Eurocell plc (ECEL) Earnings Call Transcript & Summary

Good day, and welcome to the Eurocell plc Half Year Results Announcement Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Darren Waters, Chief Executive of Eurocell, to begin the conference. Darren, over to you.

Thank you, and welcome, everyone. Thanks for joining us this morning. I'm Darren Waters, CEO. Alongside me is Michael Scott, CFO. So the headline level, I'm pleased to report that we've delivered a decent first half performance with profits up 33% at GBP 8 million, despite a tough market environment. And if you cast your minds back to last year, during the first half of 2023, we were impacted by the downturn in the new build market. This year, we've experienced a combined effect of a weak housing market and a softer demand in RMI. Even though the CPA are reporting a 6% fall in private RMI, my view is that the overall market is down as much as 10% versus 2023. So I think we've done well to mitigate that with a 5% drop in revenues, and that's largely as a result of the progress we are making on our strategic initiatives, and we'll cover that in more detail later in our presentation. In July and August, we've seen some early signs of a slight pickup in demand from the housing market, which is obviously very welcome, and we're, therefore, sticking to our full-year expectations of GBP 20 million profit before tax. We're also committed to delivering improved shareholder returns through a combination of a progressive ordinary dividend policy and share buybacks. And in the first half, we successfully completed 2 share buybacks worth GBP 10 million in total; and today, I'm pleased to announce that we intend to commence a third buyback of up to GBP 5 million. We've been able to do this because of our strong balance sheet and good cash generation. So in summary, a good first half and a foundation that we hope to now build upon. And I'm now going to hand over to Michael who will run through our financial performance in more detail.

