Genuit Group plc (GB00BKRC5K31.SG) Earnings Call Transcript & Summary

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. So with that, I want to welcome you to Genuit Group's first half '25 results. I'm delighted to be here. Joe Vorih, 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. 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. 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 an 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 can -- 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 Genuit presentation if we didn't focus on some of those really good structural U.K. 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. Tim, over to you.

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. As Joe talked about, both revenue, top line and our profit has increased year-on-year for the first half. So revenue up at GBP 297.8 million, up 9.3%. And our EBIT performance, that's up 2.3% at GBP 44.6 million 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. 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 raised 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 1x -- 1 turn, and that really gives us that strategic optionality for disciplined bolt-on M&A opportunities that we continue to prosecute. So the highlights, let's look at the P&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 2 acquisitions that we made last year. So a strong organic performance there. And 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. So as they grow and scale those businesses, we'll increase the profitability. The other half is due to the National Insurance and Minimum Wage increases and also a provision of about GBP 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 Genuit portfolio. We've got good coverage here across our 3 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 builds, RMI and nonhousing, including commercial and civil projects. We've still around 10% of our business coming from international revenues. 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 MVHR, Mechanical Ventilation Heat Recovery, units into multistory residential, particularly where the attach of cooling modules as well, which Joe will talk a bit more about, which is a really exciting development for us. Adey, 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. That does negatively affect our underfloor heating business, but overall, we see growth from the portfolio and 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 Genuit 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 in stormwater attenuation. So demand for those underground systems for channeling storm water. 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 blue-green 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. Our margin here is impacted by National Insurance and Minimum Wage also by that provision of GBP 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. And also, we're very confident in the medium-term prospects for this business, given the emergence of the AMP8 water cycle and the continued demand for these kind of storm water attenuation systems. And Joe will talk a bit more about that in the strategic update. And the 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 house building. 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. So we've 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 Genuit 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. 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 impact really from our underlying items on a net basis overall. We will be incurring a bit more exceptional costs 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 and that will mean we continue to improve our margins and continue to improve the operating leverage of the business. So cash flow, GBP 38.7 million 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 GBP 12 million. And for the full year, we expect that to be in the region of GBP 30 million of CapEx there. Our capital allocation policy really continues to support our strategy. So we have that strong balance sheet. Our progressive dividend policy will return value to shareholders, but we have that optionality for disciplined bolt-on M&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.

Thanks, Tim. All right. So let's get into it. So you recall that coming up on 3 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 4 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, selected, disciplined, strategic M&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 Omnie as we go forward. 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 Genuit 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 dictate its 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. 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 is clearly good fortunes for everybody in the sector. However, it's become clear that storm water management will be a critical piece of this. We've done additional work with consultants, Tier 1 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 GBP 100 million over the next 5-year cycle. 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 storm water management solutions. So that will primarily drive an uptick in revenue growth in solutions sales in 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 1- to 2-year transition period, at which point, we will be building homes in the U.K. 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. This is, you recall the opportunity for us to sell into the same house about 3x to 5x more value. So essentially driving a deeper solutions out 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 Awaab's Law. Awaab's Law is coming out. It actually is out, but it takes effect later this year. 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 and 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 in ventilation in the U.K., 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, right? 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 U.K., not just in flats, but also in pitched roof housing. As the climate warms, we're starting to see much more demand for cooling solutions. Now most of the year in the U.K., we don't need a lot of cooling or air conditioning. So 3 years ago -- coming up in 3 years ago, we introduced the best -- first to market and best MVHR 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 Genuit Group. We acquired Omnie, brought that in, and we've been consolidating and improving our offering in underfloor heating. Look, the market for RMI-driven underfloor heating is still a bit down as consumer confidence is low because RMI is 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. Of course, we've also put in more work with the Genuit 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 Awaab'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 Omnie. I should mention, as I've said before, as we think about deploying the balance sheet with disciplined strategic M&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 Genuit. If I turn to Water Management, directly, we still remain very confident that this is an excellent business for Genuit to be in, albeit it isn't meeting our targets yet. We set a target 2.5 years ago to get this business to 15% plus margin. We absolutely remain confident we'll do that. As 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 too 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. 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 U.K. 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. Essentially, we're in year 1 of that now, right, where the projects are getting identified and the solutions are out there. We've been working with water companies, 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 '26 and into '27. But again, that's one of the biggest drivers. It will probably be the biggest driver we've seen in decades in storm water management in the U.K. And we're well positioned because we've 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 Genuit Business System journey, and they've actually picked up and made significant progress there. 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 sort of plumbing and drainage business. But we've been able to make 2 key gains. 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 Barratt's long time been a big customer of ours. Their acquisition of Redrow created an opportunity for us because we did not have the Redrow business. We do now. So that remains really important. This business has done a very good job in implementing the Genuit 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 housebuilder focus on underfloor heating solutions plays right into the SBS portfolio. So talking about GBS, as I have for the last a couple of results sessions, I just want to highlight a few examples of kaizen results. So 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 want to share. But actually, the fact that these are 2 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%, 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 2 for free without capital spend. Really good results there. And the second one is one of our smaller but really great product line. This is the Surestop product line that we integrated into Adey 1.5 years or so ago. They've actually done 3 or 4 kaizens on that same cell. This one focused on implementing polar 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. Yes, not huge numbers in one cell, but picture that across every manufacturing cell we have in the business. 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 Genuit 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, right? We want to attract, retain and motivate the best people and allow them to build their careers here. So we have over 20% of our colleagues 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 of years now, and we're on track eventually with another year or 2 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 1/3 of them were female. And where we did need to go outside to get skills or improve our bench, we're 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 operating profit will be in line with expectations. 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, 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. 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, right? 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. 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, here's one. So like I said, if you don't mind waiting for the microphones that we can ensure that the questions are audible on the transcript.

