Genuit Group H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2025

Key Takeaways

  • Positive Sentiment: Genuet achieved 9.3% year-on-year revenue growth to £297.8 million and a 2.3% increase in EBIT to £44.6 million in H1 2025, driven by strategic segment focus and targeted market share gains.
  • Positive Sentiment: The Board has raised the dividend per share in line with its progressive policy, reflecting confidence in the company’s balance sheet strength and medium-term execution.
  • Negative Sentiment: Rising National Insurance and minimum wage costs, plus a one-off £0.9 million inventory provision in Water Management Solutions, contributed to a modest drag on gross margins this half.
  • Positive Sentiment: Organic revenue grew by 6.1% excluding recent acquisitions and management highlighted strong share gains in drainage following a competitor exit and targeted segment wins.
  • Positive Sentiment: Future growth is underpinned by UK regulatory tailwinds—AMP8 water spending, the forthcoming Future Homes Standard and AwaB’s Law on social housing ventilation—which should boost demand for Genuet’s climate and water solutions.
AI Generated. May Contain Errors.
Earnings Conference Call
Genuit Group H1 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

All right. Let's go ahead and get started then. Welcome everybody to a nice sultry and hot August day in London. We think it will be 31 or maybe even a bit hotter today. Keep that in mind for any of you who have flats in London because we're going to talk about overheating and cooling solutions later on.

Operator

So with that, I want to welcome you to Genuet Group's first half twenty twenty five results. I'm delighted to be here. Joe Vorey, CEO, as you all know Tim Pullen, our CFO, is with me. We're going to go through a pretty standard agenda. I'll say a few words upfront and then turn it over to Tim to walk you through the mechanics of the results and then I'll come back and give you an update on the strong progress we've made in our strategy.

Operator

So let me start by just recognizing clearly the market conditions are a bit challenging out there. We would describe the market volumes as sort of broadly flat. But as has been the case for quite a few halves now, our job is to make our own way and to make our own success and I'm very proud of a team that's been doing an excellent job doing that. We've been able to deliver revenue and profit growth. The revenue growth has been driven a lot by focusing on good strategic segments where we can bring new solutions and add value despite the overall conditions and with some targeted market share gains, which we'll talk more about later.

Operator

We were able to deliver profit growth despite the well trailed headwinds of increases in some of the employment costs and all of this has enabled us and the Board to go ahead and put in our increased dividend, which reflects our commitment to a progressive policy, but more importantly I hope you get that same confidence that we have that we've got confidence in the long term direction of the business and that our balance sheet is strong and gives us the optionality we need strategically as well. So when we think about that then looking forward a bit, you'll hear later, we have good confidence that in the second half our margin will improve sequentially driven by actions that we continue to take as a management team to position the business very well for the future. And of course, it wouldn't be a genuine presentation if we didn't focus on some of those really good structural UK regulatory tailwinds. Those are going to help us a lot as we go forward as we've continued to refocus the business to take advantage of those. So a lot to talk about, but now I'd like to turn it over to Tim, who will take you through the financials.

Operator

Tim, over to you.

Speaker 1

Great. Thank you, Joe. Good morning, everyone. Delighted to present our results this morning. We think this really represents a strong performance within a challenging market.

Speaker 1

As Joe talked about, both revenue top line and our profit has increased year on year for the first half. So revenue up 297,800,000.0 up 9.3%. And our EBIT performance, that's up 2.3% at 44,600,000 with continued strong execution in the business. Our EBIT margin is slightly softer. That was to be expected given the National Insurance and minimum wage cost increases that were coming through.

Speaker 1

But overall, underlying, we continue to improve the business. Our cash conversion has returned to a more normal phasing, so about 65% for the half year, still projecting over 90% for the full year in line with our medium term targets. Our dividend per share, as Joe alluded to, we've slightly ratcheted it up, but that's in line with our progressive dividend policy and really underscores our confidence in our medium term execution, but also in our balance sheet. And that's really highlighted by the leverage of the business, which is now down to one times, one turn, and that really gives us that strategic optionality for disciplined bolt on M and A opportunities that we continue to prosecute. So these are the highlights.

Speaker 1

Let's look at the P and L in some more detail. That 9.3% increase in revenue translates into just over 6% growth on a like for like basis, excluding the two acquisitions that we made last year. So a strong organic performance there. And as the margin is down slightly, about half of that, about half of the 100 basis points margin is due to those acquisitions, which have a dilution effect in the short term. These are small acquisitions that at the moment are subscale, but really in strategic markets.

Speaker 1

So as they grow and scale those businesses, we'll increase the profitability. The other half is due to the National Insurance minimum wage increases and also a provision of about £900,000 that we booked in WMS. That's a one off provision related to slow moving stock, which has impacted margins in the first half. But overall, the magnitude of profits has grown, so you see both profit before tax and our earnings per share up over 3% year on year. If we look at revenue, you can see that we continue to benefit from the breadth of the Genuet portfolio.

