ProService Building Services Marketplace Plc (PRO) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us on our results call. As Lucy just said, my name is Tom Shorten, CEO, and I'm joined in the room by Greig Thomas, our CFO.

Good morning, everybody.

So we've got a number of slides that we're going to take you through. And you'll see from the agenda, if we could move on to the agenda slide, please, Lucy, which is Slide 3 -- 3 in the deck. We're going to be really focusing today on where we are in the strategy and going forward. You'll see that we are not going to go through the detailed FY '26 numbers. They are indeed in the appendices of this presentation and have been uploaded onto our website. And if you do have any questions, please get in contact with us, and we'll run through them in more detail. But we really wanted to focus on the highlights, the performance, including a trading update of where we are now, our strategy update, a quick summary, and then hopefully leave time for some Q&A. So if we move on to the next slide, where we're sort of exploring where we are today and the business highlights. As many have been aware, it's been quite a year for us at ProService, where we've completed a relatively complicated pivot. But the transformation of that pivot and all the work associated is now complete, and we're very pleased to be sat here now as a pure-play marketplace in the building services sector. There were a number of parts -- number of parts that we had to accomplish and complete in order to complete that piece of work. The first one was the mobilization of the Speedy partnership. Many of you remember this started back in November 17 last year, and both teams, that's us and Speedy, completed an immense amount of work to get that partnership up and running. And we're really, really pleased with the status of that partnership now. And indeed, the KPIs that we track between us are now all well within the parameters that we expected. So that's great work done. The other part of that work was clearly the disposal of the THSC business, which we sold to Endless at the same time. Those completion works have gone on. There is an outstanding TSA that we continue to support on, and that will fully run out by the start of FY '28. You'll see as we travel through this presentation that our financials are starting to strengthen. You'll see that we're back into revenue growth and also turned the corner on EBITDA. And in a few slides' time, Greig will bring that to light for you. We also completed what I will say is a very successful refinancing. Given the economic backdrop we were facing when we were in doing this process, we're really, really pleased in the position we got to. We think we've refinanced at very good rates and effectively have got a structure, which gives us a really good denominator for the future to allow us to grow into our new marketplace business. And then finally, and we'll talk about this further in a minute, we've initiated Project Sync, which is a foundational project really around our operating model and developing our proposition using automation and AI. So all in all, it's been a huge year of transformation for us, and we have completed a pivot very successfully. So with that, I'm going to hand over to Greig to take you through a few of our performance metrics.

Thanks, Tom. If we can move on to the next slide, please. It's a real pleasure to be presenting the first set of results for ProService as a stand-alone business this morning. And I'm going to start with some performance highlights. But just before I do that, I'd like to reflect on the year we've just had. FY '26, as Tom has already said, was a year of transition. We delivered underlying EBITDA of minus GBP 0.4 million, broadly breakeven and in line with what we previously communicated. Two things really dominated the year. The first was negotiating and then mobilizing the new arrangements with Speedy. The second was the disposal of the Hire Services Company. Both were a significant pool of management time throughout the first half and into the second. The prior year was also a 15-month period, so the reported comparatives are not directly comparable. There are schedules in the appendices. This morning, I'm not going to spend time on FY '26. I'd like to spend our time on where the business is today. So starting top left and return to revenue growth. We announced the proposed separation in October '25. From that point and actually in the run-up to it, there was real uncertainty in our business as we agreed those arrangements, mobilized them, and then separated the 2 companies, all while standing up a TSA for the Hire Services Company. And that effect shows in the first half. Q1 and Q2 of FY '26 were down year-on-year with Q1 at minus 13%. Part of that was the loss of the Amey contract at the back end of FY '25, part was the distraction of the pending strategic changes. By Q4, we ticked back into growth. And by Q1 of FY '27, we were growing strongly, plus 17%. The way we think about this is that the transition and the mobilization are effectively the bottom of the pivot. We've traveled through it, and we're moving