ECELF (ECELF) Q2 2026 Earnings Report, Transcript and Summary

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. [Operator Instructions] I'd now like to hand the call over to Will Truman, Chief Executive Officer. Please go ahead.

Thank you, and welcome to Eurocell 2026 Half Year Results Presentation. I'm Will Truman, Chief Executive; and I am with Michael Scott, the Chief Financial Officer; and Matt Worster, 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. Mike 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 GBP 193 million to GBP 205 million. Adjusted operating profit also showed improvement from GBP 10.1 million in the first half of 2025 to GBP 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 manufacture 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 '25. Adjusted operating profit increased by 10%. This includes a strong contribution from Alunet and good cost control, partially offset by competitive pressure on selling prices in the branches plus continued labor and overhead cost inflation. Adjusted EPS up 2% includes increased finance costs on debt following the Alunet acquisition plus the impact of our share buyback programs. Cash generation remains good despite being slightly down against last year, which benefited from falling raw material prices. And with leverage at 0.8x, we have good headroom on our debt facility, which was refinanced in March. Finally, this year's interim dividend of 2.5p per share is up 9%. We're focused on shareholder returns. And following good delivery for '24 and '25, 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 in a moment. But first, just looking below that line, depreciation and amortization was GBP 14.3 million, up GBP 1.2 million on last year. And with our CapEx program and lease renewals, we expect D&A for the full year to be in the region of GBP 29 million. And just to note that I've summarized all of our financial guidance at the end. Finance costs were GBP 2.9 million, up on H1 '25, reflecting the use of our RCF to fund the Alunet acquisition. H1 tax is in line with the standard rate. We expect a slightly lower full year rate of 24% due to the benefit of Patent Box relief. Looking down the P&L, adjusted basic earnings per share were 6.1p, up 2% and dividend of 2.5p, I have already covered. Moving to the right of the slide, nonunderlying charges of GBP 9.6 million includes restructuring costs of GBP 9.4 million, of which GBP 6.7 million is noncash, plus implementation costs for our systems replacement project of GBP 2.6 million, offset by a lease liability provision release of GBP 2.7 million following the resolution of our property dispute. And later in the presentation, I'll pick up restructuring and the systems replacement project, which is nearing conclusion. Finally, excluding Alunet, organic sales and overheads were both up 1% on H1 '25, 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 7. 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 of 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 a 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 actions to drive volumes of own manufactured products through the network as well as progress with our strategic initiatives, where sales are up GBP 6.6 million, including windows and doors up 29% and e-commerce activity up 49%. In addition, branches opened since the end of '24, delivered incremental sales of GBP 1.8 million in the first half. Finally, Alunet is performing strongly under our ownership with first half sales growth of 13% on a calendar basis, driven by market share gains. On to adjusted operating profit on Page 8. Profit of GBP 11.1 million is an increase of 10% on H1 '25. Moving left to right across the chart, the adverse volume impact is GBP 2.5 million, follows organic sales down 4%, excluding the strategic initiatives. The net margin decline of GBP 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 profit impact from strategic initiatives is GBP 1.8 million, with a good overall EBIT margin on these initiatives of 16% for the period, inclusive of the drive from new ventures. Alunet made a strong contribution with operating profit of GBP 2.4 million over the 4 months post acquisition period in H1 '25. Moving along the chart, labor inflation of GBP 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 effective from April '25. Finally, the other category to the right of the chart, which is a benefit of GBP 1.5 million includes the annualization of last year's restructuring and cost reduction work. And I'll pick up on the new 2026 programs when we cover business effectiveness later. Moving to CapEx on Page 9. Investments of GBP 6.5 million in H1 includes GBP 1 million in recycling, mostly related to the consolidation of our 2 plants. GBP 0.9 million for warehousing is to support central distribution of traded goods from our May warehouse and GBP 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 for total CapEx of up to GBP 13 million. This includes GBP 3 million of the strategic initiatives, such as branch refurbs and relocations and GBP 3 million for site consolidation. There's also GBP 3 million for facilities, welfare and safety improvements across our property estate with the remainder largely maintenance CapEx. As you know, implementation costs for cloud-based IT solutions are charged to the P&L rather than capitalized and our ERP system replacement fall into this category with GBP 2.6 million charged to the P&L as a non-underlying items in the first half, taking the total cost incurred to date on the project to GBP 9 million. We estimate non-underlying costs on ERP will be approximately GBP 14 million for the 2024 to '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. Turning to the full cash flow on Page 10, which sets out the components of an increase in pre-IFRS 16 net debt of GBP 6 million for the first half. This includes a cash impact of GBP 6.4 million for the non-underlying items I described earlier, plus earn-out payments of GBP 2.6 million for Alunet based on strong profit delivery last year. Moving left to right across the chart, cash generation has continued to be good. A small outflow from working capital in H1 includes stock and debtor days broadly in line with their June '25 comparatives. CapEx payments of GBP 5.8 million are the asset additions covered earlier, plus a small increase in our capital creditor and financing charges of GBP 1.6 million include the arrangement fees payable on refinancing our RCF in