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

Good afternoon, and welcome to the Lords Group Trading plc Annual General Meeting. [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 is appropriate to do so. I would now like to hand you over to Chairman, Gary O'Brien. Good afternoon to you.

Thank you. Ladies and gentlemen, good afternoon to you all. Welcome to the 2024 Annual General Meeting of the Lords Group. My name is Gary O'Brien, as I was just introduced a minute ago, I'm Chairman of the company and I'll be chairing the Annual General Meeting today. Thanks to everybody who joined us. We are investor meet and also in the room, particularly our major shareholder here, James, who attends every year to make sure we're behaving ourselves. And we've got two members in the room that I know of. So we can declare the meeting or a quorum. For this morning's AGM, I have with me on the table. Shanker Patel, CEO of the Group. Sitting beside Shanker, and welcome, is Stuart Kilpatrick, who is our new CFO, just joined us how long ago, Stuart?

3 weeks.

3 weeks, well experienced, a veteran, indoctrinated. Andrew Harrison, who is our Independent Non-Executive Director and our Senior Independent Director; and Sheena Mackay, who wasn't with us last year, who also just recently -- well, not recently, who's joined us in the last several months. Welcome.

Thank you.

Before turning to the formal business of the meeting, I'd like to draw your attention to the fact that we actually did a trading update release this morning at 7:00. If we can roll the screen up, I will read it out. This says, Lord is registered with the stock exchange this morning at 7:00. So since our trading update on the 15th of May 2024, revenue has been in line with management expectations. Demand for the group's repairs, maintenance and improvement has focused product offering has been similar to the first quarter of '24 and due to our customer service culture, gross margins have all been maintained. The Clean Heat Market Mechanism, which we reported had caused challenges in the first quarter, has had less impact on trading in April and May. Alloway Timber, which we acquired in September '23, has now been fully integrated into the Group and rebranded as Lords Builders Merchants. Four of the five sites in the Southeast of England have been fully refurbished, leading to a strong positive customer feedback. And similarly, Chiltern Timber, which was acquired in April '23, has also now been fully integrated into LBM and operates from this modern specialist timber site in Hemel Hempstead. Whilst challenging macroeconomic conditions haven't backed trading at the start of '24, the group is well positioned in a highly fragmented and essential RMI sector, repairs, maintenance and improvements. Our strong customer service culture, combined with a proven track record and selective acquisitions gives the Board confidence that this will lead to a sustainable increase in shareholder value over the medium term. And that's basically the body of the release that we did this morning. You'll be able to get a copy of that from our website or you can go on to the London Stock Exchange under our name and pick up from there if you want. Now, Shanker. Chris Day, who is former CEO -- CFO, I should say, gave a presentation on the 15th of May when we actually did the initial results. So I don't intend going through the results in any detail at all. And if you do want to see that presentation, again, if you can go to the investor meets file, you'll be able to see -- on the launch, you'll be able to see that presentation in full. Right. Before going on to the formal elements of the business in the AGM, we will be available for questions and answers at the end of the formality, taking questions, and you can submit your questions through the investor meet platform or in person, obviously. There was -- people who are giving the opportunity to file their questions in advance, and we have had several of those. So we know there are some questions there that we will have to respond to or we will be responding to. But please, as I say during the presentation, if there is anything that you want to ask, please submit it via the investor meet platform. So thank you for that. I would now proceed to the formal business of the meeting. The notice for the meeting was actually filed in the 24th of May -- or sent out on the 24th of May to all shareholders. Accordingly, the requisite notice has been given. And I therefore purpose that with your consent, the notice of the meeting should be taken as read. And if that's agreed, then I'll proceed to the formality of the business. For the meeting in accordance with best practice, all resolutions be voted on via poll. I'm directing the votes to be conducted in a poll in accordance with the Article 19.8 of the company's Articles of Association. Polls -- for anybody present, poll cards were available and can be cast at the meeting today and are -- basically, the Link Group, who is the company's registrar, will actually summarize those along with any votes that have been received so we can get the results for all the resolutions at the end of the meeting. I'm going to put the resolution to meeting one after the other. The actual terms of resolutions were set out in the full notice, so I won't go into it in any detail. And just for information, from the voting that we received to date, we've all -- we've had in excess of 94% acceptance on all of the resolutions. So having said that, let's get into the formality of it. Resolution 1, is the annual report and accounts for the year ended 31 December '23, being circulated to our shareholders with the auditor's report thereon. I would now like to propose the passing of the first resolution, which is proposed as an ordinary resolution, and we've got 2 levels of resolution ordinary, which just needs minimum 50% to pass it and special resolutions, which we will have later on where we need 75% as a minimum. But as I said, resolution 1 is to receive the annual reports that came to the company for the financial year ended 31 December '23, together with the director's report and auditor report on those accounts. Resolution #2, which again is an ordinary resolution, is to declare a final dividend of 1.33p per ordinary share for the financial year ended 31st of December '23. Resolution 3, which I now propose is to reelect Andrew Harrison as a Director of the company. Resolution 4. Again, an ordinary resolution is to elect Stuart Kilpatrick as a Director of the company. Resolution 5. Again, an ordinary resolution is to elect Sheena Mackay as a Director of the company. And in the case of Resolution 6, I'm going to pass it to Shanker as this concerns to myself.

