Titon Holdings Plc ($TON)

Good morning, and welcome to the Titon Holdings Plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to Tom Carpenter, CEO. Good morning, sir.

Thank you, Lilly. Good morning, everyone, and thank you for joining us. Today, we'll take you through our performance so far this year and then our outlook. We'll then answer any questions that have been submitted at the end of the presentation. Moving to Slide 2, please. On this call, you have Carolyn Isom, our CFO; and myself, Tom Carpenter, the CEO of the group. I'm going to focus on the strategic and operational progress, and Carolyn will take us through this -- our year-to-date financial detail. We'll answer any questions between us. Moving to Slide 4, please, Carolyn. For those of you who don't know us, I'd first like to give an overview of the Titon Group. Titon is a U.K.-based manufacturer servicing the residential construction sector through 2 complementary business units, mechanical ventilation systems and window and door hardware. We were established about 50 years ago, and we've weathered multiple housing cycles. Both of our business unit sales underpinned by regulations, covering indoor air quality, safety, security and energy efficiency. We recognize that our margins need to improve. However, we manufacture and design about 3/4 of our overall revenues, and this gives us ample scope to improve our margins through value engineering and productivity improvements. As you can see from our presentation, we're executing a turnaround of the company. The market is quite challenging, but our focus is on the things we can control and improve ourselves. I think we're making progress, but we're not where we want to be yet. Finally, we have a strong balance sheet. We own our own manufacturing facility in Haverhill. We have no financial debt, and our cash position allows us to invest to improve the business. So what differentiates Titon today? As I said, we have 2 complementary business units selling into adjacent markets, both within the residential new-build, the RMI, Social Housing markets. We have a very broad portfolio of award-winning products, which I'll go over in the next slide. And we have in-house system design and expertise in building regulations, and that allows us to win sales at the specification level. Finally, we have a spare manufacturing capacity, and this allows us to grow the business without the need of making any major capital investments. From a value -- shareholder value creation point of view, as I've said, the current new build market and general macroeconomic situation is presenting us with some challenges. But everyone in our market faces the same challenges. So we need to compare ourselves with our competition. And so we're focused on the things we can control on self-help and becoming a more competitive company. To that end, we're actively focused on making margin improvements. We're focused on growing through market share. And anyone who knows us has been with us for some time, you will know that our Window and Door Hardware business has held back the group growth for a number of years. I view this more of a Titon issue than a market issue, and we're working actively to turn this business around. For context, the window/door hardware market is several times larger than the ventilation systems market. So I believe if we -- once we do restore window/door hardware to growth, we see some real upside in the performance of our group. Against that, we set ourselves some very clear and measurable medium-term ambitions. We want our combined sales to be growing by at least 10% year-on-year and achieving an operating profit before tax of 15%. From a revenue point of view, I think that we've demonstrated we can do this for the Ventilation Systems business. Our opportunity is now to bring the same level of performance to window/door hardware. Moving to Slide 5, please. The picture in the middle shows our -- shows the range of products and solutions we offer and the split between the business units. Historically, I don't think we've been promoting our breadth of offering to our customers. Between both our business units, our content per home can range from several hundred to several thousand pounds per dwelling. As I said earlier, both our businesses have in-house design, regulatory experience and utilize our own vertically integrated manufacturing facility. Moving to Slide 6. I will talk about the highlights for the first half of 2026. Market issues aside, I think we've made quite good progress on our strategy that I've outlined in previous programs and previous presentations. Our Mechanical Ventilation business -- Systems growth over the period was driven by consultative selling and new product introduction, particularly our revised Cool Plus product, which helped us win the largest project in the company's history. We made some further improvements with our customer service processes, where we carried out a reorganization and moved the order management function from Colchester to our Haverhill factory. We continue to drive our productivity improvements throughout the organization and increased our sales per full-time employee. We've taken a very disciplined approach to our headcount and actively working on efficiency programs throughout the business. As I touched on, we delivered a revised cooler ventilation product based on market feedback, and this directly contributed to project wins and our growth over the period. For window/door hardware, our trickle vent offering has needed some refreshing for a number of years. It's been essentially unchanged for the last 20 years. So over the period, we refreshed the trickle vent range with a new acoustic vent and expanded color range of our plastic vent and color matching for aluminum vent. This was enabled by a very small investment in our injection molding facility. We have more work to go with this, and we plan to make some window/door hardware product announcements over the course of the rest of the year. Across the business, we made numerous improvements focused on our strategic programs. From a financial point of view, our Mechanical Ventilation business delivered a little bit over 20 -- a little bit under, I should say, 20% of sales growth with the U.K. business growing by almost 20% -- 26% year-on-year, where we achieved our first ever GBP 1 million month for that business. Given the market conditions, I think this is a good performance and shows the benefit of the changes we've made with this business. Our Window/Door Hardware business unit performance is still not where we need it to be and continues to be a major focus of our management attention. The business shrank by almost 10% year-on-year. Although overall, the business unit had a pretty tough winter with demand being particularly low during the new year. On the positive side, we've returned our U.S. business back to meaningful growth, albeit that's from a very low base. Overall, our gross margins reduced by 0.8 percentage points compared to last year. This was caused by a product mix with lower volumes of our higher-margin construction products that were caused by delays in construction starts, which I've covered in the previous presentations. Our new Cool Plus product is a high-value product, but it's quite early in the product cycle and so has relatively low margins and lower than forecast volumes of some window/door hardware products gave us some adverse overhead absorption rates. Our prior margin improvements did mitigate the impact of these somewhat, but we were disappointed to see lower gross margins than planned. The key point I'd like to make is that this is not where we want our margins to be. We know what we need to do to fix our gross margins and gross margin improvement remains a central focus of our strategy for the company. We saw a knock-on reduction in our underlying EBITDA and profitability. However, the reduction in our profitability aligns almost exactly with the investment we made increasing our sales team. So while this investment affected our profitability in the first half, I do believe that we do need to strengthen our sales capability. I think this is necessary for the turnaround of the business and to achieve sustainable growth. As I touched on earlier, at the end of the period, we did do a small reorganization, and this has led to further organizational cost reductions, which we will see during the -- see the benefit of during the second half. I'll now hand over to Carolyn to go over our financial performance.

