Eurocell (LSE:ECEL) — Overview of the Company and the latest Trading Update

0:03 Good morning, ladies and gentlemen, and welcome to the EUROCELL PLC Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just simply type in the question in the box below and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. And of course, they will be made available via the Investor Meet company dashboard, and you will receive a notification when they are ready for you to review. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll, and we'd be grateful if you could respond to that. And I would now like to hand over to Mark Kelley, CEO and Michael Scott, CFO of EUROCELL PLC. Good morning to you both. Thank you very much indeed. Good morning, everybody. Thank you very much for joining us this morning. We're gonna take you through a very quick run through of our business to give you a taste of what EUROCELL is all about.

1:08 And, hopefully, if there's any questions, you'll put them up as has already been indicated to you. I'm gonna do the first half of the presentation, and Michael's gonna cover the back half and do talk you through some of the numbers. But it's quite a complex business, so we we're gonna rattle through it. But, hopefully, you'll be able to understand where we're coming from. So moving to slide two here. We an introduction to EUROCELL. We are the largest manufacturer, distributor, and recycle of PVC

1:35 building products in The UK. We are mainly focused in the RMI market, but as I'll try and make clear to you as we go through the presentation, we do have some, big presence in new build. So these these are some of the products that we make so you so you get a handle on understanding them. In the top left hand box there, we are the largest extruder window profile in The UK with about 17% market share. Just to be clear, we don't actually manufacture any windows. Right? We only manufacture or extrude the window profile, and then we send it through to about 400 fabricators who we don't own, don't have a stake in, who manufacture these products. And I'll talk a little bit more about it later on.

2:23 We there's also a number of products that which are secondary manufactured from our products. So you can take our products and as well as making them into the windows as in the shot on the top left hand side. You can also make them into products like sky lanterns, which is in the middle on the top, bifold doors, or indeed, we have an impressive range of warm roofs for replacement of glass on conservatories. And that's an area that's growing very fast at the moment. And then on the middle picture on the bottom row, you can see that there's facials soffits. That's the gray things going around the roof. And if you in between the two window sections are cladding, and that would be our cladding provided then. And we call those our foam products. They're not made up of solid PVC.

3:08 They are made up of a product which is, has baking powder effectively added to it and forms a bubble structure in it. So we still get all of the strength that's required in a maintenance free product. But in actual fact, it's much lighter than us making it out of rigid PVC and therefore cheaper as well. And what you can see on the last picture on the bottom right hand side is, one of our branches fully merchandised out. So we have two major divisions, the profile division and the plastic division. And I'm gonna talk you through now, the profiles division. So I'm not gonna read through the whole slide. I'm sure you've got copies of these or you'll be able to get them later on. But just to talk through here, the profiles division makes all of the rigid and the foam PVC profiles for our business.

3:57 But the profile division then sells the rigid product. Rigid because and we call it rigid profile because, obviously, if you're making a window, the last thing you want is the window to be flexing or floating around in the breeze. So we make it out of a solid profile, and we sell that to a range of trade fabricators. Now in the market, there are principally four trade four fabricators types of fabricators. First of all, it would be a trade frame fabricator, and these people are producing windows for absolutely anybody. They don't have any installation capability. They're assuming their windows will be installed by someone else at a later date. So they might be supplying builders. They might be supplying people on the high street who are selling windows to you and I and look like that they are making their own window making their own windows, often they're not. They're buying in from a trade frame fabricator.

4:52 And trade frame fabricators represent about 60% of our business. The next category of fabricator would be a new build fabricator. And a new build fabricator is supplying only new build, but the important difference there is that they are also installing windows. So they have their own installing teams or or subcontractors who basically have a a sole allegiance to them. And that makes up about 35% of our business. And then commercial windows. So that is up to medium rise. So we don't do high rise because the wind loading characteristics mean that we don't go above 20 stores 20 stories. But that allows us to do student accommodation. It allows us to do education.

5:39 It allows us to do things like social housing schemes, and it allows us to do things like hospitals and schools. And that is about 5% of our business. The last big category of fabricators would be retail fabricators. And for historic reasons, profiles our profiles division or EUROCELL does not have a big presence in the retail sector. So the three big retail guys in The UK, Safestar, Everest, and Anglin, we don't supply those guys. Of the 400 fabricators we supply, 300 produce windows and maybe cavity closers. Cavity closers basically are used in new build. We supply 65 to 70% of the marketplace, And they're put in place before the window is installed, and they bridge the gap between the blocks or the bricks on the outside of a house and the blocks on the inside of a house. There's a gap between them, which is used for insulation. You have to bridge that to make sure that fire cannot move between, through the building, and we have a range of cavity closers which do that job for new builds. So, a 100 make patio doors and conservatories, and we have been adding new accounts at a rate of not 60 in the last three years.

6:58 These guys are very sticky. They tend to single source their products, so it's not we haven't got many fabricators which buy from EUROCELL and one of our competitors as well. They'd have to have them in separate factories. You can't swap from one profile to another profile because you'd need to change the tools, and you'd need to change all the software settings on the machines. What we have seen in the past couple of years is as we have grown the business, we have basically outstripped the capability of our operations, and that has cost us quite a little bit of, in terms of the cost of being not as effective as we should have been. But what we're gradually seeing is the overall equipment effectiveness.