forward. Moving on to gross margins. These were resilient, 22% in FY '25 and 20% in FY '26, and there are 3 factors driving that slight decline. First, mix, revenue moved away from Hire into our newer resale verticals and training; secondly, operational distraction in the run-up to mobilization. And thirdly, during mobilization itself, the short order rejections and same-day aborts as we've talked about in our previous announcements, which meant putting more work through the third-party supply chain rather than Speedy at short notice and at lower margins than we would ideally have liked. Moving on to net debt on the top right. We're really pleased to see that significantly reduced from GBP 97.6 million at the end of March '25 to GBP 30.5 million at the end of March '26. Most of that is lease liabilities and hire purchase arrangements that went with the Hire Services Company. The operation carried a lot of vehicles, properties, and some finance hire fleet, and those liabilities have now fallen away. Alongside it, we used disposal proceeds, Power in the prior year and HSS in this one -- HSS Ireland, sorry, in this one, to repay GBP 21.6 million of borrowing facilities during the year. Customer loyalty and our Trustpilot score. This fell from 4.2 to 3.9 across the year. As we've acknowledged, during mobilization, we let some customers down, and that shows here. Performance since the year-end has been improving, and we're working hard to recover the score. Moving on to our seller base. This has increased. Sellers active in the month is a key metric for any marketplace, and that's gone from 309 in March '25 to 456 in March '26. That demonstrates the breadth we now have in our supply chain. And finally, average revenue per customer. Our average revenue per customer is also increasing. It's moved from 3,000 to 3,100 across the 2 years comparing March in each year, which is evidence that the breadth of customers buying across verticals is increasing. Okay. If we move on to the next slide, please. So I'm just going to take a moment to talk about the market backdrop because that's the context for everything that follows. We, along with all of our competitors, continue to trade through a challenging U.K. construction market. The CPA has recently downgraded its forecast for U.K. construction output, which is now expected to decline by 3.3% in 2026. That's consistent with the latest ONS figures, which had construction output down 3% year-on-year in June. The construction PMI rose from 38.4 in June to 44.7 in July, falling back slightly to 44.3 in August, but it's still in contraction. Now within all of this, there is opportunity. Repairs and maintenance is growing and so are data centers. We also see opportunity in defense. That's being offset by the fall in new build housing and infrastructure activity, although we are not particularly exposed to housing at this point. Looking forward, I'd describe the estimates as perhaps modest rather than strong. Construction output is expected to rise by 1.2% in 2027. Inflation forecasts remain above the government's target, which stalls reductions in borrowing costs and limits the stimulus we might otherwise see from housing and consumer sectors. There are some glimmers of hope. The latest treasury forecasts have GDP growth edging up to 1.1% this year and 1.2% next year. The point I would just leave you with on this, though, is this. We operate the marketplace across a broad range of buyers and end-user markets, and the diversification of that buyer base continues to be strengthened materially by the Speedy agreement and the access it gives us to their customer base. Thanks. We move on to the next slide. Okay. So let's have a look at recent trading, which is where I'd ask you to really focus today. We've been very pleased with the performance of the business in recent months. Current trading underpins our ability to deliver market expectations for FY '27, and we're ahead of our own internal expectations. Revenue is up 20% year-on-year in the first 4 months and ahead of budget. Gross profit is also up 20% with the margin rate flat, and that's the accretion that we're seeing on the Speedy supply arrangements broadly offsetting the lower-margin SCS business. Our revenue growth is supported by that Speedy Customer Solutions revenue, which continues to grow as new contracts are written and fulfilled by ProService. On the Speedy supply agreement, acceptance rates are now consistently within our target parameters, and the abort rates are within the range of original expectations. Our sales pipeline is building momentum with notable opportunities across data centers, gateways, capital projects, and the retail sector. As a result, we remain on track to deliver FY '27 underlying EBITDA in line with our previous guidance of between GBP 9 million and GBP 12 million. And if you look at the EBITDA chart we've included, we're really pleased that we've moved from EBITDA loss to profit in May, and EBITDA has continued to increase since. Average EBITDA across June and July was just over GBP 0.7 million. And again, we're really pleased with that performance. Just a note on these charts, they show actuals