The Alumasc Group plc (ALU) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Alumasc Group plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to the management team. Vijay, good afternoon, sir.

Thank you very much. And to reiterate Simon Dray and my own welcome to the one just given by [ IMC ]. Thank you, [ IMC ], for hosting today. And we're delighted that you've all joined us to talk about Alumasc -- to hear about Alumasc's results to 30 June 2026. Those of you who know us and have attending these before will recognize Simon Dray, our CFO. You probably won't recognize me. I'm the Interim Executive Chair. And I'm here because, as you know, from our [ RNS ] at the end of August that we terminated the employment of our CEO at that date, and I was asked by the Board to step in on an interim basis. I'll say more about how we're running the business, the management team that's running the business in one of our slides later, but I just wanted to reassure everybody right at the beginning that we have a very strong executive on wider management team that is running the business. And in fact, the business is doing quite well for the first 2 months of the year to date, and we'll say more about that later as well. So this afternoon, what we'd like to cover on the next slide is -- just go back on slide. Thank you, Simon -- just one more. So we're going to introduce Al because I'm conscious some of you will be hearing about Aim for the first time. And I'll also give you some very high-level highlights of what happened in the year that's just gone and an overview of some of our opportunities and business, including that management structure that I've mentioned. Simon will then come in and provide a more detailed review of our financials for the year that just went and a bit more detail on each of our business units, our divisions. We'll then talk about our strategy and what we're doing to deliver our strategy before concluding with our outlook for what is our financial year '27 to 30 June '27. Thank you, Simon. So for those of you who don't know us, we have three divisions. One is Water Management. That produces a very basic metal rainwater goods, so gutters and down pipes, but also includes products like [ faces ] and so that go into the commercial built environment. The second division is Building Envelope, which is mainly supplying commercial roofing, roofing to the commercial sector, focused very much on environmental efficiency and helping urban diversity in the urban-built environment. And the third division, Housebuilding Products, is focused on as it suggests, residential housing, products are focused on energy efficiency in the home, air tightness and management of ventilation. The common theme across all of our three divisions is that we produce products that are focused on environmental sustainability and meeting or exceeding the increasing level of building regulations to help combat climate change, whether that's flood risk in water management, urban biodiversity in building envelope or energy efficiency in housebuilding products. And more than 80% of our products that we make and sell are meet or exceed these environmental and building regulations. So that's a bit about our divisions. Simon, did you want to just cover the next slide?

Thank you, Vijay. You've spoken about the strategic environmental growth markets, so I don't need to cover that. But our products are high quality, which means higher initial cost is offset by lower maintenance and longer lifespan. And we do this using energy and resource-efficient materials, maximizing recycled and recyclable content and environmental performance declarations are one way that we can demonstrate this to customers, and we now have EPD certified to 30.4% of our revenue.

