Eurocell (LSE:ECEL) — Final Results

0:02 Good morning, ladies and gentlemen, and welcome to the EUROCELL PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab It's just situated on the right hand corner of your screen. Please simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll. And if you'd give that your kind attention, I'm

0:33 sure the company will be most grateful. And I'd now like to hand you over to CEO, Mark Kelly, and CFO, Michael Scott. Good morning to you both. Good morning, Jake. Thank you very much indeed, and a very warm welcome to the investor meets the company platform and an update on EUROCELL's full year trading for 2021. We're going to turn our cameras off for the duration of the presentation to ensure that we maximize the presentation for you, but we'll turn them back on for the question and answer session at the end.

1:07 Michael and I are gonna walk you through the business using the agenda shown on the slide. We are conscious that not all of you will know our business, so we will take time for a quick review. We have two revenue streams in our business. Firstly, we are the largest supplier of window profile extrusions, which is supplied into a network of independent fabricators. We do not own and have no intention of owning any fabricators ourselves as we do not want to set ourselves up in competition with our customer base. We are mostly RMI rather than large contractor customer based, but we are the largest supplier of windows through our fabricator base into New Build. Secondly, we sell building plastics, plus conservatories, skylights, windows, doors, etcetera, through a wholly owned branch network of 219 with the capacity to grow to circa 300 outlets.

2:00 As we will take you through later, we have also the largest recycler of windows in The UK. As well as being a great thing to do for the planet, as last year we recycled circa 3,000,000 windows which have been replaced, but it also gives us a buffer for resin supply, which has helped us smooth some of the intermittent supply that we have seen from our resin suppliers over the last year. And it's also assisted with offsetting some costs. As you might be aware, resin prices have more than doubled in the last year, driven by a lack of capacity, combined with huge demand and now surging oil and energy costs. We have worked with our customers to move these increases into the market through a combination of price increases and surcharges. We still expect that resin prices will start to fall in the third quarter, at which time it is our intention to start reversing the surcharge elements of our pricing.

2:55 Now I'd like to talk about the profile division. The profile division makes both rigid plastic products, I. Window profile, and also foamed plastic products, which are used as timber replacement products like fascia and soffits, which get sold across our branch businesses. Sales were up 22%, of which price increases and surcharges contributed 11%. Our core markets are still strong, and we continue to see strong growth from our trade and new build fabricators. We continue to take market share, and by deploying our sales force effectively, our intention is to do continue doing so in 2022. The management team have responded positively to the challenges of intermittent supply and high cost of inflation of our materials, and we've worked hard to secure the labor we needed, the h g three the HGV lorries and drivers to deliver our unprecedented demand.

3:50 And despite this cost pressure, still delivered pleasing bottom line growth. Whilst progress has been good, it is possible to see the impact of intermittent raw material in our OEEs, which only averaged 68% for the year. This fails to recognize that the last quarter demonstrate demonstrated some much higher levels of efficiency as we got on top of these issues. So still more progress to be made, and I'm pleased that in the first couple of months of 2022, we are seeing operating equipment efficiencies above 75% and with March currently at 80%. Our profiles team still believes that they have excellent opportunities to continue growing market share with a medium target of 22%.

4:39 As we do so, we fully expect this growth to fall through to the bottom line as the investment in improved and more efficient capacity enhances earnings. A large number of our fabricators are only buying a small part of our portfolio of products, so our sales teams are matching products to demand, and this represents a real opportunity to grow our share of wallet. Our sales forces continue to drive demand and pull through for our products. New build regulation changes, like the future home standards, requires a more technical and likely higher specification of product, and EUROCELL is leading the way in working with architects and new builders to ensure our product is specified by delivering compliance. A number of our competitors do not have suitable offerings for this market and certainly don't have the sales force that can that can consult in this space.

5:30 We continue to drive fabricator supplied products through the branch network. We believe that this, in combination with our specification teams, delivers differentiation that isn't available from our competitors and therefore makes the compelling case for EUROCELL, especially when combined with continually rising levels of recycled uses.

