Lpa Group (LSE:LPA) — Full Year Results

0:00 Good afternoon, and welcome to the LPA GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by 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 received 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 Philo Daniel Tran, CEO. Good afternoon. Good afternoon. Thank you, Lily. Good afternoon, everyone. Thank you for joining. I assume everyone's joining from The UK this afternoon, but if you're somewhere else in the world, thank you for joining us. I'll just get stuck right into it. So starting off with with the board, I have been with LPA now for just over a year.

0:52 It has been a really exciting and, interesting journey within LPA. So I will touch a little bit more on that in the detail through the course of this presentation. But I joined from Smith's Detection prior to LPA where I was a global director for aviation and urban security. Prior to that, I spent quite a lot of a decade and a half with Thales in roles, regional roles across Australia, South Asia, as well as in The UK. And I was brought in because the the board wanted to understand how can we turn this really well invested company into a more profitable company. And over the last couple of years, it hadn't actually delivered results as expected.

1:40 So we are on that growth journey and I'll talk in a little bit more, but I'll hand over to Stuart to introduce himself first. Hi. Good afternoon, everyone. So Stuart Stanyard. I've actually been with LPA for three years now. Prior to that, I worked predominantly for Rolls Royce Civil Aerospace in customer business for over twenty years. I've also worked in in private equity and worked in The UK and overseas. I'll just touch quickly. Thanks, Stuart. I'll also touch a little bit on our board. We have our chairman, Robert, who is well known for turning around top listed top tier listed companies in terms of returning the business to profitability. We have Andrew Jenna who who is currently the CFO of Potaina and he's got plenty of experience in FTSE companies and Gordon Wakeford who was formerly the CEO of Siemens Mobility.

2:34 So a really high caliber board that we are able to work with who are 100% behind the strategy and the vision that I have set out to drive LPA forwards to profitable growth to and yeah. So we'd like to share a little bit more about that today. So what is l who are LPA? So number of you would have probably known LPA over the years. Some of you might have come into this meeting quite new not knowing who LPA are. So we are an innovation led engineering company. We're a manufacturing company delivering to our rail, aviation, aerospace, and defense, and industrial markets. We provide solutions, products, and services.

3:20 In terms of solutions, this is not the entire list of everything we do, but just to give you a flavor, we deliver intercard rail jumpers and electrical boxes, not just to The UK but to some of our global customers as well. Electronics and lighting, we do not just the lighting within an interiors of a railway train, we also deliver a whole range of electronics including seats and other electronics as well. We also offer space and weight saving capabilities to the aerospace and defense sector as well as rail largely from our value add distribution part of the business, but we are now leveraging the wider group capabilities to offer bigger, wider capable solutions to our customers.

4:07 In terms of products, we acquired Martech Power from Eaton last year. So the power converters can be offered as a solution, but also as a product. We have our oldest connectors which are the noisefan connect connect connectors. We also have our aviation ground power solutions. Redbox, which we acquired a year and a half ago, we've also got the leading plain power connectors to power up large jets. We've also got our cable carrier systems. So a range of different products that customers can buy from LPA. And then, of course, a lot of these contracts, particularly for the solutions, are long term contracts. They are twenty, thirty, forty year contracts with the customers. Of course, they need spares. Of course, they need a midlife upgrade.

4:53 And we are there along with the with our partnerships, with our customers, and our distributors to work with them to ensure that we can sustain the life of that the train or the plane or whatever it is that we are supplying our solutions for. And we do this out of our four different sites within The UK. We have two large manufacturing sites. One testing and assembly site and we have a German office. And we largely work with either directly with our international customers or via our distributors. And I think what what we need to take away from this is that we are a small to medium enterprise in The UK that are delivering to our global customers in over 50 countries.

5:44 We have really well established manufacturing capabilities and engineering and technical capabilities in The UK and are able to deliver to such a large array of countries across all of our market segments. And if I just yeah. Across across all of our market segments there. So in terms of customers, we have a growing list of top tier customers globally. So a lot of these customers you would know we've we've for for those of you who've seen these slides before, you would recognize a lot of them. Yes. We are continuing to work with our existing customers. But we have also added a whole range of new customers there as well. You'll notice NS in the top left sorry, in the bottom left corner, you'll see Boda.