Thanks, Darren. So I'll start by going through the financial highlights on Page 5. As you know, trading conditions have continued to be challenging. Revenues were down 5% with volumes 3% lower. Despite lower sales, adjusted profit before tax increased by 33% compared to H1 2023. We proactively managed our gross margin and benefited from lower input costs. Adjusted earnings per share, up 30%, reflects improved profitability and a higher tax rate. Cash generation remains good, up 5%, driven by a continued focus on managing working capital. Net debt is low at GBP 4.3 million, and we have good headroom on our debt facility. Following the launch of our new strategy earlier this year, we've updated our capital allocation policy. The Board is focused on driving shareholder returns through a combination of progressive ordinary dividend and share buybacks. The interim dividend for 2024 of 2.2p per share is up 10% on H1 '23. And following the successful completion of a GBP 10 million share buyback in the first half, we've launched a further GBP 5 million buyback today. Turning to the full P&L on Page 6. I'll come on to the drivers of our sales performance and the other components of EBITDA in a moment, but first, just looking below that line, depreciation and amortization was GBP 12.5 million, up slightly on H1 '23. And with our CapEx program and lease renewals, we expect D&A for the full year to be in the region of GBP 25 million. And just to note that I've summarized all of our technical financial guidance at the end. Finance costs were GBP 1.3 million, down GBP 0.3 million on H1 '23, reflecting lower utilization of our debt facilities. The tax rate for H1 was approximately 24%, which is slightly lower than the standard rate due to the benefit of Patent Box relief, but higher than 23% due to the increase in the rate of corporation tax from April last year. Moving down to P&L. Basic earnings per share were 5.6p, and dividends, I've already covered. The first half non-underlying charge of GBP 0.4 million reflects implementation costs for our strategic IT projects. These costs have been charged to the P&L rather than capitalized in accordance with the accounting rules for solutions, which are cloud-based, known as software-as-a-service. They've been treated as non-underlying on the basis that these are material multiyear projects, which underpin our strategy. And I'll pick up the ERP systems replacement project later in the presentation. Moving on to our sales performance on Page 7. Revenues were down 5% in H1, with volumes 3% lower. As you know, tough trading conditions have been exacerbated by wet weather and the general election this year. RMI activity is being hit by low consumer confidence and the residential construction market remains weak after successive interest rate rises and falling house prices. Profile sales, down 9% with volumes 8% lower, reflects a weak market. Albeit to support volume, we have selectively added a small number of profitable new accounts over the last 18 months, leading to modest market share gains. Branch network sales were down 2%. Underlying volumes were lower, reflecting subdued RMI activity, and we have continued to experience competitive pricing pressure in the branch network. However, set against that, we see an encouraging early progress with our new strategic initiatives, including garden rooms, windows and doors and increased e-commerce business, which has provided some mitigation for the branch network. On to adjusted operating profit on Page 8. Profit of GBP 9.3 million represents an increase of 22% on H1 2023. Moving left to right across the chart, volume of GBP 3.3 million includes the impact of sales volumes down 3% and the adverse effect of operational gearing. Margin of GBP 6.2 million had several components. Whilst revenues include the impact of selling price increases implemented to offset overhead cost inflation, increased competition for limited demand continues to drive pricing pressure in the branch network. However, we continue to proactively manage our gross margin and cost base and have benefited from a reduction in input costs, including PVC resin, electricity and recycling feedstock. Whilst there are only a limited number of PVC resin and other key raw material suppliers, we have successfully identified alternative sources and introduced other initiatives to drive competitive tension in our supply chain. For electricity, we operate a rolling forward hedging policy. In 2023, we were paying rates locked in June '22 when wholesale energy prices peaked. We're now benefiting from lower energy prices forwarded to last year, and our rates are substantially hedged for the remainder of 2024. For our recycling business, last year, a weaker RMI market and fewer window replacements restricted feedstock availability, resulting in a significant increase in purchase prices. However, we've made good progress securing additional sources of supply, which alongside reduced demand and lower virgin resin prices have seen feedstock prices ease this year, resulting in a cost -- in costs of GBP 3.8 million below H1 '23. Looking beyond the chart, the net delta between the production cost of recycled material and the buying price of virgin compound has remained similar to 2023, reflecting reduced feedstock prices and lower virgin resin costs. So the economics of recycling remain attractive. The 9,100 tonnes of recycled material we consumed in H1 '24 delivered an absolute gross margin benefit of more than GBP 1 million compared to the cost of using virgin material. Moving along the chart, labor inflation of GBP 2.1 million represents our April '24 pay award of 4%, which together with other overhead cost of inflation of approximately GBP 1.6 million, we have offset with selling price increases. Variable labor costs are higher as we anticipate bonuses and share-based payment charges returning to normal levels this year. And digital marketing costs reflects increased investment to support our strategic initiatives. Finally, restructuring savings of GBP 2 million is the annualizing benefit of the cost reduction program completed in June '23. In summary, profits are up despite lower sales volumes, primarily due to lower input costs, supported by a proactive management of the gross margin and costs. Moving on to CapEx on Page 9. Investment of GBP 4.5 million in H1 was mostly maintenance CapEx. Our guidance for 2024 is for total CapEx of approximately GBP 12 million. This is again primarily maintenance related, but also includes GBP 2 million to support our strategic initiatives and GBP 2 million for branch refurbishments and relocations. As noted earlier, implementation costs for cloud-based software-as-a-service solution is charged to the P&L rather than capitalized. Our ERP system replacement falls into this category with GBP 0.4 million charged to the P&L as a non-underlying item in the first half. We estimate non-underlying costs on the ERP project will be approximately GBP 3 million for the full year, and I'll provide further detail on the project in the strategy section of the presentation. Coming back to CapEx, the chart illustrates the significant investments we've made over the last few years to build out the infrastructure required to resolve operational constraints. As a result, we now have manufacturing, recycling and warehousing capacity in place well ahead of demand, which is an important component of being ready and well placed to deliver on our strategy and to benefit from a market recovery whenever that comes. Moving to Working Capital on Page 10, where we have a net inflow of GBP 0.9 million. Stock days were 88 compared to 84 at December and 86 at June 2023 with stocks themselves up GBP 1.3 million this year, increasing slightly in support of our strategic initiatives. This follows the successful stock optimization program in 2023, which saw a GBP 13 million reduction in inventory over the year. On the sales ledger, debtor days were 32 compared to 27 at December and 34 at June 2023, with the absolute balance of receivables up GBP 5.7 million in the first half, reflecting the impact of seasonality, offset by good cash collection. Finally, the payables increase of GBP 7.9 million since December '23 also reflects the impact of seasonality. Looking ahead to the full year, we're guiding to an outflow of up to GBP 3 million, reflecting the impact of our strategic growth initiatives. Turning to the full cash flow on Page 11, where we have the components of a small increase in net debt in the first half on a pre-IFRS 16 basis. I've been through the factors driving the working capital improvement. So now moving left to right across the chart, non-underlying costs resulted in outflow of GBP 0.4 million. Tax paid and other of GBP 0.4 million includes tax payments on account of GBP 1.1 million, offset by share-based payments and other noncash items of GBP 0.7 million. Cash CapEx payments of GBP 5 million included the asset additions covered earlier, plus a small reduction in our capital growth. After financing charges, the GBP 10 million share buyback and dividends paid of GBP 3.8 million, this adds up to a pre-IFRS 16 net debt increase of GBP 4.7 million, resulting in net debt of GBP 4.3 million at the end of June. IFRS 16 at GBP 57 million of debt, which, as you can see in the reconciliation table top right, is down GBP 2 million compared to December 2023. This reflects the net impact of branch and other lease renewals of GBP 5.9 million, less cash payments on leases of GBP 7.9 million, which were accounted for within net cash from operating activities on the left of the chart. Overall, this leaves us with a strong balance sheet and liquidity position, with good headroom on our GBP 75 million on bank facility, which doesn't mature until May 2027, thereby providing security, flexibility and options for the future. Turning to capital allocation on Slide 12. Following the launch of our new strategy, we've now updated our capital allocation policy. Going forward, we intend to drive shareholder returns through a combination of a progressive ordinary dividend and supplementary distributions currently in the form of share buybacks. Moving left to right across the chart, our overall approach to capital allocation is as follows: we will continue to prioritize organic investment in line with our strategic plan, supporting initiatives to drive profitable growth in the branch network, continuous improvement in operations and to upgrade our IT systems. On dividends, our updated policy recognizes the importance of the ordinary dividend, and we believe a progressive dividend is right for this business, providing a predictable income stream for our investors. The Board has taken the decision that employee incentivization by equity should be through shares acquired rather than issued, and therefore, we will look to maintain sufficient treasury shares to satisfy employee share options expected to vest over the next 2 years. Moving on, although our strategy highlights organic growth opportunities and business improvements, we will also continue to explore potential M&A, but with a very disciplined approach. And the acquisition we did pursue must have a clear strategic fit and a compelling financial justification. Thereafter, we intend to enhance shareholder returns through a supplementary distribution, currently in the form of share buybacks, subject always to maintaining a strong financial position with net debt not to exceed 1x EBITDA. And we're pleased to confirm that following the completion of the GBP 10 million buyback in H1, we have today launched a further buyback of up to GBP 5 million, which will begin in meeting. So to sum up on Page 13, adjusted PBT was up 33% despite lower sales, reflecting proactive gross margin management, combined with lower input costs, partially offset by lower sales volumes and the impact of competitive pressure on selling prices in the branches. Trading conditions remain tough, but our expectations for the full year are unchanged. We've continued to focus on working capital management, so our debt remains low, and we have good headroom and liquidity in our bank facility. We have well-invested facilities and available operating capacity, which leaves the business well positioned to successfully deliver on our strategy and to benefit when markets recover. Finally, we've updated our capital allocation policy and are focused on driving shareholder returns through a combination of a progressive ordinary dividend and share buyback. Proceed to the right of the slide, there's a summary of our technical financial guidance, which I hope is helpful. And with that, back to Darren to update you on progress with our strategy.