7:46 We've got a new COO in place who has made a huge difference in our business, and therefore, the overall equipment effectiveness is rising very fast. You'll have seen that we've moved up from the lows that we had in 2008, 2019 to to h one moving up to 76%. We are now above 80 at the moment. So we're really seeing some big efficiencies coming out of our business. How does the profiles division work? The big thing that we do, which is different to the rest of our competitors, is that we have sales forces that go out there and talk to architects, end customers, and particularly here, I'm thinking of the likes of Taylor Wimpey, Paris, the big new house builders, and also planning authorities to ensure that we have tight specifications for our products. That is to say EUROCELL product, not for EUROCELL windows.

8:40 Most of our competitors do not have these sales forces, and this generates an awful lot of pull for our product. Now in new build, we have about 45% market share. So if you happen to be a new build fabricator and you're not using EUROCELL product, you're basically not gonna be at the races. And so what we're seeing is more and more fabricators, competitive fabricators wanting to move over to EUROCELL. And at the moment, we have a waiting list of fabricators trying to join us from our competitors. So when Michael and I took over this business, which was about took over the running of this business about four and a half years ago, we had about 12% market share of the profiles market, and we've gradually advanced that through to 17%.

9:25 So we're taking this the market hasn't actually expanded. And for information, this is PVC replacing PVC. So about 85% of the market in The UK of households has PVC windows in them. And the vast majority of the PVC that goes into the marketplace now is is a third generation PVC replacing first and second generation. So windows that have been placed for, you know, for ten or twenty years. So as the market isn't actually growing and we are taking share, this has caused some competitor weakness. In fact, we had one of our competitors who was, in fact, the largest profile house in The UK went into administration, about eighteen months ago. They were bought out by, one of our competitors, but are trading very difficult, in a difficult manner at the moment. And we have a couple of other, competitors who are trading either at loss or near breakeven, and we're gradually stepping up the pressure on those guys. So we still think there's plenty of risk of, ability for EUROCELL to grow its market share. And at the moment, we're targeting 20% share.

10:37 And I should say we're managing to achieve this, and for the most part, we're managing to achieve it without any erosion of selling margins. We're able to pick up these new businesses because of the demand that we generate and because of the comprehensive nature of our product offering. So now I'd like to just turn through and talk about the building plastics division. So the profile division, for the purposes of this discussion, you should think of as being about a 100,000,000, and the building plastics division, about a 150,000,000 in a normal year. Clearly, 2020, not a normal year. So the building plastics division focuses very heavily on RMI as does our whole business. RMI is about 90% of our turnover.

11:24 I know that I've said that we were we were 45% of the market for new build, And so that doesn't quite hang true. How does that all work? Well, the fact of the matter is there that we supply the profile through to our window fabricators in the installer market. We go and get the specifications with the window sorry, with the new build customers directly. And then when they ask us how can they have the windows supplied, we then point them at ten, twelve, five different fabricators who could supply them in that region. And then the commercial arrangements are maintained between the new builders, say, Barrett Holmes, and one of our fabricators.

12:10 We are not involved in that arrangement. We are agnostic as to way our windows get to market. We charge the same prices whether you are a trade frame fabricator or a new build fabricator or a commercial fabricator. The only thing that makes any difference in our pricing is that Biggest tends to buy best. So in the building plastics region, we've got 208 branches, and they are selling a range of manufactured products, which make up about 45% of our sales. So these manufactured products are made in our factories. They clearly pull through a number of ancillary products, and those ancillary products are trade orientated products. So silicons, glues, nails sorry. Just getting you onto the right slide here. I forgot to move the slides through.

13:06 Here we go. And we've also got 22% made to order products as well. So I need to go back one slide. So and these made to order products are secondary manufactured products. So they've taken our products, and they are manufactured into those products I showed you earlier on, bifold doors, patio doors, conservatory roofs, warm roofs, and also sky lanterns and such like. And those are sold through our branch network. We manufacture some of those secondary manufactured products, but they're also manufactured for our, by our profile fabricators. So the main customers are 50% of them are house builders. They're small house builders or people who are doing extensions. Do it for me, man.

13:57 Normally, one or two man bands. Roofline installers make up 25% of the mix, and window installers make up 25% of the mix mix. We do a lot of work, which we put in the same category as the builders, with the maintenance companies out there, the FM houses who provide particularly, work through into social housing, doing up all of their windows and the such like. We think we can grow the business to 300 branches comfortably. We would do that at a rate of between twelve and twenty branches a year. For the last couple of years, we've only opened up four branches a year. But the reason for that is that we bought in a new management team.

14:45 Previously, the management team had been run by guys mostly out of the merchanting environment, the builders' merchanting environment. And what we've now done is we've changed that so it's headed up by people who come out to the retail area. So they're people with a history of working in Screwfix or Kingfisher, particularly B and Q and the such like, and they bring in retail disciplines. And needs to be understood about this sector is there are a 800,

15:16 suppliers of PVC throughout The UK. There are three national chains. We have about 200 branches. ECEL PLC, has around a 100 branches. And there is another independent called GAP, general purpose plastics, and they have sub a 100 branches. So the nationals only have about 20% of the total market. So the opportunity to grow here is for, basically, for us to open in any town where we think there's the right customer base for us. And then we're not really too concerned about the independents. They're not very well financed. They don't know a lot about retail merchandising techniques. They don't know a lot about customer retention or promotions and such like. So it's rather like having a small convenience store on the side of a, of a town, and then one day Tesco's comes and opens up next door to them. It'll put them out of business. And that's sort of where we are here. We open where we want to open, and it's always based on the number of customers that can feed into our branches.

