Eurocell plc ($ECEL)

Good day, and welcome to the Eurocell Full Year Results. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Will Truman, Chief Executive Officer, to begin the conference. Will, over to you.

Thank you. Welcome to Eurocell's 2025 Results Presentation. I'm Will Truman, Chief Executive; and I'm with Michael Scott, who you all know is the CFO. This morning, we will follow a similar format to prior years in so much that I will give a brief overview, recognizing that I was appointed as CEO in February of this year. Michael will then cover the financial review. I will pick up the strategy update, focusing on our commercial initiatives and then hand back to Michael, who will cover ESG, business effectiveness and people first. I will then wrap up with a summary. As mentioned, I was appointed after the year-end, but in overview, 2025 can be summarized as an improved performance over the prior year, principally by virtue of Alunet's inclusion in the group results. This shouldn't detract from the continued improvements made elsewhere, but underlines the reality of the market within which Eurocell operates. Group revenues improved 13% to GBP 404 million from GBP 350 million in the prior year. Operating profit for the year was GBP 24 million versus GBP 23 million in '24. Good financial management is evident from the strength of the balance sheet with strong cash flows, low net debt and improving total shareholder returns. There is more to be done to improve the outcomes of the strategy, but good gains were made in 2025 with new branches opened and all branches now included in the Window and Door program, together with further progress in garden rooms and digital sales. We are confident we can improve the pace and delivery against the strategy over the course of this year, mindful, of course, of recent events and the impact they can have on our input prices and demand. And with that, I'll hand over to Michael for the financial review.

