO, we were working off a 2020 base at 298,000,000, and we and we set the ambition to be a 500,000,000 revenue business by 2024. You can see now with the inclusion of the 450,000,000 for 2022, that gap now with with two years trading ahead of us looks looks perfectly perfectly achievable, and we remain confident of that. And and we're confident because of the organic growth levers that exist that the thing Shankar spoke about.

14:14 The product range extension that can that can either take a bigger share of the wallet from existing customers or attract new ones. New stores in new markets is is is clearly a great opportunity for us. We're still only 46 locations across The UK with enormous catchments that that we don't service and and acquisitions on top will will, of course, only help. On the on the right hand side, medium term target of seven and a half percent EBITDA margin, again, I hope you can see we're making good progress there. As I said earlier, it's a naught point 2% step up in, f y twenty two, and I think it's worth kind of acknowledging that is in that is an improvement in margin in a in a highly inflationary period.

15:00 You know, that's coming through in in in in certain areas through the overheads, whether that's kinda utilities or diesel or labor, but absolutely coming through the through the cost of goods. We're passing that on and more and and driving that accretive EBITDA margin through operational leverage and through

15:21 through everything in the strategy that's designed to to drive the EBITDA margin. So we we we remain very confident and think, you know, kind of already showing good good momentum on that target.

15:39 Of our presentation is the outlook in in in summary. Of course, we are mindful of the uncertain macroeconomic conditions that we face at this moment in time, and in particular, our markets in terms of construction and construction products is highly sensitive to any GDP decline. But we still maintain that the reason LORDS is different and our investment proposition still remains a very good one is that the market is still large and of which we are a very small player. We're still less than 1% of the 55,000,000,000 market. We And also believe that our market in our markets, customer demand is resilient. Yes. Of course, it will be impacted, but there are many of the products that we sell, which simply are agnostic to any GDP or economical downturns.

16:32 We, in addition to that, have some levers that will meet any potential downturn in the in in in the economic conditions. Firstly, it's the fact that our h one twenty two acquisitions are performing very well, and we will start to see their contribution to in in a full year basis in 2023. We also have plenty of organic growth levers to enable market outperformance. We we keep on reiterating this. We've just been through some of the the details on where we feel the organic levers exist, and we'll be sure to use them to ensure that not only do we with withstand whatever economic outlook downturn we face, but if possible, we we grow our way out of the potential downturn. We'd like to also once again reiterate that we are on track to deliver our 500,000,000 revenue target by 2024 and our seven point five percent EBITDA margin in the near term.

17:31 Thank you everyone for listening, and I think we can head over to q and a. Shankar, absolutely. And Chris as well, thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, 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 your investor dashboard. Shankar, Chris, as you can see there in the Q and A tab, we have received a number of questions throughout today's presentation. And thank you to all of those on the call for taking the time to submit their questions. And, Chris Shanker, perhaps if I now just hand back to you to respond to those where it's appropriate to do so, and then I'll pick up from you at the end.

18:20 Thank you. Thank you. Yeah. No problem. Right. So first question from Sam e.

18:27 Great progress. Any thoughts on international expansion? Or is the focus on capturing more share in The UK? So international expansion isn't on our radar. As we said in the previous slide, when you're less than 1% of a very large market, I think our shareholders would would not forgive us for for entering into markets that we clearly don't really understand at this moment in time, albeit that we have a model that we may be able to to replicate in in in certain certain geographies. But we don't think that shareholder value will be created by by doing something like that at this moment in time. We we do, therefore, reiterate that capturing more share of The UK market is fundamental to our strategy, and it remains we remain on track to deliver that.

19:20 I think there's another question from Sam e. What makes a good acquisition in your view, and how are you finding valuation expectations of those looking to sell? Very good question. What makes a good acquisition? There are obviously multiple factors that make a good good acquisition. Location is one of them. We analyze acquisitions for either, are we going into new geographies? And if we are, does the asset that we're looking to purchase have good locations? So physical locations are very important to us. Do they have a good customer proposition? Do they have a good product range proposition, which which will be in addition to us? So if you'd look at the Advanced Roofing, the advanced roofing was was a business in in a good geography in in in the home counties. It's a very good market. It filled a gap. We didn't have expertise in that particular product space, and it had really good people.

20:21 So all in all, locations were were were very good. The customer proposition, we always vet that, was was good, always can be enhanced, which is which is where we had our value added. And then it brought us into a new product area, which was complementary to to our current product portfolio. Chris, do you wanna take one? Yeah. I was gonna say just to add on the valuation point. We we we have a Sorry. Stated aim of of four to six times EBITDA. I think the five that have landed post IPO average 4.6 times EBITDA. So I think, realistically, we're we're we're already kind of achieving valuations towards the towards the lower end of expectations. So the the movement down, it it it starts to become a uneconomical for the owner.

