Titon Holdings (LSE:TON) — Interim Results

0:00 Good morning, and welcome to the TITON HOLDINGS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tom Carpenter, CEO. Good morning, sir. Thank you, Lily. Good morning, everyone, and thank you for joining us. Today, we'll take you through our performance so far this year, and then our outlook. We'll then answer any questions that have been submitted at the end of the presentation. Moving to slide two, please. On this call, you have Callon Hissom, our CFO, and myself, Tom Carpenter, the CEO of the group.

0:51 I'm gonna focus on the strategic and operational progress, and Callon would take us through, this our year to date financial detail. We'll answer any questions between us. Moving to slide four, please, Kowen. For those of who don't know us, I'd first like to give an overview of the TITON group. TITON is a UK based manufacturer servicing the residential construction set sector through two complementary business units, mechanical ventilation systems, and window and door hardware. We were established about fifty years ago, and we weathered multiple housing cycles. Both of our business unit sales underpinned by regulations covering indoor air quality, safety, security, and energy efficiency. We recognize that our margins need to improve.

1:36 However, we manufacture and design about three quarters of our overall revenues, and this gives us ample scope to improve our margins with value in value engineering and productivity improvements. As you can see, from our presentation, we're executing a turnaround of the company. The market is quite challenging, but our focus is on the things we can control and improve ourselves. I think we're making progress, but we're not where we want to be yet. Finally, we have a strong balance sheet. We own our own manufacturing facility in Haverhill. We have no financial debt, and our cash position allows us to invest to improve the business. So what differentiates TITON today? As I said, we have two complementary business units selling into adjacent markets, both within the both within the residential new build, the online social housing markets.

2:26 We have a very broad portfolio of award winning products, which I'll go over in the next slide. And we have in in house system design and expertise in building regulations, and that allows us to win sales at the specification level. Finally, we have, spare manufacturing capacity, and this allows us to grow the business without the need of a making any major capital investments. From a value shareholder value creation point of view, as I as I've said, the current new build market and general macroeconomic situation is presenting us with some challenges, but, you know, everyone in our market faces the same challenges. So we need to compare ourselves with our competition, and so we're focused on the things we can control on self help and becoming a more competitive company. To that end, we're actively focused on making margin improvements.

3:16 We're focused on growing through market share. And anyone who knows us who who's been with us for some time, you will know that our Window Door Hardware business has held back the group growth for number of years. I view this more of a TITON issue than a market issue, and we're working actively to turn this business around. For context, the window door hardware market is several times larger than the ventilation systems market. So I believe if we once we do restore window door hardware to growth, we'll see some real upsides in the performance of our group. Against that, we set ourselves some very clear and measurable medium term ambitions. We want our combined sales to be growing by at least 10% year on year and achieving our operating profit before tax of 15 percent.

4:02 From a revenue point of view, I think that we've demonstrated we can do this for ventilation systems business. Our opportunity is now to bring the same level of performance to win into a hardware. Moving to slide five, please. The picture in the middle shows our range of shows a range of products and solutions we offer and the split between the business units. Historically, I don't think we've been promoting our breadth of offering to our customers. Between both our business units, our content per home can range from several 100 to several thousand pounds per dwelling. As I said earlier, both our business businesses have in house design, regulatory experience, and utilize our own vertically integrated manufacturing facility. Moving to slide six and talk about the highlights for the first half of twenty twenty six.

4:52 Market issues aside, I think we've made quite good progress on our strategy, that I've outlined in previous programs and previous presentations. Mechanical ventilation business, systems growth of the period was driven by consultant selling and new product introduction, particularly our revised core plus product, which helped us win the largest project in the company's history. We made some further improvements with our customer service processes where we carried out a reorganization and moved the order management function from Colchester, to our Hayberry Hill factory. We continue to drive our productivity improvements throughout the organization, and increased our, sales per full time employee. We're taking a very distant disciplined approach to our headcount and actually working on efficiency programs throughout the business.

