Coral Products (LSE:CRU) — Investor Presentation

0:00 Good morning, ladies and gentlemen, and welcome to the CORAL PRODUCTS PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab just situated on the right hand corner of your screen. Simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your

0:31 participation. It's a great pleasure to hand over to Joe Grimmins, Executive Chairman. Good morning, sir. Good morning. Welcome to our presentation on CORAL PRODUCTS PLC. My name is Joe Grimond, Executive Chairman. My fellow presenter is Sharon Tinsley, the Group Finance Director. Let me first comment on the first half results for twenty twenty two-twenty twenty three. Sales markedly up, EBITDA, profit before tax, earnings per share. Gross margin apparently fell, but this is more a mix problem rather than any deterioration in performance. Indeed, the legacy businesses performed very strongly and increased both sales and margin during the year.

1:32 And as a result of this very strong performance, we've maintained the dividend, the interim dividend of $5.00 A very strong balance sheet, cash of 3,800,000. We've committed to 2,500,000 of, CapEx to support future business, significant benefits still to flow through. During 2021, we completely restructured the business disposing of the the HAEDOC manufacturing operations, CORAL PRODUCTS, Moldings and Interpac and the Freehold site. This eliminated our debt and left us with a substantial cash balance.

2:25 After an in-depth strategic review, we determined to rebuild the group within the plastic sector and look to buy businesses with design and specialist skill sets rather than simply commodity type purchasing. So in March 21, we purchased cuss customized packaging limited, May 22, film and foil and armor, September 22, man class, and October 22, eco deck.

3:16 We operate in a very fragmented sector, which is ripe for consolidation. We look at lifestyle businesses, owner managed businesses. We have a very long established formula for volume business issue, which we believe offers a fair price to the vendor and allows us the opportunity to substantially increase our profitability by affecting new change within the acquired businesses, generating profits and significantly enhancing our group earnings.

4:04 The current slide shows a very small number of the different types of products we make across the group. The the group website allows you access to all of the subsidiaries and you'll see in much greater detail the the the the offerings. In the top left hand, you'll see some colored shapes just purporting to show some of the myriad products and shapes and colors that Tatra extrude. The top center is a vacuum formed food tray that's used to package anything from tomatoes to to chicken fillets to whatever you like.

4:57 The top right hand is actually a sheet extruder. These are very, very expensive and complex machines and those machines produce from small pellets of polymer sheets to various widths, lens, and thicknesses which can then be profiled, shaped by any number of other companies including our own CPL and Manplus. The bottom right hand actually shows products that are made from those sheets and these are specially designed top bins, stillages, what have you that are supplied across a wide range of industries. The center picture shows some nozzles and caps which we design and supply through Global One Pack. This is only a very, very small sample of the products that we produce within the group.

6:00 CORAL TODAY, we manage seven subsidiaries operating across the plastic sector. We do vacuum forming, injection molding,

6:20 film conversion, design development of all types of products servicing a very wide

6:33 sector of industries including food packaging, railway, aerospace, telecom, all sorts of consumer goods packaging as well. We have 400 plus customers, none of them take more than 8% of our business. You can see from the bar chart the very strong financial growth. And whilst we operate in fairly mature markets, they all do have some element of growth. And we operate in, as you say, the vacuum forming, the injection molding, all of which are multi, multi billion type markets across the world. And there is not massive growth within those, but there is growth. As the populations of the world grow then, the demand for our products grows with it. And there's also the element of growth coming from organic growth as we develop our existing businesses.

7:45 Some of the individual businesses, Tata Rotolac, great business, extrusion and injection molding, always been profitable, strong growth, and we've just invested 2,500,000 in new machines and tooling for new products, which will come on stream throughout 2023 and possibly into '24. In addition, we have converted some dead warehousing space into a super modern manufacturing facility of 5,000 square foot, which will be used to manufacture the new products and store the new machines and so forth. Great business, great opportunities for further development.

8:35 Global one pack supplies caps, closures, sprays and nozzles, mostly manufactured in China, designed by us and using our tooling. We have now refocused that business,

8:50 looking to develop some new products, injecting some more dynamism into the business. There's a big requirement for recycled product. In other words, product using either polymers which can be recycled rather than building products which use a multitude and some of the products that are in the market today use glass, metal and various types of plastics, which means they're totally useless for recycling and therefore will bear the 20% plastic tax. We are developing products which will eliminate that and there are some very exciting things going on in the background.

9:42 CPL, customized packaging, basically does what it says. It makes packaging in a customized manner, it designs and develops packaging solutions for a wide range of customers and together Manplus we see really, really strong development and good opportunity in that business. Film and Foil. Film and Foil is a distributor of film and foil and a processor. It doesn't manufacture film or foil, buys it in, cuts it to size, rolls it, perforates it, does whatever the customer wants to it, then ships it to them. So they are not manufacturers plastics, but they are distributors of processed film and foil and have a wide range of customers and they're one of the leading film and foil converters in the market.

