Eurocell plc (ECEL) Earnings Call Transcript & Summary

Thank you very much, Victoria, and good morning, everyone, and welcome to Eurocell Interim Trading Update for Half 1 2022. We are grateful that you could take the time out to join us this morning. As per norm, Michael and I will be splitting the presentation so that I undertake the operational review and Michael gives you the detail on the numbers. But before I go any further, I'd just like to take this opportunity to welcome Derek Mapp as our new Chairman and also Alison Littley and Kate Allum to the board. They're all getting up to speed with our business and I'm confident we'll be making a great contribution going forward. You're all very welcome. We are aware that a number of our peers in the construction sector have been reporting a more challenging RMI market. And therefore, we have refreshed our presentation for that to clearly lay out why Eurocell will continue to meet expectations. We are particularly pleased with our performance in half 1. And for full year in March, we indicated half 1, 2022 comparators will be tough, given the unseasonably high numbers achieved in half 1, 2021. Despite this, we are reporting revenue growth of 13% and with like-for-likes excluding price, almost matching 2021. We have continued to recover cost inflation through a combination of price increases and surcharges and this, combined with greater operational efficiencies has assisted with delivering the improvement of GBP 1 million or 7% rise in PBT. With the investment in operations delivering extra capacity, our sales force has been able to continue making the competing case for switching to Eurocell for competitor fabricators, and we have the strongest prospect pipeline we have seen in years. The branches have seen robust first half trading, particularly aided by range extensions that have compensated for any softness in core markets. Recycling is an absolutely core part of our business and future strategy, and continues to provide a cushion against volatile pricing of supply of virgin resin. Lastly, our customers tell us that they are still experiencing strong although volatile demand for our products and for the most part, appear to have full order books. So I'd now like to take you through some of the detail on our 2 main divisions, starting with profiles. We are splitting each division into 2 slides. But first we'll explain why we believe we were successful in half 1, 2022 and on the next slide, we'll lay out the reasons to believe for the rest of the year and importantly, into 2023. So for half 1, sales were up 17%, and as already stated, despite the tough prior year comparators, volume was almost flat. Therefore, the majority of the rise came from the recovery of input cost inflation. Looking forward, we are concerned about the impact of increasing energy costs and their impact on our suppliers and indeed, our own costs. There are some still some huge backlogs with the system for planning. Knowing that these planned formations will get released gives competence for future project work and homeowners are still working through the implications of ongoing hybrid working and therefore, investing in more space in their properties. Homeowners are also concerned about ensuring that they reduce their energy exposure and investing to improve the fabric of their house whether windows or doors. Whilst there's been some weakness in demand from smaller properties, we've seen a marked increase in the value of orders from larger properties, which appears to be compensated for the reduction in inquiries at the lower end. Some substantial changes happening in supply chain supporting new builds have given Eurocell's fabricator base, the opportunity to take more share of the new build market. This has also been beneficial for Vista doors who continue to benefit from large supply contracts from a number of Tier 1 house builders. Our recent major investments in manufacturing logistics have allowed us to deliver great service to our customer base, which is giving them the confidence to take share and sees us starting to deliver the promised operational efficiencies and, therefore, improvement on the bottom line. On the next slide, I want to turn to the outlook for Profile. Eurocell continues to take share from its profile competitors. With the additional operational capacity affording us -- afforded us by our investments in 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 threefold increase on the average sales value achieved in the prior 4 years. Additionally, we still have a strong qualified prospect list and would expect to add to this signed total by the end of the year, again supporting business for 2023. Key to the growth is our role in new build. New legislation on energy savings targets, the future home standard, which are mandatory and 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 industry consultation. The increased specifications are driving more work for our fabricators which in turn is ensuring more discussions with competitor fabricators who wish to join the Eurocell family. Another concern sales