Genuit Group plc

Audited results for the year ended 31 December 2023

Strong strategic progress despite a challenging market backdrop

 

Genuit Group plc ("Genuit", the "Company" or the "Group"), the UK's largest provider of sustainable water, climate and ventilation solutions for the built environment, today announces its audited results for the year ended 31 December 2023.

 

Financial Results

 

Statutory Measures	2023	2022	Change %
Revenue (£m)	586.5	622.2	(5.7)
Operating profit (£m)	62.0	53.4	16.1
Profit before tax (£m)	48.4	45.4	6.6
Earnings per share (basic - pence)	15.5	14.7	5.4
Cash generated from operations (£m)	109.7	93.9	16.8
Dividend per share (pence)	12.4	12.3	0.8
Alternative Performance Measures1	2023	2022	Change %
Underlying operating profit (£m)	94.1	98.2	(4.2)
Underlying operations cash conversion (%)	87.7	57.4	3030 bps
Underlying operating margin (%)	16.0	15.8	20 bps
Underlying profit before tax (£m)	80.5	90.6	(11.1)
Underlying earnings per share (basic - pence)	25.2	30.8	(18.2)
Leverage (times pro-forma EBITDA) 2	1.1	1.2	-

^{1 Alternative performance measures (APMs) are used by the Group to assess the underlying performance of the business. A definition of all the APMs is set out in note 1 on page 23.}

^{2.Pro-forma EBITDA is reconciled in note 13 on page 35.}

 

Joe Vorih, Chief Executive Officer, said:

"2023 was a year of significant strategic progress for the Genuit Group in the context of a challenging market backdrop. The actions we have taken to simplify the business and deploy the Genuit Business System have enabled us to deliver an improved profit margin and strong cash conversion, despite the headwinds. Based on our strengthened balance sheet and confidence in our medium-term strategy, we are pleased to be increasing our full year dividend. These results are a credit to the whole Genuit team, and I'd like to thank all my colleagues for their contribution.

We have started 2024 in line with our expectations, in the context of continuing market headwinds. Our ongoing operational and commercial progress put us in a strong position to benefit from eventual market normalisation and, looking further ahead, we remain confident in our ability to capitalise on the structural, sustainability-linked growth drivers of our markets."

 

 

 

Financial Highlights

·      Underlying operating margin up 20 basis points to 16.0%, despite a full year market-driven revenue reduction of 5.7%, demonstrating continued progress towards the Group's medium-term operating margin target of >20%.

·      A full year volume reduction of 12.4% was partially offset by new product launches, balanced price and cost management and business simplification projects, resulting in a 4.2% year-on-year reduction in underlying operating profit.

·      £15m of annualised cost savings underpinned across 2022 and 2023, partially offsetting inflationary headwinds and market-driven volume softness.

·      Reported operating profit of £62.0m (2022: £53.4m) increased 16.1% year-on-year. On an underlying basis, operating profit was £94.1m (2022: £98.2m).

·      Strong underlying operating cash generation of £82.5m (87.7% cash conversion), with net debt reduced from 1.2 times to 1.1 times underlying pro-forma EBITDA, in line with expectations.

·      Underlying EPS decreased to 25.2p, predominantly as a result of increased tax and interest costs.

·      New progressive dividend policy: total dividend per share for the year of 12.4p (2022: 12.3p), reflecting strength of the balance sheet and confidence in execution of strategy.

 

Strategic and operational highlights:

Growth - Focusing on higher- growth, sustainability-driven markets, via organic growth and disciplined M&A opportunities.

 

o  Sustainable Building Solutions (SBS) revenue declined by 14.1%, while underlying operating profit margin improved, driven by business simplification projects.

§ Launched PolyPlumb Enhanced plastic plumbing range following multi million-pound investment programme. This is a key part of growing our market share in the RMI segment and features patented installation benefits.

 

o  Water Management Solutions (WMS) revenue declined 1.2%, but with a stronger second half performance and business simplification projects driving an improvement in operating profit margin.

§ Launched SubTerra CT driving growth in fibre network rollout.

