Titon Holdings Plc (TON) Earnings Call Transcript & Summary

Good morning, and welcome to the Titon Holdings Plc Investor Presentation. [Operator Instructions]. And I'd now like to hand you over to Tom Carpenter, CEO. Good morning, sir.

Hello, everyone, and thank you for attending the Titon Holdings interim results presentation. We're going to take you through some slides on our performance during our first half year, our ambitions, and then our outlook. And then at the end, we'll answer any questions that have been submitted. So moving on to Slide 2. On this call, we have myself, Tom Carpenter. I'm the CEO of Titon Holdings; and with me is Carolyn Isom. Moving to Slide 4, please, Carolyn. So, for those of you who don't know us very well, I'd like to do a quick introduction of Titon. So, Titon is a leading supplier of residential ventilation and window and door hardware products. We are a well-established company with over 50 years of trading history. We operate in 2 business units with approximately equal sales. A little over 80% of our revenues are generated in the U.K., with our exports going mostly into Europe and a little into the United States. Our first business unit, where the company started, is our window and door hardware business unit, where we design, manufacture, and sell a range of trickle vents and hardware into the fenestration market. We sell both into the uPVC and aluminum market. We believe we're the market leader for trickle vents with the broadest range of polymer and aluminum window vents, but we also sell a large range of hardware products such as handles, hinges, and locks. We manufacture all of our trickle vents in our Haverhill factory. For hardware, the majority of our sales are our own design, but we manufacture them with third-party partners. However, we also partner with several specialist manufacturers such as MACO, Fenster, and Roto. Our window and door hardware business services window door fabricators and system houses. However, it's a very transactional business with orders typically shipping within a few days of being reserved. Our second business is our mechanical ventilation systems business. It's a bit of a mouthful, so I'm going to mostly refer to that as our ventilation systems business. In this business, we design, manufacture, and sell a range of residential electrically powered ventilation solutions. And by that, I mean, we offer end-to-end service where we design systems and also supply a full set of products for an entire residential mechanical ventilation system. This business is very much project-based, where we sell directly to construction companies or their contractors. And these projects are often won some months in advance, and orders are called off over a period of months or years. We service a full range of projects, anything from a single self-build home to a very large construction project with hundreds of homes or apartments. For both business units, our customers require most of our products, I should say, in order to comply to U.K. building regulations. And we believe that these building regulations will continue to drive demand for our products. We own a fairly large factory in Haverhill, Suffolk, and we have a broad range of capabilities, including injection molding, metal sheet fabrication, painting, and assembly. We have the space and spare capacity to grow without significant capital investment. And in the last half year, we manufactured about 3/4 of our revenue. Finally, we believe that there's a significant potential to increase our shareholder value. As some of our longer-standing shareholders will know, our sales have been eroding in recent years, and our market cap has been penalized accordingly. However, even though our sales has eroded, we've incurred no debt, and we've managed to increase our cash levels. And we have what we believe is quite a strong balance sheet, especially in comparison to our market cap. We've kicked off a 5-year strategy to return the business to growth and profitability. And ultimately, we want to be able to grow the business by 10% per year and achieve 15% net margins. We're in early days of this, and we have a way to go, I think. But so far, I think we've made positive inroads towards this in the last 6 months. So, assuming that we can continue with our momentum and that we continue with success, we believe that we have very significant scope to be valued more favorably. So if you skip over to Slide 5, and I discussed this already, and go to Slide 6. So I'd like to quickly go over the highlights for our half year. Overall, our revenue is slightly ahead of our expectations at GBP 7.6 million for the first 6 months. We were expecting a slightly lower number for the first half year compared to 2024, but we do expect to overtake 2024 in the next 2 or 3 months. Our net loss for the half year has reduced to just under GBP 200,000 versus GBP 0.5 million loss this time last year. I'd like to point out that almost all of this loss was incurred in December and that we made a net profit for 4 out of the 6 months. We've made good inroads with our gross margins and improved these gross margins from 27.5% to 30.1%. Over the half year, we made an EBITDA profit of GBP 260,000 versus a loss of GBP 100,000 at this time last year, and we have further strengthened our cash position. Finally, our order book has grown throughout the 6 months and exceeded GBP 3 million by the end of the half year, and this compares to an order book of GBP 1.1 million at the same time last year. We know that we've got a lot more work to do. We're not satisfied with where we are right now, but we believe that these results are a solid step in the right direction. I'd like to hand you over to Carolyn to go over our financial highlights.