16:22 So what we're seeing at the moment is under the retail guys, we're seeing a transformation in the speed it takes to get to breakeven. So at the moment and if I move on a slide here oh, we're still on the same slide here. You will see in this bottom right hand corner, the bottom right hand box, you will see that the average sales per branch grow from 380 in the first two years through to mature branch of doing about £700,000 a year and a mid teen return. Now what's interesting there, of our two hundred and two hundred and eight branches, we currently have over 50 branches which are trading past a million pounds. So there's a real opportunity for us to get all of these branches trading up to that sort of level.

17:13 And I think the other thing which is interesting is it used to take us about three years to get to breakeven. But at the moment, we are seeing that we can get our branches with some new merchandising formats and some new promotions on start up through to breakeven in somewhere between twelve and eighteen months. So that's very much encouraging us to get back on the the branch openings. So I've already talked about here the fact that the branch network that we're competing with is very fragmented. Fragmented. We are seeing opportunities to grow market share, basically because some of the national players are actually pulling back the number of branches they've got, but more because we've got control using, basically, retail compliance on our branches. So we've really simplified the pricing, but we've got real control over our margin.

18:06 We've got a consistent offering and promotion offering throughout the whole of our branch network, and we've been extending the range of products we offer. Obviously, through COVID period, we've seen people thinking about particularly how they can make more space in their homes. I guess everybody's thinking that they're gonna be working more from home. And and as they do so as they do so, they're looking for more room. If you've gotta be on a Zoom call or you've gotta be on a Teams call or, indeed, if you happen to look at your children at home, you suddenly work out that your premises is not quite large enough. And on that basis on that basis, they're looking for extensions. So an interesting one there would we be we have seen conservatories, which have been in long term decline over the last ten years, basically increased by 50%.

18:55 And we could have done more than that on two thousand and nineteen's volumes. So we have got a consumer proposition going online at the moment because we're all about generating pull. So we've started to sell Windows directly to consumers. It is only a trial at this time, but it's looking very promising. So the last part of, my part of the presentation is just to talk you through the recycling. Now I'm just gonna skip back to the first page of this presentation. So people get a little bit confused about what we're talking about here. So what we've got here is a quarter of a window, with the window profile, the mainframe on the outside, and then the sash, which is the window. Now you can see there's a white and green part there. The green part is the recycled element of this extrusion.

19:43 So we're using a two part extrusion, what is called a coextrusion. We we are taking recycled polymer, and we're extruding it into the middle of the profile. And because we are you getting gaining that from windows that we've taken back from, where they've been replaced with new PVC windows, We're not sure of some of the chemicals that went into those. So there could be lead stabilizers, for example. So what we do is we extrude those into the middle of the frame, in the middle of the profile, and then we basically envelope them or skin them with virgin PVC. And the reason we do that is, one, to to keep in on any nasties in there. But secondly, we want to control UV stabilization going forward. So in previous formula formulations, long exposure to UV could make the profiles go either pink or yellow. That's that's history now. But we can only make sure it doesn't happen again by skinning with a virgin skin. So let's just skip back to here, and we'll talk about the recycling business. So what we're doing here, as I said to you earlier on, 85% of all of the windows in The UK are PVC, and 85%, as it happens, is the same number of the wind PVC windows being delivered into the marketplace are replacing prior generation windows.

21:07 So those windows, as they came out, all used to go to landfill. But now they come back to recyclers like us, and we are the largest recycler of windows in The UK. It's a very difficult product to recycle. It's very aggressive. It takes there's it takes quite a bit of black art to get these, products out and into a usable form. And, basically, what we do is we take them back, we shred them, or or or and then extract all of the metal giving us PVC that we can then make into polymer, which we can use in the middle of our extrusion. So last year, we we took back about 3,000,000 frames, and we are seeing at the moment about 26% of our total utilization of polymer or resin is recycled and then virgin on the outside of that.

22:03 So 26% of all of our extrusion is recycled frames coming from our own plants, of which we have two. Now the original reason for doing this now it's a great green thing to do. But the original reason for doing this is that there is a delta of about 300 pounds between the cost of recycled product and virgin product. I recycled product is about 300 pounds a ton cheaper. It varies depending on the cost of virgin polymer, which, you know, does go up and down at a rate. But if you take a a case of about 300 pounds, that gives you the angle. But now increasingly, it's a ESG play for us, clearly reducing the carbon footprint of making new windows and also not sending product to landfill, plastic to landfill, which is, you know, a really good thing to do.

22:50 And so we're starting to emphasize that more and more.

22:53 And there are not many companies, I think, where it can be said that increasing the amount of green product that you're putting to the marketplace actually is of commercial benefit. I. E. The more windows we recycle, the better it is for us on the bottom line. So we're expecting to see this, moving forward. There's no shortage of PVC to be bought PVC windows to be bought back to us at the moment. There's only a couple of other competitors who are seriously recycling windows, and both of those send the product into Europe rather than using it in The UK. There are some products that we make from a 100% recycled material, particularly cavity closers, those products which don't actually get exposure to sunlight.

