Eurocell plc

Hello everyone and welcome to Eurocell half-year 2026 conference call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Bill Truman, Chief Executive Officer. Please go ahead.

Thank you and welcome to Eurocell's 2026 half-year results presentation. I'm Will Truman, Chief Executive and I'm with Michael Scott, the Chief Financial Officer and Matt Worcester, CFO Designate. This morning I'll give you a brief overview of the half-year before handing over to Michael who will take you through the financial results in more detail before handing back to me for the strategy update. Michael will then cover the ERP upgrade, restructuring and ESG. I will then wrap up with a brief summary. As you know I was appointed in February of this year and my reflection on the first half year's results is that we have made some good progress. Alunet has continued to trade in line with our expectations and there has been an improvement in the underlying business despite the soft first quarter. The improvement in the sales momentum we saw in Q2 has continued into the second half of the year. As part of this we have seen gains in each of the strategic initiatives but importantly in the underlying business. Alongside this, we have also made progress with further restructuring and strong cost disciplines. As a result, group revenues improved 6% in comparison to the first half of the prior year from £193 million to £205 million. Adjusted operating profit also showed improvement from £10.1 million in the first half of 2025 to £11.1 million in the first half of this year. as in prior presentations i'm pleased to report good financial management is evident in the strength of the balance sheet strong cash flows low net debt and improving total shareholder returns i'm also pleased to report on the acquisition of att the manufacturer of our garden buildings this is a small but important acquisition in the pursuit of delivering the extended living strategy and with that i'll now hand over to michael for the financial review

