Eurocell (LSE:ECEL) — Full Year Results

0:01 Good morning, ladies and gentlemen, and welcome to the EUROCELL PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just 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 can review all questions submitted today, we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, I would just like to

0:33 submit the following poll, and I would now like to hand you over to the executive management team from EUROCELL PLC. Darren, Michael, good morning. Good morning, and welcome to EUROCELL's 2023 results presentation. I'm Darren Waters and CEO, and sitting alongside me is Michael Scott, CFO. So our presentation this morning will cover off our 2023 results followed by a run through of our new strategy. We'll be happy to take questions on both at the end of this presentation. So starting with our results, I'm pleased to report that despite a tough market, and in particular, a further deterioration in the second half of last year, we delivered profits in line with expectations with profit before tax at 15,200,000.

1:19 Sales finished the year down 4% at 364,500,000 with volumes down 6%. Now given our exposure to new build, which accounts for 15% of group revenues and the marked decline in RMI, I think this is a very resilient performance. If you cash your minds back to our session in September when we announced our half year results, we flagged then that due to further weakness in our end markets, we were not anticipating the normal seasonal uplift in demand, and that's exactly how things played out. In fact, sales through the autumn period were worse than we had assumed when we did our reforecast. Fortunately, we were able to offset that sales shortfall, which is around £5,000,000 in the final four months through tight cost control and improved margins as input costs reduce, specifically recycled in feed and electricity.

2:12 In terms of the things within our control, we took swift action to remove 4,000,000 of annualized overhead, an exercise that was completed before the midyear. In addition, we optimized inventory levels to drive a £17,000,000 improvement in cash flow versus 2022. And our strong perform performance on cash resulted in us finishing the year cash positive, which paved the way towards announcing a 5,000,000 share buyback program of which we completed around half as we speak. The review of our business strategy was completed in q three, and I'm really delighted with the outcome. I think the team did a great job developing a very credible plan, but more on that in part two. I'm now gonna hand over to Michael, who will run through the financials in more detail.

3:02 Thanks, Darren. So let me start by going through the financial highlights on page five. Against a market that was down double digits in percentage terms, we delivered some resilience in our sales performance in 2023 with volume 6% lower against a strong comparative period. As expected, adjusted profit before tax decreased by 47% compared to 2022. This reflects lower sales volumes and margin pressure as well as the impact of continued cost inflation, which we partially offset with selling price increases and action to lower our cost base. Adjusted earnings per share were 11 point naught pence, and with a proposed final dividend of 3.5p per share, total dividends for the year of 5.5p. In the light of deteriorating market conditions through last year, we prioritized cash flow, and I'm pleased to report net cash from operating activities up 50% on 2022, with efficient stock management driving good working capital performance.

3:59 As a result, net cash on a pre IFRS 16 basis was naught 400,000 compared to net debt of 14.4 at the end of twenty twenty two. We have good headroom on our debt facility, which, in line with our focus on enhancing shareholder returns, supported the introduction of a £5,000,000 share buyback program in January 2024. Turning to the full P and L on Page six. I'll explain the drivers of our sales performance and the other components of EBITDA in a moment. But first, on the right of this slide, I've set out the actions we've taken on cost in response to weaker markets and lower volumes. Importantly, this includes two major restructuring programs in q four twenty twenty two and q two twenty three, which together resulted in a headcount reduction of approximately 9% of our workforce and annualized cost savings of £9,000,000.

4:48 The non underlying charge of 3,500,000 we recorded in 2023 includes termination costs of 2,700,000 for the headcount reduction in q two. The non underlying charge also includes implementation costs of naught 800,000 for strategic IT projects. These costs have been charged to the p and l rather than capitalized in accordance with the accounting rules for solutions which are cloud based. They've been treated as non underlying on the basis that they're material multiyear projects which underpin our digital strategy. And I'll pick up our systems replacement later in the presentation. Moving on to the components of sales growth on page seven. Total sales were down 4% in weak markets and against a strong 2022 comparative period with overall volumes down 6%.

5:34 As you know, RMI is being impacted by weak consumer confidence reflected in homeowners pulling back on discretionary spend in response to higher costs of living and reduced housing transactions. We've also seen a steep decline in new build housing activity reflecting successive interest rate increases and falling house prices. Profile sales were down four percent with volume 7% lower, reflecting this reduced RMI and weaker new build activity, partially offset by the benefit of recent market share gains. We acquired some new accounts following the closure of DuraFlex in September, and our fabricated customers are benefiting a little from the collapse of Safestyle in October. Building plastic sales were also down 4%, including volumes 5% lower with RMI activity in the branches subdued.