5:52 And now to our branch business. Our branch business sells a range of wood replacement products to ensure that a home becomes maintenance free. Roughly, we sell 50% of our own manufactured products, twenty five percent third party, that is sealants, nails, PPE, etcetera, and 25% project supporting products like conservatories, garden rooms, and wall rooms. Building plastics has delivered an excellent 21% like for like growth in 2021, with strong growth across all categories. We are pleased to see traction with customers on our outdoor living ranges, which is seeing huge growth and also attracting a new category of customers into our network in the form of landscapers.

6:37 Decking products have risen eightfold since their introduction in 2019. Our product extensions, maturing branches, and, of course, the addition of the 12 new branches in 2021 have all contributed to us continuing to take share mostly from the independents. Operating profit improvement has been very pleasing, driven by excellent cost and margin management and continuing to focus on driving down the time to break even after new store openings. We still believe the branch business has excellent opportunities for continued growth. The national players, including EUROCELL, only have 400 branches with total estate of probably around 1,400. So there is still plenty of room for us to consolidate the market, and we still recognize a target of circa 300 branches to achieve national coverage with our current format stores.

7:30 We've continued to extend our portfolio of outdoor living products with a very well received range of garden rooms. Plus, we've totally revamped our conservatory range to bring it up to date. This launch has attracted a number of sizable new customers. The new format stores continue to take share from the local independents. Hence, we are confident of our ability to continue our opening program. As per our strategic objectives, we're starting to see increasing sales as a result of improving our digital or ecommerce offerings and have targeted a quadrupling of sales over the coming eighteen months. We continue to drive our sustainability agenda and are working hard to tie up all sources of replaced window product as window derived PVC to ensure that we achieve closed loop recycling of this product.

8:23 We are very pleased with the progress we are making on an increasing on increasing the yield from all returned windows. Previously, unusable scrap is now being reformulated into products that can be used by both ourselves and our customers, resulting in further savings and reduced waste to landfill. With eighteen months, we are hopeful that we will be recycling or reutilizing all material generated by our recycling plants. At the interims, we published our KPIs, and these we would use to track our progress against the ECG agenda, and the details can be found in the appendix. The whole PVC sector is concerned about its dependence on hydrocarbon derived products and is starting the journey towards carbon reduction by utilizing bioderived PVC, which only generates 10% of the carbon footprint of a hydrocarbon derived product. However, availability is still very low and prices are

9:20 very high, but we are commencing that journey. As we've discussed, we are the leading recycler of windows in The UK, and this now contributes over 20% of our total resin demand. New legislation planned for July 22 could mean that more product will be available for us to source as recycling must happen in the sector in the country in which it was developed. As some of our competitors export their material, this legislation might make their operations unviable. As previously stated, we are looking for ways to further increase the yields and use all materials generated from recycling. Previously unusable particle sizes are all being pressed into usage, and we are designing new products which utilize more of our colored rather than white product.

10:12 This gives us additional cost savings whilst also reducing the product still going to landfill. Our recycling operations means that in 2021, we saved the development of 45,000 tons of carbon by replacing virgin with recycled, which also makes considerable savings in cost. As despite price increase increases in the cost of inthip material, there is still a considerable delta between the cost of recycled and the high cost of virgin compound. For anybody that's interested, a ton of carbon to visualize that is two double decker London buses standing side by side filled with black soot. So that's the sort of level of of savings that we're making at the moment, 45,000 tons.

10:59 Moving on to the next slide. I'd just like to just review the strategic framework that we use. The seven pillars of our strategic framework continue to drive our thinking and priorities. We're making good progress in all areas.

11:15 We don't see any barriers to continuing to take market share. In fact, we have 80 sites identified for new branch openings and have a hold, whilst we cope with it. And after a hold, we cope with the demands of 2021, we are again targeting our profile of specification sales forces on bringing in new business from across the market. These teams have been very successful over the last six years, and therefore, we anticipate they will be so in 2022. We still have numerous competitor profile houses wanting to engage with us. We have launched a whole range of products, including conservatories, flat roofs, garden rooms, pagodas, etcetera, that extend our market footprint and attract new customers into our branches, but also extend the offering for our fabricators.

