Eurocell plc (ECEL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Eurocell plc Half Year Results Investor Presentation. [Operator Instructions] Before we begin, we would just like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Eurocell plc. Darren, good morning, sir.

Thank you, Jake, and good morning, everyone. Welcome to Eurocell's Half Year Results Presentation. I'm Darren Waters, CEO; and sitting alongside me is Michael Scott, CFO. So in terms of headlines, I'm pleased to report that we've delivered a pleasing first half performance with profits up 33% at GBP 8 million despite a tough market environment. If you catch your minds back to last year, during the first half of 2023, we were impacted by the downturn in the newbuild market, whereas this year, we've experienced the combined effect of a weak housing market and 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. In fact, the Builders Merchant Federation yesterday released some stats for Q2, which show that, on a like-for-like basis, sales in Q2 were down almost 9%. So I think we've done well to mitigate that kind of softness in the market by delivering just a 5% drop in revenues. And that's largely as a result of the progress we're making on our strategic initiatives, and we'll cover that in more detail later in our presentation. If you look more recently, 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 of profit before tax. We're also committed to delivering improved shareholder returns through a combination of the 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. And 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. 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've 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 a 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 this week. Turning to the full P&L. 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. 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 2023 due to an increase in the rate of corporation tax from April last year. Moving down the P&L. Basic earnings per share were 5.6p, and dividends I've already covered. The first half nonunderlying charge of GBP 0.4 million represents 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 nonunderlying on the basis that these are material multiyear projects, which underpin our strategy. And I'll pick up on our ERP systems replacement project later in the presentation. Moving on to our sales performance. 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 these weak markets. Albeit to support volume, we've 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 continue to experience competitive pricing pressure on the branch network. However, set against that, we've seen 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. Looking at operating profit. Profit of GBP 9.3 million represents an increase of 22% versus H1 2023. Moving left to right across the chart. Volume of GBP 3.3 million includes the impact of sales volume down 3% and the adverse effect of operational gearing. Margin of GBP 6.2 million has 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 pressure on selling prices 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've 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 during '22 when whole electricity prices peaked. We're now benefiting from lower energy prices bought 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, has seen feedstock prices ease this year, resulting in costs of GBP 3.8 million below H1 2023. 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 inflation of approximately GBP 1.6 million, we have offset with selling price increases. Variable labor costs and higher -- 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 annualized benefit of the cost reduction programs completed in June '23. In summary, profits are up despite lower sales primarily due to lower input costs and pricing discipline, supported by our proactive management of gross margin and the cost base. Moving on to CapEx. 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 locations. As noted earlier, implementation costs for cloud-based Software-as-a-Service solutions are 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 nonunderlying item in the first half. We estimate total nonunderlying 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, 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 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, where we have all 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 movements. So now moving left to right across the chart, nonunderlying costs resulted in an 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. CapEx payments of GBP 5 million include the asset additions covered earlier, plus a small reduction in our capital creditor. 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 adds GBP 57 million to debt, which, as you can see in the reconciliation table top right, is down GBP 2 million compared to December. 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 are 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 bank facility, which doesn't mature until May 2027, thereby providing security, flexibility and options for the future. Turning to capital allocation. 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'll continue to prioritize organic investments 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 that a progressive dividend is right for this business, providing a predictable income stream for our investors. The Board has also taken a 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. Any acquisition we do pursue must have a clear strategic fit and a compelling financial justification. Thereafter, we intend to enhance shareholder returns through supplementary distributions, 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 completion of a GBP 10 million buyback in H1, we've launched a further buyback of up to GBP 5 million, which is now underway. Summing up, adjusted PBT was up 33% despite lower sales, reflecting proactive gross margin management, pricing discipline, 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 have -- continued to focus on working capital management so our debt remains low, and we have good headroom and liquidity on our bank facility. We have well-invested operating 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 buybacks. And with that, back to Darren to update you on the progress with our strategy.