5:44 As I touched on, we we delivered a revised cooler vent cooler ventilation product based on market feedback, and this directly contributed to project wins and our growth over the period. So we're gonna do a hardware. Our trickle vent offering has needed some refreshing for a number of years. It's been essentially unchanged for the last twenty years. So over the period, we've refreshed the trickle vent range with a new acoustic vent and expanded color range of our plastic vents and color matching for aluminum vents. This was enabled by a very small investment in our injection molding facility. We have more work to go with this, and we plan to make some, winners or harder product announcements, over the course of the rest of the year. Across the business, we made numerous improvements focused on our strategic programs.

6:32 From a financial point of view, our mechanical ventilation business delivered a little bit over 20 a little bit under, I should say, 20% of sales growth with The UK business growing by almost 20% 26% year on year, where we achieved our first ever £1,000,000 month for that business. Given the market conditions, I think this is a good performance, and shows the benefit of the changes we've made with this business. I went into a hardware business unit. Performance is still not where we need it to be and continues to be a major focus of our of our management attention. The business shrank by almost 10% year on year. Although, overall, the business unit had a pretty tough winter, with with demand being particularly low during the New Year. On the positive side, we've returned our US business back to meaningful growth, albeit that's from a very low base.

7:24 Overall, our gross margins reduced by, point eight percentage points compared to last year. This was caused by a product mix with lower volumes of our higher margin construction products that were caused by delays in construction starts, which I covered in previous presentations. Our new Kooler Plus product is a high value product, but it's quite early in its product cycle and so has relatively low margins, and, lower than forecast volumes of, some window door hardware products gave us some adverse, overhead absorption rates. Our prior margin improvements did mitigate the impact of these somewhat, but we were disappointed to see lower gross margins than planned. The key point I'd like to make is that this is not where we want our margins to be.

8:09 We know what we need to do to to fix our gross margins, and gross margin improvement remains a central focus of our strategy and for the company. We saw a knock on reduction in our underlying EBITDA and profitability. However, the reduction in our profitability aligns almost exactly with the investment we made increasing our sales team. So while this investment affected our profitability in the first half, I do believe that we do need to strengthen our sales capability, and I think this is necessary for the turnaround of the business and to achieve sustainable growth. As I touched on earlier, at the end of the period, we did do a small reorganization, and this has led to further organizational cost reductions, which we will see during the, see the benefit of during the second half.

8:55 I'll now hand over to Carolyn to go over our financial performance. Thank you, Tom. Good morning, everyone. Yep. Turning to our half one twenty twenty six results, We delivered solid top line growth with sales increasing by 5.6% to 8,100,000 compared to 7,600,000 in the first half of last year. This growth reflects continued momentum in the key strategic areas of the business. Looking at business unit performance, mechanical ventilation systems was the standout contributor, growing 19.8% to 4,800,000. This reflects strong market demand and continued traction internally, reinforcing our confidence in the long term growth of that business unit. By contrast, still an important, part of our portfolio, window and door hardware sales declined by 9.8% to 3,300,000 against a tougher market backdrop.

9:47 Gross margins reduced slightly to nine 29.3% compared to 30.1% in the prior period, primarily due to product mix, with a greater weighting towards lower margin ventilation sales during the half. At operating level, our underlying operating loss before exceptional items widened to 410,000 versus 160,000 lost last year. This was driven by the lower gross margin performance and planned investment in strengthening the sales organization to support future growth. Underlying EBITDA was broadly around breakeven at a loss of 26,000 compared with a positive EBITDA last year of 300,000. Importantly, we remain highly focused on disciplined cost management.

10:32 The efficiency initiatives and cost actions implemented during the first half are expected to have an impact in the second half. Just looking at the, revenue mix in business units, mechanical ventilation continues to increase its share of group revenue. It represented 55% of revenue in f y twenty five, and that's now increased to 59%. So that's increased further, which reflects the strong momentum in that segment. Geographically, our sales mix remains consistent with f y twenty five, while product mix has shifted towards a higher proportion of manufactured sales, primarily driven by the higher value cooler unit within mechanical ventilation systems. Turning to the balance sheet. We have main maintained a strong financial position with no nonlease borrowings, and cash balances remained stable at 3,100,000 compared to 2,900,000 in the prior year period.