§ Continued growth in Permavoid, with UK showing significant uptake in green urbanisation solutions, addressing the twin issues of stormwater water attenuation and providing better urban spaces.

 

o  Climate Management Solutions (CMS) revenue grew 4.6% with strong residential ventilation growth offsetting continued weakness in the boiler market. Underlying operating margin was lower on a full year basis but has improved in H2 versus H1.

§ Launched Nu-Deck underfloor heating range targeting the RMI segment to promote UFH and heat pump adoption outside of new build.

§ Drove further growth and specifications for MVHR with integral cooling module, addressing the need for combining low carbon heating and cooling, along with providing fresh healthy air.

 

o  Across the Group international revenue increased by 9.8%, representing 11.5% of revenue in the year (2022: 9.9%).

 

Sustainability - Continually improving the sustainability of our operation to be the lowest-carbon choice for our customers.

·      Progress on SBT's and Pathway to Net-Zero by 2050. Absolute carbon reduced by 33% vs prior year.

·      Scopes 1 & 2 Carbon intensity remained consistent despite challenge of lower volumes.

·      Recyclate use c. 50% with projects to further increase in 2024.

·      Retained The 5% Club silver status with pathway to gold.

 

Genuit Business System - Creating value through lean transformation and operational excellence.

·      Undertook 'lean lighthouse' projects across Adey and Polypipe Building Products and commenced a further project in Horncastle in 2024 to drive efficiencies.

·      Lean tools and Kaizen methodologies being deployed on a multi-year basis across the Group to drive continuous improvement.

·      Over 10% of Genuit employees have participated in lean Kaizen events or training so far, empowering and inspiring our workforce as we progress on our lean journey.

 

People and Culture - Creating value and enabling growth through the capability, expertise and development of our employees.

·      Established the Genuit Leadership Team (top c.70) with increasingly cross-functional working practices and launched the Genuit Leadership programme.

·      DE&I training rolled out for all Leaders and diversity of leadership team improving, with female representation now at 29%.

·      Genuit Group became a strategic partner of Construction Industry Coalition.

 

Outlook

·      Trading for 2024 has started in line with our expectations, despite continued market uncertainty.

·      Current softness in UK construction expected to continue but will vary by end market.

o  New housebuilding volumes continue to be challenging.

o  Uncertainty in RMI and commercial sectors remains.

o  Pent-up demand for boiler replacements continues to grow.

o  Penetration of ventilation and stormwater attenuation continues to increase.

·      Given the strategic and operational progress made in 2023, the Group is in a strong position to navigate the near-term market headwinds and benefit from eventual market normalisation.

·      The Group remains confident in the medium-term growth drivers including demand generated by addressing the structural UK housing shortage, as well as regulatory changes and increasing customer demand for sustainability-linked solutions in both water and climate management.

 

Enquiries:

Joe Vorih, Chief Executive Officer Tim Pullen, Chief Financial Officer +44 (0) 1138 315315    Headland Consultancy: Andy Rivett-Carnac Telephone: 020 3805 4822 Email: genuit@headlandconsultancy.com Matt Denham Chloe Francklin

A copy of this report will be available on our website www.genuitgroup.com today from 0700hrs (BST).

A live webcast of the Final Results presentation, hosted by Joe Vorih, Chief Executive Officer, and Tim Pullen, Chief Financial Officer, will be broadcast at 0830 on Tuesday 12 March 2024. To access the live presentation on that date, participants will be required to register in advance using the following webcast link:

 

https://www.investis-live.com/genuit-group/65cde81a6195a5120007ae1a/hser

We recommend you register by 0815hrs (GMT). The webcast will be recorded, and a replay will be available shortly after the webcast ends via the same link above. A recording of the presentation and a copy of the slides will be available following the event on the Company's website at Results, Reports & Presentations - Genuit Group plc

 

Notes to Editors:

About Genuit Group plc

Genuit Group plc is the UK's largest provider of sustainable water, climate and ventilation products for the built environment. Genuit's solutions allow customers to mitigate and adapt to the effects of climate change and meet evolving sustainability regulations and targets.

