Lords Group Trading plc

("Lords" or the "Group")

Interim Results

Continued product, geographic and margin expansion; targets set at IPO well on track

Lords (AIM:LORD), a leading distributor of building materials in the UK, today announces its unaudited Interim Results for the six months ended 30 June 2022 ("H1 2022" or the "period").

Financial Highlights

·      Record H1 Group revenues of £214.2 million (H1 2021: £179.0 million), a 19.7% increase

·      H1 2022 Adjusted EBITDA¹ of £14.2 million (H1 2021: £11.2 million restated), a 27.1% increase

·      H1 2022 Adjusted EBITDA margin of 6.6% (H1 2021: 6.2%), on track to reach 7.5% medium term target

·      H1 2022 cashflow generated by operations of £12.8 million (H1 2021: £9.6 million)

·      H1 2022 free cashflow² generation of £8.7 million (H1 2021: £8.4 million)

·      Proposed interim dividend of 0.67 pence per share (H1 2021: 0.63 pence per share)

·      Adjusted H1 2022 basic earnings per share³ of 3.87 pence (H1 2021: 3.71 pence restated), an increase of 4.3%

·      Net debt⁴ at 30 June 2022 of £21.1 million (June 2021: £25.6 million)

·      Trading continues in line with market expectations for FY22, being revenue of £435.0 million, adjusted EBITDA of £26.0 million and adjusted profit before tax⁵ of £16.0 million

Operational Highlights

·      Merchanting division has continued to perform strongly, with record revenues of £105.9 million (H1 2021: £61.1 million), representing growth of 73.4% and 14.5% on a like-for-like⁶ basis

o  Driven by the division's continued focus on 'local leader' reputation via empowered, highly engaged management teams across its 30 locations

·      Plumbing and Heating division ("P&H") has demonstrated resilient performance with increased profitability and margin, and customer demand remaining strong during the period, delivering Adjusted EBITDA increase of 10.6% in H1 2022 to £6.5 million (H1 2021: £5.9 million) notwithstanding industry wide boiler component shortage impacting revenues

o  Boiler component shortages resulted in like-for-like revenue of (12.5)% and (8.2)% including the H1 2022 acquisition of DH&P Plumbing and Heating

o  H1 2022 management actions, including shifting sales mix towards higher margin energy efficiency product ranges, has mitigated the impact of shortages

o  Management continues to expect the boiler component shortage to ease during H2 2022

·      Group digital revenues grew by 4.8% on a like-for-like⁶ basis with customers benefiting from the ability to shift across channels (online / instore) in their purchasing journey with Lords

o  Merchanting digital revenues growing by 133.1% on a like-for-like basis, equivalent to 3.4% of divisional revenue (H1 2021: 2.2%)

·      Four completed acquisitions in the Period

o  Acquisitions were acquired on a blended 4.6x multiple of Adjusted EBITDA

o  Acquisitions are EBITDA margin accretive

o  Each transaction is complementary to Lords' strategy of product range and geographic expansion

o  All continue to perform in line with the Board's expectations following successful integration

·      Product range extension continuing to expand customer base and share of existing customer wallet

o  New ranges to support the decarbonisation of the UK housing stock and energy price impact, including heating controls, air source heat pumps and underfloor heating within the P&H division

·      Customer base growth via expansion of existing brands continues to progress with three new locations secured in H1 2022

Current Trading and Outlook

·      Lords continues to see positive customer demand across the Group's product offering and the Board considers that the Group's organic growth strategy of product range extension and new locations will continue to secure new customers alongside a greater share of existing customer wallet

·      The Board remains vigilant of the potential for broader macro-economic volatility, however is confident that the Group's business plan, adaptability and high levels of customer service leave the Group well positioned for continued outperformance

·      Lords well on track to deliver IPO target of £500 million revenue in 2024, as well as 7.5% EBITDA margin in the medium term

¹ Adjusted EBITDA is EBITDA (defined as earnings before interest, tax, depreciation and amortisation and, in accordance with IFRS) but also excluding exceptional items and share-based payments.

² Defined as cash generated by operating activities less capital expenditure, exceptional items, share based payments and interest paid.

³ Earnings attributable to equity holders of the profit adjusted for exceptional items, share based payments and amortisation of intangible assets divided by closing shares in issue.