11:29 This provides the group with both resilience and strategic flexibility. Our balance sheet continues to be underpinned by the significant property asset base. Noncurrent assets include property carried at book value of 1,550,000 with an independently assessed fair value of 5,800,000 as of September 2025, rising to 6,700,000 on a breakup basis for each building was sold separately. This highlights the underlying asset strength within the business and the potential latent value not reflected in our balance sheet currently. We've also continued to make really good progress in reducing stock levels with inventory reduced by further 300,000 since year end and 700,000 since, the same period last year. This reflects our ongoing focus on working capital efficiency and disciplined inventory management.

12:18 As a result, our cash position remains robust, giving us confidence as we enter the second half. Looking ahead into FY twenty six, we intend to deploy a portion of our cash reserves into targeted strategic investments, opportunities that we believe will enhance long term value creation, strengthen our market position and support sustainable growth. Okay. Back over to you, Tom. Okay. Thank you, Caroline. Moving to slide 12, please. So clearly, we're still in the midst of our turnaround, and we're not where we want to be yet. Last year, for those of you who were there who attended that presentation, I set out our strategy to turn around the company. We're continue continuing to focus and execute the strategy. For those of you who are new or this is the first presentation that you've been to, I'm not gonna go into some massive detail, but we know where we want to be in the medium term.

13:10 That is a company that's growing 10% year in year and achieving 15% in net profit. I think we can we've demonstrated some success towards this with our ventilation systems business. We know the markets we want to operate in. We still want to focus on new build and penetration, but we want to gradually increase our presence in adjacent markets. While we're still service x service exports where they align with our products and our commercial goals, our main focus will be The United Kingdom. We know what we need to need to do to succeed, and we have a set of internal programs nine internal programs that we have where we're executing to deliver these success drivers. Moving to slide 13, please. We've introduced a stock turnaround scorecard in our last investor meter last investor meeting.

14:00 As I've covered, it's currently showing a step backwards with our margins. We understand the reasons why our margins taking a step backwards, but profitability is clearly not where we want to be. And we're focused on improving this for for the second half of the year. Moving to slide 15 and outlook and summary. Next slide, please. So our core UK residential residential new build market is subdued with lower year on year project starts, and, I think everybody knows about the macro economy can certainly hangover the whole country and the industry. However, we are expecting our second half performance to be stronger as we continue to deliver our strategy. Our order book grows, and we do think new building stock bottlenecks will ease over the second half.

14:49 So summarizing our our first half performance, I think, actually, we're quite pleased against the backdrop that our revenue was ahead of our expectations and ahead of the prior year. We're especially pleased with the sales performance of our mechanical ventilation systems business. I think a nearly 26% growth rate is a good result for any market, let alone the market we're in right now. The window the window and door hardware, business unit remains the area where we have the most work to do, but we have a clear program of action across the business. I think we're doing the right things. We have more to announce in the coming, coming months and weeks. I'm confident that we can turn this business back to growth. Our profit profitability was behind our expectations, and was impacted by our product mix, and and weakness in manufacturing and increased sales organization costs.

15:46 We know what we need to do to recover these gross margins, and this will be a a key focus for us for the second half of the year. We have a healthy cash balance, and that's going to allow us to continue to invest in the turnaround, and we're hopeful we can make announcements over the year about that in due course. Finally, the board remains confident in the outlook of the group, and is and is focused on delivery and creating value for shareholders. We continue to expect to deliver by the end of the year to our market as market expectations. Although, I must say that half one has reduced the headroom, and we are managing the business accordingly. We believe that the initiatives that we're implementing are the right ones, and we'll and we'll gain traction over the medium term. Ultimately, we do believe that we can deliver a blend of revenue growth of 10% per year for both business units and achieve a underlying net profit before tax of 15% in the medium term.

16:46 Just moving to slide 16, please. Finally, I just want to summarize the case for TITON. We're an established industry pay player, with over fifty years of trading history. Well, you know, our core market is known to be cyclical. We there are central regulations that drive the demand of our core products. There are growth opportunities for both business units. I think we've demonstrated our potential for the mechanical ventilation business. We now need to do this when we do hardware. We have a healthy balance sheet, and we should be operationally generating cash this year. Our property be our property has been valued at just under £7,000,000. We have £3,100,000 of cash and and another £3,900,000 of other net net assets, and these assets exceed our total market capitalization.

