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 let the following call. I'd now like to hand you to Mark Smith, CEO. Good afternoon, sir.

Good afternoon. I'm Mark Smith, Chief Executive Officer of Billington Holdings plc. I and my colleagues, Trevor Taylor, Chief Operating Officer; and Dave Jones, Chief Financial Officer, are pleased to present to you our 2026 interim results. Our executive summary provides some of the highlights for the first half of 2026. However, firstly, leadership changes. After more than 12 years with Billington, I have informed the Board of my decision to retire as Chief Executive Officer from 31st December 2026. It's been a great privilege to see the business grow and evolve into one of the industry's leading structural steelwork companies, and I am proud that I've played my part as group CEO in achieving these successes. I had the pleasure of working with friends and close colleague, Trevor Taylor since joining Billington. And as I stepped down from the role, I do so knowing that he's well experienced to take on the role and has the support of an excellent team to continue to drive the group forward. It will be ably assisted by Kevin Campbell, who moves to a strategic group role special projects to direct internal and external change in development. Daniel Duffield, after over 10 years within Billington has taken the role of Managing Director. I will be retained by the company in an advisory role to assist and support the management team, clients and promote the wider industry. A further change to the PLC Board has been the appointment, Olivia AB as non-Executive Director, repricing Alexander Ashwell, has been known by the company by -- for a while and is a natural replacement being directorship and engineering experience. Operationally, Billington has grown upon its position and reputation as one of the leading structural steelwork and Construction Safety Solutions Group. In a challenging market, the company has reacted by reviewing its cost base consolidating activities extending [indiscernible] and continuing to invest in expansion, new technologies and machinery that will improve quality and efficiency. Furthermore, we have secured significant contracts with new financially secure clients across the group, delivering in sectors that we are recognized as market leading. This has resulted in a record order book and production secured throughout 2026 into 2027 and beyond. 2026 being second half weighted, we can report PBT of GBP 2.8 million underlying operating profit at 5.1% for the half year and on course to meet year-end expectations. The Billington Holdings plc share register has remained relatively consistent in the period with the largest movement being an increase in the shareholding of GP IM of 2% during the first half of 2020. Since the release of the full year results in April, the share price has increased from GBP 380 to GBP 445 an increase of 17%. The net asset value per share is GBP 348, representing 86% of the current share price. I hand over to Dave Jones to provide an overview of the financial performance of 2026.