Thanks, Michael. So just a reminder of the strategy that we announced earlier this year in which we set out the initiatives that will drive Eurocell towards a GBP 500 million business, generating GBP 50 million in operating profit by 2028. I'm pleased to report that we're making good progress on all of these. Let's start with branch network then. So we completed a detailed study of the U.K. market, both in terms of demand and the key success factors that drive branch performance. Back in March, we said that we were looking to grow our network to 250 branches over the life of this plan, and the work that we've done with [ Cathy ], our location planning partner, fully supports that target with specific locations now identified. We'll, therefore, be opening 2 new branches in quarter 4, which are Bishops Stortford and Watford, with another 6 already planned for the first quarter next year, the majority of these in the Southeast. A further 11 locations have been identified as high priority, which we will aim to progress in 2025, subject to suitable sites being available. We're also taking the opportunity to relocate branches to better alternative units as leases expire, and we will complete 3 relocations this year, that's Shrewsbury, Preston and Sheffield with a further 4 planned for next year. All of our new branches will display our new branding and signage with doors and windows now featuring more prominently, and we opened our new Wembley branch at the end of April, which you can see here, and we've made a great start with sales already running ahead of target. When I joined the business, one of my early observations was that we weren't selling many doors and windows through the branches, and I was determined to change that. This is now a core part of our branch proposition with windows being supplied by Eurocell trade fabricators at competitive prices alongside Vista composite doors, manufactured in-house at our Birkenhead factory. We believe that we have the capacity to deliver a fivefold increase in the number of doors and windows being sold through our branches by targeting professional door and window installers, many of whom are already existing branch customers, but buying competitor's doors and windows. Our plan assumes that sales would reach 50% of capacity in the next 3 to 5 years and deliver GBP 35 million in incremental sales. So how are we doing? Well, a reminder that we kicked off this program last November in 6 trial branches, that was very successful with sales through these running now at 64% of maximum capacity. We plan to have 54 branches live by the end of this year. But by working proactively with our fabricator partners, we've been able to increase capacity and accelerate the program with 60 branches now operational. We're, therefore, now targeting to have 100 branches operational by year-end, and we're on track to do that. It takes about 3 months to build sales. So if you look at Phase 2 and 3 of the rollout, we're already running at 50% of capacity, which is, again, very encouraging and validates the revenue assumptions that we made when sizing this opportunity. Turning to our extended living range of garden rooms and extensions. We are again on track with sales of garden rooms up almost 80% on last year at GBP 3.6 million with GBP 1.3 million of open orders. Extensions have been a little slower to take off, but we are refining our lead generation campaign and expect this to deliver improved sales moving forward. On digital, the improvements that we've made to our website in terms of site structure and navigation have made a big difference to the customer journey and sales performance. This, combined with our improved SEO ranking, has delivered a 200% increase in organic traffic and a 40% improvement in online sales. We recently introduced a 1-hour Click-and-Collect through the branch network, and we plan to extend the range of products available through a drop-ship program. Our digital activity is also helping to attract more new customers to branches with 6,500 new accounts opened this year. And we're now working on converting these into credit accounts as credit accounts spend 5x more, shop 3x more frequently and are 25% more loyal.