of the RMI market might be more difficult and therefore, we're looking to augment that business with the assured volume that Eurocell can generate. The specification changes driven by the future home legislation will undoubtedly mean high specifications for windows, thereby lifting the sales value to Eurocell and its fabricators across this sector. Such as the confidence of our fabrication base, but we are working with a number who wish to substantially increase capacity over the coming couple of years. As well as new build, we continue to stay 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 investment ensuring pull-through for its fabricator installer community is all part of the You Grow, We Grow philosophy that we deploy into the marketplace. Now I'd like to turn to our Building Plastics business. In half 1, the priorities traded in line with the same period in 2021, a truly excellent performance and well ahead of trading in the pre-pandemic period. Whilst we've not added new sites in 2022, we've already commissioned the first 6 sites for '23. During 2022, we took the decision to laser focus on the bottom-performing 20 branches. This initiative has resulted in a substantive improvement in customer numbers, revenue and therefore, movement through and past breakeven. On the bottom right-hand graph, you can see the contribution that outdoor living products will make to supporting sales. The outdoor living range tapped down to GBP 8.2 million worth of sales in 2021, but has already turned over GBP 6.4 million at the half year. Garden Rooms continue to be a great addition for us, with sales likely to be more than GBP 6 million by the year-end. As you can also see, the 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 about 45% of our estate to have annual sales in excess of GBP 1 million. Now I'd like to turn to the reasons underlining our confidence in the future of Building Plastics. We have a clear strategy of 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, which will still keep 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 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 every work can develop, grow, forward a long-term career with Eurocell. Our products and services are continually view to ensure they meet the exacting needs of our customers, accepting 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. We continue to extend the range of our product offerings and have some very exciting substantial new offerings lined up for next year. Again, all part of the You Grow, We Grow philosophy. Lastly is branch operations. ensuring that the branches operate efficiently and then we have a contact plan for engagement with the 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 and addressing the requirements of potentially lapsing customers. I would now like to review recycling. Recycling remains an important focus for the Eurocell team with rates of recycled content continuing to rise through H1 and now hit 28%. Due to finite supply of recycled feedstock, we still believe that recycling will cap out in the low [ 30s of the ] percentage. The increasing price of resin has put more demand on the market and slightly in feed. However, Eurocell has cultivated numerous methods for competitively sourcing the materials we need and is now in the process of signing up its fabricator base to spec their postindustrial waste as part of their supply projects. Additionally, we've now started to offer recycling of all packaging waste associated with our profile delivery, which is a huge benefit for our customers. We are now working across both recycling sites to continue to increase the yield for each ton of windows that leave our factories. Previously, we've only really been interested in extracting the white PVC, but we've now grown our internal demand for the brown product. They have always been great. We still have to go to labfill. But with the improvement of our technology, we have now found a way to utilizing the majority of this product and are targeting lifting the extraction efficiency to above 90%, currently at about 85%. We are also aware the necessity of continuing to reduce our carbon footprint. And as such, we're investing GBP 1.5 million of 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 total energy needs. This is an addition to us now sourcing the majority of our energy through renewable contracts. But further, through improving the efficiency of all of our processes, we continue to focus on the reduction of waste and energy usage throughout our organization. This aligns with 2 of our 4 lead UN sustainable development goals, responsible consumption and production and climate action, the other 2 being aligned with our people, decent work and economic growth could help and wellbeing. Our people are correlated to everything we do, we are striving to ensure the Eurocell employer of choice wherever our business is based. We have clear KPIs to assist with the reporting of these items, and these are laid out in the appendix of this presentation. Now I would like to hand over to Michael to take you through the financials.