23:41 And last year, the total amount of product that we used in our factories was twenty point one twenty point one thousand tons, and we sold about 5,000 tons off-site to other trade extruders. We don't sell it into the window industry. So that gives you a basic overview of the business. Michael, will you tell us how we came back from COVID nineteen?

24:07 Sure. So what you have on this slide is some of the more important actions that we took in relation to COVID. Operationally, the business closed in late March when the first lockdown began, but then progressively reopened from May following guidance that allowed tradesmen to work in homes so long as appropriate precautions were taken. And we've been open since then including through the the second lockdown. What the closed period allowed us to do, however, was to design and then implement COVID safe working practices, and there's a bunch of them listed there through the middle of the slide. And the pictures on the right hand side, if you can just about make it out, show some of those things in operation. So if you looked at the picture top left in the middle of that, there's a black square and that's a screen on one of our foiling lines which is in place because that's where people would need to work in close proximity.

25:11 The top right picture, you can just about make out a screen across the counter in one of our branches, and the bottom picture shows you the one way system for customers to make the way through one of our branches. So overall, we're very comfortable that we can operate well, efficiently, and all in line with the the COVID rules very safely. Actually, it's probably worth saying that our employees have given us some very positive feedback around this and and have said to us that they feel safe at work, which is great. Financially, from a balance sheet perspective, we're in a very strong position. Again, if I just pick out some of the key actions we've taken in relation to COVID. Back in March, we increased our bank facility up to £75,000,000 and with very low debt, we've got a really good amount of headroom there.

26:04 When uncertainty was at its highest point, so through the spring, we did defer some discretionary expenditure. We raised some equity. But all of that allowed us to continue to progress some critical investments which have put us in a very strong position today. And I'll come on to talk about those investments in just a moment. But in in summary, we we have a a very safe operation today.

26:31 If we go over the page, before looking at investments, I just wanted to show you a little bit about how everything that we've said so far fits together in terms of our strategy. We've got five key strategic priorities. You can see them numbered across this chart. Just very briefly, firstly, to increase market share, which you've already heard, we're going from very strong positions in our core markets, 17% in profiles and 23% in roofline. Secondly, expanding the branch network. We've gone from a 141 sites back in 2015 to 208 today. Thirdly, new products are really our lifeblood, so continued development is critical to our future success. Again, fourthly, you've just heard we're increasing the amount of recycling that we do both for economic reasons and from a sustainability perspective.

27:25 And then finally, we've made a number of acquisitions since, our IPO back in 2015, although that's not a focus right at this moment. And what we'd say here is that successful deployment of these strategies has driven exceptional top line growth. We have a three year sales CAGR 2017 to 2019 of 12%. And and as Mark outlined, there are many good reasons why that top line growth should continue. However, if you if you looked at chart of our of our profits, you'd say that that they've been reasonably flat over that period and, in effect, held back. The reason for that is that sales have been so strong that they exceeded the available operating capacity that we've got, which has led to us incurring significant inefficiencies or lot of extra costs in order to satisfy that demand. So in order to address that, we've been investing heavily over the last two years to eliminate the the key constraints that we've got around manufacturing and around distribution.

28:35 The the good news is that those investments are nearly complete, and we can see that if I just move over now to to this chart. So what you've got here is capital investments since 2015. And in our business, you have underlying maintenance CapEx in the sort of 6 to £7,000,000 region. So you can see that beyond 2017, that that investment ticks up significantly. Now 2018 is high because we wanted to show you there the m and a, and the driver of that is the second recycling plant that we bought, which allowed us to continue that growth in increasing the proportion of recycled material that we used. But then in 2019, you can see increased investment and that is all about expanding our manufacturing capacity.

29:23 And in 2020, its investment in a new central warehouse and distribution facility. And as I said, those investments are nearly complete now. The last piece of the jigsaw, if you like, is the distribution center, and I'll come on to that in a moment. But but what's not on here, but which is probably just as important, is that we've also strengthened our operational teams.

29:49 Most importantly, and Mark mentioned this with with the appointment of a COO who joined the business back in August 2019. Now he comes most recently from Amazon where he was one of the two regional fulfillment directors in that organization, so he does know a thing or two about warehousing. And he also has a a background in in manufacturing, specifically automotive. And over the course of the last twelve months, he's really got to grips with our operations, and is now delivering a a high level of control.

30:25 This chart here just gives you a little bit more detail on the new distribution center. You know, we're really pleased with it, proud with it. We we we took over a brand new empty shell at the beginning of this year and have spent the time splitting it out. And we would expect to move our stocks into the new facility over the holiday period. We're in kind of final UAT testing of the of the technology right now and begin operating from the new site early in 2021. And this,

30:59 on top of the manufacturing investments that we've made, is is key, and it's key for two reasons. Firstly, we'll be using mobile racking and very modern picking equipment. That's what you can see in the two pictures that both increase our storage capacity but also significantly improve the efficiency of the storage and picking process. And then secondly, this represents a very significant increase in our overall footprint, and that's going to allow us to use the old warehouse to consolidate what we call our secondary operations, most importantly moving our foiling operation. Foiling is the process of putting a coloured tape on the white profile to make it look like aluminium or look like wood or

31:50 to give any color that might happen to be in fashion at that particular time. And what we're doing is moving our foiling operation from where it is today in one of our existing extrusion halls into the old warehouse where we'll consolidate it with some of the other secondary operations, conservatory roof manufacturing being one. That's key because it leaves sufficient space in our extrusion halls to future proof the expansion of our extrusion operation for the foreseeable future. And as you've just heard, we think we've got a great opportunity to grow market share in our core product lines of regional profile rigid profiles and and roofline products. And the extrusion whole point is important because in in order to do extrusion, you need two things on top of the extrusion machines.

