Trellidor Holdings Limited (TRL) Earnings Call Transcript & Summary

Good afternoon and welcome to the Trellidor Holdings Limited Results Presentation for the half year ended 31 December 2024. Terry Dennison, the Trellidor Group's CEO, will start the presentation by providing an operational review of the business for the 6-month period. This will be followed by an overview of the interim financial results as published on SENS earlier today to be presented by Damian Judge, the Group CFO. After the presentation, there will be a Q&A session during which Terry and Damian will be available to answer your questions [Operator Instructions]. A copy of the slides and a recording of this webinar will also be made available on Trellidor's website in due course. And with that, I will now hand over to the Trellidor team.

Thank you, Vera and thanks to you and your team from PSG Capital for setting up this webinar today. Good afternoon all and welcome. Thank you for joining us. While there have been signs of an improvement in sentiment and reductions in interest rates, the impact of improving levels of disposable income are not yet being felt in a meaningful way for the group's products. Looking forward, the outlook looks positive with consumer sentiment continuing to improve with further interest rate cuts likely and together with reports of residential property values starting to strengthen around the country, particularly in Gauteng and KZN metros. The group is well positioned to benefit from any increase in consumer spend. Looking at our business units locally. Trellidor started the financial year with a weak sales results in the first 3 months. But this was followed by a much improved double-digit percentage growth in the second 3 months of the half year. Efforts continue to grow our selling capacity throughout the franchise and branch network and this is starting to gain traction. We are pleased to see growth in the business-to-business division with a broader customer base and improved pipeline of potential work quoted. A key strategy has been to improve the quality of our sales process and its success rate through regular [indiscernible] training programs, both online and on-site with good results measured by improved success ratios. Restoring domestic sales volumes remains a key focus of the team. Taylor has returned a solid half 1 with revenue growing by 10.2% over the comparative period, primarily due to growing the distributor base and receiving their support. This momentum is set to continue with further new distributor signings in progress. NMC's 25.3% growth in half 1 is largely due to an increased investment in stock, ensuring stock availability and supported by an increased investment in selling capacity. Looking at our international market overview. For Trellidor, growth in Africa continues and now also supported by an increased focus in the B2B market. The U.K. business again had an excellent 6 months, underpinned by the major contract reported in the previous presentation. This contract is now being completed, which will negatively impact revenue for half 2 compared to F '25 half 1 and F '24 half 2. The team in the U.K. has secured several smaller contracts that are now in various stages of completion or in the pipeline, which is encouraging. In addition, the strategy to broaden the customer base is showing positive results but this does take time to establish. Taylor showed good growth from Southern Africa distributors, both existing and new and Taylor's ability to competitively service this market with select products is now established. The drive to improve profitability of the business units is also showing positive results with the following initiatives. In Trellidor, significant cost reduction has been achieved whilst retaining focus on investments in restoring sales volumes. In Taylor, the growth in revenue reported, supported by the efforts to improve and stabilize margins in the prior period, together with a well-managed overhead base, yielded a strong improvement in profitability. In NMC, the increased revenue line at good margins has funded the investments in selling capacity and inventory. Further investments in overheads is not necessary and current inventory levels are seen as optimal. In the group, the continued paydown of debt, supported by the strong cash flows has helped reduce interest charges to ZAR 5.7 million from ZAR 8.5 million in the comparative period. In summary, the key results are highlighted in the salient features on the next slide. Our salient features for the 6-month period are as follows: revenue is up to ZAR 304.3 million from the comparative ZAR 292.2 million. Our operating profit ratio at 14.7% compares to 12.3% in the previous period. Headline earnings per share up nicely to ZAR 0.296 from ZAR 0.214 in the previous period. Continued strong cash flow with cash from operations at ZAR 38.6 million comparing to ZAR 39.5 million in the prior period, with a little bit of investment in working capital being the difference. And then net debt down to ZAR 85.3 million from ZAR 116.8 million in the comparative period. The past few years haven't been easy for the group and it's been very satisfying to have been able to report better results in the last few results periods. Strategies to derisk the business and look inwards to costs, margins and working capital have been implemented and the group's balance sheet and margins are in a much healthier state currently. Particularly pleasing has been the ability to reduce net debt by over ZAR 60 million in the last 18 months. We will continue to pay down on net debt, further derisking the group and reducing finance charges until such time of revenues and cash flows have stabilized. While we have benefited from the inward focus with a stronger balance sheet and reduced costs, we recognize that we can't shrink our way to success. And to this extent, are focusing and have already implemented strategies to grow the revenue base. Trellidor remains an iconic brand and has built extensive knowledge and expertise to remain the leading barrier security solution provider in Southern Africa and increasingly throughout Sub-Saharan Africa and the U.K. We recognize that the local market remains key to the group. And while there is some improvement in the economy, it will take some time to benefit the group's businesses. To this extent, strategies to regain market share through increasing our selling capacity, establishing a broader geographic footprint in territories underrepresented and improving the quality of our sales process and success rates are being actioned. The B2B division established in the last couple of years at head office is gaining traction in a market that Trellidor has not targeted directly in the past. National clients are targeted, offering bespoke barrier security solutions, building on the experience and knowledge gained from the U.K. Building on our success in Africa and the U.K. remains a key focus. In Africa, we are working with our established franchisees in 19 countries to implement growth strategies similar to those implemented in South Africa, that is adding selling capacity and geographic presence to maximize revenue. This is enhanced by the efforts of the B2B division who are focusing on major projects, diplomatic market, large corporate and retail opportunities in Africa. Our recent success in the U.K. has been very encouraging and we see significant growth opportunity in this market. We have gained a hard fought reputation for expertise and service excellence in the barrier security industry with the ability to implement bespoke solutions for specialist markets. That said, we recognize that it is key to build a sustainable revenue base in the U.K., smoothing revenue streams and providing a solid platform for further growth. Strategies to increase the corporate customer base as well as increase our geographic representation in the U.K. are in play. We are incrementally increasing our capacity to increase the intensity to yield further growth in an ever-growing need for barrier security. I will now hand over to Damian Judge to take you through the numbers in more detail. Thank you.

