Lords Group Trading plc (LORD.L) 2026-09-30 Earnings Call Transcript

Morning. Thank you. Thank you to the attendees for joining us this morning for our H1 2026 update. The update is that we have delivered a resilient first half revenue for 2026, and we are undertaking operational actions to improve our performance and reduce our leverage. In terms of the agenda, I will go through the highlights, followed by a financial review by our CFO, Stuart Kilpatrick, and then I will go through a business review and provide a short update on the outlook, followed by a Q&A. 2026, the first half, as I said, we've delivered resilient revenue performance, and a decisive operational response to what has been a difficult and challenging market. Management have identified the issues, and we have increased the pace of action that we need to take as a result of an unexpected weaker market than originally anticipated at the back end of 2025. Our revenues were GBP 232.1 million, which is broadly in line with H1 2025. Our group like-for-like revenue unfortunately, is a -6.8%, where we can see that it's demonstrated by underlying demand weakness across our end markets. Our adjusted EBITDA is GBP 8.4 million, with a margin of 3.6%. Given the market and the need to preserve our balance sheet, we're not proposing an interim dividend. Our net debt is GBP 26.5 million, reflecting our seasonal working capital outflow. In terms of the main blocks of what's improved, our merchanting like-for-like decline narrowed to 2.3% in Q2. It was significantly higher in Q1, where we were affected by adverse weather and exceptionally wet first quarter. Another positive for us is the fact that CMO has delivered a positive EBITDA in the first half. We've also managed to increase our P&H gross margins by 130 basis points, and in our spare divisions, revenue has increased by 8%. We've managed to complete our refinancing in April 2026, which we covered at the year-end presentations. There have been challenges, and the things that have challenged us is that the P&H market conditions still remain difficult due to a factor of reasons. There's also been a challenge that APP, our boiler distribution business, whilst it's grown margin, it has grown margin on a lower market share. As I mentioned, the market recovery has been slower than expected, and that's been identified by the construction PMI, which is significantly below 50 for over 20 consecutive months. That said, with the market background, what is management doing? We have a focus plan for each of our operating businesses. We've delivered over GBP 3 million of OpEx savings implemented to date, and we continue to focus on margin, cost, and working capital discipline. We've also reduced our CapEx going forward. We have a well-invested business, and therefore see that the current environment suggests that we ensure we maximize our cash flow, and therefore reduce our CapEx to essential, as well as ensure that we reduce our debt, and that's the priority for the business. Going to hand you over to Stuart, who'll go through the financials.

