Eurocell plc

good day and welcome to the eurocell half year results presentation all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question during this time simply press star followed by number one on your telephone keypad if you would like to withdraw your question press star one again for operator assistance throughout the call please press star zero and finally i would like to advise all participants that this call is being recorded thank you i'd like to welcome darren waters ceo to begin the conference darren over to you thank you very much um yeah alongside me this morning obviously michael scott cfo as part of our presentation this morning we'll update you on our strategic initiatives as well as the progress

So, at a headline level, against a sub-market backdrop, we delivered a resilient performance with adjusted operating profit of 9% versus platform 2024 on revenues that were up 10%, all driven by Alunet, which has performed very well during the first four months under our ownership. Although we've seen a modest uptick in new build activity, demanding our core RMI market remains very subdued. We're therefore continuing to focus on driving operational efficiencies and cost reduction opportunities. For example, in quarter one, we carried out a restructure of our branch network, which is expected to generate annualized savings of £2 million. We're also continuing to invest in the delivery of our five-year strategy with good progress on new branch openings and the door and window initiative that we kicked off in 2024. We're also following through on our commitment to improve shareholder returns through further share buybacks and an increase in the ordinary dividend, with returns of $7.3 million announced so far this year. However, with trading conditions remaining challenging, we are revising our full-year outlook to reflect recent trading activity in Q3, which is trailing behind our previous forecast. And I'm now going to hand over to Michael, It will run through our financial performance in more detail.