6:34 And these were contracts that we've built and developed over last year. You'll also see the likes of under aviation. You'll see the likes of Dinell and ITW, some discussions going on with Boeing. You'll also see aerospace and defense. So whilst we have we're continuing to work with the traditional defense based customers, The UK has a growing commercial aerospace market and we are well embedded within each of those contracts. And you will see some more news and announcements coming from LPA during the course of this year with the likes of Vertical Hill maybe a little bit later and Zero Avi and others. And with industrial, there are customers like Hubble that we have reignited the the opportunities with that we're starting to see further growth in those and then HS two as well, which we are doing some amounts of work with industrial part of our connectors.

7:35 So let me just give you a flavor of some of the key recent highlights. So one LPA GROUP, it's not just a tagline. It is a reality. I started in the reorganization very soon after I started because what I inherited was three separate siloed divisions within the company that were not really talking together. There was no resilience and, and that's what we needed as a business. I really wanted to ensure that we structure in the right way so that we are able to drive and deliver the accelerated growth, that we wanted to achieve for the company. So with that, the divisional structure was removed, which I did speak about last year. Change happens overnight, but the transition and the transformation does take time. And if you wanna do it correctly, you do it slowly. And that's a journey we've been on. So together with the Martech acquisition, I would say I ended up with four divisions, four sites working independently that we've been working very hard at integrating with and and the organization is now driven by functional heads and functional directors reporting directly to me. So we have a new operations and supply chain director. We have a new sales and marketing director. We have a new technical and engineering director. Together with the CFO, we're working together to make sure that we can leverage the capabilities group wide to absolutely deliver

9:06 on the the vision that we set out. Very early on, sort of February last year and we are in the progress of and we solidified the strategy in July which the board agreed to and then we're delivering on that now. We also agreed to consolidate some of our manufacturing sites following the investor presentations last year and where we actually merged one of the smaller sites into one of our largest sites. So those operational efficiencies are starting to come to fruition and we're professionalizing it a little bit more. The focus has been very much about customer centric new product innovation. Over the years, in recent times, I suppose since COVID, the emphasis on innovation has been less so.

9:53 So whilst we have re reorganized, the drive has been to rationalize our existing product lines. We've got clear product road maps. We've got clear understanding of this is the innovation that we can do for our customers to answer their their needs or their pain points. And that is happening today. It is not for tomorrow. We are innovating and delivering new solutions to customers today. And you will see some launched as new products, but some of it are improvements to our if we have the best plain power connector, we're not gonna we don't want a competitor to come and take that away from us. So we have ensured that we have reassessed it, reengineered every single bit of it to make it the best product for it to maintain that leading position in the marketplace.

10:42 So, yes, you will see some new product introduction, and launches coming up soon. Rebalancing the business with a more diversified revenue mix. You've all been tired of hearing the project has slipped so the numbers won't be met this year. We need to get away from that. So what we've done is whilst we absolutely need those large rail or aerospace contracts, we also need lots of smaller contracts to fill up our pipeline and our funnel. So you might say, well, the the there was no news from LPA for most of last year. Yes. We've been really busy, but we've been building on the pipeline. And Stuart will touch on that shortly. We had a record order intake, but we didn't get the opportunity because of the small revenue mix coming through to announce it to the market.

11:30 And you'll get a little bit of a flavor of that. We're also ensuring that whilst we wanna make get new customers, we also want to ensure that we build on the legacy of our existing customers, our existing distributor list distributors to ensure that they're still delivering for LPA and then ensuring that we bring on new distributors if the ones that we don't either as a to fill in a gap or if the existing ones aren't really the right ambassadors for LPA moving forward. We can't do all of this without the right certifications. And we have a range of different certifications to ensure we can deliver quality to each of our customer bases. So the Iris certification, we got recertified last year. The number we got, it was towards the end of last year. We were we got to a higher level than what we had previously. So that's a big tick in the box. 9100, 9120, we had audits again towards the end of last year. 9,100 has been closed up. Ninety one twenty, the team is very close to closing out those open actions there.

