Genuit Group H2 2024 Earnings Report

Genuit Group EPS Results

• Actual EPS: GBX 24.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Genuit Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Genuit Group Announcement Details

• Quarter: H2 2024
• Date: 3/11/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, March 11, 2025
• Conference Call Time: 4:30AM ET

Genuit Group (LON:GEN) is the UK's largest provider of sustainable water, climate and ventilation products for the built environment. Genuit's solutions allow customers to mitigate and adapt to the effects of climate change and meet evolving sustainability regulations and targets. The Group is divided into three Business Units, each of which addresses specific challenges in the built environment: - Climate Management Solutions - Addressing the drivers for low carbon heating and cooling, and clean and healthy air ventilation. - Water Management Solutions - Driving climate adaptation and resilience through integrated surface and drainage solutions. - Sustainable Building Solutions - Providing a range of construction solutions to reduce the carbon content of the built environment. Across these Business Units, Genuit's brands are some of the most well-established and innovative in the industry, including Polypipe, Nuaire and Adey. The Group primarily serves climate-driven building and construction markets in the UK, with an expanding presence in Europe, the Middle East and North America and sells to specific niches in the rest of the world. The Group was established in 1980 and has been listed on the premium segment of the London Stock Exchange since 2014.

Genuit Group H2 2024 Earnings Call Transcript

Presentation

[Joe Vorih, CEO & Director at Genuit Group]

it's really a very interesting time and I'm pleased to give you a bit of an update as to how we've been doing as we're now really coming up to three years in on our sustainable solution for growth strategy. So with no further ado, welcome and let's get into it. So as always, I'll give you just a short sort of overview and then turn it over to Tim who can run you through the numbers and some of the details there. And then I'll come back and give you an update on our solution strategy sustainable solutions for growth strategy, take you through some of the different pieces and then we'll aim to leave ample time for Q and A. So just first let me start off by saying a couple of things.

[Joe Vorih, CEO & Director at Genuit Group]

Obviously, very, very proud of the effort that the entire team has put in to deliver an increase in our operating margins from 16 to 16.4 basis points 40 basis points increase. This is really a testament to the fact that our strategy and our execution is working. So that despite a revenue reduction of a bit over 4%, and this margin improvement shows the quality of the business improving day in and day out. That was accompanied by very strong cash generation. You recall we've set our midterm targets to be over 90% cash generation, particularly strong year around 99%, which of course helps de lever.

[Joe Vorih, CEO & Director at Genuit Group]

That's taken us down to about 0.9 times leverage on the balance sheet. You can do the math there. That leaves us ample firepower for further M and A investment as well as organic investments in the business. To that end, you'll recall that last summer, we had two acquisitions of Omni and Timolian, strengthening our underfloor heating business and SkyGardening investing in the fast growing green blue roof space, both exciting and quite frankly you shouldn't be surprised if there's more to come. So the group does intend as a result based on the board's confidence and our confidence on our midterm execution capability and the growth prospects to go ahead and increase our dividend to 12.5% in line with our progressive policy progressive dividend policy.

[Joe Vorih, CEO & Director at Genuit Group]

So if I think about the market for a minute, I mean longer term, our prospects, so the midterm, long term are excellent, right? We've got a government that is absolutely committed and focused on improving house building here in The UK and addressing that structural shortage. A lot to be said about that, but it's headed in the right direction and that focus is welcome. We know that we're getting closer now to mobilizing for the future home standard and we're seeing signs of that across the industry as we're actively working with customers to accommodate that. And importantly, and this is something that really has picked up steam, AMP eight is out 86% plus increase in capital spending from seven to eight AMP cycles, meaning that the water industry is going to be investing heavily in stormwater management to protect the our sewage and waste systems across this country.

[Joe Vorih, CEO & Director at Genuit Group]

That plays to one of our strong suits as well. And I'd be remiss if I didn't point out that the labor shortage which we're all worried about as we increase productivity in this or increase this industry means that we've got to focus on productivity, which means that those of us manufacturers who provide better value solutions and more productive applications of our products are well suited to benefit there as well. Now obviously, this year, we've been focused on this past year, we've been focusing on outperforming what is a challenging market. We know that there's been plenty of economic uncertainty. Obviously, some of that remains.

[Joe Vorih, CEO & Director at Genuit Group]

There's concern over interest rates, perhaps fewer reductions than anticipated. Consumer confidence is important. And if you look at some of our key indicating segments last year, they were down. We saw new house building starts about 20% down. We saw private housing and RMI was down also.

[Joe Vorih, CEO & Director at Genuit Group]

The boiler market was down again. When you take all this together and you look back to around 2019 levels, we're still running 20% to 30% below volumes that we saw then. But we've been improving our profitability for two years running as we've become a leaner, more fit organization. So if I think about that, we're confident going into next year. We saw trading open 25 in line with our expectations.

[Joe Vorih, CEO & Director at Genuit Group]

I would describe sort of the market conditions pretty similar to what we're seeing at the end of last year. We're waiting for a strong uptick and we're absolutely ready for when it comes. Let me turn over to Tim and he can rattle through some of the numbers for you. Tim, over

[Joe Vorih, CEO & Director at Genuit Group]

to you.

[Tim Pullen, CFO & Director at Genuit Group]

Great. Thank you, Joe. Thank you all for coming this morning. I appreciate it on what I know is a busy week for results.

[Tim Pullen, CFO & Director at Genuit Group]

I'm delighted to present our results this morning, what represents a really resilient performance, we think. Revenue down 4% year on year based on volume reduction of about 4% as well. So a strong outperformance, we think, versus some of those market stats which Joe has just talked us through. And importantly, pleased to present that we're improving our operating margin here by 40 basis points, which really represents strong progression towards that medium term target of over 20% operating margin for the group. So EBIT of about GBP 92,000,000 for the year is down just 2% given that improvement in margin.

