Billington Holdings Plc (BILN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Billington Holdings 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 Mark Smith, CEO. Good afternoon to you, sir.

Good afternoon. I'm Mark Smith, Chief Executive Officer for Billington Holdings Plc. I and my colleague, Trevor Taylor, Chief Financial Officer, are pleased to present to you our 2023 year-end results. Our executive summary provides some of the highlights of 2023. We're pleased to be presenting record results for the company for both profit and revenue. There's been an improvement in trading that reflects the successful delivery of a number of principal projects, assisted by an improvement in input costs as material prices equalized during 2023 following the impacts of the Ukraine conflict. Projects across all sectors have been successfully completed and the company has benefited from selling construction solutions included from in-group divisions. We're pleased to see that the momentum gained primarily in the second half of 2023 has continued into 2024, and we have recently announced contract wins across multiple market sectors. In a market that has been in regression during 2023, we are aware of the macroeconomic headwinds in the industry looking forward. However, Billington has achieved an increased share of the market and boast the largest forward order book on company record. Our strategic capital investment program has further 2 years remaining, and we are witnessing the improvements in productivity, efficiency and quality that has assisted in achieving these excellent results. Most major pieces of CNC equipment will have been replaced and new technology implemented once this program has been satisfied. We are extremely pleased to have recently opened our new welding academy, BetterWeld in Barnsley, which we will secure a local labor force and assist the future of the business whilst improving local employment opportunities and delivering training to the Wider sector. We are pleased to have rewarded our loyal investors with a record company dividend of 33p a share to be paid in July 2024. Trading for 75 years, Billington is a group of construction-related companies. The most significant group company is Billington Structures, the third biggest U.K. steel contractor trading for 3 sites, 2 in Barnsley and 1 in Bristol. The company designs, manufactures and directs the largest steel frame structures in the U.K. and Europe. Peter Marshall is a steel stair and secondary steel manufacturing and construction business based in Leeds, contracts with steel fabricators and main contractors in a wide range of industries. Shafton Steel Services, trading from a site near Barnsley, offers a comprehensive range of cutting-edge steel processing services to steel fabricators, Wider engineering and infrastructure markets. Hoard-it and its associated graphics division Brand-it based in Barnsley, offers a unique range of environmental, sustainable and reusable hoarding solutions to its developer and main contractor client base across all construction sectors. Easi-Edge, our trading from Tuxford, Newark, [ hires ] to the construction sector its market-leading edge protection systems and related range of safety products. Specialist Protective Coatings located in Sheffield is a specialist paint application business, providing essential fire-resistant treatments for Billington Structures, [indiscernible] protective to Peter Marshall Stairs and paint services to the Wider Steel sector, including oil, gas and water industries. We will provide further details later in this presentation. Billington Holdings was originally listed in Canada as AMCO Corporation Plc in the 1980s and transferred its listing to the U.K. upon the formation of the AIM market. In 1982, AMCO acquired Billington to help with the rapidly growing need for structural steel work required in the local communities. The company became a U.K. listed company in September 1989 before changing its name to Billington Holdings Plc in 2008. The group was formed by [ Henry Schnell ], a German gentleman who came to the U.K. after World War II. Although listed on the stock exchange, Henry maintained a significant shareholding in the group until his death in 2003. Henry Schnell left circa 50% of the shares in the group to a family trust made up of his nephews and nieces and a further 25% of the shares were placed in a charitable foundation by the name of [ Tan ]. Recognizing the lack of trading liquidity in the shares, Gutenga and [indiscernible] have divested shares, these being purchased by a number of investors. The major investors on the register being Close Brothers, Otus Capital, Ruffer and GPIM. Ocorian Trustees, the other major shareholder on the register is the company's own share scheme. With the current price of roughly GBP 4.95, the share price has increased 100% from 1st of January 2022, following the progression of the group's trading results. The next slide, Billington Structures show a range of the projects completed and what sectors. As we've moved on to the group -- company divisional highlights, it shows those prestigious projects that have been successfully delivered as well as the broad geographical and market sector spread. Peter Marshall have enjoyed an extremely busy 2023 and post a positive order book. As in previous years, it could be noted here the wide range of clients as well as in-group trading with Billington Structures. Easi-Edge has continued to be impacted by the softening of the commercial market -- office market. However, trade is now more buoyant and in-group companies continue to make a valuable contribution to group revenue and profit. Hoard-it achieved a record turnover in 2023. Positive trading has continued into 2024 with record forward order books. Brand-it, a division of Hoard-it, provides graphic solutions for the Hoard-it product as well as third-party systems. Brand-it is now recognized as a premium branding and marketing company and is significantly contributing to the overall Hoard-it results. Shafton Steel Services continues to service the most demanding steel processing projects for its wider range of customer base. The division services all sectors of the engineering and infrastructure markets as well as providing its specialist services to Billington Structures. And finally, SPC. This specialist facility supports the wider requirements for the application of high-tech treatments and fire protective coatings. The group is starting to yield benefit from the significant investment in automated equipment and the modernization program during the year. SPC as well as providing in-group services has maintained relationships with the previous company's external clients in the oil, gas and pipeline sectors.