Thank you, Terry and thanks again to the team from PSG for hosting us today. Good afternoon, everyone and thank you for joining us today. As already highlighted, we are reporting a 4.1% increase in revenue for the 6 months, which has mainly been driven by the continued project work in the U.K. In addition to the project work, we have also made strides in widening our U.K. customer base and closer to home, our strategic focus on growing our distribution base for our Taylor product set has positively contributed to top line growth. Our investment in inventory and selling capacity in NMC has resulted in a positive top line trend in that business. And although we had a slow start in Q1 from a Trellidor perspective in RSA and the Rest of Africa, Q2 showed double-digit growth and positive momentum. The increase in the top line means that as a group, our recovery of fixed and semi-fixed costs has improved and coupled with rigorous cost control of the remaining overheads, our operating profit and headline earnings per share have increased by 24.4% and 38.3%, respectively, over the period. The increase in Taylor's market share and the investment in inventory in NMC means that their contribution to our segmental sales has increased from the same period in F '24. Taylor's strategic focus on stabilizing margins and continued improvement in overhead management means that their contribution to the group's operating profit has also increased. Higher volumes from the U.K. for Trellidor security products has resulted in the contribution of sales from our security product range, increasing its share of the pie. Coupled to that, the contribution of the Rest of World market has also increased driven by the U.K.'s performance. Taking a look at Trellidor specifically, as highlighted earlier, continued project work in the U.K. supported by the widening customer base in country is the key driver behind the growth in the Trellidor business unit's top line. In RSA, the strategic focus on stabilizing margins and improved cost control, coupled with sales momentum in quarter 2 has contributed to the operating margin of the business unit increasing to 18.1% over the 6 months compared to 14.1% in the comparative period. Taylor's management team's focus on gaining market share by increasing its distribution network, improving service delivery, stabilizing margins and overhead cost control over the past 18 months has resulted in a strong 6 months in terms of performance. Revenue is up 10.2% with operating margins and profit following suit. We are very pleased with the positive momentum being showed in the Taylor business unit. As stated earlier, the investment in inventory supported by increased selling capacity means that NMC's turnover is up 25.3% over the 6-month period. The investment in selling capacity has resulted in operating margin decreasing to 6.2% but the operating profit generated is up 20% given the stronger top line. Our reduction in net debt has been a key strategic focus for the Board over the past 18 months. Over the period under review, we are reporting a 27% reduction in net debt. But over the extended 18-month period, net debt has reduced by 41.9% or ZAR 61.4 million. Cash from operations remain steady, even with an increase in debtors and inventory driven by our NMC's strategy and the U.K. project work, which will release through F '25 H2. With our debt-to-equity ratio dropping below 40%, our debt levels are at the lowest they've been for the past 5 years. Given the higher interest rates, albeit that they are on a downward trend, the reduced debt levels have resulted in a significant reduction in our finance costs through the period. We are, however, still lagging our historic interest cover levels, which is a current focus area for the executive. As mentioned earlier, we have seen an investment in working capital through the course of F '25 H1. From an inventory perspective, this has been primarily driven through the NMC division, which has yielded a significant increase in turnover. In the U.K., the completion of the project work through the course of F '25 Q2 means that we have increased our debtor's book as at 31 December when compared to previous periods. The investments in inventory relates to fast-moving products and will be utilized through F '25 H2 and the debtors book will be recovered in line with the payment terms. It is very pleasing to note that the trend of improved cash generation, which was set during F '24 has continued into F '25 for the first 6 months. Given the challenges faced in recent times, stabilizing this trend through the course of a few reporting periods is a key focus area for the executive in the short to medium term. Before I hand you back to Vera and the PSG team for the Q&A session, I just want to highlight that in addition to the slides that have been presented and the long-form announcement that was released earlier today, we have also included the following in the appendix to this presentation, a summarized group financial performance, our earnings per share reconciliation, our group financial position with extended comparatives and our group's cash flow workings. Thank you again for joining us and back to you, Vera.