[Tim Pullen, CFO & Director at Genuit Group]

Really strong cash conversion as well though. So 99% conversion on cash and that's meant that we continue to delever our balance sheet now at 0.9 times levered, which gives us plenty of firepower to invest in the future of the group, both organically and inorganically, which Joe will talk a bit more about later on. And also then with that balance sheet strength and because of the board's confidence in the future direction of the business and our execution of our medium term strategy, we're proposing an increase in our dividend to 12.5. So let's dig into a little more detail on the P and L. Here you can see that top line performance of 4% down.

[Tim Pullen, CFO & Director at Genuit Group]

Really strong gross margin performance here, two twenty basis points improvement in gross margin, which is underpinned really by two key things. One is improving the purchasing in the group, that's both buying more strategically and also aggregating the spend of the group better. And then secondly, the productivity improvements that come from the Genuit business system, which is really gaining momentum now in the business and coming through. And hitting that gross margin line means that you can see the real sustainability of that margin improvement. With good control in this current environment on our SG and A line that filters through into that 40 basis points improvement on our operating margins as you can see there.

[Tim Pullen, CFO & Director at Genuit Group]

Net finance costs are reduced in the year because of our reduced borrowing and you can see the effect of the annualization of tax coming through on our earnings per share and hence why we're confident still to increase our dividends even though that's slightly lower. It's worth pointing out that the resilience really in our revenue performance comes from the breadth of the portfolio. So you'll be familiar with our three business units. We're operating across Sustainable Building Solutions, Climate Management and Water Management, approximately 40% thirty-thirty across the business units. But also if you cut the business differently by UK new house building, UK non housing and also the RMI sector, you can see it's about 30% or so for each of those sectors and again with about 11% for international business, which we do aim to grow over the medium term to a bigger proportion of revenue as well.

[Tim Pullen, CFO & Director at Genuit Group]

So real resilience in the portfolio that we've seen this year. And that's helped as well as the improvement in the business that we've achieved in the profitability. We've got that productivity and the purchasing savings coming through. And as Joe mentioned, we've maintained capacity throughout this period. So we simplified the business, you might remember in 2023, we further improved it in 2024 and we've got that 20% to 30% capacity, which would easily be able to support 20% to 30% revenue growth, which will take us back to that period kind of 2017 to 2019 where we saw more normal levels.

[Tim Pullen, CFO & Director at Genuit Group]

Importantly, there's negligible P and L cost of holding on to that capacity and that's one of the benefits of our business model. That's important to recognize. There is a headwind coming in the cost base in terms of the National Insurance and minimum wage increases from The UK Government budget in the autumn. We will remind you of that. That's about million that we talked about last November.

[Tim Pullen, CFO & Director at Genuit Group]

Our aim is to try and offset that through balanced price management and productivity savings and continue that improvement journey on an underlying basis. So if we look at a bridge of the business from 2023 to 2024, you can see all three business units are down. But importantly, looking at the right hand chart there, you can see the improvement particularly in CMS and SBS. So despite that revenue reduction, we've actually increased the magnitude of profitability in both of those businesses, so really strong performance there. And WMS, even though that's down, actually there's a drop through there that is commensurate with the kind of operating deleverage that you would expect in that business with volumes down.

[Tim Pullen, CFO & Director at Genuit Group]

That's a business which is more project based and explains the reduction. But let's dig into those business units a little bit more starting with Climate Management Solutions. Here, our revenue was down 2.6% for the year, about four percent on a like for like basis. We did see some headwinds continue in that market, particularly within the commercial ventilation market and the boiler market as well, which affects AD sales. But actually, AD did improve towards the back end of last year.

[Tim Pullen, CFO & Director at Genuit Group]

So Q4 was a strong quarter for AD, which is really encouraging to see. And actually, we had some really good growth in our residential ventilation as well, which is a multi year trend based on the need to solve the damper mold problems in social housing in particular. This is a business unit which has deployed the Genuit business system to really great effect. We've got some great case studies here and 120 basis point improvement in their operating margin is a really good result for the team there, who also integrated the Omni business during the year as well to strengthen that offering in the underfloor heating space, which is a small, but due to the rapidly growing sector of the market thinking ahead to things like the future home standard. Moving on to Water Management Solutions.

[Tim Pullen, CFO & Director at Genuit Group]

Revenue 5.6% lower during the year, about 7.5% on a like for like basis. We did see subdued volumes here. Project based business, as I say, is much higher proportion of revenue here. And that can be affected when you have poor weather or you have lower business confidence as you saw in the back end of last year. So a degree of operational deleverage during the year, but we have a long way to go to be able to improve that business.

[Tim Pullen, CFO & Director at Genuit Group]

It started the genuine business system journey probably later than in Climate Management or Sustainable Building Solutions. And so we're accelerating now into WMS to improve this business this year and we'll expect to see the margins improving here. And again, in integration in this business with Sky Garden, really exciting vertical integration opportunity with our Permovoid business and our Keytech installation business offering that full solution in blue green roofs, like with underfloor heating. That's a small, but due to be rapidly growing market over the next couple of years. And then finally, our largest business, Sustainable Building Solutions.

[Tim Pullen, CFO & Director at Genuit Group]

And here we have to give credit to the team for a really resilient and strong performance. This is a business that has great products, great market share, great innovation in the year as well on product launches and has achieved a revenue performance, which is only slightly down in what was a very challenging market which I think shows how well the team have managed there. Operating margin up 160 basis points which really shows what can be achieved with the Genuity business system. And so we're really pleased with the results in this business unit. Just a note then on some of our non underlying items affecting our reported profitability.