Thank you, Gary. I propose the passing of Resolution 6, which is being proposed as an ordinary resolution to reelect Gary O'Brien as a Director of the company. And back to Gary.

Thank you, Shanker. Resolution 7, again, an ordinary resolution is to reelect Shanker Patel as a Director of the company. Resolution 8. Again, an ordinary resolution is to reappoint RSM UK Audit LLP as auditor of the company to hold office until the conclusion of the next general meeting, at which accounts are laid before the company. Resolution 9, again, an ordinary resolution is to authorize the Directors to determine the fees payable to the auditor. Resolution 10, an ordinary resolution that the directors be authorized to allot equity securities within limits set out in Resolution 10. And then resolutions 11 and 12, both of which are special resolutions. Resolution 11 is a subject to resolution 10, the director be authorized to allot equity securities for cash as if Section 561 of the Companies Act 2006 did not apply within the limits set out in Resolution 11. Resolution 12, that's subject to Resolution 10 and in addition to 11, the directors be authorized to allot equity securities for cash as if section 561 of the Companies Act 2006, did not apply as set out in resolution 12. That's all of the resolutions to be proposed. I now declare the poll open. If there any poll cast to be submitted to the company -- to the company's registrars then please submit those. I don't believe there is, but what we will be doing is once we have completed any poll cast summaries, we will basically declare the poll closed, and the results of that will be available on the company's website. We'll have that posted. Okay. So having said that, that really concludes the formal aspects of the meeting. I'll hand back to investor meet, so that they can assist us with taking any questions that there may be -- for the meeting. So if I can pass back to yourselves.

Perfect, Gary. Thank you very much. [Operator Instructions] I would like to remind you that a recording of this meeting along with the copy of the slides and the published Q&A can be accessed via investor dashboard. Gary, we did receive a number of questions from investors on the line. At this point, if I could just ask you to open the Q&A tab, read out the questions, and I'll pick up from here at the end.

Okay. Bear with me for a second while we try and do that. Okay, it's coming up on the screen. So Michael Jay asked the question. The market is clearly disagreeing with the future prospects of this wonderful company, why? I'm not quite sure why you're saying the market is disagreeing with future prospects. But I'm going to pass this to Shanker, to defend our position as to why: A, I don't think the market is disagreeing with our future prospects, and B, why we actually are seeing earlier that the directors and the Board believe that in the medium term our prospects are looking strong. So Shanker.

Thank you, Gary. I think indeed, the point of that the company is on track to meet its guided forecast. We understand that the market sees a lot more than just the performance of the business and in particular, we believe that the macroeconomic environment is leading the market to take a particularly difficult view of businesses in our sector. That said, I think as our business continues to perform and in line with our expectations, we see no reason why the market won't correct its view in the future if there is a poorly [indiscernible] business indeed.

If there is.

Yes, if there is.

Thank you. How does HSS Hire? For people who don't understand what HSS Hire is, in the audience. Basically, it's a tool hire business. Which we actually subcontract space to them and operate out some of our sites. Shanker, how does that concept fits into our business?

It actually, it fits in very well. HSS have a concession agreement with our business, whereby they operate there -- from our sites and supply their customers with small tools, as well as slightly larger plant equipment. We, in return, receive a commission, which helps to reduce our cost to serve from those locations. But in addition to that, it widens our offering to our customers. It allows us access to their customers and vice versa, allows HSS access to our customers. That complements both businesses to be able to reach customers that we wouldn't otherwise be able to reach. And in particular, for us, it widens our customer service offering. We are a customer service-based business. This is a product that we're offering to our customers outsource through our partnership with HSS.

How many units do we have, Shanker? Sorry, this is my question.

We have, I think, 13 locations at this moment in time.

It's honestly working well, otherwise, we wouldn't.