So moving on to business effectiveness on Page 22. Our objective here is to make Eurocell a lean and efficient business. So we're upgrading our business systems to increase efficiencies and improve the customer experience. We're in the process of replacing our ERP systems. The first stage is to implement a trade counter system in the branch network. Having selected intact IQ, we've now started to build and plan to transition in the first half of '25. This will transform the way we interact and transact with our customers in the branches, including simplified processes and the use of electronic point-of-sale functionality. The second stage is to implement an ERP system to support all other functions of the business, including manufacturing, recycling, distribution and finance. Having selected IFS, the build will begin later this year, and transition should be completed around mid '26. Here, the objective is to improve efficiency via the automation of key business processes and deliver better management information for faster decision-making. Overall, as previously reported, we expect total cost of the project to be around GBP 10 million over the next 3 years. We'll manage risk very carefully with Board oversight and a highly experienced IT Director in place. We're also embedding a continuous improvement philosophy in the business, which is highlighting opportunities for efficiencies, particularly in our manufacturing and recycling operations. Our initiative to sell more doors and windows through the branches will utilize spare capacity that we already have in our extrusion and composite door businesses, thereby helping to make us more efficient. We'll also continue to target better use of our operational footprint and drive process innovation, where technologies such as digital printing have the potential to reduce cost and improve our environmental performance. Now back to Darren to cover people first.

Thanks, Michael. Yes, on people first, we've launched our Eurocell & You people brand, and we're starting to get really strong engagement with the new culture that we're trying to cultivate. And this is evidenced in our health and safety performance, where we've seen a 50% drop in our lost time injury frequency rate. Internal communications are now much better, and we're promoting our values through the launch of our Proud awards, which is our new employee recognition scheme. We've also launched our new Careers website, which has helped to generate a 17% increase in the number of job applications. And as I get around the business, employees are telling me that they are seeing these positive changes beginning to filter through, and I genuinely believe that we're on course to make Eurocell a great place to work. Now back to Michael, who will cover ESG.