12:35 9,001 audits happening for one of the sites this week as well. So this is a continuous work in progress, areas of improvement and we are we are maintaining, we're improving. And that's great. And I suppose with the refinancing, I'm gonna hand over to Stuart so he can actually take you through the process that we went through and what a success it's been. Okay. Thank you, Frillo. So the refinancing, we're very pleased to have have concluded in mid January this year. I trust you've seen that. This was a very competitive process. We had lots of interested parties, and the prime reasons for us refinancing the banking facilities is to relieve short term pressures on working capital due to different timings on receivables and to support our growth in the medium to long term. I'm really pleased to have secured this with but not, and I look forward to working with them going going forward. It's a three year revolving credit facility.

13:35 Moving on to recent contract wins. As Philo alluded to, we had a record order intake during during the last financial year. You can see here a large number of small smallish orders that we won, which wouldn't be announceable in their own right. But you can clearly see they're spread across the industrial side, the rail side, the aviation and aerospace and defense. Coming to now the key financial highlights. Key takeaways from this slide here really are the order intake of 28,800,000. The previous year, it was 17,000,000. So we're really pleased with that, and that shows that our customers have faith and confidence in in in our growth and our and our future.

14:25 This leads to an open order book as at the end of September thirty two point five, which is which is pretty close to to our record order book there. As Philo alluded to, overall, the year of f y twenty five was was out of transition, and we had some project delays, which meant that the revenue wasn't as great as what we thought it was going to be. Having said that, you will see the guidance put out is is is around twenty seven million for our revenue this year, which is a 25% increase on what we did last year. And I'm pleased to say that at the end of quarter one, we're already well in line with that, and we actually had, for the first time in four years, a profitable quarter one. So we are very confident in both achieving the revenue numbers and the profit forecasts that are out there.

15:15 Moving on to a little bit more detail on the revenue breakdown, three charts here. Looking on the left hand side, key takeaways, rail still remains the the larger proportion at 66%. It is down from 69%. It will always be in the sixties at the moment. Key takeaway is air aerospace aviation defense is now 28% of revenue. Previous year, it was it was 25. The two years prior to that, was thirteen and twenty. So over the last three years, we really have been improving in that area. Revenue by segment is is pretty pretty stable, to be fair, with the value add business 25 and the and the balance split between the other two businesses. And then we're very also very pleased with the fact that the improvement in our Europe and the rest of the world revenue has increased to 47% from 41%.

16:06 From a little bit more analysis of the order book, as Filo alluded to, the spread over a number of years as you can see on the right hand chart there. On the left hand chart, that shows most of the projects. For example, the refurbishment of the London underground lines are primarily in the lighting business. That's where most of the the order book is, and then that's spread over over four four years plus. Moving to the to the income statement. Key takeaways, as I've just touched on, are the strong increase in order entry over over the year last year and also the the follow on impact on the order book.

16:56 The balance sheet, two key takeaways here are the freehold property. We we got those valued as part of our refinancing exercise. So that's 5,400,000 there there at a net book value of about 3.6 in in the the tangible tangible assets assets there. And then the the pension entry there is a defined benefit pension that is net of a 25% tax we've got there. That scheme scheme was closed twenty five years ago. It's about a 110 people in it, and that is a surplus. It's a 133 funded. So very unusual, but that is a strong asset that we have in the balance sheet. We don't propose to hold that for forever, but at the moment, we believe it's the right thing to hold as we move forward. And looking at future government legislation to relieve to to assist with pension services, we'd be looking to potentially source some funds out of that in due course when the legislation allows us to do so.

17:59 The other point on there to note would be the net working capital, which I'll come on to now, the increase of 1.2. I'll come on to that in the cash flow. So, again, you can see the change in working capital here, one negative 1.2. That's primarily a change in receivables due to different timings of receivables from key customers. And that is one of the reasons, as I touched on earlier, in terms of the refinancing. We need to smooth those out, which the refinance will enable us to do. And I think that goes back to you, Phil. That comes back to me. Right. Thanks, Stuart. Okay. So let me just so so we we've spoken a little bit about what we've done and and what we're doing collectively as a team and how do we sit and how we place within the market.