Thanks, Will. So I'll start by going through the financial highlights on Page 5 of the presentation. With market conditions remaining tough, organic volumes were below 2024. However, organic revenues do include further progress with our strategic initiatives and total group sales were up 13%, enhanced by the acquisition of Alunet in March. Adjusted operating profit increased by 6% compared to 2024. This reflects a strong contribution from Alunet in group cost control, partially offset by lower organic sales volumes and competitive pressure on selling price in the branches, plus continued labor and other overhead cost inflation. At the same time, we've also progressed further targeted investments to maintain momentum on our strategic initiatives. Adjusted profit before tax down 5% includes the increased finance costs following the acquisition and adjusted earnings per share of 1% includes the impact of our buyback program. Cash generation remains good, thanks to a continued focus on working capital. Net debt of GBP 22 million reflects the impact of funding the Alunet acquisition to RTF. And with leverage at 0.7x, we have good headroom on our debt facility, which was refinanced in March this year and now matures in 2030. Finally, on this slide, we've now announced shareholder returns of GBP 11.4 million for 2025, which includes total dividends for the year of 64p per share, up 5% on 2024, plus the GBP 5 million buyback, which commenced in March 2025 and is now complete. Turning to the full P&L on Page 6. I'll come on to our sales performance and the other components of EBITDA in a moment, but first, just looking below that line. Depreciation and amortization was GBP 27.4 million, up GBP 2 million on 2024. And with our CapEx program, lease renewals in Alunet, we expect D&A for 2026 to be in the region of GBP 29 million. And just to note that I've summarized all of our technical financial guidance at the end. Finance costs were GBP 5.1 million, up GBP 2.3 million on 2024, reflecting the use of our debt facilities to fund the acquisition and the impact of new leases on our IFRS 16 interest charge. Tax rate for 2025 was approximately 22%, which is lower than the standard rate due to the benefit of patent box relief. Looking down the P&L, basic earnings per share were 14.6p, up 1% on 2024 and dividends of 6.4p have already covered. Moving to the right of the slide. Non-underlying charges for the year of GBP 6.8 million includes GBP 4.3 million of implementation costs for our systems replacement project, GBP 1.8 million of termination costs in respect of restructuring and GBP 0.8 million of acquisition due diligence and other costs. Later in the presentation, I'll pick up on the systems replacement project and our cost reduction initiatives, which include restructuring. Finally, on this slide, it is worth noting that excluding Alunet, our organic sales and gross margin percentage are both flat with 2024 with overhead costs up just 1%, demonstrating resilience in the face of difficult trading conditions and ongoing cost inflation. Moving on to our sales performance on Page 7. Revenues were up 13% in 2025 or flat excluding Alunet. As you know, difficult macroeconomic conditions and weak consumer confidence have hit activity levels in our key markets. Profile sales up 1% with volumes 2% lower reflects reduced RMI activity through our trade fabricators, partially offset by a small improvement in the new build housing market in the first half. Overall, in the branch network, sales were down 1% with volumes 2% lower. This includes underlying RMI volumes down 6%. However, set against that, we have made further progress with our strategic initiatives, up GBP 9.4 million, including Windows and Doors up 12%, Garden Rooms at 9% and e-commerce activity up 40% plus sales from new branches of GBP 3.3 million. Alunet is performing well under our ownership with post-acquisition sales growth of 28% over the same period in 2024, driven by market share gains. And we'll cover Alunet's performance and the other strategic initiatives later in the presentation. On to adjusted operating profit on Page 8. Profit of GBP 24.1 million is an increase of 6% versus 2024. Moving left to right across the chart, the adverse volume impact of GBP 8.6 million follows organic sales down 2%. The margin benefit of GBP 3.8 million has several components. Whilst revenues include 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 do proactively manage our gross margin and cost base and delivered stable raw material recycling feedstock and electricity prices last year. Strategic initiatives include new branch openings, which create a short-term profit drag but drive longer-term profit growth. Incremental operating profit of GBP 0.8 million on the other strategic initiatives came at a good EBIT margin of 13%. Alunet made a strong contribution with post-acquisition operating profit of GBP 4.8 million, up GBP 1.8 million on the same period in 2024. Moving along the chart. Labor inflation of GBP 4.8 million includes the annualization of our April '24 pay award of 4% and our '25 award of 2% plus the increases to national insurance and the National Living Wage effective from April '25, which have an annualized cost of approximately GBP 3 million. Variable labor costs were down in 2025, reflecting lower bonuses and commissions payable. On cost reduction, the restructuring we implemented in the first half delivered savings of GBP 3.1 million in 2025, and I'll pick up on those programs when I talk about business effectiveness later. In summary, operating profit is up due to Alunet and effective cost control despite weaker underlying volumes and ongoing cost inflation. Moving on to CapEx on Page 9. Investment of GBP 11.8 million in 2025 includes GBP 3.7 million for the branch network being a combination of new openings, refurbishments and relocations, with the balance primarily maintenance CapEx. Our guidance for 2026 is for total CapEx of up to GBP 15 million. This includes GBP 3 million for strategic initiatives such as new branches, refurbs and relocations and GBP 3 million for site consolidation, which I'll come back to when I talk about business effect. There's also GBP 3 million for facilities, welfare and safety improvements across our property estate with the remainder largely 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 4.2 million charged to the P&L as a non-underlying item in 2025, taking the total cost incurred to date on the project to GBP 6.4 million. We now estimate nonunderlying costs for the ERP project will be approximately GBP 13 million for the period 2024 to '27, and I'll provide further detail on the project itself in a moment. Coming back to CapEx. The lower chart illustrates that we have manufacturing capacity in place ahead of demand, which is an important component of being well placed to deliver growth. Turning to the full cash flow on Page 10, which sets out the components of an increase in net debt of GBP 19 million in 2025 on a pre-IFRS 16 basis. This follows the acquisition of Alunet in March, which was funded from our debt facility and the non-underlying items of GBP 6.8 million I described earlier. Moving left to right across the chart, cash generation has continued to be good with an inflow from working capital of GBP 3.7 million in 2025. The cash consideration for Alunet, net of cash acquired is GBP 20.6 million and CapEx payments of GBP 12.5 million include the asset additions covered earlier plus a small reduction in our capital credit. After financing charges of GBP 2.1 million, share buybacks and treasury share purchase of GBP 6.0 million and dividends of GBP 6.2 million, this results in pre-IFRS 16 net debt of GBP 22 million at the end of the year. IFRS 16 adds GBP 76 million to debt, which you can see in the table is up GBP 17 million compared to December '24. This reflects the net impact of leases acquired with Alunet, branch openings and lease renewals, a total of GBP 36 million, less cash payments on leases of GBP 19 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 with leverage of 0.7x EBITDA on a pre-IFRS 16 basis and good headroom on our recently financed GBP 75 million debt facility, thereby providing security, flexibility and options for the future. Turning to capital allocation on Slide 11 and moving left to right across the chart. Our approach to capital allocation is to prioritize organic investment in line with the strategic plan, supporting initiatives to drive profitable growth in the branch network, continuous improvement in operations and to upgrade our IT system. On dividends, our policy recognizes the importance of the ordinary dividend with this year's total dividend up 5% on 2024. The Board has also taken the decision that employee incentivization by equity should be through shares acquired rather than issued, and our target is to hold sufficient treasury shares to satisfy employee share options expected to vest over the next 2 years. Moving across the chart, we believe that Alunet demonstrates a disciplined approach to acquisitions with a very clear strategic fit and a compelling financial justification. Thereafter, we've been enhancing returns through share buybacks. The GBP 5 million buyback launched in March '25 is now complete. Our intention remains to continue buybacks, assuming no prolonged impact from the Middle East conflict and as always, subject to maintaining a strong financial position with net debt generally not to exceed 1x EBITDA unless there's a short-term deleveraging plan in place. So to sum up on Page 12, a resilient financial performance with adjusted operating profit up 6%. We continue to focus on cost reduction and cash flow management. Cash conversion remains good. We have a strong balance sheet and good headroom on our recently refinanced debt facility. The business is, therefore, well placed to deliver on our growth strategy with well-invested facilities and available operating capacity. We're driving shareholder returns through ordinary dividends and share buybacks with total returns for 2025 equivalent to a yield of 8%. We're planning to deliver further progress in 2026. And whilst we're monitoring the potential impact of conflict in the Middle East, we're also convinced that the medium- and longer-term prospects for our sector remain attractive. Finally, to the right of the slide, there's a summary of our technical financial guidance, which I hope is helpful. So over to Will now to update you on our strategy.