Thank you, Michael. So just a reminder, everyone, 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 revenue business, generating GBP 50 million of operating profit by 2028, and I'm pleased to report that we're making good progress on all of these. On the branch network, we completed a detailed study of the U.K. market, both in terms of demand and the key success factors that drive brand performance. Back in March, when we announced the strategy, 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 our location planning partner, CACI, fully supports that target with specific locations now identified. We will, therefore, be opening 2 new branches in quarter 4, which is Bishop's Stortford and Watford, with another 6 already planned for the first quarter of next year. The majority of these being in the Southeast. A further 11 locations have been identified as high priority, which we will aim to progress in 2025, subject, obviously, to sort of 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 Dewsbury, Preston and Sheffield, with a further 4 planned in 2025. And for those of you that follow the business on LinkedIn, you may have seen a post yesterday. Dewsbury actually opens in -- on the 26th of September, Sunday, and it looks fantastic. All of our new branches will display our new branding and signage with doors and windows now featuring more prominently. We opened our new Wembley branch at the end of April, and we've made a great start with sales already running ahead of target. On windows and doors, now one of my early observations when I joined the business 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 our Vista composite doors, which are 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 doors and windows. Our plan assumed that sales would reach 50% of capacity in the next 3 to 5 years and deliver GBP 35 million in incremental sales. So question is how are we doing? Well, a reminder that we kicked off this program last November in 6 trial branches, and 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. And we're, therefore, now targeting to have 100 branches operational by year-end, and we're absolutely on track to do that. Now it takes about 3 months to build sales. So with Phase 2 and 3 of the rollout, we are already running at 50% of capacity, which is, again, very encouraging and validates the revenue assumptions that we made when sizing this opportunity. Turning then 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. And then on digital, the improvements that we've made to our website, in terms of site structure and navigation, have made a big difference to customer journey and sales performance. And this, combined with our improved SEO ranking, has delivered a 200% increase in organic traffic and a 40% improvement in online sales. We've recently introduced the 1-hour Click & Collect initiative through the branch network, and we plan to extend the range of products available through a dropship program. Our digital activity is also helping us to attract more new customers for our branches with 6,500 new accounts opened already 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 I'm now going to hand over to Michael, who's going to cover off the business effectiveness pillar.

So our objective here is to make Eurocell a lean and efficient business. 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 2025. This will transform the way we interact and transact with our customers in the branches, including simplified processes and 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 now selected IFS, the build will begin later this year and transition should be completed around mid-2026. 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 into 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 will 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 on People First.

Yes. Thanks, Michael. So yes, on People First, which is all about making Eurocell a great place to work, we launched our Eurocell & You people brand, and we're now starting to get really strong engagement with the new culture that we're trying to cultivate. And this is evident to me in our health and safety performance, where we've seen a 50% drop in our lost time injury frequency rates. Internal communications are now much better. We have a new internal communications manager that's recently joined, and we're promoting our values through the launch of our new Proud awards, which is our 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. Back to Michael, who will cover our ESG.

So with ESG, we want to earn a reputation for being a truly responsible company. As many of you will 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. But 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 includes a baseline carbon footprint, including Scope 1, 2 and 3 emissions. 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. For Scope 3, our most likely decarbonization levers include maximizing our 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. And with that, back to Darren to sum up.

Thanks, Michael. So there you have it. Look, as I said already, a decent first half. I've been with business now almost 18 months. And during that time, which has been a very tough market environment for us, like anybody in building materials, I think what we've done is we've improved the business by taking cost out. We developed a very clear plan, which I think we've articulated in terms of how we drive the business towards this GBP 500 million revenue target and GBP 50 million of operating profit, and we are already executing well with those strategic initiatives as we've outlined. And therefore, hopefully, with some tailwinds coming in the market, we are set well to progress as we look forward to next year. That's it from us. We do have some questions though, Jake?

