Billington Holdings (LSE:BILN) — Interim Results

0:01 Good afternoon, and welcome to the BILLINGTON HOLDINGS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to BILLINGTON HOLDINGS PLC. Good afternoon. I'm Mark Smith, chief executive officer for BILLINGTON HOLDINGS PLC, and I and my colleague Trevor, Chief Financial Officer, would like to welcome you to our 2022 interim results presentation.

0:49 Our executive summary provides some of the highlights of 2022 to date. Trading for seventy five years, BILLINGTON's is a construction based group of companies consisting of one of the leading structural steel fabrication and construction businesses, BILLINGTON Structures, incorporating TUCON, trading from three sites, two close to Barnsley and one near Bristol a steel stair and secondary steel manufacturing and construction business, Peter Marshall Steel Stairs, based near Leeds a heavy steel processing company, Shapton Steel Services, trading from a site near Barnsley a unique site holding company called HOLDINGS, an associated graphics division branded based near Barnsley, a construction safety barrier hire company called Easy Edge trading from their Tuxford near Newark site, and more recently, a newly acquired paint treatment company called Specialist Protective Coatings based near Sheffield, all of which we will provide more detail, of later in the presentation.

1:51 BILLINGTON has weathered the challenges of the pandemic and impact of the Ukrainian conflict well, and we are presenting a set of interim results that demonstrate a return to a much improved revenue and, more importantly, profits as well as a very encouraging trading update. We've had a very busy year so far implementing our group strategic plan, which is already reaping benefits with much improved factory efficiencies within BILNINGTON structures and a program of capital expenditure, which is not only updating our operations, but improving quality and production capacity. We're pleased to have rewarded our loyal investors with a dividend of 3p per share paid in July 2022. However, we are very aware of the past and current market headwinds, and we are pleased to have secured a very strong forward order book in more buoyant sectors, which are remaining robust.

2:44 This combined with our improved efficiencies will ensure an improved margin for the full year. On to the financial highlights. As mentioned in my forward, we are pleased to have secured a good forward order book, which extends well into Q2 of twenty twenty three in the more robust sectors such as energy from waste, online retail distribution and storage, data storage and the film industry, as well as still servicing the larger commercial office, education and infrastructure projects. Most of our smaller group companies have also benefited from increased internal intercompany trade and strong external custom in the same sectors. The year to date has been one of protecting the business and its clients through the utilization of its significant cash resources to purchase raw materials earlier than ordinarily would be the case.

3:42 The significant buildup of working capital at the half year has primarily unwound today. Cash balances have now normalized. The business continues to invest in new machinery both to expand its capabilities and improve operational efficiencies. 2022 will see investment in the order of $4,000,000 with related depreciation of circa $2,200,000 being a cash usage in 2022 of circa 1,800,000 2023 and 2024 will see further progress of the group's strategy plan, and capital expenditure in each of these years will be in the order of GBP 3,500,000 per annum. The group's fixed price energy contracts are due to expire in April 2023. With current price cap level, this will see an increase in the group's energy bill of circa 1,200,000.

4:38 HOLDINGS has had a particularly strong first half with revenues up 55% from the same period in 2021. There has been a number of main contract casualties in the period, and we remain alert to the financial strains that rising prices will have on our customer base. We credit insure a large proportion of the group's exposure to protect protection of our investors. On to the income statement. Okay. Revenue has increased 22 from h one twenty twenty one. This is a level comparable with h one twenty nineteen, the last period before the trading was impacted through the pandemic. The adjusted EBITDA at 5.5% of turnover has increased 46% in H1 twenty twenty one.