March. After share buybacks and treasury share purchases of GBP 0.8 million and dividends paid of GBP 4 million, this results in pre-IFRS 16 net debt of GBP 28.1 million at the end of June. IFRS 16 adds GBP 65.6 million to debt, which you can see in the table is down GBP 10.5 million compared to December '25. This reduction reflects cash payments on leases of GBP 10.1 million, which were accounted for within net cash from operating activities on the left of the chart, plus a noncash movement of GBP 0.4 million being the net of new leases added less the provision release I described earlier. Overall, this leaves us with a strong balance sheet with leverage at 0.8x EBITDA on a pre-IFRS 16 basis and good headroom on our recently refinanced GBP 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 2 years, equivalent to yields of 14% and 8% for 2024 and '25, 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 prioritize organic investments 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 recognizes the importance of the ordinary dividend with this year's interim up 9%. 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, Alunet and ATT demonstrated a disciplined approach to acquisitions with a clear strategic fit and a strong financial 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 1x EBITDA, unless there was a clear short-term deleveraging plan in place. Just to sum up on Page 12, a robust underlying financial performance with adjusted operating profit up 10%. We're focused on improving profitability. We've taken action to increase sales volumes and gain share, continue to demonstrate cost discipline and implemented 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 GBP 5 million in September was funded from our RCF. The business is, therefore, in a good place to deliver on our growth strategy with well-invested facilities and available operating capacity. 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 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 base of the branches, extended living, online customers and fabricators. This runs alongside digital transformation and an efficient operating model. I'll give some updates as we move through the following slides. In comparison to the half year 2025 results, there is the benefit of a full 6 months in 2026 compared to 4 months prior. Alunet has continued to perform in line with expectations and the acquisition model. Sales for the group were GBP 28.4 million, up GBP 10.7 million to that included in half 1, 2025. Adjusted operating profit of GBP 4 million is up GBP 2.4 million in comparison to half 1, 2025. The sales of GBP 28.4 million comprises Alunet net sales of GBP 10.1 million; Comp Door, GBP 11.9 million and Garage doors of GBP 6.4 million. On a like-for-like basis, 6 months versus 6 months, the performance is impressive with Alunet increasing 15% and Comp Door, 21%. Garage doors have declined marginally with lower volumes in a highly competitive market. Eurocell currently operates 205 branches, which is down from the end of the prior year following the closure of 10 branches in July. The strategy remains to expand the network of branches. But after a detailed review of the current state, it was clear that the numbers were not going to become profitable and contribute to the group's results. So the decision was made to close them with immediate effect and transfer accounts to nearby branches. The performance of the branch network in sales improved in the first half with sales up 5% and volumes up 6%. This improvement was particularly evident in Q2, and I'm pleased to say that this has continued into the second half of the year. In a highly competitive market, we need to support our branch managers. And to that end, we have given more freedom to trade in local markets, refreshed our own made-to-order range and reviewed our traded goods offering. This is alongside a clearer sales support structure with a revised divisional leadership. In support of customer growth, we've continued to promote the Power Up loyalty scheme with 11,000 registered customers to date and a target of 15,000 by the year-end. This scheme is an important aid to the branches with members demonstrating an enhanced level of spend and frequency of visit. Digital sales of GBP 4.4 million have increased by 49% compared to the prior year. This follows improvements made to the website to drive traffic and improve the site's experience. In addition, the site is an important portal to fabricators and helps to drive new trade accounts. We're working with new partners to explore ways to drive these gains further. These will improve the site itself and the efficiency with which customers find us when searching. The relaunch of windows and door sales was a key facet to the strategy. All branches were live with the initiative by June 2025, whilst no distinction can therefore be drawn in comparisons of this half year to last. I can report that each month in 2026 has set a new record in terms of sales. While some ground was initially lost to the original strategic plan, this gap has narrowed with a new expert sales support network. Alongside this, we have improved the processes for customers making inquiries through to the delivery of windows, and we are working with our partners to drive these efficiencies further. Our fabricator partners remain vital to the group, and we have looked to support them through this period of higher input prices in a highly competitive market with lower volumes being evident from end users. Eurocell will continue to lead as a technical systems house and add value to our customers where we can. To that end, we have strengthened our team with a new technical director joining the group in the second half of the year. Garden room sales were GBP 4.8 million in the first half, in line with the prior year, and we have just announced the acquisition of ATT, our partner in the manufacturer of the rooms. This acquisition will underpin the future growth in sales whilst also capturing the end-to-end margin. During the half year, we have reviewed and enhanced the range. We are in the process of introducing new routes to market and have changed the way the sales leads are generated through to how we engage with our customers. With the acquisition now complete, the group will have a clearer organizational structure with complete control over the end-to-end process. And I'll now pass back to Michael to cover the systems upgrade and restructuring.