32:40 You need an appropriate power supply and you need the the plant that mixes the the the resin and the other com chemicals into a compound to to to facilitate that extrusion process. And therefore, what we're able to do here is leverage the second of our extrusion halls for that existing plant that's already in place to add new extruders, which gives us that capacity to grow the extrusion operation in the future.

33:07 Why are we are we sort of very optimistic about the future? Well, I think you can see the seeds of that in our recent trading. If if you look at the sales growth table in this chart and I draw your attention to the the the shaded grey, which is the second half sales performance of the four months to October 31, What you can see is the overall group sales are back now in in double digit sales growth. So a very strong recovery, 13% like for like sales growth for that period.

33:38 Overall, we're facing into a a stronger r m m market than perhaps we all anticipated earlier in the year with people looking to improve or extend their homes. But I think you look at those numbers and you'd say they're probably stronger than most of the the sector, so we're very pleased with that. The profiles division, that's the rigid product, that's 6% up. Now remember that business is two thirds RMI and one third house builders. So RMI has been the key driver,

34:10 but the new build business is now improving as you see housing market activity increasing, and we've seen recently highest levels of mortgage approvals for for for for quite a long time. And then bill building plastics is the star here, up 19%, very strong and playing right into that RMI space. So it's a really great sales performance, but you might look at that and argue, well, you've already told us that. You had a three year sales CAGR of 12%. You've got a strong track record for for for for doing that. And here's the key. Even at these very high levels of activity that we've seen over the last few months, our gross margins and our operating efficiencies have been good. We're seeing none of the inefficiencies of the past and we're benefiting from that stronger operational team and from the investments that we've made.

35:00 So what you now see on our numbers and in the market estimates that are out there is is the benefits of that extra sales growth now falling through to the bottom line. And to to give that some context, what the market estimates have for second half is for a sales growth at this rate. It continues at 13%, 13% for the the the full second half. But in in in this period, in the second half of this year, market estimates show 30% growth in PBT. So there's the first tangible evidence that these investments are having the desired effect, that the stronger team is working, and that we're seeing this flow to the bottom line. And look, in a nutshell, that's the investment case for us. We have a proven track record of delivering top line growth and some very good reasons to think that that's gonna continue into the future.

35:51 Yes. Profits have been held back over the last few years, but that's because we needed to build out the infrastructure to support the higher sales. But those investments are now almost complete, so in the future, I think we can expect to that that sales growth is going to drive good profit growth and good margin improvement as we move forward. And that, Mark, unless you've got any other closing remarks No. I was just going to comment thank you, Michael, very much indeed. I was just going to comment because people will be wondering what the impact of lockdown has been and perhaps the second lockdown and where we might be trading into the new year. We're clearly moving in uncharted quarters here. We were very concerned about the second lockdown, whether that would basically undermine consumer confidence, but we haven't seen a blip in sales at all.

36:43 We've seen sales carry on robustly. And I think it's back to the comments I made earlier on that people are in their houses thinking that this may be the future, and they're doing work like, you know, putting in garden rooms or extensions, but also making their house more comfortable. So extending their house into the garden or their garden into the house, you know, with more decking products and pagodas and all that. And we're seeing huge growth through that. We have a made to order book. Now these are the bifold doors and the and products of that sort of nature, conservatory roofs and such like, which are project led. And, normally, we have an order book from a month to month basis of about $22,200,000.

37:30 And at the moment, we have an order book of about 8,500,000. So four times what we would normally carry. And, so this suggests that work is gonna go on through the first quarter.

37:42 Clearly, there'll be concerns. You know, the chancellor yesterday was talking about, you know, up to seven and a half percent unemployment. And if you think how's that gonna impact our business, I'm not sure that it will do. We've got a big exposure to new build, and quite a few of our new build customers have got order books which are sold out through to June or July. So, and clearly, the help the change with the make, help to buy and also the stamp duty holiday means there's a real crash in the first quarter to get houses built and sold, as quickly as they can so they so their customers benefit from those, support from the government. But going forward, I can imagine that the vast majority of people are gonna suffer redundancies. They're probably going to be in the leisure, entertainment, and catering industries.

38:31 And, mostly, those are young people, I'm afraid, but they're probably not householders. They're certainly not people who will be investing in their property on a day to day basis, probably a living wage. And so our core customer base, which is homeowners 40, And, also, a big part is the retirement population who are drawing down their 25% of their pensions and doing up their houses so that they in with a maintenance free view so that they don't know that they're not gonna have to go up ladders and start painting stuff 20 foot up after they've retired. I'm not totally convinced that that customer base is being impacted. And, of course, along top of all of that, we're seeing mortgages at the highest level for ten years being released.