Thank you, Simon. So what happened in the year to 30 June 2026. Well, actually, the market backdrop is very challenging. As you'll see from a slide we've got later, Construction Products Association, the CPA, estimates that construction output in the U.K. fell -- is falling by 3% to 4% this year and private housing starts declined by 12%. Our revenues went down by 6% from GBP 113 million to GBP 107 million. But within that, there were some real [ pronouns ]. Firstly, Housebuilding Products. The revenue there grew by 16% compared to that 12% reduction in private housing starts compared to the previous year. In our Building Envelope Roofing division, the revenues was level with the year with the level we achieved in 2025 despite overall activity dropping by 3% to 4%. So both those divisions outperformed the market and have taken market share. What is their secret? Well, the secret is innovation, making sure they develop environmentally efficient products, which is what customers demand and the regulations demand, having great customer relationships and understanding what customers want and then providing really fantastic service. Our Housebuilding Products business, Timloc, which is a brand, has next-day delivery and consistently achieves 100% [indiscernible], i.e., 100% on-time in full delivery. And it's those sort of factors that have enabled those two businesses to take market share year-on-year. The disappointment was in Water Management, overall decline of 16%, although 4% if you exclude a large contract in Hong Kong, what we call the CLK contract in Hong Kong in the previous year. But nonetheless, disappointing, although that division does represent the biggest opportunity for us in terms of improvement, and we will say more about that later in this presentation. As a result of all of that, our underlying profit before tax changed from 14 million to 10 million. However, again, a bright spot was our operating cash conversion, which is more than 100 despite having to invest in more inventory in the year due to the Middle East conflict to make sure that we didn't run out of inventory and stock for customers, and Simon takes a lot of credit for driving that. Simon and I also work very closely with our defined benefit pension scheme trustees to help manage the pension scheme position in terms of their investment strategy and management of costs with their advisers. That -- the surplus in that scheme on an accounting basis increased to almost GBP 6 million compared to GBP 5 million last year. So that's positive. And the other positive is that our bank facilities, we've renewed those. Simon has renewed those in the year. So thank you, Simon, and increased that from GBP 25 million to GBP 30 million. We also have a GBP 20 million accordion facility, which gives us plenty of firepower to go and invest in our business organically, but also to make acquisitions where we find the right ones. And our approach to this is always to only do this on a disciplined basis and only buy businesses where we can add value to them, but very importantly, that they can add value to our shareholders. And while we were doing that, we also managed to reduce the margin on our borrowing facility by 20 basis points, which is some achievement in today's market. So as I say, tough backdrop disappointing in water management, but actually some real bright spots. So we're confident about the future. As a result, we've held the dividend provided our shareholders approve that at 11.1p the same as last year, which is a record level we set last year. Moving on to the next slide in terms of our strategic priorities, what we want to do is outperform the market in all of our divisions. So I've mentioned already that we put a lot of focus in helping our Water Management division do that to match what our other two divisions have been doing, both by growing volumes but also margins by operational efficiency, and we'll talk more about that later on. We'll continue to invest in our well-performing businesses, and Simon will talk about some of the investments we've already made very recently in our Housebuilding Products division as an example. And as I said earlier, we will continue to look at acquisitions but follow that disciplined approach that I mentioned. I mentioned the leadership changes right at the outset and there's a slide coming up to show what we're actually doing in the business. Looking forward, I'll say more about this later on as well. Our June order book at the end of the financial year closed up 49% compared to a year ago. some of that order book has started to convert into sales. As a result, the revenues for the first 2 months of this financial year are 5% ahead of last year. And some of you who -- those of you who know us pretty well will know that we won a contract in Changi Airport in Singapore a few months ago, which we let our shareholders know about and deliveries on that should start going out later in this calendar year. So reasonable outlook going forward. I mentioned a couple of times that I'll come back to this slide. It shows how we're running the business at the moment and how all of our executive team Simon, Gilbert and Michael are contributing to helping drive the business forward. So [ Gilbert Jackson ], who runs the Roofing or Building Envelope kitchen continues with that responsibility. He's also, however, overseeing our covers and drainage business, also known as Gatic, which are the brands there. The reason [ Gilbert ] has been asked to do that is that in our roofing and envelope business, a lot of the products are specified by people like architects, designers, civil engineers. And actually, the covers and drainage business has a similar go-to-market approach. So he can help support that business. And Michael Lee, who runs our [ TL Transporting Products ] business has kindly agreed to support the rainwater products business unit within water management, what we call the [ AWS ] water management systems based near [ Kettering ], [ ARP ], the rainwater products business, which is similar to that one that we bought 3 years ago, based in less than 30 miles away, and we also got a small distribution business called the [ Rain Clearer ]. And Michael has been fantastic at driving operational efficiency in the Timloc manufacturing business and is helping -- is sharing that expertise, that experience with our rainwater products business. However, we've also put in place business unit at these two units. As you will see on the bottom right there, in the covers and drainage business, a chap called [ Peter Blanchard ] who used to work for a competitor some years ago, joined us to help drive that business forward, and he's settling in really well. We're very pleased there. And in rainwater products, which is where the operational efficiency opportunities are greatest, we've had a chap called [ Nick Luff ], who's joined us actually this week working closely with Michael. So just wanted to reassure everybody that the business is in good hands, being well run. And of course, there are teams within each of those three divisions who continue to drive the business forward on a day-to-day basis. They've asked for stability, which this team is providing and continuity, which also helps them then do their job to the best of their ability and provide great service to our customers. So that's a bit of our team. Just going to say a couple of words before handing over to Simon on the market backdrop. There are three points really that are sort of in the main subheadings on the left. The first one actually is best illustrated by looking at the charts on the right. This is the CPA data, which I referred to earlier. Overall construction declining by 3% to 4% this year, overall U.K. private housing starts declining by 12%. But -- and I should say, let's be positive about it forecast to increase next year, which I think will then give us some tailwinds. As I say, despite those statistics, two of our divisions outperformed the market this year, which we're pleased with. We want the third one would imagine to do the same for next year. The second main point on the left though is that the affordability and stability in the economy is going to be critical to this. A lot of this is outside the control of [ John Healy ] and the government, but they can help with that in the October budget. When I say outside the control of those individuals, the government, obviously, the Middle East situation, the oil price hike and the potential for interest rates therefore to rise in the U.K. could have an impact on both residential and the commercial markets in the U.K. So we will obviously deal with that. Our job is to go and take market share from our competitors. Two of our divisions have done that, the third division to start doing the same. Whatever happens there in the short to medium term, the long-term structural drivers for Alumasc, the final point on the left there remains very strong because there's a lot of legislation around environmental efficiency in the built environment, our products, more than 80% are designed to meet or exceed those requirements and help our customers to meet those requirements. Those of you who are familiar with TCFD, the Task Force on Climate and Financial Disclosures know that every significant company has to report on that. Our products help customers to do that. So the longer-term tailwinds for Alumasc are very positive, and we remain confident in our strategy?