Thanks. Under business effectiveness with near-term market outlook likely to remain challenging, we prioritized restructuring to increase profitability. The 3 major projects shown here should deliver more than GBP 5 million of annual savings with GBP 2 million realized this year. Non-underlying charges of GBP 9.4 million have been recorded for these programs, of which GBP 6.7 million is noncash asset write-downs and impairments. First, we're consolidating our 2 recycling plants onto the existing facility at Ilkeston. This required relocation of some critical equipment from the site at Selby, plus CapEx of GBP 2.6 million at the Ilkeston plant to eliminate single points of failure and improve the layout. We've now ceased operations at Selby and begun processing at Ilkeston, with the Selby site exit to be concluded shortly. To improve profits in the branch network, we closed 10 sites in July, consolidating our footprint in the London region and exiting Ireland. We've retained 10 branches inside the M25 and transferred customer accounts where possible. Given the much higher property and staff cost in London, the consolidated footprint should deliver a stronger overall results. We've also withdrawn from Ireland where the transport and admin costs for operating 2 sites with disproportionate [indiscernible]. Finally, we've implemented a targeted headcount reduction to deliver a more efficient business with several management roles being removed from the structure. Moving to the right of the chart. As you know, we're replacing our business systems. GenetiQ, 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, we expect to improve efficiency by the automation of processes. I covered the estimated cost of the project earlier. We're now in the testing and training phases with transition to the new systems on track to take place at the end of the year. On People First, after improved safety results in '24, our LTIFR slipped back in 2025. Given these results, we made some changes to health and safety leadership in Q4 last year and developed an improved plan focusing on the behavior needed to drive more proactive safety culture and the early signs that this is now embedding across the group. 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 in extrusion remains substantial at 28%. We've also made progress on the other carbon reduction plans with our use of renewable electricity now at 100% and the recent investments in on-site electricity generation are now delivering good returns. 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 this year with all new homes required to comply by 2028. Eurocell's products can help our customers meet or exceed the Future Home Standard. Many of our standard profiles have our high recycled content and our window and door systems, such as Logik and Aluna+, are energy efficient with ratings well above industry standards. We, therefore, believe we're well placed to benefit from the tightening of these regulations as they come into effect. And now back to Will to wrap up.