10:57 Alma vacuum forming. This is a

11:04 volume vacuum former, but with a specialist range of equipment. I mean it's got an absolutely state of the art printing capability, computerized printing capability. It has one of the best plastic beer mug production lines in The UK and indeed we've just developed a new eco product, which has been well received by the marketplace and we see new opportunities for development of this business, which had been for many years part of a European group which really had not paid much attention to it and we believe there's great opportunities for further development within that business.

12:04 Manplus, Manplus was a fairly opportunistic buy. We need more space at Withenshore. This business actually almost adjoins our Withenshore facility. We're running out of power and we're running out of space. We were quoting nearly $400,000 for a new electric installation, a new transformer. We bought this business as published for $300,000 less than the cost of the transformer and indeed less than the cost of one of the CNC machines that we bought with the business and we bought with almost no debt as well. It's just a super little business that lost its way. We will capitalize on the underutilized facility, both manufacturing and space wise and power wise.

12:56 And together CPL, they will form a very strong partnership and offer a really world class service in the vacuum forming packaging solutions market. EcoDec. I've described EcoDec as virtual company. It's got virtually no assets, virtually no people, virtually no premises. What it does have is great ideas, great products, great tooling, which we now own. Is cash generative, 70% of its sales are made online and are paid for before they leave the warehouse.

13:43 It's a super business and incidentally all of its product is manufactured externally. It's all plastic injection molding, but 4,500,000 can be resourced within the group and will be over the next twelve months. I'm now gonna take a break and hand you over to Sharon who can talk you through the financial performance. And, Sharon, over to you. Yeah. Thanks, Joe. Good morning, everyone. So we we've had quite a strong start to the the first half of this financial year. Our focus has been on on value added products and this strategy we feel has delivered.

14:29 So as Jo mentioned, we've acquired four new businesses so far this year, which will roughly add around 30,000,000 of extra revenue in a per annum in sales. So these four are currently performing to management expectations and and account for 10,000,000 of that sales income that you see there. So of the three legacy businesses that we we had at the start, all of them are performing really well. All three of them are have improved the gross margin percentages this first half. So so all this together, as you can see, is filtered down into the operating profit and the EBITDA.

15:18 Oh, what happened there? Sorry, guys. It shopped right to the end for some reason. Right. So the the balance sheet. So as you can see, we have a strong balance sheet with total net net assets of 14,900,000. So at the end of April twenty two, we had high cash and cash equivalents of 7,600,000. So these funds we've invested into the acquisition of four new businesses, all of which will add value to the group in the the second half of the year and going forward. So we've also invested heavily across the legacy companies having committed to 2,500,000 spend for future new products. So following these four acquisitions, we have property value now valued at 3,200,000.

16:10 That's freehold property. Cash and cash equivalents are 3,800,000, and the the extra debt that we've give we've taken on, which gives us a gearing of 41%, which as a group, are more than comfortable with. Now I know that some people have expressed concern over our changed net debt position, So our operational debt is actually lower than the net debt suggests as this contains right of use assets, which, as you know, is a balance sheet item, and a trade facility, which is just an early repayment of creditors that we use to take advantage of early discount payments. I mean, if we utilize all the funds that we have available to us with, like, remortgaging the new property and drawing down all the funds we have on the invoice discounting facilities, we would actually have 8,000,000 in cash and cash equivalents.

17:09 So that's the end from me. So I will hand you back to Joe to PLC conclude our presentation. Joe? Thank you, Shannon. CORAL is committed to sustainable, profitable, and environmentally sound development. We utilize the most environmentally sound materials and manufacturing processes. We aim to reduce waste and the same uses of plastics through effective product design. We actively encourage recyclability and indeed offer an end of life return policy to our customers. So we were early adopters of bio based materials. We increasingly develop and use recycled global materials.

17:54 We develop product that improves our environment by making it much more recyclable. Packaging we produce enables customers to reuse over and over again the packaging for distributing the profit. In summary,

18:24 INCORAL we believe is an opportunity to invest in a business which is well positioned to grow in a profitable, sustainable and environmentally sound manner with a dedicated management, proven track record of managing integration of acquisitions. Building on our strong first half performance, we look to continued improvement in the second half and with our already committed new investment to meet future demand, we look forward with confidence to 2023, 2024 and beyond. I hope that you've enjoyed our presentation. I'm now handing back to That's great, Joe. Meet and I'll be ready to take questions from you given my voice a five minute. That's great, Joe, Sharon. Thank you very much indeed for updating investors and I'll shortly bring up your cameras as well. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just wanted Joe and Sharon to take a couple of

19:28 moments to review your questions that you've submitted throughout today's presentation. I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be accessible via your Investor Meet company dashboard. Now Joe and Sharon, I've given you no time at all. I totally understand that, but that was my best shot. But if I may, you did receive a number of pre submitted questions and you've received a number of questions from investors throughout today's presentation. So thank you firstly to everybody for your engagement. If I may, Joe, if I could just hand back to you, could I ask you to read out the question and then give your response, and then I'll hand back hand back to me at the end? Sure. Thank you. You you want me to start with question one now, Mark? Yeah. Please do read any of those questions, but if you could just read them in full just so people can understand and assess your response.