[Tim Pullen, CFO & Director at Genuit Group]

And most of these actually were affecting the first half of the year, so we're in our interim results. And actually most of this is noncash. So about 24,400,000.0 of the 33,000,000 is noncash impacting items. Noncash amortization is the usual amortization line there. We had an impairment charge in the first half of the year related to the AD business and that was really based on the continuing subdued boiler market.

[Tim Pullen, CFO & Director at Genuit Group]

But as I say, there was improvement there in the second half, which is encouraging. And we did have a one off software dispute charge in the first half of the year that was fully settled and completed within the second half of the year. We did benefit from some proceeds from sale. You'll remember that we've closed six sites to date under our simplification journey that we started a couple of years ago. And so we were still getting the cash benefit of exiting those sites during the year.

[Tim Pullen, CFO & Director at Genuit Group]

Speaking of cash, strong cash generation as I mentioned. So cash conversion of over 99% with $91,600,000 or so of cash. We've been really focusing on working capital improvement this year. We've actually seen a 10% improvement in our stock turns, which has really underpinned that performance. And we remain committed to achieving over 90% cash conversion with continued focus on working capital through the cycle.

[Tim Pullen, CFO & Director at Genuit Group]

Capital allocation, we spent about million of capital in 2024 compared to million to million of guidance, so slightly lower. That was really just due to the phasing of when we entered into commitments at the end of the year and some of that will flow through into early twenty twenty five. So again, we're reiterating capital spend of around million to million for 2025. And we've got a really strong balance sheet now with that deleveraging. So as well as investing in the capital of the business, we are also prosecuting that M and A pipeline.

[Tim Pullen, CFO & Director at Genuit Group]

And we shouldn't be surprised if we do something within the year, which Joe will talk some more around. And we'll continue with that progressive dividend policy as well to return value to shareholders. So that's the financials. Happy to answer questions at the end. But for now, Joe will take us through our strategic developments.

[Joe Vorih, CEO & Director at Genuit Group]

Thank you, Tim. Much appreciated. Just a quick kind of review of some

[Joe Vorih, CEO & Director at Genuit Group]

of the strategic progress we made during the year. As a bit of a reminder with our purpose, together we create sustainable living, we laid out at the end of 'twenty two a four piece sort of focus plan. One was to really focus on driving organic and synergistic inorganic growth that can position us well from further organic growth focused on sustainable end markets where our differentiation really makes can have an impact on our ability to have long term above market growth rates. Sustainability remaining at the very core of everything we do, the products we deliver and how we make them. That's important all around of course.

[Joe Vorih, CEO & Director at Genuit Group]

Leveraging the genuine business system, really embedding lean thinking, a lean thinking culture across the business, beginning to see that take root and investing heavily in our people and our culture so that we can track the most diverse and talented workforce and see them thrive and have therefore a competitive advantage. If I just focus on some of the growth bits, obviously Tim took you through the financial shape of each of the three divisions, but I thought I'd just highlight a couple of growth points here. We mentioned strong residential ventilation. This is a market that's actually growing ahead of house building right now as we see products like mechanical ventilation heat recovery, mechanical ventilation recovery with cooling penetrate into that market. Other areas that you see here for example is regulatory tailwind that are coming into place obviously with the Future Home standard and with AWAB's law which comes in later on this year driving compelling social housing improvements, which means better ventilation is a key part of that as well.

[Joe Vorih, CEO & Director at Genuit Group]

As Tim mentioned, ADE's strong performance, I mean, this is still a really good business. It's a business that's got the ability to expand overseas to continue to find new ways to drive heating accessory innovation across the business. And of course, Omni is an acquisition that came not only with additional presence in underfloor heating solutions, but with a new product line, these emitter boards, which they're really good at and lead the market. So that actually improved the offering that we have in the growing underfloor heating segment. So folks going forward clearly very much being ready to take advantage of the future home standard, the eventual eventually we've got to get into the repair or I should say the upgrade of all the other existing homes in the future and the solution selling that becomes more important both in residential ventilation and in some of the solutions we can provide in commercial and sort of light buildings like schools, which are a big focus going forward.

[Joe Vorih, CEO & Director at Genuit Group]

So great business unit. I mean, shown the improvement in profitability already and we're confident it's going to have outstanding long term growth potential. In water management, this is a business where we are well positioned for a wave that's coming. So stormwater management is of course increasingly important. We saw it in The Middle East this past year where they too are seeing some of these regional focuses that are meaning they've got to invest more in stormwater attenuation.

[Joe Vorih, CEO & Director at Genuit Group]

Our business is well positioned there. We've seen it in The UK as we tee up and are ready for AMP eight, which is shifting a lot of the focus from repairing drinking water and potable water piping and supply to now how do we protect the stormwater and sewer system the sewer systems from stormwater incursion. This is going to be a really important focus going forward and that 86% increase in AMP eight spending compared to AMP seven is heavily weighted towards stormwater management, stormwater protection. That's positive. We're integrating Sky Garden, which gave us much more exposure to the blue green roof and pedestal space.

[Joe Vorih, CEO & Director at Genuit Group]

We figured that's a million market just in The UK growing at 17% to 18% per year CAGR, exactly the type of acquisition we want that takes us into higher growth segments. Importantly, as Tim alluded to, this is the business here that kind of started on the GBS journeys last, still has the most upside potential. And I'd reiterate the fact that at our Capital Markets Day, we said we believe this will be a good growth business and can reach 15% EBIT targets. Set back with the volume issues this past year, we're still committed to those targets. So a lot to come.