With ESG, we want to earn a reputation for being a truly responsible company. As you know, Eurocell is already a leader in PVC recycling, preventing 3 million waste windows being sent to landfill every year. We've now increased the proportion of recycled material used in our manufacturing up to 33%, which drives significant cost and carbon savings compared to the use of virgin materials, and we have a target to reach 40% by 2030. So that's just one aspect of ESG. And looking ahead, we aim to excel in all areas. We're working with a specialist ESG consultancy to support the development of our ESG objectives, data collection and disclosures, supported by appropriate governance and controls monitored through our Board-led social values and ESG Committee. Our work so far included baseline carbon footprint, including Scope 1, 2 and 3 emissions. And our focus in 2024 is to determine a path to reach net zero by our target date of 2045. This will include filing science-based targets with SBTi and developing and publishing our net zero transition plan with the 2024 annual report. The charts to the right illustrate the actions under consideration to reduce our Scope 1 and 2 emissions, which include transition to 100% renewable electricity as soon as possible and to low-carbon commercial vehicles progressively over time. Scope 3, our most likely decarbonization levers include maximizing the use of recycled material and working with our suppliers to set and meet their own science-based targets, which should support our conversion to a commercially viable low-carbon alternative to virgin PVC for the balance of our resin requirements. Finally, we're also making progress on the other initiatives we have to drive carbon reduction, including further investment in on-site electricity generation through the installation of solar panels at our largest operating facilities. Now back to Darren to sum up.

Thanks, Michael. So as we said, I think a pleasing first half performance with profits up 1/3 compared to this time last year. Some good early momentum beginning to build with our strategic initiatives. And obviously, we are leaving our full-year performance unchanged. So some good progress, I think, and the team are looking forward to continue that as we look forward. We'll now obviously take any questions.

[Operator Instructions] And your first question comes from the line of Toby Thorrington from Equity Development.

Just a couple of quick ones from me if that's okay, one on gross margin and one on the year-end balance sheet position, probably both Michael, I guess. So well done on gross margin development, good sequential improvement there in the first half and obviously now north of 50%, which I think in a historic context is as good as it's been sort of low 50s, 52%, something of that order. I'm just wondering, obviously, input prices declined, and there can be a bit of a lag in price catch up and all those kind of things. I'm just wondering whether you think the gross margin at current levels, is this a sort of sustainable number. There might be a mix effect behind that. That's the first question.

Okay. So I think 52.5% in the first half, as we said, significant reduction in input costs. For the full year, I think a margin closer to 52% debt would be the place to be thinking. And that is because there is a mix effect with our strategic initiatives delivering more growth in the second half there, I'm thinking garden rooms, windows and doors initiative and digital specifically. And certainly, garden rooms and windows and doors, whilst they have mid-teen returns overall, have a lower gross margin. So I'd be thinking of 52% for the full -- for the second half. Looking beyond that, look, it's up to us to maintain our gross margin in that sort of place. And where appropriate, we will pass the cost of increasing input costs on to our customers. We need to make a fair return, so it's important that we do that.

And I think the only thing I'd add to that is that we are taking a kind of a more robust stance on pricing. As a market leader, I think it falls upon us to, I think, show price leadership. And we need to make a certain margin. And I think we're in the right place.

Yes. Okay. That's pretty clear. I'm just trying to get to whether you thought there's anything sort of unusual one-off nature, temporary nature, but that doesn't sound like it. So that's pretty clear. Just quick back-of-the-fag-packet [indiscernible] cash flow. Absent share buybacks, I know you flagged another GBP 5 million program, but if you just put that to one side for a second, year-end net debt looks like another sort of GBP 5 million outflow, about GBP 10 million. Michael, would that be broadly right?

I'd expect us to be around about GBP 10 million, GBP 11 million inclusive of the buyback. And that's baking in working capital outflow of GBP 3 million, it's baking in GBP 3 million on the ERP replacement project in the balance of our capital spend. So I think something in the GBP 10 million, GBP 11 million rate would be based on what we know today, were expected to be.