I'm delighted to say that 2023 has seen a record performance by the group, achieving record results for turnover, profit before tax and return on capital employed. As a measure of our performance and confidence in the future moving forward, the group has declared its highest dividend since the formation of the Billington Group in 2008. We have declared a dividend of 33p, with this being split into an ordinary dividend of 20p per share and an exceptional element of a further 13p a share. Operating profit margins of 10% have been delivered in the year. This is a result of the progression of the group's process improvement projects, further delivery of the capital expenditure program and the gains from the softening in the steel input costs over the course of 2023. Billington Structures as at March '24, holds a record order book that spans a number of market sectors, including energy from waste, retail distribution and education. Pleasingly, the cash generation and position at the year-end was positive with a year-end position of GBP 22.1 million. Significant working capital position as at the half year unwound during the second half as work in progress was realized into cash. The group has historically had an overdraft in place of GBP 4 million as a contingency. To allow confidence to investigate and progress further acquisition opportunities as they arise, the group has now implemented a GBP 6 million RCF facility from March 2024. Historically, the freehold properties have been held in their accounts at their historical cost value. And following the revaluation as part of the RCF facility implementation, these have been revalued in the accounts, noting a gain on revaluation of GBP 5.9 million. The legacy Final Salary Pension Scheme remains in significant surplus at GBP 1.9 million, with no further monies being anticipated to be injected into the scheme for the foreseeable future. 2023 noted a challenging environment for the construction industry with a number of main contractors ceasing to trade. The group's policy is to credit insurance projects and clients where commercially available insurance can be obtained. Credit insurance limits have seen reductions across the board in the year as a result of some high-profile company failures. My final point on this slide is to reiterate that following the regular increases in the Bank of England's interest rates, the decision was taken to repay the only remaining debt within the group that was a mortgage related to the Sheffield facility taken in 2015. And pleasingly, the group is now debt free. This slide provides some of the highlights for the 2023 trading period. Record revenue of GBP 132.5 million, an increase of 53%. EBITDA of GBP 15.5 million, an increase of 93.8%. Earnings per share of 84.4p, an increase of 115.9%. And the declared dividend, as previously mentioned, of 33p per share, reflective of the exceptional trading performance in 2023 and an increase of 112.9% from 2022. Return on capital employed of 57% versus 29.7% achieved in 2022. The result for '23 has been marginally impacted as a result of the revaluation of the group's freehold properties in the year and the strong cash generation in the year and GBP 22.1 million balance at the end. This slide is a summary of the group's income statement for the year. On top of the record performance, you will note the positive interest generation as a result of the element of the cash balance now being placed on deposit. The interest earned on cash deposits is anticipated to increase in 2024. The capital expenditure in the year and the ability to write off the assets in year 1 against the corporation tax has had the effect of reducing the overall effective corporation tax charge to 22%. The further anticipated capital expenditure in 2024 and 2025, we'll see the expected corporation tax rate to remain at circa 22%. Following the implementation of a 5-year capital investment program, it's pleasing to note the tangible profit margin gains that has been noted across the Billington Structures business. There are 2 years remaining of the program in which the level of expenditure is expected to remain at circa GBP 3.5 million for the next 2 years. Following graph gives details of the net cash flow movement in the year with positive cash generation across the group.