to the end of July. From that point forward, it's an estimate. Finally, 4 things underpinning our year to go. First of all, Project Sync, and this is the implementation of AI and automation across our business. That program is well underway and moving from technology development to deployment, and Tom is going to cover that properly in his section. Secondly, our ERP implementation. We're well on with this now. It's planned to go live at the end of our financial year, and it will give us a modern back end to match the industry-leading platform that we've built in the front and mid-office. That should unlock benefit, both in terms of efficiency and in reduced systems and infrastructure costs. Thirdly, supply chain, led by a newly appointed Supply Chain Director, who brings experience from Amazon. This is about using our increased scale to negotiate better terms and service levels and making the marketplaces a lower cost route to market for our sellers. And fourth, cost. We expect to see a reduction in costs, as Tom mentioned, as we close out FY '27 and into FY '28 in the second half of FY '27, I should say. We took on additional costs to provide transitional services to the Hire Services Company as part of separation. Those services are now drawing to a close, and we'll be exiting the associated contracts. A combination of that and our ERP will allow us to reduce our infrastructure costs. So I think the focus for the year to go is pretty clear then. We're looking to see productivity up, cost down, and we need to maintain that revenue growth momentum. With that, I'll hand back to you, Tom, for the strategy update.

Brilliant. Thanks, Greig. So if we could move past the strategy holding slide and move to the first slide, which is state of play. So just to -- before we move forward and talk about what we're going to look like going forward and what we're going to be focused on, just remembering where we are again. So we're a pure-play digital marketplace operating in the building services market in the U.K., which as all of you will be aware, is a very large market. In hire, at the moment, we anticipate we've got circa 5%. And in other verticals, we have got a number which is hardly a single figure. So we've got enormous upside in order to grow, and we believe we have a growing moat around our business in terms of our technology and the way we can go to market to really grab that market share over the coming years. We've obviously got new flexible financing facility in place with the ABL, which gives us the denominator I talked about earlier to grow from. We've mobilized Speedy and that's up and running, and they're a fantastic partner. And later in the year, we will also be talking and launching TIC services with them, which will give us another vertical to grow from. And also within the group, and we will be talking about this more in the future as we separate this out, we've got a remarkable training business. We've got a training business, which is a market leader in the sector. And over the coming months, when we meet with you and investors, we'll be telling you more about that business, so you can really understand the ProService marketplace business and the training business, which we hold within our stable. So moving on to the next slide. This slide is sort of bringing our vision together. And I'm going to go right to the bottom and then back to the top. So our vision, and this is what we talk to our team about is being the undisputed marketplace for building services in Europe. We currently operate in the U.K., but it doesn't mean our aspirations at some point aren't to move across into the continent. And then we call ourselves, we want to be the Amazon of Building Services. Lots of people sort of smile when I say that. But the reason we think about Amazon is when we think about the nature of the transaction, another supplier or buyer has with Amazon. It's seamless, it's easy, it's effortless. And that is something that we're trying to bring to our industry, which historically has been deeply analog, deeply complicated. And in those processes, we often see multiple areas leading to issue with invoicing, et cetera, et cetera. So think of Amazon as an example of a perfect transaction as opposed to naturally how their operating model works. So when we think about our vision and what we're trying to build up, you'll all be aware we're strong in equipment hire. That's effectively the majority of our revenue to date. And that is where our legacy is and a lot of our experience is. We've had a training business, which has been growing over the last 10 years, which too is laced with great experience and as I said, is a market leader. More recently, we've been building 3 new verticals, which is equipment sales, building materials, and fuel, all very different to hire, sometimes with a common buyer, sometimes not with a common buyer. And these are all areas now that we have established businesses in, and we're continuing to grow. Equipment sales, we cover all types of products from someone who simply wants to buy a lawnmower all the way through to the largest accommodation block you'd see on our HS2 site or on