Thanks, Mark. The first half of 2026, we delivered a strong trading performance and improved profitability in terms of market conditions by continuing to strengthen the business operationally. Revenue increased to GBP 54 million, principally reflecting a return to higher average steel content across structural steel projects in the period. We expect this multicar trading profile to continue throughout the remainder of 2026 and into 2027. The key driver of the improved underlying performance has been the successful consolidation of activities within Billington. This has reduced our overhead cost base and enhance operational efficiency across the business. The closure of the facility is we approximately GBP 4 million of annual fixed direct costs and reduced future capital expenditure requirements by around GBP 3 million. Following the closure date, we have continued to increase capacity at our unwell and chafing facilities, supplemented by a great use call aside some subcontract application piles. This provides greater operational flexibility and scalability, enabling the business to respond effectively to changing market conditions. As a result, the business delivered underlying operating profit margin of 5.1%, demonstrating the benefits of these operational improvements despite affecting festive trading environment. Reflecting our confidence in the business and commitment to shareholder returns, a dividend of 11p per share was paid in July 2026, plus 2.46x underlying earnings. Cash generation remained robust throughout the period, while our working capital requirements increase. We closed the period with a net cash balance of GBP 12.6 million compared with an average net cash position of GBP 17 million year-to-date. This would also reflect the high level of trading activity and timing of contract delivery. Our GBP 6 million revolving credit facility of HSBC remains undrawn, and we are currently progressing each renewal for a further 3-year term, respect the new facility to agree before the end of the year and in place well ahead of its maturity in March 2027 supported our ambitions for future growth and acquisition opportunities. From a risk mining perspective, we continue to maintain credit insurance on our principal customers despite challenging conditions within the underwriting market. is encouraging that a number of recent contract wins with new customers have been secured by financially strong and credit review organizations, further supporting the quality and resilience of our order book. Our pension derisking program continues to make good progress with the scheme moving closer to the formal by all of its remaining liabilities. This represents another important milestone in reducing long-term financial risk and strengthening the group's overall balance sheet position. This slide provides some of the highlights of the 2026 trading period. Revenue increased 29% to GBP 54 million, while underlying profit before tax rose to GBP 3.1 million on GBP 1.7 million in the comparable period. Underlying operating margin also improved to 5.1% compared with 3.3% last year. Underlying return on capital employed increased to 16.9% in demonstrating the benefits of enhanced operational performance and our investment strategy. Earnings per share increased to 16.3%, up from 9.8% in the prior period. The group's balance sheet remains a key strength supported by net assets of GBP 51 million and a pension scheme surplus, providing a strong platform for future growth and investment. Looking in more detail at the income statement. Underlying operating profit increase of GBP 1.4 million last year to GBP 2.8 million in the current period. Although the period noted a higher investment in working capital and a consequent reduction in net cash balances, we continue to maximize returns on surplus cash deposits generate interest income of GBP 292,000. Non-underlying restructuring costs of GBP 225,000 were incurred during the period, reflecting the substantial completion of a close of the facility with the site hub fully cleared and marketed for sale. This slide illustrates the movement in cash flow in the period, and our approach remains one of disciplined capital allocation. The underlying profitability generated cash although this was offset by increased working capital requirements during the first half of the year. Importantly, the group remains debt-free and retain significant financial resilience. Looking ahead, we expect to realize the value from the net facility with the completion anticipated during the first half of 2027. The proceeds will further strengthen an already robust balance sheet to provide additional flexibility to pursue strategic opportunities are [indiscernible]. 2025 as clearly noted the completion of the group's 5-year capital investment and modernization program. One machine replacement was deferred from 2025 and is now ordered and scheduled for installation at [ Chastin ] in October. The close of the eight facility allows for some relatively new piece of Billington Palmer machinery to be transferred to the Billington facilities and therefore, mitigating approximately GBP 3 million to an anticipated future capital expenditure. The expansion of the two pump business necessitates a new dedicated facility costing GBP 1.7 million and is now fully operational. Further capacity expansion options at our shaft facility are currently being considered in line with our strategy of driving value from the principal properties at the group problems. 2026 anticipated GBP 2 million of capital expenditure as a result of the deferred machine replacement without falling to a more normalized level of between GBP 1 million and GBP 2 million from 2027. I projects to increase capacity leading to new or spend buildings are not included within the capital expenditure forecast at this time. I will now hand you back to Mark to take you through the group businesses.

Thanks, Dave. Divisional breakdowns. The organic ground shows the makeup of the Billington Holdings Group. [indiscernible] has noted a smaller proportion of group revenues in the period, although this is expected to be substantially increased in the second half as some significant projects delivered. The Billington structured promotion of the group revenue has increased to 75% in 2026 from 70% in 2025. Principally as a result of more normalized portfolio of contracts being delivered in the period and a higher proportion of steel content per productive hour and therefore, increasing the level of revenue generated. All other group companies remain broadly consistent to 2025 regarding the proportion of revenues generated. Billington structures project highlights, no activity in the most buoyant sectors, data centers, energy from waste and other projects ongoing throughout a variety of sectors. Looking forward, future work is predominantly in the same sectors although also include project delivery in the defense sector, education and low carbon energy production and associated carbon capture facilities. Peter Marshall, [indiscernible]. As in previous years, it can be noted here, the wide range of clients, wagering group trading with benefit structures. The business continues to operate at year maximum capacity supported by partnership contractors with strong revenues being noted. A wide range of clients, including Billington Structures competitors and principal contractors directly. We have secured a very robust order book looking forward, sharing the same clients as billington Structures within the same boring sectors, namely data and digital waste and education. EasyEdge, site safety solutions. As the commercial sector continues to be subdued, EasyEdge has noted reduced levels of utilization for its primary product. The scale of volume of projects for the latter part of 2026 and into 2027 are more encouraging and higher utilized levels are expected. There remains a good spread of clients with volumes of work anticipated to increase from Q4 2020. We are investing in replacing our whole barrier fleet with a newly designed like by person, which we will continue to roll out over the next 18 months. However, the company continues to know pricing pressure in the market as competitors discount stock to maintain their own utilization. Audit, our environmental hoarding and branded graphic branding solutions have experienced another fantastic trading period for the company with its principal products remaining the products of choice for its customers. Prospect and inquiries are positive and we're hopeful of another great year in 2026. For [indiscernible], the associated marketing division of the business continues to expand its product range and deliver its services into both internal audit clients as well as holding [indiscernible] supplied by others, audit and branded benefit from being able to deliver all construction sectors including the residential sector, utilizing both sales and higher offers. Chat and Steel Services is one of our largest steel processing businesses in the U.K. servicing internal and external clients with cutting, burning, drilling and processing of heavy steel plate. A further heavy-duty saw drill line is ordered and will be installed in October 2026. Following the deferral of the last item of machinery within the group's capital expenditure and modernization program. Jack and Steel Services are extremely busy, currently servicing its internal clients, Billington Structures and Peter Marshall Steel Stairs. However, there is a good external work for respective competitors in construction, engineering as well as wider steel sectors. With the above in mind, there is a very strong pipeline throughout the remainder of 2026 and into 2027. Specialist Protective Coatings, this specialist facility supports the group's wider requirements for the application of high-tech treatments and fire-protected codes or internal group companies as well as the wider construction and oil gas pipeline industry. The group is yielding the benefit from the significant investment in automated equipment. We are seeing a significant increase in demand for met fire resistant painting of structure still look in the U.K. as a result of the most buoyant market sectors, regularly specifying these off-site treatment. The company is operating at full capacity working for Billington Structures, Peter Marshalls, [indiscernible] and many external clients, which is anticipated to continue at current levels well into 2027. There has also been work carried out and continues for respected competitors to billington Structures. The company continues to do the project for the water industry, specifically replacement pipelines. The program for replacing water pipeline is taking longer to gain momentum than we had originally anticipated. The capabilities of the Shepton facility in Sheffield set it aside from other pain contractors operating in the market. [indiscernible], Specialist Scale and Bridge division, the team are now fully embedded within Billington structures. [indiscernible] first contracts have been secured, bifurcated, painted and successfully delivered. The new production facility is fully operational and consistently delivering projects for its clients. The division was awarded its largest order to date and is currently in production with installation scheduled early in 2027. Pleasingly, the margins achieved in these contracts our margin enhancing to the wider structural steel activities within the group. There is a good order book combined with a strong partnering of opportunities looking forward, which spans through to the end of 2027. Further resources to expand available capacity of the division are being implemented. Trevor will now discuss the sustainability and strategic initiatives.