Thank you, Tom. Good morning, everyone. Yes, turning to our half 1 2026 results. We delivered solid top line growth with sales increasing by 5.6% to GBP 8.1 million compared to GBP 7.6 million in the first half of last year. This growth reflects continued momentum in the key strategic areas of the business. Looking at business unit performance, Mechanical Ventilation Systems was the standout contributor, growing 19.8% to GBP 4.8 million. This reflects strong market demand and continued traction internally, reinforcing our confidence in the long-term growth of that business unit. By contrast, still an important part of our portfolio, Window and Door Hardware sales declined by 9.8% to GBP 3.3 million against a tougher market backdrop. Gross margins reduced slightly to 29.3% compared to 30.1% in the prior period, primarily due to product mix with a greater weighting towards lower-margin ventilation sales during the half. At operating level, our underlying operating loss before exceptional items widened to GBP 0.41 million versus GBP 0.16 million loss last year. This was driven by the lower gross margin performance and planned investment in strengthening the sales organization to support future growth. Underlying EBITDA was broadly around breakeven at a loss of GBP 26,000 compared with a positive EBITDA last year of GBP 0.3 million. Importantly, we remain highly focused on disciplined cost management. The efficiency initiatives and cost actions implemented during the first half are expected to have an impact in the second half. Just looking at the revenue mix in business units. Mechanical Ventilation continues to increase its share of group revenue. It represented 55% of revenue in FY '25, and that's now increased to 59%. So that's increased further, which reflects the strong momentum in that segment. Geographically, our sales mix remains consistent with FY '25, while product mix has shifted towards a higher proportion of manufactured sales, primarily driven by the higher-value cooler unit within Mechanical Ventilation Systems. Turning to the balance sheet. We have maintained a strong financial position with no non-lease borrowings and cash balances remained stable at GBP 3.1 million compared to GBP 2.9 million in the prior year period. This provides the group with both resilience and strategic flexibility. Our balance sheet continues to be underpinned by the significant property asset base. Noncurrent assets include property carried at a book value of GBP 1.55 million with an independently assessed fair value of GBP 5.8 million as of September 2025, rising to GBP 6.7 million on a breakup basis if each building was sold separately. This highlights the underlying asset strength within the business and the potential latent value not reflected in our balance sheet currently. We've also continued to make really good progress in reducing stock levels with inventory reduced by a further GBP 300,000 since year-end and GBP 700,000 since the same period last year. This reflects our ongoing focus on working capital efficiency and disciplined inventory management. As a result, our cash position remains robust, giving us confidence as we enter the second half. Looking ahead into FY '26, we intend to deploy a portion of our cash reserves into targeted strategic investments, opportunities that we believe will enhance long-term value creation, strengthen our market position and support sustainable growth. Back over to you, Tom.