The Group is divided into three Business Units, each of which addresses specific challenges in the built environment:

·      Sustainable Building Solutions - Providing a range of construction solutions to reduce the carbon content of the built environment.

·      Water Management Solutions - Driving climate adaptation and resilience through integrated surface and drainage solutions.

·      Climate Management Solutions - Addressing the drivers for low carbon heating and cooling, and clean and healthy air ventilation.

Across these divisions, Genuit's brands are some of the most well-established and innovative in the industry, including Polypipe, Nuaire and Adey.

The Group primarily serves the UK and European building and construction markets with a presence in Italy and the Netherlands and sells to specific niches in the rest of the world.

Group Results

Group revenue for the year ended 31 December 2023 was £586.5m (2022: £622.2m), declining 5.7% despite an overall volume reduction of 12.4% year-on-year, in the context of market headwinds. UK revenue declined 7.4% but international revenue increased by 9.8%, representing 11.5% of revenue in the year (2022: 9.9%).

 

Underlying operating profit was £94.1m (2022: £98.2m), a decrease of 4.2% with a volume reduction offset by new product launches, balanced price and cost management and business simplification projects. As a result, the Group underlying operating margin increased by 20 basis points to 16.0% (2022: 15.8%), demonstrating progress towards medium-term margin targets despite the prevailing market softness.

 

The Group successfully completed several business simplification projects in 2022 and 2023, including a number of site closures and a centralised approach to procurement. The Group also started the multi-year deployment of the Genuit Business System (GBS) which focuses on continuous improvement. These activities have successfully underpinned £15m of annualised cost savings without any reduction in capacity to ensure strong operating gearing as volumes normalise.

 

Profit before tax was £48.4m (2022: £45.4m), an increase of 6.6%. The Group continued to invest in product development and innovation throughout the year. In 2023, operating profit benefitted from £1.5m of HMRC approved Research and Development expenditure credit, relating to the year ended 31 December 2023.

 

Non-underlying items decreased to £32.1m (2022: £45.2m) before tax. These were driven by non-cash amortisation of £14.8m (2022: £15.2m) and total impairment charges of £2.5m (2022: £14.8m) respectively. The Group incurred one off costs of restructuring of £15.3m (2022: £9.3m) related to the business simplification projects that have underpinned the £15m of annualised savings.

 

Underlying finance costs increased to £13.6m (2022: £7.6m) due to significantly higher Standard Overnight Index Average (SONIA) interest rates partially offset by lower level of RCF borrowings. Interest cover was 8.2x for the year (2022: 16.0x).

 

Interest was payable on the RCF at SONIA (2022: SONIA) plus an interest rate margin ranging from 0.90% to 2.75%. The interest rate margin at 31 December 2023 was 1.65% (2022: 1.60%). The Group has commenced an interest rate hedging strategy in 2024 to provide increased certainty and manage interest rate risk.

 

The underlying tax charge in 2023 was £17.9m (2022: £14.1m) representing an effective tax rate of 22.2% (2022: 15.6%). This was below the composite UK standard tax rate of 23.5% (2022: 19.0%).

 

Underlying profit after tax was lower than the prior year at £62.6m (2022: £76.5m) due to the increase in finance costs and higher tax rate. Underlying basic earnings per share was 25.2 pence (2022: 30.8 pence).

 

Including non-underlying items, profit after tax was £38.5m (2022: £36.5m), and basic earnings per share was 15.5 pence (2022: 14.7 pence).

 

The final dividend of 8.3 pence (2022: 8.2 pence) per share is being recommended for payment on 5 June 2024 to shareholders on the register at the close of business on 3 May 2024. The ex-dividend date will be 2 May 2024. The Group is announcing a progressive dividend policy and an increase in the full-year dividend of 12.4p per share, despite challenging near-term trading conditions and changes to interest and tax costs. This reflects the Group's strong balance sheet and confidence in its medium-term strategy.