[Operator Instructions] I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can all be accessed via your Investor dashboard. Michael, Darren, as you can see on the right-hand side there, we have received a number of questions from investors. [Operator Instructions] But Michael, Darren, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end.

Thanks, Jake. So yes. So we've had a couple of pre-submitted questions, and I'll take those first. So first one here. As the majority of your sales are for private RMI, and that's right, 85% of our sales are driven by RMI, what is your current expectation for this in 2025, given that a lot of people are going to be facing increased taxation. I think my answer to that would be -- I think the expectation is that the tax rises in the October budget are largely going to be focused on capital gains tax and inheritance tax, and therefore, to the average homeowner, and this is a big assumption, I suspect many will be largely unaffected by those tax increases. It's going to be higher net worth individuals. Therefore, I think -- look, it's early days in terms of the potential impact of that and how consumers and homeowners are going to react to that. But what we are seeing already is, as I say it, some better activity going through in terms of the housing market. There's definitely pent-up demand for buyers that are looking to get on the property ladder and to move, but also equally still an appetite to increase space and to improve people's homes. So I'm not saying there won't be an impact, but I think it will be fairly limited. So that's that one. Michael, do you want to take the next one?

Yes. The next question is the Research Tree platform has no broker research available for Eurocell since January 2022. Is this something that company can look into making available through its brokers, please? That's a fair question. We are conscious that we are, at the moment, covered only by 2 brokers, our house brokers who are Peel Hunt and Berenberg, and therefore, it can be difficult to get good information on the company. So that is something that we'll take on Board. We're considering how to get more relevant information around the company's performance out into the investment community, either through our brokers or through other methodologies. So if you leave that one with us. But we are very conscious, particularly given the new strategy and the story that we -- the very positive story that we want to tell here. We need to make sure that it is communicated as widely as possible, and we'll work hard to do that.

Thanks, Michael. There's one here from [ Javit ]. So if the government were to succeed in building 300,000 houses a year, would you expect to improve on the GBP 500 million revenue target? Well, look, first of all, the 300,000 target that the government set is very ambitious. Personally, I'm not convinced that there are sufficient trades people or, indeed, building materials to build that number of houses, particularly if you think about bricklayers. The average age of a bricklayer is 55 and getting older. So it's an ambitious target, but it's one we very much welcome. I would say, to answer your question, yes, in a nutshell because even if we got back to 200,000, it would be a really positive step but 300,000, because we are the most specified profile in terms of newbuild, we have fantastic relationships with all of the major house builders who definitely come to us for technical advice because of our technical leadership, particularly when you think about future home standard and driving new values, then I think we will be in a very, very strong position. So like I said, it's something we would definitely welcome. So hopefully, that deals with that one. The next one is from [ Alex ]. What are the expected benefits of expanding the branch network with 8 new sites? How will you ensure that these locations contribute positively, given the current weak housing market? Well, look, if you look at our network, Alex, we are underweight in the Southeast, which, as I've said, that's where the majority of these new branches are going to open. The model that we're using with CACI, which is our location planning partner, is about 92% accurate in terms of predicting sales. So I'm told by our property expert that, that -- it doesn't get better than that. So we've got a high degree of confidence in the locations that we're targeting. What we're also doing is we're doing a lot more premarketing before we open a branch. So if I go back to Wembley, which opened at the end of April, 6 weeks before, we were very visible locally with lots of marketing, targeting customers. And as a result of that, Wembley's got off to a flying start. So I think we've got a good template that we're now using. Also, I think that you look at the branding of the new branches, I think they look far better. So from a visibility point of view and driving footfall, it's much better. And we're also in better locations. So we're targeting key trade parks where we've got neighbors like Screwfix and Toolstation and Howdens, which also tends to increase footfall. So look, the branches that we're targeting is at great locations, should deliver strong sales performance and yes -- and get to kind of breakeven within a much shorter time frame. In the past, we got about 18 months to get to breakeven. We now expect that to be 12 months or less with these new branches. So hopefully, that addresses that.