[Joe Vorih, CEO & Director at Genuit Group]

And I would say that the same approach we've taken that has been so successful in SBS and is now showing success in CMS will work here too. Speaking of SBS, we've been focused here on cementing our already good share and gaining further. We've been able to introduce new products to market like PolyPlum Enhanced, which is a new line of push fit fitting with extra security, which plumbers love. Our Polypipe advantage is really an added value solution capability where we can do preassembled sets of product, which allow for much reduced labor time, much reduced transportation, decreasing the carbon that's on-site and of course improving the lead time, shortening the lead time for building. This is really important as we're facing a labor constrained market going forward.

[Joe Vorih, CEO & Director at Genuit Group]

And lastly, new build underfloor heating actually is something that SBS is also exposed to as they've been working with a wide range of national and regional house builders to get them ready for bulk introduction of underfloor heating at scale as we approach the future home standards, something that we've seen ample signs of commitment toward and remain excited about. Going forward for this business is to continue to focus on gaining share to manage the business in Credi well, be ready for the future home standard and again focus on expanding the range of value added solutions and the modern methods of construction engagement that we can have with off-site manufacturers and the divisions of some of the house builders as well. Lots to play for here, great business, great execution, good results last year, well positioned for the market recovery. Often get a lot of questions around the genuine business system and what does this mean and give me some examples, Joe. Could you please?

[Joe Vorih, CEO & Director at Genuit Group]

Yes, I will. Here we go. So these are I've just got three simple case studies. I won't go into detail, happy to discuss later, but I want to share some of the results we're seeing across the business. Last year, we did over 20 Kaizen events.

[Joe Vorih, CEO & Director at Genuit Group]

These are week long rapid continuous improvement events. Over 15% of our workforce has now participated in these Kaizen events and in-depth training, which means by the way 85% to go and still lots more room to run-in terms of driving productivity through the business. This is one example where a team in our Aylesford site focused on single minute exchange of dye. That's rapid tool change. So as you move from one product being molded to another, you reduce the downtime from when you're not producing parts, which is not helpful, right, From four hours down to less than an hour, right?

[Joe Vorih, CEO & Director at Genuit Group]

So that's an 80% reduction in non productive time on the machines. Across that whole department as they complete the rollout, that'll basically be ten thousand more hours of machine productivity without a single capital dollar spent, capital pound spent. Really impactful. And of course, these are tools which apply everywhere, but the best way is to see case studies. In terms of sustainability, GBS and sustainability play together well.

[Joe Vorih, CEO & Director at Genuit Group]

We use environmental product disclosures. They're essentially the passports, the carbon passports for all of our products. As a leader in this industry, we've committed to making sure that our product range is substantially covered by environmental product disclosures so that our customers who insist on this know that they're getting the lowest products lowest carbon product. This is a time consuming process. They're independently verified outside by a third party and it was taking us too long to do it.

[Joe Vorih, CEO & Director at Genuit Group]

So we actually took a Kaizen event approach and we're able to increase the pace of we're doing this from one every five months to four a month. That's a 20 fold productivity improvement in a back office process. That's actually pretty important and it shows the power of GBS across the back office as well as on the shop floor. So that's in line with our ambition to be able to do 25 EPDs per month as we grow going forward and a great result for the team. Another example that's related to sustainability is the team as a carbon reduction tool that they've now embedded into the way we're operating inside so that the teams can come up with ideas for how we reduce carbon in the way we operate the business, not the products, but the way we operate the business.

[Joe Vorih, CEO & Director at Genuit Group]

They used daily management and process improvement tools in a Kaizen setting and identified the opportunity to take out about 1,600 tons of carbon, which also represents about a £400,000 annualized savings. So again, not bad for a week's work, right? So those are a few examples of GBS in action. But importantly, as I mentioned earlier, it's the people who make GBS work and GBS turns out to be one of the best engagement tools there is. There's nothing really better than telling somebody who's skillful and experienced saying, you know what, go ahead and improve your business.

[Joe Vorih, CEO & Director at Genuit Group]

Here are the tools. So really positive engagement opportunity and it fits with our commitment to having the best people and culture you can possibly have. In an age where there's a lot of scrutiny around diversity and inclusion, I want to be really clear. We view diversity and inclusion as an absolute competitive advantage for Genuine and we are not rolling back one bit. This is important.

[Joe Vorih, CEO & Director at Genuit Group]

We want to be the place where people want to come work, can build their careers they know will invest in their capabilities. So a few things that we've done. We actually have over 18% of our workforce now in earn and learn programs. These are everything from internships to graduate schemes, apprenticeships. And this is powerful.

[Joe Vorih, CEO & Director at Genuit Group]

We're part of the five percent Club, which is the industry group that's committed to reinvesting in our future generation. And we've earned gold status last year. Frankly, 18%, two more years, we're on track for platinum status and maybe they'll invent a new category at some point. This is investment in our people that is really valuable and it helps them know that they can build a career here. Over 15% of our people that were involved in GBS training, that's going to keep going up every year.

[Joe Vorih, CEO & Director at Genuit Group]

Somebody asked me could that go faster? Sure. But what's more important is that it goes well and that the people really see that benefit and the momentum is really building this year at GBS. And over half of our Genuit leadership team have actually gone through our new Genuit Leadership program. Think of it as sort of our internal leadership college.

[Joe Vorih, CEO & Director at Genuit Group]

So that is really exciting too and we've got quite a bit more to come. And then also we continue to make progress on diversity and inclusion. Over 30% of our internal promotions last year were female. Strong commitment there as well. Lots more to do, but it is absolutely the right thing and I'm really proud to be part of a company that places this first.

[Joe Vorih, CEO & Director at Genuit Group]

On M and A, Tim mentioned our ample firepower. We figured we've got £125,000,000 to £150,000,000 available on our balance sheet. Obviously, we've got the optionality to go and use equity for a particularly compelling story for our shareholders. SkyGarden and Omni were a good example of the strategic application that fit well with our solution infill for our water management and climate management business units respectively. We have a significant pipeline activity.

