Lords Group Trading plc (LORD.L) Earnings Call Transcript & Summary

Good morning, and welcome to the Lords Group Trading plc Investor Presentation. [Operator Instructions] before we begin, I'd like to submit the following poll. I'd now like to hand you over to Shanker Patel, CEO. Good morning, sir.

Good morning. Good morning, everyone, and thank you for taking the time to join us for our H1 2025 results. The theme of our results is that we've made strong continued progress in our strategy. In terms of the highlights of today, we're really pleased that our group revenues have grown by 8.4% in what it is still a challenging market. In particular, our like-for-like revenues are up 7%. And within our Merchanting division, the revenue is up 12.6% with an adjusted EBITDA that's up 8.6%. A really good performance in our Merchanting division. In the last 6 months, we've acquired the U.K.'s largest online construction retailer, CMO for GBP 1.8 million in June. We've also opened 3 new merchanting branches to date. In terms of our liquidity and our finances, we completed the sale and leaseback of 4 operating sites of GBP 13.1 million, and this has allowed us additional liquidity to leverage growth opportunities as the market recovers. Overall, our adjusted EBITDA performance is marginally ahead of the [indiscernible] pre market mechanism results of H1 2024 and 2025 has come in at GBP 12.1 million adjusted EBITDA against a gross H1 2024 number of GBP 12.6 million. Our net debt has been reduced by GBP 15.4 million to GBP 20.9 million, and that's from June 2024 to GBP 36.3 million. And the business and Board is pleased to announce an interim dividend of 0.32p per share, which is the same as last year. I'll hand over to Stuart Kilpatrick, CFO [indiscernible].