Thank you, Shanker. If I could take you through first half financial snapshot. Revenue, as Shanker mentioned, was very similar to last year. But the reported revenue of GBP 232.1 million, it masks weaker underlying demand, and as Shanker mentioned, our like-for-like sales were 6.8% down on the previous first half of 2025. Gross profit was a positive in the results, up 4.7% to GBP 46.9 million. You can see our gross margin in the period has increased from 19.3% in first half of 2025 to 20.2% in the first half of 2026, reflecting our pricing discipline as we experienced significant volumes of price input cost increases and materials cost increases, and also the improved gross margin in Plumbing & Heating, where we took the strategic decision last year to prioritize value over volume. Adjusted EBITDA was GBP 8.4 million, a couple of million pounds less than this time last year. A similar impact on adjusted operating profit. You can see the decline in profitability is effectively increasing our focus on cash generation and balance sheet management. Our net debt was GBP 26.5 million, and this compares to last year of GBP 20.9 million, so a little bit higher. As Shanker mentioned, we always have a seasonal outflow of working capital in the first half. Our near-term priorities are managing working capital, being more efficient in managing our inventory, where we've made some good progress in the first half and into the second half. Carefully managing CapEx to prioritize it on replacement or high returning projects, and the delivery of our business improvement plans, which we'll talk about a little bit later in the presentation. Looking at a bit more detail then at the revenue and operating expense bridges. On the left-hand side, you can see our revenue bridge, starting from the position in the first half of 2025 at GBP 232.1 million. The volume reduction that we've seen in Plumbing & Heating of about 13% or 14% like-for-like, has reduced revenue by GBP 16.6 million in the half. You can see a similar impact from the decline in merchanting of GBP 5.4 million. It's on a like-for-like basis. That's been offset by our acquisition of CMO, which joined the group, if you remember, in June 2025. So we only had three weeks of CMO in 2025, but a full six months in 2026. CMO, combined with the new branches we've opened in Merchanting, four new branches compared to the start of January 2025. They've added GBP 22.0 million to the revenue, and that gets us back to a similar number compared to the first half of 2025. If we then turn to operating expenses, you can see on the right-hand side there operating expenses in 2025 in the first half were GBP 34.4 million. The businesses we've acquired, CMO principally, the new branches add GBP 5.2 million to those operating expenses. We've done, in my view, quite well in terms of reducing the like-for-like costs by about GBP 1 million or nearly 3%, despite having higher minimum wage compared to last year and the impact of the employer's National Insurance, which kicked in April 2025. There has been an inflationary impact on fuel costs and transport costs with the Middle East conflict that has been ongoing since February, which we try to pass through as much as we can, but our suppliers are also trying to pass that on to us. Quite a good reduction in like-for-like OpEx in the first half. I will now turn to our Merchanting division, where volume was challenged, as I mentioned, but gross margin was very stable. You can see revenue is down by 4.6%, like-for-like it is down by 4.9%, slightly more, to GBP 112.3 million. Within that, our specialist brands of George Lines in the civil side and our Lords Builders Merchants brand delivered positive like-for-like growth in the half. It was our businesses with greater exposure to the new build housing sector that remained quite challenging and had a tough time in the first half. Gross margin remained stable at 25.8%, which is the same as last year, which is a creditable performance given the sheer volume of input cost increases we have seen and the market remaining very competitive in the drive to try and win volume. Overheads were limited, or the overhead increase was limited to GBP 0.5 million in the half. That resulted in EBITDA of GBP 4.6 million, which really is driven by those lower volumes in the first line there where the like-for-like is down. The graph shows that. You can see the profit impact of the volume reduction is GBP 1.7 million, recovered a little bit by margin and offset a little bit by overheads. That is the main driver. The volumes are lower in Merchanting for the profit change half on half. Going forward, we are very much focused on winning market share from our competitors, where our customer service offering we feel is very fundamental to what we do. We want to improve our gross margin within Merchanting and keep to