[Joe Vorih, CEO & Director at Genuit Group]

We've done a lot of work in the last two years making sure that in line, I don't expect you to read the chart in the bottom right, but you saw that one at our last capital markets update. What it says basically is that we'll add to water management solution capability, we'll add to climate management solution capability, we'll look for good quality bolt ons that we can integrate well across the business. And we'll look in The UK of course as well as further afield in Europe and in North America where we believe climate management and water management can play particularly well. This is a very active area for us. And as Tim mentioned, don't be surprised if you see some news from us this year.

[Joe Vorih, CEO & Director at Genuit Group]

We believe this is key to the Genuity strategy in the long term. Finally, just kind of closing up for questions. As I mentioned before, trading for 25 has started in line with management expectations. I would describe it as broadly similar to what we're seeing at the end employment costs with a balanced approach as we've done before with cost, price and productivity. We do expect to deliver and we remain committed to delivering our 20% midterm margin target through a mix of productivity and operational leverage as we continue to grow organically and inorganically.

[Joe Vorih, CEO & Director at Genuit Group]

And the group is confident that the medium term growth drivers that we have facing up against the challenges that we've got to fix here with more housing, better stormwater management, decarbonization and addressing the labor shortages really position us well for the future. So that's what we brought. We've got our investment case. I think this is exactly the one you've seen before. We believe in the long term.

[Joe Vorih, CEO & Director at Genuit Group]

And I'd like to thank every single one of our 3,200 plus people for incredibly hard work they did last year. So all right. With that, I think we're ready for question. Why don't you come back up here, Tim? I always like to have Tim here so hand him all the tough ones, right?

[Joe Vorih, CEO & Director at Genuit Group]

So we've got the same system here that's not showing it is showing here, no, that we've used in prior years. You've got a little button beside you that you can push. We can see the queue. I'd ask my esteemed analyst friends to keep the number of questions down to a memorable number. We'll come back if needed.

[Joe Vorih, CEO & Director at Genuit Group]

And we do have a roving mic if it's not quite loud enough. There is miking around, but you just need to speak up a little bit. So who would like to open? There's a button right next to you. Okay.

[Joe Vorih, CEO & Director at Genuit Group]

Please.

[Analyst]

Hi.

[Analyst]

Thanks for taking my questions. I have a couple of Fund Me.

[Joe Vorih, CEO & Director at Genuit Group]

Sorry, I forgot to ask you. Please introduce yourself too. Sorry.

[Analyst]

Sorry, I just

[Analyst]

asked you what's going

[Analyst]

on.

[Joe Vorih, CEO & Director at Genuit Group]

Yes.

[Analyst]

How should you think about the price

[Analyst]

of the cost being 55? And specifically on the cost,

[Tim Pullen, CFO & Director at Genuit Group]

Yes. Our strategy with prices very much to recover the cost inflation that we see. Underlying, we actually see that inflation has come to more normalized levels for The UK, both in terms of wage inflation, the settling down of energy costs and also input inflation, things like polymers and so on have stabilized. We do obviously have the headwind of the NII and minimum wage, which needs to be recovered on top. And so we're very focused on productivity improvements as well as price.

[Tim Pullen, CFO & Director at Genuit Group]

We do think that the price increases for the NII and minimum wage things need to be staggered to support the industry with its recovery cycle. So don't expect to see that all coming on price in the beginning. That might mean that there's a bit more pressure in the first half of the year than the full year. But as we've said in our outlook, we are targeting to offset that at the operating margin level by the end of the year.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. Thanks, Axel. Hansi, I think you're next.

[Analyst]

I've got three questions actually. Just first of all, Just interested to hear your kind of views on North America versus Europe, just in terms of acquisition multiples, the trackness of the market, where your kind of affinity and preference lies there? That's the first question.

[Analyst]

Plug every part through the other?

[Joe Vorih, CEO & Director at Genuit Group]

We can take them one at

[Joe Vorih, CEO & Director at Genuit Group]

a time if

[Joe Vorih, CEO & Director at Genuit Group]

you want. It's fine. If you've got them written down, that's easier.

[Analyst]

Okay. And then second, just on the Ampe, obviously, big boost to capital expenditure. So when would you start to expect to see that actually coming through to work on the ground for the

[Joe Vorih, CEO & Director at Genuit Group]

I'm sorry, on what? Sorry?

[Analyst]

The Ampey, the Waters.

[Joe Vorih, CEO & Director at Genuit Group]

Yes, okay. And Ampey, yes. So acquisitions Ampey, yes.

[Analyst]

And then third question, just on SBS. I think in the past you mentioned the competitor X Q4. Is there more of that to come this year in terms of market share gains maybe

[Analyst]

as a competitive?

[Joe Vorih, CEO & Director at Genuit Group]

I do. I'll take the first two. You want to take that one?

[Tim Pullen, CFO & Director at Genuit Group]

Yes.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. So on M and A, first of all, in terms of where, so what we see is that water management is a business that actually the trend towards stormwater management and the solutions needed is actually quite global. And so that we see as a target sort of a target rich environment in sort of Central And Northern Europe as well as in North America. And we've been actively cultivating in both areas. So I think there definitely are plenty of things available in a reasonable size and range for us.

[Joe Vorih, CEO & Director at Genuit Group]

In terms of climate management, Europe is actually a better market for us because The U. S. Market tends to be dominated a bit more by the air conditioning sort of world. So we've been more focused on ventilation and heating in Europe as well. Of course importantly we remain a consolidator here in The U.