I'll take the next one, which is with a 33% increase in adjusted profit before tax despite lower volumes, what specific cost management strategies are you prioritizing to maintain or further improve profitability in the face of ongoing inflation and economic pressures? Yes. Again -- I mean, we're very conscious of the cost base here, and you heard me refer on a couple of occasions in the presentation to proactive gross margin and cost management. We've been through 2 major restructuring programs in the last couple of years in response to the market situation and a downturn in volumes. And of course, those are not pleasant things to go through and not something that we would want to repeat. And therefore, we are very cost conscious as we look out through the strategic plan. That said, if you consider the major strategic initiatives that we've spoken about, particularly windows and doors, digital, extensions and garden rooms, these are initiatives which come with a very, very modest cost base. And therefore, return on capital, EBIT margin on these -- sorry, EBIT margin on these initiatives is in the mid-teens, ahead of our overall margin target of 10%. There is some cost that comes with the branch network in terms of the personnel that we need to run branches. But as Darren said, we have short -- we're in the process of shortening the time to breakeven and thinking again carefully about the cost base in the network under the banner of business effectiveness, where we're always now looking for ways of doing things better and more efficiently. So it's a long way around of saying we are now, having been through the downturn in the cycle, very, very cost conscious and that if we recognize that if we want to get the real benefit of operational gearing on the way back up, we need to be very cautious with our cost base. Next one is probably for me as well. So following the buyback and the further GBP 5 million announced, how do you look to balance returning capital with the need for investment in growth areas and digital transformation? Those of you who followed the story, if you look back to our preliminary results presentation, which was -- you'll find on our website back in March. At the end of that presentation, you'll see a slide called financial ambition, which sets out the GBP 500 million sales target, the GBP 50 million or 10% EBIT margin target. But it also covers the capital requirements of the strategic plan, inclusive of the system change project. And what you actually see with that is that the capital requirements of the strategic plan are relatively modest. We have underlying capital spend of around about GBP 10 million per annum to maintain the existing infrastructure. Thereafter, the strategic initiatives are somewhere between GBP 2 million and GBP 5 million per annum, and the systems replacement project, as I said, is GBP 10 million over a 3-year project -- period. And as we model that out over the period of the strategic plan, our debt remains reasonably low because we are a very cash-generative business. And therefore, that gives us the confidence that we should be able to, alongside a progressive dividend, enhance shareholder returns. We'll take that one step at a time, though, because there are lots of projects especially under the business effectiveness banner that we're considering, which could make better use of our operational footprint or generally improve efficiency of the business. They would come with capital cost, I mentioned digital printing being one in the presentation, but very short payback and high returns. So we need to continue to balance this and continue to review it on a period-by-period basis. But overall, the Board's focus is on enhancing shareholder returns through these 2 mechanisms.