Okay. So just to recap on the strategy, which was a pathway to achieve turnover of GBP 500 million, operating profit of GBP 50 million with a 10% margin. This was predicated on some market recovery, increasing existing share. Clearly, the last 2 years have not borne that assumption out with demand remaining weak, the group is currently behind on the plan. The strategy encapsulates increasing the size of the branch network, improving the sale of Windows and Doors through the branches, combined with additional sales of garden rooms and a further improvement in digital sales. I will touch on each of these together with the performance of Alunet in a minute. It's fair to say that 2026 is about regaining some ground, again, cognizant of recent events, but the aim is to quicken the pace. To that end, we have realigned the sales teams operating within the branch network and the wider group with a renewed focus on improving all volumes sold. This is particularly important with our own manufactured goods, with which increasing volumes improve the manufacturing efficiency of our factories. It also leverages the largely fixed cost base we have, particularly in the branch network. This is in tandem with new product innovations and introductions in some specific categories to revitalize demand. The benefits of the Alunet acquisition have been felt throughout 2025, not only in the financial contribution to the group, but also the wider benefits with the potential to cross-sell across both customer sets as well as improvements in product categories such as doors, now including garage doors and solid timber core composites. The improving financial performance across the year is a result of market share gains, particularly in Alunet Systems and Comp Door, and the growth plan assumes a continuation of this together with furthering the synergistic benefits being part of the wider group. Alunet Systems grew by 26% in 2025. The acquisition complements our proposition to fabricators. It provides a one-stop shop for PVC and aluminum door and window systems. As a result of this, 14 Eurocell PVC fabricators have now switched their aluminum requirements to Alunet. Comp Door grew by 41% last year and has continued to acquire installers with the new SleekSkin door now representing more than 15% of its sales. We expect the business to benefit from cross-selling opportunities and supply chain synergies with Vista. To the branch network, Eurocell currently operates a 215 strong branch network, and the plan remains to increase this further together with improvements made to existing sites and relocations to more favorable locations where available. Moving to Slide 18. In 2025, the group opened 7 new branches and relocated 6. We're expecting at least 5 new branches in 2026, and we're also in the middle of a program to refresh the branch exterior and signage for the entire network. During this year, we also need to build on the successful launch of the customer loyalty program, Power Up, whilst ensuring we improve on the functionality of the branch network. Most importantly, we need to drive volumes. An important part of that is the windows and doors program. As set out on Slide 19, during 2025, the rollout was accelerated such by the end of the year, we had all branches live and widened to include Comp Doors and aluminum windows. Key to increasing volumes is to have a dedicated sales support to branches and to cross-sell with made-to-order manufactured products. There is also an opportunity in sustainable construction, which Michael will pick up in ESG. Digital sales have increased year-on-year and totaled GBP 6.6 million in 2025, 40% up on the prior year. This has been achieved through further marketing support, improved website demand and the usability together with new initiatives such as Click & Collect from branch. In 2026, we want to further invest and improve this offering to maintain the growth. Extended Living, sales improved from GBP 8.8 million to GBP 9.6 million in 2025. While struggling initially to deliver consistent margins from erratic demand, the offering was refined and improved such that the greater expectation is placed on 2026. Furthermore, the decision was taken to exit extensions due to the complexity of each site and reliance on other providers. And now I'll pass back to Michael to cover the other strategic initiatives.