Thank you, Tom. So let's now take a look at our financial performance for the first half of FY'25. As Tom has indicated, it has been a much better 6 months than we saw in the same period last year. Group sales for H1 were GBP 7.6 million, a slight reduction of 2.3% compared to the GBP 7.8 million recorded last year. And while window and door hardware sales declined to GBP 3.7 million from GBP 4.2 million, we actually saw growth in our mechanical ventilation systems business, which increased to GBP 4 million from GBP 3.6 million in the same period last year. Despite the modest drop in revenue, we did improve our gross margins quite significantly. So they rose to 30.1%, up from 27.5% against the same period last year. And this does reflect our focus on improving operational efficiency and margin discipline. Our underlying operating loss narrowed substantially to GBP 0.16 million compared to a GBP 0.5 million loss in H1. This progress is further underlined by a positive underlying EBITDA of GBP 0.3 million, a notable improvement from a loss of GBP 0.1 million in the previous year. We've continued to manage costs carefully, and this discipline is clearly reflected in our results. There were no exceptional restructuring costs in the 6 months compared to GBP 0.06 million in H1'24. And lastly, we asked a lot about this, has a significant impact in most businesses. We've actually managed to absorb most of the national insurance contribution rise and the increase in the national living wage. We've managed to do that by offsetting slightly stronger performance in the first half and then other mitigations in the second half. The annualized cost impact of those wage increases in employers and IB was about GBP 170,000 annualized. I think overall, these results do demonstrate steady financial improvement and set a solid foundation for our next 6 months. So, moving on to just looking at our margin trajectory. You can see that it continues to strengthen over the 6 months. We've seen encouraging growth in the U.K. mechanical ventilation systems sales, which rose by 11% year-on-year, which helped to offset the 13.3% decline in window and door hardware sales. This shift reflects our strategic emphasis on higher-margin areas. Gross profit improved to GBP 2.3 million, a 7.4% increase on H1 FY'24, and our gross margin rose by 260 basis points year-on-year to 30.1%. As mentioned earlier, this does demonstrate our continued progress in cost control, product mix optimization, and disciplined execution. Importantly, we've delivered multiple profitable months across both business units, and this consistency is a real strong signal that our strategic initiatives are gaining traction and beginning to deliver sustainable benefits. Underlying EBITDA reached GBP 260,000 in the first half compared to just GBP 10,000 in H2 FY'24 and a negative figure in H1 last year. This positive trend again highlights the improving operational performance of the business. We also saw further strengthening of our order pipeline. The company's book-to-bill ratio rose to 1.22 in H1, up from 1.01 in H1 FY'24. Our order book has nearly tripled year-on-year, growing from GBP 1.1 million to GBP 3.1 million, which demonstrates that we've got a solid base for future revenue, and it underscores the growing demand. In summary, these results reflect the clear momentum we are building through a combination of margin expansion, improved profitability, and a significantly stronger order book. So, taking a look at our balance sheet now. We're pleased to report that we continue to maintain a strong balance sheet, and we still have no non-lease borrowings. Our cash position has improved again, increasing to GBP 2.9 million, up from GBP 2.3 million as of year-end. This improvement was driven by the GBP 700,000 we received from the sale of our South Korean operations, but our working capital management also remains strong. On the asset side, our fixed assets now stand at GBP 4.4 million, and this includes property with a book value of GBP 1.6 million. Notably, that same property has a fair value of GBP 5.4 million, which was last revalued in September '22, and it's scheduled for a reval again at the end of this financial year. Pleasingly, inventory continues to trend downward, declining to GBP 3.4 million from GBP 3.5 million at year-end and down significantly from GBP 5.8 million in H1 2024, which was partly due to our obsolescence review that we undertook at year-end. This does reflect our ongoing focus on inventory efficiency and working capital management, and we expect the positive trend to continue for the remainder of the year. CapEx has remained stable in this first half as it was in the same period last year, but we do anticipate that we will have an increase in investment next year. We really want to focus on enhancing our production capabilities and drive greater efficiency, which should support further margin improvement over time. These metrics highlight the stability of our financial foundation and our capacity to invest in our future growth.