18:46 LPA has a lot of strengths. And and what is our USP everyone says? It is really our agility. It's our capability with our in house design and manufacture. We're able to take a customer's pain point, engineer it, prototype it, test it, and very quickly change the manufacturing because we've got that all in house and that is a USP in terms of being able to quickly respond to the customer. Vertical integration, yes, that is a strength as well because that is a requirement for some of our customers that we need to they need a US UK based production manufacturing done here. We've got a long history.

19:36 Our brand reputation, you know, and the legacy is something that we need to leverage because we have a good global install base that we want to continue to grow as well. So so lots of strengths. In terms of if I look at the weaknesses and threats, I've put historic against a lot of those because I think we were restrained a little bit by the way we were constructed in terms of organizationally. We were a little we've been weak commercially. So how are we managing that? We are starting to push back to customers. We're not just taking what they give us. We we sort of we we need to be firm and clear in terms of we know what we're good at, we know what we can deliver, and we need to ensure we get the right margins. Yes. When there is competitive tenders, we need to be competitive and depending on if it's strategic or not, we can then bid accordingly.

20:29 But in terms of contracts slipping into the right, etcetera, we do we have started really reassessing it. We've got new people within the organization that are reassessing what the contracts are, historical as well as new to ensure that we are we are protecting LPA. In terms of I suppose with that then comes diversification in in the fact of we will be looking at more recurring revenue contracts, more work in areas where the money is, where the investment is, and getting the support from either local or international firms that will allow us to to do to grow there. And really rep you know, letting the customers know that it's a total cost of ownership.

21:18 It's a low total cost of ownership. So whilst they might get feel like they're paying more today, the reliable good products that they get out of LPA means that they would not need to replace it as often. So they they need to be looking at the overall life cycle of a product. And the quick development cycle, I've spoken about innovation and the innovation pipeline that and the road maps that we've developed through the course of last year. We should be in a position to release products this year and that is what we're working towards. And I think our agility and our ability to design and quickly manufacture and deploy is a strength and we will continue to leverage that and ensure that we, yeah, get make more of that and it becomes more opportunistic there.

22:05 I think so so we have a couple of case studies. I think, Stuart, we're gonna do a tag team on this. I'll do so we'll we'll do do a couple. We can talk more about it later if you have any further questions, but I'll just give you a little bit of a sense of it. So the first one is is really a customer relationship and our partnership with Grammar. So Grammar is a seed manufacturing German based company and this contract was over €5,000,000 contract that we won a couple of years ago, which we're well into delivering. So but I just wanted to give you a flavor of what happened and why was this important. So LPA was GROUP didn't really understand the French regulations.

22:52 They didn't haven't worked with SNCF and the French National Rail Network. But LPA have and had over a decade of experience working French rail industry. So what did we do? We brought a decade long specialized French rail expertise to the partnership, having worked with French seat manufacturers as well as with the end customer as well, which is SNCF. The depth of knowledge that LPA brought was really the intimate knowledge of the above European norm requirements that the French railways required and really understanding the in-depth technical and requirements specifications that SNCF imposed on this contract.

23:41 So that depth of knowledge was absolutely critical in elevating Grammar's position as a credible contender for this project. So it was all the the crucial part was the reliability and compliance were were absolutely not negotiable. So together, we we managed to help GROUP PLC secure this and we are obviously supplying to GROUP. And we are delivering on one of Europe's most demanding rail projects. So it's a really good success story for LPA in terms of our export that we're doing out of The UK. What is the scope of this? We are supplying reading lights, under seat ambient lights, power sockets, USBs, the complete interconnection harnesses, table lights, chargers, all sorts of things. So quite a big scope and we've got a couple more years left for it, but we're well underway at the moment.

24:42 I think I'm gonna hand over to Stuart on that. Thank you, Fido. So second case study, we're gonna talk about the aviation sector and delivering product innovation there. So Glasgow Airport, for those of you who don't know, is the second largest airport in in in Scotland and the ninth biggest in The UK. When aircraft when aircraft land, they the the the key is to switch the engine off as as as soon as they can regarding noise and and pollution, so they need ground power. This is this this is what we do here. What you can see in the picture there is is what we call a crock that delivers the power to the plane to enable its avionics, cabin systems, etcetera, to to function without the engine on.