Revenue and operating profit and margin	2023 £m	2022 £m	Change %
Revenue	586.5	622.2	(5.7)
Underlying operating profit	94.1	98.2	(4.2)
Underlying operating margin	16.0%	15.8%	20 bps

 

Revenue by geographic destination	2023 £m	2022 £m	Change %
UK	519.1	560.8	(7.4)
Europe	33.4	32.4	3.1
Rest of World	34.0	29.0	17.2
Group	586.5	622.2	(5.7)

 

Chief Executive Officer Review

Our Results: Progress toward our mid-term targets

My second year as CEO of Genuit has been one of significant strategic progress for the Group, despite a backdrop of continued external challenges. Our performance was resilient in the face of ongoing softness in the UK construction market, with successful product launches, balanced price and cost management, ongoing business simplification and growth in our international revenues helping to offset this volume decline.

 

Importantly, our leadership team has remained fully focused on executing our Sustainable Solutions for Growth strategy, the benefits of which are already flowing through. All this has only been possible thanks to the great work of our incredible team across the entire Genuit Group.

 

Our business simplification programme over 2022 and 2023 has been highly successful, and we have announced £15m of annualised savings from a range of self-help measures that leave the Group more streamlined, efficient and better placed for profitable growth. This has included the site consolidation programme across six sites that we are in the final phases of completing, with no reduction to our productive capacity. The deployment of the Genuit Business System on a multi-year basis has also begun to bear fruit as we begin to implement lean processes throughout the Group in order to drive a culture of continuous improvement.

 

These strategic decisions have served to improve our annual underlying profit margin from 15.8% to 16.0% despite the market-driven decline in revenues of 5.7%. Underlying operating cash conversion has also been strong at 87.7%, approaching our 90% mid term target, strengthening our financial position and allowing us to de-leverage the balance sheet while continuing to invest in growth.

 

With the Group on a firm financial footing and with high confidence in our strategic direction, we are pleased to be able to propose an increase in our full-year dividend to 12.4p and formally introduce a progressive dividend policy.

Our Customers: Challenging market conditions remain

Genuit today is focused on sustainability-driven growth, helping our customers respond to climate adaptation and mitigation challenges. We continue to focus on segments that benefit from mid-term regulation and a customer-driven need for climate solutions - the electrification of our houses and workplaces to reduce carbon, better cooling and ventilation as the climate warms, more effective rainwater collection and reuse, and attenuation of flooding and storm runoff now more prevalent than ever. We provide these solutions into a range of end markets - new house building and RMI, commercial and multi-story residential construction, infrastructure including storm water management projects within road and rail - and we are growing in many of these sectors internationally.

 

The structural UK housing shortage continues and must be addressed, so that despite the recent weakness, mid-term growth in this sector should be robust as the UK seeks to build the houses needed. 2023 saw a decline in site openings and starts, with higher interest rates affecting mortgages, cost of living concerns continuing and planning constraints still affecting housebuilders. We are expecting these low levels to continue into 2024 but expect pent-up demand to drive stronger growth in time.

 

There were some important segmental trends in residential construction. Notably, our Nuaire ventilation business saw organic growth in 2023 driven by increased penetration of new ventilation solutions - most notably to control damp and mould in social housing. Our Nu-Heat business saw a decline in renewable energy conversion projects as affordability was a concern for consumers, though project interest has increased since the government announced the increase of the Boiler Upgrade Scheme from £5,000 to £7,500 - certainly a positive development. On the other hand, the gas boiler market remained below normal levels, as the supply chain constraints of 2022 were replaced with decreased demand as consumers put off boiler replacements, keeping existing systems running. Historically, this has created pent-up demand for replacement of boilers as they age, demand that may return quickly when confidence returns.

 

While the UK still represents nearly 90% of Group sales, our geographic expansion activity continues as the demand for water management and building drainage solutions in the Middle East continues to develop, and we introduced new network infrastructure products - including for the North American market.