Okay. Thank you, Carolyn. Moving to Slide 12, please. So clearly, we're still in the midst of our turnaround, and we're not where we want to be yet. Last year, for those of you who attended that presentation, I set out our strategy to turn around the company. We're continuing to focus and execute the strategy. For those of you who are new or this is the first presentation that you've been to, I'm not going to go into some massive detail, but we know where we want to be in the medium term. That is a company that's growing 10% year-on-year and achieving 15% in net profit. I think we can -- we've demonstrated some success towards this with our Ventilation Systems business. We know the markets we want to operate in. We still want to focus on new build and penetration, but we want to gradually increase our presence in adjacent markets. While we still service exports where they align with our products and our commercial goals, our main focus will be in the United Kingdom. We know what we need to do to succeed, and we have a set of internal programs, 9 internal programs that we have where we're executing to deliver these success drivers. Moving to Slide 13, please. We've introduced a Turnaround Scorecard in our last investor meeting. As I've covered, it's currently showing a step backwards with our margins. We understand the reasons why our margin is taking a step backwards, but profitability is clearly not where we want to be, and we're focused on improving this for the second half of the year. Moving to Slide 15. And our outlook in summary. Next slide, please. So our core U.K. residential new-build market is subdued. We have lower year-on-year project starts. And I think everybody knows that the macroeconomic can certainly hang over the whole country and the industry. However, we are expecting our second half performance to be stronger as we continue to deliver our strategy, our order book grows, and we do think new building starts bottlenecks will ease over the second half. So summarizing our first half performance. I think actually, we're quite pleased against the backdrop that our revenue was ahead of our expectations and ahead of the prior year. We're especially pleased with the sales performance of our Mechanical Ventilation Systems business. I think a nearly 26% growth rate is a good result for any market in the market we're in right now. The Window and Door Hardware business unit remains the area where we have the most work to do, but we have a clear program of action across the business. I think we're doing the right things. We have more to announce in the coming months and weeks, and I'm confident that we can turn this business back to growth. Our profitability was behind our expectations and was impacted by a product mix and some weakness in window and door hardware manufacturing and increased sales organization costs. We know what we need to do to recover these gross margins, and this will be a key focus for us for the second half of the year. We have a healthy cash balance, and that's going to allow us to continue to invest in the turnaround, and we're hopeful we can make announcements over the year about that in due course. Finally, the Board remains confident in the outlook of the group and is focused on delivery and creating value for shareholders. We continue to expect to deliver by the end of the year to our market expectations, although I must say that half 1 has reduced our headroom, and we are managing the business accordingly. We believe that the initiatives that we're implementing are the right ones and will gain traction over the medium term. Ultimately, we do believe that we can deliver a blend of revenue growth of 10% per year for both business units and achieve an underlying net profit before tax of 15% in the medium term. Just moving to Slide 16, please. Finally, I just want to summarize the case for Titon. We're an established industry player with over 50 years of trading history. While our core market is known to be cyclical, we have -- there are central regulations that drive the demand for our core products. There are growth opportunities for both business units. I think we've demonstrated our potential for the Mechanical Ventilation business. We now need to do this in window/door hardware. We have a healthy balance sheet, and we should be operationally generating cash this year. Our property has been valued at just under GBP 7 million. We have GBP 3.1 million of cash and another GBP 3.9 million of other net assets, and these assets exceed our total market capitalization. Finally, we have a clear strategy, which we are executing. Our business performance remains sensitive to revenue and mix, but our strategy is clear. Our balance sheet is strong, and we are making progress towards delivering our medium-term ambitions. Last slide, please, Carolyn. Okay. Thank you. This concludes our presentation. I'd like to now hand back over to Lilly and answer any submitted questions.