39:19 And, frankly, we're not bothered if people move into a second home. That's great. They'll use RMI to do it up. Or they move into a new home because it's a very strong likelihood that well, probably better than 40% chance that we will supply the windows into that new home. And we haven't talked about, but we do have other sides of our business, and particularly our door business has seen big growth in in sales into the new build environment at the moment. Not directly again, again through our fabricator base and installer base. So so that's the story for us, very much exposed to RMI, which we think will continue. It's looking good at the moment, and it's looking particularly good because we've always been sure in this business that if we could keep the growth going and do that without sacrificing margins, which we're able to achieve, and then deliver the operating efficiencies, then this business was gonna be, you know, a fantastic business to be a part of.

40:14 So without any more ado, I think probably good to pick up on some of the questions for which. Thank you very much indeed, Mark and Mike. If I just give you a small pause, I know you've gone through the presentation just to give the investors a bit more of an update really. But please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. But just wanted the company to take a few moments to review the investor questions already submitted during the event 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, will be made available to you post the meeting. You'll receive an e mail from us notifying when that's ready. I'd also like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can understand your views and expectations. We'd be very grateful if you were to do that. And Michael, I know I haven't given you a lot of time, but I thought I'd try and give you a few seconds between the presentation to look at the Q and A. Perhaps I could ask you to start at the top perhaps and work your way through. If I could ask you to read out the question and then give a response where it's appropriate to do so, that would be fantastic, and I'll pick up from you at the end. So back to Thank you very much indeed.

41:28 So, the first question came from Abby. Could you expand on who your closest competitors are? And the second question is, what is the process you use that gives your products the properties for strength fire resistance? So, the first thing is on our other competitors. I think I've already talked to the national competitors in the branch network, which were ECEL and Gap. ECEL are a UK PLC. Again, in the profile market, we've got if I just list through them quickly. ECELL PLC. Wicker, a wholly owned a privately owned German business owned by mister Wicker.

42:14 We've then got Linear, which is an American owned PLC, Quanix, a business that has grown very fast and is about five miles down the road from us. We've got Ray another privately owned business. But Ray Howe are a European window company sort of force fitting windows into The UK. They haven't added to their they haven't got a specific UK range, that is to say. And windows in Europe are slightly different to The UK, as you'll well be aware. And, also, Ray Hao's major focus is on underground drainage. So they have been a big competitor in the past, but much less so at the moment. The big growing one is a company called Dekernik, which is a Belgium company, PE and privately owned. It's a combination of PE and private.

43:05 Big European business. They have been growing on the back of service of the foiling market. Foiling is where we put basically, take a white PVC, and then we skin it with a foil product to make it look like oak or to make it different colors. Gray is the color of choice right at this moment. And then a business called Duraflex. Duraflex used to be the biggest supplier into new build. They would now be second biggest supplier into new build, but, you can look up, Duraflex's accounts at company house. They're now nestling with, Hilco private equity having bought them after making some horrendous losses, and I can tell you that things aren't getting any better for them. So in time, we're expecting them to disappear from the marketplace, and we're hoping to flow into that position.

43:57 On fire retardants, there are various fire retardants we can put into the product, one of which is chalk. But the particular area that we were focusing on was cavity closers. And on the cavity closer, which is doing two things so it sits between the brick outer skin and the block inner skin of a house, and there's a cavity between those. And what this does is it stops cold bridging between the outside wall to the inside wall, so you don't get any condensation buildup, but also provides a fire barrier. And in there, we use a very special type of foam, which basically is an expanded polystyrene foam, but it shrunk down to a point where it doesn't burn at all and resists fire.

44:44 As a specialist product we have, we are the only company with the right fire retardant barriers in place at the moment supplying these company closures into the marketplace. You also have to do some technical stuff as well. They have to be supported by various widgets which hold them in place given there's a fire, then everything melts around them. But we've got all that absolutely taped, and we've got all the right approvals in place for all of our products. So Nick was the next question. With a strong balance sheet in the current environment, do you see a big opportunity to grab market share? Nick, we do. But I think the inference of your question might be, do we think that we could just go buy market share through, m and a activity?

45:29 As Michael has talked to, we've got a lot of initiatives in place at the moment. We've got the new warehouse. As Michael said, we need to move some of our factories around to give ourselves more capacity, and that would give us up to another 40% capacity. We're growing the branch network. We're growing the amount of recycled that we're using in the business. And and we've also got our EUROCELL home project going, where we're selling windows directly through to consumers. We think that's quite enough to be going on with, and I don't see any m and a activity happening for at least eighteen months, maybe even longer than that. And on top of all of that, we've got the increased manufacturing efficiencies. So the the impact that our new COO has had has been profound. So we stopped all the inefficiencies that we've had in prior two years, last couple of years. So that's fantastic news, which is mainly the profits are dropping to the bottom line.

46:23 But by the way, that's only the start of the journey. You know, he's got a whole rail of he's got a whole load of actions that he's going through, which he thinks will increase the efficiency. Far from just stopping the inefficiencies we had, he thinks he can make our plant a lot more efficient than ever was. Next question from Nick. How quickly do you see the warehouse efficiencies and reorganization impacting on profitability? Michael, would you like to talk to that one? I will. Yes. So I just build on what you've said there, really. The first thing that we've been able to do largely through the manufacturing investment and the strengthening of the team is prevent the inefficiencies that we've incurred in the past happening.