Thank you, Mark. There has been continued good environmental performance with the group maintaining its carbon-neutral status. Our established Sustainability Committee continues to investigate and implement carbon reduction projects to ensure that our sustainability commitments and aspirations are at the heart of the Billington business. We have expanded the Billington Apprentice Training Academy based at Shatin to accelerate the installation of capacity at our bangle facilities and further address the skill shortage within our industry. September, now to the further intake of 15 apprentices, which are enrolled on a fast track training program delivered by a dedicated application experts to [indiscernible] specifically tailored to the activities Billington undertakes. We continue to uphold our social responsibilities, supporting local and national charities as well as those charities local to our construction projects through our group charity settle in 2026. We also continue to identify local labor and apprentices close to our construction projects. We are gold members of the 5% club, an organization that represents businesses that have 5% or more of their workforce in earn and learn positions. This champions our commitment to modern apprenticeships. Cybersecurity and the associated risks are actively addressed with regular and increased investment in resources being made to ensure the company maintains the highest possible standards. We respect the governance required and being listed PLC, and we continue to follow the QCA code, implementing changes as new elements of the code come into effect. Our 5Ps strategy. Our strategic projects and initiatives are aligned and in consideration of our five strategic pillars. Our focus is to proactively identify and manage risk while creating a sustainable, profitable work stream with financially robust clients using efficient processes to ensure competitiveness and generate a market-leading return for our shareholders. We focus on people, developing, promoting, rewarding and primarily keeping our staff safe properties. Updating, modernizing, expanding and maximizing the facilities to ensure production with 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 our clients position. We believe we are the best in the business and aim to maintain this status for our Cheri's clients, expanding our offering into new markets. Planet, we are committed to ensure that our green initiatives deliver on our commitments and as we, as a group, play our part in the road to carbon zero. Following a period of subdued market activity, the implementation of our capital investment program and the consolidation of our structural steel activities at our [ Bantou ] facilities, we now positively look forward to the future. Kevin Campbell, previously the Managing Director of Billington Structures has subsumed the role of group strategic and Special Projects Director, to provide additional capacity with which to investigate and progress some of the many strategic initiatives. Our record order book allows us to look to the future with confidence and commence our journey on the next phase of our growth strategy. Our strategy will focus on 4 distinct areas: fixed asset optimization deriving more output and associated value from our properties, targeting markets and clients operating in the most buoyant sectors, namely data and power generation. Process automation, both in our factories and throughout our administrative and support functions, diversification into other sectors and products which are able to add value to the group. This will be principally completed through acquisition. We have increased our focus on strategic projects and initiatives. This has reduced costs, improved processes and increased production efficiencies, further enhancing the margins the group is able to generate for shareholders. Our strategy will be executed while ensuring financial capital resources are prudently allocated and taking a cautious approach to identify and mitigate financial and operational risks. Over the course of 2026, we have and continue to relocate capacity in [indiscernible] with further recruitment of fabrication resources on an expanded night shift at Shaft and the commencement of a nice shift of the [indiscernible] facility. These efforts to consolidate the operations of the Yate facility into the two Barnsley site is consistent with our strategy of reducing our cost per productive hour and seeking to enhance the level of margin the business is able to generate. Furthermore, in our quest to increase the volume and level of skilled fabrication results. We have expanded our Billington apprenticeship Academy after. This will take 2 to 3 years to produce the necessary level of skilled labor resources. Although the investment and foundations have been laid with the initial intake of 15 apprentices commencing earlier this month. Our objective is now to secure contracts with financially stable clients in our target markets has been successful in that Billington and secured projects with a number of new financially robust clients with whom credit insurance is attainable. With a record order book, we are seeking to partner with end user clients as well as principal contractors to proactively engage with and develop future projects at an earlier stage. This engagement under certain design contracts allows Billington to utilize its specialist design resources to positively influence our project and provide program and financial benefits for Billington and its clients. In closing, relating to our strategic direction. There are many future projects being investigated and considered that will seek to increase revenues and enhance margins in our various businesses. On term growth, our strategies for long-term growth organically and to acquire and diversify with the right opportunities. We continue to drive our margin improvement from modernization and efficiencies, continuing to reinvest profit back into developing the businesses. We continue to have a well-established succession plan development, promoting the next generation of managers and directors. In the current market, we have an even stronger commercial focus working hard to secure the best contracts with fair terms and commissions. We have the resources to continue to be acquisitive as a group we will review all opportunities that complement and diversify the group's operations into areas where we are able to enhance margins and add value. The wide of sale market. The U.K. government subsumed control of British sale in 2025 with the transfer to public ownership in July of this year. British Steel continues to supply the U.K. construction and other steel were markets. After a period of relative stability in relation to steel prices, 2026 started to note steady increases. The ongoing conflict in the Middle East and the associated escalation in fuel costs is having a consequential inflationary impact to raw material steel costs Billington is principally hedged for a secured work out for its raw material steel costs through either price escalation clauses with clients or fixed price arrangements steel manufacturers or stockholders. The U.K. government announced their steel strategy for the future in March this year. This includes import steel quotas and their related tariffs for EU and worldwide imports into the U.K. being implemented on the first of July this year. Quota and tariff levels have been set for varying categories of products utilized within our industry. The level of impact to date has been limited as a result high stock levels being built up in the U.K. prior to the new quota regime coming into effect in July. Future quarters will note an increased volume of materials being affected by the quotas with those most heavily affected in those products that are not produced in the U.K. The level of quotes for varying product categories will be reviewed again in July '27 and Billington stands with our collective industry in influencing government policy in relation to quote levels, along with the categories of products included within the policy. Turning to the forward order book. This slide gives the Billington structures historical order, combined with the number of secured production hours. The order book stands at a record level, following the recent award of a number of large projects. for delivery in 2027 and into 2028. The portfolio of contracts within the current order book are ever less complex nature, which can be noted by the volume of productive hours content relative to the order book value. The above order of is affability structures and with the awarded contracts, our packages of work for other group companies within the group. Some projects have and continue to now slippage to on-site programs resulting in management of manufacture sorts and working capital. Huge projects in our target markets remain robust, and there are further significant opportunities that Billington is helpful of securing that would further extend the visibility of the current order book. And finally, Mark will take you through the current market outlook and concluding summary.

