Lords Group revenue rises, earnings slip in volatile market

(Sharecast News) - Building materials distributor Lords Group said in a trading update on Wednesday that despite ongoing subdued trading conditions, it progressed its growth strategy in 2023. The AIM-traded firm said it made significant operational advancements in both its merchanting and its plumbing and heating divisions.

It also expanded its presence with the addition of seven new sites across the UK, contributing estimated annualised revenue of £25m at maturity.

As a result, Lords anticipated reporting 2023 revenue of £463m, compared to £450m in 2022, and adjusted EBITDA of £26.6m, down from £30m year-on-year, in line with market expectations.

Adjusted profit before tax was set to be £11m, falling from £17.4m in 2022.

Despite market headwinds, the group said it achieved total sales growth of 2.8% during the year.

The company said it maintained a cautious approach to inorganic growth, prioritising balance sheet discipline in 2024.

Additionally, Lords said it had strategically extended its product range in the renewables sector, well-positioned to benefit from the Clean Heat Market Mechanism (CHMM) set to start in the second quarter.

The government initiative would incentivise the adoption of renewable energy sources in UK housing, particularly air-source heat pumps.

Lords said it had fostered strong trading relationships with six air source heat pump manufacturers, and achieved 60% revenue growth in its renewables range in 2023.

As of 31 December, the group's net debt stood at £28.5m - a significant reduction from the £38m it recorded on 30 June.

The reduction in debt was achieved through prudent financial management controls and working capital normalisation.

It added that its freehold property portfolio was estimated to be worth at least £15m.

Looking ahead, Lords acknowledged the challenging market conditions expected to persist into 2024.

While some improvements in customer demand had been observed, intermittent signals and price deflation continued to influence the market.

As a result, the group said it remained cautious in its approach to the year, allowing time for market dynamics to recalibrate as economic volatility gradually reduced.

"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," said chief executive officer Shanker Patel.

"Our scale and profitability in both merchanting, and plumbing and heating, have benefitted from our organic growth levers as we build our geographic footprint, extend our product range and build our digital sales expertise."

Patel said the firm maintained an ongoing ability to execute earnings-enhancing mergers and acquisitions, but balance sheet discipline remained 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."

Lords Group said it would publish its 2023 final results in May.

At 1019 GMT, shares in Lords Group Trading were down 3.65% at 40.95p.

Reporting by Josh White for Sharecast.com.