6:19 Although it is encouraging to report that we're still seeing reasonable volumes of made to order items such as garden rooms.

6:29 Onto adjusted operating profit on page eight, which was down 41% as expected. Looking at the detail and moving left to right across the chart, the volume bar of 10,800,000 includes the impact of volumes down 6% and the adverse effect of operational gearing. Moving to price margin at naught point seven, this is a net number with several components. We continue to offset input cost inflation, particularly for labor, electricity with selling prices, and our program of operational improvements also reduces costs. But increased competition for limited demand led to an increasingly difficult pricing environment and margin pressure in the branches. Continuing along the chart, as you know, we also mitigate raw material cost increases by using recycled material. However, 2023 profits were significantly impacted by feedstock prices 21% higher than 2022, leading to increased costs of 1,900,000.

7:23 Prices peaked in the first half driven by reduced material availability following a contraction in the window replacement market. But we've secured additional sources of supply, which alongside reduced demand and lower virgin costs, also saw feedstock prices fall back in h two, and that trend has continued into 2024. Looking beyond the chart, it is important to confirm that the economics of recycling remain attractive. The 17,500 tons of recycled material we consumed last year delivered an absolute gross margin benefit of 2,000,000 pounds compared to the cost of using virgin material. Moving along the chart, labor inflation of 3,200,000 represents our April 23 pay award of 5% with increased variable labor costs of 1,400,000 being higher share based payment charges in 2023 compared to '22.

8:12 And restructuring savings of 6,500,000 represent the benefit of the cost reduction programs I described earlier.

8:19 In summary, profits are down in 2023, but we believe the actions we've taken position the business well to benefit from positive operational gearing when markets recover.

8:32 Moving on to CapEx on page nine. Investment of 8,900,000 in 2023 was mostly maintenance CapEx, although it did include 1,500,000 to improve staff wealth welfare facilities in the branch network. Our guidance for 2024 is for CapEx of approximately 14,000,000. There is 3,000,000 to drive initiatives under our new strategy, including 10 new branches, and we'll come on to the strategy shortly. There's also a further £2,000,000 for branch relocations and refurbishments and £1,000,000 for the development of our IT infrastructure. The remainder is largely maintenance CapEx. As I said earlier, implementation costs for IT solutions, are cloud based, are charged to the p and l rather than capitalized. Our new HR information system and ERP replacement fall into this category, for which naught 800,000 was charged to the p and l in 2023 as a non underlying item on the basis that they are material, multiyear projects which underpin our digital strategy.

9:30 As a reminder, our existing ERP system will be unsupported by SAP after 2027. We also believe that its age profile has become a limiting factor in the development of our business. The current system was implemented in 2006 when the group had only a small operation and no recycling. We have, therefore, started a project to replace SAP, which we anticipate will be a two to three year process. And I'll cover the total cost of the project and the benefits we expected to deliver in the strategy section of the presentation. Coming back to CapEx and to sum up, the tables illustrate the significant investments we've made over the last few years to build out the infrastructure required to resolve operational constraints. As a result, we we now have manufacturing, recycling, and warehousing capacity in place well ahead of demand, which is supporting the delivery of improved operating efficiencies now and will facilitate our strategic initiatives and further growth in the future when markets recover.

10:30 Moving on to working capital on page 10, where the net inflow of 13,400,000 includes the impact of a stock reduction program, which was the main driver of our strong cash flow performance in 2023. Stock days were 84 compared to 93 at December 2022. It is worth reminding you that following significant supply chain disruption, we built manufactured stocks in 2021 and early in '22 to protect against the impact of raw material shortages. However, once we established supply chain and operational stability, we began to reduce our stock position. This was driven by improved conformance to production plans and operating efficiencies, where a good performance is illustrated in the three charts on the right of the slide. As a result, stock levels fell by 6,000,000 in the second half of twenty two and by a further 13,000,000 in 2023, which does include the benefit of lower input costs, and we're very pleased with that outcome.

11:25 On On the sales ledger, data days were 27 compared to 30 at December 22, with the absolute balance of receivables down 6,000,000 in the year, reflecting the impact of lower volumes and good cash collection. Finally, the payables reduction of 5,800,000 since December 22 also reflects the impact of lower volumes. Looking ahead to 2024, we're guiding to an outflow for this year of around £3,000,000. This reflects our ongoing work on stock optimization as well as the impact of our growth initiatives, which we'll go through shortly.

