Genuit Group plc ($GEN)

Good afternoon, and welcome to the Genuit Group plc investor presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I'd now like to hand you over to Tim Pullen, CFO. Good afternoon, sir.

Good afternoon. Thank you, and thank you all for taking the time to listen to us this afternoon. I'm delighted to present our financial results for 2025. I'm Tim Pullen, I'm the Chief Financial Officer of the group. And with me this afternoon, I've got Lisa Oxnard, who's our Group Financial Controller. So the plan for today is to talk about our financial update that we released to the market last week, talk also around our strategic progress as a group, and then there will be an opportunity for Q&A at the end as well. So 2025 for us as a group really was a resilient financial performance in the context of a market that continues to be challenging for the construction industry. Despite the prolonged downturn, we saw a revenue increase of over 7%, 3% on a like-for-like basis and also increased our profitability by 2.4% to GBP 94.4 million. We also saw an improvement in profitability as a business in the second half versus the first, as expected, and that was after digesting as well additional employment costs and I will come on to explain. We had a strong underlying operating cash generation. We had 102% cash conversion in the year, really focused on keeping this above 90% over the medium term. And as a result of our disciplined M&A, our balance sheet strength and our strong cash generation as well as our confidence in the future, we have awarded a dividend of 12.9p, which itself has increased as well. So a good set of financials that we'll come on to explain, but also some really strong strategic progress as well. So we're really focused on the higher growth segments of the construction industry, such as ventilation and bluegreen roofs, where actually despite the prolonged downturn in some core markets, there are higher growth trajectories available. And we're really trying to tap into the legislative tailwinds such as things like AMP8, which is the CapEx cycle for the water utilities really focused on improving the storm water overflow into streams and lakes, which is well publicized. And for things like mechanical ventilation heat recovery, which really drives the performance of a green energy-efficient heating system. So these things all relate really to structural sustainable drivers, which is really an inherent part of our business. We've also been able to obtain some targeted market share gains, such as that with -- associated with the exit of a competitor from the U.K. drainage market and also winning the Redrow business following the Barratt Redrow combination. We continue to implement what we call GBS, which is our Genuit business system, and this is a lean operating and manufacturing system, which means that we're driving continuous improvement through all of our operations, both on the shop floor and in the back office to really drive efficiency, productivity and working capital improvements. We continue to improve the business every year using that and are really gaining momentum in rolling out that business system to the whole group. And we've also strengthened that group with the addition of 2 key acquisitions in the year. So in September and August this year, we acquired Monodraught and Davidson Holdings. Monodraught is a fantastic ventilation business that really complements our new air business that we already had. And Davidson had 3 group businesses, which fit really well into our SBS business and integration for both is going really well. So those are the key headlines. I'll talk a bit more about some of the strategic progress a bit later on. But first of all, I'd like to invite Lisa to talk through the detail of our financial results.

