Eurocell plc (ECEL) Earnings Call Transcript & Summary

Good day, and welcome to the Eurocell Full Year Results Conference Call. [Operator Instructions]. And finally, I would like to advise all participants 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.

Thanks, Gavin. And welcome, everyone, to Eurocell's Full year 2024 Results Presentation. As you know, I'm Darren Waters, CEO; and alongside me is Michael Scott, CFO. We're following the usual format for this morning's presentation, including an update on our strategic initiatives, plus an overview of Alunet, our recent acquisition. So in terms of last year, 2024 was another challenging year, but I'm pleased to say a year of progress for Eurocell with adjusted profit before tax, back in line with expectations of GBP 20 million, that's up 32% versus 2023. Against the backdrop of the tough market, we delivered a robust sales performance with revenues down just 2% at GBP 358 million, and this is down to the good earnings progress we've made with all of our customer growth initiatives and more detail on that later in our presentation. We also delivered on our commitment to drive improved shareholder returns, completing 3 share buybacks worth GBP 15 million in total, which reduced the number of shares in circulation from 112 million to 101 million. And in addition, we increased our ordinary dividend by 10%. And this morning, I'm pleased to announce a further extension to the buyback program of up to GBP 5 million, which again underlines our confidence in the latent value and potential of the Eurocell business. Despite the buybacks that we did last year, net debt increased marginally to GBP 3 million, which enabled us to complete the acquisition of Alunet earlier this month for initial consideration of GBP 29 million without overly stretching our balance sheet. Alunet is a compelling strategic fit and has significant growth potential under our ownership. With end markets remaining subdued and a GBP 3 million hit on national insurance contributions and national living wage from the budget, we are continuing to focus on overhead reduction opportunities, operational improvements and cash management, and Michael will expand on that as he runs through the financials. And with that, I'll now hand over to him.