25:28 So Glasgow Airport have been a customer for a while. They had ten ten ten crocodiles for for 12 for their 12 stations, and that was all going fine. A few years later, they ordered a competitor crocodile. And and, actually, it was a a couple years after that, they came back to us because though the the the replacement ones they'd ordered were actually corroded. So Glasgow Airport now have our latest plane powered crocodiles. And the key reason why ours are are pretty good is because Glasgow Airport's situated on the Clyde. The the the the sea air with the with with with the the aviation fuel crates are sort of a toxic corrosive environment.

26:17 And our crocodiles are made of aluminum. They are very lightweight. They are space saving, and they're easy to move around. They're very stable for when it's very windy. And and and all in all, I've been a big success there. So we we see future growth for this in in other airports, say, in Europe where they're using lots of deicing and things like that. So we're very pleased with working working with Glasgow there in developing product innovation. And I'll pass back to you, for the last one. Thank you. Okay. So this one is case study on with Siemens. It's more about product innovation, a contract.

27:04 The Siemens won a contract award from TFL. This was all during COVID, so it was actually extremely complicated between the Austrian German entities of Siemens to work in The UK. So I'll come on to that partnership part later, but I suppose the challenge here was LUL have very stringent requirements in terms of smoke and toxicity and have always insisted on using the using glass for lighting diffusers, which are heavy and expensive. They've also got, you know, in terms of emergency lighting, traditionally would be bulky battery backup systems within the carriages. So what did we do here? LPA have been working with LUL for a very long time and have got a partnership with LUL over the decades.

27:59 So we were able to demonstrate how to use polycarbonate diffusers very safely and which then obviously was lighter and cheaper. So that was a tick in the box. And we managed to get this approved for the very first time with London Underground. And we also, in terms of the battery backup, we built it into specific luminaires, which again reduced cost and the weight as well. So this, you know, ability to innovate and work with our customers to make sure that not only are we moving forward in technology, but also reducing their costs as well is absolutely key. Most of this design prototyping, as I said, was carried out very successfully during COVID where we were able to prototype and test it together with our customers, and we were really able to support Siemens at these LUL meetings in The UK.

28:57 So the end result, you know, state of the art LPA constructed lighting system for the Piccadilly Line, which is the first line. If you look at it, we are making over 35,000 lights in our factory in the north of the country. And if you line it up end to end, it's about 20 kilometers of light. This is the Piccadilly Line. The next will be Bakerloo, following that will be Central. The conversations have already started with Siemens on they've said so LPA, what is your next generation of innovation? How are you gonna reduce cost even further? So those conversations are happening over the next couple of weeks and they'll continue on over the next months and so so that we are working to understand what are their pain points at the moment and how can we actually get the next contract award as well. So again, a good news story in this time, again with partnership but also in terms of driving innovation with our customers.

30:01 I suppose at the end of the day, we started off with a revised vision, mission, and purpose for LPA and that led to a complete rebranding. Who we are, what we're doing, and what we're planning to achieve and aspire to do required a different image and that's kind of the process that we went through. And hence, you'll see that we look and feel. And we're doing it slowly because we didn't want to spend all, you know, it takes time to to do it in a more thought out way. And so more things will catch up, you know. At the moment, we're working on our websites. We're going to then obviously do the the building signs, etcetera. So progressively but it's all about it's not about the logo. It's really about the values that we have reinstated within the company. It's about accelerating growth with margin accretive solutions. It's really about optimizing our manufacturing capabilities and scalability with a well integrated supply chain and we're working towards that.

31:06 And new ways of working, it is not good enough to work in a silo. It is not good enough to be great at your job and be really terrible in relationships with people. So it's about the right people at the right place. Some we're promoting from within, some we're bringing in new talent from outside where we feel that there are some key gaps as we sort of move forward as a as a company. So in summary, let me just touch on a couple of key points. Progress, you know, from the last slide, the focus is really about professionalizing our key functions, about being innovative, it's about reducing waste, it's about really improving our operational efficiency and all about collaboration so that we can deliver, improving our on time delivery, improving our quality, increasing our pipeline of product innovation.