win some marginal gains. Even slight gains help us. Tightly controlling our operating costs. It is important to remark that since the end of the first half, we have taken about GBP 1.6 million annualized out of the cost base within Merchanting as we have looked to slim down and keep our costs tightly under control. We will then look at Plumbing & Heating. You can see revenues declined by 14.1% in the half. If you remember last year in March 2025, we had a very high volume of boiler sales, particularly ahead of an industry-wide price increase on the 1st of April. I think that was our second highest level of turnover for our Plumbing & Heating wholesale business that month. We did not see that again in 2026. So we have seen quite a big drop in our revenue of 14%. We are also suffering from a U.K. boiler market which is around 3%-4% lower than previous year. We can see with the success of our spares business, DH&P which has increased by 8% in the half, that a lot of people are deferring that capital cost of replacing their boiler and preferring to do it up and patch it up for the next winter season. Gross margin, as I have mentioned in Plumbing & Heating, was a positive of 130 basis points which now reflects the deliberate shift we made in the second quarter of 2025 to value over volume. We have suffered a little bit on volume since then, and we are all set on trying to recover that volume as we go forward into the second half. EBITDA, as you can see there from the graph, the main impact has been the revenue decline of 14% in profit terms, which has reduced profit by GBP 2 million. Recovered a lot of that through the gross margin of GBP 1.3 million. Good performance on the cost base, where we are slightly better as well, which gives us a GBP 3.5 million EBITDA for the half compared to GBP 3.9 million in the first half of 2025. Strategically, you may recall that we have reduced our depot sizes or number of depots from seven down to four in the first half, which we said we would do in our wholesale business at the year end. That is largely completed in the second quarter. That impacts our costs by about GBP 900,000 in 2026 and about GBP 1.5 million annualized flowing into next year. That is a good positive move given the reduction in volumes that we have had. I will turn to digital, which is primarily CMO. You can see in the table there we only had three weeks of CMO to consolidate in the first half of 2025 as it was acquired in the early part of June. If you take on a like-for-like basis, though, compare their pro forma sales in the first half of 2025 to their actual sales in the first half of 2026. We are actually 17.5% up year-on-year but in the knowledge that they had a tough first half in 2025. That is good progress. You can see we are reporting positive EBITDA in the first half of GBP 0.3 million, which is really following the completion of their integration program, the recovery of their supply chain, and the reduced cost base compared to when they joined the group, and aiming to try and get volumes back to the levels they were in 2024. We also moved our Condell business into CMO and part of Condell was online, and we moved that across in May 2026, which gives us a further opportunity to strengthen that business. Going forwards, our goal is to keep on doing what we are doing, improve profitability, further broaden the product proposition, and continue to leverage our increased operational efficiency. I will turn to our cash flow in the first half. As I mentioned, net debt was GBP 26.5 million at the end of June. We endured or we saw the normal seasonal working capital outflow of about GBP 6.7 million, which is broadly similar to previous years. Our debt is a little bit higher than June last year, GBP 5.6 million higher. Leverage is above the board's medium-term target at the moment. Leverage being the ratio of net debt to EBITDA. We did complete the refinancing on April 2, 2026, GBP 65 million of total facilities for a three-year term with two one-year extension options. Our headroom, which is the surplus of the facilities over the net debt, amounts to GBP 32.4 million at the end of June 2026. So a significant amount of headroom based on our debt at the end of June. Our real drivers in the second half to address that point I just made on leverage is to drive EBITDA through greater market share of Plumbing & Heating, drive gross margin or gross profitability in merchanting, and continue to make the progress in CMO in terms of profitability and leveraging off their current cost base. We also will drive working capital. We will be more efficient in stock management, and we have implemented a few things in the first half to drive that. We will keep CapEx to an essential maintenance level or for those projects that are offering a particularly high return. Back over to you on the business review.