Good morning, everyone. I'd like to take you through the key highlights of the group's financial performance in the first half of 2025. Our revenue, as Shanker said, was up 8.4% to GBP 232.1 million. We had a strong growth, as you can see in quite a challenging market, we haven't seen any great improvement in the repairs, maintenance and improvement sector, the RMI sector where about 80% of our business trades -- like-for-like sales, Shank up 7%, which is very encouraging. I think that compares favorably to some of our listed competitors who reported first half results in the last few days and weeks. our gross profit, that was up 3.6% to GBP 44.8 million. And we saw good growth in our [indiscernible] product lining marketing mix and we'll talk about that later. If i remember in -- 2 days in '24, the company issues something called the Clean Heat Market Mechanism [indiscernible] to the heating sector. And that results in higher boiler prices in the first half or first quarter of 2024. And the industry as a whole when the government then canceled or deferred the mechanism decided to refund those high prices in Q2 and Q3 2024. So the impact of that on the Lords Group was GBP 800,000 better profit or profit benefit in the first half and that reversed in Q3 2024 in the second half. So you can see when you look at our EBITDA, we reported GBP 11.6 million last year. And [indiscernible] Clean Heat Market Mechanism impact was GBP 800,000 less to the [indiscernible] pounds or increase slightly to GBP 300,000 in the first half of 2025 to GBP 12.1 million. You see in the bridge on the slides, the LFL revenue in profit terms valued GBP 3.6 million, a slightly lower margin or gross margin percentage to GBP 1.3 million last. We've done a pretty good job on underlying overheads. So you can see our overheads are up by about GBP 2 million. GBP 1.2 million of that is acquisitions we've made in the last 12 months and the 3 branches that Shankar talked to in the first half. So our underlying overhead increase has been maintained or has been limited to 2%, and that reflects inflationary pressures in terms of property, transport and additional cost which we're expecting [indiscernible] insurers and increasing national minimum wage. [Clean Market] mechanism as I mentioned, roll through our adjusted operating profit, which was GBP 6.2 million in the first half compared to GBP 7.1 million last year. Our adjusted earnings per share as well, which is 1.35p per share compared to 1.57p last year. Net debt, [indiscernible] has reduced significantly -- that's 42% down on the number at the end of June 2024. And as Shankar mentioned, the group strengthened its balance sheet and delivered strongly and strategically in the last 12 months with a good performance in the first half as the Board decided to maintain the dividend at 0.32p per share, which is the same number as last year. [Indiscernible] performance, our merchant business continue to [indiscernible] in the same way as Q4 2024. Indiscernible 6% GBP 117.7 in the first half of 2025. Like-for-like sales [indiscernible] branch mix. Acquisition is 11.5%, obviously very strong. And we had a good first half, [indiscernible] and that impacted the margin again. So gross profit is up by slightly less than the revenue increase by 5.7% to GBP 13.4 million. [indiscernible] to maintain [indiscernible] as you can see there so that half of our increasing overhead [indiscernible] came from the new branches that we've opened. [Indiscernible] increased 2% [indiscernible] as I mentioned earlier [indiscernible] divisions. Property gain same as last year came from the sale and leaseback of 4 merchant properties in 2025 compared to [indiscernible] in '24. Our adjusted EBITDA is now 8.6% higher at GBP 8.2 million -- compared to GBP 7.6 million in 2024. [indiscernible] plumbing and heating, In 2025 first half, you can see our revenue is up by 2.4% overall to GBP 12.2 million. Boiler volumes were up by 6.8% in the first half, we maintained our market share, which is running around 11%. Within Plumbing and Heating division, our wholesale business are doing pretty well. [indiscernible] half in half. We have more chances for our [indiscernible] first margin percentage was 80 basis points lower in the first half compared to last year, you can see the impact of that on gross profit at GBP 13.9 million [indiscernible] compared to GBP 14.5 million last year. Costs were controlled you can see GBP 0.5 million increase majority of that was the business we acquired in the back end of 2024. like-for-like interest was limited to 1% in the half, which is a good performance. Adjusted EBITDA when you compare it to the number adjusted for the market mechanism was GBP 3.9 million compared to GBP 4.2 million, adjusted last year, it was really in the 4 months of the first half of 2025. I'd like to take you through the cash flow over the last 12 months, the 12 months ended June 2025. As Shanker mentioned, we reduced net debt by GBP 16.4 million from GBP 36.3 million to GBP 20.9 million over last year. Within that, our adjusted EBITDA was GBP 21.9 million managed to generate positive working capital movement of GBP 2.5 million in the last 12 months, which is positive news. We continue to maintain spend on our branch network. And as we said, we opened 3 new branches. So CapEx is GBP 2.8 million in the period, tight 12 months. That gives us an operating cash flow of GBP 9.1 million. When we compare that to our adjusted operating profit for the last 12 months, it comes to about 97% of cash. So we converted 97% of our profit into cash, which I think is a result on the chart you see the sale proceeds and net profit. We spent GBP 4 million on tax interest and about GBP 2.9 million on current year or last 12 months acquisitions or deferred consideration from previous acquisitions GBP 0.5 million in dividends, and that gives us the GBP 15.4 million reduction that we [indiscernible]. GBP 20.5 million tangible assets reduced to GBP 9 million in the last 12 months. So, our properties on leaseback or [indiscernible] properties to [indiscernible] GBP 20.5 million intangible assets GBP 424 million [indiscernible] as Working capital, as I said, has been well controlled, but still a bit more to go. We reduced the balance sheet by GBP 2.2 million to GBP 39.5 million. Our working capital sales ratio has come down accordingly, to 8.7% compared to this time last year, as i said we reduced debt