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 2%, with volumes 1% lower. Despite lower sales, adjusted PBT increased by 32% compared to 2023. We have proactively managed our gross margin and benefited from lower input costs to drive profits higher. Although the impact of this was reduced by lower volumes, competitive pressure on selling prices in the branch network, ongoing cost inflation and some targeted investments we made to generate momentum in our strategic initiatives. Adjusted earnings per share of 31% reflects improved profitability and a higher tax rate. Cash generation remains good despite being down against an exceptionally strong 2023, which included the benefit of a major stock reduction program. Pre-IFRS 16 net debt at year-end was low at GBP 3.1 million leaving good headroom on our bank facility to support the recent acquisition of Alunet. The Board remains focused on driving shareholder returns through a combination of a progressive ordinary dividend and share buybacks. Total dividends for the year of 6.05p per share are up exactly 10% on 2023. Following completion of the GBP 15 million share buyback program, which commenced in January 2024, we have launched a new buyback of up to GBP 5 million to date. 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 25.3 million, up slightly on 2023. And with our CapEx program, lease renewals and the addition of Alunet, we expect D&A for 2025 of up to GBP 28 million. And just to note that I've summarized all of our technical financial guidance at the end. Finance costs were GBP 2.8 million, down GBP 0.4 million on 2023, reflecting lower utilization of our debt facilities, and we expect finance costs of up to GBP 5 million in 2025 with higher debt following the acquisition. The tax rate on underlying profits for 2024 was 23%, which is lower than the standard rate due to the benefit of Patent Box relief, but higher than 2023 due to the increase in the rate corporation tax effective from April that year and an expected tax rate of around 24.5% for 2025. Moving down the P&L. Basic earnings per share were 14.4p and dividends have already covered. Non-underlying charges of GBP 6.2 million in 2024 include GBP 2.2 million of implementation costs for our ERP systems replacement project. These costs have been charged to the P&L rather than capitalized in accordance with the accounting rules for IT solutions, which are cloud-based. And I'll pick up on our progress with the systems project later in the presentation. It also includes GBP 0.8 million of due diligence costs in relation to Alunet and a GBP 3.2 million noncash right-of-use asset impairment charge in relation to a lease on a secondary warehouse. This follows a dispute with the landlord where there was significant deterioration to the flooring. Having taken legal advice, we terminated the lease and expect a mediation process to commence shortly. Depending on the outcome, the impairment may be reversed in future periods or the associated lease liability will be released. Moving on to our sales performance on Page 7. Revenues were down 2% in 2024 with volumes 1% low. As you know, challenging macro conditions and weak consumer confidence have been further compounded by uncertainty following the autumn budget, and this has impacted activity levels in our key markets. Profile sales down 6%, reflects reduced RMI activity and a weak newbuild housing market. Overall, in the branch network, sales were up 1%, with volumes 3% higher. This includes underlying RMI volumes down 3%, and we have continued to experience competitive pressure on selling prices in the network. However, set against that, we've seen good early progress with our strategic initiatives up GBP 9.4 million in the year, including garden rooms, e-commerce plus windows and doors, which has provided mitigation at the branch network. On to adjusted operating profit on Page 8. profit of GBP 22.8 million represents an increase of 24% on 2023. Moving left to right across the chart. Volume of GBP 1.5 million represents the adverse impact of sales volumes down 1%. The margin benefit of GBP 8.9 million has several components. Gross revenues include the impact of selling price increases implemented to offset overhead cost inflation, increased competition for limited demand has put 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 the other key raw material suppliers, we have identified alternative sources and introduced other initiatives to reduce input cost pricing risk. For electricity, we operate a 12-month rolling forward hedging program. In 2023, we were paying rates locked in during '22 when wholesale energy prices peaked. We're now benefiting from the lower wholesale prices experienced in 2022. For our recycling business, in '23, a weaker RMI market and fewer window replacements restricted feedstock availability resulting in a significant increase in purchase price. However, we secured additional sources of supply, which alongside reduced demand and lower virgin resin costs, saw feedstock prices ease in 2024, resulting in costs of GBP 4.8 million below the prior year. Looking beyond the chart, the net delta between the production cost of recycled material and the buying price of virgin compound remains similar to 2023, reflecting reduced feedstock prices and lower virgin costs. So the economics of recycling remain attractive. The 18,000 tonnes of recycled material we consumed in 2024 delivered an absolute gross margin benefit of approximately GBP 2 million compared to the cost of using virgin material. Moving on to the chart. Labor inflation of GBP 4.6 million primarily represents our April 24 pay award at 4%, variable labor cost is the net impact of increased share-based payment charges and lower bonus and variable pay and other overhead inflation of GBP 2.4 million includes higher property and IT license costs. Restructuring savings of GBP 2 million is the annualizing benefit of the cost reduction program completed in June '23. And finally, whilst the other category is a net number, it does include the impact of targeted investments to generate momentum in strategic initiatives in areas such as digital marketing, sales professionals for the extended living range and central order processing capability for windows and doors, which we do expect to leverage as volumes increase. In summary, profits are up despite lower sales volume, primarily due to lower input costs, supported by our proactive management of gross margin and the cost base. Moving on to CapEx on Page 9. Investment of GBP 10.7 million in 2024 includes GBP 3 million for the branch network being a combination of new openings, refurbs and relocations with the balance primarily maintenance CapEx. Our guidance for 2025 is for total CapEx, including Alunet, of approximately GBP 15 million. This includes GBP 3 million in support of our strategic initiatives and GBP 2 million for branch refurbs and relocations. There's also GBP 3 million for health, safety and welfare improvements across our property estate and GBP 2 million to develop our IT infrastructure, including ongoing cyber defenses with the remainder primarily maintenance CapEx. As noted earlier, implementation costs for cloud-based IT solutions are charged to the P&L rather than capitalized. Our ERP system replacement falls into this category with GBP 2.2 million charge to the P&L as a non-underlying item in 2024, and we estimate costs for '25 will be circa GBP 6 million, and I'll cover the project in more detail in the strategic section of the presentation. Coming back to CapEx. The lower chart illustrates that we have manufacturing 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. Turning to cash flow on Page 10, which sets out the components of a small increase in net debt of GBP 3.5 million in 2024 on a pre-IFRS 16 basis. Moving left to right across the chart, cash generation has continued to be good. After an inflow of GBP 13 million in 2023, driven by an inventory reduction program, working capital was broadly flat in '24 with stock and debtor days in line with their '23 comparatives. Nonunderlying costs resulted in a cash outflow of GBP 1.9 million, being payments for the ERP system project and Alunet due diligence. Tax paid another of GBP 1.8 million includes tax payments on account of GBP 3 million, offset by share-based payments and other noncash items of GBP 1.2 million. CapEx payments of GBP 10.3 million includes the asset additions covered earlier, that's a small increase in our capital creditor. Throughout financing charges, the share buyback of GBP 14.5 million and dividends paid to GBP 6.1 million, this resulted in pre-IFRS 16 net debt of GBP 3.1 million at the end of the year. IFRS 16 adds GBP 59 million to debt, which as you can see in the reconciliation table is up GBP 0.8 million compared to December 2023. This reflects net impact of branching other lease renewals at GBP 18.1 million, less cash payments on leases of GBP 17.3 million, which were accounted for within the 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, thereby providing the funding for the Alunet acquisition as well as security, flexibility and options for the future. Turning to capital allocation on Slide 11. Following the launch of our strategy at the beginning of 2024, we updated our capital allocation policy at the half year in September. 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 remains unchanged. We will 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 policy recognizes the importance of the ordinary dividend, and we believe a progressive dividend is right for this business, providing predictable income stream for our investors. The Board has also 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 scheme options expected to vest over the next 2 years. Moving on, we believe that Alunet demonstrates our disciplined approach to acquisitions with a very clear strategic fit and 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 the GBP 15 million buyback commenced in January '24, we have today launched a new buy back of up to GBP 5 million, which will begin shortly. So to sum up on Page 12. Adjusted PBT was up 32% despite low sales, reflecting proactive gross margin management, combined with lower input costs, but partially offset by reduced sales volumes, competitive pressure on selling prices in the branches, continued labor and other cost inflation and some targeted investment to generate momentum on our strategic initiatives. Cash flow conversion remains good. We've continued to focus on working capital management, a good headroom and liquidity on our bank facility and following the Alunet acquisition, we do expect net debt will be below 1x Pre-IFRS 16 EBITDA at the end of 2025. We have well-invested facilities and available operating capacity, which leaves the business well positioned to deliver our strategy and to benefit when markets recover. Finally, we remain focused on driving shareholder returns through a combination of a progressive ordinary dividend and share buy backs. To the right of the slide, there's a summary of our technical financial guidance, which I hope is helpful. And with that, I'll hand back to Darren to update you on progress with our strategy.

