Billington Holdings Plc (BILN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Billington Holdings Plc Investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives 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. And then, I'd now like to hand you over to Mark Smith, CEO. Good afternoon, sir.

Good afternoon. Hi. I'm Mark Smith, and me and Trevor Taylor are pleased to present to you the year-end 2024 results. Our executive summary provides some of the highlights in 2024. Reduced revenue, partly due to the cost of materials declining within the period and the increased complexity of contracts. PBT, 8.3%, generally consistent with performance in 2023, excluding the nonrecurring items in 2023. Strong cash balance has been maintained, and the balance sheet remains with zero debt and the majority of the company properties are in the high. 8.9% operating profit margin enabled us to reward a competitive dividend of 25p per share. A robust order book at a level close to historical high securing productivity for 2025 into '26. We are in the last 5 year -- last year of a 5-year capital investment program, which has increased quality, efficiency and productivity. There has been change in the shareholder register, which you can see in the next slide. There is a point that the timing of margin recognition on contracts will result in our current year being second-half weighted. The share register. The largest change in the share register is the continued reduction of Gutenga Investments. It's a fund that relates to the original owner of the company prior to being listed. It's been our ambition through this sell-down to improve share liquidity. We're pleased to welcome the addition of Charles Stanley to the group share register, a well-known and respected investor. Note the addition of TrinityBridge, which is a fund managed by new owners, Oaktree Capital Management, following the successful sale of Close Brothers Asset Management, who was a long-term shareholder.

Okay. Some of the financial highlights. 2024 now is another great year for the Billington Group. The resilient group performance in light of the increasing difficult market conditions was broadly consistent with the record performance in 2023 once the exceptional impact associated with the steel price windfall gains were removed from the 2023 results. Uncertainty prior to the general election, followed shortly after with the announcement of significant tax and minimum wage increases, reduced business confidence and has seen many construction contracts being deferred or, in some cases, canceled. Confidence in the current workload of the group, albeit a tighter margins than previously, notes the proposal of a dividend of 25p per share, covered 2.6x underlying earnings, a policy broadly consistent with previous years. The strong cash balance at the year-end of GBP 21.7 million is consistent with the daily average gross cash balance of GBP 21.9 million throughout 2024. The group remains debt-free and with a 3-year RCF facility with HSBC to enable the group to take advantage of any complementary acquisition opportunities as they arise. I've inserted a new metric into the presentation this year, the net asset value per share in issue, currently GBP 4.10 per share with the balance sheet supported by significant cash and property assets, no goodwill and a healthy pension scheme surplus, the current share price should be reflected in this manner. The group notes a respectable return on capital employed of 36.8% delivered in 2024. 2024 noted one of the U.K.'s largest principal contractors, ISG, enter administration. The group had a number of contracts nearing completion with ISG at the time of their insolvency. The loss incurred by the group was materially limited to the excess on the credit insurance policy, and the insurance receipt relating to the claim was received shortly after the year-end. Our credit insurance policy remains in place, with the majority of work in progress and debtor balances being insured. The credit insurance market has noted reductions in available cover across the sector with all customers remaining under review. 2024 noted the fourth year of the deployment of the group's 5-year capital expenditure and modernization program. GBP 4.6 million was spent on capital expenditure in the year with an associated depreciation charge of GBP 2.3 million. 2024 noted a further 2 significant pieces of machinery within the Billington Structures entity to both increase capacity and the capabilities of the company. Moving forward into 2025, the group has an excellent workload of secured productive hours. However, as a result of contract timings, the margin recognition is likely to be weighted towards the second half of the year. This slide provides some of the highlights of the 2024 trading period. Revenue of GBP 113 million was reflective of the mix of projects undertaken in the year. Productive output in the form of productive factory hours increased 2.5% in the year, although with comparably less raw material content per productive hour has resulted in a reduction in turnover relative to 2023. The group remains with a significant surplus relating to our final salary pension scheme and is now seeking to move towards a buyout of the scheme to a dedicated insurer. The process is anticipated to take up to 2 years, and any remaining surplus is anticipated to be returned to the company. The group delivered a basic earnings per share of 66.2p. And shortly after the year-end, the group issued 400,000 shares into the employee share ownership trust to enable the settlement of future senior management share awards. The issue of shares represented 3.1% of the issued share capital of the group. Income statement. 2024's consolidated income statement notes a consistent corporation tax charge of 23%, a modest increase in depreciation to GBP 2.3 million following the increased level of capital expenditure and a very respectable, in light of the market conditions, 8.9% operating profit margin. Net cash. 2024 noted a consistent gross cash balance throughout the year. The daily average cash balance of the group was GBP 21.9 million throughout 2024. Whereas the settlement of the ISG insurance claim was received after the year-end, contract receipts paid in advance were broadly consistent with the level of the insurance claim. And therefore, at the year-end, the balance was representative of the trading cash balance at the balance sheet date. Capital expenditure. 2025 will see the final year of the group's capital expenditure and modernization program. The expansion and confidence in the Tubecon business and the want to further increase the structural steel capacity and heavy lifting capabilities notes the construction of a dedicated facility to enable the largest and heaviest structures to be manufactured. The Tubecon facility, situated at our Shafton site, is anticipated to cost of GBP 1.7 million and will be operational in June this year. The new facility, combined with a replacement program for the Easi-Edge barriers will result in a higher level of capital expenditure for 2025 than was previously forecast at GBP 5.5 million. 2026 onwards, we'll see the capital expenditure fall to more normal levels of between GBP 1 million and GBP 2 million.