Thank you, Vijay. So I'll take you through some financial slides before we move on to the divisions. As Vijay mentioned, our revenue declined by 6% year-on-year. A large part of that relates to the Chep Lap Kok Airport project. Excluding that, revenues were broadly flat with a 2% decline in U.K. revenues offset by 36% growth in non-Chep Lap Kok Airport export sales, which we were pleased to see given the investments we've made in overseas technical sales resource. However, this volume reduction and a smaller mix variance has impacted margins. Like many manufacturing business, we have a fairly high contribution margin. That's revenues less variable cost of sales. So gross margins were 150 basis points lower at 36.4% and our operating margin fell from 13.7% last year to 10.5%. As a result, underlying profit before tax was GBP 10 million compared to GBP 14.2 million last year. The Board proposes, however, to keep the final dividend level with the prior year at 7.6p with a total distribution for the year of 11.1p, the same as the prior year. We're confident that future earnings growth will quickly restore the dividend cover back to our medium-term target range of 2.5 to 3x. On our profit bridge and income statement bridge, 3 things I'd pull out here. Firstly, we were able to introduce some targeted sales price increases that will recover cost price increases that we saw, both raw material price increases and employee cost rises. As I mentioned before, that GBP 8.4 million -- GBP 8.1 million, sorry, volume reduction was responsible for a GBP 3.6 million profit reduction, which represents a drop-through a contribution margin rate of around 44%, which is fairly typical for Alumasc Group. And finally, we have a small adverse product mix variance, which is partially offset by some cost efficiencies, the majority of which will benefit from next year. Our cash conversion, the ratio of operating cash generation to operating profit was above 100% despite some inventory investment to mitigate cost and supply issues arising from the Middle East conflict and also the timing of some shipments into the Chep Lap Kok project around year-end, where we carried them through as trade receivables and expect to collect them in the early part of this year. Our payments into the pension scheme were GBP 800,000 compared to GBP 1.2 million last year, reflecting the reduction agreed with the trustees to GBP 700,000 per annum from September 2025. And our cash flow meant we were able to continue to invest for future growth. The capital expenditure of GBP 2.6 million was level with the prior year. Some of the bigger ticket items were two further injection molding machines at Housebuilding Products site in Timloc in [indiscernible] to add capacity and support product development and a further CNC machining center at Water Management in [ Halfsted ] to in-house some component manufacturing to reduce product costs and inventory. Our balance sheet, first point is the return on investment despite the dip in profits remained above our weighted average cost of capital, which we estimate at about 13%. Vijay has already spoken to the bank facility refinance, so I won't cover that one again. Final point I'd like to make is our pension derisking continued. Our accounting surplus under IAS 19 increased to GBP 5.9 million. We have two targets in mind. Firstly, the self-sufficient target where at that point, the pension scheme is able to manage itself without further contributions from the company. There's probably about a GBP 1 million to GBP 2 million deficit against that funding target, and we expect to get there over the next few years. However, we also have one eye on our buyout target, which at the end of June would probably require a further contribution of around somewhere around GBP 7 million to GBP 9 million. The buyout represents the amount that we would need to pay to an insurance company to take the scheme off our hands and remains the gold standard for pension scheme derisking. We may, once we reach the self-sufficiency target, keep some further contributions going into the scheme to take advantage of any opportunities to fully or partially buy part of the scheme. Turning to the divisional review. Water Management was the chief disappointment this year. Revenues declined by GBP 8.9 million, GBP 6.8 million of which related to the year-on-year drop in contribution from Chep Lap Kok Airport. Excluding that, the decline was 4%, with planning constraints, affordability concerns and fragile confidence levels pushing U.K. revenue 6% lower. This was partially offset by an increase in non-Chep Lap Kok exports following the investments made in local technical sales resources. Underlying divisional operating profit fell GBP 2.5 million, reflecting the lower volumes and the division's high operational gearing. The division is focused on self-help. Actions were taken to reduce costs with a further GBP 900,000 benefit expected to hit the bottom line next year, FY '27. But we're also focusing on improving inquiry to order conversion rates and lead times. Supply chain rationalization opportunities are underway, and we're looking to optimize manufacturing processes, particularly between our rainwater products sites in [ Lester and Kettering ]. However, the order book at the end of August was 68% higher than a year ago, providing some early signs of improvement. This includes the GBP 2 million Changi Airport project won last year where deliveries are expected to start in the first half of FY '27. Subsequent phases of that project are potentially worth a further GBP 10 million to GBP 15 million when they come to tender. Our Building Envelope division suffered from planning delays in the early part of the year. And in the second half, the Middle East conflict, which created a very volatile supply and demand environment. We navigated this very well with revenues level with last year's record and margins only slightly down on some investment in product certifications and support. This is testament to the strong customer relationships they've developed. With architects, designers, contractors and increasingly with blue-chip landlords who wish to have a preferred supplier to manage the refurbishment programs on their property portfolios. It also reflects the growing interest in their sustainability-led product offering. The Building Envelope division's order book at August 2026 was 39% higher than a year ago. And while we continue to see some volatility in demand, there were some signs of improving rates and conversion of pipeline into order book and order book into revenue. Our standout performer in the year was the Housebuilding Products business, Timloc. Revenues were 16% higher than FY '25 against the backdrop of low housebuilder volumes. Since COVID, Timloc achieved a remarkable average annual revenue growth rate of 11% per annum despite an average 2% annual decline in U.K. housebuilding starts. It's quite an amazing record. This is founded on customer service. They have guaranteed next-day delivery and low carriage paid order values with 100% on-time and full delivery, supported by a relentless focus on efficiency and new product development. Their latest launch, the [ Loft Tight LOF door ] is shown on the right-hand side. It's a good example of the renovation with improved air tightness and insulation and a patent-pending installation bracket designed for one-person installation. We've added further manufacturing capacity and capability in the year, and Timloc very well placed to benefit from any recovery in housebuilding volumes. Pass back to Vijay for the strategy.

