Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eurocell PLC (ECELF, Financial) reported a 33% increase in profits to GBP8 million despite challenging market conditions.
- The company successfully completed two share buybacks totaling GBP10 million and announced a third buyback of up to GBP5 million.
- Adjusted earnings per share increased by 30%, reflecting improved profitability.
- Net debt remains low at GBP4.3 million, with good headroom on the debt facility.
- The company is making good progress on strategic initiatives, including branch network expansion and increased e-commerce business.
Negative Points
- Revenues were down 5% with volumes 3% lower due to weak housing market and softer demand.
- Profile sales decreased by 9% with volumes 8% lower, reflecting weak markets.
- The company continues to experience competitive pricing pressure in the branch network.
- RMI activity is being hit by low consumer confidence and the residential construction market remains weak.
- The implementation costs for strategic IT projects are significant, with GBP0.4 million charged to the P&L in the first half and an estimated GBP3 million for the full year.
Q & A Highlights
Q: Well done on gross margin development. Do you think the current gross margin level is sustainable?
A: Michael Scott, CFO: The gross margin for the first half was 52.5%, largely due to a significant reduction in input costs. For the full year, we expect a margin closer to 52% due to a mix effect from our strategic initiatives. We aim to maintain our gross margin and will pass on any increased input costs to our customers as necessary.
Q: What is the expected year-end net debt position?
A: Michael Scott, CFO: We expect the year-end net debt to be around GBP10 million to GBP11 million, inclusive of the GBP5 million share buyback. This includes an outflow of GBP3 million for the ERP replacement project and the balance of our capital spend.
Q: Can you provide an update on the market structure and fabricators?
A: Darren Waters, CEO: The market has seen some consolidation with the exit of smaller players like Duraflex and Say Style. Despite a tough market, the fabricator community has held up well. Our door and window projects are benefiting our larger fabrication partners.
Q: What percentage of your recycling feedstock is on long-term contracts?
A: Michael Scott, CFO: Over 40% of our recycling feedstock requirements are now on contracts, either fixed price or indexed to virgin resin. This is a significant improvement from two years ago and reflects our efforts to uncover new sources of supply.
Q: What is the current utilization of your profile extrusion capacity?
A: Michael Scott, CFO: We have around 25% spare operating capacity in our extrusion facilities. This is a good position to be in as it means we don't need significant investments in incremental capacity to meet our growth objectives over the next five years.
Q: Has the timing of the ERP program shifted?
A: Michael Scott, CFO: The ERP program has shifted slightly to the right. We initially expected GBP4 million for 2024 but now estimate GBP3 million. We still expect to complete the project within the three-year window, with around GBP4 million in 2025 and the balance in 2026.
Q: Are you considering increasing the capacity for your doors and windows initiative?
A: Darren Waters, CEO: We are confident that fabrication capacity will not be an issue in the long term. Most of our branches can handle the capacity targets we've set. For smaller branches, we are looking at alternative solutions like relocations or additional storage.
Q: How are you developing relationships with larger housebuilders?
A: Darren Waters, CEO: Our technical capability is a major differentiator. We are working closely with major housebuilders to provide solutions that help them navigate regulatory changes. Our products like Modus are leading the way in meeting future home standards.
Q: What is the status of your green PVC initiatives?
A: Darren Waters, CEO: We are planning to take some green PVC material in the coming months. While there is a small premium currently, we expect costs to normalize as it becomes more widely available. The industry needs to embrace this to reduce the carbon footprint of door and window profiles.
Q: Could you foresee centralized storage facilities for doors and windows in the future?
A: Darren Waters, CEO: We offer a very local service, which is a key USP for us. Most tradespeople don't want to travel more than 20 minutes. Therefore, large central storage facilities are not likely to be beneficial for our business model.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
