Diales Group Plc ($DIAL)

Good afternoon, and thank you to those of you who are joining us today to hear from Diales Group Plc, who announced their interim results only this morning. If you haven't seen it already, you can find our research note up on our website. But the purpose of now is to go through the company presentation and to take Q&A at the end. As a reminder, you can submit questions as we go through the presentation Q&A box at the bottom. But for now, I will hand over to CEO, Mark Wheeler.

Thank you, Hannah, and thank you, everybody, for joining us today for this presentation in which we'll take you through our interim results for the period ending March 2026. I know that some of you will be familiar with our business and will have seen us present before, but I'll try and give an overview as I go through of the topics that include what the business does. And on the next slide, there is an index, if you like, agenda for today, which lists the topics that we're going to go through in order. So on the screen now, you can see the global service split between the 2 primary activities that we undertake. There's our driver project services offering in the Northeast of England that operates mainly in the petrochemical, oil and gas and pharmaceutical type industries. And the remaining 78% balance of the business is the Diales brand, which includes both expert and some advisory work as well under that brand. So we very much consolidated the business across the world from where it was a few years ago. On the next slide, you'll see a list of global services. Quantum and delay is core to what we've always done. We've added in technical more recently, including structural architecture, all of those kinds of activities. But you'll note in the bottom left-hand corner, we've added 2 additional services this year. Building safety and fire engineering is something that we wanted for a long time, and we are absolutely delighted to have that service on board. It's been with us since October and going very well. We've also managed to hire a valuation expert over the next couple of months who came -- became available, and we took the opportunity to add that service to our bow as well as we obviously see leverage between that and many other of our services. So we're definitely growing our service offering. If we move to the next slide, you can see a summary of some of the challenges that we've had to deal with and to look at over the last few months and possibly longer in some instances. The ongoing conflict in Europe, for example, causes challenges in some jurisdictions for us with work that can't be started or is effectively on hold long term, travel and cost rises as well. There's been a new conflict in the Middle East that started in February that's also impacted us in a number of ways. Across the world, we're seeing some rising costs, which creates salary pressures in the market as well. Increased taxation in some markets has also been an issue. And I believe this year is the first time that we will have had a full year of the NI rise. which exceeds GBP 300,000 that's effectively taken off our bottom line. And finally, we don't really have much choice and feel that we need to invest in protecting ourselves from cybercrime and escalating our expenditure in AI because we need to develop the business. So these little problems, like the space invader on the right hand of the screen, invade from time to time, and we have to find ways to shoot them down or deal with them. If we move to the next slide, we have the revenue split by quarter. You can see on the first click there, Q1 of 2026. On a second click there, you can see Q2. So already you can see the cumulative picture building where both revenue and profit is gaining traction because DPS and Diales are both achieving overall the levels of revenue that we were expecting. I think on one more click, you can then see the operational highlights for the period, which I'll just take you through. So we have a strategy focused on organic growth, which means hiring good talent, I do apologize, selective acquisitions and some geographic expansion as well. Launching our building safety and fire engineering business is part of that and a specific action that we've achieved that's helped strengthen our offering across the whole business. Growth has been supported by higher activity levels and a stronger pipeline and sustained demand across all our service lines. Utilization is stable, some timing of Middle East project completions has impacted that, but only marginally. We're certainly going to be dealing with technology investment, particularly AI to help the delivery of our business in the future. And a strong overall performance is really driven here by careful execution of organic growth. We feel we've got a positive outlook with a strong pipeline, solid financials, and we have confidence in the future moving forward. I think the next slide, unless I'm very much mistaken, is one that we discussed putting a little bit more color around utilization upon. And these statistics just show that it's really important for us to have most of our people busy, 80% plus preferably. But actually, often, you'll get a small number that are between projects and those people might have low utilization in a particular month which depresses the whole. So a bit more detailed analysis there that shows there is underlying improvement in utilization management. On the next slide, you have a financial summary which I'll ask sure let's take us through. Thanks very much you have a financial summary, which I'll ask Charlotte to take us through.