I might like to add that. I think we were one of the first to agree to this arrangement.

Sorry, I did miss a question earlier, which is how is the demand affected by BUS. That's not the red BUS. And I'm going to pass this one to Andrew. What does BUS stand for.

So BUS is the Boiler Upgrade Scheme. So it's the scheme that the government introduced to incentivize consumers to change their old fossil fuel boilers to a more efficient heat pump via an accredited installer. So it's quite difficult for us to track sales specifically through the Boiler Upgrade Scheme. But what we have seen this year particularly is an uptick in our heat pump sales. So I think anything that the government do to incentivize change is welcomed by us.

Okay. Thank you. Coming down to [indiscernible] which was actually presubmitted to us earlier as it so happens, but it's now on the screen, I can see, who's asking several questions. It's from T being the engagement appeal. Do you know what T stand for, Sheena?

No, but I'm going to find out after this meeting.

Okay. Right. Sorry, I thought you did. So that's why I asked you the question. But as you can see, basically, I wanted to understand how investment through the stock market and the Gen Z generation, how it affects them. So my questions relate to the stakeholder and investor engagement in accordance with Section 172. Can you please scroll down, Andrew. So this four questions here. So we'll start with number one. If you can go back up a little bit. Yes, how informed are the younger generation, especially Gen Z, both personal finance, capital markets? Stuart. Can I put you in the hot seat and maybe throw one of these to you?

That's okay, Gary. Thank you. The younger generation, especially Gen Z are renowned for being financially fit and savvy and many having retirement plans in place and a healthy attitude to investing and saving. We find they are well informed and are passionate about making a positive impact on the world, and this is reflected in our investment decisions. With many drawn to companies and funds that prioritize ESG criteria that contribute for a more sustainable future.

Thank you. Second question, Shanker. Especially with our difficult economic circumstances, what impact do you think, if any, could individual investors deliver to the company's overall performance?

Okay. Well, companies should act in the best interest of all shareholders, whether they hold large or small investments. We have a dedicated channel for investor to contact us and let us know their views, all year round via the [email protected]. And indeed, we welcome all feedback and do our best to respond to inbound inquiries in a timely manner. We listen to our shareholders' views and if accretive to our strategy, we will act and incorporate so that we can deliver the best returns for all our shareholders.

And as you said, we've got this IR Lords Group Trading, which so happens, that's where the questions were first presented to us. So we were able to look at these questions and consider them and respond accordingly. The third question is, in your opinion, what matters most to the younger generation of individual investors. Shanker?

Sure. Every investor is different, and we ensure we give as much information as possible to help guide their investment decisions. We are cognizant that many are passionate about making a positive impact on the world with many drawn to companies and funds that prioritize ESG criteria and contribute to a more sustainable future. I believe our ESG strategy is well laid out, and we are attractive to the younger generation as a result of that particular strategy.

Okay. And the final question, is what more, if anything, companies, like ourselves do to educate, empower, and engage individuals, on basic personal finance and investing? I'll take that one. I mean it's obviously -- we're not here to basically educate individual shareholders, whatever generation it is in investing, and we don't -- we basically don't give investment advice as such. But it is our emit to make sure that we communicate through whatever it is, whether it's through [indiscernible], whether it's through our annual report and accounts to try and give as good a picture as we plan of the company. So people understand us as a business, understand what our strategies are and how we're going forward. So I think that's our way of trying to make sure they understand our story. Obviously, it's then down to the individuals so whether they think that's an investment proposition or not as the case maybe. And so hopefully, we've answered your questions here. And if we can move further down. Unfortunately, my operator is not very [indiscernible]. We'll decide after this meeting. In which case I think we've probably covered everything that investor meet up has shown us on the screen. Is there anything else from...

There is two there. Why doesn't management consider dropping the dividend and buying back stock given the current stock price, and also especially considering that the industry is likely near its trough?

Okay. Well, probably, I'm going to start off and then I'm going to pass to Shanker. So I'll do the easy bit. We -- a lot of our investors cover all aspects of investment, some of that being income funds, who are actually looking for income. They're not just looking for capital growth within it. And we are here to try and represent all of our shareholders. Commercially, there might be a different angle on it. But from an investment point of view and our shareholders, we do have to take that into consideration, Shanker.