Thank you for that update. On the business review, I will go through each of our divisions individually. Merchanting, we are seeing some momentum improving with margin and cost actions that we are taking. Our merchanting business combines localism and specialism, offering our customers an exceptional customer service backed by superior product knowledge and highly engaged teams, something that we make sure we always focus on is our engaged colleagues. This allows us an opportunity to be local leaders across all of the various locations that we operate from. In terms of the numbers, just to recap, we have an overall H1 negative of -4.9%, and that decline moderated to 2.3%- in Q2. We opened four new branches in the last 18 months, and those four branches have delivered GBP 15 million of incremental revenue in the last 18 months. In terms of what we are doing, our commercial priorities are based on increasing our sales intensity. We do have a really good, strong sales team, and what we are focusing them on is gaining market share through improved customer service. We are also very much looking at improving our gross margin. Whilst we have maintained the gross margin, we are still seeing cost increases that are outside of our control relating to either the national insurance effect from a couple of years ago to rents, rates, et cetera. That cycle needs to be broken, and it will be broken only if we improve gross margins whilst we are in a difficult and potentially market that does not look like it is going to grow exponentially very soon. That leads us to ensure that our branch returns on capital employed is measured and is effective, including a review of where they are performing compared to their peers. The structural actions that we have taken in August, we completed a large restructuring which will deliver GBP 1.6 million in annualized OpEx reduction. We have set a gross margin challenge for H2 and beyond. Looking at mix, looking at the sales type, looking at our customer profile and our colleague behavior. The business model remains as a branch autonomous business, but that is supported by a differentiated range in customer service, and our dual brand sites offer specialism products alongside this core merchanting range, and we have seen really good success there. In our Plumbing & Heating division, the recovery plan is centered on gaining market share. Again, ensuring that we improve our efficiency and improving our mix of products to get margin accretion. P&H at the moment offers its customers specialist product knowledge again and differentiated offering because not only is it install but online and its distribution across a wide range of products in the Plumbing & Heating space between renewables, spares, and heating products. As mentioned by Stuart, we had an unusually successful H1 last year, and therefore our revenues on a like-for-like basis are 13.3% down. We have reduced our cost base by reducing our distribution centers from seven to four, and that rationalization was completed in Q2. This will lead to a GBP 1.5 million annualized saving in full year 2027, and GBP 0.9 million expected in 2026. In terms of the context of this business, we did not have the repeat of the March 2025 exceptional boiler volumes ahead of a very large price increase due to the CHMM introduction and manufacturers putting up their prices. We estimate that the boiler market is down by 3%-4%, and that volumes for APP is down because of the fact that we have reduced our market share in chasing a greater gross margin, which we have delivered. The actions that are underway is depot rationalization and cost reduction will continue. The rationalization is completed, but the reduction in costs continues. We have strengthened our commercial accountability with selling right across our three product areas of spares, renewables, and heating products. We have installed a new sales team, which will allow us to recover our customer base, and the loss of volume, as well as install an outbound sales team to focus on the smaller merchants where it is much more efficient for us to call them rather than to send a rep round to getting their business. That is something that is new to us and none of our competitors are doing that, and we expect that to reap rewards for us in due course. Our categories that are performing well are spares, which is up 8% in the first half, and we continue with our renewables progress, as the market adopts low-carbon heating products. We have launched air conditioning, firstly the first half and in the second half, and it has been a very successful launch for us there, with higher margins than the commoditized boiler volumes. In terms of our digital, the turnaround milestones have been reached, and the principal milestone was to get the business into profitability, and we are now focused on scalable growth. CMO still remains the largest online retailer of construction products, and it operates through nine specialist websites. A part of its strategy is to continue to create new specialisms in its online websites, and we have done that again this year with Lintels and the Brick Superstore. As Stuart mentioned, revenues are up 17.5%. The EBITDA is now in positive territory, and we have got sales initiatives that will yield around GBP 2 million worth of incremental sales. The next phase of our priorities is to maintain this revenue growth and also look for margin improvement. There are many products that are listed on the website that don't sell in greater volumes, and we're looking at how we can promote those as they are margin accretive. We focus a lot on improving the operational efficiency and the cost discipline of this business. The costs are substantially down on how it operates from previous years, and we'll continue to use technology to drive that further. The business has a data-led marketing proposition, and that again, is going to reap rewards as we start to look at how long the customer life cycle is with CMO. Traditionally, it's been quite short and the repeat customers has not been as great as we've seen in our other divisions, and that's one of our focuses is to see how we can improve that with the greater offering that CMO now has with the backing of a physical business behind it across all the various product streams of Plumbing & Heating, general building materials, renewables, and civils. In the next phase of our priorities, we had a business called Condell, which was also online and selling similar products to CMO, which is now being moved across to CMO, and we're seeing some really strong growth in those product areas under CMO and a cost reduction in the group with the duplication of two businesses selling the same product removed. We're launching a trade credit software, which is digital. Rather than a traditional trade credit offering, which is essential to sell construction products, this is a digital offer where the customer will be offered trade credit through a third-party provider online whilst they are browsing our web shop site. It's called Two, and we're looking forward to seeing the effects of that come through as part of our digital journey. I'll summarize our operational improvement program. Every operating business has a focus plan with clear ownership and regular executive review. In terms of sales for APP, it's to grow our share. For CMO, we're revitalizing inactive accounts and offering trade credit. In some of our specialist businesses like A.W. Lumb, we're focusing on direct sales as it sells into the house building share part of the market. We have been positively encouraged by the Help to Buy scheme, details of which are scant, but we feel that that will support a degree of growth in our A.W. Lumb direct sales business as house builders mobilize to provide greater housing than there have been in 2026. We continue our gross margin focus through either improving pricing or ensuring that we get greater supplier support. The market is tough for us. It's equally tough for our supply chain, so we are looking at the supply chain to equally support as we focus on improving our margin. We'll continue our cost reduction. We have completed a large restructuring merchant team. We've restructured Condell, and we've carried out the DC rationalization, but we'll continue to look at all of our costs to make sure that a cost reduction is delivered. And we can see that in our numbers with our like-for-like costs not growing in line with inflation. Working capital is a big priority for us, where we will be optimizing our inventory. Ensuring that our receivables collection is as strong as it can be, given our markets are under pressure. In particular, the financial viability of some of our customers will come into question in softer markets. But equally, we're also leaning on our suppliers to make sure that we get decent terms that mirror the provision of our credit to our customers. As I mentioned earlier, we have decided to reduce CapEx, not at the detriment of the business. We do feel that the business has been well invested, but it is time for clear financial returns and that threshold to be as high as possible for our businesses to deliver. In terms of the outlook, we're not expecting an improvement in market conditions, and therefore we will be focusing on controlling our controllables. Our assumption is that the second half conditions will be similar to the first half. The effect of the war in Iran, the higher increase in fuel, and therefore input costs will continue to make sure that our markets are softer. And that you can see that in the PMI indexed being 44.3 in August and well below 50. Whilst we're grateful that the Bank of England did not increase interest rates recently, but we are potentially expecting the effect of a 25 basis points rise in November, which clearly has a potential of a negative effect on our markets. Our industry federation has reduced its forecast from a +2.3% in 2026 to a -1.8%. This is before the launch of the Help to Buy scheme, and we're hoping to get further details of that and see how that will help bolster our end markets. So our priorities is to convert profit into cash, reduce our leverage by the year end, grow our market share in our Plumbing & Heating division, and improve our EBITDA through implemented cost savings, operational efficiencies, and gross profit improvement. Thank you very much for your time, and we'll move over to Q&A.