Thank you, Tim. So moving through some of our financial highlights. You'll see that even though in a subdued market, we have shown growth on a revenue basis being up 7.3% and then on an organic basis, 3.2%. And with EBIT on GBP 94.4 million, we're also up 2.4%, but broadly flat on a like-for-like. And when you look at the margin being down 70 basis points, when we look at some of the headwinds from a cost basis in the year from the National Insurance and National Living Wage, both of these contributed to about the 70% -- sorry, 70 basis points, but we did show growth in the second half of 2025 versus the first half of 2025 on an EBIT margin basis. So really bring us into that kind of 2026 run rate, not too dissimilar from our exit rate of 2024. Our strong cash conversion, we always aim to be north of the 90% mark, and we had cash conversion of 102%. And that strong cash conversion alongside a strong balance sheet gave a progressive dividend of 12.9p which was up 0.4p from prior year. And you'll see our leverage at 1.5x, and that's after we did some strategic bolt-on acquisitions of over GBP 100 million in 2025. And so we're in our range in the middle between the 1x to 2x range. And as we step into then breaking down some of those financial highlights, you'll see our revenue split in the chart on the far right-hand side in the business units that we restructured within 2025, just over 40% of our revenue comes from our SBS, our Sustainable Building Solutions business and then just slightly sub of 30%, both climate management solutions and water management solutions within a final small percent of 1%, which falls into our other. And the pie chart in the center, you'll see our kind of market segment split with just over 10% within our international with 35% from our U.K. new build and then just short of 30% elements within U.K. RMI and our U.K. non-housing, which consists of our commercial infrastructure and public nonhousing segments. Moving into our profit. And whilst we had underlying operating profit, an increase of 2.4%, whilst our margin percentage was slightly down, some of that revenue growth did offset that National Insurance and National Living Wage headwinds that we had. And we also had some contribution from the acquisitions that we did in August 2025 and September 2025. And really, the Genuit business system that pull through where it's contributing lean productivity, efficiency savings also helped offset some of the headwinds, and we continue to drive further pricing and cost actions, and that enabled us to have that second half improvement versus the first half margin within 2025. Breaking into the individual business units that we restructured in within 2025, we had Climate Management Solutions. So our revenue growth of 10.7% on a reported basis and 5.9% on a like-for-like basis. We had strong growth within the ventilation segment of Climate Management Solutions and particularly over 10% growth within that ventilation was where we've managed to combine our MVHR offering with cooling modules within nonresidential, particularly multi-story residential. And we've also had strong resilience within our water filtration business of Adey with some softness in our underfloor heating businesses. But again, a growth for a future path where we can -- we're exposed to the RMI market at the moment, but ultimately in the future, see strong growth within underfloor for heating. Our underlying operating margin of 130 basis points lower than 2025 was really impacted by the underfloor heating volumes, but our integration of Monodraught is on track, and our margin will be accretive to the group on the longer term to our midterm -- medium-term target of 20%. Our Water Management Solutions business unit. So we had revenue of 5.3% reported and then 0.5% growth on a like-for-like basis with resilient performance within our Civils business and growth shown within our stormwater attenuation and blue-green roofs. And while profit was overall down, we did at the half year announce we had a slow-moving inventory provision reported. And we also had the impact of the National Insurance and National Living Wage increase. And within Water Management Solutions, this has been slightly harder to pass on some of those increases whilst the volumes have been lower. But as we scale, we have the opportunity to continue to grow margin within the WMS business. And we saw from H2 in 2025 versus H1 2025, again, some incremental margin around some of the work that we've done on simplification in our Genuit business system. And our final business unit, which is our largest, so Sustainable Building Solutions, our revenue is 6.5% higher and 3.3% on a like-for-like basis. As Tim talked to you, we had some market share gains from an exit of a competitor within the U.K., which was about a win of about GBP 20 million annual revenue. Our growth in the commercial markets was offset with some of the subdued market volumes that we have seen in RMI, particularly in the second half of 2025 and the run-up to the U.K. government budget. We have strong underlying operating margin performance within our Sustainable Building Solutions business. And the integration of Davidson Group is still on track and will be margin accretive to the group, again, coming in line with EBIT of over 20%, which is in line with our medium-term targets. And just moving into how we will be structured in 2026 onwards. We've taken a look at the organization and particularly when we look at 2 of the revenue kind of market streams, we've reorganized into what will be a Climate division and what will be the Water division. So on this slide, you can see the split of some of our brands into those segments and then also the revenue for each of the divisions and also the return on sales for each of the divisions. So if I start with Climate on the left-hand side, the Climate division for 2025, excluding the acquisitions, had revenue of GBP 172 million and a 13.6% ROS, and that subset is into ventilation and also heating. So 55% of the Climate division is based on ventilation. You can see from a growth rate perspective, the green box indicating that it is a strong growth area for the market versus the heating, you'll see in the orange range. But overall, the cross-selling or the interoperable solutions between ventilation and heating is really where we see some of the future growth coming within our Climate division, and that will be strong growth for the group in the future. And then on the right-hand side, you see the Water division at GBP 413 million revenue and 16.7% ROS. The Civils and Infrastructure element within the Water division at 25% circa of the revenue. This is particularly where we'll see things like the AMP8 elements coming through into that business versus our more traditional kind of residential and commercial structure. And you'll see the growth, the EBIT margin color on the bottom right-hand side for residential commercial being particularly strong with the green margin box. And just moving through a couple of other elements of our financial highlights. So talking to cash flow. As we said, we had strong cash conversion at 102% with always a target of north of 90% cash conversion. And really, we've been working through our working capital improvement, particularly using our Genuit business system, driving that improvement, particularly in inventory and debtors. And you'll see here our net debt of the GBP 208 million and the cash flow is post our acquisitions that we did of over GBP 100 million during the year of 2025, but our strong cash flow essentially enabling that funding of the dividend payment. And finally, on capital allocation, we'll continue to invest in the business with circa GBP 30 million of capital expenditure in 2025. Obviously, the acquisitions that we have done as we continue to look at disciplined M&A for 2026 and onwards. And that strong balance sheet we have provides that optionality for future bolt-on acquisitions and our progressive dividend policy, delivering that shareholder value. And I'll hand back to Tim to talk through our strategic progress.