[Joe Vorih, CEO & Director at Genuit Group]

K. And we do see opportunities for bolt ons and strategic infills in The U. K. As well. In terms of valuations, it's a great question.

[Joe Vorih, CEO & Director at Genuit Group]

I mean, two years ago, I would have said we're waiting for valuations to come down. I definitely think that there is we don't think that there's a shortage of things that are actionable from a valuation perspective for us. So perhaps it's a better environment. I mean private equity has been I think dealing with higher inflation rates for some time. So I don't believe that valuation is going to be the obstacle to us getting some good quality deals done.

[Joe Vorih, CEO & Director at Genuit Group]

On AMP eight, so we're now in year one of a five year cycle. And normally you'd expect to see sort of peak spend midway through. So sort of years three and four, it's a lot of these are project tenders. We've been actively working with we've been in contact with water companies with some of the Tier one contractors getting out and seeing these projects. So it's not something that we expect to see a big input to our revenue book this year, but definitely will continue to build in the outgoing years.

[Joe Vorih, CEO & Director at Genuit Group]

I should also add that when you talk to people in that industry, this is also not a one and done. This is something that's probably going to take us two or three cycles to completely address. So it is a mid- to long term growth driver for us.

[Tim Pullen, CFO & Director at Genuit Group]

Yes. In terms of market share, as you know, there's a key competitor that exited the market last year. We estimate around million worth of Drainage business per year. We've already signed contracts to secure a quarter of that, give or take, on an annualized basis, but we're targeting more of that as well. We started to see some of that revenue come through in Q1, and that will have a material effect from Q2 onwards.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. Dania, I think you're next.

[Analyst]

Okay. I didn't know

[Analyst]

you hit the button. Can you just can you talk a bit about your purchasing savings and how sustainable I'm

[Joe Vorih, CEO & Director at Genuit Group]

sorry, I can't quite hear

[Analyst]

Can you talk about your purchasing savings and how sustainable those are going forward? And then second question, just characterize some of the new projects you're winning in terms of scale and scope and how competitive are those contract wins?

[Tim Pullen, CFO & Director at Genuit Group]

Should I do the first?

[Joe Vorih, CEO & Director at Genuit Group]

Yes, go ahead.

[Tim Pullen, CFO & Director at Genuit Group]

The second?

[Joe Vorih, CEO & Director at Genuit Group]

Sure.

[Tim Pullen, CFO & Director at Genuit Group]

So in terms of procurement savings, very sustainable in the broadest sense actually. So this is aggregating spend for the group. You may recall that previously the group was managed on a more distributed basis.

[Tim Pullen, CFO & Director at Genuit Group]

So where we can buy together, things like polymers or energy or so on, we're doing so. But we're also making sure that they're sustainable in terms of security of supply. And this is buying with more strategic agreements, longer term agreements, which is great for both parties. It's better for us to get more secure pricing and availability to products, which is important as volumes come back. But it also gives more visibility in terms of forecast to our suppliers as well to help us

[Tim Pullen, CFO & Director at Genuit Group]

work together.

[Joe Vorih, CEO & Director at Genuit Group]

Anne, I'm really sorry. I just didn't quite get to your second question. It's my hearing. So go ahead.

[Analyst]

It's okay. I just can you characterize some of the new project wins that you've mentioned?

[Joe Vorih, CEO & Director at Genuit Group]

Some of the new project wins?

[Analyst]

Yes.

[Joe Vorih, CEO & Director at Genuit Group]

And Yes, sure. I mean, we there's quite a bit across all three businesses. I mean, we've won underfloor heating insulation projects with some of the national and regional house builders. We expect those to result in even bigger tenders and awards going forward. In terms of water, we do quite a lot of stormwater management projects today and those tend to be project oriented businesses.

[Joe Vorih, CEO & Director at Genuit Group]

And in the ventilation business as well, we see the opportunity in areas like schools and residential buildings. A lot of flats for example will often have anywhere from a few dozen to 100 or more MBHR. So in all three of our businesses, we actually project wins are a key piece of that. Did I get your point there? Great.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. Thanks. Sorry about that. Okay. Let's see.

[Joe Vorih, CEO & Director at Genuit Group]

Where to next? Right here.

[Christen Hjorth, Equity Research Director at Deutsche Numis]

Kristin Jupp from Deutsche and Numis. Three for me as well, please. First of all, you hinted at more transformational M and A potentially, just sort of trying to get a sense of size, what you'd be willing to do, etcetera. Secondly, in WMS, just to touch on the competitive backdrop there. I know sort of previously at Capital Markets Day, you talked about maybe some competitors catching up just whether the catch up has come back from WMS as well.

[Christen Hjorth, Equity Research Director at Deutsche Numis]

And then finally, just in SBS, the sustainability of that margin and whether the margin in 2024 is a good normalized margin even if volumes recover or you could see a little bit more on that as well? Thank you.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. We'll take them in that order. I'll take two and you take one.

[Tim Pullen, CFO & Director at Genuit Group]

Yes.

[Joe Vorih, CEO & Director at Genuit Group]

So in terms of transformational M and A, I mean, we've been clear from the beginning that we one of the reasons we love this space, particularly in Climate and Water Management, but also bolt ons is that there are ample bolt ons, which would fit well within our existing firepower.

[Joe Vorih, CEO & Director at Genuit Group]

So you could think of deals that could easily be sort of million to million deals. A lot of those are quite strategic as well. So that's good. The nice thing about this space too is look in the fullness of time there definitely are transformational things that we could do. That's not our first priority right now.

[Joe Vorih, CEO & Director at Genuit Group]

But I would say that if it's something that's incredibly compelling for shareholders, we do think we've got good support and we would feel free to bring those to those shareholders because obviously that would take some equity thinking. But look, the nice thing is I think we've got optionality at both ends of the scale. Your second question was?