Thanks, Mark. So let me start by going through the financial highlights on Page 9. We delivered good results for the first half against tough 2021 comparators and have now made substantial progress in sales and profits compared to the pre-pandemic period. Revenue was up 13% on '21 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. Looking a little further back, sales are up 40% compared to H1 2019. And our 3-year sales volume CAGR is now a very healthy 11%. Profit before tax increased by GBP 1 million or 7% compared to 2021 and represents a big step-up of 46% versus H1 2019. 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've been recovering successfully via selling price increases and surcharges. Our cost base also includes the impact of headcount increases and awards implemented in H2 '21 to secure the labor required to meet ongoing strong demand, plus the impact of 12 new branches opened last year. Earnings per share were 11.2p, up 13% on H1 '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 million compared to $11 million at the end of 2021. We have good headroom and liquidity on our bank facilities, despite the continuing significant impact of inflation on working capital. Turning to the full P&L on Page 10. Mark explained the drivers of our sales, and I'll come on to the components of EBITDA in a moment, but first, just looking below that line. Depreciation and amortization was GBP 11.9 million up a little on 2021 due to ongoing capital investments and new lease commitments. We expect D&A for the full year to be in the region of GBP 24 million. And just to note that I've summarized all the guidance that I'll give today in a later slide. Finance costs were GBP 1.4 million, up marginally on 2021, reflecting GBP 0.3 million of accelerated noncash amortization charges related to our previous bank facility, following the successful refinancing in May. And I'll cover the refinancing later. Finance costs for the full year should be around GBP 3 million. The tax rate for H1 was approximately 18%, which is slightly lower than the standard rate due to the benefit of Patent Box relief, and we continue to expect direct for the full year of around 19%. Moving down the P&L, basic earnings per share were 11.2p, and dividend level [ income ]. Moving on to the components of sales on Page 11. Total sales were 13% on H1 '21. Sales include 14% from selling price increases and surcharges, which continued 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 improved energy efficiency and a backlog and planning permissions driven by house moves and change in lifestyle patents such as hybrid working, partly funded by elevated levels of consumers. We're also seeing good sales from new build where the market continues to be robust, and Vista Doors also delivered another strong performance. Building Plastics 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 bi-fold doors rather than the high levels of general maintenance activity experienced last year. We spoke recently about the success of our outdoor living products, which are decking, fencing and garden rooms. Outdoor living sales were substantially higher in the period at GBP 6.4 million, up 36% compared to H1 2021. It is worth reiterating that sales were up 40% compared to the equivalent pre-pandemic period in 2019 with a 3-year sales volume CAGR at a very healthy 11%. 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. 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 recent investments in IT in structure to implement further resilience and security in this area. On to operating profit on Page 12. Profit of GBP 16.6 million represents good growth of GBP 1.3 million or 8% on very stong '21 comparative and is substantially higher than the pre-pandemic period, up more than GBP 5 million or 47% on H1 2019. Looking at the detail and moving left to right across the chart, the volume price cost category recognizes that sales volumes were flat based on trading days or slightly down on a reported basis. Selling prices and surcharges have been implemented to recover at precedented levels of input cost inflation, especially for raw materials actually fueled transport and wages. And -- on a net basis, these items are broadly neutral to our operating margin percentage in H1, although I do expect inflation to be more dilutive to margin percentage but not absolute [ and not ] profit in H2. Volumes, selling prices and operating efficiencies are also intended to recover the cost of headcount increases with a significant number of additions in H2 '21 required to secure the labor needed to meet ongoing 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 is together facilitated a more efficient operation and the delivery of much improved customer service. Bad debt for a net credit in H1 '21 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 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 tonnes of recycled compound we consumed in H1 delivered a huge absolute gross margin benefit of more than GBP 6 million compared to the cost of [ Rigid Virgin ] material, demonstrating recycling's effectiveness as a hedge against high resin prices. 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 6 new sites, which will be opened by the early part of next year. Moving on to CapEx on Page 13. The chart and table illustrate the significant investments we've made over the last 4 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 extrusions, which can be added progressively over time as volumes increase, creating a potential uplift in capacity of more than 50% compared to end of 2018. CapEx for H1, '22 was GBP 6.4 million, with approximately GBP 1.5 million to expand manufacturing capacity on key product lines. GBP 1 million on initiatives to drive further issuances in the main warehouse as well as GBP 1.5 million to improve our IT infrastructure, including measures to improve cyber security. Other spend of GBP 2.4 million includes critical spares for recycling, previous payments for solar panels and maintenance CapEx. Our guidance for '22 remains unchanged with total CapEx of approximately GBP 15 million. This includes GBP 6 million for the ongoing expansion of manufacturing capacity with a further 5 more