by GBP 20.9 million to GBP 20.29 million. Our leverage under the bank calculations comes in at 2.2x. [indiscernible] calculations compared to a couple of [indiscernible] quarter so [indiscernible] GBP 75 million. One is a committed revolving credit facility which is GBP 50 million plus commission until April 2027. And we have [indiscernible]. We made a call from last time [indiscernible] GBP 20 million last year [indiscernible]. [indiscernible] future commitment fees [indiscernible] margins of 13. To give you an update on our strategy -- so on this slide, you'll see the strategic progress that we've made in the last 12 months. To remind those on this call that our strategy is a combination of margin accretive organic growth and highly selective disciplined M&A. On the organic growth front, we've opened 3 branches, which is going to be adding or have added sorry, GBP 2.4 million in revenue in the first half. And we've continued to enhance our business product ranges. In terms of selective M&A in the last 12 months, we acquired Ultimate Renewables in October 2024. It's a business that is doing extremely well under our ownership with the former management team in place, growing our offering in the renewables [indiscernible] market. We also acquired CMO in June 2025. In addition to organic growth and M&A, we've also strengthened our management team. In November 2024, we recruited Steve Durdant-Hollamby as our COO of Merchanting. And I'm really pleased to announce that we've recruited Matt Webber to be the CEO -- COO, sorry, of the Plumbing & Heating division in September 2025. Our colleague, Neil Lake will now take into responsibility for group business development, working closely with myself and Stuart in growing our business further. And as you can see in the last bullet point, in the last 12 months, we've strengthened our balance sheet by reducing our debt substantially. An update on the merchanting strategy. So the strong first half revenue growth of 12.6% in what is a challenging market. A lot of that growth has come through some of our selected brands, in particular, George Lines [indiscernible]. And in terms of brand development, we've opened a new site of the George Lines in Maidstone, Kent near Mansfield,Kent. That's a 1.5-acre site AW Lumb revenue [indiscernible] Buckinghamshire, just 2.5-acre site. And we've continued our 2 site program of Lords Group's [indiscernible] with a site in [indiscernible] that was formally a builders merchants run by a family for over 50 years, and we were fortunate enough to be able to take it once they closed the business. We therefore see further opportunities to incrementally add to our [indiscernible] geographical footprint. And we also see selective M&A opportunities for specialist brands or geographies. On the next slide, I wanted to go through some detail on our specialist brands. George Lines is a strong brand that's been in our ownership since 2016. You see on the left-hand side of the slide, the number of branches that we've opened since we've acquired this business, [indiscernible] 2024 and then merchanting business. Business is a specialist civils merchant selling aggregates, concrete drainage, ducting and landscaping products more into the commercial infrastructure market. It's grown from GBP 13 million revenue in a single site to 5 branches and a GBP 44 million revenue business [indiscernible] to organically grow this business by extending its branch network whilst maintaining its excellent customer service. This is, again a part of our strategic investment in [indiscernible. As you can see in this image on the right-hand side is our investment in our premises next to branch on the right hand side. A well invested branch where we think that investment will allow us to be able to grow this business [indiscernible]. We then have another specialist branch in [indiscernible] that we acquired in 2022. 2 month after we acquired it, we put in our main plant, in our [indiscernible] branch. [indiscernible] Branch is a large 4.5-acre site [indiscernible] an additional revenue stream into that branch and allowed us to grow [indiscernible] in an area where there weren't many roofing merchants. We also moved the old small site in [indiscernible] to [indiscernible] 2023. And you see on the left-hand side the image of the new site, which is co-located with all skilled merchanting. As a result of our initiatives, not only has the roofing brand over the past grown [indiscernible] in France, but it's also grown its revenue base from 7 million in 2022 to over 10 million in 2025 [indiscernible]. So, [indiscernible] about being able to take specialist brands and to grow them. We then move to Plumbing & Heating and the strategic update there. Key for us is maintaining our market share. So whilst revenue grew by 2.4%, we managed to maintain our share of Boiler market. Boilers currently are still very much in the 80% of all the products that we sell in this division. What we've also done is strengthen the management team in our [indiscernible] brand. We recognize there's tremendous opportunity in that brand and that in order to be able to grab that opportunity, we need to have a dedicated management team that is focusing on the growth of [indiscernible]. Renewable revenues are up by 737% as ultimate Renewables has started to perform in line with our expectations. That business is earmarked for growth and the renewable market itself starts to grow and the government's intent of reducing the country's reliance on fossil fuel-based heating systems. We've also strengthened the business by appointing Matt Webber as COO. Matt comes with over 20 years experience in the P&H industry. He's worked for companies such as [indiscernible], APP and [indiscernible] merchants and manufacturers. Again, all of our businesses are reliant on really good supplier relationships, and that comes with tremendous relationships, not just with customers, but also suppliers is a key stakeholder in this business. Our goal in this business is to maximize the efficiency of our wholesale business model. We believe we've got tremendous opportunities. We have the infrastructure, product supplier connections, physical locations and a management team that are experts in that field. So now as we start to really focus on maximizing the efficiency [indiscernible] we will see growth coming through. In addition, we have the opportunity near [indiscernible]. The design, supply