Aynsley Lammin from Investec. I think I have got 3 actually. Just first, an easy one. Just 6.1% like-for-like growth, if you could split that between price and volume? And second question, just looking at the full year, obviously, in line for full year and meet the expectations. But just the expectation for margins, you've got 4, 6 months of the kind of National Insurance increases. Are you expecting to put 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 RMI commercial just what you're seeing in each of those segments.

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

Yes. So of the 6% increase, you can say approximately 1/3 of it was price and 2/3 of it was volume. Importantly, that volume is volume we 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. When you think about the full year, we're really focused on the EBIT number. We're 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 it's in the first.

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 new builds 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. We'll obviously watch and see what happens there. The real impact there for us will be the increase in penetration of solutions for the Future Home Standard, which we'll start to see in '26 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 visibility around interest rates. Obviously, a quarter point was well received. 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 a 6-month lag there to start to see larger projects kick in. So we'll watch for that. The commercial market remains a bit challenging, right? The biggest issue there isn't demand. It's actually the ability to get projects approved. And so anything over 5 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 subsegments of the market. I hope that helps. Thanks, Aynsley. Who's next? We got one over here.

Rob Chantry, Berenberg. Three questions for me. I suppose firstly, just on the M&A pipeline, I suppose you've talked about it for quite a while. You've got leverage at 1x. Could you 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&A pipeline at the moment? Secondly, in terms of the small acquisitions you've made, obviously, quite interesting. Thematic areas were pretty subscale drag on margins. Can you just talk a bit more about any kind of plans to scale and get those margins up the sort of quantum of revenue increases that you'd have got out of those businesses post acquisition? And then thirdly, AMP8 water cycle. Clearly, a huge potential area, given that the kind of quantum of CapEx in the industry. Can you just talk a bit about how your experience so far has differed to your expectations going in? Clearly, there's lots of pools you could play in. You've highlighted storm water management GBP 100 million addressable market. Are there more areas of that size you feel you could be going into really benefit more from that scale of CapEx going in?

Okay. Tim, I'll start. You can talk about the performance of acquisitions. I'll come back on AMP8. So a little scripting here, right. 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 would be disciplined and opportunistic there. But if something were to present, we'd certainly look at it. 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 in channel here in the U.K. 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. And in terms of our approach, it's really important that we're looking for things that -- and the reason for having such a broad funnel and such an active cultivation process. And so we can combine strategic and strong disciplined, accretive, really good acquisitions. That's not easy to do, but the way to do it is to cultivate a significant funnel, including both bilateral and process-driven M&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.

