Eurocell (LSE:ECEL) — Investor Presentation

0:00 Good morning and welcome to the EUROCELL PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be dismissed at any time by the Q and A tab situated in the right hand corner of the screen. 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 will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:27 I'd now like to hand you over to Mark Kelly, CEO. Good morning to you, sir. Good morning. Thank you, Alessandro. Good morning, everybody, and welcome to EUROCELL's interim trading update for h one twenty twenty two on the investor meets company platform. We are grateful that you could take the time to, join us this morning. As per normal, Michael and I will be splitting the presentation so that I undertake the operational review, and Michael gives you the detail on the numbers. Before I go any further, I'd just like to welcome Derek Mapp as chairman and Alison Littleley and Kate Allen as NEDs to our board. They've nearly completed their inductions and will make a great addition to the senior management team. We are aware that a number of our peers in the construction sector have reported a more challenging RMI market, and therefore, we have refreshed our presentation format to clearly lay out why EUROCELL will continue to meet expectations.

1:24 For those of you not familiar with our business, we have two basic product categories. Firstly, our windows profiles division. We are the largest provider of PVC window profile in The UK. Our product is supplied to circa 400 independent fabricators who then cut, weld, and form the PVC six meter bar length into windows. We do not fabricate windows ourselves, neither do we have any intention of doing so in the future. You can see examples of the products that we made that we make in the pictures. We have sales forces whose role it is to generate demand for our products that can be fed back into our fabricators to supply, and we are particularly strong in the new build sector.

2:11 Secondly, we have a 2,000 a 219 strong branch network through which we supply PVC building materials to jobbing builders, roofline, and window installers, and increasingly landscapers who are also becoming our customers. We see scope for between two hundred and seventy five and three hundred branches. The branches also sell made to order products like conservatories or warm roofs or bifold doors, etcetera. And, again, you can see samples of those sort of products in the pictures, particularly in the bottom row. We have various businesses which complement our range. For example, Vista Doors, who make products for the branch network, but also sell into new build. The whole business is underpinned by us being the largest recycler of replaced PVC windows.

3:02 Year to date, 20% 28% of our resin demand was supplied through our recycling process. And last year, we saved circa 3,000,000 windows from potentially going to landfill. So a very good thing to do environmentally. Now here, we've given a little bit more detail on the profiles division. You can see the customer base splits out into those that make just windows and those who tend to specialize in the more complicated but added value sectors like roofs or bifold doors, etcetera etcetera. We've also listed the acquisitions made over the last few years, starting with S and S Plastics, which is an injection molding business providing us with jointing pieces for our ranges, and then Vista Doors, providers of composite and PVC panel doors.

3:53 And lastly, a big investment we made to double the size of our recycling activities in the acquisition of ECELL PLC, which is now being rebadged as EUROCELL Recycle North. EUROCELL continues to take share from its profile competitors. With the additional operational capacity afforded us by our investments in operating capacity, we've been able to approach more fabricators about joining the EUROCELL family. To this end, we've already signed 18 new fabricators who will join us over the rest of the year, which will support sales in 2023. This signed volume represents a fourfold increase on the average sales value achieved in the prior four years. Additionally, we still have a very strong qualified prospect list, and would expect to add to this signed total by the end of the year, again, supporting business for 2023.

4:49 Key to the growth is our role in new build. New legislation on energy savings targets, the future home standard, which are mandatory for new build, are complicated and very technical, but in all cases will result in higher specifications for windows and doors. EUROCELL and its technical sales forces are at the heart of this industrial consult consultation. The increased specifications are driving more work for our fabricators, which in turn is ensuring more discussions with competitive fabricators fabricators who wish to join the EUROCELL family. A number concern themselves that the RMI market might be more difficult and therefore are looking to augment their business with the assured volume that EUROCELL can generate. The specification changes driven by the future homes legislation will undoubtedly mean high specifications for windows, thereby lifting the sales value for EUROCELL and its fabricators across the new build sector.

5:48 Such is the confidence of our fabricator base that we are working with, a number wish to substantially increase capacity over the coming couple of years. As well as new build, we continue to gain specifications in the commercial market where we can make a compelling case against the increased costs and lower efficiencies of aluminum systems. All of this provides more pull through for fabricators supplied by EUROCELL. EUROCELL's investment ensuring pull through for its fabricator and installer community is all part of the you grow, we grow philosophy that we deploy into the market. Now I'd like to turn to the branch business. As for profiles, we've provided a little more detail on the branch business, and you can see the acquisitions that have been made.