12:00 Turning to the full cash flow on page 11 where we have all the components of a significant reduction in net debt. I've been through the factors driving the strong working capital performance, so now moving left to right across the chart, non underlying costs were a cash outflow of 3,200,000. CapEx payments of 9.1 include the asset additions covered earlier plus a small reduction in our CapEx creditor of naught 200,000. Then there are financing charges of 2,300,000 plus the cost of treasury shares purchased to satisfy employee share schemes of naught 700,000, which reflects the board's decision that employee incentivization through equity should be through shares acquired rather than issued. So after dividends paid of 10.3, this all adds up to a pre IFRS 16 net debt reduction of 14,800,000, resulting in net cash of naught 0.4 at the end of 2023.

12:51 IFRS 16 adds 59,000,000 to debt, which you can see in the top right table is down 5,100,000 compared to 2022. This reflects the net impact of branch and other lease renewals of 10,500,000, less cash payments on leases of 15,600,000, which are accounted for within net cash from operating activities on the left of the chart. Overall, this leaves us with good liquidity and significant headroom on our debt facility, thereby providing security, flexibility, and options for the future, including, as I noted earlier, the introduction of a £5,000,000 share buyback program in January. Finally, on this slide, we extended our £75,000,000 sustainable RCF for a further year in May, and it now matures in 2027.

13:40 So to sum up on page 12, our financial results in the short term have been significantly impacted by continued weakness in market conditions. In response, we've acted on costs securing significant annualized cost savings, continued our program of operational improvements, and focused on efficient working capital and cash flow management.

13:59 As a result, our debt is low, and we have good headroom in our bank facility. We expect 2024 to benefit from the easing of input cost pricing that we saw in the second half of twenty twenty three. Our operating facilities are well invested with good levels of available capacity. Overall, therefore, we believe the business is now well placed and positioned for a market recovery and to progress our new strategy, which we believe has the potential to create significant shareholder value and which Darren is now going to take you through. Finally, to the right of the slide, there's a summary of our 2024 technical financial guidance, which I hope is helpful. Okay. Thanks, Michael. So now let's talk about our new strategy, which we started working on during the summer, and it involved a number of people across our business.

14:47 What's what we've got here, I think, is a highly focused plan that has genuine potential to transform EUROCELL in the medium term. We summarize the new strategy in the EUROCELL house that you can see here, and it starts with our new purpose, which is about creating sustainable building solutions for the trade of today, the homes of tomorrow, and the environment of the future. Through this new strategy, we see a clear pathway in the medium term to organically grow revenues to £500,000,000, delivering an operating margin of 10%, which is equivalent to, obviously, £50,000,000 of operating profit.

15:24 The strategy is built on four pillars, customer growth, business effectiveness, people first, and ESG leadership, underpinned by our four new values, agile, gritty, proud, and decent. So let's start by talking about the customer growth initiatives, and the biggest one by far and away is our branch network. And this is already receiving a lot of focus through a number of initiatives. We are already the largest national network of specialist store and window trade counters in The UK with 214 branches. However, we haven't opened any branches in the last two years, and that's about to change as we see an opportunity to expand the network to 250 branches by opening 10 new branches every year for the next three years.

16:11 In addition, we're also starting to relocate branches to better locations and larger formats. Now the format is important because we need larger branches to support our new door and window proposition, which we're in the process of rolling out following a very successful trial. And I'll talk more about that next.

16:30 Larger format stores also allow us to showcase our extended living range of garden rooms and extensions, providing homeowners with a destination outlet where they can experience the product. As part of this network expansion, we will be specifically targeting a number of white locations in the Southeast, a region where we are currently underrepresented. To that end, we have seven sites already identified and in flight ready to be opened in the second half. We're We're also taking the opportunity to trial new signage in which doors and windows will feature much more prominently alongside the EUROCELL logo. So to summarize then, more branches in optimal locations and a shift towards larger format stores to support our new door and window extended living proposition.

17:17 Let's move on to doors and windows then. So when I joined the business in April last year, I was surprised to discover that doors and windows only accounted for about 10% of our branch sales. We did some benchmarking and learned that done well, it has the potential to be a lot more than that and become the centerpiece of our branch proposition. Therefore, in the second half of the year, last year, we embarked on an initiative to transform the way that we supply and sell these products. We selected six trial branches spread throughout The UK. We trained branch staff, improved the quotation process, reduced lead times, and sharpened our prices. Partnering with some of our major window fabricators, we commenced the trial at the beginning of November and immediately generated a significant uplift in sales, which has continued to grow week on week.