Perfect. Thank you for updating investors today. Could I please remind investors to submit your questions just by using the Q&A tab situated on the right-hand corner of your screen? And for your reference, a recording of today's presentation will be available on the Investor Meet Company platform shortly after the meeting has ended. Guys, as you can see, we have received a number of questions during today's presentation. At this point, if I could just hand back to the team to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Okay. Now the first question, shareholder value has been consistently ended. Resiliency has been the message consistently, but performance has not been good. What is going to reverse this downward spiral? The reversal of the downward spiral is in part the actions that we are taking. We have moved to taking quite drastic action. It is not fun having to restructure your business and lose colleagues that have been with us for a long time, but we have decided to take the actions in light of the market conditions. But the real reversal obviously comes if we can get some tailwinds, which I do not know if the Help to Buy scheme is the only tailwind that the government has in mind. But we look forward to seeing some of that come through, and if that does not, we will continue to operate as well as we possibly can. We are a diversified business with quite a number of our markets challenged, and our job is to react to that challenge as best as we can, which I think we are trying to demonstrate. But appreciate the point that performance has not been good, and equally, it has not been good for many of our competitors in our sector. Another question is are there further opportunities to expand exclusive or own brand products to structurally improve margins and strengthen customer loyalty? Yes, absolutely. In particular, in our P&H division, that is something that we have been focusing on. We have got a team that are looking at improving our gross margins through exactly that. Some own branded opportunities. We have launched quite a number of own brand products and have now also put in a sales team that are focused on selling the more higher margin products than the commoditized large volume boiler products and associated heating products. So the answer to that question is firmly yes, and we will continue to do so, and look forward to doing more of that in 2027.