6:33 In the past, we've acquired small branch networks, I. E. Kent Plastics and TrimSeal. But after examining closely the financial returns of these investments, we've concluded that it's better and more profitable to grow our state organically in the medium term. We're focused on the performance of the bottom 20 branches through 2022, but have already got six branch openings identified for early twenty twenty three. In h one, the branch is traded in line with the same period in 2021, a truly excellent performance and well ahead of trading in the pre pandemic period. Average sales per branch continues to increase as the estate matures, and we work on improving the performance of the least profitable sites. By the end of the year, we would expect 45% of our state to have annual sales in excess of £1,000,000.

7:25 Now I'd like to turn to the reasons underlying our confidence in the future of building plastics.

7:32 We have a clear strategy for the development of the branch business with the customer being right at the heart of our proposition. We take a retail buyer strategy to our branches while keeping the look and feel of a specialist distributor. It's a fine balance. Our customers need to feel comfortable within our branches, but we also need to ensure we retain the look and feel of a fresh of a professional outlet, which can always be welcoming to consumers. Key is the development and retention of our people, and we continue to work so that everyone can develop, grow, forge a long term career with EUROCELL. Our products and services are continuing to review to ensure they meet the exacting needs of our customers, except in that not all customers are the same or have the same requirements. However, there are some common elements, high availability of stock, trustworthy pricing, friendly engaged staff, range extensions so they have new offerings to discuss with their customers, easily accessible branches, and reliable deliveries to customer sites.

8:31 We continue to extend the range of our product offerings and for some very exciting and have some very exciting substantial new offerings lined up for next year. Again, part of the you grow, we grow philosophy. Lastly is branch operations, ensuring that the branches operate efficiently and that we have a contact plan for engagement with customers. Deploying the regular contact plan will assist in maximizing the acquisition of new customers, increasing share of wallet from all customers, whilst identifying, understanding, addressing the requirements of potentially lapsing customers. I'd now like to turn to recycling. Recycling remains an important focus for the EUROCELL team, with rates of recycled content continuing to rise through half one and now hitting 28%.

9:23 Due to finite supply of recycled feedstock, we still believe the recycling will cap out at the low thirties as a percentage of our total requirement. The increasing price of resin has put more demand on the markets that supply the in feed. However, EUROCELL has cultivated numerous methods of competitively sourcing the materials we need and is now in the process of signing up its fabricator base to send back that post industrial waste as part of their supply contracts. Additionally, we've now started to offer recycling of all packing waste associated with our profile delivery, which is a huge benefit for our customers. We are working across both recycling sites to continue to increase the yield from each ton of windows delivered back to us. Previously, we were only really interested in extracting white PVC, but we've now grown our internal demand for brown product.

10:15 There's always been grades which still had to go to landfill, but with the improvement of our technology, we've now found ways of utilizing the majority of this product and are targeting lifting the extraction efficiency to above 90%, and it's currently at about 85%. We are also aware of the necessity of continuing to reduce our carbon footprint, and as such, we're investing 1,500,000 in solar panels for the roofs of our freehold sites. All of the energy generated will be used on-site and not exported to the grid and could provide more than 5% of our energy needs. This is in addition to us now sourcing the majority of our energy through renewable contracts. Through improving the efficiency of all of our processes, we continue to focus on the reduction of waste and energy usage throughout our organization.

11:04 This aligns with two of our four lead UN sustainable development goals, responsible consumption and production and climate action. The other two being aligned with our people, decent work and economic growth and good health and well-being. Our people are core and center to everything we do, and we are striving to ensure that EUROCELL is an employer of choice wherever our business is based. We have clay clear KPIs to assist with the reporting of these items, and these are laid out in the appendix. So here in summary of the financial performance before Michael takes you through in the detail. We are particularly pleased with our performance in h one. At the full year in March, we indicated half one twenty twenty one comparators would be tough given the unseasonably high numbers achieved.

11:53 Despite this, we are reporting revenue growth of 13% with like for likes in excluding price, almost matching 2021.