Okay. In summary, a stable and improving performance for the first half of the year, with momentum continuing into the second half. Whilst the profile side of the business remains challenging due to reduced end demand, particularly in new build housing, there has been an improvement in the branch network, underpinned by the strategic initiatives. Alunet also continues to perform well. Further to this, we have made operational changes to improve efficiency and improve management structures to speed up decision-making. In the second half of the year, our focus remains on continued strong financial management, cost control throughout the group, whilst continuing to drive the commercial initiatives to increase volumes. Thank you. That's the end of the presentation. So we can now open the lines for Q&A.

[Operator Instructions] Your first question comes from the line of Clyde Lewis of Peel Hunt.

I think I've got 3, if I may. Just wondering, I mean, I think, Will, you talked about the momentum in Q2 carrying on into the second half of the year. It'd be interesting maybe if you can give us a little bit more color on July and August, whether it was the sales initiatives that were still driving the revenue number or whether you've seen a sort of a pickup elsewhere? That's the first one. So I'll do them one at a time.

Yes. Yes, by all means.

I'll give you there just a little bit of color on the sales momentum there, Clyde. So I think we said in the presentation that Q2 organically was up 4%. And July itself was up 4% organically and August up 5%. So that improvement that we saw through the second quarter has continued.

I think if you dig into that just a bit deeper, you see that profiles has remained quite difficult given the end demand. But within the Eurocell Building Plastics part of the business, essentially the branches, you've got a stronger return such that you've got that net effect that Michael has just referred to.

Okay. Just on the ATT deal, I think it would be useful maybe to sort of understand a bit more about what you're going to do there, I suppose, in terms of how that will drive the garden rooms business on?

So ATT manufacture all the garden rooms that we currently sell. And what's critical is having a very clear route to market and also a clear range and offering to customers. And we wanted to maintain exclusivity of that range and also command the end-to-end margin. Obviously, as it was working previously, we had ATT manufacturing and delivering in some regards and then third parties installing. And whilst we'll always use third parties to install, the onus on Eurocell really was clear from the outset. So we may as well have that end-to-end control. So despite us not manufacturing the rooms, any problems after the fact would always come back through to Eurocell. So it's just a cleaner organizational structure, make us able to control the route to market and also the range more efficiently.

Okay. And I suppose -- well, I've actually got 2 more for me. The digital sales dynamic, it is -- I suppose, how big are your aspirations there? And is a bigger push down that route likely to have a positive or negative impact on margins for the group?

Well, at a gross profit measure, it certainly has an enhancing effect at the bottom line, given the fact that the goods are ultimately delivered through the branches, that margin is taken down quite significantly. I think there will always be a focus on us pushing digital sales where we can. I think it's a much more price-sensitive area of the business. And we don't obviously want to cause conflict with other channels. So it's about efficiency, ultimately, with digital sales. It's how you generate the leads. It's how you capture them on an efficient basis. So without paying too much search costs.

Okay. Okay. And the last one I had was on recycled resin and the cost and how that part of the supply chain has been evolving in the last 6 to 8 months?

It's been very stable, Clyde. If you went back to 2023 when the whole sector was pushing volumes in recycling, we saw the price spike I think we all learned our lessons from that. So we've seen very stable feedstock prices for the recycling business through 2025 and through the first half of 2026 with no significant movements. And importantly, it didn't spike when we saw the impact of the Middle East on other raw material prices, the recycling feedstock prices stayed level.

[Operator Instructions]

Operator, I've got a number of questions that have come through online. So I'll now pick those up if that's okay?

Sure.

So the first one is from Rob Chantry. Could you add some more color on the 5% reduction in volumes and profile, specifically, any volumes on new build fabricators versus RMI? It's very difficult for us to break that out, Rob, because ultimately, we don't know where our profile ends up. You could work on the basis that new build is about 1/3 of our profiles business. The RMI performance would be down something similar to what we saw in the branch network, underlying volumes down 2% there. So the balancing figure will be the new build aspect of that in profile. If that makes sense. Second question from Rob. Has your experienced Alunet, what is the appetite for more ongoing M&A in adjacent areas?