Thank you very much, Simon. So for those of you who know us, you know that we have four pillars to our strategy. For those of you new to this, I thought it would be useful just to run through this. And we try and keep it simple in the business. And the first one is we continue to be focused on sustainable, environmentally sustainable building products because that's where all the registration is, that's where all the expectations from construction companies and their customers are, including in house building. So we will continue to target new product development or enhanced product development on that part of the part of the market. As I mentioned earlier, more than 80% of our products are environmentally sustainable or meet or exceed building regulation standards. And this commitment, this delivery to this commitment has been recognized by the London Stock Exchange awarding Alumasc the green economy mark, which is only awarded to companies where the majority of their revenues come from sustainable activities. Second part of our strategy, second pillar is accelerating organic sales growth, i.e., trying to outperform the market. And as I said, two of our divisions have done that. We want the third division to do that, which is why we put a lot of focus on that division this year with extra support. from the executive and management team. And in that division, water management, we have some great brands. I mentioned [ Gatic and Wade ] earlier, but also within our rainwater products business, some great brands that we just need to make more of by making sure that our operational efficiency allows us to optimize our opportunity in that market. And of course, overseas as well, you've heard us talk about [ Paul Hooper ] and talked about our track record overseas, including Hong Kong and lately in Singapore. But also we have been growing in other markets as well. If you take out the Hong Kong airport contract, our revenues from exports actually grew by 36% in the last year, showing that the investments we've made in overseas technical sales resource do bear fruit, and we have started to do -- we've done even more of that towards the end of last year and are driving for that growth as well. The third part of our strategy is to drive margin improvement. We were disappointed by the 10.5% we achieved largely because of the performance in water management in the year just gone. The reasons for that have been explained by Simon. And with the effort we're putting into improving performance there and trying to realize the acquisition synergies between ARP, the [ Lester ] business and the catering business that we already had we would hope to improve margins in this year and remain committed to our medium-term target of 15% to 20% operating margin. And then the third -- sorry, the fourth aspect of our strategy is to continue to invest in the business, whether that's in new product development, strong technical resource, overseas capability or new CapEx like the ones that Simon touched on earlier, then we'll continue to do that to provide capacity to grow our business, particularly when markets recover. And we will also look at selective bolt-on acquisitions where they make sense for the business. Now there is a question, and I'll deal with it now in the chat that says, would it be sensible to pursue acquisitions while under the current executive leadership team or do we need to wait until we've got a different position? The answer is we will continue to look at acquisitions and execute -- undertake acquisitions because if they make strategic sense and the Board as a whole will review that, then actually, the execution of the transaction or any acquisition and integrating is the responsibility always of the operational teams. And the operational teams haven't changed, in fact, if anything, they've been strengthened by what I described earlier. So hopefully, that deals with that question. And then Simon, I think if I go back to you to talk about the next section.