Hinkley Point. And that's a business that we continue to focus on, and we will continue to grow in the coming years. Building materials, likewise, is something that we are focusing on. Building materials contains a huge amount of SKUs, and trying to cover every single one is not always possible. And what we're learning is to focus on the SKUs, which have high relevancy to our customer base and also bring a frequency of transaction, which keeps us front of mind with our customers, which is very valuable for us. And then fuel. We've been trading the fuel market for some time now. We are very cautious on the margin we price on fuel. We're not going to do it for a penny here and there, and we have rigorous margin rules in place. But with those rules in place, we are still now starting to see a high level of repeat business coming through. And obviously, as we go into Q4 with the number of boilers we have out on hire and other products, which drain diesel and other types of fuels, we'll expect to see those numbers keep growing and improving. And then finally, with the last 2, which are sort of in the amber color, we've got TIC. TIC is a set, which is testing, inspecting, and certification, which we'll be doing alongside our partners at Speedy. Our aim is in October to bring our first iteration of that vertical to the market and then start to grow from there. We think that we have a dormant customer base for this product already. If you imagine all our suppliers, all use these services now as do a number of our customers. So we think we'll have immediate access to that customer base, and we think it's a really interesting vertical to push on to. And then finally, what we start to bring together is something called the equipment life cycle. And the way to think about this, and it will evolve over the years is that you'll be able to buy a piece of kit from us, potentially hire the same piece of kit from us. You may be able to finance that piece of kit with us. We may be able to repair that piece of kit for you in the future. And also, we'll probably be able to service that piece of kit and indeed, right at the end of that life cycle, oversee the disposal of that piece of kit through an auction. So as we evolve these, they all join together to give us the ability to take control of that equipment need from all our different customers as we explore and introduce new verticals over time. But for the foreseeable future, our focus remains very much equipment hire and training and building out and going deeper into the equipment sales, building materials, and fuel markets in the U.K. Next slide, please. So as we move on to the next slide, I'm going to just pick on sort of the pillars that the business talks about and operates on. Three very, very simple pillars. The first one is transform the marketplace experience. And this is all about making sure using Project Sync, using the new ERP project that the experience we give people is akin to a marketplace and not a hybrid of a legacy analog business and a business trying to be a marketplace. And there's a huge amount of focus which goes on into that. And I'm going to talk a little bit in a minute about Project Sync, so you have a further flavor of how we're making progress in that area. The second point we talk about is sell the full proposition. Cross-sell and upsell is a dangerous word with sales teams, and we're very mindful that not -- a hire specialist might not be able to sell building materials or equipment sales. So we have got specialist support teams in place to ensure that our sales teams have the backup required to deal with questions. But also, we are using our hss.com channel, specifically around building materials and equipment sales to push that out to cash customers. We continue to measure average revenue per customer, as Greig touched to in one of our KPIs, and our aim is to see that build. And underneath that number is also the frequency of transactions that we're looking from our customers. As a marketplace, we want to increase that frequency by introducing the new verticals, not only do we build revenue, but we also build our relationship with our customers and they become more sticky to us, which is really, really important. And ultimately, we will start to show in our churn figures as and when they start to mature. And the final one is drive profitable growth. So this hits a number of things. This is about margin control in the market, which is under pressure. This is about winning the right types of customers. This is about setting up our deals in the right way, but this is also making sure that as we grow, we're not adding cost to our business. And that in itself is a great segue to the next slide when we talk about Project Sync. So no doubt in the presentations many of you have sat through over the last months or so, everyone is talking about AI and automation. And I think there's indeed a lot of work going on. There's a lot of change in this space, and it's both simple and complicated at the same time how to deploy it. The architecture required to deploy AI across the business really starts with data and data architecture. And one thing that