Thanks, Michael. So just a quick reminder of the strategy that we announced earlier this year and which -- sorry, earlier last year, I should say, in which we set out the initiatives that will drive this business towards GBP 500 million of revenues and GBP 50 million of operating profit by 2028. And I'm pleased to report that we're making good progress on all of these. So starting with the branch network. We're now starting to build momentum with our expansion strategy following the addition of Bishop’'s Stortford and Watford in Q4 last year. Slough and Tonbridge both opened their doors earlier this month with Hemel Hempstead, Winchester, and Bury St Edmunds, Croydon and Colindale all due to open in quarter 2. We also did 3 relocations in 2024, and we will complete a further 5 this year. The new branches all display our new branding and signage with doors and windows now featuring more prominently and they're all trading well. In addition, we've strengthened our branch leadership team with the appointment of Stuart Livingstone, as Chief Operating Officer. Stuart brings a wealth of trade and retail operations experience gained with the likes of Howdens and Screwfix, and he is settling in well. On our door and window initiative, we generated sales of GBP 27 million in 2024, up GBP 3 million on 2023, ending the year with 92 branches live on the program. Our plan is to now accelerate the rollout further and have all branches operational by midyear. Our conversion rate on quotations remained high at 40%, and we are confident in our ability to deliver the GBP 35 million of incremental sales by 2028 that we committed to do. The addition of Alunet will enhance our aluminum offering and extend our composite door range, providing further impetus to this initiative. The response and support from our fabricator partners has been fantastic. They all see the growth opportunity, and we are now leveraging that across aluminum, with 6 of our largest fabricators already committed to switching to Alunet; in fact, 3 have already placed their first order. Our extended living category delivered GBP 10 million of sales in 2024, more than double what we achieved in 2023 and is certainly on track to hit GBP 30 million of sales by 2028. We are delivering a high-quality product and an exceptional customer experience as evidenced by the number of 5-star Trustpilot reviews. After a slow start, extensions are beginning to take off, and we believe that this addition to the range will become a major contributor to our GBP 30 million target for this category. Again, the quality of our product, the speed of installation and affordability are all scoring high with homeowners. On digital, e-commerce sales of GBP 4.7 million were up 57% in 2024 with organic web traffic up 22%. The website also generated 38,000 leads, a 138% increase. We also signed up 11,000 new accounts generating a spend of GBP 10 million last year. The launch of our 1-hour click-and-collect service through the branches and dropship on adjacent products, bulk buys and web exclusives, are all helping to drive improved customer acquisition and loyalty. And we're currently trialing a new loyalty program in our East Midlands region, and we'll provide a further update on our plans for that at our interim results in September. On people first, I just want to give you some snippets, which highlight, I think, the progress we're making on culture. On health and safety, first of all, we improved our lost time incident frequency rate by 30%, finishing the year at 4. Now world-class is often talked about as being less than 2. So the progress we've made over the last 2 years, we are on course. In September, we initiated our first-ever external people survey administered by Great with Talent and we had a 70% response rate, generating a score of 59%, which we are told is a credible result for a first survey. Great with Talent also administer our people onboarding surveys, which we launched last May, and it's encouraging to see that we are already getting a 63% response rate and a high engagement score of 84%. Our new Careers website has increased direct hires to 85%, saving money on agency fees. Now there's still lots to do here, but I strongly believe that we are beginning to see a positive shift in our culture, and that is what I'm hearing from employees during my brew with the boss sessions, another initiative that we launched last year. I'll now hand over back to Michael who will talk about business effectiveness and ESG.