12:03 We continue to look for and engage with suppliers or companies that might offer the chance of strong, of m and a activity. We are very focused on engaging with companies where there is already a strong management team, where we believe there are clear synergies with our current activities. Additionally, we want to ensure that the price is commensurate with the value that EUROCELL gains, and not all seller aspirations for price are currently that sensible. Now that we've invested in enough capacity to give us more operating headroom, it is imperative that our investors see margin improvement driven through the eradication of the inefficiencies that have bedeviled us over the last three years. The indications from the last quarter of twenty one and trading so far this year is that we are in place we're in a place of stability, and this is translating into lower costs.

12:53 We still have a lot of work to do to move through to efficient working and then onwards to best in class over the coming couple of years. But the joy of that is that every step brings us more benefit. To aid us on this journey, we'll be announcing the recruitment of a new and very experienced COO in the next couple of weeks. I've already made, reference to the improvement of our ecommerce offering, but our new marketing director, who's, well versed in, b to c, coming from Magnet, and before that, Styles, and before that, Travis Perkins, has a real role to play in improving the whole offering.

13:32 Finally, as we talk to investors, a lot of them are very concerned about what the outlook looks like with the Ukrainian war. Now we're not able to fully answer that, but we've tried to put a slide together here which gives you a view of the markets and beyond and looks at the drivers for, first of all, the markets in which we operate, which is basically the RMI market, new building commercial markets, and then looking at the EUROCELL drivers. As a business that is primarily aligned with the RMI market, it's very difficult to call the effect of the war in Ukraine and its impact on consumer confidence. Whilst there might be a short term dip, whilst consumers get their minds around the price inflation, particularly around energy costs, the fundamentals of the market remain very sound.

14:19 Even if the war is not in Ukraine is not quickly resolved, it will start to become just more news, and consumers will rebuild their confidence and get on with their lives. One in 16 homes changed hands last year, and no one moves into a new home and doesn't wish to change most of the internals. So this will drive huge demand in the RMI market even if it doesn't need to be acted upon immediately. Hybrid working is here to stay, and we'll continue to ensure that our customers who are spending more time at home will need to invest in their property or create more space. We've seen this in the sales of our garden rooms and decking, which are hugely exceeding our expectations. Our new range of conservatories, which enhance the outside of the property with insulation characteristics akin to a brick building, give customers the chance of extending their property with minimum fuss, minimum cost, and little or no planning intervention.

15:13 Currently Ladies and gentlemen, please do bear with us while Michael reconnects. I think we've just temporarily lost Michael's connection. Please do bear with us. Thank you.

15:54 Michael, can you hear us, sir? Yep. We can. Yeah. Perfect. Thank you very much, sir. Good to go, Jake? All good, sir. All good. Thank you very much indeed. Sorry about that, guys and girls. The Conservative government will need to be reelected or hope to be reelected in the coming couple of years, and this is likely to ensure a raft of additional support encouraging people to win to to own property. The future homes legislation requires considerable reductions in energy emissions with targets in place for 2022 and 2025. Work already undertaken on the rest of the fabric of a building means that windows and doors now represent the easiest wins for emission reductions, but require a very tech technical solution, which EUROCELL is engaging with getting specified, ensuring that we close the door to our less sophisticated competitors.

16:44 Commercial is still a small part of our business, but it is growing fast as the u values and better economics of PVC PVC versus aluminum make a strong case with architects and contractors alike. Additionally, the range extensions and improved layouts with branches continue to take share and attract new customer groups like landscapers. I've been in the building industry for a very long period of time, and clearly, Ukrainian war is of concern. But consumer confidence, in my experience, only starts to wane when there are huge job losses, and that's what undermines consumer confidence. And at the moment, there are no problems on that front. You can definitely be employed if you want to be. Now I would like to hand over to Michael to take you through the numbers.