20:14 Question, will the pace of acquisitions now slow down following a speed over the past twelve to twenty four months?

20:21 Answer, well, that's likely, but that depends on the opportunities that present themselves. Question two, is that a target net debt EBITDA? Well, as Sharon has pointed out, our gearing is well within the accepted level of comfortable and the real debt level is very low. Operationally, we do not have a problem in the we don't have a fixed target for EBITDA range. And and and if I did, I couldn't tell you because that would be almost a a profit forecast.

21:15 Third question following this is acquisitions. What's the anticipated organic revenue growth for the group? Well, there will be organic growth as to what level, I'm not really prepared to give an answer to that because that would be a revenue forecast. What I will say is that a lot of the improvement will also come through contribution improvement as we in source business and therefore the cash contribution within the business should be substantially better. Question four, post the 2.5 CapEx investment program, what is management's view of the ongoing annual CapEx investment required?

22:05 Well, with an estimated free cash flow, we don't have any real issues in our ability to fund future CapEx. However, we are well invested to meet current demand and therefore future capital expenditure will be to meet any new opportunities. Question eight sorry, question five. There was a large working capital outlay and a large increase in the use of the invoice discounting facility. What is management outlook for working capital? Is it a seasonal cycle? Will revenue growth continue to require significant working capital funding growth? If there's a significant ongoing working capital funding requirement, will management put in place lower cost longer term funding? Quite a lot of questions all in one.

22:59 And basically, let me do I believe there's a misconception here. As Sean has already pointed out, our debt in operating terms, the real debt figure is very low. The increase in the use of the invoice discounting facility was certainly the addition of the the discounting that the acquired businesses already utilized. And indeed, I think we we probably Yeah. The the three legacy companies that we have are actually using that facility less than they have in the past. So we and it's like as as I said, we do have, like, quite a large amount of money that we can draw down from those facilities that we have in place.

23:48 And that so the the increase in the invoice discounting facility, it's a little bit a drop in the legacy companies and then the take on of the the new acquisitions. But we have a substantial level of drawdown, which we have not utilized and can do if we needed to. There is no seasonality or very little seasonality. Revenue growth won't require significant working. We have absolutely sufficient working capital for any foreseeable increase in our business over the next twelve to eighteen months. And if the question about lower cost longer term funding was addressing maybe the issuing of shares. We don't really have any real requirement to issue shares at all to meet funding working capital requirements, absolutely none.

24:59 I'm now trying to find did it okay. What's the reason you decided to increase investor relations? Basically, we feel that the business is now ready to move forward in a sustainable way and that if you're gonna be on AIM or any listed market, you want you want a market for your shares. So you want people buying and selling them and you need to give people a reason for buying and selling them. So the more information we can give you, the the the public, the more explanation we can give you of the underlying performance of the business, the more likely there will be the investor interest will increase.

25:47 I personally don't see the point in being in a listed business if you're not using your shares to grow your business and I also I'm a great believer in dividends, I'm a big shareholder, I've never sold a share and you know I think that investor type presentations are are a great way of showing ourselves to the public, meeting the public, giving them answers to maybe difficult questions, but we're not afraid of questions. We're not afraid to explain what we do. We we think we we know what we're doing, and we're happy to explain it. And with things like investor meet, weren't available two, three, four years ago, gives us the ability to present directly to you the same way as we would present to an institutional fund manager.

26:48 You getting exactly the same story as if you were M and G or Miten or whoever. So we think this is a great way of showcasing our business. How did you find integrating the multiple acquisitions you made this year? Well, strategy is to buy self managed businesses. In other words, we don't manage from the center. So integrating the businesses in a holding company operation is less difficult than you might imagine. We don't micromanage the businesses.

27:37 We help them, we set budgets for them, we give them financial support, we we we encourage them to make investments that maybe a in a privately owned situation where people have lifestyle businesses, know, people would rather buy a new Rolls Royce than a new CNC machining center or a new injection molding machine. I'd rather buy the new injection molding machine. So it's making sure that the business is fit, that the people are the right people and then they just continue operating the business reporting to the center. That's where the center comes in. We control from the center.