Thanks. I'll start with the financial highlights on page 5. Despite tough market conditions, organic volumes were 1% up on H1 last year. We saw an improvement in the second quarter, which reflects the actions taken to increase sales volumes and gain share. And this momentum has continued into the second half. Total group sales were up 6%, enhanced by Alunet, which we acquired in March 2021. Adjusted operating profit increased by 10%. This includes a strong contribution from Alienet in good cost control, partially offset by competitive pressure on selling prices in the branches, plus continued labour and overhead cost inflation. Adjusted EPS up 2% includes increased finance costs on debt following the Alienet acquisition, plus the impact of our share buyback programmes. Cash generation remains good, despite being slightly down against last year, which benefited from falling raw material prices. and with leverage of 0.8 times, we have good headroom on our debt facility, which was refinanced in March. Finally, this year's interim dividend of 2.5 pence per share is up 9%. We're focused on shareholder returns, and following good delivery for 2024 and 2025, we do intend to continue share buybacks in due course, subject always to maintaining a strong financial position. Turning to the full P&L on page 6. I'll come on to our sales and the other components of EBITDA at the moment. But first, just looking below that line, depreciation and amortization was $14.3 million, up $1.2 on last year. And with our CapEx program and lease renewals, we expect DNA for the full year to be in the region of $29 million. And just to note that I've summarized all of our financial guidance at the end. Finance costs were $2.9 million, up on H125, reflecting the use of our RCF to fund it earlier in acquisitions. h1 taxes in line with the standard rate and we expect a slightly lower full year rate of 24 due to the benefit of payment box relief looking down the p l adjusted basic units per share was 6.1 pence up two percent and dividends of 2.5 pence i've already covered moving to the right of the slide non-underlying charges of 9.6 million includes restructuring costs of 9.4 million of which 6.7 is not cash plus implementation offset by a lease liability provision release of 2.7 million, following the resolution of a property dispute. And later in the presentation, I'll pick up restructuring in the systems replacement project, which is nearing conclusion. Finally, excluding Alunet, organic sales and overheads were both up 1% on H125, with the gross margin percentage only slightly down, which is a robust performance in the face of current trading conditions and ongoing cost inflation. Moving to sales on page seven, Revenues were up 6% in H1, with organic volumes 1% higher. As you know, we face difficult trading and macroeconomic conditions with weak consumer confidence and uncertainty over the impact of geopolitical events, and this has continued to weigh on activity in our key markets. Against this backdrop, we've taken action to increase volumes and gain share, and after a slow first quarter, it was good to see momentum improving in Q2, with organic sales up 4%. In profiles, first half sales were down 5%, with cost of living pressures, high interest rates, and falling house prices, all having an adverse effect. Optimism for housing market recovery in 2026 has faded, and we've seen an increasingly challenging market backdrop for new-build housing. In the branch network, sales were up 5%, with volumes 6% higher. This includes general RMI volumes down 2%, with homeowners still holding back on discretionary expenditure. but sales also include the impact of action to drive volumes of own manufactured products through the network as well as progress with our strategic initiatives where sales are up 6.6 million including windows and doors up 29% and e-commerce activity up 49% in addition branches open since the end of 24 deliver incremental sales of 1.8 million in the first half finally Alionet is performing strongly under our ownership with first half sales growth at 13% on our calendar day driven by market share gains. On to adjusted operating profit on page 8. Profit of $11.1 million is an increase of 10% on H125. Moving left to right across the chart, the adverse volume impact of $2.5 million follows organic sales down 4% excluding the strategic initiatives. The net margin decline of $0.8 million has several components. whilst revenues include selling price increases implemented early in the year to offset 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 whilst we saw increased pvc resin other raw material and electricity prices in the second quarter these are being recovered through a combination of surcharges and sales strategies the incremental from new ventures. Alunac made a strong contribution with operating profit of 2.4 million over the four-month post-acquisition period in which 125. Moving along the chart, labour inflation of 1.5 million includes the impact of our April 25 and 26 pay awards, plus the increases to national insurance and the national living wage affected from April 25. Finally, the other category to the right of the chart, which is a benefit of 1.5 million, includes the annualisation of last year's restructuring and cost reduction work, and I'll pick up on the new 2026 programmes when we cover business effectiveness later. Moving to CAPEX on page 9. Investments of 6.5 million in H1 includes 1 million in recycling, mostly related to the consolidation of our two plants. 0.9 million for warehousing is to support central distribution of traded goods from our main warehouse. and £1 million for the branch network is a combination of refurbs and relocations. The balance is primarily maintenance capex. Our guidance for the year is the total capex of up to £13 million. This includes £3 million for strategic initiatives such as branch refurbs and relocations and £3 million for site consolidation. There's also £3 million for facilities, welfare and safety improvements across our property estate with the remainder largely maintenance capex. As you know, implementation costs of cloud-based IT solutions are charged to the P&L rather than capitalized, and our ERP system replacement falls into this category, with $2.6 million charged to the P&L as a non-underlying item in the first half, taking the total cost incurred to date on the project to $9 million. The estimated non-underlying costs on ERP will be approximately $14 million for the 2024-27 period, and I'll provide further detail on the project 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 ready to deliver growth. Going into the full cash flow on page 10, which sets out the components of an increase in pre-IFRS 16 net debt of 6 million for the first half. This includes a cash impact of 6.4 million for the non-underlying items I described earlier, plus earn-out payments of 2.6 million for moving left to right across the chart cash generation has continued to be good a small outflow from working capital in h1 includes stock invested aid broadly in line with their june 25 comparatives capex payments of 5.8 million are the asset additions covered earlier plus a small increase in our capital creditor and financing charges of 1.6 million include the arrangement fees payable on refinancing our rcf in march after share buybacks and treasury share purchases of 0.8 million dividends paid of 4 million this results in pre IFRS 16 net debt of 28.1 million at the end of June IFRS 16 adds 65.6 million to debt which you can see in the table is down 10.5 million compared to December 25 this reduction reflects cash payments on leases of 10.1 million which are accounted for within net cash from operating activities on the left of the chart plus a non-cash movement of 0.4 million being the net provision release I described earlier. Overall, this leaves us with a strong balance sheet, with leverage at 0.8 times either DART and a pre-IFR at 16 basis, and good heavily on our recently refinanced £75 million debt facility, thereby providing security, flexibility and options for the future. Turning to capital allocation on slide 11, we've delivered strong total shareholder returns over the last two years. equivalent to yields of 14% and 8% for 2024 and 2025 respectively. Looking ahead, we intend to drive returns through a combination of ordinary dividends plus share buybacks when appropriate. Moving left to right across the chart, our approach to capital allocation is to prioritise organic investment in line with the strategic plan, supporting initiatives to drive growth in the branch network, improvements in operations and to upgrade our IT systems. On dividends, our policy recognises the importance of the ordinary dividend with this year's interim of 9%. 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 vest over the next two years. Moving across the chart, RDNS and ATT demonstrated disciplined approach to acquisitions, justification thereafter we've been enhancing returns through share buybacks our intention remains to continue buybacks in due course subject to the impact of the middle east and as always to maintaining a strong financial position with net debt generally not to exceed one times even dollar unless there is a clear short-term deleveraging plan in place but to sum up on page 12 a robust underlying financial performance with adjusted operating profit up 10 percent We're focused on improving profitability. We've taken action to increase sale volumes and gain share, continue to demonstrate cost discipline, and implement a profit-focused restructuring which I'll cover shortly. We have a strong balance sheet and good headroom on our debt facility. Cash conversion remains good. The interim dividend is up 9%, and the acquisition of ATT for £5 million in September was funded from our RTF. The business is therefore in a good place to deliver on our growth strategy. we're confident that we'll deliver further progress in 2026 and we're 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 now over to will to update on our strategy thank you as in prior presentation the strategy remains unchanged and just as relevant and in focus principally it consists of growing the customer