17:34 Thanks, Mark. So let me start with an overview. We delivered a good performance in 2021 with strong organic sales growth leading to profits well up on 2019. And just to say at the outset, for most of this review, I'll compare our financial performance to 2019, which is a more meaningful comparator given the disruption to 2020. Following the reinstatement of dividends with an interim distribution of 3.2p per share, our proposed final dividend is 6.4p, taking total dividends to the for the year to 9.6p per share or £10,800,000. We've continued to invest in the operating capacity of our business with another year of substantial CapEx.

18:18 Our investments have now provided an excellent platform to continue to capture sales growth and market share gains. And with the increased operating capacity now online, we have good opportunities to deliver improved returns in 2022.

18:35 Turning to the financial highlights. Our financial results were good. Revenue was up 23% on 2019, and I'll break out the divisional components of that in more detail on the next chart. But it does include a significant impact of 8% from selling price increases and raw material surcharges. We lifted our selling prices at the beginning of the year, which covered resin and other known cost inflation to that point. The surcharge was levied progressively through the year from April to recover subsequent further cost inflation. To give you a sense of scale, it had climbed to over 10% by June and well over 20% by the end of the year. The surcharge has been very successful in recovering all of the pound notes cost of raw material inflation that we incurred. It is dilutive to our gross margin and operating profit margin percentages, but we expect to recover the impact on operating margin through further price increases over time.

19:29 Gross margin also includes the benefit of increased recycling, which as you've heard with resin prices so high, delivered a significant cost saving last year. Overheads up 21% reflects the direct labor and transport costs associated with high production and sales volumes as well as additional pay increases implemented in h two to help secure the labor we we required to service strong demand, partially offset by a lower bad debt charge. Taken altogether, that gets us to a profit before tax of 27 point naught million, up 19% on 2019. Earnings per share are 2% lower, reflecting a higher tax rate and an increased number of shares. And as I mentioned earlier, we are very pleased to reinstate distributions with total dividends for last year of 9.6p per share.

20:18 Finally, net debt on a pre IFRS 16 basis was $11,000,000 compared to $9,900,000 at the end of twenty twenty, which demonstrates good headroom and liquidity on our bank facilities despite the significant impact of inflation on working capital last year, thereby providing security, flexibility and options for the future. Moving on to the components of sales growth. Total sales were up 23% on 2019 with like for like growth at 21%. That's pulling out the effect of new branches. A very strong performance, underpinned by the success of our commercial strategies and continued high levels of demand in the RMI market. Profile's up 22%. It was driven by the trade fabricators who were substantially focused on the RMI market and a very strong performance from Vista Doors as well as good sales in new build with increasing housing market activity supported by high levels of mortgage approvals and demand.

21:15 Building plastics up 20% on a like for like basis includes an excellent performance across our range of manufactured and traded goods, with manufactured products alone up more than 30%. We've spoken before about the success of our outdoor living products, which include decking, fencing and garden rooms. Outdoor living sales were substantially higher in the year at £8,600,000 compared to 2,900,000 in 2019. As I said earlier, these growth rates include approximately 8% from selling price increases and surcharges implemented to recover cost inflation, with selling price inflation becoming a larger component of sales growth as the year went on. Finally, 19 new branches opened since the beginning of 2019, less two loss making branches closed and one closed ahead of a relocation, added a net £6,000,000 to sales in 2021.

22:11 We plan to continue to open new branches at a rate of around 12 per annum as long as the economic and market conditions remain supportive to the opening program.

22:22 Moving on to CapEx. The top chart illustrates the significant investments we've made over the last three years to build out the infrastructure required, to resolve operational constraints, and support strong sales growth. The new warehouse has created the space needed to expand our operating capacity. The fit out was completed last year with total spend on the project of £9,000,000 incurred over 2020 and 2021. As planned, we have now converted our old warehouse to a specialist manufacturing facility and relocated our foiling operation from one of our other extrusion sites to the old warehouse. This creates the space for around 20 new extruders, which can be added progressively over time as volumes increase, which future proofs our extrusion operate operation, creating a potential uplift in capacity of around 33% compared to the end of twenty twenty.