Okay. Thank you, Carolyn. So I just want to quickly talk a little bit about our strategy and ambition for the group. As I covered earlier, our goal is to improve our performance such that we grow across the business by 10% per year organically and achieve 15% of net margins. Currently, we're a well-established company. We've got a skilled and committed workforce, but I'd say currently, we're still hitting below our weight, and we are overcoming legacy issues. As I touched on again, we have our own manufacturing operations with a significant amount of vertical integration. We have made some inroads to improve our efficiencies, but we need to further improve our efficiencies. But ultimately, I think we could double or triple our capacity with quite modest capital investment. I think we have a lot of scope to increase our gross margins. Both of our business units have a broad and well-respected product base, and we are going to continue the DNA of the business by innovating, and this will continue over the foreseeable future. We developed a 5-year strategy to address our weaknesses, to reinforce our strengths and to allow us to achieve our ambitions. So to touch on this. We've known markets, we want to continue to sell into the new build market and the fenestration market. And we do want to still export products, but we think we can use the most efficient amount of our resources by focusing on the U.K. So most of our focus in the U.K., and we will tactically export into Europe and the United States where it makes sense. We're currently only selling into the new build market, and we recognize that we need to go into adjacent markets, and we hope to see some social housing business this year. How we want to actually win? We want to have superior products. We want to improve our manufacturing efficiencies. We want to improve our customer service and have great customer service and have effective marketing to sell our value proposition. And how we execute that is with 9 programs. So our first program is our gross margin improvement program. Hopefully, you can see that we are making some progress with this. We're actively trying to improve our gross margins through value engineering, improving manufacturing process, but also through disciplined selling of product mix. Then we have our product road map strategy. We're still developing new products. However, we are placing an emphasis on rationalizing and simplifying our product ranges this year. So far this year, we've end of life about 1,000 SKUs, and our goal is to continue to maybe, maybe not quite 1,000, but many hundreds more products by the end of the year, which allow us to have quite a focused and rationalized product range. As I said, we haven't really communicated our value proposition very well as a business. So we've commenced an inbound marketing program where we want to actively generate high-quality leads. We have coincidentally released our new website yesterday, and we have separate landing pages for our 2 business units. So I would encourage you to take a look at our new website. Please be aware, we're going to continue to develop this new website for the foreseeable future. And in weeks and months to come, you'll see additions, for example, you'll see an online shop for some of our consumable products. From a commercial excellence point of view, for the last 6 months, really very much focused on improving our customer service and making customer service to be central to the entire business. We are making progress with this, but we have a few initiatives across the business to further improve this. We have our business development program. Again, we want to win new customers. We want to win back old customers, but we also want to seed social housing market by the end of the year, and we're developing some products to do just that. We're not expecting any meaningful revenue from social housing, but we do think it's an important revenue stream that we need to develop. Then we have operational excellence program. This is all about improving the productivity of our factory and our efficiencies across the business. And again, I hope you can see from our results that we are making inroads on this. And again, we're not satisfied with where we are, and we need to make further improvements in this area. And then we're looking at our organization. This is about improving our organizational structure so that it both aligns with our business unit contribution, but also about developing an organization with the roles and skills that we need to grow our business profitably. And linked to that is developing our staff and company culture. We're implementing what we call a Titan Way. And what we're trying to do is improve the accountability and ownership of issues with all of our staff and try to drive a continuous improvement culture throughout the business. Then finally, we're working to move from a traditional quality approach to a total quality approach. So there's a long way to go with this, but we are now measuring quality, I think, in a much better way, and we expect to see some meaningful results in the next few months. Each one of these programs is owned by a senior leader in the business with progress and metrics being reported back to our Board of Directors on a monthly basis, and we have multiple support initiatives in place to deliver these programs. I'd like to say that these programs are pretty much common sense, but I think the key thing we need to do is actually deliver these programs, and that has all of our attention to make sure we do that. Moving those on to Slide 14. So, just talking about our outlook for 2025. We are facing market headwinds, I think, like a lot of businesses. But we are forecasting, I'd say, mid- to low single-digit market growth in our core new build market, and we do continue to believe that the regulatory environment will drive demand for much of our products in 2025. If I quickly recap our first half-year performance, we're relatively satisfied with our performance this year. Our order book is much healthier than it was this time last year. We are seeing good momentum with our Ventilation Systems business. However, it's clear we have a lot of work to do to recover our window and door hardware business. And that is going to be a key focus for us over the next 6 months. We've been really focused on improving our margins over the half year, both from a cost savings point of view, but also focusing a lot more efforts on higher margin products and markets. I would like to confirm that both our business units had multiple profitable months over the last 6 months. And I'd like to confirm that our margin focus is going to continue throughout the second half of the year and frankly, going to continue forever as long as the business exists. I believe we've got a good healthy cash balance, and that is going to allow us to make the right investments for the group. Looking forward to 2025 for the remainder of the year, I'd like to remind everybody that we consider 2025 as a transitionary year where we build up the foundations of the company. We know we can always make better progress. However, we are quite satisfied with the progress we made so far. We believe that our strategy is the correct course of the business, and its execution has given us meaningful improved financial performance. We know what we need to do over the next 6 months and optimistic that we can continue to make meaningful progress with both business units over the course of the last 6 months of the year. Overall, we believe that we can achieve our market projections for the year and ultimately set ourselves on the course to achieve our goal for 10% organic growth and 15% net margin. Moving to Slide 15. So as a final summary, we are an established player with a well-respected product set. We have the flexibility of our own manufacturing facility and can increase our capacity cost-effectively. We believe that there are long-term regulation drivers that will continue to drive demand for our core products. We think we have substantial opportunity to grow both our ventilation business and our window door hardware business. While we're not making the profits we would like, we have improved our financial position, and we think our balance sheet is quite robust. We are generating cash, and this is allowing us to invest sensibly with our net assets remaining greater than our current market capitalization. Finally, we have a clear plan to take Titan to the next level and ultimately deliver on our goals. That concludes our interim presentation, and I'd like to answer the meeting up to any questions. Thank you.