we're very, very fortunate about is some time ago when we started working on the Brenda platform and the Brenda platform started to emerge, not only was our architecture set up in a way which is very modular and easy to build in, but also our data tables and our data architecture was put in place, which means now we can take a full advantage of AI without having to reengineer our data structures. The other thing that we have in place, which is really, really important is we actually have agentic AI expertise in the business since 2024. We are very, very fortunate led by Daniele, our CTO. We have a group of very, very talented software engineers and AI engineers in the business working alongside our well-established data team. So in terms of those, I suppose, denominators you need to initiate AI across the business, we have them in place. So our opportunity and what we're doing in the benefits. So we've got -- our opportunity is, frankly, to change the way we prioritize and manage both customers and sellers questions, inquiries, requirements for quotes, change of orders, et cetera, and make sure we sequentiously prioritize them and don't do it inconsistently anymore. Most businesses still operate on the basis of an outlook inbox where inquiries come in, your team gets them as and when they can or they come through a CRM machine such as Salesforce or Dynamics. What we are effectively doing is building a system which will prioritize and respond to all those inquiries that we get automatically without error. So that's a significant opportunity and a step change in the experience of buyers and sellers. And then what are we doing and what have we done is we have started to put these AI and automations into our business. We are now in a situation as a business where we can ingest unstructured data into the business, and we can put it through a tool that we've built, a proprietary tool called Lumen, which ingests all those e-mails, all those inquiries, those WhatsApp messages from buyers and sellers and can distill them into code form allowing AI to go off and solve and answer them in natural language. That allows us to prioritize workload and effectively gives us full visibility of workflow from end to end. So the benefits we expect from that is we will be a lot more productive, i.e., our teams won't be doing things that AI can do. They'll be focused on the value add. We expect an immediacy in our response with 0 error and that error rate, therefore, takes away costs in the back end of the business as we're accurate, et cetera. And importantly, will drive much higher conversion rates, which will drive obviously to revenue growth and ultimately also faster cash collection because our invoice errors will be lower, the amount of disputes and credits that we wrestle with each month will reduce and will be a much cleaner business. So if I just stand back to give you some context of this then, we have the stack in place. We have the expertise in place. We have the data team in place. We have [ centrified ] (sic) [ centralized ] data ecosystem, which fires out and works. We've done a discovery project over the previous 7, 8 months, understanding all the opportunities. We've deployed a new workflow architecture, which I think about that's a time line in which all your AI agents sit on and can work together. And we started to deploy agents across the business, and that would be ongoing. So the first agents we sort of deployed across the business were about what we call a contract audit agent. That's an agent which can look back through any contract and look at its history for customer service inquiries. Proof of delivery and proof of collection agents have gone live. So once something is collected or delivered, the supplier submits us an e-mail or it comes through the supplier portal, we can read it, automatically tag it and associate that with the contract and if need be send it out to a customer. We've got a supplier invoice reader, which links into the system as well. And we've got an amendment autopilot. So if a contract needs amending rather than having to take a phone call or an e-mail and doing it, we can read those -- we can read that e-mail and we can turn it into contract amendment and convert it straight back to the customer without having to touch it. So there's a number of agents that we will continue to deploy, failed collection agent, order ghost writer, which is effectively the ability to read an e-mail and create an order and send it back to a customer without touching it, et cetera, et cetera. The detail is in here, and I'm happy to speak to anyone about it if you wish to. But I think the takeaway point to get from this is that we're actually implementing AI across the business, and we're starting to see the benefits of that as it goes through it. Now clearly, it's a very complicated transformation, not only from a technical point of view and data point of view, but also for our operating model. And frankly, it is going to change our operating model meaningfully as we travel through this. But what we see happening in this is that we think that our colleagues will be deployed in doing more value-add tasks