47:09 The and and the warehouse will will add to that or strengthen that prevention, if you like, as we move into next year and and beyond. The the the improved efficiencies, if you like, the second part of that, is is more progressive over time. But if I if I was to quantify it, I would just look at our overall return on sales and say, you know, back in 2019, we had an EBITDA, and this is a pre IFRS 16 e b EBITDA return of of low elevens, 11% return on sales. And I think looking into sort of 2021, we'd be, you know, subject to where the markets are.

47:56 But let's assume a sensible top line. We'd be looking to improve that to to to kind of 12%, and the journey over the next two to three years would would would see us hopefully moving up to 13% and possibly beyond. So but but it is it is more progressive with with controlled growth, the key being the the the the control of the operation. I think if you looked back in history, you would see back in 2014 or '15 an EBITDA return on sales for the business of about 15%, one five. Now just a caveat on that one that in at that point in time, the underlying raw material that the the key PVC resin, and this is the virgin PVC resin, was at a relatively very low price compared to where it is today. And whilst what we will always do is when we see sustained increases in raw material costing, we will put through selling price increases to cover that off.

48:58 There is typically whilst we'll cover off the pound notes, naturally dilutive impact on the on the return on sales from from doing that. So but but the the key message here is one of a a progressively improving margin from this point onwards. So we've got quite a number of questions, so we'll try and rattle through them. From David, in terms of driving recycled usage, how far can you drive this? How much is this driven by technology? For example, how much does a co extrusion line can take in terms of recycled? Are any of your window profile competitors offering any recycled profiles to fabricators given the investment you've made in extrusion capacity over the last few years? How much of a cost advantage do you have versus competitors? And how should you rethink about it? Does this angle give you a material advantage in the new residential market? Right. So, in terms of recycled usage, we think we can probably get to about 35%.

49:52 And the reason for that is because when you are using recycled, you have to have a what is called a co extruder. So you've got two extruders working side by side, one pumping product into the middle of the profile and one skinning it. And that means you have to have new tooling for it. Tooling for PVC products is between a hundred and twenty and two hundred and fifty thousand pounds a shot. So there's a whole load of SKUs, a whole tale of products, which we don't have large production volumes on, but it just isn't worth doing them. So it's only worth doing it on the high users. So it's the normal one. It's the 20% of SKUs that makes up 80% of your product range. On the new machines that are coming on, new tools that are coming on, as technology improves, we are seeing through to 60%, 65% recycled usage.

50:44 But like I said, there's a whole tale that we'll never retool. None of our competitors are offering recycled profiles to fabricators in The UK. We do think it's an advantage which we can put into the new residential market, particularly as those guys are looking to reduce their carbon footprint. But as I said to you previously, it was always a commercial play for us. So we haven't got all the verified tests which prove exactly how much carbon we save. We are putting that together right at this moment, and then we will be pitching up into the CEOs at the new build guys to say, listen. You've got a new build. You've got a carbon reduction agenda, and we think we can significantly help in that. And why would you be buying products from other fabricators or other profile houses where there's not a recycling compound.

51:37 I hope that answers the question. A quick question from Ainsley here. How quickly can you think we could get to 300 branches? We think we will be opening up between twelve and twenty branches a year. So that's where we think any more than 20, basically, we don't think we do quite such a good job of opening them, and therefore, they don't get to to break even as fast as we would like. So you can do the calculations from there. From Robert, in terms of demonstrating your full ESG credentials from Cradle to Grave, how are thinking about communicating this to investors and customers? Does this angle give you a material advantage than you? I think we just covered that one. And how many specifically specified such recycled profiles being used in the windows? But the truth of that, Robert, is that we are going to communicate it very simply in terms of we want to do a carbon saving per ton of windows. There are about 60 windows to a ton of PVC.

52:38 So we're thinking of doing a direct comparison that if you use virgin PVC, this costs you this much carbon, and the saving for using our products with recycled carbon would be this much less. So, you know, a very simple calculation. And then we can go to a new builder, and we can actually say, we know you installed, you know, two two hundred thousand windows last year. This was your carbon input using all Virgin. If you used our windows, it would have saved you, I don't know, 40% of that and outlining what that is. Just jump in there on on in in terms of the communication, Robert, of that, what you will see in our investor communications is what Mark just outlined in terms of the the the carbon footprinting aspects will be in our 2020 annual report and in our, you know, early twenty twenty one investor comms. You know, we're very conscious of the the fact that in the past, we've spoken in terms of tons of recycled material, which means lots to us, but not so much to everybody else. So car the the the first step is carbon footprinting.

53:42 But then through the course of 2021, we'll be developing our wider ESG and sustainability objectives. So you you would expect to see by the end of next year, you know, that the fully laid out path to whatever we conclude is the right objective for EUROCELL to save so many tonnes of carbon or to be carbon neutral or what whatever we conclude the right objective is will emerge through the course of 2021. Just conscious of time here. Question from Adam. How could Brexit impact EUROCELL? We don't have any export business to speak of. It's like 1% of our turnover. I think it could impact on competitors' ability to get product into the into The UK. The biggest concern would be about, whether we can get resin supply.