5:28 Statutory profit before tax of $1,300,000 for the half year and forecast to be 3,600,000 for the full year, highlights an improving backdrop and our confidence in the current trading levels. The recent upgrade represents 20% of prior number in the market. Onto the balance sheet. The group's balance sheet remains robust and is underpinned with significant property and cash assets. The group owns the majority of its properties, and these are held within the account's historical cost. The open market value is some 2,500,000 higher than they're held in the balance sheet, providing the group flexibility should it need to raise cash for any opportunities that may present itself. The cash balance at June 30 was 5,310,000 as we purchased steel early to protect the business and its clients against rising material prices and availability issues.

6:24 The cash balance is largely normalized as of today, and the balance at September 23 was stored at 11,350,000. The June 30, the level of WIP and inventories was 16,300,000, an increase of some 4,000,000 versus the same period at the end of December, and trade debtors was 13,200,000 versus 12,200,000 at the end of December. These balances have now normalized and have been converted into cash. The group has a final salary legacy pension scheme, which as of the December 31 was in a gross surplus of 2,700,000. The investments within the scheme were derisked in 2021 and are largely held in government bonds. Whereas the latest value is of December 21 as we don't revalue the scheme at the half year, I would not anticipate to note a material change to the level of the surplus debt.

7:21 Capital investment. This slide gives a list of some of the capital expenditure projects that have been completed or that we're in progress at June 30. As Mark has made reference to, level of CapEx being the order of 4,000,000 this year and 3,500,000 for the following two years. The cash reserves over and above the depreciation will be funded through operational profits over this three year period. Onto the cash flow statement. As a previous stated, the cash utilized, up to the half year is to protect the business and its clients. It's now wholly reversed as of September 23, and the balance is now projected to be in the order of 10,000,000 to 11,000,000 at the year end on a gross cash basis. The following slide provides the net cash movement from the end of the year to about June.

8:12 And as mentioned, that has now recovered. On to the forward order book, The level of recently secured projects is encouraging and provides confidence for the full year and well into 2023. The order book for the Structural Steel segment is circa 75% greater than September 2021. Moving forward to the wider steel market. The continued volatility of steel material input costs has resulted in a number of significant price increases, which in the main have been able to be passed through. The Russia Ukraine conflict significantly affected the availability of steel plate in the year and subsequently the price.

8:58 However, we've been able to secure supply and fixed price during this period, which has supported our own projects and customers alike. More recently, we've been able to take delivery of significant quantities of imported material to support our UK supply partners.

9:16 We were able to use cash resources, as Trevor has indicated wisely, and forward purchase material, increasing stock levels significantly in the year to the betterment of project margins. Despite the more recent government support for businesses longer term, we feel that there's still likely to be pressure on the steel manufacturing cost base and there could be further price increases, which the company will manage. Although British Steel remains our dominant steel supply partner, we are broadening our steel purchase to achieve a more balanced spread of supply. The next graph of market sectors. This graph depicts a breakdown of the market sectors, clearly showing that the industrial sector remains a focus. The power sector is strong with good future pipeline and the infrastructure market provides good opportunity for us.

10:08 The education sector, although buoyant, does not deliver the quantum of steel per project that is attractive, so it's not a major feature of our revenue. Moving to the next slide. The divisional breakdown here shows the success of HOLDINGS over the past year and the creation of specialist protective coatings to the group. Moving on. We move on to the group company divisional highlights, which identify some of the prestige projects that have been successfully delivered as well as the broad geographical spread. It should be noted there the tier one client base, most of which are being carried on as our significant, customers into 2023.

10:55 Moving onwards. Peter Marshall have enjoyed a very busy 2022 to date and boast a very strong order book going forward. It can be noted here that wide range of clients as well as in group trading with BILLINGTON Structures. It's good to note that a number of the recently secured projects within Billington Structures contain significant packages for Peter Marshall's as well as the other group companies. Moving on. Easy Edge has suffered slightly due to the softening of the commercial office market. However, trade has still been significant and the company has made a value contribution to the group today. Again, there is a broad range of clients as well as in group, into trade. Moving on.