I think added to that, Gary, also we -- when we listed, we made a commitment to a progressive dividend policy, which is annually reviewed. It's robustly discussed and debated and wider consensus is sought from shareholders from also our financial advisors. Now in light of the fact that we've always said that the business will try and always aspire to do what it says it's going to do. We have made that commitment. And I think it will be wrong of the business to renege on that commitment for the time being. Now that doesn't mean that we don't evaluate our options. And if there is an option for a buyback in the future, that might be better, will be acceptable, then we would consider it. But certainly, for the time being, we will stick to the commitment that we made just over 3 years ago.

Good. Thank you, Shanker. So points well added. And -- it's not a final question because another one has just come on, but I'll read that in a minute. Any acquisitions likely, Shanker?

There are always acquisition opportunities. As you know, our track record over the last 10 years has been of multiple acquisitions in any given year. But at the same time, I've always maintained that the business is one that exercises discipline. And given the current macroeconomic environment, we have to be more selective and find the right time to acquire. That doesn't mean that we won't, and it doesn't mean that we will wholeheartedly do so. It means that when the timing is right and we have the right opportunity, we will certainly not be shy in making that commitment.

Okay. And finally, thank you very much for your engagement, Mr. Chair and the Board well done on broadcasting your AGM. I think this is just a vote of thank you. Thank you.

How very progressive.

We appreciate it, doesn't happen very often. Okay. So if there are no other questions, I'll probably bring the meeting to a close.

First of all congratulations on the balance sheet move to more environmentally friendly paper, which should appeal to quite a bit. I mean, you also did mention the fact that you do quite a bit with the GBP 200,000 that you give for charity, which appeal to an audience, which now moves more towards [indiscernible]. Profitability between the merchanting side and the heating side can [indiscernible] if you find more growth in the heating side or if you find -- have you found more growth on the merchanting side?

I'm going to -- I'll pass over to Shanker to answer that.

Yes. So there's growth in both markets. Our markets are indeed -- and I'm sure, as you know, being involved in our markets for many years, there's growth in both. The Plumbing and Heating side has been affected quite substantially through the government policy of the Clean Heat Market Mechanism in particular. And that's had a destabilizing effect from end of Q4 to kind of the -- end of Q4 '23 to the end of Q4 2024. But we now expect to see that normalize with opportunities in the renewables market being firmly established. We wouldn't have liked it to have been deployed in a way that the government decided to. But nonetheless, it is now fully in traction. The merchanting side. So added to that, the plumbing and Heating tend to be a lot more resilient. It's an RMI-based business, so effectively on boiler replacements, et cetera, circa 1.2 million one-off boilers a year, and that's quite consistent. So one of our strategies is to make sure that we're part of a large market that is always consistent. That gives us a sort of a high degree of insulation from trading volatility, which tends to be a bit more on the merchanting side with house-builders putting back interest rates at a near peak for many decades. It's obviously going to be impacted until we see an interest rate or a slightly better economic environment. So we've got growth levers in both. They're just for different reasons and the way that they feed through into growth also for -- through different channels.

Has that been reflected in profitability?

Has that been reflected in...

In profitability of the two markets.

You are talking having a different margin between the 2 markets. The merchanting market has always been stronger than Plumbing and heating. Our investment into Plumbing and Heating was for exactly the reasons Shanker just said, we looked at the cyclicality of some of these businesses and what we see is RMI as a sustained business because everyone needs to repair and maintain their homes. There is no question that there are ups and downs within the businesses and both of them complement each other, fortunately. So even more -- between the years, we've actually improved the margins in Plumbing and Heating because it tends to be very much a boiler business and Shanker and the team have been taking it down the road of outside of that. And of course, what we haven't talked about is renewable energies, and ground and air source heat pumps and things of that, which is a substantial opportunity for us as a group. And the margins there, fortunately, are probably going to be better than the traditional boilers.

It's highly commoditized after that being in...

So will you enter the environmental products?

Actually, we already have.

Shanker, I'll say same as last year, about GBP 9 million in renewable products.

That covers what sorts of products, Stuart?

The whole range, not just the air, heat, boilers, but whole range of things that go into whole supply chain and makes [indiscernible].

Entire market. So the panel is [indiscernible].

So that market is growing.

Certainly it's an area of focus for us going forward.

Yes. Appealing to an audience, which is wrapped into the environment side of the businesses.

It is, yes.

Do you have anything else?

No.

Okay. In which case, sorry I apologize for that. I will now bring the meeting to a close. Thank you, everybody, for your attention. Okay. Great. Okay. You are dismissed. Thank you.

Perfect, Gary. That's great. And thank you to the Board for updating attendees online this afternoon. On behalf of the Board of Lords Group Trading Plc. We would like to thank you for attending today's Annual General Meeting, and good afternoon to you all.