12:01 We've continued to recover cost inflation through a combination of price increases and surcharges, and greater operational efficiencies have assisted with delivering the improvement of £1,000,000 or 7% in PBT. With the investment in operations delivering extra capacity, our sales force has been able to continue making the compelling case for switching to EUROCELL from competitive fabricators, and we have the strongest prospect pipeline we've seen in Europe. The branches have seen robust first half trading, particularly aided by rage extensions that have compensated for any softness in core markets. Recycling is absolutely core part of our business and future strategy and can use to provide a cushion against volatile pricing and supply of virgin resin.

12:46 Lastly, our customers tell us that they are experience experiencing strong, although volatile, demand for our products and, for the most part, appear to have full order books. Now I'd like to hand you over to Michael to take you through the financials.

13:02 Thanks, Mark. So let me start by going through the financial highlights on page 10. We delivered good results for the first half against tough 2021 comparatives and have now made substantial progress in sales and profits compared to the pre pandemic period. Revenue in h one was up 13% on 2021 and includes a significant impact from selling price increases and surcharges with volumes flat on a trading day basis. This is a robust performance recognizing the strength of last year. And looking a little further back, sales are up 40% compared to h one twenty nineteen. Profit before tax increased by £1,000,000 or 7% compared to 2021 and represents a big step up of 46% versus h one twenty nineteen.

13:53 Profit growth includes the benefit of higher sales and improved operating efficiencies. Like most businesses, we have been experiencing an unprecedented level of input cost inflation, which we have been recovering successfully via selling price increases and surcharges. Our cost base also includes the impact of headcount increases and pay awards implemented in h two twenty one to secure the labor required to meet ongoing strong demand, plus the impact of 12 new branches opened last year. Earnings per share are 11.2p, up 13% on h 01/21, which includes the benefit of a lower tax rate. And our interim dividend is 3.5p per share, up 9%. Finally, net debt on a pre IFRS 16 basis was £15,000,000 compared to 11,000,000 at the end of twenty twenty one.

14:45 We have good headroom and liquidity in our bank facilities despite the continuing significant impact of inflation on working capital.

14:56 Moving on to the components of sales growth on page 11. Total sales were up 13% on h one twenty one. Sales include 14% from selling price increases and surcharges, which continue to successfully recover input cost inflation. It is also pleasing to report that sales volumes kept pace with an exceptionally strong comparative period in 2021. Profile sales were up 17% with volumes flat. Sales are being supported by the desire for for improved energy efficiency and a backlog in planning permissions, driven by house moves and changing lifestyle patterns such as hybrid working, partly funded by elevated levels of consumer savings. We are also seeing good sales from new build where the market continues to be robust, and Vista Doors also delivered another strong performance.

15:46 Building plastic sales were up 11% with volumes flat on a trading day basis. We're seeing a greater emphasis on high value project specific work, such as roof lanterns, windows, and bifold doors, rather than the high levels of general maintenance activity experienced last year. We've spoken recently about the success of our outdoor living products, which include decking, fencing, and garden rooms. Outdoor living sales were substantially higher in the period at 6,400,000, up 36% compared to h one twenty twenty one. Finally, on this slide, just a few comments on the cyber incident we experienced towards the end of July. This did cause some temporary disruption but is now substantially resolved.

16:31 We detected the incident promptly, and our core systems were restored quickly. With the business remaining operational throughout the period and trading normally from mid August. We expect our cyber insurance will largely cover the financial impact of the disruption. In addition, we've built on our recent investments in IT infrastructure and implemented further resilience and security in this area. On to operating profit on page 12. Profit of 16,600,000 represents good growth of 1,300,000 or 8% on a very strong '21 comparative and is substantially higher than the pre pandemic period, up more than £5,000,000 or 47% on h one twenty nineteen. Looking at the detail and moving left to right across the chart, the volume price cost category recognizes that sales volumes were flat on a trading day basis or slightly down on a reported basis.

17:26 Selling prices and surcharges have been implemented to recover input cost inflation, especially for raw materials, energy, fuel for transport, and wages. And on a net basis, these items are broadly neutral to our operating margin percentage in h one, although I do expect inflation to be more dilutive to margin percentage, but not absolute pound notes profit in h two. Volumes, selling prices, and operating efficiencies are also intended to cover the cost of headcount increases with a significant number of additions in h two twenty one required to secure the labor needed to meet ongoing strong demand. So moving along the chart, it is therefore pleasing to see that operating efficiencies are now being delivered, which reflect the benefit of our recent investments in manufacturing and warehousing capacity as well as the increased heads, which have together facilitated a more efficient operation and the delivery of much improved customer service.