21:11 I think in terms of the question of how we're finding expectations of those looking to sell, I think no no different to what it's always been. There's there's always going to be a buyer and seller negotiation. I think the fact that most of the sellers that we work with or or transact with understand our parameters, and and therefore, you know, the the approach we have is one that what we call a collaborative approach to a transaction. It's not necessarily just the price. It's the fact that you get a certain you get an outcome that is certain. If we've overbid and then in DD, we find that we've over we're overpaying, that leads to an uncertain transaction. We avoid that that process, and therefore, we're always making sure that we have a collaborative approach so that once we've agreed a price, then that price can be maintained and we make sure that we transact at that price without having to renegotiate.

22:08 We're also very selective on the assets that we we look at in the conversations that we have. Okay. Nick b has asked what is the current headcount and where do we see the number moving over the next twelve months. So current number is is just below 900 heads, and and we very much kind of invest for for for growth. So if we can see an opportunity to to to continue to grow a branch or a certain location, then we we understand that that needs to be to be backed with an extra resource, but we run it kind of on a on a very efficient model and have expectations of of revenue per heads in each of our divisions. So sub 900 at the minute and and would continue to back growth.

22:59 K. Steve k. What does the planned rollout look like for new organic sites, and typically, what are the costs associated? So we've got we've got two brands at the moment in the half year results that we spoke about in terms of where we we feel they can they can break out their regional presence. The first is George Lines, which is a specialist civils and landscaping merchant. It's a 2016 acquisition. It was it was one branch and and 12,000,000 of revenue in it. It's grown to to 3 and almost 30,000,000 of revenue now. So we we've looked at that, and we think there's the opportunity to take three, and and the third was opened in 2022 in Horsham. We think there's the opportunity to take three up to up into the range of eight to 10. That that would that would be a very comfortable fit in in in the target markets and catchments that are available to us.

24:00 And the second one is Mister Central Heating, which is a brand in our plumbing and heating business. It's quite unique at 25% of its revenue is is online, which is which is pretty high penetration in our in our space. Operates at 10 locations. The tenth was opened in in West Bromwich in 2022. And we've said there we think we can get to 50 sites, so 40 incremental. We we've worked in 2022 on the catchments and and making sure that the the West Bromwich site is putting its best foot forward, and and then we expect to see that rollout accelerate. A couple of new openings in '23 and and then starting to accelerate in 2425. In terms of cost, Miss Central Heating, all in CapEx working capital, net working capital, you're looking at about £500,000 of outlay.

24:52 George Lyons is more because they're they're bigger sites. It's not a trade counter. It's a, you know, it's an acre an acre site. You you typically include in working capital for for George Lyons. You'd be looking at anywhere between 700 and a and £1,000,000. Thank you, Chris. I've got one more question. What do you think selling prices will do in 2023? Difficult to be very definitive given there are, you know, probably close to 40 to 50,000 products that we sell right across the board in in all our different brands and businesses. But if I may call out a few areas, items that are commoditized such as timber, they have fallen considerably in 2022.

25:42 We don't think that there's any further decreases on on what and what is a major part of our business. So we don't feel that there's going to be further decreases in in prices on that side. On the heavy side building material, there will be potentially some marginal decreases in prices. But again, we don't see a very big decrease in prices expected. Capacity is still low in in bricks and plasterboard and a lot of heavy side material. Whilst demand has been in excess of capacity for the best part of eighteen to twenty four months, and we we're all expecting demand to to be lower, We don't feel demand is gonna be sufficiently lower that prices will come tumbling down. There is always a margin for for trading and for for localized pricing to come down as either merchants eat into their margin or manufacturers would like to eat into their margins. We prefer, obviously, for manufacturers to eat into their margins rather than for us to eat into ours. But it's it's it's it's it's selected selective.

26:47 It will not be across the the the market in in in any great form. And in fact, we will probably see some price increases coming through as as as our manufacturers and suppliers face price increases, notwithstanding the downturn in the economic, outlook and and potential economic activity that will result. Shankar, Chris, if I may just jump back in there. Thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review. So then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses on the Investor Meet company platform.

27:37 Shankar, perhaps before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. Thank you. Terms of closing comments, firstly, thank you for your time in attending this Investor Meet presentation. Secondly, we really remain delighted with our results, but but more delighted with the the efforts of our colleagues. You know, the question was asked how many colleagues? There are 900 just under 900 wonderful people working in our business and and we we we thank them for for all their hard work which has resulted in in a tremendous success for the business. And we also remain committed to to meeting our our near and medium term targets.

28:27 And we believe we have a extremely resilient business and extremely flexible business that can react to to market, market trends and and crisis if if there happens to be one during 2023. We also thank all our invest investors for their support, and, wish you a very good day. Shankar, Chris, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of LORDS GROUP TRADING PLC, we would like to thank you for attending today's presentation.

29:12 That now concludes today's session. So good afternoon to you all.