[Operator Instructions] As you can see, we received a number of questions throughout today's presentation. And Carolyn, could 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.

No problem. Thank you very much. So the first question, it's understandable to prioritize sales into the U.K. home market, but do you still see opportunities for growth in the near and medium term in the U.S. and Europe? What are the main drawbacks to this overseas growth? -- tariffs, extra cost, competitive advantage, et cetera?

Well, I think we need to separate ventilation systems exporting with window door hardware exporting. They have different challenges and tailwinds. So on the positive side, actually, we are seeing growth in our European window door hardware exports into Europe. This is something we want to continue to reinforce. What's happening is that we're selling to into businesses who are actually importing high-end windows into the U.K. So this is working for us. For window door hardware, U.S., we are struggling there at the moment. It has been a lower revenue year so far. I mean there's a lot of stuff going on in the United States. I think everybody can see, and we are suffering with tariffs. I think we're not going to do anything regarding the tariffs. We do have a plan to recover, but it's really for me, it's all about efficient use of resources. And I think we can apply our resources more efficiently by focusing with improving our U.K. window door hardware business. So we're not going to move out the -- we have no plans to move out of the U.S. business at the moment, but I think we just need to apply our resources more efficiently. And then if you look at Ventilation Systems business in Europe, we have deprioritized this business. Again, we're not going to sell into Europe. But our business model was not generating the margins that we needed to. It had been consistently loss-making business. And the reality is because we are selling own label products to other manufacturers who have their own requirements, we're investing a huge -- well, investing far too much engineering effort for far too little return. So we do have some core customers that we're going to continue to support, but we are not looking to expand that sort of business in Europe. Obviously, if something lands in our lap that makes sense for us, we will do it. Hopefully, that makes sense.