okay. Next one, about people, so how is Eurocell preparing for potential changes in employment regulations? Well, first of all, we've got a new People Director that joined the business back in January, Catherine Hambleton-Gray, who's been a great addition to the team. And I can say that Cat is absolutely monitoring and keeping abreast of developments in that space. We are -- well, one of our values is decent, and we want to be a decent employer. So whatever regulations come out, we will do the right thing because we want to have a very positive relationship with employees, how we want to make Eurocell a great place to work, which is everything we're doing around culture. So I'm not fazed by that. Let's say we'll do the right thing. What I can say, though, is if you think about our branch network, there's a lot more focus now on work-life balance. And as I get around the branches, what is evident to me is that we are picking up people from competing trade counters, so the likes of Screwfix and others, because we only operate, well, Monday to Saturday lunch time, so from 7:30 till 4:30 in the day and then up to 1:00 on a Saturday. And that is very attractive to people now because some of the other trade counters are 7 days a week and also open much later in the day. So that's something we're acutely aware of. And as I say, we want to be a decent employer, and we want to do the right thing by our employees. So that's how we're preparing. Next one is also for me. Hello. Can you -- this is from -- sorry, I can't see the name. But how can you tell us about how competitive the current market is and how your market share has changed this year? Well, look, in a market that's down probably 10%, as you would expect, the market remains competitive. But I would say in profiles and the branch network, our share has been relatively stable. Clearly, we've been managing certainly to all -- in last year, we had some headwinds in terms of input costs that we have to pass on to customers, and we did a good job of that. This year, we've been working hard to help our fabricators grow their business with a number of initiatives. So we have our growth program, which has proven to be very popular. We've also got the added advantage of our window and door project running through the branches, which also helps a number of our fabricators to grow incremental sales. So look, we are -- we're absolutely committed to remaining the market leader in our sector and -- as I say -- but I would say our share has been stable. Next one is about the future of PVC as a building material. Do we have any thoughts on that? Well, PVC is an excellent building material because of its thermal performance. It's much better than other alternatives, very durable. Obviously, with the recycling activity that we do, it's, I think also from a sustainability point of view, very good. We are working with some of our resin suppliers to reduce the carbon footprint of virgin resin. Innovene as -- which is part of INEOS, as an example, are leading the way in terms of reducing the energy intensity of their process, and we are working proactively with them on taking some material into one of our ranges, the Modus product, which will reduce the carbon footprint of that product. So -- but look, there's more we've got to do in terms of reducing our footprint, but it's something we're committed to do. And I think PVC will continue to play an important part in the door and window market. To what extent can you switch between recycled and virgin materials as your main source of raw materials? If I understood correctly, prices of recycled materials have come down, but still remain higher than virgin as shown on Slide 8. I don't think I've scheduled that. I'll let Michael cover that. But in terms of the first part to the question, we are limited, with the current regulations, in terms of where we can use recycled PVC. So in terms of -- it only goes into our rigid profiles, which is for doors and windows. We cannot use it on surface, so the bits that you can see, but we can use it on the bits that you can't see. Now we estimate that based on our current profile systems, we can get to about 40%. This year, as an example, we'll be at 33%, so still room to grow. But look, regulations could change as we look to recycle more. But that's where we are, and that's where we think we can get to. In terms of the cost, Michael?

Yes. And you can -- I think your question, you can run the machines, for example, on 100% virgin material, but they're not -- the co-extrusion process that we have that mixes virgin and recycled material, the tooling is not -- is designed to use recycled material. And therefore, if you use 100% virgin, it will be less efficient. In terms of the cost, that chart is an index chart. So the purchase price of recycled material is below the purchase price of virgin resin. The real comparison is to compare the full cost, the full purchase cost of virgin compound with the full production cost of recycled compound. And what you find there is that through the cycle, the production cost of recycled compound is below the cost of virgin compound buying that in the marketplace. That delta today is about GBP 150 per tonne. So if you took the 9,100 tonnes that we consumed in the first half of the year and multiplied it by that delta, you would see that our gross margin is about GBP 1.3 million better as a result of using recycled material compared to the equivalent cost of using virgin material. Now that delta moves over time, typically between, say, GBP 100 per tonne and maybe, say, GBP 200 per tonne. But what it tells us is that the economics of recycling are always attractive on that basis, alongside the carbon reduction benefits that it gets us to.