⁴ Net debt is defined as borrowings less cash and cash equivalents.

⁵ Adjusted Profit before tax (basic) is defined as profits before tax before exceptional items, share based payments and amortisation of intangible assets.

⁶ Like-for-like sales is a measure of growth in sales, adjusted for new, divested and acquired locations such that the periods over which the sales are being compared are consistent.

Commenting on the Interim Results, Shanker Patel, Chief Executive Officer of Lords, commented:

"We can only deliver these results due to our colleagues' outstanding dedication and commitment to our customers, their superior product knowledge and focus on exceptional service, all of which are visible throughout our H1 2022 results which have delivered record H1 revenue.

"The Group has continued to accelerate the delivery of its strategic plan, reflected in our financial performance in the half year which reaffirm delivery of our strategic targets of £500m revenue by 2024 and 7.5% EBITDA margin in the medium term. We have a substantial opportunity to grow the Group's current < 1% market share through attracting new customers, a greater share of existing customer wallet, product range extension, new geographies, digital capability and valued added acquisitions.

"In the Group's first twelve months as a listed company, we have delivered all our IPO commitments and believe our strategy will continue to deliver outperformance. The strength of these results and confidence in the outlook supports our declaration of an interim dividend to shareholders of 0.67 pence per share.  Our agility and entrepreneurialism allow the Group to manage challenges and seize opportunities and our H1 2022 results are testament to this mentality."

This announcement contains inside information.

FOR FURTHER ENQUIRIES:

Notes to editors:

Lords is a specialist distributor of building, plumbing, heating and DIY goods.  The Group principally sells to local tradesmen, small to medium sized plumbing and heating merchants, construction companies and retails directly to the general public.

The Group operates through the following two divisions:

·   Merchanting: supplies building materials and DIY goods through its network of merchant businesses and online platform capabilities.  It operates both in the 'light side' (building materials and timber) and 'heavy side' (civils and landscaping), through 30 locations in the UK.

·   Plumbing and Heating: a specialist distributor in the UK of plumbing and heating products to a UK network of independent merchants, installers and the general public.  The division offers its customers an attractive proposition through a multi-channel offering.  The division operates over 15 locations enabling nationwide next day delivery service.

Lords was established over 35 years ago as a family business with its first retail unit in Gerrards Cross, Buckinghamshire.  Since then, the Group has grown to a business operating from 45 sites.  Lords aims to become a £500 million turnover building materials distributor group by 2024 as it grows its national presence.

Lords was admitted to trading on AIM in July 2021 with the ticker LORD.L.  For additional information please visit www.lordsgrouptradingplc.co.uk.

Chief Executive Officer's Review

On behalf of the Board, I am pleased to introduce our Interim Results for the six months to 30 June 2022.  The Group has performed strongly in the period, delivering enhanced profitability and multiple strategic milestones.

H1 2022 Overview

The H1 2022 results demonstrate the success of Lords' growth strategy which continues to be executed by its divisional teams.  The Group prioritises its colleagues and customers and believes by providing these stakeholders with a great experience, market share gains will continue to be realised.

H1 2022 revenues totalled a record £214.2 million (H1 2021: £179.0 million), a 19.7% increase.  The Merchanting division delivered particularly strong sales growth of 73.4% and 14.5% on a like-for-like basis.

The Group delivered adjusted EBITDA of £14.2 million (H1 2022: £11.2 million) with continued margin enhancement as adjusted EBITDA margins rose to 6.6% (H1 2021: 6.2% restated).  During the period, the Plumbing and Heating division (P&H) faced the challenge of an industry wide boiler supply shortage however, through management-initiated controls, the sales volume impact was mitigated and adjusted EBITDA of £6.5 million (H1 2021: £5.9 million) was delivered, with adjusted EBITDA margin improving to 6.0% (H1 2021: 5.0%).

Cash conversion remains strong with cash generated from operations of £12.8 million (H1 2021: £9.6 million) supported by continued strong working capital management.