18:21 Bad debts were a net credit in h one twenty one compared to a small charge in the current period. Continuing left to right, as you know, we also offset raw material cost increases by using recycled material. The chart shows a neutral position with the absolute volume of recycled material used and cost of recycling broadly flat with with last year. Looking beyond the chart, recent events served to illustrate the very attractive economics of recycling, particularly when resin prices are high. The 8,300 tons of recycled compound we consumed in h one delivered a huge absolute gross margin benefit of more than 6,000,000 compared to the cost of using virgin material, demonstrating recycling's effectiveness as a hedge against high resin prices.

19:09 Finally, new branches show a small improvement, reflecting that the 12 branches opened in 2021 are progressing well towards breakeven. This is a good performance, and we have now commissioned the next six new sites, which will be open by the early part of next year.

19:30 Moving on to CapEx on page 13. The chart and tables illustrate the significant investments we've made over the last four years to build out the infrastructure required to resolve operational constraints and support strong sales growth. We now have the manufacturing, recycling, and warehousing capacity in place ahead of demand, which is supporting the delivery of improved operating efficiencies. We are also future proofed to the extent that we still have space for at least another 10 new extruders, which can be added progressively over time as volumes increase, creating a pen potential uplift in capacity of more than 50% compared to the end of twenty eighteen. CapEx for h one twenty two was 6,400,000 pounds, and our guidance for 2022 remains unchanged with total CapEx for the year of approximately 15,000,000.

20:21 This includes 6,000,000 for the ongoing expansion of manufacturing capacity with a further five more extrusion lines, four foiling lines, and an upgrade to our mixing plant. We're also investing 2,000,000 in recycling capacity and resilience and 2,000,000 on new and refurbished branches. The balance of £5,000,000, again, covers logistics, IT, and other maintenance CapEx. With the more complex investments now substantially complete, our focus remains on delivering improved operating efficiencies from the new facilities. Turning to Page 14. I thought it would be worth reiterating our approach to capital allocation, again, moving left to right across the chart. Over the last few years, we have been investing to expand the operating capacity of our business. And with the most substantial and complex investments complete, we are now delivering improving efficiencies.

21:14 We have the space for further expansion, and we'll continue to invest to support 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're very grateful, and we recognize the importance of distributions to our investors. Having now returned to dividend payments, we've increased the interim dividend by 9%, and we will continue to target a dividend cover of two times on an annual basis 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 one of our strategic priorities. So we will continue to explore potential m and a, but with a very disciplined approach, and there's nothing under serious consideration at the moment.

22:03 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 have said before that on a normalized through the cycle basis, we would 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.

22:32 Finally, on page 15, 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 over the next few years. Starting with sales growth, no surprises here as we've demonstrated the ability to take market share and grow even when the market 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. 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.

23:19 Finally, we intend to improve our 2021 operating profit margin of 8.5% by a 150 basis points. We'll do this mainly by leveraging the recent significant capital investments to drive improved operating efficiencies throughout the business whilst maintaining our compelling sales, product, and service proposition. Historic inefficiencies have been driven from the business, and we have now set about improving the operation on the journey towards best in class. And with that, back to Mark to summon. Thank you very much, Michael. So in summary, this slide details why EUROCELL will continue to be successful despite a more challenging economic backdrop.

24:04 We intend to offset any slowing in RMI with market share gains and by further developing our applications for new build at a national and regional level. I should just take this opportunity to say that in new build, we trade through our fabricators, so we're not actually exposed to dilution of margin through the new build sector.

24:30 We believe we are well placed to take share and it and and face into the challenges ahead. In our profiles business, we will continue to drive demand for our fabricators and bring our new competitor fabricators who are looking for some volume assurance, and this can be supported by an increase of volume that we expect to be able to drive through an increasing complexity of building regulations, particularly in the newbuild sector. The branch business will continue to drive forward increasing customer contact, widening the product offering, and ensuring strict adherence to the things that matter to our customers, particularly availability and easy access. We will continue to see increased efficiencies from operations, and this will benefit the bottom line as well as giving us the opportunity to lead the market in terms of service, thereby giving our customers the opportunity to ensure pushing for more business.