23:15 So CapEx for 2021 was 16,700,000 with approximately 7,000,000 to expand our manufacturing capacity, including the old warehouse conversion and five new extrusion lines. We also invested 2,000,000 to complete the warehouse fit out fit out and 2,000,000 on new branch openings. Finally, in 2021, other spend of 6,000,000 includes recycling, refurbished branches, IT and maintenance CapEx. Our guidance for 2022 is for total CapEx of approximately 15,000,000. This includes 6,000,000 for the ongoing expansion of manufacturing capacity with a further five more extrusion lines, four foiling lines, and upgrading our PVC compound mixing plant. We will also invest 2,000,000 to increase recycling capacity and 2,000,000 on new and refurbished branches.

24:03 The balance of 5,000,000, again, covers logistics, IT and other maintenance CapEx. With the more complex investments now complete, our focus for 2022 is on delivering improved operating efficiencies from the new facilities. Turning to page 15. And on on this slide, we've set out the possibilities for the development of our business with some medium term objectives. We hope this will allow you to form your own conclusions as to the progress we should all expect to see over the next few years.

24:42 Starting with sales growth. No surprises here as we've demonstrated the ability to take market share and grow even when the market itself is benign. We also have the benefit of range extensions and maturing branches to come. Recycling will continue to be an important part of our ESG and cost proposition. We will continue to grow the percentage of recycled material used within manufacturing, although we expect to be limited to a maximum percentage in the early thirties as, ultimately, we will be constrained by the availability of in feed material.

25:19 Finally, and perhaps most importantly, we intend to improve our operating profit margin by at least a 150 basis points. We'll do this by leveraging the recent significant capital investments that we've made to drive improved operating efficiencies throughout our business whilst maintaining our compelling sales, product, and service proposition. In summary, historic inefficiencies have been driven out of the business, and we've now set about improving the operation on the journey towards best in class. Before concluding, I thought it would be worth reiterating our approach to capital allocation. Moving left to right across this chart, over the last few years, we've been investing to expand the operating capacity of our business.

26:08 And with the most substantial investments now complete, we now expect to deliver improving returns. But as I said earlier, the new warehouse creates the space for further expansion, and we will continue to invest to support a full pipeline of opportunities identified for future growth as and when they're realized. Moving to dividends. We've enjoyed strong support from our shareholders, not least through the disruptive events of 2020, for which we are very grateful, and we recognize the importance of distributions to our investors. Having now returned to dividend payments, we'll continue to target a dividend cover of two times with approximately one third of the total paid as an interim. Moving on. Although organic growth opportunities have been the focus of our recent investment, acquisitions do remain a key strategic priority.

26:58 So we will continue to explore potential m and a, but with a disciplined approach. Any acquisition we do pursue must have a clear strategic fit and a compelling financial justification. Thereafter, we will look to maintain an efficient balance sheet. I've said before that on a normalized through the cycle basis, we should aim for net debt to be around one times EBITDA on a pre IFRS 16 basis. That remains unchanged, and we will consider supplementary distributions as and when appropriate. So to sum up, on page 17, we've delivered good financial results for 2021 with the continued success of our commercial strategies driving strong organic sales growth, leaving profits well up on 2019.

27:51 Cash generation remains good. Our balance sheet is strong, and we're very pleased to return to paying a healthy dividend. We have powerful sustainability credentials underpinned by our market leading recycling business driving significant carbon and cost savings. We're well positioned going into '22. Trading so far this year has been robust. And notwithstanding the macroeconomic uncertainties created particularly by the events in Ukraine, we continue to see good opportunities to leverage the significant investments now made in our business to increase operating efficiencies and deliver improved returns in 2022. And that's the end of our presentation. Mark, Michael, that's great. Thank you very much indeed for your presentation this morning. And if I may, I will just bring back up your cameras.

28:41 Ladies and gentlemen, please do continue to submit your questions using the q and a tab. It's just situated on the right hand corner of your screen. But just while Mark and Michael will take a few moments to review those questions submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Mark, Michael, as you can see, we've received a number of questions throughout today's presentation. Thank you once again to all investors for submitting their questions. If I could please ask you just to read out the questions and give responses where it's appropriate to do so, then I'll pick up from you at the end. Thank you. Jake, thank you very much indeed again. So we've got a question from Matthew. How much of a positive is having the recycling business in the current inflationary environment, and does this put you ahead of the competition strengthen your position? Michael, do you want us to start with that one?

