Annual Report 2017

OVERVIEW

2017 Highlights

We are a market leading, vertically integrated UK manufacturer, distributor and recycler of innovative window, door and roofline PVC building products.

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Revenue £224.9m 10% (8% excluding acquisitions)

Gross margin 51.0% 1% (2016: 52.0%)

Adjusted EBITDA¹ £31.7m 1% (2016: £31.3m)

Adjusted Profit before Tax¹ £24.5m 1% (2016: £24.3m)

Profit before Tax¹ £23.7m 0.7% (2016: £23.8m)

Adjusted EPS¹ 20.4p 2% (2016: 20.0p)

EPS 19.6p (2016: 19.6p)

Total Dividends (per share) 9.0p 6% (2016: 8.5p)

Net Debt £14.5m £5.8m (2016: £20.3m)

1.Adjusted measures are before non-underlying costs and the related tax effect. Adjusted profit measures are used by management to assess business performance and are provided here in addition to statutory measures to help describe the underlying results on the Group.

Average number of employees
in 2017 1,496

190 Branches

Revenue and profit split by division

OVERVIEW

At a Glance

We operate our business through two divisions that reflect the principal routes to market for our products: Profiles and Building Plastics.

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Strategic report

Chairman’s Statement and Investment Case

Against a more challenging economic backdrop, we have reported robust financial results and delivered another consistent operational performance.

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I am pleased to report we have made good progress with our strategic priorities in 2017 and that the business continues to outperform its markets.” Bob Lawson Chairman

CLEAR STRATEGY:

Five clear strategic priorities

Target growth in market share
Expand our branch network
Increase the use of recycled materials
Develop innovative new products
Explore potential bolt-on acquisitions

We made good progress with all our strategic priorities during 2017.

VERTICALLY INTEGRATED BUSINESS MODEL:

Recycling, manufacturing and own distribution network

We are a leading manufacturer of rigid and foam PVC profiles. Our recycling operation helps to lower material costs and improve production stability. Our branches are conveniently located, offering a wide range of products and providing excellent service to local customers and nationwide groups alike.

SUSTAINABLE OPERATION:

In-house, closed loop recycling facility

We recycle both customer factory offcuts (‘post-industrial’ waste) and old windows (‘post-consumer’ waste). The recycled material is used to generate brand new extruded plastic products.

LEADERSHIP:

Strong and experienced team

We have an effective Board and strong senior management team with the requisite and complementary skills, knowledge and experience to secure the future success of the business.

On average, markets for the product groups specific to Eurocell are also currently expected to be flat over the next two years.

Eurocell revenue by market (%)

Roofline (Tonnes 000s)

Window Profile (Tonnes 000s)

Source: D&G Consulting

Driver	Description	Potential impact on Eurocell
GDP	UK GDP has slowed and is currently forecast to grow by 1.5% in 2018 (2017: 1.8%).
Consumer confidence	Negative sentiment, with a backdrop of rising inflation and economic uncertainty.
Interest rates	First increase to UK interest rates in 10 years in November 2017, with further increases expected in 2018.
Construction	Housing construction activity remains below pre-recession peak, but is forecast to rise by 3% in 2018 and 2% in 2019.
Construction	Private housing starts are forecast to increase by 2% in 2018 and 2% in 2019.
Housing market	Private housing RMI¹ market CAGR² forecast 2016-2019 is broadly flat.

Key to potential impact on demand for Eurocell products:

Positive
Neutral
Negative

1.RMI is Repair, Maintenance and Improvement market. 2.CAGR is Compound Annual Growth Rate.
Sources: CPA: Construction Industry Forecasts 2016-19 (published Autumn 2017) Oxford Economic Data (via FactSet) (published in February 2018).

STRATEGIC REPORT

Market Overview

The level of UK economic activity, in particular the state of the repair, maintenance and improvement (‘RMI’) and new build housing markets, are important drivers of our performance.

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Strategic report

Our Business Model

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WE MANUFACTURE

We are a leading manufacturer of rigid and foam PVC profiles, composite and PVC entrance doors for the window and building home improvement sectors. Our manufacturing process use raw materials including PVC resin and our own produced recycled material.

44.4k tonnes produced in 2017

WE DISTRIBUTE

The Profiles division supplies our manufactured profile to a network of fabricators, who in turn supply end products to installers, retail outlets and house builders.

The Building Plastics division sells, through its network of branches, our manufactured foam products and entrance doors, along with a range of Third-party related products, as well as windows fabricated by third parties using products manufactured by the Profiles division. Customers are mainly installers, small builders, roofing contractors and independent stockists.

>350,000 products delivered in 2017

WE RECYCLE

We recycle both customer factory offcuts (‘post-industrial’ waste) and old windows that have been replaced with new (‘post-consumer’ waste). The recycled material is used to generate brand new extruded plastic products.

>1 million old windows recycled in 2017

Vertically integrated model

The coordination of our procurement, manufacturing and distribution processes enables us to capture margin throughout all stages of our value chain.

Our recycling activities help lower material costs and improve production stability.

Scale

We operate well-invested and modern extrusion facilities, with spare manufacturing capacity that can be exploited with little incremental cost.