 

Despite the short-term headwinds that continue in 2024, we do see positive developments. The Future Homes Standard is expected to drive a significantly increased uptake of air-sourced heat pumps (ASHP's) and underfloor heating, more heat recovery in ventilation, and a continued focus on energy efficiency and lower carbon products. Again, last year, we saw hotter summers and more pronounced storms and flooding - challenging construction in the short term but reaffirming confidence in the need for our water management and green urbanisation solutions. In addition, lower carbon content (such as with the higher recycled-content plastic products we provide) is quickly moving up the agenda for our customers, in line with their own carbon commitments or driven by local initiatives such as the London Plan. On balance, while the short-term outlook is unsettled, there has never been a better time to be focused on creating sustainable living.

Our Strategy: Sustainable Solutions for Growth

Our Sustainable Solutions for Growth strategy is built around four key pillars:

·      Growth - Focus on higher-growth, sustainability-driven markets, via organic growth and disciplined M&A opportunities

·      Sustainability - Continually improve the sustainability of our operations to be the lowest-carbon choice for our customers

·      Genuit Business System - Create value through lean transformation and operational excellence

·      People and Culture - Create value and enable growth through the capability, expertise and development of our employees

I am pleased with the progress that we have made against each of these commitments in 2023, which has seen us drive improvements throughout the business and strengthen our position going into 2024.

Growth

By focusing on sustainability-driven markets in the built environment, we see significant opportunities to outperform the broader construction market. The necessity of adapting to climate change, regulatory changes and shifting customer preferences create a series of structural tailwinds that will enable us to achieve organic growth and open the possibility for disciplined M&A opportunities.

Despite the softness in the UK construction sector in 2023 and the overall decline in volumes, I'm pleased to say that this approach helped to secure revenue opportunities across all three of our divisions. Sustainability-driven structural growth drivers including the need for greater ventilation in social housing and stormwater attenuation have served to drive demand for our solutions.

The launch of exciting new product lines, including PolyPlumb Enhanced in Sustainable Building Solutions (SBS), Nu-Deck and MVHR with cooling in Climate Management Solutions (CMS) and SubTerra CT in Water Management Solutions (WMS), demonstrates our commitment to innovating within our product ranges and providing customers with innovative and highly relevant solutions. All these products tie into the need to address climate adaptation challenges and improve the resilience of the built environment.

Solution selling, including expanding the Nu-heat direct-to-contractor or homeowner offering, and working with national and regional homebuilders to install early ASHP and underfloor heating solutions - ahead of the Future Homes Standard - were effective. Our commercial offering has expanded with Polypipe Advantage pre-fabricated solutions growing, enhanced with a new Stax line of pre-configured solutions. We merged our Keytec and Alderburgh installation businesses to create a class leading water management solution partner with national reach.

The launch of these products, solutions and services, with a continued pipeline of development, means that despite some variation as products mature, we remain on track to maintain our target of 25% of all sales coming from products developed in the last five years. Furthermore, our success in integrating past acquisitions successfully, stronger leadership capability, and decreased leverage, all position the Group well to continue to develop and pursue strategic acquisitions that will add to our organic growth potential and enhance shareholder returns in the future.

Sustainability

Our growth strategy is inextricably linked to sustainability, as the key driver of our markets and the core of our product suites. It is therefore imperative that we are continually pursuing a programme of improvement in regard to our own sustainability metrics, ensuring that we are the lowest-carbon supplier of choice to our customers.

We are on a trajectory to become net-zero by 2050, and our sustainability plans have progressed well in the year. Most notably, in 2023 we became the first amongst our UK peers to have verified SBTi approval for our near-term carbon reduction targets, which amongst other commitments will see us reduce our scopes 1 & 2 GHG emissions by 30% by 2027 compared to 2021.

We are also the largest user of recycled polymers across our European peer group, making up almost half our total tonnage, and we have held the Green Mark since 2019 with over 70% green revenues.

We said that we would leverage sustainability leadership for growth, remain the champion of the most sustainable building solutions and extend our plastic recycling usage. As these sustainability targets are a key component of our strategy, they form an integral part of Executive and senior management remuneration to ensure reward is fully aligned with our strategic priorities. In 2023, we added the annual measure of carbon reduction into the annual bonus arrangements for a wider cohort of our managers.