Thanks, Trevor. Following a subdued market environment in 2025, it is pleasing to note a number of large projects we have been working on for some time come through as contract orders. [indiscernible] workload, combined with a number of highly developed prospects underpins the brokers' forecast for 2027 and starts to see volume secured for an element of 2028. 2026 has seen the return of several publicly funded projects in health and education sectors that have previously undergone a period of review. Projects and opportunities in the defense sector appear to be increasing that further provides opportunities called Billington in an established sector, sectors relating to information technology and power generation remain buoyant and these sectors are those that Billington has a successful history of delivering it. The acquisition by the U.K. government a brief deal in July is a positive step for the U.K. steel industry and provides certainty of domestic supply and production for the future. We are eager to see and understand the strategic direction and investment plans for steelmaking at [indiscernible], as it seeks to replace its aging as furnaces at [indiscernible]. Recent steel price increases associated with the ongoing contract in the Middle East, combined with navigating the newly imposed quotas and related tariffs has created a period of uncertainty for raw material price inflation. We remain alert to possible future impacts on consumer and client confidence in the U.K. credit insurance, where possible is put in place, which remains essential given the current market. However, with long-standing clients with whom we repetitively deliver Combined with our strategic approach to broaden our client base continues to ensure that Billington is able to mitigate risk and secure sufficient volumes of work in the most robust markets. In summary, operations. The capital investment and modernization program has been hugely successful and the investments made at our bonds, new facilities has ensured that raw materials can be efficiently process as we continue to increase output at these facilities. We have strengthened our commitment to keep and modeler preterships from September 2026 through the expansion of our better well apprentice training academy located at chat. The investment into the Tcon facility and the securing of its largest order book today provides optimism for the future trading and expansion of this division. Our continued focus on strategic indicatives and projects will ensure that we continue to drive operational improvements and enhance the margins we are able to deliver for our stakeholders. Forward order book and pipeline, the outlook for the group is encouraging with a record order book of projects across multiple market sectors, our workflow for the remainder and through to 2028 is populated by projects in the most robust sectors, mainly power, generation, data, defense and education. Many of our future opportunities and prospects are of a similar nature. The current order book largely underpins the market forecast for 2027 although we remain mindful of ongoing global events that may have an impact on future schemes because of cost testation Several contracts continue to be subject to client-led delays, although they are being actively managed to ensure that the production facilities remain fully. Financial, we moved through the second half of 2026 with a diversified order book, encouraging further prospects in our target markets and confidence to further grow and develop the group's activities. While there has been a short-term increase in the working capital requirements associated with the increase in work load. The group continues to be debt-free and will use its strong cash reserves to capitalize on any complementary acquisitions. Our robust balance sheet, strong cash balance and proven track record of delivery of the most complex of project positions Billington as the steel work fabricator of choice for many of its clients in the U.K. I would like to thank you all for taking the time to join us today. I'll now take your questions.