Speaker 1

We've got good coverage here across our three business units. SBS continues to be the largest at around 40% of revenue with the rest spread across the other two, but also across different sectors of The U. K. Construction industry. So good coverage across new build, RMI and non housing, including commercial and civil projects, with still around 10% of our business coming from international revenues.

Speaker 1

If we look at the bridge, revenue and profitability, you can really see the strong growth performance in all three of our business units, but with different fortunes in terms of profitability. So let's just dig into that in a bit more detail one by one. So Climate Management Solutions, strong growth here, about 8% like for like revenue growth for Climate Management. That's really been driven by the residential sector of ventilation. And here, we've seen really strong sales, particularly of NVHR, mechanical ventilation heat recovery units into multistory residential, particularly with the attach of cooling modules as well, which Joe will talk a bit more about, which is a really exciting development for us.

Speaker 1

AD, our water filtration business, has had a solid performance. There we see the boiler market returning to growth. That's up about 8% year on year in the first half for boiler sales, which is good to see some recovery there. And we see continued softness really in the RMI market. That's a theme across a few of our businesses.

Speaker 1

That does negatively affect our Underfloor Heating business, but overall, we see growth from the portfolio in Climate Management. And underlying, we see profit improvement as well. So if we exclude the impact of National Insurance and minimum wage, we see that underlying improvement supported by Genuine Business System projects. Water Management, slightly lower growth, but still positive, about just under 3% like for like growth for Water Management. Some of the highlights here include stormwater attenuation, so demand for those underground systems for channeling stormwater.

Speaker 1

Both in The U. K. And The Middle East, we continue to see growth here. And we continue to see really strong order intake and revenue growth in our Bluegreen Roofs business, where you remember one of our acquisitions from last year has bolted our offering there in the green roof space. So good growth there in a fast growing segment.

Speaker 1

Our margin here is impacted by National Insurance minimum wage, also by that provision of £900,000 that I talked about for inventory. And we've taken some action in this business to get it where we want it to be. We recognize this is not where we want it at the moment in terms of margin. We've taken some price actions and some cost actions already, including some restructuring, and that will flow through in the second half. So we're very confident that the second half of the year will be better than the first.

Speaker 1

And also, we're very confident in the medium term prospects for this business, given the emergence of the AMP8 water cycle and continued demand for these kind of storm water attenuation systems. And Joe will talk a bit more about that in the strategic update. And then Sustainable Building Solutions, our largest segment, again 8% growth more or less here on the top line. And here, we've seen moderate growth in new housebuilding, single digit volume increases year on year for most of the housebuilders have been talked about, albeit from a low base. We've seen continued softness here as well in RMI, but we've really generated some targeted share gains.

Speaker 1

So we talked before around the competitor exit in Drainage, targeting business there. That's gone really well for us. We're gaining good share on that front. And that means that combined with that top line growth where we're seeing the operating leverage come through together with continued progress on Genuet Business System and productivity improvements, we've got a strong margin performance in this key segment for us. So just to unpack the underlying items a little bit here.

Speaker 1

I mean the headline is that these have come down significantly year on year, so improvement in quality of earnings here. There's negligible cash impacts really from our underlying items on a net basis overall. We will be incurring a bit more exceptional cost in the second half of the year from some of those restructuring items that we've undertaken. That's both in WMS and also a bit of action in CMS as well. We don't see any further big restructuring beyond that, but we always take advantage of opportunities to improve the business where we see it and the payback here is good, so less than a year in terms of payback.

Speaker 1

That will mean we continue to improve our margins and continue to improve the operating leverage of the business. So cash flow, 38,700,000.0 of underlying cash generated from operations, so another strong performance, as I say, returning to a more normal phasing for cash flow, so 65% cash conversion, targeting 90% for the full year. Our CapEx for the first half was around £12,000,000 And for the full year, we expect that to be in the region of £30,000,000 of CapEx there. Our capital allocation policy really continues to support our strategy. So we have that strong balance sheet.

Speaker 1

Our progressive dividend policy will return value to shareholders, but we have that optionality for disciplined bolt on M and A as well given the low leverage that we now have on the balance sheet. So very pleased to highlight these results to you today. And now I'll hand back to Joe to take you through our strategic update.

Operator

Thanks, Tim. All right, so let's get into it. So you recall that coming up on three years ago, we outlined our sustainable solutions for growth strategy and it was anchored in the new purpose that we put together, that together we create sustainable living. And you'll recall that there have been four consistent pillars upon which we based our strategy. The first of course was driving solid growth organically by getting into solutions, increasing into solutions where climate mitigation and climate adaptation actually create demand and the ability to sell more valuable solutions to our customers to help address those challenges, as well as targeted selective discipline strategic M and A that we can bolt into, particularly climate and water management, to accelerate future organic growth, much as we've seen with Sky Garden, for example, and Omni as we go forward.