Thanks, Darren. Our objective with business effectiveness is to make Eurocell a lean and efficient business. So we're upgrading our business systems to increase efficiencies and improve the customer experience. As you know, we're in the process of replacing our ERP systems. The first part of this is a new trade counter system in the branch network. Intact iQ 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 part is a new ERP system to support all other functions of the business, including manufacturing, recycling and finance. With IFS, the objective is to improve efficiency by the automation of key business processes and deliver better management information for faster decision-making. The project is progressing on time and to budget with the next 9 months critical to its overall success. As previously reported, we estimate total costs will be approximately GBP 10 million over the '24 to '26 period, and we expect transition to complete around the middle of 2026. 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. For example, in January 2025, we began a restructuring of the branch network by removing a layer of regional management and reducing the size of the sales force. In parallel, we're upskilling branch managers to drive greater ownership for branch performance. We expect to complete the restructuring by the end of Q1, generating annualized savings of approximately GBP 2 million. Finally, we're also targeting efficiencies in operations with work in progress to reduce production scrap, improved labor utilization and make better use of our property footprint. 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 from being sent to landfill every year. We've now increased the proportion of recycled material used in our manufacturing up to 32%, which drives significant cost and carbon savings compared to these virgin materials, and we have a target to reach 36% by 2030. We're working with a specialist ESG consultancy on the development of our ESG objectives, data collection and disclosures supported by appropriate governance and controls, monitored through our Board-led social values and the ESG committee. We're targeting net zero carbon emissions by 2045. Early in 2025, we filed science-based targets with NPTI and today, we published our net 0 transition plan, which will be summarized in the 2024 annual report. The transition plan includes a near-term target to reduce Scope 1 and 2 additions by 70% by 2034, primarily through a transition to 100% renewable electricity, the conversion of our commercial fleet to HVO plus moving company cars and vans to EVs. Medium-term scope 3 actions include optimizing these recycled material in production and over the longer term, engaging with our suppliers on their own science-based targets, which we hope will support switching to a commercially viable low-carbon alternatives to traditional PVC resin progressively over time. Finally, we've also made 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 in our largest operating facilities and using lower carbon PVC resin in the production of our modus profile this year. With that, back to Darren to talk about Alunet.