[Operator Instructions] And your next question comes from the line of Robert Chantry of Berenberg.

Just 3 questions from me. Firstly, could you just give us an update on the market structure in fabricators, i.e., any capacity closures, spare capacity, kind of changing activity given your plans at a relatively high level? Secondly, recycling feedstock, could you just remind us what percentage of that is on long-term contracts? And what you see as the market structure of that supply now and on maybe a 5-year view, so to what extent is it changing? And then thirdly, just in terms of profiles. I think it's 71 kt capacity, what percentage of utilization is that likely to be at in full-year '24, i.e., what is the headroom to kind of maximum capacity? And how do you think about the utilization of that in the coming years?

Thanks, Rob. Well, look, I'll take the first question. In terms of market structure, if you go back to last year, it was around this time that Duraflex shut the doors at the factory in Tewkesbury. They were a relatively small player in the market. Because they lost share over recent years, so they disappeared. And then, of course, not long after that, we saw Safestyle exit, which actually used to be a customer of Duraflex, but actually were a bit linear when they went into administration. So those were the major changes at the back end of last year. We've not really seen -- well, we have one customer that went into administration early part of this year. Beyond that, there's been no other changes. And we continue to see examples of the market consolidating, as there's a stronger shift towards kind of, call it, super fabricators with smaller fabricators getting out of fabrication completely. But I think despite the tough market, the fabricator community have held up well. And yes, we're -- I think we're in a good position. And I think the work that we're doing on the door and window project is certainly benefiting some of our larger fabricator partners that are working proactively with us on that. So yes, that's where we're at. Do you want to pick up the other 2, Mike?

On feedstock, we have more than 40% of our annualized feedstock requirements now on contracts, which are either fixed price contracts at sensible prices or indexed contracts where the indexation is to virgin resin. So that's important because when the 2 move together, it's fine. It's when they get out of sync that things can get more difficult. So that's, I think, a good position to be in and reflects the work we've done uncovering new sources of supply in what is a traditionally very fragmented market. So relative to where we were 2 years ago on this, it's a much better position to be in. In terms of manufacturing capacity, if you looked at this, there's a table on Page 9 of the slide, on the bottom right, that shows you the extrusion capacity that we've got and our production estimates. So 51,000 tonnes of production in 2023. We've said volume is 3% down this year. We ought to recover a little bit of volume in the second half because we'll start to lap some very weak comparatives. So as it stands today, you've got spare operating capacity, certainly spare extrusion capacity of around about 25%, which again is a good position to be in. As we look at over the 5-year strategic plan horizon, there is not the requirement for significant investment in incremental capacity in order to meet our growth objectives. We've got Clyde with us here in the room from Peel Hunt, and I think Clyde might have a couple of questions for us.

Yes, I do. Where should I start? So in terms of the timing, spend on the ERP program, you said over 3 years, has it shifted the talk to the right a little bit in terms of sort of how much goes out in '25 versus how much goes out in terms of...

It has shifted a little bit to the right. I think we originally said GBP 4 million at the beginning of this year for 2024. So now at GBP 3 million. But we're still within that sort of 3-year window '24, '25, '26. I would expect probably something around about GBP 4 million for '25 and the balance in '26. I hope we've built in sufficient contingency on the timing of the project as well as on the financials to meet the deadlines that we have set out.

And, Darren, on the doors and windows push, it looks as if it's gone very well. One of the numbers that potentially could move higher is that 6,300 frames that you could do. I suspect the capacity constraint is probably more in the branch rather than the fabricator level, but maybe it's a bit of both. But are you looking already to potentially sort of lift that lid so that you -- if things continue to go as well as they are, then actually you can maybe push that number even higher?