Operator

Sustainability remains at the core of what we do, not only selling into green revenue streams, but also operating the company in a differentiated carbon reducing way and continue to lead the way in areas like recycled plastic use among our peers. The Genuat business system is getting deeply embedded in the business. I'll touch on some of the progress we've made there. And we believe will be a critical differentiator for us going forward and really enables then our people is the people and culture of any business ultimately dictated success and we'll share some progress we've made there as well. But I wanted to go back and touch a little bit on some of the tailwinds, three in particular.

Operator

The first being the AMP8 spending cycle. So well trailed, right, something we've talked about here before, but a roughly 50% sorry, doubling of spend from AMP7 to AMP8 meant there was clearly good fortunes for everybody in the sector. However, it's become clear that stormwater management would be a critical piece of this. We've done additional work with consultants, Tier one contractors, the utility companies as well as we've interfaced. And what we've found is that we see a clear opportunity to expand our served available market in this space by about £100,000,000 over the next five year cycle.

Operator

That's really exciting of course and positions us very well in a segment where we're already one of the leaders, if not the leader, in the plastic based stormwater management solutions. So that will primarily drive an uptick in revenue growth in solution sales WMS business, to Tim's earlier point. The future home standard, we expect to come out later this year. Broadly, I think the industry consensus is that it will drive sort of a one to two year transition period, at which point we will be building homes in The UK to the type of standards you see in quite a few other countries. Continue to drive the adoption of renewal energy, underfloor heating, better ventilation, energy recovery, filtration to keep those systems working well.

Operator

This is, as you recall, the opportunity for us to sell into the same house about three to five times more value. Essentially So driving a deeper solution set there. This will drive an uptick both in climate management and sustainable building solutions as both of them have exposure in different parts of that. And then AWAB's Law. AWAB's law is coming out actually out, but it takes effect later this year.

Operator

That essentially mandates that social housing landlords must remediate on a very timely basis damp and mold conditions. One of the easiest ways to do that, one of the best ways to do that is to improve ventilation with mechanical ventilation in homes and of course, as one of the leaders of ventilation in The UK, we're well positioned to benefit from that as well. So if I can sort of double click on this, I wanted to come back to my comment earlier about the temperatures. If any of you have flats or have family members with flats, you're probably well aware of the overheating problem that we're facing here in The UK, not just in flats but also in picture of housing. As the climate warms, we're starting to see much more demand for cooling solutions.

Operator

Now most of the year in The UK, we don't need a lot of cooling or air conditioning, so three years ago, coming up in three years ago, we introduced the best, first to market and best NVHR with cooling solution. That's been a phenomenally great product and just this year we're on track to quadruple revenues in that cooling product line. So demand is very strong and it's a good indication of the kind of innovation that lies at the heart of the Genuine Group. We acquired Omni, brought that in as we've been consolidating and improving our offering in underfloor heating. Look, market for RMI driven underfloor heating is still a bit down as consumer confidence is low because RMI, the biggest part of the market is really driven by larger renovation projects and we need a bit more confidence in interest rates and consumer confidence in general, but we're well positioned and we remain confident that adding that new product line actually gives us a really good position in time.

Operator

Of course, we've also put in more work with the Genuine Business System. We've continued to expand its use and we've invested particularly in the ventilation business as we've added capacity there as well. So I already talked about AWAB's Law and again the ability for us to continue to leverage acquisitions and strategic bolt ons to enable us to grow our portfolio as we did last year with Omni. I should mention, as I've said before, as we think about deploying the balance sheet with disciplined strategic M and A, CMS has always been at the top of our list because we really believe that that long term ventilation and energy efficiency play is a great position for Genuet. If I turn to water management directly, we still remain very confident that this is an excellent business for Genuite to be in, albeit it isn't meeting our targets yet.

Operator

We set a target two and a half years ago to get this business to 15% plus margin. We absolutely remain confident we'll do that. This was a, Tim mentioned, some of the challenges this year. But if you strip all that back underlying, we're actually seeing some pretty good business performance in some of the segments in that business. The other thing I would highlight as Tim got to is last year's acquisition of Sky Garden allowed us to be really well positioned to take essentially the blue layer, Permavoid, which we've owned for a few years and Sky Garden, the green layer, and now be able to vertically integrate a roof drainage and cultivation system.

Operator

It's an excellent thing. We've already seen in the first half winning joint orders by having that stack that we wouldn't have got otherwise. In addition, the core market in The UK of blue green roofs is growing at above 15% per year and Sky Garden's order rate and growth trajectory is commensurate with that. So we're very pleased with that acquisition as well. I mentioned the AMP8 spending cycle and that's actually really something that's going to play in.