54:27 Home resins of production or PVC, the raw material that we use, only 70% of it is produced in The UK. The other 30% comes from in Europe. Clearly, there could be problems getting it back into The UK. Tariffs, not too concerned about if we pick up tariffs, we are simply gonna add those to every single invoice that comes through. And how much capacity will and, Adam, again, how much more capacity will you have as a function of the new warehouse? So the way to think of this is in tons output. Last year, we output so the total products going out of our building were about 54,000 tons. We will have capacity to do through to about 76 to 78,000 tons at current efficiencies. I'm expecting the efficiencies to gain, so maybe 80,000 tons. So probably a 40% increase in in capacity for the four years for the following years. But we will need to invest in more extrusion capacity.

55:24 And currently, we've got 61 extruders, and we will have, when we've moved all of our factories around, room to put in another 17 extruders if we choose to do so. And then I guess probably the last question here is from Scott. Can you clarify the market opportunities in building plastics? Confused about the market shares. The slide said 23% for EUROCELL. The net win and gap who are both roughly half your size in the top three nationals. The following slide says independents are 80%. Am I understanding this? Right. Okay. So, the the confusion here is probably because ECELIN supply a lot of product, through their branch network. So in terms of actual number of branches, they are half our size, but, ETCwyn are actually about a 40% market share player, whereas we are only 20%.

56:16 And the reason for that is because ETCwyn supply all of the new house builders. We choose not to do so. We don't choose to drill direct with any large contractors through our branch network. And the reason for that is because the volume is very high, but then you can also take it you know, the reverse of that is that the margins are very, very low. And we think that you end up as busy fools, and we think that they come with SLAs, service level agreements, which means you have to look after your, you know, persimmon homes or your parrots, first of all. And whilst you're getting all of that product out of the back of your branch onto your lorries and servicing those, you're you're failing to service the small builder who's standing at your counter who can deliver you very, very good margins.

57:01 So we prefer to deliver an excellent service to our RMI customer base because we think that's where the money is. So we're have half the number of branches, but twice the volume going through, and Gap are roughly half our size. Absolutely true. Smaller than that, actually, at the moment because they've been closing branches and declining. But they don't have a lot of national contracts. So, also, can we assume we won't be buying anyone here between your branch expansion? Organically, yes, you can assume that. It's very difficult for us to buy anybody because the competition markets authority basically mean that we would have to if you've got a branch within somewhere around 1.8 miles and certainly two and a half miles of another similar type business when you're our size, you suddenly run into competition market authorities. They get you to divest those branches. So it's very difficult to open branch to buy branches.

57:59 And as we can open a branch for about 55 to £60,000 of capital investment and then 50 to £60,000 worth of working capital, buying branches is probably not the way forward. It's miles better for us financially to open them. So that appears to be I'm just checking here. Oh, we've got another one for Robert. Knocking there at the desk. You use your manufacturing expertise to expand into other product categories that you don't have currently? The answer to that is yes, Robert. Definitely, we think we can expand our offering. So, for example, we've extended into garden rooms and doing a lot more work on that. We also think there's room for products like an extension in a box. So with the the planning permission not being needed now for extensions of up to 15% of your house, Can we produce a very cheap product, which basically, when we say in a box, mean on the back of a lorry, which, effectively made up of structured insulated panels, our windows, our warm roof, and bi fold doors. Could we give you the opportunity to buy a very cheap extension and put it on the back of your house, which meets all the building regs, but it's a lot cheaper than putting up bricks and blocks and foundations and all that sort of stuff? So so we're working on that sort of thing to make sure that we maximize the utilization of our products. Mark, Michael, thank you. I think that was the last one that popped its way. And if any others do come up, we'll make those available on on your dashboard.

59:28 Perhaps, Mark, I could just ask you to to wrap up. I know feedback is important to you. And, of course, we will then redirect investors after you've wrapped up to give you their feedback on the company. So if I may just hand back to you momentarily. Thank you very much indeed. Well, thank you everybody for joining us this morning. We think you've joined us at a very opportune time. I've been very enthusiastic about this business, as is my management team, which we've gradually strengthened. I've brought people in from much larger businesses, and their impact is huge. The increase in the professionalism in this business, this is the best management team I've worked with since I spent time at Mars. And particularly with the addition of us now getting our operations fully under control with more efficiency savings to come, I see absolutely no reason why we should couldn't shouldn't continue to take market share, innovate, and basically just, make sure that that all drops through the bottom line by expanding our operations facilities, but in a controlled manner. So I think it's a very good time to join us.

1:00:38 I'm hoping the market will hold up, but at the moment, all the indicators appear that RMI looks to be in a very good place. And as you know, we're also boosted by new build. And just keep in mind that we're only building a 150,160,000 homes a year at the moment, and the government needs to build about 300,000 homes to accommodate all the people that live on this island. So that would be it for me. Thank you very much. On that note, Mark, thank you very much indeed, and thank you to to Michael as well for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback? If you access this meeting via our website, the feedback page will appear. And if you access this via the link sent to you via email, you'll be simply asked to log in to provide your feedback. On behalf of the management team at EUROCELL PLC, we'd like to thank you for attending today's presentation.

1:01:27 That now concludes today's session, and good afternoon to you all.