Possibly. But I think the key to this is to make intelligent acquisitions at the right price, obviously, that are accretive to the overall group. So I think ATT is a small but important acquisition in terms of how we want to develop going forward. Yes, I mean, we're open to more acquisitions, but obviously the right kind.

Next one, I hope I got this pronunciation right. I'm going to say [indiscernible]. In the Profiles division, how is Eurocell's market share developing following the M&As in the industry, especially from last year? And I guess we're referring to Epwin and VEKA there.

I don't think our market share has particularly moved over the course of this year just because of the nature of what's going on in the profile side of the business. We've had some incremental win, the degree to which is a slight gain in market share. We haven't had any notable losses, but I don't think overall market share has changed really. Both those -- despite that acquisition by VEKA, I mean they're still both separately sell into the market. So yes, I don't see any notable change.

I've got another one from Rob here. What do you view as the long-term sustainable margin in Alunet given the quite a material step-up in H1? How does operational gearing here compare with the rest of the group? Alunet is performing bang in line with the acquisition model that we put together at the time of the deal in March 2025. Its operating margin was 14, 1-4% in the first half of this year. We see that as sustainable through the development and growth of Alunet. It is not subject to the same level of operational gearing as the rest of the group. Remember, what -- the reason why we are so operationally geared in Eurocell is the branch network where you have a significant degree of fixed costs, I mean that doesn't have that. So we are working on a sort of low-teen operating margin in Alunet moving forward. Max Hayes, which end markets or product areas could you look to buy into via bolt-ons? And do you see 6.5x EBITDA as a ceiling based on recent acquisitions?

No. I don't -- which end markets -- sorry, I just read that back on the first part.

So which end markets or product areas could you look to buy into via bolt-ons?

Anything adjacent to what we currently do, it would be applicable. But I can't say that I'm currently looking at any or the business as a whole is looking at any adjacencies at the current time. We're very much focused on the markets that we're in and maximizing the benefit that we can gain from them and developing the strategy as already noted. I don't think we're looking to particularly get into any new markets or product groups.

And deal multiples will be based on specific deals, and I think it's difficult to judge.

I don't have a ceiling on it. It depends on the business.

How much of the first half price increase is surcharge? And are you able to keep passing input costs through in the second half?

Well, that had delayed effect of surcharges that it came on late as it worked its way through our inventory. And as we previously stated, we are looking to shoulder some of the burden of enhanced -- of higher costs with our partners such that they're not suffering the full effect of it. I think there was a second part to that, Michael, what was that? How does...

Are you able to keep passing on input costs through the second half?

I don't think it's right to pass them all the way through. What we need to do is maintain the surcharge until the full effect of those higher prices has washed through our systems when it does actually come down. We're looking to be pragmatic about our approach to this as opposed to some others in the industry.

Another question from Rob. On the shape of profitability in the branch network, [indiscernible] have been closed? How much more work is to do at the bottom end of the curve. Are you still backing the GBP 250 million medium-term ambition?

Yes. And obviously, we've reviewed all the branches in detail. There are some that are lower performing obviously. And we've now got a clearer sales structure for the branches, such that we can give them more support. The reason those closures were limited to the number they were that we felt that those that are currently underperforming have got the opportunity to improve over the previous results.

And then a question here on windows and doors. The momentum in doors and windows in Q2 on Q1 is very positive. Can you talk about trajectory in H2 and how quickly you could get the 2 boxes that show the potential upside, which I think is referring to spare capacity.

Yes. I mean the momentum is continuing into the second half of the year. We've got a good proposition. We've enhanced the sales. We've got an expert sales team now in support of that. We need to become more efficient in delivery, and that will help us to improve the profitability of it. But I don't see anything holding back in terms of our growth in sales with windows and doors.

Operator, that's all of the questions that I've received online. Do you have any more on the phone lines?

As of right now, we don't have any pending questions on the phone line.

Okay. Well, with that, we'll wrap things up. So thank you very much to everyone for listening. Thank you for your time, everyone, and have a good rest of the day.

Thank you for attending today's call. You may now disconnect.