Operator

Essentially, we're in year one of that now, where the projects are getting identified and the solutions are out there. We've been working with water companies and engineers to determine what those solutions would be. Projects will begin to tender. We've seen some of that activity start, but the real pickup will sort of accelerate through 'twenty six and into 'twenty seven. But again, that's one of the biggest drivers.

Operator

It will probably be the biggest driver we've seen in decades in stormwater management in The UK. And we're well positioned because we'd already taken action in the business to strengthen our solution selling and engineering capability and we've got a dedicated team focused on this business. Again, as I look forward to what this business is long term, we remain confident it's a good business. Tim already mentioned we've taken some actions in the short term opportunities that presented itself to further streamline the business and really get it well positioned for growth in the future. And this is the business that was sort of third on the Genuine Business System journey, and they've actually picked up and made significant progress there.

Operator

So we remain confident it's a great business. In terms of SBS, this is where share gains have really mattered. We have excellent share in this business. We're one of, if not the largest share in the broader plumbing and drainage business. But we've been able to make two key gains.

Operator

One, as we trailed at the full year results, was the exit of a competitor and we set a target to gain up to half of that business and we think we're actually exceeding that target now. So that looks really positive. The other thing I'd say is that Barrett's long time been a big customer of ours. Their acquisition of Retro created an opportunity for us because we did not have the Retro business. We do now.

Operator

So that remains really important. This business has done a very good job in implementing the Genuet business system and seeing some of those results and continues to be focused on sustainability credentials where recycled use has trailed, say water management, but they've made good progress and we think there's quite a bit more that they can do. The modern methods of construction, modular manufacturing, still that's taking a bit of time to really pick up as the commercial market remains a bit challenging, but we are confident that as we see more use of timber in residential homes, that actually allows for more off-site manufacturing much more cost effectively and the ability to drive more value added solutions as skilled labor remains a bit of a scarce commodity are good long term tailwinds. And of course I mentioned earlier the Future Home Standard, our direct to house builder focus on underfloor heating solutions plays right into the SBS portfolio. So talking about GBS, as I have for the last couple of results sessions, I just want to highlight a few examples of results.

Operator

These are teams that spend a week or so really focused on a particular problem. What's important about these isn't the magnitude of either of these two projects I'm going to share, but actually the fact that these are two of 40 Kaizen projects we did during the first half of the year. In this case, we had a bunch of people working in our Broomhouse Lane. Some of you may have been up there to see that site. They were able to improve the operational effectiveness or essentially the utilization of the equipment and the people from 37% to 80%.

Operator

Really impressive by focusing in on reducing the amount of time machines are waiting for products or equipment, making sure that manning is good, reducing setup times. Very impressive results and effectively, that's like getting another machine or two for free without capital spend. Really good results there. The second one is one of our smaller but really great product line. This is the SureStop product line that we integrated into AD a year and a half or so ago.

Operator

They've actually done three or four cousins on that same cell. This one focused on implementing pull or on demand manufacturing. It's a really powerful change that as we start to implement this throughout the business, we'll improve service levels, reduce inventory, and actually make us more able to respond to market demand than any of our competitors. Great result here, about a 55% reduction in finished goods. Yep, not huge numbers in one cell, but picture that across every manufacturing cell we have in the business.

Operator

It's why we remain excited about this. Importantly, pulling something from the next slide, we actually have now about 20% of our people have been through and participated in this. And I can tell you that the palpable energy around the lean operating system and the genuine business system is really building, so we're excited about that. The people side and investing in our workforce is critical because that will always be key. If you think about the war for talent, want to attract, retain, and motivate the best people and allow them to build their careers here.

Operator

So we have over 20% of our colleagues are now in earn and learn programs, accredited earn and learn programs across the business. That's really significant. We've been at the gold status of the 5% club for a couple years now, and we're on track eventually with another year or two to get to the platinum status for the highest level. We're really excited about that. We were able to do more than 50 internal promotions in the half, of which about almost a third of them were female.

Operator

Where we did need to go outside to get skills or improve our bench, we were able to track over 50% of those as new joining female senior leaders. So we continue to find ways to make the workforce more diverse and more empowered, of course. And to that, I already shared the results on GBS, but the link here is really key and that is that there is nothing better to motivate somebody than giving them ways to grow their career and empowering them to make their jobs or their customers' lives and our business better. It is really empowering. So as I turn to the outlook, the first thing I'd just like to say is we definitely expect that our underlying profit will be in line with expectations.

Operator

That's despite an external environment, which we think will remain challenging for the balance of this year. We don't think market volumes will increase this year, but rather we're going to stay focused on making our own way and building our own growth as we have been. As I mentioned earlier, and Tim and I have both been clear, we do expect EBIT margins to increase sequentially, both as a result of GBS across the business, but in particular some of the improvements that we've already made with WMS. We've got great strong operational gearing. We've got about 25% available capacity broadly throughout the business.