Thanks, Darren. We'll start by going through financial highlights on page five. With subdued trading conditions, underlying sales volumes were below H1 2024. However, flat organic revenues due to further progress with our strategic initiatives and total group sales were up 10% bolstered by the acquisition of Alumet in March. to h124 this reflects a strong contribution from alunet and effective cost control partially offset by lower organic sales volumes and labor cost inflation at the same time we've also progressed further targeted investments to maintain momentum with our strategic initiatives adjusted profit before tax down three percent includes increased depreciation and finance costs following the acquisition and adjusted earnings per share up seven percent to reflect a lower share count following our buyback program Cash generation remains good, despite being down against the strong 24, which included a benefit in working capital from falling raw material prices. Net debt at 29 million reflects the impact of funding the AldiNet acquisition through our RCS, and with leverage at 0.9 times, we have good headroom on our debt facility. Finally on this slide, so far this year we've announced sharehold returns of 7.3 million pence. including the interim dividend of 2.3 pence per share, up 5% on H124, and our current £5 million share buyback, which is expected to complete in the second half. Thereafter, we intend to continue share buybacks, subject to always maintaining a strong financial position. 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 amortisation was £13.1 million, up slightly on H124. And with our CapEx programme, lease renewals and Alunet, we expect DNA for the full year to be in the region of £27 million. And just to note that I've summarised all of our technical financial guidance at the end. Finance costs for £2.3 million, up £1 million on H124, reflecting the utilisation of our debt facilities to fund the acquisitions. to the benefit of patent loss relief. Looking down the P&L, basic earnings per share were 6.0 pence, up 7% on H124, and dividends 2.3 pence I've already covered. Moving to the right of the slide, the first half non-underlying charge of £4 million includes £2.2 million of implementation costs for our ERP replacement project, £1.4 million of termination costs in respect of structuring, and £0.4 million of acquisition due diligence costs. later in the presentation i'll pick up the erp systems replacement project and our cost reduction initiatives which include the structure lastly on this slide it's worth noting that excluding alunet our organic sales gross margin percentage and overheads are all flat with h1 2024 demonstrating resilience in the face of very difficult trading conditions and ongoing cost inflation moving on to our sales performance on page seven revenues were up 10% in H1 or flat excluding Alunet with organic volumes 2% lower as you know challenging macroeconomic conditions and weak consumer confidence have impacted activity levels in our key markets profile sales at 1% with volumes 2% lower reflects reduced R&I activity for our trade fabricators partially offset by a modest improvement in new build housing overall in the branch network sales were down 1% with volumes 2% lower this includes Underlying RMI volumes down 5% and we have continued to experience competitive pressure on selling prices from the branch network. However, set against that, we've made further progress with our strategic initiatives, up 4.4 million in the first half, including windows and doors up 8% and e-commerce activity up 41%, plus sales from new branches of 0.9 million pairs. AliNet is performing very well with post-acquisition corresponding period in 2024, driven by market share gains. And Darren will cover ownership and the other strategic initiatives later in the presentation. On to adjusted operating profit on paychecks. Profit of 10.1 million represents an increase of 9% versus H1 2024. Moving left to right across the chart, that adverse volume impact of 1.1 million reflects organic sales down 2%. The margin benefit of 1.5 million has several components. Whilst 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 growth margin and cost base and have delivered stable raw material, recycling feedstock and electricity prices this year. Alunet has made a strong contribution on the corresponding period in 2024. Moving along the chart, labour inflation of 2.0 million includes the annualisation of our April 24 pay award of 4% and our 25 award of 2%, plus increases to employers NI and the National Living Wage affected from April this year, which have an annualised cost of approximately 3.0 million. Property costs were at 1.7 million in the first half, including the impact of rent reviews at several operational sites, And variable labour costs are down this year, with lower bonus and variable pay partly upset by higher share-based payment charges. On cost reduction, our previously announced restructuring programmes are expected to deliver annualised savings of at least £4 million, most of which should be realized in 2025. And I'll pick up those when I talk about business effectiveness later in the presentation. The other caption to the right includes further targeted investment to maintain momentum in our strategic initiatives. This includes the short-term profit drive of $0.7 million through new branches, where the opening program will create long-term profit growth. In summary, operating profit is up due to alienating effective cost control despite weaker underlying volumes and ongoing cost inflation. Moving on to CapEx on page 9, investment of $6.6 million in Edge 1, which is a $2.4 million branch network, the combination of new openings, refurbishments and relocations, with the balance of primarily maintenance CapEx. Our guidance for 2025 is that total capex, including our net of approximately £13 million, is below our previous guidance of £15 million, reflecting the focus on careful cash flow management. However, we continue to invest to drive a five-year plan. The guidance includes £3 million for strategic initiatives, such as new branches, refurbishments and relocations, plus racking for windows and doors. There's also £3 million for facilities, welfare and safety improvements across our property estate, and £2 million to develop our IT the remainder largely maintenance cappings as noted earlier implementation costs for cloud-based ip solutions are charged to the pnl rather than capitalized our erp system replacement falls into this category with 2.2 million charged to the pnl as a non-underlying maximum taking the total cost included on the project to date for 4.4 million we estimate non-underlying costs on the erp project will be approximately six million pounds for the full year and I'll provide further detail on the project itself later in 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 well-placed to deliver on our strategy. Getting to the full cash flow on page 10, we'll check out the components of an increase in net debt of $25.9 million in the first half on a pre-IFRS 16 basis. This follows the acquisition of Alienet in March, which is funded from our debt facility. Moving left to right across the chart, cash generations continue to be good. An outflow from working capital of £0.9 million in H1 follows a significant inflow across the 2023-24 period, driven by stock reduction, and includes June 25 stock and debtor days in line with the June 24 comparison. Looking ahead to the full year, we're guiding to an outflow of approximately £3 million, including the impact of Alienet's growth. This is also better than our previous guidance of a £6 million outflow with our continued focus on efficient working capital management. Non-underlying costs result in an outflow of £3.8 million, and tax payments of £1.3 million are offset by share-based payments and other non-cash items. Cash consideration for Alunet, net of cash acquired, is £20.2 million, and CapEx payments of £7 million include the asset additions covered earlier, plus a small reduction in our capital credit. After financing charges of £0.9 million, share buybacks of £3 million and dividends paid of £3.9 million, this results in pre-IFRS 16 net debt of £29 million at the end of June. IFRS 16 adds £70 million to debt, which you can see in the reconciliation table is up £10 million compared to December 24. This reflects the net impact of leases acquired with Alunet, branch openings and leasing mules, a total of £19 million, for operating activities on the left of the chart. Overall, this leaves us with a strong balance sheet in liquidity position, with leverage at 0.9 times pre-IFRS 16 EBITDA, and good headroom on our £75 million facility, thereby providing security, flexibility, and options for the future. Turning to capital allocation on slide 11, we will continue to drive shareholder returns through a combination of an increasing orderly dividend and share buyback. Moving left to right across the chart, our approach to capital allocation is to prioritise organic investment in line with our strategic plan, supporting initiatives to drive profitable growth in the branch network, continuous improvement in operations, and an upgrade to our IT system. On dividends, our policy recognises the importance of the order of dividends. We believe an increase in dividend is right for this business, providing a predictable income stream for our investors, with this year's interim up 5% on H124. The Board has also taken the decision that employee incentivisation 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 best over the next two years. Moving across the chart, we believe Alunet demonstrates our disciplined approach to acquisitions with a very clear strategic fit and a compelling financial justification. Thereafter, we intend to enhance shareholder returns through share buyback. The £15 million buyback launched in January 2024 was completed earlier this year, and the additional £5 million buyback announced in March 2025 is expected to complete in the second half. Looking further forward, we intend to continue the buybacks, subject always to maintaining a strong financial position, with net debt not to exceed one times EBITDA unless there is a clear short-term deleveraging plan in place. So to sum up on page 12, a resilient financial performance with adjusted operating profit of 9% in the first half. We continue to focus on cost reduction and cash flow management, and cash conversion remains good. The business is well positioned to successfully deliver our strategy with well-invested facilities and available operating capacities. We have a strong balance sheet and good liquidity. The sharehold returns are 7.3 million and so far this year, and we intend to continue to share by maximities. With trading conditions remaining subdued and sales through the summer falling behind our forecast, our full-year outlook is now below previous expectations. But we are convinced that the medium and longer-term prospects for our sector remain attractive. Finally, to the right of the slide, there is a summary of our technical financial guidance, which I hope is helpful. And with that, back to Darren to update you on progress with our strategy.