Thanks very much. Hello, everybody. Revenue increased 10%, which we're very pleased with year-on-year up to GBP 23.7 million. Of that, U.K. and Europe revenue rose 22%. We've got a gross margin that's risen to 29%, up from 26% and an underlying profit increase of almost 50% to GBP 1 million. From that, we managed to generate GBP 1.9 million of cash, ending with a cash position of GBP 3.9 million, showing financial resilience. Headcount increased 3%, part of our ongoing investment in senior hires to support the growth of the strategy. And employee engagement improved with voluntary attrition dropping significantly from 12% to only 3% in the period. Take you through the regions. The first region -- no, sorry. Don't get ahead of ourself. First, we've got more of the details of the financials. So you can see the revenue increase there, a marginal increase in cost of sales showing, which has helped support the increase in gross margin. We have got an impairment charge there that is slow debt. We have a policy where a debt once it's a year old, we provide against it. Some of those will come in. One in particular is a debt with Ethiopian government. We've worked with them for a long time. The funds do flow, but it can just take a long time, particularly if they have a change in personnel over there, which happens quite often. Some of them -- 2 of them are legal matters and sometimes we will get something back on those, might be 50% might be a whole amount. We don't know yet. So hopefully, some return on those, giving an increase in gross profit. Operating expenses are shown there as having gone up in the period, and they have for certain reasons. One of those is our investment in a new CRM system, Salesforce that happened in H1. We've also had some timing differences in marketing and travel, which was more heavily weighted to H1. So that will fall through for the full year in line with budget, so that will reverse. But we have got a contingent liability that we mentioned last year-end that we've provided for in the first half. We're confident we won't have to pay out on that, but we have to have it in line with the audit requirements. So hopefully, that will reverse by the year-end, if not, then in next year. That all gives an underlying profit of GBP 1 million, tax charge of GBP 0.4 million and retained profit of GBP 0.6 million. Next slide has got some key metrics. The gross margin there getting up to 29% and utilization stable, as Mark has taken you through, an increase in EPS up to 1.2p from 0.9p. Net cash up to GBP 3.9 million. Net cash per share, 7.3p, I think that is, and a dividend yield of 7%. Now we'll look at the regions. We'll start off with U.K., Europe and North America. Excellent increase in revenue there up to GBP 15.3 million, a 75% increase in segmental profit for only a small number of increase in headcount, but utilization is still showing us stable. Again, the reasons Mark went through, some are busy, some aren't. Next slide, please. Thank you. At DPS, that's the project controls part of the business, the revenue up to GBP 5.1 million, increased segmental profit to GBP 0.4 million, headcount there of 100 and because some of those are subconsultants, the utilization is excellent at almost 96%. Next region is the Middle East. We had a lower revenue this year because of the timing of the projects finishing at the end of the last full financial year with a slow Q1, although inquiries and work projects weren't actually in May -- April and May are the highest we've seen for 12 months, notwithstanding the conflict out there. So we still had a small segmental profit that should increase in the second half, a slightly lower headcount and a reduced utilization due to that quiet Q1 that I mentioned. And the final region is APAC. Next slide, sorry, a reduced revenue there to just shy of GBP 1 million, but a breakeven, which is better than the loss we had last year, a much reduced headcount there. We've made some quite big changes to the Australian team. You might recall from the December call and a much improved utilization. So that region should do well in the second half and deliver a profit into the group. The next slide, this is the cash flow bridge. So we started the year at GBP 3 million. We had operating profit movement of GBP 1.4 million. We paid leases of GBP 300,000. Then we had, again, working capital movement of GBP 0.5 million. Tax paid was GBP 300,000. Dividend was GBP 400,000, small amounts for FX and interest and GBP 100,000 of CapEx, our closing balance of GBP 3.9 million. And the next slide, please, Hannah.