Group Strategy

The Group's strategic focus is to invest in organic growth levers that deliver accretive margins alongside a selective and disciplined M&A strategy and in acquiring businesses that produce a high return on investment and offer the Group product range and geographic expansion.  Lords remains focused on the repair, maintenance and improvement ("RMI") sector which benefits from robust demand (particularly the Group's P&H division which sells "essential" replacement products through Heating repairs) and strong fundamentals in the medium to long term.

During H1 2022, the Group acquired four businesses at an attractive blended 4.6x Adjusted EBITDA.  Each transaction is complementary to Lords' strategy of product range and geographic expansion, is EBITDA margin accretive and has been integrated smoothly and trading in line with expectations.

The Board continues to see digital as a strategic growth lever via the Group's eight transactional websites which provide a further channel for customers in their purchasing journey.  Digital capability coupled with the Group's store estate allows the acquisition of new customers and enhanced margins across a broader range of products to be achieved.  The investment made in the digital merchanting team in FY21 is reflected in the strong sales momentum in H1 2022, with digital sales increasing by 133.1% to 3.4% of divisional revenue (H1 2021: 2.2%).

Product range extension allows the Group's brands to secure a greater share of their customers wallet, whilst also attracting new customers.  During H1 2022 the Group has added ranges to support the decarbonisation of the UK housing stock, including heating controls, air source heat pumps and underfloor heating within its P&H division.  These ranges are complementary product ranges for the Group's existing customer base with a focus on energy efficiency in the home to meet increasing customer demand.

The Group is also pursuing new locations for its brands that offer EBITDA margin accretion. During H1 2022, the Group has delivered the following additional locations for existing brands:

·      Advance Roofing Supplies, an acquisition completed in Q1 2022, has now opened a third branch as an implant into the Lords Builders Merchants Beaconsfield site, offering customers a logical product range extension and increasing the returns on that site;

·      George Lines, the Group's specialist civils merchant brand, has expanded by opening a third location in Horsham; and

·      Mr Central Heating, our leading multi-channel P&H brand supplying the installer and end user customer segments, is due to open its tenth branch in West Bromwich in Q3 2022.

Lords has a strong platform for growth with less than 1% market share and multiple growth levers to pursue. We remain confident of delivering our strategic targets of £500 million revenue by 2024 and improving EBITDA margins to 7.5% in the medium term.  

Shanker Patel

Chief Executive Officer

6 September 2022

Financial Review

Revenue

The Group delivered revenue of £214.2 million in H1 2022 (H1 2021: £179.0 million), representing a total increase of 19.7% or £35.2 million.  When the impact of acquisitions is excluded from revenue, like for like ("LFL") revenue was down 3.3%, stemming from the reduction of revenues in the Plumbing and Heating division (P&H) due to the previously announced industry wide boiler shortages.

The Merchanting division contributed revenue of £105.9 million (H1 2021: £61.1 million) with growth of 73.4% and like-for-like sales of 14.5%.  New acquisitions in the Merchanting division (four completed since July 2021) and new branches contributed sales growth of £28.1 million with the like-for-like growth achieved through price and volume initiatives.

The P&H division delivered total revenue of £108.3 million (H1 2021: £117.9 million) with growth declining by 8.2% and like-for-like growth down by 12.5%.  Previously communicated industry wide boiler component shortages led the revenue decline despite customer demand remaining strong.  Management actions and alongside the P&H strategy of extended product range have partially offset the revenue decline and improved margins with notable success in energy efficiency technology which saw a 64% revenue increase in H1 2022.

Revenue by division:

Adjusted EBITDA

The Group's Adjusted EBITDA increased by 27.1% to £14.2 million in H1 2022, compared to £11.2 million in H1 2021.  Adjusted EBITDA margin improved to 6.6% (H1 2021: 6.2% restated).

Merchanting division EBITDA in H1 2022 increased to £7.7 million (H1 2021: £5.3 million) led by revenue growth of 73.4% reflective of price, volume and acquisitions.  The division's strategy of expanded product range, new locations, digital and empowered local leadership continues to deliver enhanced profitability.  Adjusted EBITDA margin of 7.3% (H1 2021: 8.7%) is aligned to management expectations, attributed to customer mix and a lag in cost inflation recovery for certain customer segments.

During H1 2022, the P&H division faced the challenge of an industry wide boiler supply shortage however the Group's active management controls mitigated the sales volume impact and the division achieved adjusted EBITDA of £6.5 million (H1 2021: £5.9 million), with adjusted EBITDA margin improving to 6.0% (H1 2021: 5.0%).