Okay. Given the goals of achieving 10% sales growth and a 15% net margin by 2028, what are the key growth drivers that investors should monitor?

Sales growth, clearly. I mean it's very encouraging to see those sort of levels of growth through our ventilation systems over the last 6 months, obviously, offset by decline in window and door hardware. So I think the key thing we need to do is actually get both business units growing, and that's what you need to look at as investors. And then our activity on gross margin improvement and organizational efficiency.

Okay. And has there been any progress made on emptying the temporary structures on site and ending the leases on them?

Yes and no. So we are going to empty them this quarter. We actually kept them a little bit longer because we get a little bit of a refund back. But I'm very hopeful that we can report -- I guess we don't do quarterly reports, but the plan is to empty them this quarter. So I hope to report that in the final year results.

And the final question -- no, another one just came in. With ongoing market headwinds, how are you using your strong cash position to stay ahead of competitors facing similar pressures?

Yes. Well, we want to continue to develop new products. I mean we have focused a lot on trying to streamline our business over the last 6 months. But we have a number of products that we think are critical drivers for both business units, but especially for ventilation systems. So we're going to continue to develop new products, and I hope to accelerate that a little bit over the next 12 months.

What is your longer-term blue sky vision for the business?

Yes. I mean, look, I don't want to get too blue sky. I really want us to kind of -- I really want our profitability to be a little bit less fragile, right? So -- but I mean, ultimately, I'd like us to be GBP 30 million, GBP 40 million business and then acquiring other businesses and growing both organically and inorganically. But I think we've got a ways to go before we do that.

Okay. And can you share any updates on the factory reorganization? How much of your current inventory is still slow moving? And do you expect inventory levels to remain at similar levels over the second half and beyond?

I'm going to talk -- generally, we're going to reduce our inventory as we move along. So the first part of the question, Carolyn, can you repeat that?

Can you share any updates on the factory reorganization?

Well, we haven't really -- we're going to relay out the factory at some point. We have changed some roles and positions within the factory. And then we're trying to put a lot more of the ownership of things like planning and health and safety back onto the factory. Very, very, very pleased with how our new Operations Director is operating. I'm not sure, I couldn't really share anything else other than that. Was there a question about stock as well, Carolyn? Perhaps you can answer that question.

So how much of your current inventory is still slow moving? So as mentioned earlier, we did make an additional provision at year-end for GBP 5 million. That's come down slightly since then, but it's still -- with the normal provision in place, it's still about GBP 2 million of our total stock is slow moving, but it is coming down. Continue to work on that.

And to touch, going back to the organization, we really want to invest and improve the skill level and knowledge of our shop floor staff. So when I talk about improving the skills, I'm not talking about getting new people in. I'm talking about having training programs and really improving internally our skills. Our shop floor staff are very committed and very keen on the business, and we really want to leverage that.

Okay. And then with the losses in previous years, presumably, our tax liabilities should be limited. So what makes up our tax liabilities at the moment?

I'll get you to answer that one, Carolyn.

I, of course, but anything else? No tax liabilities. Obviously, we have our employers tax, but yes, we're making trading losses. So we actually have a deferred tax asset on our balance sheet that we can use against future profits. There are no other tax liabilities. What is the time frame for leasing strike selling surplus factory space?

Yes. Okay. Well, I don't want to commit anything on that. I mean we are looking at potential options for that. It would require some CapEx. I'm not going to answer specifically because I think there's a lot up in the air, but it's something we're looking at and maybe we can do something next year, but no guarantees.

Okay. That was our final question.

Tom, Carolyn, thank you for answering all those questions you can 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 I know is particularly important to the company, Tom, could I please just ask you for a few closing comments?

Yes. Well, thank you very much for attending. Hopefully, you share our enthusiasm for Titon. I'm really excited to be part of this business. I'm very satisfied with how we're doing so far. One swallow doesn't make a summer, but we look forward to talking to you again, hopefully, some positive news at the end of year, final year results, what is going to be January time, I think, 2026. So I look forward to talking to you then.

Tom, Carolyn, 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 can better understand your views and expectations? This will only take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team of Titon Holdings Plc, we'd like to thank you for attending today's presentation, and good morning to you all.