Steady operational progress has been seen across both Merchanting and Plumbing & Heating divisions, while seven sites across the UK have been added through acquisitive and organic growth.
Lords, a leading distributor of building materials in the UK, has provided a trading update for the year ended 31 December 2023, ahead of publication of its FY23 Final Results in May 2024.
During the period the Group’s trading has again demonstrated Lords’ resilience and capability to deliver its growth strategy amidst the continuing subdued trading conditions. In the face of these conditions, Lords has made steady operational progress across both Merchanting and Plumbing & Heating divisions. Furthermore, seven sites across the UK have been added through acquisitive and organic growth, generating an expected £25 million of annualised revenues at maturity.
As a result, the Group expects to report, subject to audit, FY23 revenue of £463 million (FY22: £450 million) and FY23 adjusted EBITDA of approximately £26.6 million (FY22: £30 million), in line with current market expectations, and adjusted profit before tax of approximately £11 million (FY22: £17.4 million).
Overall, the Group has experienced further resilient trading across the business, despite wider market headwinds, resulting in total sales growth of 2.8%.
In addition to its organic growth levers, the Group successfully executes a unique M&A strategy that is focused on creating market share gains, enhanced profitability and further diversifying revenue streams. Lords targets specialist, independent businesses that broaden product range or geographic reach in order to do this. The Merchanting and P&H markets remain highly fragmented, offering significant opportunity given Lords’ reputation as being an acquirer of choice in the market.
The Group continues to maintain a prudent and considered approach to inorganic growth and, while a pipeline of acquisition opportunities remains live, in the current environment the Group is committed to balance sheet discipline which will remain in FY24.
Renewables product range extension
Lords has strategically focused on product range extension in the renewables space in recent years, with strong growth drivers and market dynamics complementing Lords position in the supply chain.
In Q4 2023, the Government confirmed that the widely consulted Clean Heat Market Mechanism will commence in Q2 2024. The CHMM will incentivise boiler manufacturers and homeowners to accelerate the transition towards renewable energy sources across the UK housing stock, increasing demand for renewable products including air source heat pumps.
Lords is well placed to benefit from a shift in demand towards air source heat pumps, enjoying successful and growing trading relationships with six air source heat pump manufacturers and achieving 60% revenue growth across its wider renewables range in FY23.
Balance sheet
As at 31 December 2023, the Group had net debt of £28.5 million (30 June 2023: £38 million), backed by a freehold property portfolio with an estimated market value of not less than £15 million. The significant reduction in net debt, ahead of current market expectations, reflects the Board’s focus during the period to reduce net debt through a number of successful management controls and initiatives and through the normalisation of working capital.
P&H working capital fully normalised as at 31 December 2023, in line with previous guidance at the 2023 interim results, following the resolution of the industry wide boiler supply issues in 2022.
Current trading and outlook
Throughout FY23 Lords has demonstrated resilient organic growth, in a sector which has seen a challenging period. The Group continues to successfully apply a number of steps to manage costs and reduce debt.
The markets in which it operatse are expected to remain subdued into FY24 and, while there are signs of improvement in customer demand, these signals remain intermittent and price deflation persists. This has led the Group to continue to take a prudent approach to FY24 in order to give the market dynamics appropriate time to recalibrate as economic volatility reduces.
Shanker Patel, Chief Executive Officer, said: “Like many of our peers it has been a challenging year but the fundamentals of our business have underpinned a resilient performance that I’m incredibly proud of.
“Our scale and profitability in both Merchanting and Plumbing & Heating have benefitted from our organic growth levers as we build our geographic footprint, extend our product range and build our digital sales expertise. We maintain an ongoing ability to execute earnings enhancing M&A, but balance sheet discipline remains a core consideration. In that regard it is pleasing to report net debt reduction ahead of market expectations. As market conditions improve we are confident that we are exceptionally well positioned for growth.”