People first, after improved safety results in 2024, our LTIFR slipped back from 4.1 to 6.4 in 2025. Given these results, we made some changes to health and safety leadership in Q4 last year and developed an improved health and safety plan focusing on the behaviors needed to drive a more proactive safety culture. As you know, on the business effectiveness, we are replacing our ERP systems. Genetic, the new trade counter system, will transform the way we interact and transact with our customers in the branches, including simplified processes and the use of EPOS functionality. With IFS, the new ERP system, our objective is to improve efficiency by the automation and standardization of business processes. The build is now well advanced, and we'll start the testing and training programs later in the second quarter with transition to the new systems taking place at the end of the year. This is a few months later than previously reported, but we're confident that the revised time line is robust. We estimate total non-underlying costs on the project will be approximately GBP 13 million over the '24 to '27 period with GBP 6.4 million incurred to date. This is higher than our previous estimate, reflecting the later transition plus the extra third-party resources now engaged to secure a successful delivery. Also on the business effectiveness, our previously announced cost reduction initiatives will deliver GBP 4 million of annualized savings of which GBP 3.1 million was realized in 2025. The branch network restructuring was completed at the end of Q1 '25 and will generate annual savings of GBP 2 million. We also captured further overhead cost reductions of GBP 2 million in Q2 '25, including restructuring now completed in operations and shared services. Looking ahead to improve our recycling operations, we began a project in February '26 to consolidate our two recycling plants onto the existing facility at Ilkeston. This requires relocation of some critical equipment from the Selby site, plus investment in the Ilkeston plant to eliminate single points of failure and to improve the layout. We expect to close operations in Selby and begin processing at Ilkeston in H2 '26 with the Selby exit to be concluded by the end of the year. CapEx is estimated at GBP 2.6 million with annualized cost savings of about GBP 1.5 million running from 2027. Non-underlying charges are expected to be in the region of GBP 3 million, including noncash asset write-downs of GBP 1.5 million. On ESG, Eurocell is already a leader in PVC recycling, preventing 3 million waste windows being sent to landfill every year. And our use of recycled material and extrusion remains substantial at 30%. We've also made progress on our other carbon reduction initiatives, including further investment in on-site electricity generation through the installation of solar panels at our largest operating facilities. Our net zero targets have been validated by SBTi, and we've published our transition plan. We've also maintained our CDP climate disclosure rating at B and our MSCI rating of AA. Finally, we do think there's an opportunity for Eurocell with sustainable construction. Government regulation and consumer demand is pushing our sector towards sustainability. The future home standard final implementation begins in 2026 with all new homes required to comply by 2028. The objective is to reduce CO2 emissions of new homes by 75% to 80% and half the energy use of new buildings by 2030. The government has also launched the Warm Homes plan earlier in 2026 with a target to upgrade 5 million existing homes by 2030. Eurocell's products can help our customers meet or exceed future home standard. Many of our standard profiles have high recycled content and our window and door systems such as Logic and Alumina Plus are energy efficient with ratings well above industry standards. We, therefore, believe we're well placed to benefit from these tightening regulations as they come into effect. now back to Will to wrap up. Thank you.