Divisional breakdown. The organogram shows the makeup of the Billington Holdings Group companies. As can be seen on the pie chart, note the increase of revenue for Specialist Protective Coatings, Peter Marshall Steel Stairs and Hoard-it. Revenue for Billington Structures reduced, as mentioned earlier, partly due to the increased complexity of projects and consequential reduction in the quantity of raw material content. Billington Structures project highlights. Note activity in the most buoyant sectors, namely high-tech food processing, data centers and energy from waste. We also carried out 2 large commercial offices, a sector that has been previously depressed following COVID. Looking forward, future work is predominantly in the same sectors, although also includes project delivery in the defense sector; education, be it larger schools; large-scale retail distribution and processing; film studio development; and our first venture back into Europe. The order book here, the slide shows Billington Structures' historical levels of work with a new line added to indicate the number of production hours. As you can see, the work carried over into '25 is near record levels. This workload not only populates 2025, it also spans into 2026 and consists of mainly larger, more complex projects. Projects have been subject to order delay though and project slippage. This is partly due to the change in government within that period and the macroeconomic environment we encountered. Peter Marshall Steel Stairs. As in previous years, it can be noted there is a wide range of clients as well as in-group trading with Billington Structures. There has been a noted increase in revenue in '24. A wide range of clients include Billington Structures competitors and principal contractors directly. We have secured a very robust order book looking forward, sharing the same client as Billington Structures within the same buoyant sectors, namely data, energy from waste and film studios. Easi-Edge. They've had a positive 2024 despite a reduction in revenue. There's a good spread of clients. The volume measured in stock utilization is still affected by lack of commercial office developments, as these are the high demand of our edge protection systems. As Trevor has mentioned, we are investing in replacing our whole barrier fleet with a new designed lightweight version, which we are rolling out over the next 2 years. We are hopeful as the market picks up, as will Easi-Edge's revenue and profit. The company notes pricing pressure in the market as Easi-Edge's competitors discount stock to maintain their own utilization. Hoard-it, our environmental hoarding, and Brand-it, graphic branding solutions. Another exceptional year with an excellent increase in revenue and profit. However, there's been a softer start into '25, although inquiries are now picking up, and there is a very strong pipeline looking forward with exceptional prospects. Both Hoard-it and Brand-it benefit from being able to deliver to all construction sectors, including the residential sector. Shafton Steel Services is one of the largest steel processing businesses in the U.K., servicing internal and external clients with the cutting, burning, drilling and processing of heavy plate. We have continued to install and commission new machinery, and there is further investment planned in capacity in 2025. Shafton Steel Services are extremely busy, currently servicing internal clients, Billington Structures and Peter Marshalls. However, there's good external work for respective competitors in construction as well as wider steel sectors. With the above in mind, there's a very strong pipeline throughout 2025 into 2026. Specialist Protective Coatings. This supports the group's wider requirements for the application of high-tech treatments and fire protection coatings for internal group companies as well as the wider construction and oil and gas pipeline industries. The group is yielding the benefit from significant investment in automated equipment and the modernization program commenced in 2023. Again, there's a high workload for internal clients, Billington Structures and Peter Marshall Steel Stairs, which will continue through '25 into '26. There's also been work carried out and continues for respective competitors of Billington Structures. We're expanding into services into other sectors and have recently become certified to service the water industry, where we anticipate good opportunities. The capabilities of this facility in Sheffield set it aside from the other painting contractors operating in the market. Tubecon, our Specialist Architectural Steel and Bridge division. The team are now fully embedded with Billington Structures. The first contracts have been won, fabricated, painted and successfully delivered. As Trevor has mentioned, a new production facility is being constructed at Shafton Steel, which will be available for use mid-2025. There's a good order book here and a strong pipeline looking forward that spans through to the end of 2026. The wider steel market. The situation of British Steel has been changing over the last few days. However, British Steel have committed to continuing the production of construction steelwork and rail track amongst other products. Government has offered support for the construction