and implementation. This is something that we believe will be required, not just a new build but also as the market for retrofit in renewables [indiscernible] technology. We also have the aim continuously of driving non-boiler products and our higher margin [indiscernible]. In an example of an acquisition in the heating division, this is our direct heating and HRP trade featuring business that we acquired for GBP 9.3 million in 2022. HRP trade is a leading national distributor of plumbing and heating spares. It complements our plumbing and heating with the wholesale business very well, customer base and spares is intrinsically linked to boilers. It's a very good model that we are using to show how we can be very efficient in distributing our products. On the right-hand side, you can see the revenue CAGR despite a very challenging market, this business has grown by 8%. It also has a merchanting business with 4 branches, and GBP 20 million of these branches are highly aligned with our [indiscernible]. On the next slide is the digital division that's been created through CMO. CMO is a leading online retailer. We acquired it in June 2025 for GBP 1.8 million. That included a CMO property worth GBP 1.2 million. The business has a last 12 months revenues of GBP 47 million to the end of June 2025. What we realized at the time of acquisition that some of the issues that we faced was a restricted supply chain due to trading conditions and the removal of credit insurearnings release. We had the opportunity to acquire this business in process. And since the 6th of June, what we have done is reestablish the supplier base from scratch, where now over 90% product availability is key to their proposition. And their proposition is a drop ship model, 70% of their business is drop ship, 30% relying on their own debtors, obviously there are 2. One in Plymouth and one in [indiscernible]. On the right-hand side, you'll see all the various storefronts that they have from plumbing all the way to installation. And they have, again, a unique model with assisted sales where customers are encouraged to call if they are unsure about either pricing or product availability or product handling complaints. Av wonderful team in Plymouth, who really serve the customer very well in their journey to buy construction materials [indiscernible]. What we've also done is driven down refunds. They were running at around 21% by the time we acquired the business, and they're currently down to 6%. That compares very well in the market for e-commerce businesses. However, we are still striving to reduce that further. The other thing that we've done at speed is to implement a cost reduction plan, and that is expected to exceed GBP 1 million in 2026. Our medium-term strategic plan is to recover the business in terms of revenue to its prior run rate and then want to learn the strategy why the group purchasing product range. The group itself is [indiscernible] on having excellent customer relationships and there is commonality in suppliers between our Merchanting and Plumbing & Heating divisions and our digital division CMO. So we'll be working with our suppliers and stakeholders to see how we can position all of our various divisions such that we can leverage -- we leverage off each other's [indiscernible]. The digital first business, so driving efficiency through its cost model is another major part of our strategic plan. We will be using the technology team that we have in CMO to assist us in gaining efficiency models through all of our various divisions. So in summary, I want to remind investors of some of the commitments that we made at the time of our IPO in 2021. One commitment we made is that we would like to be a GBP 500 million business by 2024. I'm pleased to say that as it stands, our revenues are expected to exceed GBP 500 million in 2025, a year later than we would ideally like to achieve. But what is really interesting is when you look at the box on the right-hand side, it shows our compounded annual growth rate since 2021 when we listed. And that's coming at 12%, comparing very favorably against some of our listed peers where the CAGR is 2.2%. Again, one of our commitments at IPO is that our business is one where we will be expected to outperform the market. And our final year revenue performance clearly demonstrates our ability to outperform the market, despite the market since 2022 in particular, extremely challenging. We also see that continuing to drive our margin accretive organic growth can lead to greater profitability in the medium term. The 5-year revenue from the 3 new branches that we've opened this year is projected to exceed GBP 25 million at a 7% EBITDA margin, this potentially adds GBP 1.8 million to our bottom line. Same with selective M&A. We have a strong record in value creation in what is still a highly fragmented market and CMO accelerates our online business model. At the time of IPO, we had an aim of 25% of our revenues being digital. The acquisition of CMO gets us very much close to that [indiscernible]. So we're delighted that we then followed up on that commitment. In terms of revenues, if we get [indiscernible] revenue, so that's 5% EBITDA margin, this business could add a GBP 2.5 million increase to our profitability gains. Before I take questions, I'll just run through our outlook. We are growing. We've grown quite well at 8.4% in H1 despite the highly challenging market. And we're continuing to make strategic progress in our integrating recently acquired CMO, [indiscernible] new branches, and we continue to see margin accretive organic growth and selective value-added acquisitions. Those opportunities are still there for us to take. And therefore, management is focused on operational efficiency and capacity to be able to grow our business despite the challenging environment. We're a customer-first business. So continuing to focus on excellent customer service. I think we can see that from some of our revenue growth ahead of our peers, but our focus on empowering colleagues to provide our customers with the best experience they can in acquiring building materials has really come through in our results. And we will focus on good efficient working capital management. I end with the note that there is still a significantly seasonally adjusted trading period ahead of us and that we expect to be in line with our business [indiscernible]. Move over to Q&A.