Yes, you're right. There's 2 factors. One is the capacity that exists within our fabricators. And right now, because of the depressed market, there's plenty. But that said, some of our larger fabricators -- our largest fabricator based in Leicester, they've just recently moved into a brand-new factory. Their capacity has doubled, and we're looking to soak up some of that. So I think we're working with the right partners, and I'm confident that longer term, fabrication capacity will not be an issue. I think the other factor is, as you say, within the branches, the majority of our branches are more than capable of operating to the capacity kind of targets that we set. That said, we do have some smaller branches. And in fact, I mentioned Dewsbury, which is being relocated as we speak. Dewsbury held the record of being our smallest branch and was simply not capable of handling any made-to-order products, that's both doors and windows and roofs. We're moving to a 3,000-square-foot unit, Miles Road, Mitcham. So there's a very small number of branches, I'm talking probably around about 10, where we either need to find an alternative location as those leases come up for renewal or look at kind of more kind of creative solutions. An example would be at our Chester branch, we've got a container right outside the branch, which is being used to store these products. So there's more than one way this is going to account, and we're looking at everything, but the vast majority of branch is more than capable of handling this project.

So the capacity of the branches is more storage and warehouse capacity rather than people, skills...

It is, absolutely right. I mean, as part of the program as we roll it out, we are training branch staff in terms of sort of the technical aspects of how to sell these products. But you're right, the real constraint is storage. But say, majority of branches, not an issue.

And did you foresee maybe 2 or 3 years down the track where actually you have a sort of, I want to say, centralized storage facility, but you've got to the literary locations, moving 2 or 3 around the country where it is 10,000 square feet, where you've got a lot more windows. Or is that not going to work?

I think the unique kind of selling point that we offer is that we're providing a very local service. We know that most tradespeople don't want to travel more than 20 minutes. But we are servicing them through really 2 methods. One, we will deliver these products direct to the house that they're working on or they can collect, and there's about a 50-50 split between that. But I think the fact that we offer that localized service, whether it be through deliveries or a collection is, as I say, a key USP for us. So no, I don't think having large central storage capability is going to necessarily help us.

Okay. I think, Michael, in your ESG section, you talked about the aggressive conversion to commercially viable low-carbon alternative with the green PVC, I think, you're probably talking about there. What happened? I mean, I will not keep it on top of that part of the market, unfortunately. Has that moved forward at all? Or is it still a little bit in our pipe dream of the manufacturers? And assuming this is still going to be any us as well that's delivering.

Yes. Sorry, say that again, Clyde, sorry.

I suspect there's still going to be in your delivering the green stuff, and...

No, there's -- in fact, all -- there are other players that we're talking to that have a similar low-carbon product. But at the moment, we are talking to many of them. We are planning on taking some of that material in the months ahead because I think, again, as a market leader, it kind of falls upon us to show leadership in this area because the industry as a whole, I think, needs to embrace that because we need to reduce the embodied carbon in door and window profile. And we're leading the way on that already because of the recycled content, and yes, through virgin resin, and lowering the carbon footprint of that is also an opportunity.

And green PVC, is that going to be cost-neutral? Or actually, will it have a slightly higher cost of sale?

At the moment, there's a small premium, but you would like to think that, as it becomes more widely available, that the costs will start to normalize. But again, I think the industry has to accept that it's probably going to have to pay a little more to encourage these suppliers to invest, and yes, and obviously, make those efficiencies.

So the last one I have is on new house builders. We have obviously seen a bit of consolidation. We may well see some more. Given your leadership position, how are you developing those relationships with the bigger guys? Because as they get bigger, they're probably going to want to look for more and more national contracts, not only to police cast outlet, but also to work more closely around the product and the ease of installation, et cetera, et cetera. How are those sorts of relationships stand at the moment given that the market is obviously still pretty quiet?

Yes. Look, I think a major differentiator for us is our technical capability. That's something we really excel at. And when thinking about the future home standard, many of the major house builders and their technical teams are looking to the Eurocell technical team to provide solutions that are going to help them navigate their way through a tightening regulatory framework moving forward. And again, in terms of solutions, we are leading the way with products like Modus and -- which will achieve a U-value below 0.8 using, obviously, triple-glazed units. And as I say, our team who are proactive in working with all the major house builders and their technical team. So look, I think we're in a really strong position. I've attended quite a few calls with our technical team, where most of the technical directors from all the major housebuilders have been on -- that's something we're famous for, and we intend to maintain that.

I think that's all the questions in the room. Do we have any more on the line?

There are no further questions on the phone.

Okay. Okay. There are no further questions.

Yes. Well, again, everyone, thank you so much for joining us this morning, and yes, have a great day. We'll speak to you on the road. Yes.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.