Operator

Obviously, we'll have to add labor and materials, but we don't need to really expand capital and we don't need to open any sites or reopen any sites to do that. And of course, remain focused on outperforming the market. So new solutions, lining up to market tailwinds, finding ways to gain share and executing better than anybody else, It's really how we make our success. So that's our presentation. What I'd like to do now is turn over for questions.

Operator

In order to do that, we do have some roving microphones somewhere. Where are the roving microphones? Hold on. Let's find our mics. Here we go.

Operator

Here's one. So like I said, if you don't mind waiting for the microphones, that way we can ensure that the questions are audible on the transcript.

Speaker 2

Thanks. Ainsley Lammen from Investec. I think we've got three actually. Just first an easy one. Just the 6.1% like for like growth, if you could split that between price and volume.

Speaker 2

And second question, just looking at the full year, obviously, in line for the full year and meet the expectations. But just the expectation for margins, you've got four, six months of the kind of National Insurance increases. Are you expecting to book through more price increases? Do you still expect the margin to be down year on year for the full year? And the third one, just maybe a bit more color around new housing or M and I commercial, just what you're seeing in each of those segments.

Operator

Yes. I'll take the first two and then I'll come back to the

Speaker 1

Yes. Yes. So of the 6% increase, you can say approximately onethree of it was price and twothree of it was volume. Importantly, volume is volume we've created. So as Joe said, market volumes we think have been pretty flat and where we've been able to generate that volume that's through product adoption and market share gain.

Speaker 1

When we think about the full year, we're really focused on the EBIT number. Reiterating that we can deliver an EBIT number that's in line with consensus. And we will deliver a margin whilst not quantifying it that's bigger in the second half than is in the first.

Operator

Yes. And then thinking about sort of where we are in the three key segments. So in terms of residential new build, we're seeing broadly the same kind of thing you're seeing from a lot of our customers. Residential should be new build should be up low single digits this year. But I think an earlier start that people were kind of excited about has proven to be just a little bit flatter, but we definitely aren't seeing any declines at this point.

Operator

We'll obviously watch to see what happens there. The real impact there for us will be the increase in penetration solutions for the future home standard, which we'll start to see in 'twenty six and beyond, although we're well teed up for that. In terms of RMI, as I think I mentioned earlier, but RMI is usually driven in the biggest part, certainly as we are looked at it, in terms of large renovation projects. Those remain fairly low right now, a bit tepid as we're waiting for really two things, more interest rate, more visibility around interest rates. Obviously, a quarter point was well received.

Operator

But consumer confidence in general still remains a bit weak. So that's really what would underpin a turnaround in RMI, which we haven't really seen. I should also mention there, the other thing that's linked really more directly to it is existing home transactions. When we see a larger pickup in existing home transactions, usually there's about six month lag there to start to see larger projects kick in. So we'll watch for that.

Operator

The commercial market remains a bit challenging. The biggest issue there isn't demand, it's actually the ability to get projects approved. And so anything over five stories, we're still seeing caught up in the building safety regulator backlog. We were heartened to see some government commitment to put more heads into that and to put more people and bodies into unlocking that, but we all know that will probably take a bit of time. So look, we'll watch those, but as you see, the places where we're growing the business are really back to better solutions for high growth sub segments of the market.

Operator

I hope that helps. Thanks, Aisley. Who's next? We've one over here.

Speaker 3

Thanks. Hi, Rob Chantry, Berenberg. Thanks for the presentation, Hi, So three questions for me. I suppose firstly, just on the M and A pipeline. I suppose you've talked about it for quite a while.

Speaker 3

You've got leverage at 1x. Could you just talk about where you're focused? Is it U. K, Europe, kind of potential size? I mean obviously nothing too specific, but kind of what's the kind of the general thought process around the M and A pipeline at the moment?

Speaker 3

Secondly, in terms of the small acquisitions you've made, obviously, quite interesting thematic areas with pretty subscale, drag on margins. Can you just talk a bit more about any kind of plans to scale and get those margins up, sort of the quantum of revenue increases that you'd have gone out of those businesses post acquisition? And then thirdly, Ampey Water cycle. Clearly, a huge potential area given the kind of quantum of CapEx in the industry. Can just talk a bit about how your experience so far has differed your expectations going in?

Speaker 3

Clearly, there's lots of pools you could play in. You've highlighted storm water management, 100,000,000 addressable market. Are more areas of that size you feel you could be going into really benefit more from that scale of CapEx going in? Thank you very much.

Operator

Okay. I'll you what, I'll start. You can talk about the performance of acquisitions, I'll come back and ambate. Okay. So a little scripting here, right?