In summary then, a stable performance enhanced by the inclusion of Alunet with some important lessons learned. In 2026, our focus will be on continued strong financial management and cost control throughout the group with a renewed focus on driving commercial outcomes to increase volumes, which in turn will improve the operating profit and the associated margin. Whilst mindful of global events, we do expect to make further progress in 2026, and the group will continue to drive shareholder returns through a combination of ordinary dividends and share buybacks. That's the end of the presentation. So could the operator please now open up the questions.

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

Can you hear me okay?

Yes.

Yes, three questions from me. So firstly, could you just talk a bit more about the pricing environment in the branch network versus the competition? Secondly, what parts of the product range in the branch network do you think you've got most catching up to do in terms of market share? And how do you see that playing out? And then thirdly, on the Middle East impact, clearly evolving by the day. But could you just remind us of the mechanisms used to deal with higher resin prices back in '22 when you're passing it through or looking to pass through to kind of customers?

Okay. Just to pick up the first 2 points around the volumes and the prices. I think it's -- I think it's different things for different product categories, to be honest. The price sensitivity is around some of the higher volume mainstay such as roofline and rainwater. I think we certainly have some improvements to make around those prices without affecting our margins overall. In terms of some of the other categories, to improve on the volumes, it's more about innovation and widening the product that's available through the branches. In certain other sectors, it's around speeding up our customer service in so much that we return quotes back to our end customers faster than what they have been doing and in fact, chase up on those quotes to ensure that we convert them to an order.

In terms of the impact of the Middle East and what that could mean for our cost base, as you know, we've seen circumstances like this before, we used a surcharge mechanism to pass increased costs through to our customers on a monthly basis and a surcharge because it can be put on, but equally, it can be taken off so that we're fair to our customers. So to give a sense of scale, based on where prices have got to at the end of last week, that surcharge on PVC to cover resin transport and electricity would have been in the order of 3%. But as we said in the presentation, where this is going is too difficult to say right at this moment.

[Operator Instructions].

Operator, we've also got Clyde Lewis from Peel Hunt in the room, and I think Clyde has got a couple of questions as well.

A few as normal. Should we kick off with where you think the market is at the moment? And I suppose, again, pretty it's hard to judge said around what impact the Gulf is going to do. But what were you thinking the market volumes were going to do for particularly RMI, but a little bit in terms of new build for 2026. So I'll take one at a time, it's probably easier.

I'm not expecting a massive improvement in the market, to be honest. In terms of what our intention is around our market share of that market that's out there, we're more pointed to improving our efficiency through the branches and improving what we're doing with our current fabricator base to improve our own volumes. So I'm not sort of reliant on a huge return in terms of the market in overall terms. Obviously, there's so many outside factors at play here that it's hard to tell. So what I'll concentrate the team on is look at ourselves very hard. Let's look at what we're selling through the branches. Let's look at what we're manufacturing. Let's look at the products that we're offering. Are we offering the full set to our customers in order to sell the most we possibly can.

The three key initiatives around extended living, doors and windows and then digital, which ones were better than expected and which ones are in line and which ones are worse, I suppose, and why? Were they different?