Genuit Business System

Embedding the lean transformation of the business and creating a culture of continuous operational improvement and excellence is at the heart of our value creation strategy. The Genuit Business System (GBS) will enable the Group to standardise processes, share best practices and achieve benefits of scale, and will be at the core of our journey to achieving our medium-term >20% operating margin target.

In 2022, we started our journey to implement these principles as we began to deploy the GBS at Adey as our first Lean Lighthouse. We have seen significant productivity improvements, financial savings and space savings from this first lean site transformation.

In 2023, we extended that Lean Lighthouse deployment across Polypipe Building Products, and we also commenced a further project in Horncastle that will accelerate in 2024.

The success of our Lean Lighthouse projects has energised our people and allowed us to continue the multi-year deployment of the Genuit Business System on a wider scale across the Group. In the first full year, over 10% of Genuit employees have now participated in lean Kaizen events or training - showing both the pace of deployment across the group and how much more progress and benefit there is to realise. We are very pleased with the results of this so far and believe that it will help to empower and inspire our people. Enabling our people to unlock the full potential of our business is at the heart of what we are building.

People and Culture

Our people are the heart of our business and the key driver of our success, and as such our growth strategy is highly focused on making sure that they are empowered to drive progress. Accordingly, we have continued to invest in talent, engagement and culture throughout 2023.

Core to the creation of a positive culture has been the creation of our Genuit Leadership Team (GLT) in 2022, consisting of c.70 of the top leaders across the Group. This group was instrumental in defining our new purpose (Together, we create sustainable living) and forming our trademark behaviours that will underpin our culture - We work together, We take ownership and We find a better way. Since this team will be instrumental in modelling and strengthening our culture and executing our strategy, we have focused our diversity and leadership development efforts with them first. We are proud that GLT membership now consists of 29% female leaders, and all of them will participate in a new Genuit Leadership Programme over the coming year.

We have also worked to strengthen the Group-wide talent pipeline in 2023 and are committed to providing accredited learning programmes through our graduate schemes and apprenticeships. Further, we have been able to develop an accredited programme to help our current workforce be better prepared for the future, learning basic manufacturing and lean tools. All these efforts have helped us increase the percentage of our workforce in such programmes to 8% - a significant improvement and a sign of the importance we place on career development. The year also saw us launch Workday - our new self-serve HR platform to make people management and development more effective, and in early 2024 we plan to undertake our first employee engagement survey. Additionally, our use of the Workplace platform has resulted in stronger cross-Group communication with all our colleagues.

Lastly, Genuit Group became a strategic partner of Construction Inclusion Coalition in 2023, extending our commitment to inclusion in this all-important industry.

Summary: We are well-placed for 2024 and beyond

Overall, this has been a year of significant strategic progress towards our medium-term targets. We have successfully created a more streamlined and effective business, leading to improved margins and a strong financial position that has given us the confidence to implement a progressive dividend policy. Across our strategic pillars we have made good progress, and the work that has been done to create a Group that can achieve growth and efficiencies, underpinned by sustainability and a strong culture, is evident.

The macro economic uncertainty that impacted the construction sector in 2023 is likely to continue into 2024, and the softness in volumes is therefore expected to continue across several markets. The strategic successes that we have achieved in 2023, however, mean that Genuit is in an excellent position to navigate the near-term market headwinds, and will be well-placed to benefit when the market normalises. I remain highly confident that we are moving in the right direction, and sustainability-driven tailwinds such as the need for increasing energy efficiency in heating and ventilation, stormwater solutions to address significant rainfall events and the need for lower carbon building materials will significantly benefit our businesses over the medium-term.

 

I would like to close by thanking all my colleagues at Genuit for their efforts in the year. Ever since I joined as CEO, I have been constantly impressed by their dedication, imagination, and hard work, and I look forward to continuing to work with them all to create sustainable living together.