17:34 Finally, we have a clear strategy which we are executing. Our business performance remains sensitive to revenue and mix, but our strategy is clear. Our balance sheet is strong, and we are making progress towards delivering our medium term ambitions. Last slide, please, Caroline. Okay. Thank you. This, this concludes our presentation. I'd like to now hand back over to Lily and answer any submitted questions. That's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard.

18:19 As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thank you. So first question in, why is turnaround execution not translating into results given h one twenty six versus h one twenty five numbers? I think there's a couple of things. I mean, I I would say not turning to profitability results. I mean, the sales increase, and that's that's a direct result of what we've been trying to do. As I you know, again, I I as we've covered quite a lot, we we have some high volume high margin products that are quite low that we use in building starts. And so I I think doing the math, I think these impacts on our gross margin probably resulted to three and a half to 4% of gross margin percentage points compared to last year.

19:15 I think as the market normalizes and our building products, our fabrication products start to grow again, I think we should recover those. I think we made quite a lot of good progress on gross margin. So we can't con there's lots lots of things we can't control. And then I think the other thing, we we increased our, sales overhead by about £250,000, which I think was the right thing to do compared to the first half of last year. So I think that answers that question. You can please ask please ask another question if you don't think it does. Okay. Second question. Should we close down window door hardware given the continuing poor performance and concentrate on the mechanical ventilation side? I don't think so. I think I is you know, you're not the first person who's asked that. I don't think so. I think, actually, window door hardware does contribute a lot towards overheads.

20:13 I I I think it is a drag on overall profitability, but, it is it still get on for a third of our revenue and contributes to a third of our revenue, a third of our overheads. And we do have a lot of shared overheads. Our factory is shared. Our corporate overheads are shared. So I I think, actually, what it would do is is is, first off, cost us a huge amount of money to to, to shut, and actually would drag down the performance of, of our ventilation system business. Okay. You are materially undervalued. What can you do to unlock the value? Specifically, can you sell some of the property, return value to shareholders, and should you look to do a strategic review like other companies such as Check It have done to assess whether to sell the business given the mismatch in value? Yeah. A couple of things on this. So I think, you know, I think there's I think there's I mean, clearly, the best thing we can do is actually become is to hit our medium term goals and to become meaningfully profitable.

21:21 I think that's the best way to unlock our value. We again, we've been asked multiple times whether we want to sell the sell sell our property. There is like that is very straightforward. And and maybe if you want, I can probably go over with you individually. You know, if I show you our, the layout of our of our property in Haverhill, it's not as straightforward as just, closing one building and selling it. Although, obviously, that is an option. I'd be quite reluctant to mortgage our our buildings right now because I think that would, we don't really want want to be paying a huge amount of mortgage fees, with the company. I think that have quite a poor impact on our cash flow.

22:10 And but I do what we do want to do is utilize some of our some of our assets and our cash with strategic programs to actually give value to both the company and our shareholders. Okay. Can you provide more details of the problems experienced in Window Door Hardware in the period? Yes. Okay. So, I I'll be I'll be quite specific, really. We the the we definitely had a very poor demand over the winter, especially January especially early part of the New Year. I would say almost every single customer we had had a very, very poor month, January or February. So so demand wasn't wasn't there at all. I think, we're seeing a bit of change in in the market. So, actually, our, aluminium our plastic vents and our TITON branded hardware products are actually quite flat, compared to previous months, but we are seeing, less.

23:10 We we did see our demand of our aluminum vents decline quite quite a lot, and I think there's a lot of customers who who are having their own struggles, with cost and profitability, looking looking for cheaper solutions for themselves and and and trying to drive cost out of their own solutions. And, obviously, our our aluminum vents is a is quite a premium product. So we are seeing a little bit change in mix there. Those are the predominant predominant reasons. It does look a little bit better now from March onwards, from from the dark days of January and February. And we are we are seeing you know, again, it's too early too too early to go and see what happens, but it's definitely things will be a little bit better in the spring for when it's a hardware. And what should gross margins be, and what is the road map to get there? Yeah.

23:59 I think our blended gross margins should be probably north of 35%. We have a whole we have a whole program of gross margin improvement in in in the business. You know? And I was actually quite pleased to see our Window Door Hardware gross margins improve, you know, volume notwithstanding. We know where we're making lower gross margins, and, you know, there's a couple of things. So it's obviously selling more high gross margin products like our fire safe air bricks in into the construction of buildings. I I think we are I think we are probably one of the market leaders, if not the market if not if not the market leader for FireSafe fabrics, but we need construction to start to sell those products. We also we also need to do a a lot more value engineering of our products. And so, for example, with our Kooler product, you you know, Kooler product is a new product that we really started selling in volume, in this half.