11:42 HOLDINGS PLC a very busy 2022 exceeding budget expectations, consistently dealing with tier one contractors again on a nationwide level. The group continues to expand HOLDINGS to satisfy the increase in trade. You'll notice there as well the addition of branded that adds in additional revenue of good market, profits. Moving on to Shafton Steel Services. This company has benefited from the group's decision to purchase steel stock and has been able to provide service to the construction industry as well as wider engineering sectors despite the pressures of the Russia Ukraine conflict and increasing steel prices. Moving on to SPC.

12:29 Specialist Protected Coatings Limited, as mentioned, are our newly acquired paint treatment company traded from a large facility in Sheffield. The group will benefit from having in house painting facilities, particularly the application of Inchmessen fire resistant treatments. We will be able to, in time, transfer the majority of BILNINGTON structures and Peter Marshall's painting needs to SBC. This will have the added benefit of creating additional fabrication space within Woonrock facility that will be then repurposed for increased capacity. SBC, as well as providing new group services, will maintain the relationship of the previous company's external clients in the oil, gas and pipeline sectors. Currently, is ongoing to increase the infrastructure and install automated machines to improve production capacity, volume and efficiency.

13:21 On to ESG. The company has created an ESG focus group, that reports into board to ensure that particularly our environmental and social endeavors are front and center. The reduction of carbon is very much a focus for the group, and the road map has been established to achieve net zero by 2050 in line with Steel Zero.

13:47 Next slide. Below are a number of our initiatives already implemented and being considered, which has significantly helped the reduction of our scope emissions. We have already acknowledged our scope two and scope three emissions and are well on the way to reducing these significantly by 2035, and as I've said previously, to net zero by 2050. Strategy. Our strategy plan to improve margins through increased efficiencies and modernization continues. Significant progress is being made with the installation of state of the art machinery at both BILLINGTON Structures factory in Woomwell and Yank and further process equipment at Shaft and Steel Services. We are once again reviewing opportunities within the European market, mainly focused around data center and online retail distribution facilities.

14:41 The company has good history of previously delivering in these sectors. As part of our succession expansion plan, we have joined forces with a local welding training school and will soon be providing training facilities at BILLINGTON, which will not only service Billington Structures and Peter Marshall Steel's Death, but will provide a service for the wider local community. Recognizing that there is a skill shortage, we have been reviewing the opportunities of recruiting overseas labor and are pleased to welcome a good number of production and professional staff into the business with great success. This shows good opportunity looking forward to the future. Summary and outlooks and prospects. The steelwork market is set to increase in the sectors we are most active. BILLINGTON structures, with the support of our group companies, provide services to the largest tier one contractors and with strong financial resources and much improved efficiencies are confident of improved margins and good return of investment.

15:47 Close relationships with our steel supply partners and broadening supply opportunities will put us in a good position to manage material supply and price volatility. We continue on our journey of structured capital expenditure, which will serve to modernize our facilities, increase our capabilities and improve our efficiencies. The hard work and foresight, along with diverse thinking, will see the group benefit from an influx of skilled staff to aid delivery. This is all underpinned by a very strong balance sheet. Thank you for the time you've taken to listen to us today. The appendix following this presentation, provides further information to more perusal. And as ever, we are willing to receive your questions either directly or through our representatives.

16:34 This publication is actually will be available on our website and through investor means towards the end of the week.

16:45 Mark, Trevor, thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just using the q and a tab situated in the top right hand corner of your screen. But 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 your investor dashboard.

17:04 You can see, we received a number of questions throughout today's presentation. And could I just ask you to read out those questions and give response to which is appropriate to do so? Then I'll pick up from you both at the end. Okay. If we head into a recessionary period,

17:41 how has the business historically performed? I'll take that one. Thank you, Mark.

17:49 The last significant recession, I guess, the financial crisis two thousand and eight to 2011, I was with BILLINGTON's at the time. Pleasingly, I only won loss throughout the the entirety of the financial crisis was incurred. That was a loss of 700,000 in one single year. Pleasingly, over seventy five years trading, that was the only loss that has been incurred.