Operator

So on the first, in terms of acquisition focus, yes, we've been really clear. It goes back to our initial strategy release where we said we saw significant opportunities to expand the portfolio of solutions we offer. Meaning acquisitions which actually add product capability, add solution capability that we don't have. We said at the time we think that this is most applicable in CMS first and WMS second and that in SBS we will be disciplined and opportunistic there. But if something were to present, we'd certainly look at it.

Operator

So that's sort of the strategic kind of fit. But we're clearly looking for things that actually increase our ability to sell better solutions. In terms of geographic focus, look, we have a great presence and channel here in The UK. We'll continue to look at things in our home markets first, especially in times where perhaps there's a bit more uncertainty in the macro. But we do have a cultivation funnel that reaches into Europe and obviously it might be nice at some point to do something further afield, but we're staying a bit closer until we get more clarity in the market.

Operator

And in terms of our approach, it's really important that we're looking for things that the reason for having such a broad funnel and such an active cultivation process is so we can combine strategic infill and strong discipline, accretive, really good acquisitions. That's not easy to do, but the way to do it is cultivate a significant funnel, including both bilateral and process driven M and A. So we're very active there. And that remains our focus. So if you want to talk a bit about the two we've done?

Speaker 1

Yes. So last year's acquisitions, Omni in the underfloor heating space and Sky Garden in the blue green roof space, small, very good value in terms of the amount of revenue that buys us, but low margin because they're small subscale businesses at the moment. The thing they share in common is that they both have potentially huge markets in the future. So if you look at the underfloor heating market in The UK, certainly much more immature than on the continent. If you look at Europe where underfloor heating is penetrated to a great extent and shows the potential.

Speaker 1

As air source heat pumps are adopted, you need a bigger emitter essentially to heat the home with a lower water temperature, and that's where underfloor heating really comes into its own. The potential here really is the 20,000,000 homes that need to be retrofitted for The UK to hit net zero. So we see strong growth in new house building, but even more market potential in that retrofit segment. And there, we're really focusing on the total solution. So Climate Management Solutions as a business unit can bring together the underfloor heating, water filtration to protect the system and ventilation to really improve efficiency of the system.

Speaker 1

And it's in that solution sale, together with the economies of scale, that we see the profits of that business coming up. And then similarly, Bluegreen Roofs is a really high growth segment. Probably the market is more supportive at the moment compared to on the floor. A CAGR of over 15% is expected, and we're certainly seeing that this year. Again, economies of scale will play a role, but also our ability to vertically integrate.

Speaker 1

So Sky Garden on top of our Permavoid BlueCrate system gives us a vertically integrated system and things like being able to do maintenance contracts longer terms as well gives us a bigger breadth of wallet that we can access as well. So both of them, high growth, potentially huge markets and over time will improve the profitability of those businesses.

Operator

So turning to AMP8. So what we've done is we have actually a dedicated team of people working on this. There's a lot going on right now. So we've been in touch with pretty much every large utility, some of the Tier 1s, engineering, contractors and consultants. As we've understood the space, if you think about sort of the incremental close to 50,000,000,000 over five years, that splits down obviously there will be work to every piece.

Operator

There will be project work, consulting work done. There's a lot of civils work that needs to be done. In that, the way we look at the $100,000,000 plus is the storm water, sort of the plastic based storm water solutions that we currently provide in The U. K. By the way, for scale, that's on the order of $100,000,000 a year in sales in The U.

Operator

K. For storm water and drainage. So depending on the timing of that, an additional $100,000,000 SAM, if we could capture a chunk of that, it's really appreciable growth depending on whether it's spent over, say, three or four years. So that is directly the market we serve today. We do see, to your point, adjacencies that either through some new products that we can develop, which are relatively close to what we do, or through some potential acquisitions that we see, we could find other segments that are certainly of scale as well.

Operator

So it's good progress so far. We're really pleased with what we've seen. We just need to stay with this and give you an update probably in six months. Other questions, who would like to go? Get a mic in front here.

Operator

Yes, there we go.

Speaker 4

It's Charlie Campbell at Stifel. You mentioned that 20% of your employees have been through the Genuet business system, if I heard that correctly. Just wondered how that translates into kind of maybe pounds millions of manufacturing that you've put through that because that seemed a slightly lower number than I might have guessed, I think. And the supplementary is sort of just how should we think about that 20% over the next sort of three, four years? Does that get to kind of 50%?

Speaker 4

Is that the sort of ambition? Just to understand kind of how much more there is to come from the GBS.

Operator

Well, first welcome. Good to see you here. Great questions. So we've been on this journey for about two and a half, almost three years, and yes, with 3,000 plus associates, it takes a bit of time to really get there. And the important thing, I've made this point before, we could have everybody watch a PowerPoint over the next couple of weeks, but that doesn't translate into real benefits and real knowledge.