extrusion lines, 4 folding lines and upgrade to our mixing plants. We're also investing GBP 2 million in recycling capacity and resilience and GBP 2 million on new and refurbished branches. The balance of GBP 5 million 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. Moving on to working capital on Page 14. The outflow of GBP 10 million includes a very significant impact of inflation of approximately GBP 8 million. We've done a good job protecting the P&L from unprecedented levels of cost inflation over the last 12 months, but the consequences for working capital are largely unavoidable. Looking at the individual components of working capital for 2022, stock days were 101 compared to 95 at December with stocks themselves up GBP 10 million in the first half. Of this increase, we estimate the higher input prices increased our inventory valuation by approximately GBP 6 million, with stocks of outdoor living products, up by GBP 2 million in the period. It is worth reminding you that following supply chain disruption in Q3 last year, we took advantage of raw material availability to build manufacturing stocks in Q4 and protect against the possible impact of high COVID absence of raw material shortages in the new year. Now that we have supply chain and operational stability, there is a good opportunity to improve our stock position over the next few months. On the sales ledger debtor days were 36 compared to 30th December and 34 at June '21, with the absolute balance of receivables of about GBP 11 million in H1, reflecting the impact of seasonality, selling price increases and surcharges offset by good cash direction. Finally, the payables increase of GBP 11 million since December also reflects seasonality and inflation. Looking ahead to the full year, we're going to an outflow of GBP 10 million, which implies flat working capital in the second half. This reflects the ongoing impact of inflation, although that is very difficult to predict as well as the work we did to improve our stock tools. by the end of the year. Turning to the full cash flow on Page 15, where we have all the components of an increase in net debt of GBP 4 million in H1 '22 on a pre-IFRS 16 basis. I've been through the factors drove working capital outflow, so now moving left to right across the chart. Tax paid and other of GBP 0.8 million increased tax payments of GBP 1.7 million, partially offset by a noncash movement in the provisions and share-based payments of GBP 0.9 million. CapEx of GBP 7.4 million includes the asset additions covered earlier, plus a net reduction in our CapEx creditors of GBP 1 million. Then there are financing charges of GBP 0.8 million, proceeds from our SAYE share scheme of GBP 0.2 million and the final dividend for '21 of GBP 7.2 million. This all adds up to a pre-IFRS 16 net debt increase of GBP 4 million for the first half, resulting in net debt of GBP 15 million at the end of June. IFRS 16 at GBP 56.9 million to debt at 30 June, which as you can see in the reconciliation, top right table is down GBP 1.8 million from the end of 2021. This reflects the net impact of new branch leases and renewals, less cash payments on leases of GBP 6.9 million, which is accounted for within net cash from operating activities on the left of the chart. Overall, this leads us with good liquidity and significant headroom on our facilities, thereby providing security, flexibility and options for the future. Finally, on this slide, we were very pleased to complete the refinancing about GBP 75 million sustainable RCF in May. The new facility is competitively priced with key terms largely unchanged from the previous arrangements, modest adjustments to the margin will be applied based on our performance against annual sustainability targets for recycling, emissions reduction and waste minimization. The facility matures in 2026 and includes an option to extend for a further year. Turning to Page 16. Before concluding, 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. We have this space for further expansion, and we will continue to invest to support opportunities to identify for future growth as and when they're realized. Moving to dividends. We did strong support from our shareholders, not linked to the disruptive events of 2020, for which we're very grateful. And we recognize the importance of distribution to our investors. Having now returned to dividend payments, we've increased the interest dividend by 9%, and we'll continue to target a dividend cover of 2x on an annual basis with approximately 1/3 of the total paid as an interim. Moving on to a growth opportunities have been a focus for our recent investments, acquisitions still remain one of our strategic priorities. So we will continue to explore potential M&A but with a very disciplined approach. The acquisition we do pursue must have a strategic fit and a compelling financial justification. Thereafter, we will look to maintain an efficient balance sheet. I have said before that a normalized through the cycle basis, we would aim for net debt to be at around 1x EBITDA on a pre-IFRS 16 basis. That remains unchanged, and we will consider supplementary distributions as and when appropriate. So to sum up on Page 17. We've delivered good financial results in the first half against tough 2021 comparators. Sales were up 13%, reflecting selling price increase surcharges with volumes flat on a trading day basis, which represents a good performance given the strength of last year. Our price increases and surcharges have successfully recovered input cost inflation, and it is pleasing to report that our investments in capacity are now delivering improved operating efficiencies. This leaves operating profit 8% up on H1 '21 and demonstrates substantial progress in both sales and profits compared to the pre-pandemic period. We have a strong balance sheet with good liquidity and headroom on our debt facilities. Looking forward, customers are still reporting full order books and robust second half trading. We're continuing to take market share. And whilst we recognize the current elevated levels of macroeconomic uncertainty, we remain comfortable with the outlook for the remainder of the year. And with that, back to Mark.