25:23 And lastly, all of this will be supported by continued growth of our recycling operation, ensuring that we have a uniquely differentiated offering for our customers whilst reducing our exposure to the irregularities of the resin supply market. So in summary, we delivered a good first half performance against strong 2021 comparatives and have made substantial progress against the pre pandemic period. We have a proven ability to outperform in our markets, and our initiatives to take market share continue to be very successful. We are laser focused on understanding and delivering our customer needs to ensure that we support them to the very best of our ability. And lastly, we are financially robust, well placed in our markets, and have compelling sustainability credentials underpinned by recycling.

26:14 Altogether, this gives us a good level of confidence in the future. Thank you very much for listening. And now I'd like to hand back to Alessandro. Michael, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab, which is situated just on the top right hand corner of your screen. But just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. We received a number of questions throughout today's presentation. Mark, Mike, if I just turn your cameras back on for the Q and A, that'd be great. Can I just ask you to read out those questions and give responses where it is appropriate to do so? And then I'll pick up from you both at the end. Yep. That's fine. Thank you very much indeed.

26:59 So the first question is that my understanding is EUROCELL is proposing to invest in a solar energy capability supply its recycling manufacturing facilities. Is this correct? If so, can you please provide some data? What, we did that actually in the presentation.

27:14 We are going to put solar PV onto all of our freehold roof space. It'll provide up to 5% of our energy, and it'll be installed as in it won't get shipped to the grid. We will use it. And they will be installed throughout next year. So hopefully, that's answered that one. How fragmented is the profiles market? Question from Mark a. How fragmented is the profiles market? How will you extend your footprint here organically or through m and a? So thank you, Mark, for your question. We've got about 18% market share and probably have about eight serious competitors out there, so it's fairly fragmented.

28:00 There's only three companies that have really been growing over the last couple of years. The rest are in small or marked decline. And so we think by leveraging the exam the the advantage of our sales forces by driving our products and our specifications to drive demand for our customers. And with a possible weakening of the RMI market, we think competitive fabricators are thinking about their choice in going forwards, their choices going forward. Our new facilities, our new warehouse and the such like, really are very, very compelling. If you come and see them and you're thinking about, you know, where you should put your rigs in the future, you know, which basket to place them in, If you come down and see our facilities now, you'll be very, very impressed, and you'll be impressed by, you know, the commercial drive of the Salesforce.

28:56 There's a lot of good reasons to join us, but we could do it organically. We don't need to buy anybody. And indeed, with our market share and the size of our competitors, most of them would be would walk us straight into competitive market authorities, things around, you know, having too much competitor share. So we will grow organically. Ryan, do we expect the maintenance activity to pick up the remainder of the year? Well, we're not seeing we've we've just come off investor tour. We're talking to you, and all of the investors have been asking us, you know, have we seen evidence of RMI decline? And and that's not surprising, is it? Because a number of the results that have come from the construction sector, particularly those exposed to DIY, like ScrewFix tool station, Kingfish, and the such like are showing marked declines where there's discretionary expenditure.

29:53 So we have seen a change in the business. We're not seeing so much renovation activity going on, but we're seeing a lot more project activity going on. So I think there's still measurable COVID savings people are sitting on. I think if you're at, you know, the bottom earnings part of the marketplace, you're probably hurting and you're very concerned about what's coming ahead in energy caps and the such like until our new prime minister announces what she's gonna do on energy, but you'll be concerned about how you're gonna get through, particularly with all the rising prices. But I think Middle England and above is still sitting on good wedges of cash and is probably also thinking about how they can offset their energy bills and, of course, replacing all the windows and getting better doors and better insulation installed are all good things to do.

30:44 So I don't think we're expecting maintenance activity to pick up particularly, but we're not expecting to see a drop in project work. And as Michael talked about in his part of the presentation, our planning cycles are currently which should normally be four weeks, so are out at, you know, fourteen to eighteen weeks depending where you are in the country. So there's a lot of projects people have put through particularly around probably COVID working and thinking of working more from home and therefore looking to extend their properties, which is still driving a lot of activities. And as I put very early on in my talk, very early on, a lot of our customers are still reporting full order books, and some of them are struggling to get enough windows made to cope with the demand they see. So we're not expecting a drop off yet. Interestingly enough as well, in or just a bit of information for you. In last week was the strongest five back to back sales days in the branch network. So if you were gonna see RMI fall off, you'd expect that it would have been last it would have been, you know, in the branch network easily seen.