24:55 You know, we took the view that, you know, it allowed us to win a quite significant project for us and and and further projects for this year. So we took the view best releases to market without a fully value engineered product, but we're actively working on that product to to drive cost of that to to recover our margins. Okay. Can you give us, excluding macro, what three things you are doing to rectify the window and door hardware business? I can. So, obviously, we we've we've we've refreshed our sales team in Window and Door Hardware, so I think we're selling in a lot more of a I don't wanna say a word. I don't know what that word is. I don't wanna say professional because I don't want to go and I I said a a lot more data driven, unemotional way, and and selling on benefits and selling on solutions with WindowDoor hardware. We are also refreshing our product range. Product range, I think, is quite tired.

26:05 Certainly, it might a trickle vent, so it hasn't really been updated for quite a few years. And so we made some inroads in that over the period, and we're gonna make further inroads with that over the next few months, which I'll announce when we can release those products. And yeah. And and and if we're lucky, we want to release further products that we don't actually sell right now in in that in in that business. So the key thing, I think, if you look at it is is is we have quite a lot of injection molding capacity in in in our in our business. We don't utilize that enough, and there's a lot of products that we should be selling into the middle of the hardware market that utilize our injection molding, capacity. So what we intend to do is to fill that capacity with, revised products and new products, so that has a double whammy. First off, it gives us more products to sell. And secondly, it, really impact impacts our, absorbed overheads for our whole manufacturing business. So it's kinda like a double double whammy. Not only does it increase our revenue, it actually, it actually helps us absorb some more overheads.

27:19 Window or hardware sales have been falling for a number of years, so surely the turnaround strategy isn't yet working. Yeah. I would say so. Yeah. So, you know, we got we know what we need to do, and I don't think it'd be working until we see revenue until we see see it start to grow. You say that h two should achieve your market expectations. What are those expectations? Shall I take that one? Yeah. You take that. So in terms of market guidance, 16,800,000 revenue, just over a 100,000 operating profit and a million pound EBITDA with cash levels slightly increasing and inventory looking to decrease slightly more on year end as well. Yeah. Okay. We've got so it's not a question, but it's a comment. So I think you need to do more relating to the first question about releasing value. So focus on value and keep going to the 2028 plan, but also look at the other ways. Example, consolidation, sale of business, sale of a building, etcetera.

28:23 Yeah. I let yes. Look. I I so I'm not asking the question, but I'll I'll answer anyway, James. I think I think you're right. I mean, look. We wanna release value for the shareholder. It's not that we're not considering this stuff, and not considering doing these things. But yeah. I mean, there's there's certain things in this that that we wouldn't discuss on on investor call. But, yeah, we're looking looking at ways that we we've we've we're not very efficient from an asset point of view. We know that, And and it's our and it's our goal to to to create, is to utilize our assets efficient efficiently. And there's multiple routes to get to do that, isn't there? Yep. Are there any working capital efficiencies you can get?

29:13 I think we're we're pretty we're pretty efficient in terms of our working capital management over the years. We've struggled with inventory levels, but that's under control. And as you can see for the last kind of three results, inventory is decreasing and there's much more control, over that. Now, actually, our debtor days are quite, are quite low. We manage our debt very carefully, and we have pretty good payment terms of our suppliers. So we're always looking at working capital efficiency, and I think we're making good progress on keeping that strong. Okay. Thank you. That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform.

30:01 Just before redirecting investors to provide you with their feedback, which you know is particularly important to the company, Tom, could I please just ask you for a few closing comments? Yeah. Well, thank you very much for attending the presentation, and thank you for those questions. I think it's great to have shareholders and, and watchers be engaged with us. Yeah. We know what we need to do. You know, I think it's a half glass half glass full point of view from us. We we we've gotta work on our window to hardware business, but, you know, let's let's see what we can do over the next six months. I I you know, we should be in a better place, I hope, when we talk to you next. That's great. Thank you for updating investors today. Now please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations.

30:53 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.