That's great. Thank you, Lisa. So I thought I'd start with our purpose for those not familiar with it, and that is that together, we create sustainable living. And this really runs true through the whole business because everything that we do tends to either be a mitigation or an adaptation as far as climate change is concerned. And so really, we are helping to decarbonize the built environment and create the sustainable living whilst tackling things like the structural housing shortage and the need for better infrastructure. Our strategy is really based around 4 key pillars associated with this. And so we're focused on growth, both organic and inorganic. We're focused on sustainability, which really runs true through the whole company, and that's both providing our customers with lower carbon products so that we can decarbonize the built environment, along with more efficient systems to go into buildings, but also to help the world adapt to the effects of climate change, such as hotter summers and more volatility really in rainfall. So bigger rainfall events followed by droughts. We're deploying the Genuit business system that I talked briefly about before. So this is our lean manufacturing, our lean operating system, and this is as much about cultural change as it is around process and this is focusing our group on being able to improve businesses that are already in the group and further businesses that we bring into the group through M&A through continuous improvement. And then fourthly, people and culture is really important to us. So making sure that we have the best access to talent within the industry, really focusing on the development of our people, the diversity of our people and creating a culture in which people want to come and work. So that's our strategy. To break that down a little bit more, let's talk about growth and how we generate that, obviously, in the context of a market that has proved continually challenging over the past few years for construction as a whole. And we're really focusing on areas that have particular exposure to sustainability drivers, and that's creating structural growth trends for us, which are evident now, but we think will grow in momentum in the future as well. And so those are end markets that are not necessarily associated with GDP. So it could be the CapEx cycles like AMP8. It could be regulatory drivers such as the future home standard, it could be government initiatives such as the warm homes plan. It could be sector-specific. So in the case of schools, the schools rebuilding program and some of the legislation around air quality and schools. So there are lots of aspects that we're exposed to that we can focus on to get growth even in a soft market. The regulatory environment is supporting that. Some of this legislation is a bit later than we might have hoped. The future home standard for those familiar, has been delayed a few times. But what I would say is that the direction of travel is really set. So whilst it might come in a bit later than we would like, people know that it's coming, and we're not expecting the elements which affect our business to be watered down. And that really drives the adoption of air source heat pumps. And whilst we don't make air source heat pumps ourselves, we do then make everything that goes around it from underfloor heating to plumbing, to drainage to efficient ventilation systems and so on. And that will really drive our share of wallet when we think around the construction of future homes. But it's not just about new homes, it's also around existing homes as well. And for the U.K. to hit its net zero target, we do need to decarbonize the 20 million existing homes out there. And the warm homes plan from the government is a really great start on that, GBP 15 billion of funding to transform 5 million homes and bring 1 million homes out of fuel poverty. So a really important initiative. into which we can really play. And then we'll also drive inorganic growth. So we've shown in the businesses that we bought, the 3 businesses of Davidson, Talon, Salamander Pumps, Cistermiser & Keraflo and also the ventilation business, Monodraught, that we can complement our portfolio with additional products that give us more strategic capability, but also address the same themes of sustainability. So if we look at the Climate division as we'll think about it going forward in our 2 division structure that Lisa set out, Climate growth really is going to come from that adoption of air source heat pumps, the electrification of the built environment essentially, but also the need for clean and healthy air. And when you think about modern buildings, high levels of insulation, so well sealed, but also often high amounts of glass as well. So think about tall apartment blocks with very glass fronted. In the summer, those can get pretty hot. And we can provide really efficient mechanical ventilation heat recovery systems with a cooling module. It's not air conditioning. It's much more efficient than that. And that can really create efficiency in the whole system to make sure that you're heating and cooling homes on a really efficient basis. We also see the trend towards fitting more ventilation to fix damp and mold problems. Many of you will be aware of the tragic case of the Ahmed Awaab on which the law is named which really is about addressing damp and mold problems in the rented sector, be it in social housing or in the private rented sector to come as well. And some of these problems can actually be fixed relatively easily with ventilation solutions. And so we're seeing drivers in that space as well to ventilate those types of homes better. In Water, our other division, we see other drivers really in this space. So here, we're seeing that you're getting more intense rainfall, prolonged rainfall and periods of drought. And that means that our infrastructure needs to adapt, our built environment needs to adapt essentially. So we need bigger storm water attenuation systems with more capacity, better designed. And in doing so, what we'll do is we'll start to solve the problem of brown rivers and streams, which has been well publicized and has been challenging for the water utilities. And that problem is there essentially because we have combined