Yes. So last year's acquisitions, Omnie 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 U.K., certainly much more immature than on the continent. If you look at Europe, where underfloor heating is penetrated to a great extent, it shows the potential. 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 million homes that need to be retrofitted for the U.K. to hit net zero. So we see strong growth in housebuilding, 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 the efficiency of the system. And it's in that solution sale, together with the economies of scale that we see the profit of that business coming up. And then similarly, blue-green roofs is a really high-growth segment. Probably the market is more supportive at the moment compared to underfloor. CAGR of over 15% is expected, and we're certainly seeing that this year. Again, the economies of scale will play a role, but also our ability to vertically integrate. So Sky Garden on top of our Permavoid, blue-green 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.

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 GBP 50 billion over 5 years, right, that splits down. Obviously, there will be work sort of to every piece, right? There will be project work, consulting work done. There's a lot of sort of civil work that needs to be done. In that, the way we look at the GBP 100 million 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 GBP 100 million a year in sales in the U.K. for storm water and drainage. So depending on the timing of that, an additional GBP 100 million SAM, if we could capture a chunk of that, it's really appreciable growth depending on whether it's spent over, say, 3 or 4 years, right? So that is directly with 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. 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 6 months. Other questions? Who would like to go? Get a mic in front here, yes. There you go.

Charlie Campbell at Stifel. You mentioned that 20% of your employees have been through the Genuit 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 sort of just how should we think about that 20% over the next sort of 3, 4 years? Does that get to kind of 50%? Is that the sort of ambition just to understand kind of how much more there is to come from GBS?

Well, first of all, welcome. Good to see you here. Great questions. So we've been on this journey for about 2.5, almost 3 years. And yes, with 3,000-plus associates, right, it takes a bit of time to really get there. And the important thing, and I made this point before, we could have everybody watch a PowerPoint over the next couple of weeks, right, but that doesn't translate into real benefits and real knowledge, right? So the focus here is on actually getting people into real hands-on often 3- to 5-day experiences would actually improve something and not just learn the techniques. I've been doing this for 35 years. And the way you really embed this in an organization is to get everybody to really get excited into seeing with their own hands the improvements they can make. That's why the pace is a bit slower because it's sustainable, right? So yes, you definitely will see that improve each year. And I'd love to see us get to 50% over the next few years. I think it's achievable, right? I mean I can't tell you exactly which year that will be. But that is definitely what we're doing. And by the way, I 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. So 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 done this journey for a while, tend to outperform half after half and year after year. The other thing you tend to see is really good working capital improvement and performance, right? We're seeing a bit of that starting to impact the business, but there's more room for improvement there. And 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&A. So hopefully I answered both your questions there. Thank you. Right next to you, actually. Do you want to pass the mic to your right?

Christen Hjorth from Deutsche Bank. Three questions. Well, first about margins really. First one on SBS. Just fantastic margin performance there. 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 Adey ventilations going quite well, but the margins stepped back a little bit. Should we think about underfloor heating in the RMI market as the key driver of that, notwithstanding the National Insurance contributions, et cetera, that you pointed to? And then just finally, on the solution sale to the housebuilder, when you're selling underfloor -- wanted to sell underfloor heating and ventilation, are you going in at the top level and talking about that moving down together? Or different businesses still just interact separately with the housebuilders? And what is the goal going forward?

Okay. Pick the first two and I'll do last.

Yes. So SBS, our biggest business unit and also probably the most mature in terms of the Genuit 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 of our 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. 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 NI, Minimum Wage. So actually, that business continues to improve. Stronger performance as you can deduce in ventilation and in Adey with 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.

And in terms of solution selling, so the first focus was in helping the housebuilders 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, now you make those easier to install. So we've been working at all levels. I mean, from engineers and field sites all the way to the boardroom, 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, the important thing isn't sort of executive selling. It's executive understanding of the strategic challenges they face. 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 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 housebuilders, which often means we've got to bring other people into the decision process, and then a strict purchasing decision. There's room to further expand that as we think about the interaction between heating and ventilation. That's still a future opportunity we see. We've done a bit. We are in at least 2 cases, collaborating on both areas of ventilation and underfloor heating, but I think there's still much more opportunity to go there. Okay. Anyone else?

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

Do you want to take this?