Thanks, Michael. So 2 weeks ago, we announced the acquisition of Alunet, a group of 4 privately owned businesses, comprising aluminum door and window profile, solid timber core composite doors and aluminum garage doors. The group generated sales of GBP 43 million in 2024 split equally between the 3 product categories: Consideration of GBP 29 million with an initial payment of GBP 22 million represents a 6.5x multiple on the 2024 EBITDA of GBP 4.5 million. With the earnout, the maximum consideration rises to GBP 35 million, which would equate to a 4x multiple on Alunet's projected 2028 earnings. Our net debt is, therefore, forecasted to finish this year below 1x EBITDA, and the acquisition will be accretive to our underlying 2025 earnings. Building a meaningful position in aluminum was the primary driver for this acquisition, particularly as aluminum has grown its share to 17% of the U.K. door and window market by volume and 36% by value. However, the other businesses are all natural product adjacencies to our existing portfolio, which is highlighted in the next slide. So just as an example, the addition of Alunet's aluminum door and window system perfectly complements our leading position in PVCU profiles and provides fabricators with a one-stop shop. The addition of solid timber core composite doors to our entrance door range and garage doors under our extended living range will enable trade installers to offer homeowners, a complete range of suited products from Eurocell. If you look at Alunet, currently, 85% of Alunet sales are patio doors and 70% of revenues are from pure aluminum fabricators. The launch of the new alumina window system in early April, combined with Eurocell's new aluminum lantern will create the Alunet whole house concept and a sector-leading proposition for PVCU fabricators who also fabricate aluminum. As I mentioned earlier, 6 Eurocell fabricators have already elected to switch to Alunet, and I expect more to follow. In terms of comp doors based in Stoke-on-Trent, they are a fast-growing manufacturer of premium solid timber core composite doors. The combination of Comp door and vista called PVCU panel and GRP foam composite door business positions Eurocell as the market leader in entrance doors with a good, better, best offering. We see opportunities to cross-sell comp door and vista to existing installers of both brands as well as distributing the comp door product to our branch network. We're also ramping up comp door's digital marketing activity to generate homeowner leads for their growing network of loyal installers. And lastly, on garage doors, JDUK are a supplier of sectional and sizable aluminum garage doors. UK Doors Midlands manufacture aluminium roller shutter garage doors. Many garage door installers are actually already existing Eurocell customers through the branch network. So again, a fantastic opportunity to cross-sell this range of products. And we also see opportunities to generate homeowner leads to create pull-through for our partner installers. So in summary, a decent set of results against the tough market backdrop with promising growth and progress on all of our strategic initiatives. The acquisition of Alunet is a great fit and enhances our home improvement proposition, which will accelerate our path towards GBP 500 million of sales and GBP 50 million of operating profit by 2028. Although we've seen some early signs of a pickup in the housing sector through our newbuild fabricators, our core RMI market remains challenging, although we do hope to see an improving picture as we move through the second half of this year. We are, therefore, continuing to take decisive actions to reduce costs, improve efficiencies and control cash. And this leaves us extremely well positioned to benefit from a sustained market recovery whenever that comes. So that concludes our presentation, and we'd now like to invite any questions.

[Operator Instructions] Your first question comes from the line of Robert Chantry of Berenberg.

Just 3 questions for me. So firstly, could you just talk about the latest dynamics in newbuild in terms of volume uptick and the consistency of that demand through the fabricators? Secondly, pricing environment. I think the intent that you're going to work at price increase through into market this year, can you just talk a bit about where it's focused in the business, what sort of quantum and timing? And then thirdly, obviously, in '24, a really good year for gross margin delivery. Given where feedstock prices are at currently, can you talk a bit more about the expectations for that gross margin through '25? I think Alunet comes in at a lower gross margin, so just a bit more color on the gross margin evolution for the year ahead would be helpful.