That's great. Thank you for your presentation. [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.

Thank you. So first question in -- why is turnaround execution not translating into results given H1 '26 versus H1 '25 numbers?

I think there's a couple of things. I mean, I would say not turning to profitability results. I mean the sales increase, and that's a direct result of what we've been trying to do. Again, as we've covered quite a lot, we have some high-margin products that are quite low that we use in building starts. And so I think doing the math, I think these impacts on our gross margin probably resulted in 3.5% to 4% of gross margin percentage points compared to last year. I think as the market normalizes and our building products, fabrication products start to grow again, I think we should recover those. I think we made quite a lot of good progress on gross margin. So -- we can't -- there's lot of things we can't control. And then I think the other thing, we increased our sales overhead by about GBP 0.25 million, which I think was the right thing to do compared to the first half of last year. So I think that answers that question. You can please ask another question if you don't think it does.

Okay. Second question. Should we close down window/door hardware given the continuing poor performance and concentrate on the mechanical ventilation side?

I don't think so. I think you're not the first person who's asked that. I don't think so. I think actually, window/door hardware does contribute a lot towards our overheads. I think it is a drag on our overall profitability, but it is -- still it is 1/3 of our revenue and contributes to 1/3 of our overheads. And we do have a lot of shared overheads. Our factory is shared. Our corporate overheads are shared. So I think actually what it would do is, first off, cost us a huge amount of money to shut and actually would drag down the performance of our Ventilation System business.

Okay. You are materially undervalued. What can you do to unlock the value? Specifically, can you sell some of the property return value to shareholders? And should you look to do a strategic review like other companies such as Checkit have done to assess whether to sell the business given the mismatch in value?

Yes. A couple of things on this. So I think there's I mean, clearly, the best thing we can do is actually become -- is to hit our medium-term goals and to become meaningfully profitable. I think that's the best way to unlock our value. We -- again, we've been asked multiple times whether we want to sell our property. There is nothing about that, that is very straightforward. And maybe if you want, I can probably go over with you individually. If I show you our -- the layout of our property in Haverhill, it's not as straightforward as just closing one building and selling it, although obviously, that is an option. I'd be quite reluctant to mortgage our buildings right now because I think that would -- we don't really want to be paying a huge amount of mortgage fees where the company, I think, has quite a poor impact on our cash flow. And -- but I do -- what we do want to do is utilize some of our assets and our cash with strategic programs to actually give value to both the company and our shareholders.

Okay. Can you provide more details of the problems experienced in window/door hardware in the period?

Yes. Okay. So I'll be quite specific really. We definitely had a very poor demand over the winter, especially January -- especially early part of the new year. I would say almost every single customer we had a very, very poor month either January or February. So demand wasn't there at all. I think specifically, we've seen a bit of change in the market. So actually, our plastic vents and our Titon branded hardware products are actually quite flat compared to previous months. But we are seeing less -- we did see our demand for our aluminum vents declined quite a lot. And I think there's a lot of customers who are having their own struggles with cost and profitability looking for cheaper solutions for themselves and trying to drive cost out of their own solutions. And obviously, our aluminum vents is quite a premium product. So we are seeing a little bit of change in mix there. Those are the predominant reasons. It does look a little bit better now from March onwards from the dark days of January and February. And we are seeing -- again, it's too early to go and see what happens, but it definitely seems to be a little bit better in the spring for window/door hardware.