sewage overflows. So storm water gets into the combined storm water and sewage system. If it's inundated because perhaps it's a Victorian system or just because of increases in population, then that can cause overflow into lakes, river, streams, beaches and so on. So there's a big cycle now to do something about that. The AMP8 water cycle is the latest CapEx cycle. These run in 5-year periods, but we think that 9 and 10 will also need to address the same problem because it's a multiyear cycle. And we see a big opportunity here, at least GBP 100 million over the next couple of years for putting these types of solutions in. And we're also decarbonizing what we do. So we lead the industry really on recycling. Over 50% of our polymers are recycled as a business, which is leading in terms of pipe businesses across Europe. And that means that we can offer our customers the most energy-efficient, fuel-efficient and carbon -- less carbon-intensive solutions to be able to decarbonize themselves. And so as many of our customers themselves are listed businesses with net zero commitments and so on, we're able to help them achieve those aims. So I talked a bit about sustainability. It's genuinely really important to us. It's also important to us to decarbonize what we do as a business as well as offering those solutions to our business. And so you'll see that we've signed up to a net zero commitment and SBTIs. We've made good progress on those in the year. We continue to reduce our Scopes 1, 2 and 3 carbon intensity. So great work by the team there. And we continue, as I say, to lead in recycling with over 50% of recycled material used in 2025. The Genuit Business System is really gathering momentum now. I'd like to think about it as a snowball effectively. You start off small, you get a few people involved. They learn how to use the tools and techniques and they start to share that experience and the snowball grows. In 2025, we delivered 75 Kaizen events, which was almost a fourfold increase on the year before. And we also launched more tools, specifically focused on the growth side of the business. And over 90% of our leadership team participated in the Kaizen event. So you can see this snowball beginning to grow. And this is about continuous improvement, small gains in a lot of places to drive the productivity and efficiency of the business. And then last but not least, people. We continue to invest in our people. We're really proud that we're a member of the 5% Club, which is about the percentage of people in formal learning programs. Actually, we have close to 20% of our people in formal learning programs. And that's a real important thing for us to invest back in our workforce and get more from them over time as well. And we're really driving diversity within the construction industry and proud that a number of our colleagues in the business and particularly those being promoted were female in the year. So that's an update on our strategy. Turning to the outlook for the business for 2026. We saw that in the final quarter of 2025, market conditions were soft, and that was really associated with the lead up to the government budget and the uncertainty around that. And so we expected that to continue into January and February, which seasonally are lower months for the construction industry. And certainly, we saw that. And prolonged wet weather in January and February. For those of you in the U.K., you'll be very familiar with this, will have impacted things as well. It's just the fact that site activity tends to be a bit lower when it's raining. But we balance that with some positivity that in certain parts of our business, we did see some promising order intake, particularly on those more structural growth aspects that I talked about in the commercial sector. We wait to see a bit more on RMI and new house building. Now we have to reflect the current situation that's evolving in the Middle East. Our primary thought is with our team out there. We have about 30 people in the Middle East and about 3.5% of our revenues came from that region in 2025. Our priority is to keep those people safe in the short term, and I'm glad to say that they currently are. So our thoughts are with them. In terms of the broader impact on our business, it's a bit too early to say at this stage. We're managing the situation. We're dealing with our polymer suppliers. We're dealing with our customers, and we'll adjust as we need to if this is a more prolonged situation rather than a shorter one. Regardless of what's going on in the world, though, we're really focused on controlling the controllables, focusing on the aspects of the market, which are more likely to see structural growth, those higher growth segments, and we think that we can continue to outperform the market in any condition because of that. And we'll continue to strengthen the business with the Genuit Business System and that continuous improvement. So we're still really confident in achieving our medium-term targets, which is to outperform the general construction market by 2% to 4% and also to drive margins of over 20% at the operating margin level. So just one final slide before we go to Q&A. I thought I'd highlight here our investment case for attendees on this presentation. Here, you can see our targets for the medium term, the market outperformance and the operating margin target that I've talked about. You can see our sustainability credentials and that we're committed to driving down our own carbon footprint as well as providing good solutions to our customers to enable them to do the same. We do have leading positions across quite a broad range of heating, ventilation and water technologies, and we aim to have -- maintain a high market share in those markets. We aim to drive a strong return on invested capital through our business performance and the performance of our M&A as well. And maintaining really efficient operations is not just about the shop floor and the efficiency of production, it's also around working capital. So continue to drive that and maintaining that over 90% cash conversion so that we can continue to reinvest in capital and also in M&A. So that's our investment case. And that concludes our presentation. So I'd like at that point to turn to Q&A.