No problem, Vijay. I think we've covered the first couple of points on here. But our own greenhouse gas emissions, you see the chart on the right there, they ticked up ever so slightly this year. These are Scopes 1, 2 and business travel. So the emissions we cause directly ourselves, picked up very slightly, but they still represent an over 70% reduction since we started measuring them in FY '18. And we have now calculated our full emission or our full carbon footprint across what are term Scopes 1, 2 and 3. So that's everything from extraction of our raw materials through to delivery of site for our customers to use. And we are -- as you might imagine, for a business like ours, the majority of those relate to the carbon embodied in the raw materials we use them. and also our transport, freight and logistics operations. And we'll be engaging with our suppliers to reduce those going forward. We have science-based targets in place now for reducing the emissions, and we'll be getting those -- we're in the process of getting those credited by the Science-based Target Institute.

Thanks, Simon. This next slide, again, without going through the strategic, this is the second pillar, a bit more detail on that, which is all about organic revenue growth. So as I mentioned earlier, we exited the year with an order book 49% higher than the same time last year, which is obviously quite encouraging. That included the Changi Airport contract. And we've actually, it's probably instructive to look at the charts on the right there, which show that in recent years, our order book has been dominated by that CLK or Hong Kong contract. While that is now tailing off, our order book on other -- with other customers is actually the highest it's been for a number of years. So that's quite positive because while we will never turn away those big orders in terms of the quality of revenues, it's encouraging to have the sort of order book we've now. And the bottom left, what that's showing on the bottom right is that an order book we had at 30 June '26 has actually converted into sales. So we have 15.5 of orders, and this only relates to water management and the building business the next day they don't have an order book. That 15.5 converted into sales. I mean we new orders 18.5 was shipped in the first 2 months, but then the order book was then added by 18.6%, which meant that by the end of August, it was back at the same level as at June, but that is 56% higher than at August '25. And as a result, revenues for the first 2 months of the year have been 5% higher year-on-year, which in the current difficult market, we're pretty pleased with not complacent because we got another 10 months to go. However, our teams deserve some thanks for what they're doing and how they're responding.