Cover the strategy. I think that might be my next bit. On the left-hand side of the screen, you have the strategic objectives that we set ourselves and the things that we have so far delivered. We said that we would rebrand ourselves globally, excluding DPS, which we've done, and we're continuing to focus on improving the brand recognition of Diales around the world. Lots of conferences, events and things that raise the profile of our people wherever we can. We've taken our hub-and-spoke model and changed the setup of that a little bit, got some more focus in the management teams. And also, we're encouraging people to start sending more work back from the overseas offices to the U.K. where we can do it in very much controlled manner. We've overhauled our buisness development processes, and we've installed Salesforce, which I know many of you will be aware of. And that's up and running and operational. It will take a little while to get to full effect, but we're very pleased with that system so far. We review strategically our overseas offices, and there were no loss-making trading entities in H1, which is the first time in a number of years that we've been able to report that. Hiring key people, work winners, halo experts, et cetera, is really important to us. And there were 3 experts so far hired in the year, which is helpful ticking that box, but we've got plenty more people that we're looking for to fulfill our organic aspirations. Acquisition of talent and acquisition of businesses with talent within them are something that we keep continuously under review. If we move to the next slide, you can just see a reminder there of the vision we previously set ourselves to deliver upon. We want to be the first choice provider of the high-quality services we offer. We want to hire the best people in the sector and be the employer of choice for those people. We want to secure work on the biggest, most complex disputes in the world and deliver the best possible services to all our clients. We also want to operate a consistently profitable business, delivering higher margins for ongoing shareholder value. So those are the plans that we've set out for the business. Moving on to the next slide, you can see the decline over the last 4 and bit years of write-offs, nonrecurring operational costs, discontinued operations, et cetera, that we've been able to achieve, filtering down to something de minimis we expect this full year. If you then on the next click, overall overlay the profit from turnaround we achieved after the problems that we had in the Middle East in 2022, you can see after the initial recovery, there is still significant profit growth going on over the last 3 years, demonstrating that we are making progress indeed. And we've now come to the point where our operational gearing is much more appropriate. And if you overlay, as you can see on the screen now, both of those 2 graphs at the same time, you can see that getting rid of those businesses that were causing us some challenges and working on our underlying profit is taking both those lines very much in the right direction. If we have a look at the next slide, we start to talk about AI and the involvement that we have in developing up the technology that supports our business. We talk very carefully about this, and we have a 4-phase approach. The first one is to improve operational support within the business, which hopefully will bring some cost savings to cover off the investment needed in that. Phase 2 will be providing tools to our teams around the world so they can deliver the work as quickly and efficiently as possible. Phase 3 is -- and these may run concurrently will help us accelerate staff development and Phase 4 is additional services that we cannot currently provide, but we may be able to provide with some more IT support, particularly predictive services in live project environment, we think, is an opportunity that we're going to look very, very closely at. On the next slide, you will see a couple of images that I'm sure you will recognize and understand. With applying artificial intelligence to a building, there is a risk. It can certainly bite you. And there are a number of firms, I know there were some law firms recently in the press who have gotten into some really difficult problems by not using it in a controlled, effective and managed way. And it's actually damage their businesses. We'd rather have the kind of AI on the left-hand side of the screen that's going to be helpful. And we've invested a great deal of time and energy so far, and we'll continue to do so to make sure that our technology journey doesn't damage or harm the business and the investment, but amplifies it and improves it. If you go to the next slide, you'll see a representation of our progress in the process of implementing AI in the business. We've done the investigation phase. So we've understood where we are in the business. We've done surveys to ensure our strategy is aligned with the priority use cases and some governance issues in the business. We've also started actively evaluating potential providers and partners for us to get to the best fit model. The next stage we're looking at is how to appoint the right people as our partners for this AI journey and to get them on board. So that's an area that we're looking at very, very closely. If we move now to the next slide, we can give you a summary and outlook for the business. So some key points, UM increased revenue 22%, 75% increase in segmental profit. Strong cash generation, GBP 3.9 million at the year-end, returning another 400,000 to shareholders by means of the dividend. The profits and margins, we are working at boosting by adding some additional higher gross margin business from those new experts we're employing. So you saw a 49% increase to GBP 1 million in the period in question with a higher gross margin. So we're focusing on some of these things have been a focus for a long time and probably ever will be profitability, margins, staff retention and attraction, utilization and cash collection. And we are now looking at both the development and acquisition of talent and of course, of some technology to help us deliver on the business. The next slide means that we've come to that point where we can hear some Q&A from the people on the call.

Lovely. Thank you very much. And we have a number of questions. Let's make a start. You've highlighted a robust pipeline of work heading into the second half. How far is your visibility on projects? Is it weeks or months?

Well, we generally in the business feel we can accurately predict 6 to 8 weeks ahead with some degree of sense. And in addition to that, we have new tools like Salesforce, which are giving us indicative pipeline information. So we know how many people have got inquiries in the approximate value of those inquiries and the degree of confidence they have in securing the work. So that, I think, is something that's helpful to us to have and will increase that foresight. So even if we're not set on secured work, you know if you have X number of inquiries of potentially Y value, we should be able to look forward a little bit further.

Obviously come up with some strong margin growth on higher revenues despite all the headwinds, your lovely slide pointed out, like space invaders. What is the key factor behind this?

The key factor behind the headwinds that we've encountered?

No, no, around the strong margin growth.