31:52 But, no, last week was the strongest for the strongest five days back to back for the last six months. So, Ryan, I hope that answers your question. This is from Keith. You make a lot of comments about demand and fabricators want to decrease with you, but there's little evidence in the volumes. What gives you the confidence to continue CapEx on new extruders and foiling lines?

32:17 Is this replacement CapEx or true expansionary CapEx? Well, thank you for your question, Keith. So let's put a little bit more light on that one.

32:28 EUROCELL would expect to ship about 56,000 tons of product this year. If you think of each extruder as be having an output of about a thousand tons,

32:42 then we've got at the moment about 71, 72,000 tons of capacity around us. So right at this moment, there's no need for us to put on any more extruders unless we gain so much competitor share that we can see that we're gonna require more volume. But right at this moment, no need to do that. We've got enough capacity. And even with the gains that we've made here with the new competitor fabricators,

33:07 which is about an additional £11,000,000 worth of sales, We can still cope with that very easily from our from the capacity available to us right at this moment, still with plenty of headroom. Hopefully, that answers that one. Another one from Keith. How are you finding the labor availability now, and what are your relations with the current workforce?

33:31 So, Keith, again, labor is has is obviously tight, negative unemployment where we're based, and we are doing well to hold on to the staff we've got. There is no agency labor, so our business actually sees January is our lowest month, and it sort of builds throughout the whole of the year. And we often flexed with agency labor, but there's not a lot of agency labor available right at this moment. So we have made everybody permanent. We've just done a pulse survey with all of our staff, and the results of that are very, very edifying. That that that that's sorry. Very rewarding. We're getting great feedback from our staff. They like working with us. They think we're doing the right things, and they're pleased to be growing share with us on that. So at the moment, we're keeping our our staff with the exception of the branch network where sometimes the counter stuff, we've got high churn over there turnover there, but only in relation to what we're seeing in retail, where retail is seeing churn rates of around 45% at the most. Very difficult to keep your staff there. So we're we're we're thinking up some schemes, some training, some developments, some career progression paths, which would mean that people can forge a career career with us.

34:53 Keith again. Thank you for all your questions, Keith. Can you give us some more information on the input costs, especially the split between resin and energy and what hedging you can do? Michael, do you wanna have a turn up there? So maybe I'll talk a little bit more to resin. So Yeah. Absolutely. So resin is is our biggest raw material as you would expect. You know, the the precise amount we pay for resin is commercially sensitive. But to to give you a sense of scale in the pre pandemic period, it was, through the cycle, probably averaged around 700 pounds per ton. When it peaked earlier this year in the sort of May, June period, it was more than double that number, well more than than double that number, and we buy somewhere between thirty three and thirty five thousand tons of of that material.

35:46 So it is a huge part of our cost of sales. But to confirm what I said in the presentation around that cost increase, we passed that through to our customers through the use of a surcharge. And, therefore, whilst dilutive to margin percentage, it has not impacted us in terms of pound notes profit recovery. Energy is on everybody's lips at the moment, of course, and extruders and recycling plants are heavy users of electricity. We have a twelve month rolling hedging policy for electricity. We actually extended that hedge coming out of the first UK lockdown middle of twenty twenty.

36:32 So we we went a little further than one year at that point in time on a risk management based decision looking at balance of probability as to where prices might go. And that has benefited us in 2022. The twelve month rolling hedging policy continues, so you would expect at this point this year, we've got most of the first three quarters of twenty twenty three hedged, albeit that is at considerably higher prices than than this year. Those higher prices will be reflected in higher selling prices at the beginning of next year when we begin to incur those costs unless the government does anything that that that they might be considering to offset that. But we don't for for businesses of our size, we don't assume that would be the case.

37:24 Keith, on resin, there's nothing we can do to hedge resin. You can't buy forward. Well, you can do, but it's at such uneconomic terms that you wouldn't you wouldn't countenance it. Resin may have plateaued. It's come off a little bit in the last couple of weeks. But then as soon as it started to come off, the resin boys have come straight back on and said that they now think they need to support prices with an energy surcharge. The size of which we don't understand yet. They haven't informed us. They've just put notes out. So we're doing everything we can to resist that, and we're doing whatever we can to write you know, try and reduce our business, exposure, and, of course, our customers' exposure to to these charges. So watch this space.