[Operator Instructions]. As you can see, we have received a number of questions of today's presentation. I please ask you to read out the questions and give response to appropriate to do so. I will pick up from you at the end.

Good afternoon. I'm Mark Smith, CEO, and I'm happy, along with Trevor and Dave to answer quite a few questions that have been submitted following the presentation. We will take this in turn. Number one, could you give an overview of the market sectors within your current order book? So currently, the data center market is about 40% of the energy from waste market is about 30%. [indiscernible] about 10%. And then other areas, carbon capture about 8%, [indiscernible] 6% education about 6%. Number -- question two.

I can pick one up, Mark. So second one is -- do you anticipate any further reduction in cash balance and also see the one following that as well fairly interlinked. It's -- the balance sheet shows a large increase in work in progress does that expect the figure to be much lower by year-end. Well, in terms of the cash the assist the half year, it was a particularly low point and we don't expect it to go below GBP 12 million throughout the year. As mentioned in the presentation, the average cash balance for the first half of the year was GBP 17 million and generally result fluctuation in cash between GBP 15 million to GBP 20 million as a normalized position. We very much spend up to continue into the second half as well. So it is -- remains slightly subdued and still slightly higher work in progress than we've had historically. [indiscernible] we're starting to see that online [indiscernible] continue to see that unwind in part towards year-end where we'll be back to around the GBP 20 million mark. So yes, less cash flows continue to fluctuate, and we still use reductor to manage that working capital as I've always done. We are starting to see that online shift into or back towards GBP 20 million.

Okay. Okay. I'll take that one. You described a record order book, providing visibility into 2027 and for some projects into '28. Can you quantify its current value expected revenue conversion by year margin quality? Okay. The which set the current order book principally underpins the brokers forecasts for 2017. So the order book really reflects about 75% of the broker forecast for 27. We do expect some contracts to grow within there that may take some further capacity. Also about 12%, 210 and 15 at least is '28 and he's corporate. And I think we described the margin as consistent with what we posed the '26 outturn [indiscernible] how much of the GBP 13.9 million H1 increase in contract working progress both as investment cash into. [indiscernible] in investors expect as the order book grows. So I think we've pretty much covered that in the earlier question. Broadly we don't expect any significant increase in room capital in the long term. It's more just timing and project delivery in a certain point in time, which can lead to fluctuations over various periods.

How much of the 42 million data center award is expected to be recognized in '26,'27, and '28? I would suggest GBP 5 million in '26, GBP million in '27 and GBP 7 million in '28. Although we are expecting some of those contracts to grow in value throughout through variation. So probably answers that one.