I think if I take Garden Rooms, I think Garden Rooms is has been difficult during the course of 2025 in terms of its profitability. I think we learned a lot of lessons during the course of that year. And that's to do with the use of marketing to drive leads and then the conversion of those leads to sell -- successfully sell a garden room. And we've understood that process better now and think we can convert a higher number of the leads that we generate. That's garden rooms. In terms of digital, I think digital sales have been very successful during the course of '25, and we expect them to continue to be successful in 2026, albeit the lower base, highly profitable. It's about making sure that the offering is right. The website can be incredibly complicated because we've got so many products for sale. So it's about making sure that the more obvious commonplace products are front and center and available to trade and non-trade alike. And then finally, with windows and doors, I think windows and doors has been successful and has got improving results. The importance of availability through the branches is absolutely key. But what is essential if we want to push it further is to become experts such that trade customers can call on us for advice, can call on us for a quick return in order to become a trusted supplier to them. That's the way that we'll win more business through that branch network. And to that end, we've got a dedicated sales force and a dedicated regional force that's able to lend expert advice.

Should I keep going?

Yes.

Okay. New branch experience, how has that gone? Have they been performing better or worse than expected? Because obviously, they all go into a loss phase and rebuild or build up to a [indiscernible].

I think in totality, they've been successful in so much that they're filling a void that wasn't -- that was there before. Would I say that they're successful? I wouldn't, to be honest. I think that the pace with which they're gaining sales has been too slow. So I think we need to drive more from them at a faster pace. And that, again, is about acquiring custom. It's a tough market. Our customers are hard to win. They're very easy to lose around price. And I think when you open a new store, it's about not only launching it with some marketing but following that up over a consistent period. And I think the regional teams in regional managers, regional sales managers, area sales managers have all got their part to play in order to support that to get new business.

Competitors. Could you say a little bit about what you're seeing in terms of the competitive environment? Any change in the way they do things, obviously, wins, change of ownership, a major sort of difference, I suppose, year-on-year?

It's early days for me, right? But I haven't seen anything particularly new. I think in terms of the branch environment, it's as competitive as it's always been. There's been some openings from our larger competitors. In terms of the profile side, there's been very little that I've been aware of.

In terms of the [indiscernible] win, what our sales teams have seen so far is that the two businesses seem to be operating independently as they were previously. We've not seen a great deal of the combination as yet.

Combination and consolidation. Do you want to say a bit about Alunet? And I mean, obviously, it's had a great year. I mean, obviously growing share. What have you done in terms of using what you think is best practice within Eurocell and maybe transferring some of those ideas across or maybe taking some of those good ideas across Alunet into sort of Eurocell?

I think there is some support being given as much as marketing, some of the sales support, some of the cross-selling between the two customers. I think on the whole, we've left Alunet to do what Alunet has been doing because they've been doing it so well, particularly with Comp Door. And I think that -- I think the other thing to note is the way that Comp Door and Vista have started working together. I think that's been a good thing. So they've got a real business unit about them now. And there's some commonality in the way they're being led. But aside from that, we haven't tried to integrate them too deeply.

And if I go into Eurocell branch, Can I find Alunet products for sale?

You can certainly get Alunet products through the Winds and Doors program, yes. And the doors are for sale in the branches, albeit with specific product names unique to Eurocell branches.

I think the last one was probably on the mood within the business. I mean there's been a lot of change. You rationalized some of the sort of, as I said, the regional structure within the branches, probably the profile of manufacturing hasn't changed that much. But how do you think the mood is in the business at the moment?

Good, I think. I mean, like I said, there's been a lot of change in a very short period of time. But I think that in itself has pointed to an inertia to a pace to a quickening of the pace in the business. I think there's a widespread positivity about what we're doing. I mean I myself spoke to 80 regional sales and area sales managers on Monday. They have a renewal about what they're doing, about what we're asking them to do in the market. So I think it's positive.

Probably last one, share buyback, positive for now. Let's fingers crossed eyes and legs crossed the conflict gets sorted sooner rather than later. When do you sort of make a decision as to what you do on that front going forward?

As soon as we've got clarity, I guess our next touch point will be at the AGM in May, and we'll update on the circumstances at that time. Hopefully, we'll have a clearer picture on where this is all headed at that point. But our intent is to resume this as soon as we can. Okay. Operator, that does the questions in the room. Do we have more on the line?

[Operator Instructions]. Currently, there are no further questions on the phones. I'd like to hand back.

Okay. Well, thank you, everyone, for listening in and participating this morning. Have a good rest of the day. And with that, we'd like to end the call. Thank you.

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