of a new EAF facility at British Steel's Scunthorpe Plant. These negotiations are still ongoing, and we hope to hear a positive outcome in the near future. In the meantime, British Steel continue to supply our construction sections. Steel prices have been stable on the back of more balanced input costs. We had strong trading mix with the country's biggest stockholders and European suppliers. The group have managed to negotiate fixed prices or fluctuation clauses for steel material for all of its current commitments. Currently, the U.S. steel tariffs are not affecting U.K. supply, and we don't expect they will. Our ESG commitments. There's been continued good environmental performance, maintaining carbon-neutral status for the group. We will continue to record and reduce our carbon impact. We will maintain social responsibility, supporting local and national charities as well as those charities local to construction projects through our group charity set up in 2016. We're also identifying local labor and apprentices close to our construction projects. We are now Gold members of the 5% Club, an organization that represents businesses that have 5% or more of their local workforce in earn and learn position. This champions our commitment to modern apprenticeships. We also respect the governance required in being a plc-listed company, and we continue to follow the QCA code, implementing changes as the new code comes into effect. Our 5P strategy. We launched 5Ps initiative in 2023 and continue to commit to deliver this in 2024 and will in '25 and onwards. We focus on people, developing, promoting, rewarding and primarily keeping our staff safe. Our properties. Updating, modernizing, expanding and maximizing the facilities to ensure production is safe, efficient and fit for purpose. Product. Focusing on quality, right first time, providing exceptional service to guarantee repeat business that protects our company and clients' position. We believe we are the best in the business and aim to maintain this status for our cherished clients, expanding our offering into new markets. Plant. 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. Long-term growth. Our strategy is for long-term growth organically and to acquire and diversify when the right opportunities are presented. We continue to drive our margin improvements through modernization and efficiencies, continuing to reinvest profits back into the developing business. We have a well-established succession plan, developing and promoting the next generation of managers and directors. In the current market, we have an even stronger commercial focus, working hard to secure best contracts with fair terms and conditions. We continue to be acquisitive, as the group has been in the past, and we will review all opportunities that present. The summary. Outlook, where certain sectors are more robust than others, the current macroeconomic environment has resulted in reduced opportunities and a more competitive market. The government's new policies and the process of review has also resulted in projects being abandoned, delayed, revised. It is affecting the financial performance of our wider industry. As a result, the steel -- structural steelwork sector has contracted in 2024, although is forecast to return to growth in 2025. Our input costs have remained stable with supply readily available. We credit ensure where possible, make sure this is put in place, which has proved essential given the current market instability. However, we still prioritize the most robust clients. In summary, our operations, the capital investment program has been hugely successful, and the final year in 2025 will witness all major machines having been replaced. We have strengthened our commitment to local employment and modern apprenticeships and have continued the success of employing fabrication labor from overseas. We're excited about the possibilities for Tubecon and the opening of our new bespoke facility, having successfully delivered our first bridge. The pipeline looks strong towards the end of '25 into '26. Our experienced, capable management team adheres to our established group policies to ensure strict governance is maintained. Our forward order book and pipeline, the outlook for the group is propped up by a large order of complex labor intensified work spanning through '25 into '26. Our workload in these years is dominated by projects in the most robust of sectors, mainly power, data, food processing and the recent return of film studio schemes. Many of our future opportunities are very similar in nature. We have successfully delivered a sizable food project in food processing sector in the EU, and we are now reviewing other opportunities having pulled out of Europe previously on the advent of Brexit. Financial. This set of strong results champions a good performance of the group, which is underpinned by cash reserves and owned properties, providing a very robust balance sheet. The group continues to be debt free and will use its strong cash reserves to capitalize on any complementary acquisitions, as we have in recent history. Our financial performance is likely to be weighted towards the second half of the year in 2025. If we can now address a few of the questions that have been raised during the presentation, please?