18:07 If I look at the average of, the sales through those six branches over the last four weeks, the increase is fivefold compared to the volumes that we were selling pretrial. So across the network, our goal is to grow sales from 1,100 window frames per week to 6,300 frames per week at maturity. And to put that into context, that is broadly equivalent to the number of frames being sold by SAFESTYLE at their peak. We're seeing the same increase in sales on composite doors, which are manufactured in house at our factory in Birkenhead. And we already have the capability to meet the forecasted demand without having to invest in further space or machinery. We have another nine branches ready to go live after Easter, and we will have 54 branches operational by the end of this year with the balance to follow in 2025.

18:55 Clearly, we'd like to go faster, but it will take another twelve months to put the required fabrication capacity in place to service the expected demand. Applying a degree of sensitivity, at 50% of our objective, this generates incremental sales of £35,000,000. But based on the trial results, this feels more than achievable. The drop through on the increased sales is margin enhancing there is very little incremental cost associated with these sales. Within the current network, there are only six branches that are too small to be converted to handle doors and windows, but these will be addressed through relocations. And as an example, we're currently relocating our smallest branch in Dewsbury, which is a thousand square feet, to a much new larger site just down the road.

19:43 We're really excited by this opportunity as it will significantly expand our share of wallet with existing customers and and help us to acquire new branch customers that we can then sell other ancillary products to. And for the new branches, it will also speed up the time to reach break breakeven. Typically, at the moment, it's about an eighteen month time period to get to profitability, and that will shorten to to be no no more than twelve months. Right. So we then turn into we're over to Mike. Sorry. We then turn into, beg your pardon, our extended living range of garden rooms and extensions. Now this category has grown significantly since we entered the market two years ago as homeowners look to create more living space. We're aiming to be the best in the market by offering a high quality product and a great installation experience. And if you look at some of our Trustpilot reviews where we are currently averaging a 4.6 rating, you will see that we are delivering on this customer promise.

20:38 We're expanding our garden room range to incorporate

20:40 new designs and greater optionality, which will allow us to take share from other players in the market. Our home extensions range was launched in September and has proven to be very popular with homeowners by reducing build times and project costs through our use of modern methods of construction. In aggregate, we see this becoming a £30,000,000 revenue product category in the next five years as we really start to leverage our digital sales activity and approved installer network. So that's a six fold increase in our 2023 sales, but we're already on target to double that this year. We're therefore initiating a campaign to expand our installer network to meet this anticipated increase in demand. Next is digital, and digital is key to delivering many of our sales objectives as we look to build awareness of our products and home improvement solutions.

21:34 Based on research conducted by McCann, EUROCELL is already the number one trade brand with 85% prompted awareness.

21:42 We aim to leverage that position by driving more relevant traffic to our website, thus improving conversion rates to drive more ecommerce sales. We will also offer the convenience of one hour click and collect through our branch network and a drop ship facility for for adjacent goods that may be relevant to our customer base. Last year, we completely revamped our website to improve navigation and searchability, and we have an opportunity to mirror our leadership in trade counters by creating the strongest online building plastics proposition. For homeowners, where our brand awareness is low, we are targeting to become the place to go for garden rooms and extensions. Now digital activity through social media platforms is beginning to build real traction with inquiries at record levels and strong conversion rates. So as a result, we've recruited more sales consultants to ensure that we continue to service inquiries efficiently.

22:37 And the last point on customer growth is fabricators. Now as the number one profile supplier, we do not believe that it would be sensible to aggressively target further share growth right now given current market conditions as this would inevitably lead to price erosion. Instead, our priority is to partner with our existing fabricators to help them grow by giving them the opportunity to supply our branch network and leveraging our leading position in new build. For the branches, we've now partnered with 10 large fabricators who have the process capability and efficiency as well as the headroom to build further capacity as we ramp up sales. Growing our branch sales to 6,300 frames per week is the equivalent of winning three very large fabricators and will utilize spare capacity in our extrusion facility.

23:29 That said, we will selectively look at fabricator opportunities if they present themselves. We also plan to expand our aluminum offer with the aim of providing a one stop shop for fabricators and installers to sit alongside our PVC door and window products. Later this year, we will launch a new aluminum roof lantern that will speed up installation times and reduce callbacks to fitters due to its innovative design, which includes a unique patented connection device. The feedback that we've had from early conversations with fabricators has been extremely positive, and other products will follow leveraging our design and technical expertise. So I'm now gonna hand over to Michael who's gonna talk about the second pillar, which is business effectiveness.