29:28 Yes. Recycling has been hugely beneficial from both a cost and carbon perspective. But to put the the the cost piece of that in context, Historically, we've had a a a difference between the cost of making recycled compound and the cost of buying brand new virgin compound in a range of about 250 to 350 pounds a ton, which is driven for us a gross margin saving of between 2 and £3,000,000 per annum compared to the cost of using virgin material compared to others in our sector who don't process recycled material as part of their extrusion process.

30:19 In 2021, because the price for making recycled compounds stayed broadly same, but the price for virgin compound increased dramatically. That delta widened to an average around 600 pounds per ton across the year. And therefore, with the the the consumption that we that that we had, that cost saving jumped up to around £10,000,000, again, compared to the cost of using virgin material and compared to what our competitors are able to do. So very, very meaningful and a great hedge against very high resin prices. Thank you, Michael. I mean, it goes without saying that we'd rather have a lower delta between recycled and virgin based on the fact that virgin resin prices start to fall. That's much preferred manner and much preferred method, and also much preferred by our customers as well.

31:16 And we've got a question from Simon. Are you seeing acquisition opportunities as competitors may be struggling with sourcing cost? So let let's just have a little chat about m and a. The first thing I'd like to do with m and a is emphasize what we aren't going to do or what we can't do. From Simon, from your point of view, you know, is there an opportunity to take out some competitors here? The first thing is we're not about to buy any profile house, even if that was an opportunity for us. And the reason for that is because we have about 18, maybe 19% market share. The fact of the matter is that almost any of the other competitor profile houses would stick us straight onto the radar of the competitive markets authorities because we'd be over 25% market share. So and that's very difficult to get around. So we've shown that we can grow organically with 14% cargo over the last, you know, five, six years, and we don't see the need to go and buy a competitor. We don't see what the advantages of that would be.

32:21 And, also, we have in the past purchased a number of branch outlets. The average price for a branch is about $505,100,000 pounds to purchase one. And from our point of view, that's not a good investment. We can open up a new branch for somewhere between 150 to up to £200,000, which includes the working capital. We can situate that branch exactly where we want it to be, where we know that there are customers that will support the branch, where there's not too much cannibalization with other branches as well. And so, therefore, we are then confident that we can get that branch to breaking even in about eleven to twelve months. So really not a good thing to do. So so these the sort of businesses that we're looking for are businesses which are already supplying us or bring new tech new technical products to us, which we can sell through our branch network or into our customers in the future. But, hopefully, some of the price increases that we've seen or the aspirations for price that have been seen by potential m and a targets arriving at the end of twenty twenty one, which has obviously been a stellar year, are quite unrealistic, and '22 may dull some of their aspirations.

33:44 So the next question we've got is from Michael again. How much revenue can the new warehouse and the manufacturing now sustain once fully utilized? So probably a better way to think of this I'll leave Michael to tackle the tackle the revenue side of it, but a better way to think of this is in output tonnage. So last year, we put out about 58,000 tons of product from our business. And this year, we will put out somewhere between sixty two and sixty four thousand tons. What we've done now is with the new warehouse, we have capacity headroom of about 74,000 tons, and we've we are gradually installing new extruders.

34:32 And by the half year, we would have installed capacity of about 70,000 tons. So this gives us, Michael, plenty of headroom for us to go and attack and grow the mark our market share. In terms of operations, I think where we've got to now is stability. Those of you who followed us for some period of time know that through 2018 through 2019, we had some issues where our growth exceeded our ability to supply, and that cost us a lot of money, you know, 2 to £3,000,000 a year. So we're pleased to see that stability now and those inefficiencies being driven out of the business. So we're not seeing them in the first quarter this year, so it bodes very well for improvement on return on sales. And we're now thinking of a journey of now driven out the inefficiencies to a point where we're stable.