Thank you, Michael. On this final slide, we want to detail why Eurocell will continue to be successful despite a more challenging economic backdrop. 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. We believe we are well placed to face into the challenges ahead which will give us an opportunity to take further market share. In our Profiles business, we'll continue to drive demand for our fabricators and bring on new competitive fabricators are looking for some volume assurance. And this can be supported by the increase of volume that we expect to be able to drive through the increasing complexity of building regulations, particularly in the new build sector. The branch business will continue to drive forward, increasing customer contact, widening the product offering and show strict adherence to the things that matter to our customers, particularly availability, product and easy access of sites. We will continue to drive 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 continue to push for more business. And lastly, all of this will be supported by continued growth of our recycling operations, 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 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 markets and our initiatives to take market share continue to be very successful. We are laser-focused on understanding delivering our customers' needs to ensure that we support them to be to the very best of our ability. We are financially robust, well placed in our markets and have compelling sustainability credentials underpinned by recycling. Altogether, this gives us a good level of confidence in the future. Thank you very much for listening. So I think we hand back over to Victoria, who will bring on any questions.

[Operator Instructions] And our first question comes from David O'Brien at Goodbody.

A couple for me, please. Just starting out maybe on the outlook for the second half, you've described July and August trading as robust. I guess could you give us a sense of what kind of volume aspirations you have for Profiles after Building Plastics in the second half of the year? And on the type of volumes, I guess could you give -- you've given the sales or I'm just wondering where are the like-for-like branch volumes now in Building Plastics versus 2019 levels? And then in terms of profile, specifically encouraging to see the 18 account wins. And I'm just looking at Slide 13, what in terms of tonnes of production do they bring into the business and where does it put capacity utilization if you were to include those accounts kind of pro forma or whatever they traded in 2020, 2021 and 2022. And then finally, just on the topic of capital deployment. You've talked about running to rule over M&A and -- just wondering if you could give us some color on what the pipeline of acquisitions looks like or the opportunities out there? What type of businesses that you do want to look at and within the whole paradigm deployment, your balance sheet is clearly very strong. How do you guys balance in decision between acquiring businesses on whatever multiple that they will come at versus buying back essentially Eurocell equity in the market for less than 5x the EBITDA?

Thank you, David. I would like all the 3 questions here, but we'll -- I think we have all written down. So thanks for your interest on that. Michael is going to take the first one on the Profiles and branch volumes.

July, August volumes in both businesses are low single digits up on 2021. And if I look at the outlook for the full year, I think volumes are going to be broadly flat with 2021 across the full year. Remember in saying that, that in 2021, we were a little skewed towards first half. So the first half was stronger and therefore, the comparatives get a little bit easier, a little bit easier in the second half. EDP is flat on a trading day basis in the first half, and it's still at about that level as of today.

If we look at the capacity and profile sales, David, in total sales, we're probably bringing on that we've signed up already. And we're expecting, by the way, to sign up more, we've got a very strong pipeline, which we're actively engaged with at the moment. It would probably be about another 5,000 tonnes of product. This year, we'll probably come out at about 55,000 tonnes. And we've got about 72,000 tonnes of output around us at the moment. So we've got plenty of spare capacity, which is encouraging us to go even harder and bring on more competitors there. Michael, do you want to speak on the M&A front?

Can you just remind me of the question, David, on M&A.

Firstly, on M&A, I guess, what type of businesses are you looking at? And what is the pipeline of opportunities like -- but then just added to the whole dynamic and the optionality in front of you, given the strength of the balance sheet, how do you weigh your buying other businesses out there that clearly well while your own business is trading on less than 5x EBITDA?