32:00 The refinancing is absolutely key. I mean, it's it it was a lot of good work and hard work towards the end of last calendar year. That gives us the ability to diversify and to execute our strategy. We've spoken a bit about rebalancing our revenue mix across markets, across segments. And I would like to think that you will see a lot more announcements and information coming through, not just this year, but as the years continue on as well. I've spoken a bit about our certifications in the previous slide, and this is absolutely key. It gives us a right to enter across many growing sectors and markets and we will do exactly that. First profitable quarter for FY twenty six and it's the first time that we've achieved that in four years.

32:48 It absolutely we're still on the right trajectory and we're so confident that we're gonna deliver full year results for f y twenty six. So really good place that we land in today to actually present this, session to you. So I think we're, ready for questions now. There are a couple of 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 by our investor dashboard. As you can see, we have received a number of questions throughout today's presentation.

33:33 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? Yeah. I can take the first question. Shall I read that out? It says, why don't you move manufacturing to a low cost country and increase margins? So so I think that's a good question. I think there's there's a number of things there. A lot of our not all our contracts, but a a a number of contracts, particularly, for example, the Siemens contract that I mentioned, it it needs to be a locally made it needs to be UK based, and that's one of the reasons we won that contract because it's a locally manufactured product. It is thirty minutes away from the Google Siemens factory.

34:21 Can we make more stuff overseas? Yes. You know, as we so so the idea is to look at what is our USP, what is it that we absolutely need to do in house, in country, what is it that we're adding value. And we are going to start looking at that collectively across the group and identify areas of where we can rationalize, and we will do that. The the idea is not to move everything overseas. That is not the LPA model at the moment. So but, yeah, absolutely. Operational efficiencies is absolutely key, and offshoring or outsourcing is part of that supply chain exercise that we're actually undertaking right now. Shall I take the second the second question?

35:06 So the second question, how do margin profiles differ between project led revenues versus recurring project sales, and what does this imply for group margin progression? So I think as as as is normally typical, margins are stronger in the aftermarket in the aftermarket spares sales arena as opposed to initial projects. But if you don't have the initial projects, you don't have the spares and aftermarket afterwards. Yeah. With us going for more standardized products, we we we we would hope we would get some margin progression there moving forward. Do want me to take the Yeah. The third one? The the the next question, how comfortable are you with current gearing levels, particularly in delayed project environment?

35:54 So I think our view is that the gearing is is is is okay at the moment. Gearing level is okay, and we expect that to improve, I get lower, as we are profitable this year and moving forward. Do you want me to take the next one? So I think the the the the next the next question is, do you need to hold 5,000,000 of real estate? Could you not sell and leaseback to release funds? Excellent question. Yes. We've looked at this. We decided that we didn't want to do that. And whilst that might be very beneficial in the short term, longer term, we didn't think that was the right way forward.

36:40 Hence, we've we've done the refinancing. Over the next two or three years, we expect to be generating the cash ourselves in order to repay that, and we'll release some funds from the pension fund. I think that's That's great. Thank you guys for addressing all these questions you have from investors. And, of course, the company can review all questions submitted today, we'll publish those responses on the investment company platform. Just before redirecting investors to provide you their feedback, which is particularly important for the company, Felix, I'll please just ask you for a few closing comments. Yeah. Sure. Thank you. Thank you all for joining us this afternoon. And, yeah, as I said, you know, feel free to ask further questions. We're happy to answer. And, yeah, I think for me, LPA is at a really good point and turning point in its journey.

37:32 It's it's LPA, you know, next next version of it. Yeah. Huge opportunities around the corner, really energized team internally. And we look for your you know, we thank you for your support and your commitment over the years or decades, however long you've been there. And if you're a new investor, jump on board. It's gonna be a fun fun future for LPA as we embark on achieving our vision. Thank you very much. That's great. Thank you both for updating investors today. And please ask investors not to close this 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. On behalf of the management team of LPA GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.