18:22 I would, again, with the cash resources and the balance sheet that underpins the business, if a recession is coming, I would expect BILLINGTON's to weather the storm much better than others. And as one question has alluded to about how

18:40 certain companies may drop out of the market, I think it's fair to say that throughout pandemics and the cash reserves, some of our competitors are strained. This would probably see some supply come out of the market and correct and provide opportunities to them into moving forward also. We have a very, very strong balance sheet, which props up the group as a whole. But as we head into this recessionary period, we are confident that the sectors that we are active in are the most robust.

19:12 We're servicing the data center, energy from waste and film sectors. All of those seem to have as good a pipeline as any sectors. We're also active within infrastructure. And as we've seen the government's latest announcements, they intend to keep that sector very active. Okay. Simon's raised a question. Bad debts, how do you manage cash in a tightening environment, cash collection? So each business, is set up to secure its own workload and collect its own cash and debtors, on an ongoing basis. All the accounts functions are maintained centrally, but the cash collection is company by company.

19:59 We ensure the prior a large proportion of our debts with our customer base where we're not able to obtain sufficient credit insurance, extreme due diligence is completed on those customers.

20:11 And in effect, I sign off all uninsured balances. The working with the principal tier one contractors, we famous last words, don't incur significant payment difficulties, and it is monitored by both accounts and our quantity surveying departments on an ongoing basis, and any overdue amounts are chased immediately. Do you want to take that next question about from Matthew g? Matthew, what is the overall impact from the fall in the pound on the business, positive or negative? Well, I think Mark has alluded to within the presentation our past abilities of working within the EU.

20:59 Indeed, our largest ever contract was completed in Belgium. We've completed contracts in Holland and Finland and France. So the exchange rate at its current level will indeed provide opportunity to refocus, some efforts and potential contracts within the EU. We haven't done a contract within the EU since Brexit. We have done some investigations into the opening of a European office as a catalyst for reentering the European market, and this does present an opportunity to us moving forward. The fall in the pound, the steel supply of raw materials coming into British steel, namely iron ore and coking coal are denominated in dollars.

21:45 This will present a inflationary cost impact to our steel manufacturer. This has been watched, although we haven't seen a impact on the cost to date. Michael Lee. Sorry if I missed this. What does the current pipeline look like? Are you seeing much disruption to your order book given the current macroeconomic headwinds? Well, we're quite bullied at the moment, by, an order book that's close to record levels. What we're seeing now has got, good a good pipeline through to q two twenty twenty three, and we're not even at the end of the year yet.

22:35 Some of the schemes that we've managed to secure that we haven't delivered yet, we are aware that they have second and third phases to them, which gives us confidence about the future and where we're going, especially as we're delivering a strategic capital expenditure plan to update, modernize and increase efficiencies. We're also eyeing up Europe, Trevor says, for further opportunities. But at the moment, we're quite bullish in the sectors we're at and encouraged. And touching wood, that we seem to be in a very good place at the moment. Mark, Trevor, thanks very much for that. I think you've addressed those questions you can from investors.

23:27 And of course, the company will review all questions listed today and will publish those responses on the Investor Meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Mark, could I just ask you for a few closing comments? Certainly. I'd like to thank everybody on this this channel for taking the time to listen to us today. We're at the moment of of, delivering a good set of h one results, which and I'm pleased to have have been in the position to upgrade. I'd like as I say, I'd like to, encourage you to keep an interest in the group, as we progress into h two. And hopefully, we can welcome you all to this presentation when we deliver our end of year results in April 23.

24:16 Thank you. Mark, Trevor, thanks once again for updating investors today. Could I please ask not to close the session as you now be automatically redirected 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 will be greatly valued by the company. On behalf of management team of BILLINGTON HOLDINGS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.