Adjusted EBITDA by division:

Depreciation and amortisation

Depreciation and amortisation increased to £5.8 million (H1 2021: £ 4.4 million restated) in line with acquisitions made in the last two years and in addition to continued capital expenditure investment in the Group's three P's (People, Plant, Premises) strategy.

Profit before tax

The Group generated Adjusted Profit before tax (basic) for the period of £8.5 million, compared to £6.2 million (restated) in the prior period.

The Group generated a profit before tax for the period of £6.4 million, compared to £4.2 million (restated) in the prior period.  Interest on bank loans and overdrafts reduced to £0.3 million (H1 2021: £0.4 million) as net debt reduced by £4.4 million (H1 2022 vs H1 2021) and the Group benefited from reduced financing costs post IPO.

Earnings per share

Basic earnings per share increased to 2.83 pence in H1 2022 compared to 2.40 pence (restated) in H1 2021.

Adjusted basic earnings per share increased to 3.87 pence in H1 2022 compared to 3.71 pence (restated) in H1 2021.

Prior year adjustment

The December 2021 annual financial statements included a prior year adjustment to reflect several errors that were identified when the Group reviewed its accounting for IFRS 16, in October 2021.  As these adjustments impacted the prior period to 30 June 2021 comparatives these have been restated. For further information see note 4.3.

Dividend

The Board proposes an interim dividend for the period of 0.67 pence per ordinary share.  This is in line with market expectations at the time of the Group's IPO and is in line with the Board's intention of a progressive dividend policy.

It is proposed that the interim dividend be paid on 7 October 2022 to shareholders on the register at the close of business on 16 September 2022.  The Company's ordinary shares will therefore be marked ex-dividend on 15 September 2022.

Cashflow

The Group generated operating cash flow before movements in working capital of £13.9 million in H1 2022 compared to £10.4 million (restated) in H1 2021.  Cash generated by operations was £12.8 million (H1 2021: £9.6 million).

Free cashflow (defined as cash generated by operating activities less capital expenditure, exceptional items, share based payments and interest paid) is the Group's primary cashflow metric with £8.7 million generated in H1 2022 verses £8.4 million in H1 2021.

£26.9 million was used for business acquisitions in H1 2022, relating to the acquisition of Advance Roofing Supplies, A.W. Lumb, DH&P and Buildbase Sudbury.

Net Cash / Debt

The Group's net cash / debt position, before recognising lease liabilities moved from a net cash position of £6.5 million at 31 December 2021 to a net debt position of £21.1 million at 30 June 2022.

The net cash / debt position movement is the result of £26.9 million of business acquisitions in H1 2022, relating to the acquisition of Advance Roofing Supplies, A.W. Lumb, DH&P and Buildbase Sudbury.

Liquidity

At 30 June 2022, the Group had balance sheet liquidity of £48.9 million of which £11.6 million (31 December 2021: £11.4 million) was held in accessible cash and £37.3 million (31 December 2021: £35.1 million) in undrawn bank facilities.

The Group's key financing objective continues to be to ensure that it has the necessary liquidity and resources to support the short, medium and long-term funding requirements of the business.  These resources together with strong cash flow from operations provide good liquidity and the capacity to fund investment in working capital, routine capital expenditure and growth activity including acquisitions.

Capital Expenditure and Investment in Intangible Assets

The Group maintained disciplined control over the allocation of capital, and capital expenditure for the period was £1.9 million (H1 2021: £0.8 million).  The most notable investment in the half year being the transformation refurbishment of the Lords Builders Merchants Beaconsfield branch with £0.6 million invested in the period.

Intangible assets rose to £43.6 million (31 December 2021: 23.0 million) as a result of the four acquisitions during H1 2022.

Post balance sheet events

Exercised options

On 1 July 2022, 3,986,499 new ordinary shares were admitted to trading on AIM as a result of the exercise of options under the Group's existing Company Share Option Plan.  Following admission of the new ordinary shares, the Company's issued ordinary share capital comprise 162,511,371 ordinary shares.

Chris Day

Chief Financial Officer

6 September 2022