Okay. Well, in terms of M&A, as I said, the focus at the moment is very much on the organic position. So there's nothing in the M&A pipeline at the moment. And with the way we see the market place and the environment, I don't necessarily see that changing in the short term. What I'm saying is that M&A remains one of our strategic priorities, so it is on the agenda. In terms of businesses that we're interested in, as you know, we like vertical integration. We like the opportunity of the utilization of our national network of branches. So to the extent that we can find products, we can vertically integrate and then sell through the branch network, those are the sorts of things that might, for example, be attractive to us. But I would -- just put this down the priority at the moment in terms of what we are looking at. And in terms of uses of capital, right at this moment, clearly, the outlook is an uncertain one. And therefore, I sit here very comfortably with a strong balance sheet and plenty of headroom and liquidity around me. And I think just right at this moment, that's the right position to be in.

David, there have been a number of businesses to come across our desk that we've got to look at interestingly enough, they're all opportunistic from the point of view of they're predicated on a fantastic 2021, which apparently is going to continue forever. And the sort of multiples they're looking back at that for and the returns are predicated on that growth of '21 going straight through '22 and '23, which are funny enough, I don't think many of them have got a way right at this moment, probably not the time to be buying.

I guess -- sorry, a follow-up. And I know it's a tricky given the level uncertainty as we look into '23. But I guess maybe then, you could give us some color on the comment that I guess, supplementary distributions are in [indiscernible] when appropriate, I guess, what for you is a more appropriate time given the strength of the balance sheet looks really good. It doesn't look like there's M&A in the half or near term. And I know you've got your organic investments, but there seems like there's a mundane capital to -- at your disposal. So I guess when is appropriate or what should we look at as external observers as a company?

Well, I would say, if we're sitting on net cash for an extended period of time, then that would probably precipitate -- move in that direction. But right at this moment, we want to see how things unfold over the next few months in this marketplace. And again, I go back to, at the moment, the -- what wins the day for me is the strength of the balance sheet position from a defensive perspective, whilst we don't know how things are going to unfold.

Our next question comes from Clyde Lewis at Peel Hunt.

I think, like David, I've got 4 as well. Just I suppose one quick one on market volumes for the first half of '22. What's your best guess as to what you think the market for, I suppose, both Profiles and Building Plastics has done. The first one. Secondly, on supply chain issues. I think you sort of referred briefly to them having sort of settled down a little bit. I mean, where are we, I suppose, relative to 2019 levels in terms of your ability to get your -- get your hands on resin in particular, but other sort of key products as well within the manufacturing process and also maybe within Building Plastics as well. And the third one was around competitors. It would be useful maybe to get a little bit of an update as to whether you're seeing any capacitors at new capacity at all in extrusion or new branches being sort of opened up? Or any sort of deals that are happening there? And then -- the last one was on, I suppose, the process of bringing the new clients on, I mean, if I'm right, historically, I was -- used to say sort of it takes a little bit of time and there's a bit of upfront cost for when you bring new clients on, you've got to, I think, provide them with the tooling, I think, to take the exact profile that you've got compared to what they're currently using. And it would be useful just to sort of understand the, I suppose, the implications on sort of revenue and costs as the new customers come on through.