Thank you, Rob. Well, I'll take the first one on newbuild, and then I'll hand over to Michael. What I would say is that it's very early stages of an uptick in demand. As you know, we are highly specified in the new build sector. Just under half of all new homes built in the U.K. have a Eurocell window profile specified. And like I said, we're seeing a small uptick. But if you remember, we were in this position back in September at our interim results last year, where we were seeing the same sort of conditions back in July, August, and unfortunately, that was short-lived. So we're not going to carried away. As I say, they're very early stages, but we do hope that, that continues. Over to you, Michael.

Okay. So on selling prices, there is inflation coming through in 2025. We would expect some modest cost increases across our raw material pace. But added to that, of course, we've also got the increases in national living wage, national insurance and a pay award that we will implement with our employees. So all of that means that we need to realize a price increase of in the region of 5% on manufactured products. And we'll do that. Well, that's being implemented at the moment. So if you like, the effect on the numbers when you adjust just the manufacturing product and look at it over sort of 9 months is about 2.5% overall on the numbers mathematically. In terms of gross margin, Rob, your third question, with that selling price increase and with the modest increases in raw material costs, I would expect the underlying Eurocell gross margin to remain relatively consistent. And as you said, the gross margin on Alunet is a little lower. It's in the mid-30s. And therefore, overall, I would expect gross margin for the company, for the whole group for 2025 around about 51%.

[Operator Instructions] And currently, there are no further questions on the line. So I'd like to hand back to Darren Waters for closing comments.

We've got Clyde in the room with us. So I think Clyde has got a couple of questions as well.

On Alunet, a couple of questions, really, I suppose. One is on ERP integration with Alunet. What are you going to have to do? Is there anything extra there, just in terms of our systems? A second one on Alunet was really sort of new build, just how does that change the dynamics with the new build customers in terms of you being able to offer aluminum product into mid-to-high rise clearly, which is not used for PVC and also sort of patio doors and things like that. I mean it's a real mix. Some of those house builders still use PVC, some have converted to aluminum. So would be useful to sort of understand where you are on those two?

Should I take that, the system project?

Yes.

So Alunet is currently operating on Sage. We'll do the implementation on the core Eurocell business first with IFS. Obviously, we have Vista Doors in our group, which will provide a very good template, I think, certainly for comp door, but likely for Alunet as well. So we'll do the implementation on the core Eurocell business first. Alunet will follow, which would therefore probably put their implementation toward the end of 2026.

Yes, I think then on the housing market, Clyde, you're right. So look, in terms of low rise, most of the windows will be fitted with PVC, but aluminum lends itself to things like patio doors. So with our newbuild fabricators, obviously, we're working hard to persuade them to take the Alunet profile. And as I mentioned, quite a few of them already switched across, so that does present an opportunity. On entrance doors, there's more of a tendency to the midrange GRP foam-filled composite product, i.e., the Vista product, the comp door product is more suited to RMI because it's a more premium product that customers often look to upgrade to. So I think, yes, definitely an opportunity on aluminum profile, but I would also say an opportunity on garage doors because you're seeing the up and over doors that you used to see in new build properties being converted to roller shutter and sectional aluminum garage door. So that is an opportunity for JDUK and UK Doors Midlands. And look, one thing we do have is fantastic relationships with most of the major house builders. And like I said, we'll be looking to leverage those to cross-sell more of the Alunet product.

Just one for Michael. In terms of sort of the working capital, I think you're indicating GBP 6 million increase. Sort of is that very much to support what you're doing within the branches? And maybe just sort of explain that a little bit more on. Second one for you is probably sort of CapEx plans going into '26-'27 again, I suspect, linked a bit to the branch network and how that evolves. But it'd be useful to get some sort of guidance around that?