28:23 They manage the business locally. So every day we get the sales figures, we get the cash figures, every week we monitor the overall liquidity position within the group. So we know what's available to us if and when we need to take some action. It also means that we are monitoring the daily performance, the weekly and the monthly performance of the businesses in real time. We get monthly management accounts, we do a full management meeting every month, everything from all the way down to balance sheet, down to individual KPIs, measuring debtor days, creditor days, CapEx, absenteeism, everything that you would expect we do and we push that down into the subsidiaries, but that's all. The subsidiaries manage the business and I expect them to take responsibility for their performance.

29:25 They can't turn around and say it's group's fault because group, we don't really do anything except take your money. Could you elaborate how resilient CORAL revenues are? Not really. The contract situation with anybody today is or is rarely what it was. You don't get long term contracts. What you do is you get long term commitments. There's no volumes guaranteed, nada. So we have to manage our businesses very, very effectively and we are subject to increases or decreases in demand.

30:17 But across the board we have a very wide range of customers servicing a wide range of industries and where one is up, another is down and vice versa. To date, we haven't seen a situation where all of our businesses, all of our customers are all down at the same time. But if that happened, we'll cope. We've been here before. You know, we've managed through recessions, three day weeks. There's there's nothing new in business. I I can't really answer all of the problems. Paul t, how you elaborate on your m and a process.

31:07 M and a is it's it's there there is no there is no one formula that suits everyone and every business and every situation. How we source our deals, often people approach us, often we'll approach them through our own research, often we're approached by M and A agents. These are professional firms that are hired by vendors to find a buyer for them. And so, you know, what's the percentage of offers issued and offers accepted? Couldn't tell you. We look at businesses every day of the week. That's not an exaggeration.

31:56 We look at businesses every day of the week. Some of them might be a five minute look and say, no, that's not of interest. Others, we may spend a couple of hours researching their accounts, researching their their business. But, you know, I couldn't tell you how many reject as as a percentage. And how does our integration process after acquisition looks like? As I've said, the the slot in as a wholly owned subsidiary fit everybody has to report in the same way. So what we do is we have a template of costs to and revenue so that the sales are all reported in one way and the cost of sales is reported in in the same way across the group.

32:48 So that when we're looking at gross margins, we're looking at gross margins after the same cost elements are being incurred. It's very difficult when you're looking at gross margins in published accounts because they're not the same as what you're looking at in management accounts. So it it is it is very difficult. And how do you evaluate a business as I've said, there's there's no one way, but but and I'm probably not prepared to tell you how how I value everything because I don't want people duplicating how we do it. But it's been used for many years by myself over a number of different companies in different industries and it's proven successful and we'll stick to it.

33:41 Again, what are the succession plans for the board? There is a nominations committee. The board is is always looking at succession plans. And, you know, there are there are succession plans in place for certain individuals. Some of them are a bit older than they should be, so we'll just have to wait and see how that pans out. But the board is actively involved in looking at ongoing succession plans. If if there are no further questions, I think Joe, you're you're missing some. There are quite a few left. Yeah. But I can't I can't answer them all. What what we can do, Joe, Sharon, is obviously yeah. As as you can see, there's a the engagement is is is brilliant, So thank you to everybody for your questions. What we can do, Joe, is we can make any questions from this point almost because I do know you have some follow on meetings this morning. I can provide these questions. And if there's any other comments or responses you wish to add, then we can just punch those after the meeting.

34:58 Bear in mind that some of the questions we won't answer because we don't wanna give away the financial information that that we believe to be confidential or or or might might be used against. So I I mean if there was a if I've missed anything that's related to the actual condition of the business today financially or otherwise, then I'm happy for it to be highlighted and I'll try and satisfy people on that. Why don't I do this, Joe? I'll present you all the questions that were submitted today, review them at your leisure and then we'll publish those back to all the attendees on the call as soon as you let me have those responses. Why don't we do that? Then that will be I'd be happy to do that. Excellent. Thank you very much indeed, Joe. And thank you once again to everybody for your participation this morning.

35:49 Joe, Sharon, I know investor feedback will be important to you, and I will shortly redirect the investors on the call to give you their thoughts and their expectations moving forward. But I wondered, Joe, just to really close off today's meeting, if I could just ask you for a few closing comments just to wrap up with. And then as I say, I'll redirect investors to give you their feedback. Well, thank you all for joining us at this presentation. I hope that it's been useful to you. As I say, we believe we're now in a really strong position to move the business forward. It will be a combination of acquisition and organic growth and it will be more of the same going forward.

36:39 And hopefully, we can continue to deliver strongly, increase dividends and grow asset base creating opportunities for employment and improvements within our own social communities. Thanks for joining us. That's great. Joe, Sharon, thank you once again for your time this morning and for updating investors. Can I please ask investors on the call not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations? This will only take a few moments to complete, but I'm sure we get greatly valued by the company. On behalf of the management team of CORAL PRODUCTS PLC, we'd like to thank you for attending today's presentation. Good morning to you.