24:18 Thanks, Taryn. Our objective here is to make EUROCELL a lean and efficient business. And therefore, we're upgrading our business systems to increase efficiencies and improve the customer experience. As I said earlier, we are in the process of replacing our ERP systems. The first stage of this process is to implement a trade counter system in the branch network. Having selected IntactIQ as our new system, we have now started the build and plan to transition to it in the first half of twenty twenty five. This will transform the way we interact and transact with our customers in the branches, including simplified processes and the use of electron electronic point of sale functionality. The second stage is to select and implement an ERP systems to support all other functions of the business, including manufacturing, recycling, warehousing, distribution, and finance.

25:08 Here, the objective is to improve efficiency via the automation and integration of key business processes. For ERP, we expect to select a system later in 2024 and with the transition to be completed around mid twenty six.

25:23 Overall, as previously reported, we expect total costs of the system replacement to be 8 to 10,000,000 over a three year period. We will manage risk on this project very carefully with board oversight and a highly experienced IT director already in place. We're also embedding a continuous improvement philosophy into the business, which is already highlighting significant opportunities for efficiencies, particularly in our manufacturing and recycling operations. Our initiative to sell more doors and windows through the branches will utilize spare capacity that we already have in our extrusion and composite door businesses, thereby helping to make us more efficient. We will also continue to target better use of our operational footprint and drive process innovation where techno technologies such as digital printing have the potential to reduce cost and improve our environmental performance.

26:13 Now back to Darren to cover people first. Thanks, Michael. So people first. I mean, this is all about the culture within the business. And for me, it's really another key initiative to unlock unlocking value in EUROCELL by developing a really strong cohesive culture across the business. We've got some great people in our business who really love their job, but we want them to love EUROCELL too. Now in health and safety, we've made some significant strides over the past twelve months, halving our accident rate in 2023, but we still have a long way to go. In my mind, safety and business performance go hand in hand, and we are committed to driving towards a world class safety culture. In January, we appointed a new people director to raise employee engagement, enhance our employee value proposition, and improve the way that we recruit, develop, and retain talent.

27:05 In February, we cascaded our new strategy to all of our 2,000 employees through a series of webinars hosted by ECELL PLC members, and we received some great feedback. And my sense is that like like us, many of our employees are now really starting to believe in the potential of this business. Getting our employees aligned behind our strategic goals and embedding our new purpose and values will be a key enabler in shaping the future of EUROCELL. In April, we will appoint our first ever internal communications manager to improve the way that we cascade information across the business. And I I realize that much of this is standard practice in progressive businesses, but many of these initiatives are new to EUROCELL, which is why we're getting on with it because it will drive discretionary efforts and improve the outcome across all of our strategic initiatives.

27:55 And we're now gonna hand over to Michael who'll cut off the last pillar, which is ESG.

28:01 So with ESG, we want to earn a reputation for being a truly responsible company. As you know, EUROCELL is already a leader in PVC recycling, preventing 3,000,000 waste windows being sent to landfill every year. We've now increased the proportion of recycled material used in our manufacturing up to 32%, which drives significant cost and carbon savings compared to the use of virgin materials. And we've set a new target to reach 40% by 2030. But that's just one aspect of ESG. And looking ahead, we aim to excel in all areas. We covered the s with our people first strategy, so I'm going to focus on the e and the g. We're now working with a specialist ESG consultancy to support the development of our ESG strategy and improve our data collection and disclosures.

28:47 The results of our work so far include a materiality assessment where we surveyed a selection of employees, suppliers, customers, banks, and shareholders to determine the most important sustainability topics for the business. We also completed a baseline carbon footprint, including scope one, two, and three emissions, identifying key decarbonization levers. We've used the outputs from this work to define ESG objectives and targets and develop a sustainability strategy supported by appropriate governance and internal controls monitored through our board led social values and ESG committee.

29:23 Looking forward, a key focus for our work in 2024 will be to determine a path to reach net zero by our target date of 2045. This will include filing science based targets with SPTI and developing and publishing a net zero transition plan, albeit our path here will be heavily dependent on reduced emissions in our raw material supply chain. Finally, we will also continue to deliver on the other initiatives we have to drive carbon reduction, including further investment in on-site electricity generation through the installation of solar panels at our largest operating facilities.