[Christen Hjorth, Equity Research Director at Deutsche Numis]

The second question was on the competitive backdrop.

[Joe Vorih, CEO & Director at Genuit Group]

All right, on WMS. Sure. So Water Management Solutions on a product base, so just drain pipes and fittings and stuff is a fairly competitive market. There are some smaller players. They have been investing in a downturn in the market.

[Joe Vorih, CEO & Director at Genuit Group]

You do see some price competition there. Importantly though, we've been on a journey to shift upstream to be closer to solutions. This is something we've been doing for several years, probably five years or more. The further we go there, the much less the smaller competitors I think are well positioned to compete for larger contracts and tenders, the type that we'd expect to see coming out of AMP eight for example. So in general, moving upstream into solutions is very good for that business, whether it's in the stormwater attenuation side or in the blue green roof and green urbanization side.

[Joe Vorih, CEO & Director at Genuit Group]

Both of those are good as we move away from just drainage products, although large drainage products. The other thing I would say is that from a sustainability basis, this is a business that is 80% plus recycled material that leads the industry in its category. And that will be more important going forward because these are large products too. So we've got excellent coverage with our environmental product disclosures there. And these are also competitive vantage that smaller players may struggle to catch up on.

[Joe Vorih, CEO & Director at Genuit Group]

So we always try to increase the width of the moat.

[Tim Pullen, CFO & Director at Genuit Group]

In terms of SBS, really strong margin performance, of course, and sustainable in the sense that this is a really well run business, really great products, great strong brands and reputation with customers, which gives us stickiness. Probably at the slightly highest end of the range, we'd expect to achieve for this margin boosted by internally generated savings from procurement and productivity. And of course, we do have some headwinds coming with the National Insurance and minimum wage. So when I think around our margins as a group, as I say, if we can offset target to offset the increased employment costs that we've got, that will be a good result for the year. And within that, we might see WMS coming up slightly in margin as we improve that business and perhaps a slight pullback in SBS.

[Tim Pullen, CFO & Director at Genuit Group]

But through the cycle, we still believe that low 20% margin for that SBS business is very sustainable.

[Joe Vorih, CEO & Director at Genuit Group]

Okay.

[Joe Vorih, CEO & Director at Genuit Group]

Come back over to Southern Rome. Go ahead.

[Jérémy Caspar, Equity Research Analyst at J.P. Morgan]

Jeremy Casper from JPMorgan. Just keeping on the margin topics. Was a bit surprised by WMS step down in HQ. Just wondering what was driving that? Was it something apart from volumes?

[Joe Vorih, CEO & Director at Genuit Group]

Sure. Do you want to

[Joe Vorih, CEO & Director at Genuit Group]

take that?

[Tim Pullen, CFO & Director at Genuit Group]

Yes. So really, it is volume related, and it's the operational deleverage that you get with that reduction in volumes. So it is a particularly project based business that it doesn't have the same specification element that you might see in SBS, for example, where you've got more surety over those longer term revenues. But we're convinced in the longer term drivers for that business, you only have to look around at the flooded fields in The UK and Dubai Airport underwater or whatever it may be.

[Tim Pullen, CFO & Director at Genuit Group]

The world needs more stormwater attenuation to deal with these increased risk of flood events. So we see the longer term drivers are there. And as that volume comes through, the operational benefits on the profits can really be seen. We saw that actually in October and November year, where you get a seasonal uptick in most of our businesses. Actually, we saw much stronger margins in that business as well.

[Tim Pullen, CFO & Director at Genuit Group]

We know it's there, but we need that volume to come through to really see it. In the meantime, we are focused on improving that business as we've talked about and there is things that we can do to do that through productivity. Yes.

[Joe Vorih, CEO & Director at Genuit Group]

Yes, the playbook that we've used in SBS and CMS will absolutely work there. They're just a bit further behind. And it's interesting, this is the kind of volume performance you tend to see in this type of industry and business. We're just starting to get people used to not seeing that, which is fantastic. We just need to get that there too.

[Joe Vorih, CEO & Director at Genuit Group]

Sam, I think you're next.

[Sam Cullen, Equity Research Analyst at Peel Hunt]

Yes. Good morning, everyone. Sam Collin from Goldman. I've got two. So first one is on margin again.

[Sam Cullen, Equity Research Analyst at Peel Hunt]

If you look at the group gross margin, is that should we view that sort of peak because you've got a bit of a favorable mix benefit with SBS being better than WMS and probably a favorable price cost mix? Or is that a sustainable level for the group going forward?

[Tim Pullen, CFO & Director at Genuit Group]

Absolutely. As I say, you might see that SBS pulls back a little bit and WMS improves. But if we can get to the same level this year, we'll have done well to offset that cost. And of course, our medium term target is over 20% operating margins, which can really come through the operational gearing of the group. It's great to report a 40 basis point improvement in margin.

[Tim Pullen, CFO & Director at Genuit Group]

But for me, the most exciting thing is how much that operational leverage is really improving. So that as we get that market recovery, if you go back to that period, we often talk about 2017 to 2019 where volumes were 20% to 30% higher. As Joe has talked about, we've got the capacity to serve that from our existing site footprint. So with the drop through you get from that, that's will drive that profitability even higher.

[Sam Cullen, Equity Research Analyst at Peel Hunt]

The second one is on the floor heating and the new build space. How do those contracts work? Do you win the contractor survey site? Do you serve a house a regional division of a house builder? Do you get a national contract with house builder?

[Sam Cullen, Equity Research Analyst at Peel Hunt]

Do you set a framework with other suppliers, which is interesting to explore that?