We are the UK’s largest window recycling operator.

Our extensive branch network is a driver of sales growth and market share. It also helps improve manufacturing efficiency, with pull-through demand driving higher factory utilisation.

Innovative products

We are committed to a strategy of continually developing new and existing products.

We support the use of Building Information Modelling (BIM) software, giving architects and contractors access to a library of Eurocell products, making it easier to specify them.

Brand

We have a strong brand image and our marketing activities seek to maximise our brand awareness.

People and culture

Our experienced management team have a proven track record of achieving profitable growth.

Our corporate culture is one of openness, trust, encouragement and clarity of purpose. We train and empower our people to help our customers grow their businesses.

Local footprint

Our branches are conveniently located and have readily available inventory, thereby providing excellent service to local customers and national groups alike.

We also strive to help our customers through the provision of technical, business development and marketing support services.

Sales growth

Our initiatives to support sales and deliver high levels of customer service differentiate Eurocell from our competitors. We expect this to drive good sales growth.

8% sales growth (excluding acquisitions)

Solid Profitability

Utilisation of our spare manufacturing capacity can drive profit growth.

Expanding the branch network, whilst dilutive until new branches become established, should deliver strong medium-term returns.

Increased use of recycled materials can help mitigate raw material pricing pressure.

£23.7 million profit before tax growth

Good cash generation

Our operating cash flow conversion is good, particularly in the Building Plastics division, where a high proportion of customers pay at point of sale or shortly thereafter.

£23.7 million net cash generated from operating activities

Good return on sales

Our strong brand, well-invested facilities and capital-light branch expansion programme ensure a good return on sales.

14% return on sales growth¹

(1) Return on sales is Adjusted EBITDA/revenue.

SHAREHOLDERS

Our overall strategic objective is to deliver sustainable growth in Shareholder value.

FABRICATORS

Through high-quality products and a strong focus on customer service, we have developed a very loyal customer base.

SMALL BUILDERS AND INSTALLERS

The independent sole traders that visit our branches benefit from the one-stop shop offering we provide.

HOME BUILDERS

Home builders appreciate the quality of our products and benefit from Eurocell coordinating our fabricators' offering to meet their requirements.

INSTALLERS

We aim to make our products as easy as possible to work with, which is very attractive to our direct or indirect installer base.

EMPLOYEES

We work hard to train and develop our people, and provide rewards commensurate with our goal to be an employer of choice.

Strategic Priorities

Increase market share of PVC rigid and foam profiles to utilise spare manufacturing capacity.

Progress in 2017

Organic sales growth of 8%.
Specifications team successful in generating demand for our products, particularly in the private new build sector.
Sales now started from customers moved onto our systems in H2, with more new accounts contracted for 2018.

Focus in 2018

Continue to build and exploit prospect pipeline.
Seamless new account on-boarding process.

Investment in new branches to drive sales and medium-term profit growth.

Progress in 2017

31 new branches opened.
New and improved branch format, with more products on display.
Significant investment in supporting infrastructure and management teams.
Growth in sales of windows through branches.

Focus in 2018

Expect approximately 15 new branches in 2018.
Consolidate existing estate:
- Implement measures to reduce time to break-even for new branches.
- Maximise sales of value added products.

Maintain market leadership by offering the latest in product innovation.

Progress in 2017

StudioGlide bi-fold door, aluminium bi-fold door.
InSite construction hinge.
Slateskin.
Modus and Skypod continuous development.

Focus in 2018

Further development of complementary product offerings.

Increased use of recycled material will help to mitigate raw material pricing pressure, enhance product stability and reduces the carbon footprint of our manufactured goods.

Progress in 2017

Increased use of recycled material to 17% (2016: 14%).
Waste collections increased by 15%.

Focus in 2018

Further investments to deliver step change in use of recycled material to > 20%.

Consider acquisition opportunities when they arise.

Progress in 2017

Integration of Security Hardware substantially complete (acquired in February 2017).
Several bolt-on opportunities reviewed and developing pipeline.

Focus in 2018

Continue to develop acquisition pipeline and consider acquisition opportunities that arise.

Strategic report

Our Strategy

Our overall objective is to deliver sustainable growth in shareholder value by increasing sales and profits at above market level growth rates through leadership in products, operations, sales, marketing and distribution.

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Annual Report and Accounts 2017

2017 Highlights

At a Glance

Chairman’s Statement and Investment Case

Five clear strategic priorities

Recycling, manufacturing and own distribution network

In-house, closed loop recycling facility

Strong and experienced team

Eurocell revenue by market (%)

Roofline (Tonnes 000s)

Window Profile (Tonnes 000s)

Market Overview

Our Business Model

WE MANUFACTURE

WE DISTRIBUTE

WE RECYCLE

Vertically integrated model

Scale

Innovative products

Brand

People and culture

Local footprint

Sales growth

Solid Profitability

Good cash generation

Good return on sales

SHAREHOLDERS

FABRICATORS

SMALL BUILDERS AND INSTALLERS

HOME BUILDERS

INSTALLERS

EMPLOYEES

Strategic Priorities

Our Strategy

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Overview

Strategic report

Corporate governance

Financial statements