Fantastic. Tim and Lisa, thank you indeed for updating investors today. [Operator Instructions] Just a quick reminder, a recording of today's presentation will be available on the Investor Meet Company platform shortly after this meeting has ended. Tim and Lisa, as you can see, we had several questions during today's presentation. If I could just ask you to read out the question where appropriate to do so, give your response, and I'll pick up from you at the end.

Yes. Tim, we've got a question. So what criteria do you use for bolt-on acquisitions? And how do you ensure they deliver shareholder value rather than just revenue growth?

Great question. So this is something we're really focused on. We've done quite a strategic piece of work to identify a pipeline of acquisitions. And the good news is there's a list of at least 50, 60 companies that are interesting to us, both in the U.K. and in Northern Europe as well that have a product that would fit into our portfolio well. And in the case of international acquisitions have some form of market access, which is interesting from a synergy perspective as well. So we don't have a shortage to look at. But when we're appraising those, really, we're looking for good businesses. We're not looking for turnarounds. So they will often be profitable, cash-generative businesses. Monodraught and Davidson are both examples of that. Actually, those 2 were both accretive to our group margin in year 1. And the Davidson business, when we've removed the corporate overhead that they had, will actually be at our group margin target of 20% in 2026, which is great. Now we can go and buy something that's lower than our group margin target. That's fine as long as we've got a business case to improve it, and we can do that in several ways. It could be sales synergies such as we saw in Monodraught, where we see really strong synergy between Monodraught and our new air business. It could be operational synergies such as some of the retrospective integrations we've done of previous acquisitions in recent years. And it could also be about market access, so particularly in the case of international business. So as long as we can see a way -- and I should say with GBS as well, we can deploy that anywhere. So the ability to improve businesses through lean methodologies. So lots of ways we can do it. And as long as we see a business case to get to that over 20% and to contribute to that over 20% ROIC target as well, then we'll make an acquisition on that basis.