[Joe Vorih, CEO & Director at Genuit Group]

Yes. We're working through this, right? I mean, this is early. But what we did initially is we agreed to quite a few cases where we demonstrated the ability to deliver entire sites. We shared Pocklington, for example, last year, we did with Parrot was a pilot of 300 homes.

[Joe Vorih, CEO & Director at Genuit Group]

That's complete. So we took that and made sure that this is a win win situation and we are it's a range, right? In some cases, we've got builders that are looking to have a national tender for this. In other cases, there will be probably a regional sort of project basis. But in general, what we found through that industry is that as the SPS team has been in there working on this, we've often been the first one in to really take a holistic approach and to work directly with them.

[Joe Vorih, CEO & Director at Genuit Group]

So that's been well received. So there could be a range of solutions, but we're well positioned. Okay. Let's see. Yes, over here.

[Analyst]

Hi, thanks. I have a couple of questions. The first one was, can you just confirm you don't need additional capacity to support demand if there is a volume uptick in 2025? Is that the case?

[Joe Vorih, CEO & Director at Genuit Group]

Yes, we've got 20% to 30% capacity in place across the group. Typically, it's machine time or even idle machines. So we have a lot of injection I mean, think of it this way, we've got hundreds and hundreds of injection molding and extrusion machines as well as assembly benches. Some of them are not working three shifts. Some of them are only working one shift.

[Joe Vorih, CEO & Director at Genuit Group]

Some of the machines themselves are idle or remain dedicated to single product lines. And with our single minute exchange of die capability, we can turn them over and then free up more utilized time. So it is there. We'll just need some more people, fewer than we used to have and a little bit higher electricity bill. And of course, ordering more raw material.

[Analyst]

Okay. And then my second question is, can you quantify the GBS cost efficiency attribution in 2025 compared to 2024 to get a sense on how profitability can improve if we assume volumes low single digits, price costs flat by the end of the year, gross margin same level, just to quantify a bit where profitability can end up in 2025?

[Joe Vorih, CEO & Director at Genuit Group]

Yes. It's not quite that simple because as you probably got a sense from the different case studies, it's organic and throughout the business. What I would say though is a statistic that we shared back two point five years ago, mature businesses that have been on this journey for a while typically get 3% to 5% productivity savings every year, right? So you know that we're not at sort of full momentum yet. So we're not getting all of that.

[Joe Vorih, CEO & Director at Genuit Group]

But we're definitely seeing in places where we're implementing it, some of the CMS business, for example, or SPS business, we're seeing more than that in terms of productivity gains. So a couple percent per year productivity gains, absolutely reasonable. It might take us a year or two to get in. And that's why, as Tim said, when we're confronted with something like the national insurance increases, whenever we don't get through balanced cost and price, could take a little bit, but we're confident we can get there. So let's see.

[Joe Vorih, CEO & Director at Genuit Group]

I think that's pretty much wrapped it up for questions. I don't see any more buttons here. One more. Go ahead. Preeal.

[Joe Vorih, CEO & Director at Genuit Group]

I was almost disappointed there.

[Analyst]

It's just one question. You talked about the sectors and mobilizing for future homes. Can you just give a little bit more detail on houses? And are you just at the stage where you're trying to lock yourself in for use? Are you actually selling into homes which are being built according to that standard?

[Analyst]

What's your latest sense on how JNU is being considered versus alternative?

[Joe Vorih, CEO & Director at Genuit Group]

Sure. We could actually spend twenty minutes on that topic, but we won't. It varies. First of all, what we see across the house builders is actually good support for that. There is a little bit work left to do to kind of finalize everything, including some of the details around timing.

[Joe Vorih, CEO & Director at Genuit Group]

Best estimates I've heard, we're expecting to be really starting that certainly by the end of this year. So as we transition into 'twenty six, this is going to take a bigger impact. What I would say is quite a few house builders are already starting to build toward those standards and either have committed to say underfloor heating or air source heat pumps broadly are expected to be the preferred solution. In discussions with some of the leaders of the different housebuilders being constraints around everything from not putting gas mains into new sites where they know they're going to be future homes eventually, they'll go electric now rather than have two sources of energy. So the industry is clearly going that way.

[Joe Vorih, CEO & Director at Genuit Group]

And my sense is that over the next eighteen to twenty four months, we are going to have made that transition. And so accordingly, we are selling products now, some cases ahead of the legislation, in some cases driven by the building code updates two years ago, which really presaged a a lot of what's in there. And I would say this, the other parts where there's a few remaining bits to be sorted around the future home standard don't tend to affect the products that we sell from what I've seen. So we remain confident. It's just a question of making sure that we can do everything to make it as easy as possible for our house building customers to achieve these standards.

[Joe Vorih, CEO & Director at Genuit Group]

Okay. All right. That was you. I think that's it. Okay.

[Joe Vorih, CEO & Director at Genuit Group]

Thank you all for coming. Just to kind of wrap up. Look, this was another year where we made good progress on our strategic execution. Our team delivered an incredibly resilient performance, improved operating margin despite volume and revenue decline. We're well positioned for the future.

[Joe Vorih, CEO & Director at Genuit Group]

We've got great firepower. We know there are lots of exciting additions to the business to be made. And importantly, the Januant business system gains momentum and people are excited about our future. I hope you are too. So thank you all for coming.

[Joe Vorih, CEO & Director at Genuit Group]

We'll be around for questions. And worst case, we'll see you in six months.

Participants

Executives

• Joe Vorih, CEO & Director
• Tim Pullen, CFO & Director

Analysts

• Analyst
• Christen Hjorth, Equity Research Director at Deutsche Numis
• Jérémy Caspar, Equity Research Analyst at J.P. Morgan
• Sam Cullen, Equity Research Analyst at Peel Hunt