[Operator Instructions] Just while the company takes a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed by our investor dashboard. Mark, Trevor, as you can see, we have received a number of questions throughout today's presentation. And if I may hand back to you to read the questions and give response where appropriate to do so, and I'll pick up from you at the end.

First one, we've got there, are you seeing increased opportunities in the bridgework market? And what output levels are you targeting? I think we've mentioned there that we have a number of good opportunities. Those are for delivery at the end of '25, principally Q3, Q4. But we have a strong pipeline into '26, and a number of those will be delivered Q1, Q2. Our ambition is to have a revenue of at least GBP 10 million out of this new venture in '26 moving forward. You mentioned you have recently completed a project in Europe. Are there any further contracts secured in Europe? Currently, yes, we have delivered a food processing development into the Netherlands for a U.K.-based company. We're currently reviewing a number of opportunities in Europe, currently tendering principally in data, and we look forward to hearing from those shortly. What we've got next? What markets are you seeing as the most competitive? I guess it probably won't surprise you to -- for me to say that online retail distribution warehouses have always been a very, very competitive market. The level for entry has always been a lot easier for those contractors wishing to supply into that sector, which is why we tend to find that the competition is less restrictive in our energy from waste and more complex data center, and hopefully, nuclear sectors. And so from that reason, we tend to stay out of those markets unless at the very, very large scale. We have noted the return to the market of Amazon, and we've received a number of inquiries, which we will, as a value client, be looking and reviewing those.

Okay. Thank you, Mark. Okay. Going to the next few questions. Why did the company choose to increase the dividend by 25% rather than pay a special dividend like last year? Does this reflect the continued confidence going forward? Okay. 2023 that we're comparing the dividend to had 2 elements, it had an underlying element relative to the underlying performance, excluding the steel windfall gains, which was a nonrecurring item, and that related to the special element of the dividend. We have a broad dividend policy in place, which is a dividend cover of between 2.5 and 2.7. This year's dividend is reflective of that with a cover of 2.65 this year. Our order book, albeit we said it is tied to margins, we're confident they're on. And 2025, the majority of the workload is secured. So we saw no reason not to pay a dividend consistent with historical cover levels. Next question. Which government policies, in particular, are increasing costs in the business? Well, the widely publicized employers' NI increase, that's just come into effect, only about a couple of weeks ago. That is envisaged to add on circa GBP 500,000, GBP 0.5 million to the wage bill this year. Minimum wage, whereas minimum wage doesn't or only affects a minor number of employees, the significant increase to that puts pressure on the people shortly above minimum wage, and we're seeing pressure from the workforce on that basis. Given the weakness in the end markets, there must be some great opportunities to buy less financially strong competitors with unique capabilities. Okay. Acquisitions. We are reviewing acquisitions as they present themselves to us. What looks good, it would be opportunities that give the group something different in a different sector, in a different industry, not just pure steel work capacity. So that might be more technical engineering, it might be renewables, could be in the nuclear sector that could be margin enhancing away from more general constructional activities. In your December 2024 trading update, you said continued strong delivery in the second half is expected to be ahead of current market expectations, but they finished well down on the market expectations. Why was there no profit warning or explanation? The trading update issued in December '24, related to the 2024 financial year, that increased the projected profitability for the '24 year to GBP 9.75 million. So we have actually outperformed the trading statement that was issued in December for the 2024 financial year. After today's share price fall, the shares are trading below the tangible book value and on a forward P/E of 5. Are you considering a share buyback? I have been asked this a number of times today. We have had mixed views presented to us from a number of shareholders, everything from, please don't do a share buyback to please consider a share buyback. It is an option that remains under review. There would, however, appear very mixed opinions within our current investor base about whether that should be something that we actively pursue. That said, it's not off the table and will remain under review going forward. But do we agree that we believe the current share price trading below the net asset value per share of GBP 4.10 is a little unfair? We believe we do, especially when it's underpinned with cash, property and tangible assets and no goodwill forming that net asset value.

Okay. In the previous update, you said that the gravity battery plant, I think that means Agratas, maybe, battery plant in Somerset, would take a significant proportion of the U.K. structural steel capacity and lead to tightness in the market. Even if Billington are not awarded work directly, do you still believe this in the current market? And how do you see the timeline for this progressing? Agratas has been a project that is being affected by the delay on decision-making and redesign. It's actually been decreased in size, so I understand in the press. That scheme, we believe, has been won by Severfield, although you probably have to ask them to confirm. We won't be involved in the scheme. So I'm not able to tell you how that would affect us because I'm not sure it will.

Okay. Are you still operating a night shift?