The Q&A session is now open, although it seems you're all very quiet today. I haven't received any questions yet. We'll give it a couple of minutes, see if any of them come through and then we'll be right back. First question from Chris Logan. Can you please give us some more color on your U.K. operations in terms of potential, et cetera? Terry, I think you can take that one.

Yes. Thanks, Chris. We certainly are very encouraged by what we are finding in the U.K. particularly with regard to demand from market sectors that we haven't traditionally targeted in the U.K. So in terms of overall quantums and so on, we do think that there is significant growth opportunity in the market. And we are certainly pushing very hard on 2 main fronts, or possibly even 3 fronts. We put project work into 1 front, which is lumpy in nature or contract type work and we work with major corporates and retailers which is a -- has been work in progress for some time now to broaden that base and we are getting the traction in that area. And then the third leg is to work on our -- spreading our geography which is a very fresh strategy. So we've just kicked that off. And we're starting to see the early signs coming back. But the most encouraging part of everything that I'm saying is the inquiry levels that we are getting for our products are growing almost on a weekly basis. So we do see the potential once we open up the doors on our marketing and advertising, which we've held back on for now due to a lack of capacity to service it, is the demand is there. We need to get the footprints in place to be able to service that demand.

Perfect. Just I think 2 follow-ups on the U.K. segment. Another question is, who is currently managing the U.K. operations? And just following that also, whether there are any serious competition or competitors for Trellidor in the U.K.

Yes. So in terms of management, we have a team that is based in the U.K. They report through to myself directly. So a well-established team. We've currently got 17 employees working in the system. And that's -- we'll incrementally grow that as the need arises. In terms of competition, yes, there is. And in terms of sophistication of, also if you like, the traditional Trellidor product, there are 4 different companies that provide products of various form and at various levels of pricing and of sophistication, including some that also have certification through an insurance-based body as we do for products. So yes, there is competition and there is an established need for the product. We do multiple products. We don't only do our grills in the U.K. We also do aluminum roller shutters and 1 or 2 other derivatives. And once we get outside of the grills, there is more fierce competition. And we tend to focus on the niche markets where our differentiators are really based on loss prevention and a higher level of security rather than based on commodity pricing.

Thanks, Terry. Just one more follow-up, which from your previous answer might not be as simple to answer. As you said, you compete in various different segments with various different products. But do you have any idea of what Trellidor's market share is in the U.K.?

In terms of barrier security as a category, I couldn't answer that. There is look through information that's available publicly in the U.K., which we do look at. But because all of the competitors in our space tend to do quite a wide array of product sets, it's very difficult to get to an actual market share. But I would hazard a guess in our grill markets that we're probably sitting around the 25%, 30% mark in the U.K. when it just comes to the traditional Trellidor type product. When it comes to the roller shutters and so on, I think our market share, as I mentioned, we focus on the niche need in that market. So we will have a very small percentage of the market when it comes to roller shutters.

Then 2 related questions. The first one from [ Rudi van Niekerk ] asking what are your target debt levels before reinstatement of the dividend? And then in the similar line from Royce [indiscernible] says, firstly, congrats on the good set of results. But then says that you note the dividend will resume when debt levels have normalized. Looking at your ratios, you're pretty much there. Would it be reasonable to expect a dividend for FY '25 should conditions remain as they are?

Yes. Thanks, [ Rudi, and Royce. ] Yes, we've had a robust discussion about this in the boardroom. And effectively, we're seeing that there are continued risks in the market and not necessarily stability in revenue streams and therefore, cash flows. So we're not declaring an interim dividend but we will review it at each reporting period. So we -- our debt is down considerably, as you pointed out and we are well below traditional debt levels. But we're still seeing risk in -- particularly in the local market and we are looking for stability in our cash flows, before we consider dividends again.

Thanks, Terry. I'm just going to give a couple of minutes to see if there are any further questions from the participants before we sign off. Maybe at this point to just highlight that you're obviously welcome to direct any further queries directly to Damian and Terry or via PSG Capital at any point, even if the question wasn't answered during the -- asked or answered during the presentation. But I see there's no further queries at this point. So I think on that point, thank you very, very much for everyone. There we go. Chris has come back with another one. His question is, have the January and February '25 been reasonably strong compared to the 2024 results?

Yes. Thanks, Chris. Yes, our order flow through January and February has been solid. The one big delta is, we had a massive month in February in the U.K. last year, where we've got more normalized volumes this year. But certainly and throughout the businesses, the order flow is trending to our expectations through January and February.

Thanks, Terry and Damian. And again, as I said, thank you for everyone for joining today. Absolutely free to direct any further queries after the presentation to the executives or via PSG Capital. Thank you very much, everyone.