Business Unit Review

 

Revenue	2023 £m	2022 £m	Change %	LFL Change %
Sustainable Building Solutions	242.8	282.5	(14.1)	(14.1)
Water Management Solutions	170.4	172.4	(1.2)	(1.8)
Climate Management Solutions	165.9	158.6	4.6	4.6
	579.1	613.5	(5.6)	(5.8)
Other*	7.4	8.7	(14.9)	(14.9)
Total Group	586.5	622.2	(5.7)	(6.0)

 

* Relates to assets held for sale which are not reported as part of the Group's Strategic Business Units.

 

Underlying operating profit	2023 £m	ROS %*	2022 £m	ROS %*	Change Bps
Sustainable Building Solutions	53.1	21.9	59.3	21.0	90
Water Management Solutions	17.7	10.4	14.1	8.2	220
Climate Management Solutions	22.7	13.7	25.2	15.9	(220)
	93.5	16.1	98.6	16.1	-
Other**	0.6	8.1	(0.4)	(4.6)	1270
Total Group	94.1	16.0	98.2	15.8	20

 

* Return on sales (ROS) is equivalent to underlying operating margin (underlying operating profit/ revenue)

** Relates to assets held for sale which are not reported as part of the Group's Strategic Business Units.

 

Revenue, in the Strategic Business Units, for year ended 31 December 2023 was 5.6% lower than the prior year at £579.1m (2022: £613.5m). On a like-for-like basis, excluding the impact of acquisitions, revenue was 5.8% lower than prior year.

Ongoing self-help measures, deployment of the Genuit Business System and continued business simplification have strengthened our financial performance to offset continued levels of high inflation in materials, energy and labour costs. The team have worked hard on continuing to improve efficiencies, creating value and positioning us for growth.

 

We have built on the momentum from prior year in driving commercial excellence which has enabled us to successfully launch new products whilst balancing price and cost management. We have strived to improve our portfolio profit mix by taking ongoing actions on lower margin business. Against a backdrop of more challenging conditions, notably in the residential new build and RMI markets, we have continued optimising the cost base whilst maintaining capacity, investing in new equipment and boosting operational efficiency to ensure we are well positioned for improved market conditions.

 

 Sustainable Building Solutions

Sustainable Business Solutions (SBS) provides a range of construction solutions to reduce the carbon content of the built environment.

The strength and resilience of the SBS Business Unit was evident in a challenging market environment in 2023. Trading in SBS was resilient with revenue of £242.8m (2022: £282.5m), 14.1% lower than prior year. The volume decline was in-line with the UK residential new build and RMI sectors.

Despite volume challenges, underlying operating profit margin improved by 90 basis points, driven primarily by effective cost management through several improvement projects. As part of the wider Group business simplification plans, SBS executed an operating footprint consolidation with the completion on the sale of the Glasgow distribution centre and exiting of the Kirk Sandall site, both of which were integrated into the larger and strategic Doncaster facilities. The improvement projects were designed to simplify and improve the cost base without impacting service or reducing capacity.

The deployment of a lean transformation started with the continual, multi-year implementation of GBS at Polypipe Building Products (Doncaster) leading to improved customer service levels and providing a foundation for continuous business improvement. Management successfully completed a significant equipment refresh programme, which enabled a substantial reduction in past due orders, yielding both efficiency and inventory benefits. The Business Unit remains poised to take advantage of the eventual recovery in construction markets and in the meantime is focused on generating organic growth through significant product developments, including the PolyPlumb Enhanced range and value-add sustainability focused solutions such as Polypipe Advantage and Stax.

Water Management Solutions

Water Management Solutions (WMS) is focused on driving climate adaptation and resilience through integrated surface and drainage solutions.

WMS revenue of £170.4m (2022: £172.4m) declined by 1.2% versus 2022 (1.8% on a like-for-like basis). The Business Unit performed well with revenue generated from new products and geographical expansion. In the second half of 2023, WMS revenue grew by 2.1% driven by structural climate change relating to growth drivers, namely the increased frequency and severity of flood events resulting in a greater number of projects requiring stormwater attenuation solutions.

The Business Unit reported an underlying operating margin of 10.4% during the period, representing a 220-basis points improvement versus prior year. This improvement was driven by a combination of business and brand rationalisations, cost controls and focused investment in our people, processes and manufacturing capabilities.