Yes, we are. We have a night shift running out of our Shafton facility dealing with peaks and troughs of our workload. There is a question mark as to whether we're looking at acquisitions, and one of the attitude we've taken towards capacity is that we have the ability to be able to expand organically through the expansion of that night shift. We're only running one night shift at one of our facilities currently. But we are reviewing as the workload increases, whether or not that's possible to expand it through to the full shift at Shafton for the whole facility and then possibly into our Wombwell factory as well. How are the problems suffered by your largest competitor impacting the market? Well, I don't think we probably ought to be drawn into talking directly about the issues of our largest competitor. As I say, that's for them to answer. But we are aware that there's aggressive tendering in the market at the moment. We're quite pleased to have a full order book, but where we have been challenged by delays and shortfall of work due to the projects going back, leaving capacity to fill, we know the market is extremely competitive. And quite pleased to have a volume of work already secured. I think there's not only Severfield, but other companies within that marketplace competing for the work, which is currently driving the market price down, certainly in the less complex sectors.

Okay. Can you give some examples of projects that have been delayed or canceled? Whereas we, I guess, won't reference individual projects, the government publicly went on record to place on hold pending a review upon the election of a significant number of public sector contracts from road deliveries, rail deliveries, schools, hospitals. They remain under review, and that's led to a delay in those projects coming to market, in part, at least leading to the quiet market that we see. America and the tariffs is leading to a wait-and-see attitude for certain industrial companies to understand the export markets that are available to them as well. Okay. The company is normally very conservative in guiding the brokers when making forecasts and in recent years has made significant upgrades to those forecasts. However, today's reduction in anticipated outturn has placed a dent in that. What confidence can we have that forecasts are conservative and not likely to further deteriorate in H2? You're right. We'd like to under-promise and over-deliver to our loyal shareholder base. The market and the deteriorating acquired market that we've seen has meant -- was unforeseen and has meant we've had to readdress and review those forecasts for '25 and into '26. The market is forecast to return to growth in '25, albeit we feel will be towards Q3 and into Q4 before we see that gain any momentum. That should give us confidence for the future. '25 and the here and now in the competitive market environment that we're seeing, we don't have to secure significant workload in this very competitive period while we have the robust order book that we do. And we are seeing a good pipeline of opportunities come to us in the complex energy from waste and data center markets as well that have been very good for us in the past. So that gives us some confidence that we can return to more normal trading when the market stabilizes.

Okay. Okay. How do you ensure that you don't have similar issues to Severfield with regard to remediation work? Because we haven't welded any weathering steel on bridges, simply asked. Their issues with weld failure relates to a particular type of steel, weathering steel and bridges. And we have not welded on any weathering steel for any bridges. I might add that, to give you the confidence as well, following Severfield's announcement, we have had a fairly intrinsic examination of all of our welding tests and procedures independently, quite rightly, as our customers are questioning us as well. So we've invited them into our factories to reassure themselves that our procedures are carried out in accordance with their specifications. And that has been found with no issues at all.

2 questions remaining. With half the market cap in cash and the very depressed share price, are share buybacks or a special dividend under consideration? I think I've touched on share buybacks. That will remain under review. Personally, without speaking to the Board and/or Mark here, I think our preference out of the 2 options if either was potentially a route forward, it will be share buybacks. My feeling is a special dividend will be temporary. A share buyback would be a more permanent use of cash resource if indeed that was a route we decided to go. Okay. Last question by [ John ], lucky last. Please comment on the very significant share price drop today. To what do you attribute to this? I think somebody mentioned the first thing this morning that currently, the market is irrational, sensitive, fickle. We've seen events of only about recent weeks take some huge ups and downs as events are announced and become clear. I think today is no different. Our view would be there's an overreaction to there. And buoyed by our confidence in the future, our strong workload, our net asset value per share, the robust balance sheet with property and cash with no goodwill and a significant pension surplus leaves us well placed to confidently move forward for the future and return to more normal trading when the current turbulence settles down.

It's a moderation of profit. It's not an announcement of no profit or a dropping off the edge of a cliff. We don't feel as though this regression in share price fairly reflects our performance. And we've had 2 exceptional years of performance. We think we're going to have a good performance in '25, and we'd like to see our shareholding support this.

Mark, Trevor, thank you for taking the time to answer those questions you can from investors. And, of course, the company can review all questions submitted today. We'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Mark, could I please just ask you for a few closing comments?

We'd like to thank you for the support that has been shown. We'd like to -- you to have the confidence that the company is in good shape given the difficult market we have at the moment. We are in a very strong and good position with lots of opportunities. We'd like to thank our clients as well as our loyal shareholders for their support, propped up by the support we get from our loyal staff and from the plc Board. Many thanks.

Mark, Trevor, thank you for updating investors today. Can I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that our management team can better understand your views and expectations? This really takes a few moments to complete, and 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.