30:05 Finally, page 24 summarizes our financial ambition with this new strategy. We believe we've identified a clear pathway to good organic growth at improved margins, and our ambition is to become a £500,000,000 revenue business generating a 10% operating margin over a five year period. In terms of sales, as you've heard, the biggest growth drivers will be expanding the branch network up to around 250 sites along with the windows and doors initiative plus the extended living range, all underpinned by increased returns driven investment in digital to raise awareness of our products and home improvement solutions and thereby acquire new customers. In terms of operating profit, the customer growth initiatives generally exploit our existing infrastructure and are relatively light in terms of CapEx, and therefore, they have the potential to generate good operating margins.

30:55 Investment is required for the strategic systems replacement project. But alongside our business effectiveness and continuous improvement initiatives, we think there is good potential to deliver major improvements in our customers' experience and

31:08 the efficiency of our operations. With our well invested facilities and available operating capacity, positive operational gearing should kick in as we grow. And I note here that our operation operating margin target of 10% is broadly equivalent to EUROCELL's immediate post IPO margin, adjusted for mix changes and some natural dilution from raw material prices. Overall, therefore, we believe that this is an ambitious vision. But when we aggregate the growth opportunities and apply a degree of sensitivity, we think it is an achievable target with the potential to create significant shareholder value. So that's the end of our presentation. So, Jake, if you want to turn the the cameras back on, and, we'll work through the q and a that that's come up here. Perfect. Absolutely. Darren, Michael, thank you very much indeed for your presentation this morning, and I will just bring back up your cameras there. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were 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.

32:18 Michael, Darren, as you can see there in the q and a tab, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions. But, Darren, Michael, if I may, at this point, hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Okay. Thanks. I think the first one we got here is from Marcus. With the plan to open new branches and expand the product offerings, how do you anticipate balancing the investment required against the potential returns to shareholders? So let me just pick that up initially, and then, Michael, you can add any additional comments. But I think that the costs of opening a new branch or indeed a relocation in terms of fit out are relatively CapEx light. I mean, we're talking about between a 150 and £200,000 aside from, obviously, the lease commitments.

33:09 And the beauty of what we're doing with the door and window project is that we are not only increasing the amount of revenue that we can put through a branch, but we're also shortening the time that it takes for a branch to reach profitability, particularly for the for a brand new branch in a new location. So I think from that point of view, what what you end up seeing is is a completely different investment picture. Michael, I don't know if you wanna add to that. Yes. Yes. And you'll see I've just flipped back to slide 24 where the table top right of that slide sets out the investment required. And you can see that the have underlying CapEx for the base business of around about £10,000,000 per annum, which is which is largely maintenance CapEx and refurbishment.

34:00 The next line down shows you the the the capital cost of the strategic initiatives, and it is it is relatively light touch. That includes 10 new branches per annum at a average CapEx cost of between $1.50 and 200 k per branch. So outside of that, there's actually very little incremental CapEx. The £5,000,000 in 2025 is is the big rollout of the windows and doors initiative, and that is the racking that we need in the branches to to support that initiative. So overall, what what you see here is is relatively like CapEx, and therefore, the the initiatives we have have the ability to to generate significant returns. Generally speaking, a mid teen operating margin, which is if we look at the waterfall chart, we're looking to move margin from 5% up to 10%.

34:53 And there are sort of three aspects to that. One is that the the new initiatives have mid teen margins. The second is operational gearing. You see our our profits halved in 2023. A big piece of that is that we have a heavily fixed cost base, and therefore, we're an operationally geared business. Now, you know, that obviously has has been difficult for us in 2023, but as and when markets recover, you'll see a significant operational gearing effect going the other way, which we will benefit from. And then the final aspect of this is raw material pricing whereby if I look at, again, 2023, raw materials have been priced.

35:40 It's been difficult for us, but towards the end of from from September onwards, we saw an easing in input costs, and and, we're now in a much more balanced position for 2024. If you look at the profit estimates in the marketplace for us for 2024, PBT goes from 20,000,000 in '23 up to sorry. 15,000,000 in '23 up to 20,000,000 in 2024. A big piece of that is is a normalized normalization of of raw material costs, which is an important first leg on this jump from five to 10%. And I would point you back here to '21 and '22 when operating margins were were north of 8%. It's a it's a long answer to say that we we do believe that the the the sales bridge is very reasonable.

36:29 We gave you the the the components of that. The the margin on the new initiatives is is is accretive and in line with our overall target, and the capital investment is relatively light. K. Thanks, Michael. One here on the ERP system, so from David. Regarding the ERP system replacement and continuous improvement initiatives, what timeline and budget considerations have been factored into these projects, and how do you expect these efforts to impact operational efficiency and customer experience? So I'll let you set that up. So I'll go again on that one. So on on that slide, the the strategic IT replacements line in that table shows you the capital cut that I'll refer shows you the cost of the IT systems replacement project. Now as I said in the presentation, ordinarily, you'd expect this to be capital cost because the system is highly likely to be cloud based.