So Working capital for 2025, yes, we're guiding to an outflow of GBP 6 million. You could say that is GBP 5 million in the underlying Eurocell business and about GBP 1 million in Alunet. What is driving the outflow in the Eurocell business is an assumption of growth around the strategic initiatives, inclusive of both sales growth and 7 new branches where we will be obviously carrying the inventory and the like that associated with those. So it really is predicated on achieving sales growth in '25. From a CapEx perspective, the strategic plan is actually relatively CapEx light. So we have an underlying CapEx -- maintenance CapEx bill of around about between, say, GBP 7 million and GBP 10 million per annum. And then really, once the window and door project is done, which will be this year, then the remaining CapEx associated with the strategic plan is really just the new branches. So you're going to be in that sort of low-teens level of CapEx through the strategic plan period, so relatively modest. If there are growth-related projects that come out of the work that we're doing on business effectiveness, then there will be a capital cost associated with those, but that will, therefore, have to have a compelling financial return where our project hurdle rate is in the sort of mid-teen IRR.

Two more for me, sorry. In terms of the manufacturing capacity, you've got lots in terms of spare capacity. And even the most optimistic building analyst that I'm occasionally used to be, it's going to be some time before we see markets recover that much. Do you think you need to do more, I suppose, in terms of sort of maybe pulling back your capacity? I mean clearly, you've got everything in place, but the people to produce that clearly are all there, but I'm just sort of exploring that sort of, I suppose, sort of area of sort of what you've got now plenty of room, but it probably feels like a long time before we might get anywhere near the upper end of that sort of capacity profile.

Yes. I think, look, that's certainly the case for the PVC business, and we flex headcount in line with demand as well as inventory levels. I think we've done that successfully. Clearly, with Alunet, all of those businesses are very much in growth mode. And we'll be looking to increased capacity, actually, certainly on aluminum, where we expect further sales to come through. On comp door, they've already moved into a second facility because they've outgrown the first one and only -- they've only been in 3 years. So they've done a fantastic job. So look, it's literally not flexing headcount and facilities to in line with demand. But, as you said, Clyde, we've got plenty of headroom on extrusion.

And acquisitions presumably, you've got enough to deal with Alunet now for a while. So don't expect anything until that's fully bedded in?

Yes. Look, we're fully focused on delivering the synergies and upside that we see in that business. I think you can tell that we're excited about the acquisition. We see lots of opportunities. So I think that's going to keep us occupied for some time.

Last one for me is -- sorry, I'll keep them going. Last one for me. I suppose, as you look at the business now, and I'm thinking RMI rather than new build, but what do you see is the canary in the coal mine for the early indicators for possibly seeing a pickup in activity, which business, I suppose, in particular or which area would you think is the best guide for helping on that front?

Well, I mean, I talked about new builds. In my experience, it typically takes around about 9 months for RMI to follow. And obviously, RMI is our core market. It's 85% of our sales. So it literally will be the trade fabricators through our profile business, and it will be the branch network. And I would say particularly the branch network because the branch network is supplying quite a large number of trades people, whether it be roofing contractors or a window installers. And I think that we're watching sales closely day by day. And I think that will be the key market.

If I can further comment on the capacity point that you raised, which is about recycling. The eagle eyed would notice that we shaded down our medium-term recycling target, which was 40% of manufacturing capability through recycling by 2030. We moved that down to 36% through the work we've done on the ESG transition plan. And that just reflects us getting a better understanding of the feedstock market and the available quantities of waste windows. We did suffer in 2023 when we saw significant increases in feedstock pricing with virgin resin going the other way. So we just want to make sure that we don't do anything that destabilizes that market and gives us a similar dynamic again. So that's why alongside the growth objective, we've just shaded down that medium-term target.

[Operator Instructions] Currently, there are no further questions on the line.

Okay. Well, thanks, Gavin. Look, as we said, tough market backdrop but I think despite that, we're executing well on our strategy. Obviously excited, as I said, about the Alunet acquisition. I think we've got a great team in place now. And particularly with the addition of Stuart as the branch network and also the team of people that we've inherited through the Alunet acquisition, great cultural fit. And we're looking forward to make further progress this year. And with that, thanks for your attendance this morning. Look forward to catching up soon.

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