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

Question from [indiscernible]. You highlighted consolidation opportunities in the fragmented U.K. market. What type of acquisitions are you prioritizing? We're prioritizing acquisitions that add strategic value to our business, so specialist businesses such as Advance and George Lines and whilst in size, they are smaller, but they do add a higher EBITDA contribution. So that's one area that we're prioritizing. And then the other area we're prioritizing is where we can expand our geographical footprint with synergies. There are areas of the U.K. where we're underrepresented, but we see that adjacent to some of our other locations. We're looking at opportunities in those areas and that's where our focus is. Another question. How resilient do you see demand growth [indiscernible]. We've done really well in the first half as you see from our like-for-like numbers, which were up 11.5% [indiscernible] was also at a week about [indiscernible]. We've seen the market for customers being highly resolute over the next 4 or 5 years and growing smartly [indiscernible] our business model [indiscernible] so wee see that 7% not a challenge at the moment is in our model [indiscernible] levels we've seen in the past and also aligned with our year end presentation merchants involving direct 20% lower than 2019. So it's quite a big opportunity [indiscernible] to march merchants strongly in the winter months. So it works quite well for us in terms of one last [indiscernible]. A question from George. What is your strategic vision for CMO? Will it remain a stand-alone e-commerce business? Or do you intend to integrate it into merchanting? So, it is, as we've said in the presentation, our digital division. So it will be stand-alone and It is a stand-alone business. We see tremendous opportunity for that business to grow, have a differentiated drop ship model with really good front-end stores and an ability for us to not only get national coverage, but also sell specialist products that merchants generally won't sell the [indiscernible]. Merchants are predominantly very strong businesses. Where the integration is in collaboration on the fact that all 3 of our divisions have a digital requirement. So our strategy is that you've got CMO, which is a digital-first business and you've got the other 2 divisions which are a more offline first. Digital first businesses in particular CMO will leverage the benefits that come with an offline business and supply chain capability within those offline businesses. Offline businesses leverage the digital first approach of CMO such that the offline businesses have greater digital penetration. And to give you an idea, we are still way behind in digital adoption within the building materials market, unlike clothing and many other product services, the construction market is still very much well behind in transacting through digital means. And that's where we see the benefit is that we've got our own in-house digital expertise that can work with all of our various businesses to enhance the efficiencies. And likewise, we've got deep rooted supplier relations and logistics capability that CMO [indiscernible]. [indiscernible] you've seen a slight reduction in our gross margin in the first half mainly because of the mix and more direct sales and that impacts our margin. We'd like to see margin going up was certainly working and have been working towards gross margin going up, but it's a competitive market as we are in challenging times here in the market [indiscernible], you would expect to see our Margin going up in the second half. In fact, the digital first [indiscernible] across the margin sllightly in the group average [indiscernible] as well.

What is you target leverage level.

So, typically there was [indiscernible] between 1 or 2x leverage and I'm happy to say how [indiscernible] opportunity it was and we [indiscernible] 1.5 to 2x level. We do find that very challenging, I think that's one of the market [indiscernible] in terms of leverage and hope that our payers [indiscernible]. We do guess [indiscernible] and it kind of transforms our income statement [indiscernible].

Do you have internal ambitions possibly through M&A?

It is something that we've looked at. But currently, given the challenges, it will be very difficult to justify going abroad whilst there are plenty of opportunities in the U.K and that management focus is really on the key [indiscernible] so whilst we can replicate our model internationally or in markets. At the moment, we are very much focused on the U.K.

Shank, Stuart, thank you for answering all those questions you have from investors. And of course, the company can review all questions submitted today and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Shanker, could I please just ask you for a few closing comments.

Okay. Well, once again, thank you very much for taking the time to join us today on the presentation of our H1 2025 results. We believe our business is very well positioned. It's made great strategic progress. And as the market recovers, we believe we're very well placed to take advantage of any market recovery. Thank you very much.

Shanker, Stuart, thanks 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 the management team could better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Lords Group Trading plc, we'd like to thank you for attending today's presentation, and good morning to you all.