37:27 It it will be expensed to the p and l, but expensed as a non underlying item as you saw back in in 2023. So we've got the pattern here is the significant spend on the branch trading system is 24 with a go live earlier in early in 2025. And on the ERP system for the rest of the business, the spend is in '25 with a go live probably in the middle of '26. Risk management is very much front of mind with this project, and I can I would also say that that that level of cost has a a significant level of contingency in it to to cater for unforeseen events? The the continuous improvement piece of this is is, again, very light touch in terms of in terms of capital cost and investments. You know, what we're looking at here is initiatives that will drive material efficiency and yield improvements in our operations, reduce scrap, reduce cost of poor quality, optimize the use of labor. So this is more about how we manage the business and manage our existing resources than it is about big capital investment.

38:38 K. Thanks, Michael. Probably another one for you here, which is what are the noncash lease reductions from the, I think, it's a department reduction slide. Yeah. So so what what's going on with that is it's a kind of a simplified cash flow that that we're that we're showing you. So if I if I flip to that slide here So you'll see in the in the table to the top right of this chart, a reduction in lease debt of £5,100,000 in the right hand column. So overall, under the lease accounting standard, our net liability has reduced by £5,100,000. There are two components of that. One is the net increase in the liability from new or renewed leases, And that is the 10,500,000, which is why it's it's identified as noncash because that is simply the increase in the long term liability as a result of entering into new leases.

39:44 We've got payments on existing leases that we've made of £10,600,000. Now I referenced that. It's actually included within net cash from operating activities, the the 52,800,000 in the bar chart. Now that is effectively under the old world. That is the operating lease payments that we make on a monthly basis for all of the leases that we've got. So you've got increase in the liability of 10.3 offset by payments made of 15.6 gets you to the 5,100,000 delta in the lease chart. K. Thanks, Michael. One from Nicholas here. Could you please provide more detail on the competitive landscape within the profiles division and how you plan to maintain your leading position whilst addressing potential price erosion concerns. So I'll pick that one up. So I made a change in the the structure of the team back in September.

40:39 Andy McDonald, our commercial MD, was managing both branch network and profiles. In my view, that was quite a large job. And with all of the activity within the branch network as part of the strategy, I wanted Andy a 100% focused on that. So the profile sales team now report directly into me. And, you know, I've been busy getting around meeting some of our key fabricators as part of my extended role. In terms of the landscape, well, one of the things that was helpful last year was a was, of course, that, DuraFlex exited the market back in September. They announced that they were gonna stop extruding at their Tewkesbury facility, part of UK Winder Group. In actual fact, that whole business ended up going into administration.

41:28 And so that that's that volume has completely left the market, which I think is helpful. But clearly, right now, given the state of the market, there is overcapacity. Now my in my experience, in a in a in a market like this where you've got where you've got flat demand, nobody wants to give up market share. And therefore, I go back to my point that it's it's almost a pointless exercise of going out trying to aggressively grow share in a market that's flat because price price will suffer. That said, what are we doing? Well, all of our major fabricators are signed up on long term agreements. As I say, I've made a point of visiting, you know, all of our key fabricators.

42:14 For me, it is all about relationships and, obviously, the value that we provide to them. And when you look at the the amount of technical support that we we provide both to our new build fabricators, which is extremely important in terms of dealing with changes in regulations like the like the new future home standard, the support we provide on tooling, and the the configuration of the the machinery, as well as obviously what we're doing with the branches where we're opening up opportunities for those fabricators to generate incremental sales supplying our branch network. So I think we've got a really strong proposition. We've got a great team, and we've got some really strong relationships with our key fabricators. So despite the fact that the market is is depressed at the moment, of course, it's gonna come back. And when it does, then I think you're gonna see a more balanced position in terms of supply and demand. So, personally, I'm comfortable with where we're at.

43:13 Hope that's answered your question, Nicholas. Next one is, can you please elaborate on your expectations of markets in 2024? Do you expect a recovery at some point? Well, I think the answer to that is that the the what we budgeted is we budgeted for a flat market relative to what we saw in the second half of last year, which was worse than the the first half. That's what we're expecting. I mean, I was at a an industry dinner, building material sector dinner on Wednesday in London, and the mood music was that I don't think anybody is expecting a recovery this year. And, obviously, if it happens, it's a bonus.