35:23 Now we need to start really driving the efficiencies through 2022, and then through '22, '23, drive to best in class if from a manufacturing point of view. And the great news about all of that is that brings extra benefit for for the bottom line. So good place to be. Yes. And maybe just to add a little bit of color to that in terms of, firstly, warehouse capacity and top line growth. You know, if you if you looked at market forecasts for us over the next over the medium term, kind of three to five years, you'll see mid high single digits sales growth from from a volume perspective, and we can cope comfortably with that within the operating capacity that we now have, certainly the geographical footprint.

36:13 As I mentioned in going through the slides, In terms of extrusion, we now we have the space available to add extrusion capacity as and when we see the demand in front of us, but that's relatively straightforward. It's more plug and play versus the complex investments which have now been completed. And when I say complex investments, I really mean the second recycling plant acquisition that was done in 2018, but it's taken us two or three years to really get that to to a place of stability. And the new warehouse, which was complex in the sense of new IT processes and systems that needed to be implemented to to get the to get the warehouse running smoothly. So we're in a good place with with all of that. To give you some extra color on the margin targets, I think it's important to understand a little bit of context there.

37:10 The business IPO ed in 2015, our first full year after IPO. Therefore, 2016, our return on sales or EBIT margin at that time was was almost 12%. In 2021, it was 8.5%. And what we're doing is bridging the gap between the two. Now 12% is not a comparable margin today because of the significant dilution effect of higher resin costs. And and therefore, a more comparable margin today would be around 10% if you adjust for that. The journey from eight and a half to 10% is absolutely driven by the point Mark made, which is leveraging the infrastructure and operating capacity that we now have with stability in the operation, moving to efficient, moving to best in class.

38:01 That is what will deliver that improved margin. And, therefore, this is a very realistic ambition and one that we should look to achieve over that three to five year period. Michael, I hope that answers your question. Ari has asked a very technical question, but we'll we'll take that offline, Ari, if we may, please. Mark Michael, that's great. Thank you very much indeed for addressing all of those questions that have come through from investors this morning. And, of course, ladies and gentlemen, the company will have the opportunity to review any further questions submitted today, and we'll publish those responses on the investment company platform where it's appropriate to do so. Mark, perhaps for redirecting investors to provide you with their feedback, which I know is particularly important to the company, could I please ask you for a few closing comments to wrap up with? Thank you. Yes, Jake.

38:49 Thank you very much indeed, and thank you for everybody who's attended and listened to us to today. We think we've got a very strong case for investment here. We've got a clear strategy with clear priorities, leading market positions. We've got a proven ability to grow revenue even in benign markets. And I just wanna comment again on the RMI market here. Yeah. '21 was an absolutely stellar year. There may be a little bit of softening in the RMI market. That may be true. Consumer confidence may take a blip. But going back to my comments, which is I've only ever seen consumer confidence really dull at times when there are huge job losses. And and what I think is happening at the moment is we might be returning to the sort of volumes that we saw in 2018, 2019.

39:35 I. E. The wheels aren't coming off. It's just softening a little bit, but probably back to more normalized levels, you know, particularly when contrasted with 2021, which really was huge. We've we've taken the operational constraints. We've removed the capacity issues from our business through excellent investment, And I'm really pleased now to see that we are delivering the sort of efficiencies that I would expect, and we're not seeing any of those inefficiency costs that we've seen in prior years. So that's great news, and and and we can build on there and take it from there. We continue to invest in our people, and and we're definitely focused, as Michael's made absolutely clear, on driving improved returns and particularly focused on the return on sales improvement, as Michael's, again, has indicated. So I think we're in a good place. We would have issued a more bullish statement if it wasn't for the fact that we published our results two weeks after the Ukraine war, and it's very difficult to make the call from here. Here. But that's where it is. Our intention is to battle through, and our intention is to go and take market share, which we've proven we can do in times past. So thank you very much indeed for your continued support, And thank you very much indeed for spending your time with us this morning. Thank you indeed.

40:53 Mark, that's great. Mark, Michael, thank you very much indeed for taking the time to update investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can best understand your views and expectations. This will only take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team of EUROCELL PLC, we'd like to thank you for attending today's presentation. That now concludes today's session, and good morning to you all.