The manufacturing industry has received more pressures late than ever before with the request from Tata and British Steel for government support to construct electric arc furnaces to replace existing blast furnaces. This will assist the U.K. in achieving carbon emission reduction targets and maintain the steelmaking industry in the U.K., despite a mature supply of steel material from Europe and other [indiscernible], retaining a steel manufacturing industry in the U.K. will secure home supply and ensure a competitive steel market. The results of 2023 have benefited from a steel input price that has equalized throughout the year being previously at an industry high as a result of the Russia-Ukraine crisis supply issues. We feel that this price has now reached a level that is more conducive with the industry requirement at present. As demand rises, we feel that the price may rise from its current levels. Bearing this in mind, the company has very mature supply relationships and is able to secure fixed prices to ensure that we are not exposed to the potential rises during any contract. Although the industry is predicting demand to contract during 2024, the group has record order books that should insulate against what is still a very competitive market. Predictions are that volumes should return in 2025. We have a good volume of work secured already for 2025 and our intent on building on this order book. This slide shows the message that we have presented earlier, which is the magnitude of the current order book in a market that is currently suffering in volume requirement. We're also pleased to have capacity secured into 2025. We have a good number of opportunities that are presenting that give confidence of closing out production capacity for 2024 within the next few months and further enhancing volumes into 2025. The specialty sectors in the industry that we are well known to have successfully delivered over the past 3 years are still buoyant with good potential for 2025 and beyond. We are very hopeful of securing a good volume of this work with other opportunities in the larger industrial, high-tech manufacturing and film industries. With current workload and opportunities, this provides us with the confidence for 2024 and forward into 2025. A breakdown of the structural steelwork market sectors is contained in the appendix for your information. The company's ESG-focused group has flourished during 2023 and realized the ambition set by the Board in delivering carbon-neutral status for the group. Our local social activities and charity endeavors have increased during 2023, and we have been able to support and sponsor more local and national courses than ever before. We have also launched our world training venture Betterweld, which will benefit the local area and company alike, and we have the ambitions to launch the same venture in Bristol later in 2024. We have strengthened the Board dynamic with a new experienced nonexecutive specializing in HR and ESG commitments. We are well positioned to deliver the increasing demands of governance required by the AIM market. We have launched our 5P strategy initiative in 2023, and we'll commit to deliver this in '24, '25 and onwards. We are to focus on people, developing, promoting, rewarding and primarily keeping our staff safe. Properties, updating, modernizing, expanding and maximizing the facilities to ensure production is safe, efficient and fit for purpose. Our product, focusing on quality right first time, providing exceptional service to guarantee repeat business that protects our company and clients. Our market position, we believe we are the best in the business and aim to maintain this status for our cherish clients, expanding our offering into new markets. We are committed to ensure that our green initiatives deliver on our commitments and we, as a group, play our part in the road to carbon zero. The group has a defined strategy to drive long-term growth focused on both organic and inorganic development. We continue to focus on margin improvement and driving efficiencies with our targeted capital expenditure program and other margin improvement projects, together with increases in direct labor recruited from both the U.K. and overseas. We continue to focus on training and developing skilled labor locally working in partnership with a number of education providers. Europe presents a further opportunity for growth together with our expanding the markets we serve and focusing on larger, higher-margin contracts. The Specialist Protective Coatings acquisition last year has demonstrated the benefits to the group from acquiring complementary businesses that can diversify and increase our offering to our customers. We continue to look at further acquisitions, and we will undertake these where appropriate. We are in a very good position with record order books to deliver our 2024 commitments and furthermore, build upon this to achieve better in 2025. We are very well positioned as a successful and recognized supplier to the most robust of sectors that are going to flourish in a challenging market. Our opportunities ahead and commitments to continue to update and improve facilities instill confidence for the future. Working together with our supply partners, we will endure the rigors of the ever-changing material supply market and ensure that we are always well placed to supply account. Commitments made to replace and update old machinery through our extensive capital expenditure program is reaping benefits, and we will continue to deliver this through the next 2 years and beyond. We believe in investing in our people, and we have committed to train, promote and provide opportunities for employees and the company to prosper now and in the future. The group has a robust balance sheet, underpinned by a strong cash position and property assets. We will continue to protect our cash position, investing wisely and aim to continue to reward our loyal investors with competitive dividends. We both thank you for the time you've taken to listen to us today. The appendix in this presentation provides further information to your perusal. And we're, as ever, willing to receive your questions either directly or through our representatives.

Perfect. Mark, Trevor, thank you very much for your presentation. What I'll do is just bring your cameras up to full screen at this point. [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And Mark, Trevor, if I could just hand back to you just to read out those questions and give responses where it's appropriate to do so. I'll pick up from you both at the end.