Right. Thank you. Thank you, Clyde. I guess on the market, very difficult because all know we to do the -- and our comparators basically match what happened in the first half 2021. And as we've said, we've still got customers with strong order books, which we've definitely seen a change in the marketplace. There's no doubt about that. We are seeing that the renovation work and particularly lower income houses are no longer replacing their windows and such like. But we're seeing that Middle England is getting a lot more value. So some of the anecdotes are that the market or window demand inquiries is down about 35%, but the value is up about 55%, so more than contributing. So I don't think we've seen a big move down yet, Clyde, in the marketplace, probably going to come in as heating costs build and build through H2 and obviously through into 2023. Our counter to that is, we accept the RMI is going to soften and that what we need to do is take the opportunity to basically grab market share using the capacity that's available to us. And that's exactly what we're doing. But I wouldn't like to put a number on it, Clyde. But at the moment, I don't think there's anything too disastrous going on. And knowing I was doing these presentations. I spoke to a number of fabricators yesterday, and they all seem very confident. They're seeing full order books and nothing too much deteriorating right at this way. So I'm being specific on it, but I guess you would expect me to give you a number. So supply lines issues, [indiscernible] is about resin produce is such a core ingredient the moment. What we are seeing at the moment is the resin markets have changed dramatically. We -- Europe used to be one of the lowest priced markets in the world. It is now one of the highest priced markets as such is now attracting a lot of import interest, which is putting a lot of pressure on the resin houses to start dropping prices and feeding that through to us. They are basically, they are fighting back against that. The drops are definitely coming, but there is a concern now about the fact that they have hedged their energy, and they're going to be pushing energy prices through to us. So that is a concern. What I imagine they will try and do is cancel the drops that might be coming because of reduction in ethylene price with increased energy prices. However, however, there are now a lot of interest from importers. And so we will be looking to balance our portfolio of supply from maybe engaging with some importers we've done before, particularly from the U.S., but from around the world, we can get sources. It's just making sure we've got a robust supply chain. And hopefully, that will keep everybody honest. What we are concerned about is if the energy goes up too much, couple of resin houses are threatening to close down production in Europe, so all lease limited. But like I said, lots of volume available from the U.S. at the moment and supply chain is coming -- I think we can find a way through this, Clyde, which should leave us well protected. And if we see a bit of interruption coming, then we'll just lay down a little bit more stock to make sure we're cushioned against that. Competitors, not seeing competitors putting on any new capacity right at this moment. We are seeing one group opening up a few more branches or one of our national competitors, which is a gap, which is on a few more branches. They're opening. I mean, fairly close proximity to us, which we don't mean to understand what's going there, but we're trying to discourage that. But no new capacity coming to this moment. I think we're well placed. We are the only guys, as you know, who runs substantive sales forces in commercial and new build and deep technical help lines and all that sort of stuff. This future homes projects should not be underestimated. It's very complicated and new build has to comply. And they've done walls, they've done ceilings, they've done flooring, the area that they're going to get their [indiscernible] reductions in the future on through windows and doors. And that's going to force that compliance. So we're in a good place there revising all of the tier -- top-tier house builders and regional house builders. So new clients, you're right, Clyde. It takes us about 16 to 20 weeks to bring on a new client. And the reason for that is it's a Profile customer. And the reason for that is because we have to change all of their software on all of their store centers and welding and corner cleaners and all of that sort of that -- it's all proprietary software. So we're reliant on the engineers of those companies to get around there and change it. We also have to change all of the tooling. Yes, we do have to support the changeover, and we do -- we will put money into which will the cost of the contract. It varies by customer because every customer's requirements are different as to they're looking for to make the switch to us. Sometimes they just want volume from us. Sometimes they bought machinery. But we listen to their needs. We work way forward with them, which is profitable for us and mutually beneficial for that as well. [indiscernible] but customer side now will only be making a small contribution in 2022. The contribution will really come live through 2023.

I think so. I think so. Thank you very much.

Thanks, Clyde.

Our next question comes from [indiscernible] [ Mahinda Raja ] at Berenberg.

Three questions for me, I think. First is just on what sort of price increases you might need for the second half. Just on that commentary, I guess, that margin percentage rises will be diluted. And I guess what are the pinch points? I guess you touched on resin there, but your own energy, labor, I guess, what's sort of that cost up in H2? And I guess what do you need to offset it? And the second question was on that sort of comment you made around increasingly using your customer's waste or post-industrial waste, I guess how will those contracts be structured will they get charged due? Or would it come off the initial price? And then also would that be cheaper than what you're paying for consumer rate for guessing that's widen the gap versus Virgin resin? And then the third one is just on the cyber attack, I understand you're going to -- the insurance is going to cover costs. But do you think you could also catch up those lost sales over the second half and potentially a double benefit or those sales would have gone now?