38:16 Thank you for your questions, Keith. John, given the historic level of capital expenditure, is it reasonable to anticipate this will decline going forward? Could you comment, please, and perhaps add some color? Michael, I think that sits within your sphere of influence. It does. Yes. You if you looked over the last two or three years, CapEx has been in the mid teens, and that has been driven by manufacturing expansion, warehousing expansion, and recycling capacity expansion. As I said, most of the complex investments there and and big pound notes investments have been completed, and, therefore, it is a reasonable assumption that that CapEx will fall going forward. That said, maintenance CapEx is now across a much bigger estate, so you've probably got £7,000,000, £8,000,000 of annual maintenance CapEx.

39:12 On top of that, we'll look to expand the branches. So whilst I would expect CapEx to fall, you know, it's it's not like it's going to half. Other growth related projects will be evaluated as they you know, as we see them. Would need, though, you know, our hurdle rate's mid teens, but but but they need to do to to demonstrate a higher return than that precontingency. And And we we are are conscious of the need to convert the investments that we've made into cash flow, so we'll be thinking very carefully about our CapEx requirements going forward. Thank you, Michael. Another question from John. Can you more fully describe the term fabricator insofar as it relates to EUROCELL?

40:06 Fabricators are guys that manufacture windows. You've asked here. I assume this means the builder or construction company. It doesn't, John. There are essentially in the market four types of fabricator, and these are all guys that make windows. So the first type would be a trade frame fabricator. They will make windows for absolutely every anybody that wants to buy windows from them. They're totally agnostic as to where they sell them, but they don't have any installation capability. So you can buy it from them, but you must be responsible for the installation of them. And they make up about 60% of our total fabricator base. They may, for example, supply to a new bill build installer, or they may sell their windows to, say, somebody who's on the high street who is purported to be, I don't know, Nunn Eaton Windows, but Nunn Eaton Windows don't make any windows. They actually only sell and install the windows. They buy their windows from a trade frame fabricator.

41:05 The next type of fabricator would be a new build fabricator. These guys are making windows just for new build, but they have an installation capability. So they're used to dealing with new build, the requirements of new build, the future homes legislation, all of that sort of stuff, but they install the windows as well. The next type would be a commercial fabricator. So commercial fabricators are making for anything that's not private, really, and new build. So they could be it could be social housing, but it could also be student accommodation, blocks of flats up to 20 floors. They have, again, installation capability and are used to working up to medium heights, so up to 20 stories.

41:52 And the last type would be a retail fabricator. We don't have a lot of retail fabricators within our customer base, but a retail fabricator would be the likes of SAFESTYLE, Everest, or Anglian who are making windows to sell to consumers, which they then install. So those are the four types. They tend not to cross over too much, John. Although we have a couple that are commercial and new build fabricators, But, you know, trade fabricators don't have the installation capability, they that that's all they tend to do is just make windows. So hopefully, that gives you a bit more color on that. Thank you for your question. I think, Alessandra, we're right in saying that's all of the questions right at this moment, isn't it?

42:38 So Yeah. That that's right. Mark, Michael, thank you very much for that. I think you actually managed to address all those questions from investors. And, of course, the company will review all the questions submitted today and will publish those responses on the investment company platform. But just before providing just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Mark, could I just ask you for a few closing remarks? Yes. Thank you very much indeed, Alexandra. And thank you everybody for listening to us. I hope you found it interesting and useful for you. We've always been able to deliver additional volume. We have been constrained by capacity. We don't have that constraint now because of the investments we've made in new machinery and new premises over the last couple of years. So it's good that we can go and attack the market. We have an opportunity to do so and take share. We can't see any drop in RMI markets at the moment, but you can't defy gravity, and we would have thought that they're bound to come off a little bit. We will use that market that time to take more share.

43:46 But what we're also looking to do is bring on competitor fabricators so that we prop up that volume. And that's our intention, is basically to put the squeeze on our competitors wherever we can just by being better than them and more proactive. So that's our intention. I think we're in a good place. I think we have all the facilities we need. I have an absolutely cracking team working for me. They're as good as any team I've ever worked with, and I think we will come out better than most through the interesting times that are ahead of us. So thank you very much for your support, and thank you for your interest. And with that, we'll close the session. And back to you, Alexandra. Thank you very much indeed. And please answer the the feedback. That'd be gratefully appreciated.

44:35 Mark Michael, thanks once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few minutes to complete, and I'm sure will 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, and good morning to you all.