Operator

So the focus here is on actually getting people into real hands on, often three to five day experiences where they actually improve something and not just learn the techniques. I've been doing this for thirty five years and the way you really embed this in an organization is to get everybody to really get excited and to see with their own hands the improvements they can make. That's why the pace is a bit slower, because it's sustainable. Yes, you definitely will see that improve each year and I'd love to see us get 50% over the next few years. I think it's achievable.

Operator

I can't tell you exactly which year that will be, but that is definitely what we're doing. By the way, should say, both the people who came in from our acquisitions people who came from both our acquisitions last year have already participated as well. In terms of direct pound notes, as you can see, some of these are actually more about service levels or say inventory improvements. So there's a broad range of improvements you can make, but what I will tell you is there's a couple of great characteristics I shared back at the beginning of this journey and that is that companies who have been doing this for a while see year on year operating margin improvements every year and tend to get productivity gains in the range of 3% to 5% year after year after year. It takes a while, as you can see, to get that impacting the whole organization, but that's why great companies that have been on this journey for a while tend to outperform half after half and year after year.

Operator

The other thing you tend to see is really good working capital improvement and performance. We're seeing a bit of that starting to impact the business, but there's more room for improvement there. That, of course, unlocks cash that we can use to do other great things like spend on great new capital equipment and automation, new product development, and of course, good bolt on M and A. So hopefully I answered both your questions there. Yeah, thank you.

Operator

Right next to you, actually. Do want to pass the mic to your right?

Speaker 5

You. Christian York from Deutsche Bank. Three questions. So the first well, first two about margins, really. First one on SBS, just fantastic margin performance there.

Speaker 5

Just trying to understand the drivers of that in a little bit more detail and how it can achieve in such a tough market. The second one on CMS. It sounds like AD ventilation is going quite well, but the margin stepped back a little bit. Is that should we think about underfloor heating in the RMI market as the key driver of that, notwithstanding the National Insurance contributions, etcetera, that you pointed to? And then just finally, on the solution sale to the house builder, when you're selling underfloor or wanting to sell underfloor heating and ventilation, are you going in at the top level and talking about that moving down together?

Speaker 5

Or do the different businesses still just interact separately with the house builders? What's the goal going forward really?

Operator

I think the first two and I'll do a lot.

Speaker 1

Yes. So SBS, our biggest business unit and also probably the most mature in terms of the Genui business system, so adopting those techniques and continually driving productivity. In SBS, the team are very focused on delivering value for our customers. It's a high specification proportion out of total sales, and they work with the end customers to solve problems essentially. So that could be things like helping them deliver their biodiversity targets as well as the plumbing and drainage on a site.

Speaker 1

And that means that we're able to generate good margins from that business. In CMS, we've seen actually underlying margin improvement if you exclude the effect of NII minimum wage. So actually that business continues to improve. Stronger performance as you can deduce in ventilation and in AD with a bit of a drag from underfloor in the short term, as I say, for what is a subscale business, but which can grow margin over time as we grow that business.

Operator

Yes. And in terms of solution selling, so the first focus was in helping the house builders really get ready for the transition to future home standard. And probably the toughest challenge that we've addressed first is around underfloor heating and air source heat pumps and how you make those easier to install. So we've been working at all levels, from engineers and field sites all the way to the boardroom or to the executive suite at some of the larger house builders, including our customers, myself included. And I like to think of it as, first, important thing isn't sort of executive selling, it's executive understanding of the strategic challenges they face.

Operator

And what's really interesting is what was essentially, if you think about underfloor heating as an example, it was really a craft industry before. Some guy, a plumber would show up and lay a bunch of pipe down and hopefully it all goes well and then somebody else shows up and does other bits of it. And there really isn't a system effectiveness, efficiency, speed and quality standards that you'd get. So we've been focused on how to make this easier, reliable, and higher value to the house builders, which often means we've got to bring other people into the decision process than a strict purchasing decision. There's room to further expand that as we think about the interaction between heating and ventilation.

Operator

That's still a future opportunity we see. We've done a bit. We are, in at least two cases, collaborating on both areas, ventilation and underfloor heating. But I think there's still much more opportunity to go there.

Speaker 6

Anyone else? Morning. Sam Cullen.

Operator

We'll come back, don't worry. Sorry.

Speaker 6

It's from Bill Hunt. I've just got a follow-up really on margin. I think gross margin was down 50 bps this half versus the first half last year. Is that the mix impact you've alluded to on the M and A? And then supplementary to that is, is the 44%, 45% gross margin the max we should expect for this business?

Speaker 6

I'm just trying to think about price cost dynamic going forward and when we should think margin improvement is going to come from better overhead recovery. Yes.

Operator

Do you

Speaker 6

want to take those?