Shall I take the next one?

Yeah.

Next question is-

Thank you.

-to gain market share means being competitive. Is your pricing enabling this? And can you squeeze suppliers' margins further? Well, our pricing is competitive. It kind of has to be. We price scrape quite regularly. So that means checking against our competitors and what their prices are. And obviously, customers will come into our branch with a price from someone else and compare it to our prices. So we're constantly being competitive on the pricing side. Can we squeeze suppliers' margins further? We're obviously very dependent on good relationships with suppliers, but our suppliers are facing the same volume challenge as we are, and there are obviously opportunities to do deals with them and enhance our margins. So that's another area of focus for the second half. As we've mentioned, improving our gross margin is two ways. It's price up and cost down, essentially, in simple terms, and we're working on both of those equally hard.

Has there been any approaches by third parties to acquire the business, or is the majority shareholder comfortable that things will improve into significant profitability, and when? Obviously, I can't answer or give any details, but the business has not been or is not open to approaches at this moment in time. As the majority shareholder, it's comfortable that the business is a strong business that will improve its profitability as the market improves, but equally through the actions that it is taking. As I mentioned, the market itself is in considerable difficulty, and we're not the only business that's been affected by this. I got a question, how do you work more with suppliers in partnerships? All of our businesses are actually very close to their suppliers. The way we do that is actually work with them in terms of product launches, in terms of areas where they see a gap that we could potentially fulfill. We've got that across the board between our P&H division, our merchanting division, and including CMO, where category management is really key being a digital business. Again, there's always more and more work that we can do with our suppliers. In particular, one of the initiatives that we've taken is first to leave our buying group, H&B, and go and enter into a strategic alliance with two other merchants where, again, we'll be working much closer with our suppliers rather than working through a buying group. Again, that's a big part of how we will see growth in our business.

If I take the next one. Please tell me more about the current debt rise and the plan to reduce it. What is the annual estimate for full year, end of year net debt? As we mentioned in the presentation, the debt rise in the first half is largely driven by working capital which is a seasonal thing which tends to reverse in the second half. Our businesses are quite seasonal with P&H being strong in September through to March, and merchanting being strong from March through to November really. We do have seasonal impacts on working capital. We have instituted some targets on stock and inventory levels, and we introduced some new techniques and new software to try and drive inventory efficiency more challengingly. So, we think the debt will reduce in the second half just through the natural seasonal flow. This estimate is similar to where we were earlier in the first half.

Last, we've got a long question, but I'll just pick out an aspect of it which is, the market cap has diminished since the IPO. Market doesn't like the trends. How are we going to start being profitable and what's changing for this to actually come to fruition as actions speak louder than words? There's personal downbeat by consistent poor performance. We completely recognize that the market cap has diminished. But equally, we also know that our market has since our IPO been on a downward spiral. Volumes are lower than 2019. That's naturally going to have an effect on our business and any other business in our sector. We are profitable, so I don't think the point is that when we are going to start being profitable. We are profitable. We're taking the actions to increase those profits in a very difficult environment. We have been affected massively by external forces such as increases in our costs, which we've worked really hard, and those are our actions which speak louder than our words that we have controlled our costs. As our presentation says, our job is to control what we can control. We're doing everything and we can assure shareholders that we are doing everything we can to control our controllables. Notwithstanding that a big part of the management is actually very much invested in this business with a large shareholding. So what's affected other shareholders equally affected the management shareholding, and we will do our very best to improve that as much as we possibly can.

That's great, guys. Thank you for answering those questions from investors today. Before we ask investors to share their feedback, which I know is particularly important to the company, Shanker, could I please just ask you for some closing comments?

Once again, thank you very much for joining us this morning. Appreciate that our message is that we are in difficult and quite turbulent markets, but we would like to reassure that we're taking as many actions and everything in our control to do the best that we possibly can. Thank you very much.

Thank you. Could I please ask investors not to close this session, as you will now be automatically redirected for your feedback. On behalf of the management team of Lords Group Trading plc, we would like to thank you for attending today's presentation, and good morning to you all.