Okay. Thank you for the questions. First question, given the recent property revaluations, are you considering selling any properties? We've revalued the properties because there was a significant difference between the historical cost and the market value, only right and correct to reflect that value in the accounts, hence, the processing of the revaluation. There are no plans currently to sell any of the group's properties. However, as Mark mentioned in the strategy and the 5 Ps, we are committed to deriving the best value out of all our facilities, and they will remain, as always, under constant review. Next question. You have successfully exceeded your GBP 100 million revenue target. Congratulations. What is your next target? We want to consider and continue to diversify and grow the business. And Mark will take you through a recent development in the group's quest for further diversification.

Some of you who have been close to the steel industry have sadly witnessed the demise of S.H. Structures from Sherburn-in-Elmet. We're saddened by that. We were already reviewing the abilities of a premium architectural and bridge construction company and saddened to see that fell into administration. We struck early, and we are proud to say that we've secured a good number of the principal staff. And we are going to reignite an existing brand called Tubecon, which is a tube-to-tube architectural and bridge company that we have within the group. We will assume the new staff from S.H. Structures into Tubecon, and that will now market champion and deliver the offering that S.H. Structures was able to give as well as the power and abilities that Billington can provide also. We are very excited about this, and it's our entry into the breach sector in a more formal way with the skill set and abilities that S.H. Structures gives as such a premium brand. We're very proud to still have this in the market as the wider steel industry is onshore.

Thank you. Do you have any thoughts about geographical expansion perhaps into the European market by means of an acquisition question?

We have been delivering into Europe until recently, our largest single contract was delivered in Belgium, a data center. And so we're currently delivering for a U.K. contractor, be it that they have a European company to deliver through. We're delivering a cold store development through Billington Structures in Holland. And so we only pulled back from developing in Europe because of Brexit and the implications until we got to know and that market has settled down. We believe we've done that now. And we are looking at a number of European opportunities, be it that they still will be delivered from our U.K. base. We see that as the way forward. We're not saying we won't look and review at European companies. And obviously, if there is a profit-enhancing acquisition that is of interest to us, then we will review it. But for the time being, with the new exciting opportunities we set with [indiscernible] and the bridge market, we will continue to deliver the European projects from the U.K. through Billington Structures and other group companies until such time as we have time to review.

Thank you. Is the company considering a buyout of its defined benefit pension scheme now it is in surplus? The pension scheme has been in surplus for a number of years following significant cash injections or 2008 and 2009. We are currently investigating the potential of a buyout [indiscernible] that's not to say we'll proceed with that. We're investigating all the options. We still maintain the salary link for the in-service members contained within the scheme, and that is the first issue that requires addressing. But we are considering the options about whether that is a viable and economic way to seize the scheme within the company. Okay. You say there's a continued focus on margin improvement. This is the highest level ever. How do you improve from here? Well, as we've gone through the strategy there to continue to roll out our capital investment program, invest in our people, our facilities, look at markets, both home and abroad, will hopefully go some way to keep us on that progression of margin improvement moving forward.

The capital expenditure plan that we've had, we've seen great benefit from. That's improving our cost per tonne. It's actually enabling us to fabricate with greater efficiency and better quality as a byproduct. That's all helping. The more machinery we put in an update, the better that margin is going to be.

Thank you. And the last question, why is the revenue forecast to decline if the group has the biggest ever order book? We published a number of weeks ago the award of GBP 90 million worth of orders recently secured. That's over a 2-year horizon period, '24 and '25. We hope and expect to secure some further works for the back end of 2024 that may see the activity levels restore to something similar to 2023. We have a question about how the return of capital employed calculated by us differs to that reported in the Cavendish brokers now. That will be responded to separately, and we'll explain the 2 calculations.

I'm pleased about that.

And that is all the questions that I think we can answer live today. Thank you.

Perfect. Mark, Trevor, thank you very much for answering those questions from investors. And of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors to provide their feedback, which is particularly important to the company. Mark, I just wondered if you had any closing comments.

I'd just like to thank people for taking the time to review -- to join us on this presentation. Obviously, we're very proud to deliver these results on behalf of the company. And I'd like to thank the Board of Directors and all our staff who may be watching this and for their support. We will continue to deliver good results through '24 and '25 in a challenging market. Again, we are intent on rewarding our investors with a very competitive return on investment. We'll continue to do so. So thank you very much for the interest shown. If there are any questions, then please reach out to our representatives, and we'll do our best to answer. Thank you very much.

Thank you.

Perfect, Mark, Trevor. Thank you once again for updating investors today. Could I 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. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Billington Holdings Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.