And then final question, how confident are you in rebuilding margins overall? And what actions are left in Water Management to build that segment?

Yes. So margins did improve from half 2 versus half 1, and we'll continue to focus on that. As a group, we are committed to getting to that over 20% margin target. SBS, talking about old business unit structure was already there. The other 2 business units on an improvement journey and this business has spotted water management solutions had the furthest distance to go. We won't repeat the inventory provision that we had in the first half of last year, which will give us a bit of an improvement in the first half of this year year-on-year. But importantly, we've also taken certain margin improvement actions. So that included a price increase in July, some operational cost actions, including the integration of our Keytec installation business into our Civils business and also the acceleration of some Genuit business system projects as well. So that was behind the improvement of margin in half 2 versus half 1, and we'll continue to see the annualization benefits of that. We think we can get the water business to over 10% through our own action. And then there's a target of getting to over 15% for that part of the business, which is then associated with volume. And when we think about the AMP8 business, that GBP 100 million of addressable market for us, if we can increase our business by GBP 10 million, GBP 15 million, even GBP 20 million a year, that will give us much more operating leverage essentially to get to that kind of margin level. So we definitely see line of sight to continue to improve the margins.

And another question has just come in. So sales cycle and process and visibility of revenues, how should we look at these in line with achieving your targets?

Yes. So we do a lot of business as a group through the merchant channels. So they play an important role for us because they provide a national stocking of our products. So a lot of our piping products, ventilation products, our filtration products will be sold through the merchant channels. We also do work with some end customers as well. So we work with a number of the large housebuilders to get specified into their designs. And we do something similar now with the water utilities thinking about AMP8, so working with the end customer to really build solutions that will meet their problems. As well as the merchant channel, we also bid for project activity. So we do drainage down the side of highways or HS2 or nuclear power sites. And we also bid for commercial buildings. So we have a level of kind of RFP and bidding activity. And then we have a small amount of solution type business, our new heat business, looking at underfloor heating solutions, sells to homeowners, architects, small builders and so on in that space. So a variety of business models. But really, we don't have too much concentration. So a good amount of spread and a good amount of exposure to different markets. So about 1/3 in new house building, about 1/3 in the RMI market, about 1/3 in nonhousing, so including commercial and infrastructure. And as Lisa pointed out in those pie charts, about 10% or 11% international, which is something that we would like to grow and diversify to more like 20% over the medium term.

And that concludes all of our questions. I think, Tim.

Fantastic. Thank you very much indeed to you both for updating investors today. Just before we ask investors for their feedback, which is particularly important to you and the team, Tim, I might just ask you for a few closing comments, please?

Of course. So this is the first one of these that we've done. So I'm delighted to have this opportunity to speak to everybody today. Really keen to get your feedback as to whether this was useful so that we can factor that into how we think about future events. But certainly, looking back on 2025, we're pleased with the performance, resilient, we think, in the face of a continued challenging market, but we're really focused, as I say, on where we can grow, continue to outperform the market and continue to improve the business to drive our profitability and drive shareholder value as well. Thank you.

Fantastic. Tim, Lisa, thanks indeed for updating investors today. Can I please ask investors not to close this session, you should be automatically redirected to provide your feedback to help the company better understand your views and expectations. On behalf of the management team of Genuit Group plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.