Speaker 1

Yes. So gross margins are impacted, if you look on a reported basis, by the M and A, but also then by National Insurance and Minimum Wage, if you look at the underlying as well. We don't tend to think about maximums. Obviously, there's a limit to how much you can grow. But the ethos of the business really under the Genuine Business system is that continuous improvement is normal.

Speaker 1

So we will continue to deliver productivity savings in perpetuity. Sometimes that will flow to the bottom line. Sometimes that will enable us to give value back to the customer, but we're focused on continually improving that.

Operator

Yes, absolutely. Very important. So that's one place you'd look for GBS progress over time, right?

Speaker 6

Okay, I think Tanya?

Speaker 7

Hi there, Tanya from RBC. Can you just talk a bit more about the retro business that you've won?

Operator

I'm sorry, can you speak up just a little

Speaker 7

Can you just talk about the Retro business that you've won with Barrett and the timing of when that might impact and what that looks like?

Operator

Yeah, I can't get too specific on it, but what happened was following the acquisition, of course, of Retro, that was an estate that essentially we didn't have. It was a competitive business. And so we were able to win the extension of essentially our plumbing and product franchise into the Retro estate. So it was really good. You'll start to see that impact as we move through the second half.

Operator

Sorry, could be more specific. There's some implementation work on all sides, right? Yes. But it's good to see.

Speaker 8

Toby Thorrington, Equity Development. Just a couple of quick cash questions, please. Is there any deferred consideration kicking around in the background?

Speaker 1

No.

Speaker 8

No, that's all clean.

Speaker 1

Okay.

Speaker 8

Okay. Thank you. And simply, quite a big increase in CapEx flagged for the second half. I'm not sure whether that's just a timing issue or there's anything specific coming in that we should be aware about. Obviously, capacity is not necessarily an issue.

Speaker 8

Is it new products going in? If you could elaborate on that, please.

Speaker 1

Yes. So sustainable level of CapEx for the business is around 25,000,000 to £35,000,000 We think that will make sure that we maintain the estate in good working order. In recent years, we've invested a bit more because some modernization was needed. And we continue to invest where we've got new products introduction, innovation, sustainable products coming to market and so on and thinking about capacity in spot places where we've got growth. So yes, just phasing from first half to second with £12,500,000 for the first half, but around £30,000,000 we think for the full year.

Speaker 6

Any questions? Am I missing somebody?

Speaker 9

So then we've just got one coming through on the webcast. There's So no one else in the this is from Lush Mahendraja at JPMorgan. A couple of questions. Firstly, on WMS, is there any more you can say on the inventory provision? What was the product line?

Speaker 9

And why take the provision now? On Ampate, already touched on this a little bit, but how do you see the SAM split between concrete and plastic? And how should we expect orders come through? Will it be lots of smaller orders? Or will be providing solutions to larger orders?

Speaker 9

And then just in regards to the market share gains from the competitor that exited the market, how much have you won now? And what kind of margin is this at?

Operator

Okay. I'll take the first

Speaker 6

one, I'll take the second two.

Speaker 1

Yes. So the inventory provision, 900,000 also within WMS. It's one of the slower moving product lines and not one of our big sellers. We've made the stock and unfortunately haven't sold within the time period that our policy requires us to make the provision. So we've written that down.

Speaker 1

We're not expecting to sell that stock, But it is very much a one off, so we don't expect that to repeat.

Operator

The only thing I'd add to that is actually we continue to do business with the customers, just that we've actually won the business in a bit of a different format than perhaps originally expected. Commercially, it's still good. So then the second question was around AMP8 and how that starts to show up, right? So it's early to know for sure, but we're engaging at different levels. So we are looking at projects.

Operator

And I think the ability over time, would say this, the WMS business has shifted from more essentially just selling products through the merchanting channel to already shipping more solutions direct and delivering them more directly. We think this is going to be a continued opportunity to move more in the direction from smaller product sales to larger product and project engagements. It's a bit early to know exactly how that's going to look, but the trend is still in the right direction there. And what was the third question?

Speaker 9

The third question was on the market share gains and the competitor yeah, that sure.

Operator

So the competitor that exited was late last year at the time. We said we wanted to try to aim for getting half of that share. We believe we've actually exceeded that already. So we're really pleased with that. And if anything, think it's come under better business conditions than we initially expected.

Operator

So we're really pleased with that. Okay. Anything else online? Nothing else on the webcast. Anybody else in the room?

Operator

Okay. Unless I'm missing something. Look, thank you all for coming. Much appreciated. Go home and check out the temperature in your flats and houses and let us know if you need some help with cooling.

Operator

But in all seriousness, we're delighted with the work that the team put in to deliver another really strong performance in challenging market. It's about making our own success here. The underlying performance of the business continues to improve And I like the fact that we can take headwinds and turn them into tailwinds in the business. So thank you all for coming, and we'll see you again in a few months. Cheers.

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