Well, I think the purpose of the -- you mentioned the delightful space invader side. What we're really saying is we're also achieving that in spite of those headwinds that have occurred during the period. So key to the margin growth is effectively around our gearing. When we have some challenges and some real problems in the Middle East that we dealt with very succinctly about 4 years ago, we lost a large number of people and a chunk of revenue. And we were never going to build back what we've just lost because it was a more challenging risky model than we wanted. So we've actually been building year-on-year back a business, which is more resilient and more reliable in terms of what it can deliver because it's not exposed to such a degree of fluctuation in workload. Now we've built that back up to a level where it supports our operational gearing. It's now starting to exceed that. So if we add -- I mean, I think if we added another GBP 10 million of revenue, most of the gross margin would effectively drop to bottom line because we've actually already got all of the support staff and services within the building -- sorry, within the business that will allow us to service that work. So we've got plenty of growth ahead of us without needing to increase the cost base too much, barring those exceptional areas that we've mentioned.

Well then, do you have an EBIT margin target? And if so, how soon do you expect it to be achieved?

We've always said double digits something.

Yes. We've always said double digits. And in terms of the timing to achieve it, I think it's difficult when someone has already asked the pipeline question, and I've said 6 to 8 weeks with some accuracy and maybe 2 or 3 months with a bit more technology to expect me to tell you the day of the week and the month and possibly the hour of the afternoon when we will hit that particular target. I think what you've got to do is look at the numbers, look at the growth, look at the gearing and accept that I'm unable to give additional guidance in these kind of presentations beyond that which is in the marketplace already. And I think it's obvious that we're pretty much on track and on target to achieve that. And this is a team that will do it as soon as possible.

We're all aware of inflation. How much did you put through in terms of fee rate rises during H1 this year versus a year ago?

Well, I don't think we can specifically say that because we tend to put through fee rises from 1st of October each year with new projects. And what you'll find is some projects will be running on that existed before that, where rates have been agreed in less than 12 months, and we've agreed them at a level which means that we can't readily change that, one thing. And some of those new projects, we will have significantly higher rates on some of the people may have been promoted and the like. I would have said the average rate increase across the business over the last 12 months has been north of 5%, but probably less than 10%. Would you agree?

[indiscernible] 8% or 9%.

That's a much more accurate range from the CFO.

Thank you, Charlotte. You touched on there in your presentation, acquisitions versus acquiring teams and the attractions of both. This investor would like to know about dividend cover, which is to be another use of cash, which the dividend cover rose to 1.7x. Is there a trigger you are looking at to increase the dividend such as the level of cash or the dividend cover?

No, not at the moment. We're really looking to make sure that we cover the dividend from retained reserves. There were some years in recent past where dividends were used as reserves brought forward, and we have plenty of them. But we -- sort of a tipping point if you get to that you have to start paying amount of earned reserves in the year, and we almost reached that point. So we very much want to make sure that we're retaining some as well as paying some. And from a cash point of view, we have a working capital requirement at the moment of about GBP 3.5 million. We have all these [indiscernible]. They all need a float, GBP 50,000 to GBP 100,000, then we have the central and then our overheads are mainly rent and staff, but we do have a [indiscernible] monthly, of course, but then occasionally quarterly, we'll have the catch-up. So it can be very lumpy, and we've calculated GBP 3.5 million is needed as working capital. The growth that we're doing, achieving and planning we need more working capital. So we will be very careful balancing the cash requirements against the dividend whilst also making sure that we're paid out of earned reserves.

Should we move on to utilization? Obviously, just down modestly. How do you kickstart this to your previously stated 80% target?

It is ongoing process in utilization. We review it on a daily basis across the business. We've now got dashboards that allow us to measure that. I think kickstarted if there was -- given that we've been on this transformation strategy for about 3 years and have we knew a shortcut that could kick start that review, we absolutely would. What I would say is when you hire work winners, senior experts, we refer to them as halo experts that you're effectively concentrating your ratio of work winners to work doers. And I think that's the real underlying key. So we manage the distribution of work as best we can, and I think we're quite practiced at that. Then you need to look at your BD and marketing to bring in more work. I think that's an obvious component. And then ultimately, you're looking at more senior staff that are work winners that can keep the staff at the beginning of their careers a little more busy effectively.

I also to add to that, we're not a huge company. We haven't got that many fee earners. And if you take out the bottom 15 in those figures to March, the utilization would have been 75, and of the 15, we have a couple of long-term sick, somebody has been on mat leave, somebody just started, somebody who changed, moved country between offices, so we're finding their feet. And we worked out there were actually only 3 people we needed an action plan for to get them back up to fee earnings. So a small number of people can really skew the blended rates to be below, but actually the reality with the median of 78 isn't bad.