Okay. And one here from [ Andrew ]. How is quality managed in terms of cost risk -- sorry, and cost risk contained on the installation build of extension as well? First of all, in terms of the extension product, this is very early days, but we are using kind of modern methods of construction. So we're using SIP panels, which are very proven as a kind of a material or a system. It's also coming as a kit of parts. We're installing these through a kind of number of approved subcontractors that we vet, and we also check on the quality of the work that's been done. We do have a provision that's set aside for any warranty claims. But so far, every single customer that we've done all of these projects for has been absolutely delighted with the outcome. And so I think we're doing a good job. But look, something we're absolutely aware of and something we're watching very closely. I would also point you to what we've done on garden rooms. If you look at our -- some of the trust pilot reviews, they're generally extremely positive. So I think, look, we're building a reputation for being a quality supplier of these extended living spaces. And -- but look, we want to do a great job, and the team that we've got, absolute specialists in terms of these parts of buildings. And we think we've got a great product. So that's not to say we won't have problems. Of course, we will from time to time. But we do have a provision set aside in case that happens. Okay. So that's that one. Another one here. Hi, I would like to understand the level of competition in the market. Is Eurocell gaining market share? How significant are imports in the market? Well, I think I've pretty much covered the first part of that, but I think our share is relatively stable. There is not a lot of product at all that's imported into the U.K. It's all domestically produced. So that's not a risk to us. Clearly, given our manufacturing facilities, which are located in the heart of the country, the fact that we've got the largest branch network with more than 200 branches and we're growing that so that we're never going to be more than, say, 20 minutes for a tradesperson, I think we're in a very, very strong position. Hopefully, that answers that one. I think that's all I can see so far, Jake, unless I've missed anything.

No, absolutely. Darren, and Michael, I believe that's all of the questions, and thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation.

Yes. Sorry, Jake, there's one more that's just literally come through from [ Neil ].

Absolutely, sir.

The negative reviews on trust pilot seems to be due to availability and delivery issues. What measures can you take to mitigate this? I think, personally, that relates to one particular product range, which is our fencing range, where, yes, we've been -- we've experienced high demand, higher demand than we were expecting. And that has created some stock-outs on 1 or 2 occasions. But again, the more serious issues come into my inbox, and I've definitely dealt with a couple of those. But I think, look, our team are working proactively with customers to make sure that they're not -- that we try and get product to them as quickly as possible. So it's limited. And obviously, when people do leave reviews, they're more likely to leave -- if they had a negative experience, they're more likely to leave a review. But as I say, prior to that, the vast majority of our reviews have been extremely positive, particularly on the garden rooms and the service that we provide through our branches. But look, customer feedback is a gift, and we take it very seriously. We want to make sure that customers are happy. So dealing with complaints that we do get and dealing with them effectively is a key measure for us. So I think that is it. I can't see any more.

Perfect. Darren, Michael, thank you once again for updating and for addressing all of those questions that came in from investors this morning. And of course, you can review all of the questions that were submitted today as well as any further ones that do come through immediately after the presentation has ended, and we will, of course, publish all those responses on the platform. But Darren, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Well, thank you. I mean, Michael and I, we've been in London this week talking to investors, and obviously, we have the announcement on Wednesday. We're doing more visits next week. As I've been with the business 18 months, I feel -- although that has been a tough period in terms of the market, I feel like we are now starting to make progress with some of the measures that we've taken in terms of cost reduction, but also now having a very, very clear plan as to how we're going to grow this business moving forward. As I said already, we're executing well on some of the strategic initiatives. It's a very focused plan. The business is well engaged in terms of what we're doing. So back when we launched this strategy in March, we made a point of cascading it to every single one of our 2,100 employees over the course of the week. So I think, generally, the business is excited about the opportunities that we have. Look, the market remains difficult right now. I've said we have seen some early signs of green shoots within the housing market, and that's very welcome. I think the market will gradually get better as we move into 2025, but it's possibly not going to be back to kind of normal until 2026. So that's certainly our expectation. But look, we are extremely well positioned with the measures that we've taken, the investments that we've made in manufacturing capacity and also the improvements that we've made to our logistics function with a brand-new warehouse that we opened 3 years ago. We're in a great position, and we're hugely excited about the opportunities for this business. And we're determined to, well, deliver the improvements and make a step change in performance, and we've started that journey.

Perfect. Darren, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Eurocell plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.