And what should gross margins be? And what is the road map to get there?

Yes. I think our blended gross margins should be probably north of 35%. We have a whole program of gross margin improvement in the business. And I was actually quite pleased to see our window/door hardware gross margins improve, volume notwithstanding. We know where we're making lower gross margins. There's a couple of things. So obviously selling more higher gross margin products such as FireSafe fabrics into the construction of buildings. I think we are probably one of the market leaders, if not the -- if not the market leader for FireSafe fabric, but we need construction to start to sell those products. We also need to do a lot more value engineering of our products. And so for example, with our cooler product, cooler product is a new product that we really started selling in volume in this half. We took the view that it allowed us to win a quite specific project for us and further projects for this year. So we took the view: best to release this to market without a fully value engineered product, but we're actively working on that product to drive cost out to recover our margins.

Okay. Can you give us, excluding macro, what things you are doing to rectify the window and door hardware business?

Yes, I can. So obviously, we've refreshed our sales team in window/door hardware. So I think we're selling in a lot more of a -- I don't want to say -- I know what the right word is. I don't want to say professional because I don't want to go and -- I'd say a lot more data-driven, unemotional way and selling on benefits and selling on solutions with window/door hardware. We are also refreshing our product range. Our product range, I think, is quite tired, certainly our trickle vent so it hasn't really been updated for quite a few years. So we made some inroads in that over the period, and we're going to make further inroads with that over the next few months, which I'll announce when we can release those products. And yes, and if we're lucky, we want to release further products that we don't actually sell right now in that business. So the key thing, I think if you look at it is we have quite a lot of injection molding capacity in our business. We don't utilize that enough. And there's a lot of products that we should be selling into the hardware market that utilize our injection molding capacity. So what we intend to do is to fill that capacity with revised products and new products. So that has a double whammy. First off, it gives us more products to sell. And secondly, it really impacts our absorbed overhead for our whole manufacturing business. So it's kind of like a double whammy. Not only does it increase our revenue, it actually helps us absorb some of our overheads.

Window/door hardware sales are falling for a number of years, so surely, the turnaround strategy isn't yet working?

Yes, I would say so. Yes. So we know what we need to do. And I don't think it'd be working until we see it start to grow.

You say that H2 should achieve your market expectations. What are those expectations? Should I take that one?

Yes, you take that.

So in terms of market guidance, GBP 16.8 million revenue, just over GBP 100,000 operating profit and GBP 1 million EBITDA with cash levels slightly increasing and inventory looking to decrease slightly more on year-end as well. Okay. We've got -- so it's not a question, it's a comment. So I think you need to do more relating to the first question about releasing value, so focus on value and keep going to the 2028 plan, but also look at the other ways, example, consolidation, sale of business, sale of a building, et cetera.

Yes. Sorry, not asking the question, but I'll answer it anyway, James. I think you're right. I mean, look, we want to release value for the shareholder. It's not that we're not considering this stuff and not considering doing these things. But yes, I mean, there are certain things in this that we wouldn't discuss on an investor call. But yes, we're looking at ways that we -- we're not very efficient from an asset point of view. We know that. And it's our goal to create -- is to utilize our assets efficiently. And there's multiple routes to get to do that, isn't there?

Yes. Are there any working capital efficiencies you can get? I think we're pretty -- we're pretty efficient in terms of our working capital management over the years. We've struggled with inventory levels, but that's under control. And as you can see from the last kind of 3 results, inventory is decreasing and there's much more control over that now. Actually, our debtor days are quite low. We manage our debt very carefully, and we have pretty good payment terms to our suppliers. So we're always looking at working capital efficiency, and I think we're making good progress on keeping that strong.

That's great. 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 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 the presentation, and thank you for those questions. I think it's great to have shareholders and watchers be engaged with us. Yes, we know what we need to do. I think it's a half glass full point of view from us. We've got to work on the hardware business. But let's see what we can do over the next 6 months. We should be in a better place, I hope, when we talk to you next.

That's great. Thank you for updating investors today. Could I please ask investors not to close the 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 will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.