Gaps in the office network, do you see that there are any or perhaps more significantly in the service lines offered?

I don't think I'm aware of any significant gaps in the number of offices we need or have. We're trying to work silo-free across the globe, and we do so at the moment. So we don't -- we can move people around quite effectively with technology that we have available to us. In terms of -- there probably -- there's probably one European country I'd really like to see us in, and that's about finding the right person to help support us in that particular country. Outside of that, we might look at something opportunistic if the right person came up possibly in South America. But at this point in time, not feeling anything that feels like a gap in our office coverage.

Thank you. What are your acquisition criteria?

I think it's probably difficult to spell out criteria in terms of a tick box of the things that we want. What I can tell you or share with you is the red lines that we don't want. And those appear around 75%, 85% of the things that are sent to us to look at or that we come across. So we're looking to acquire talent, which is going to stay here long term and which we can leverage more from. So we're looking for 2 plus -- 1 plus 1 to equal 2 when the 2 things are put together. We're also not looking for people later in life, who want to retire or move away from working and leave us behind with the business that is not going to be fed because they're not going to be there to do it. So those are the things that we're avoiding, and it will need to be something sustainable that adds value to our business. And our attitude for risk is probably quite conservative on acquisition, I'd say.

Thank you. You obviously, you touched on the new fire engineering and valuation business. What uplift did they contribute towards the H1 numbers?

We don't split that out in the segmental forward.

No, we don't. We probably can't give that kind of detail. What I can say is that valuation has only just started. And so it won't have had any material impact in the period. And also, I wouldn't want -- even if we had a number, I wouldn't want to give a number against fire, which suggested that, that was the key driver for these numbers because it isn't. We're now at a stage where whatever we bolt on because we're already supporting our operational business, that has an impact on bottom line.

Headcount is currently at 280. Where do you expect this to reach within 3 years? And do you consider a good metric on which to monitor growth expectations?

Headcount at 280 in 3 years I wouldn't see it as more than 350, might be a bit less than that because the more tech we get in, the more we may be able to extract from the existing workforce. And I think in 3 years' time, there will be a lot more technology in this business. I think the key thing to look at perhaps headcount is an issue. It's worth looking at and understanding that headcount includes people who do administration or marketing support and also an expert who's working on GBP 5 million worth of fee-earning jobs across the globe. So I think it's a misleading metric on its own. I think the thing to look at is to perhaps focus on the fact that this is a business at its current level of revenue that's making a profit that doesn't need to add on any more cost to support a significant amount more revenue. So perhaps the right metric is how many testifying experts can you hire over the next few years. And we don't know. It won't be none. It won't be 100. If we can get 3 or 4 a year in through the door, we'll be doing really well.

Okay. Share buyback, you've undertaken before when cash reached the current levels, would you expect to commence another shortly?

It's something that's discussed by the Board at each Board meeting. It's constantly under review. It's something we've done on a number of occasions before. I can't believe we won't do it again. But as to when and how much, that would be the subject of a Board discussion and some forecasting, which we wouldn't obviously be able to share with you today.

Okay. Bad debt, what can you do to bring these down, eradicate them? How quickly can you recover funds owed?

Some of it's just unlucky. We tend to have a year that just suddenly goes into administration overnight. Last year, it was ISG. Normally it's actually in H2, but this year, it's in H1, and that was about GBP 90,000 of that the GBP 500,000. The others -- government overseas, the government I mentioned, that's Ethiopia that should be within 12 months. But again, if they have a change government out there or it can take ages. I don't know the answer on that one. And the legal cases tend to run for 6 months or so. So maybe by the year-end, we'll have some reviews on some of those.

And should we expect to reverse some working capital to temper cash growth in the second half?

No, I wouldn't think so. I think we're -- it should be stable. I mean, you never know. I mean, one client at the moment a material amount. And then sometimes that would happen pre or post half year or year-end. It just depends. We have -- if you had an intense month of billing, you have a very high invoice for a client, and it depends on that, but I'm not anticipating one.

Well, that's it for the questions. So just leaves me to thank you all. Thanks to our listeners, and please fill in the feedback, which is coming shortly at the end of this call. And thank you to you both for your time, and we look forward to an update in due course.

Thank you, Hannah.

Thanks. Bye.