Can we do the reverse order, Lash. So the cyber attack, we think the majority of the sales -- we kept up and trading the whole time, but we had to move to manual systems. We think the majority of the sales were lost in the branch where they weren't lost in the profile of customers because the profile of customers obviously are tied to our system so we managed to get all the kit out to them. So that was a big issue. The sales were lost in the branches. The cyber attack hit us on a Friday. So we lost Friday sales. And then Saturday sales. And then by Monday, we sorted out going to manual paperwork because clearly, we had to train the staff there, Monday, Tuesday, probably lost a few sales there. And then for the rest of the week, we're on manual systems, which did provide some queues in the branches. So it's quite clear that customers worked elsewhere. So I have no doubt they satisfy their requirements, and they would have done those with some of our competitors. And so I think those sales are lost and will not be coming back, but no sales lost in Profile. And we think the sales loss were probably somewhere around GBP 3 million to GBP 4 million and we all get compensation, maybe a bit more than that. And we'll get a compensation back from a -- full conversation from that, we believe, through our insurance companies who we're fully engaged in. But the reason we can't sign on that is because funnily enough, they want to see what the next 3 months trading looks like to see if we do get all of those sales back. So -- but the it's a retail sales people want fulfillment on the day. So they're gone, I'm afraid. Recycling waste, there's -- we're not struggling to get the recycling waste we need right at this moment last [ Thursday ] a huge delta, clearly between Virgin resin and the price that we produce recycled for product for. And so we've lifted the price a little bit, but we're doing a lot more work on collections, which don't cost us anything and on bringing more post industrial into the business. So we're not concerned and our aim is to manufacture more than we need and if so, sell that off site because very good prices to be achieved or selling resin off our sites if we can make more than we are actually able to use in our business. So it's a balancing act, but it's -- we're not too concerned about where it is right. Mike, do you want to pick up the price increases?

So just on price increases. If we go back to the first half, we had a normal annual price increase, which was depending on where we're in the market, 6% or 7% in February. We then had to put our surcharges up in April off the back of increasing resin costs, which was something we don't anticipate doing it at the beginning of the year. So that's kind of what's driving the 14% increase in sales coming from selling prices and surcharges in H1. In H2, we are seeing further raw material increases, so oil itself, aluminum, on top of fuel and transport all increasing, alongside the cost of post-consumer waste for the recycling as well. We are just in the process of evaluating what we're going to do about that because resin costs has to come into this mix as well and what happens there. So I can't give you an answer today on exactly what we're going to do about that. What I can say is that I would still anticipate that volumes for the full year are going to be around about flat with 2021.

I mean the biggest concern Lash is just where energy goes and what needs to be recovered on that.

Yes, actually, you did -- sorry, you did ask about energy. We've got a reasonable amount of protection in 2022, not full, but a reasonable amount of protection from our hedging policy, which is a 12-month hedging policy, which we extended immediately out of lockdown on a risk management basis and that kind of paid off a little bit. But as Mark said, the resin guys are looking at potential energy surcharges at the moment. And we have far less protection going into 2023 on energy despite the fact that we still continue with a 12-month hedging policy.

At this time, there are no further telephone questions. And now I'd like to pass back over for any webcast questions.

We don't seem to have any webcast questions at the moment.

In this case, I would like to pass back over to you, Mark.

Thank you, everybody. Thank you very much indeed for your support and listening for us today. I'll just go back to the summary. We delivered a great first half performance. We recognize RMI is probably going to weaken a little bit, due to trade -- our result there is to make good by taking market share. We have always been able to take market share. We have been hindered by the lack of capacity. We now have capacity around us and we can make the compelling case for Eurocell with a lot of competitor fabricators, which is where we focused. But as we've said, we're going back to -- we've already got the first 6 branches for 2023 already on the brand already on the books and start to be developed. We're absolutely laser-focused on our customers. And we're going to support them by bringing on new products, which will -- even if they're not able to install windows, they'll have other products like all the lots and the hardware and hinges surrounding windows where maybe people should have been replacing their products. But in actual fact, they're just going to repair them, will still living to be made for our customers, but they need to come to Eurocell to go branches to come and get all those products. So we are pretty confident we will go forward and meet the expectations of the city. We feel well placed and very confident moving ahead. So thank you very much indeed for your support.

Thank you.