Yes, snapshot of our opportunity pipeline at the end of June. We do monitor this. I'd just point out a couple of points on it. Firstly, over 75% is Alumasc specification products. So we are right in the game for when these come to tender. dominated by the U.K. because it's our biggest market, but we have a good split within that of private and public opportunities, including ones supported by rising government spend like defense, like prisons, like transport infrastructure and to an extent, data centers. So there's -- we've got a good spread of opportunity within the U.K. The other point I would make is increasingly, we're getting more and more overseas opportunities. that overseas pipeline is far, far stronger than it would have been 3, 4, 5 years ago. The local technical sales resource is helping to build that, get specifications recognized in territories, especially territories where Alumasc has not been traditionally strong like in the past, Asia and the Middle East would have dominated the chart, but we are seeing some good opportunities in the Americas, Africa and Europe as well, where we just added at the end of FY '26, a further technical sales team. So we look forward to bringing some of those into the order book soon but also to keeping the pipeline stocked up with new opportunities as they come. The margin improvement slide really is just to illustrate the dilutive effect of price passing through cost increases without -- it is largely dilutive to our operating margin. And also the mix there is drag margins down a bit, but particularly in the volume side illustrating our operational gearing. We do expect improvement in FY '27 centered on the Water Management division, both volume recovery and the efficiency measures taken over the second half of FY '26, but also in that FY '27 time scale, some rationalization benefits from the supply chain. And we are seeing some encouraging early signs and the Board does reaffirm its medium-term target range of 15% to 20% operating margin. I think we've covered most of the investment slide already. I'd just say referencing M&A opportunities. We do continue to review them. We are disciplined. The ability to add value post acquisition is paramount. They need to be complementary products, services, customers. They particularly need to align with our structural growth drivers as we quite like those, and we see them as a big contributor to accelerating our revenue growth. And we need to be confident that there are available and addressable synergies coming from the acquisition. And as we mentioned before, we have significant headroom to accelerate strategic delivery through targeted investments. Back to Vijay for the outlook.

Yes. So this is -- thank you, Simon. This is our final slide. Which is really to talk about the future, the outlook. As I mentioned, we've had a positive start to the year, notwithstanding the difficult market. So however, we mustn't get carried away. There's a long way to go in the year still, although we are encouraged by also the strong order intake and the order book being 56% higher than it was a year ago. And also that we should start seeing some of the product going out to the Changi Airport in Singapore later this calendar year. As a result of the actions being taken in our Water Management division, we would hope and expect to improve the operating margin for the year as a whole. And longer term, nothing has changed here, which is that the tailwinds are very strong for Alumasc because of our focus on environmental and products that meet regulations or exceed regulations. There remains a chronic undersupply of new housing in the U.K. As we know, the government committee, [ Angela ] indicated the other day that they still think they can meet the 1.5 million target for this parliament. And we really hope they do. Even if they don't, they get high percentage towards that, that will be helpful to our business. More generally, the commercial building stock, whether that's hospitals, schools, prisons -- they are aging. So there's a big opportunity once the spending opens on those, but also new areas. Simon mentioned data centers earlier. We already supply data centers in one of our divisions. So we have some track record there, which we can then build upon. And thirdly, despite the challenging circumstances for our industry in the last few years, we've continued to invest, as I hope we've shown in our capabilities and our capacity, including overseas. And therefore, when demand as a whole does recover and surely it will, then the future for Alumasc is pretty positive. And I'd like to thank our leadership team who continue to provide stability and continuity to our business and are now really focused on helping all of our divisions grow. So as a result of all of that, the Board remains optimistic that we can generate further growth in shareholder value in the time ahead. So thank you very much for joining. I think that brings to the end our presentation. Shall I hand back over to you.

Sure. I think that -- we'll now happily take Q&A.

[Operator Instructions] And guys, as you can see, we have received a number of questions throughout today's presentation. Simon, 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 very much. So I'll just read them from the top Vijay, and will decide he's best placed to answer them. Firstly, have there been any developments with the new Dubai Airport?

Yes. So we are pitching for some work there. We've actually had a change in our sales team over there. And actually, that is helping us -- the revised team is focused on that, including the [ Peter Blanchard ], the [ MD ] that I mentioned earlier. So with these contracts, you can never win not straight away, you have to sort of put some investments in the relationship and understanding what the customer is looking for. But we -- as Simon showed on that map earlier on, we are investing in this area.