and some of the simpler tasks that we need to do will be taken up by AI and will evolve as we move through that. But the final point I'll make on this slide, and I've often been asked is what does this mean for your customer and what does this mean for your supplier. Our customer behavior in this model does not need to change. So if you WhatsApp us now or you send an e-mail, that's fine because now we've got the ability to read unstructured data we can turn that into structured data in order to run through the AI engine. So from a customer who has always e-mailed us and attached a PO, it gets us right back to the same place, which is really good. So as I said, there's an awful lot going on there, an important project, and it will be very exciting to share the progress we made with you and the impact that has on our business model and our cost base as we travel. Next slide, please. So somewhat briefly then the investment case because obviously, this is something that you'll all make your minds up on. But we're an asset-light business by design, gone are the days of us thinking GBP 20 million of CapEx into kit each year in order to stand still. We are inherently scalable as we grow the revenue line and as we deploy AI agents, we won't be adding cost to our business and as the ERP project completes, which is a great place to be. We will be AI-enabled, and I think that's something we'll speak about and that will become a given over time as everyone sought to deploy these technologies. And we've got materially larger and more diverse end-user base. So if you think historically about our customers, Speedy's customers and our customers weren't always the same. The Speedy and transaction has given us access to a different customer base, which is great for our business. And likewise, I hope Speedy feel that we're giving them access to our customers and our requirements, which is also complementary. We've got multiple vectors of growth. And I think the key thing here for the team and myself is to make sure we go deep rather than wide too quickly, and we focus on the building materials, the fuel, and the equipment sales in the coming months before we diversify further. And then as a thank you to our team, especially the team, I think we've proven that we can execute complex transactions. And operationally, we can stand this business up. And as you'll see, there's been a number of improvements to our numbers that Greig has taken you through. So I really feel we've moved through the pivot. So then moving on to the -- effectively the summary and the final slide, please, Lucy, sort of to bring this presentation to an end before any questions you may have. We feel the pivot is complete. We are a pure-play marketplace. Our financials are no doubt strengthening, and we're starting to see the benefit of all that hard work coming through in the numbers, and we have an acute focus on delivering our FY '27 plan and beyond. So with that, I thank you for your attention and your time, and we'd love to take any questions you have.

[Operator Instructions] The first question today comes from Tom Like of Canaccord Genuity.

Just a quick one for me. In terms of you mentioned selling the full value prop to customers. Just how receptive have customers been when the sales have been in the outbound in the last 6, 12 months of sourcing more and more through 1 supplier? And perhaps maybe a bit more color around how you incentivize customers to give you more share of wallet when they might have multiple suppliers they may use. Any more color would be helpful.

Thanks for your question, Tom. So if I can answer that upside down. So in terms of incentivizing customers, the way we do it is we present our proposition, which is we will take cost and friction out of your procurement team. So if you only have effectively 1 invoice to manage, you have 1 relationship to manage. And on screen, you can see all the bits and pieces you've ordered at a site level, and you can see what's on site when it's coming, has it arrived, who's signed for it and who's ordered it and you can control the spend from site. That is the incentivization we give. We give them a better process to procure and therefore, effectively saving frictional cost and time. And then to your first part of your question, how is that received? That is very well received by buyers. Now we've got different types of buyers. Some buyers are [indiscernible] they buy hire and they introduce us just to their building materials buyer and they introduce our fuel. In some companies, that buyer will be in charge of all our verticals. So they're very receptive to it. But ultimately, we need to be competitive, but we also need to make sure that we -- our proposition proves itself at delivery. So we found them to be very receptive. It is a new way of doing things for some, but not for all. We also, quite frankly, find that some buyers of a younger generation take to it very, very quickly. Older buyers of my age group typically are a little bit slower to adapt as you'd expect. But generally, we find the reception really, really good and the door is wide open to have a good conversation with all of them.