44:02 I think it's more likely to be in 2025. I mean, it it looks like we're gonna have a a change of government. And if it is labor, they've made housing as, you know, one of the the cornerstones of the the kind of manifesto that they wanna encourage more more houses to be built, which would be great. They talk about 300,000. Personally, I think I think that will be a struggle given the the state of the skilled trades in The UK. Average age of a bricklayer, 55. You know, that's gonna be a tall order. But any improvement on where we are right now is obviously helpful. We're number one, the or the most specified profile in new build, and we have a really, really strong market position. So that would obviously benefit us.

44:48 But like I said, for us, 2024, we're not expecting anything anything to change. And then a sort of follow on question for that would be, could you elaborate on the cost inflation expected in 2024, raw materials, labor, etcetera? As I said in an answer to an earlier question, raw materials really worked against us in in 2023, but we saw easing in our three key raw materials or input costs in the second half of last year, and and that's rolled on into 2024. Those those three key inputs are virgin resin, recycled material, and electricity. And we're, we're seeing meaningful reductions in all of those in '24 relative to to '23.

45:37 The the best way I can illustrate that for you is that our gross margin in 2023 was about 48%. And looking into 2024, when we've guided the analysts, we've been talking about a margin of around 51%. And it is it is really, those three components driving that. In terms of labor or or other cost inflation, if I take the overhead base as a whole, we're looking at probably about 7% cost inflation in 2024, which on the face of it feels like a big a number. A So let me break that down. It represents about sort of £9,000,000 of incremental cost. £6,000,000 of that comes from our pay awards.

46:22 So you have annualization of a 5% pay award that we made in April '23, and then we will be making a 4% pay award in April '24. So together, that will that will result in incremental cost of around about £6,000,000. Then we have a couple of million coming from the normalization of share based payments and bonus expenses because those have been depressed for certainly in 2023. And then we have incremental costs associated with the strategic initiatives. Now this is primarily 10 new branches, which will get you to sort of about £11,000,000 in total. Back off from that, the £2,000,000 of annualized cost savings from the q q two twenty twenty three reduction cost reduction program, and you get to the the the level of cost inflation that is in the marketplace for us for '24.

47:17 K. Thanks, Michael. Again, a follow-up question from from this person. It's can you tell us what happened to your market share in 2023? There's no reliable statistics for the door and window industry, which is a frustration because, you know, I I don't like to be flying blind in previous jobs that I've had within the building sector. Normally, you you know, we've been members of a a trade association where, you know, statistics are collected and it's very it's very clear. You can see what's happening. That happened when I worked for Ipstock as part of the brick sector and also when I worked for tarmac in heavy building materials. So that's the frustration. Having said that, within profiles, we do know that we we took took on board a number of fabricators in q one of last year. We also secured PolyFrame, which was DuraFlex's largest external customer in the summer. That was they came across to us in August and a very large fabricator.

48:21 So I would say in profiles, look, despite the fact that the market was down, we took share in profiles. Within the branches, I would say, because we didn't open any new branches last year, we probably held share. So but I know going forward, we are contributing to a fresh attempt to resurrect what was a very successful industry report, the D and G report. So if I go back to 2018, there's a there's an initiative to resurrect that. And I know that most of the major players in the industry are gonna contribute to that. So I think going forward, will have a better handle on what's happening, which which I think will be helpful. So hopefully, answers that question.

49:08 I can't see any further questions at this moment in time. I think that's it. So so, Jake, we'll we'll hand back to you, I think. Absolutely. Michael, Darren, thank you very much indeed for being so generous of your time then, addressing all of those questions that came in for investors. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But, Darren, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great. Yeah. Look, again, I wanna thank everybody for for joining this morning's call. We do value these opportunities to speak to investors.

49:57 We obviously been busy this week in London following up with some of our largest shareholders, and we we got a bit few more to do next week. But we really appreciate these opportunities. Look, I've joined the business in April last year. I'm now coming up to my first anniversary. It's a it's it's a year that's gone very quickly. And I joined the business because I really believe that there was an opportunity here to do something really special. That's what I enjoy doing, you know, transformation. That's what I've done throughout my career. And in the twelve months that I've been with this business, that that belief that we we've got a great opportunity here to turn EUROCELL from a from a good business into a great business is, you know, I feel very confident about.

50:43 We've got a great strategy now that I think has got a lot of buy in from our employees, and, we just gotta get on and, make it happen, which I'm sure we will. Perfect, Dan. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session? It shall now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of EUROCELL PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.