The WMS medium term growth strategy is underpinned by focused commercial activity, leveraging the increased levels of product development in 2023 and the business unt expects to benefit from changes in water management and biodiversity legislation.

 

Climate Management Solutions

Climate Management Solutions (CMS) addresses the drivers for low carbon heating and cooling, and clean and healthy air ventilation.

 

Revenue of £165.9m (2022: £158.6m) in Climate Management Solutions (CMS) increased by 4.6% versus 2022. This increase was driven by strength in the residential ventilation market, with structural drivers associated with ventilating to reduce mould and damp problems, particularly in the social housing sector. This growth was partially offset by reduced demand for new boiler and heating system installations which has adversely affected the Adey business. The Adey business remains well positioned to benefit from the eventual recovery in the boiler market.

 

The CMS Business Unit reported an underlying operating margin of 13.7% in 2023, 220 basis points lower than 2022. This resulted predominantly from lower volumes at Adey and one-off IT security investment to achieve Group standard. The continual, multi-year implementation of GBS has begun in the Business Unit and business simplification projects including the consolidation of the Surestop business into Adey were completed in the year.

 

The Business Unit now has a solid foundation for profitable growth and is well-positioned to benefit from legislative and environmental tailwinds to deliver growth into the future.

 

Financial Review

Non-underlying items

 

Non-underlying items before tax decreased to £32.1m (2022: £45.2m). These were driven by non-cash amortisation of £14.8m (2022: £15.2m) and total impairment charges of £2.5m (2022: £14.8m) respectively. The Group incurred one off costs of restructuring of £15.3m (2022: £9.3m) related to the business simplification projects that have underpinned the £15m of annualised savings.

 

Non underlying items comprised:

	2023 £m	2022 £m
Amortisation of intangible assets	14.8	15.2
Impairment of goodwill	-	12.0
Impairment of intangible assets	2.5	2.8
Restructuring costs	15.3	9.3
Employment matters	2.0	-
Contingent consideration on acquisitions	1.8	3.1
Workday configuration (SaaS)	1.2	-
Acquisition costs	0.4	0.2
Profit on disposal of property, plant and equipment	(4.7)	-
Product liability claim	(1.2)	1.0
Isolated cyber incident	-	1.2
Unamortised deal costs	-	0.4
Non-underlying items before taxation	32.1	45.2
Tax effect on non-underlying items	(8.0)	(5.2)
Non-underlying items after taxation	24.1	40.0

 

 

Exchange rates

The Group trades predominantly in Sterling but has some revenue and costs in other currencies, mainly the US Dollar and the Euro, and takes appropriate forward cover on these cash flows using forward currency derivative contracts in accordance with its hedging policy.

Finance Costs

Underlying finance costs increased to £13.6m (2022: £7.6m) due to significantly higher Standard Overnight Index Average (SONIA) interest rates partially offset by lower level of RCF borrowings. Interest cover was 8.2x for the year (2022: 16.0x).

 

Interest was payable on the RCF at SONIA (2022: SONIA) plus an interest rate margin ranging from 0.90% to 2.75%. The interest rate margin at 31 December 2023 was 1.65% (2022: 1.60%). The Group has commenced an interest rate hedging strategy in 2024 to provide increased certainty and manage interest rate risk.

Pensions

The Group does not have any defined benefit pension schemes and only has defined contribution pension arrangements in place. Pension costs for the year amounted to £5.4m (2022: £6.5m) reflecting the reduction in headcount in the Group across the year.

 

Taxation

Underlying taxation

The underlying tax charge in 2023 was £17.9m, (2022: £14.1m) representing an effective tax rate of 22.2% (2022: 15.6%). This was below the composite UK standard tax rate of 23.5% (2022: 19.0%).

Taxation on non-underlying items

The non-underlying taxation credit of £8.0m (2022: £5.2m) represents an effective rate of 24.8% (2022: 11.5%).

Earnings per share

	2023 £m	2022 £m
Pence per share:
Basic	15.5	14.7
Underlying basic	25.2	30.8
Diluted	15.4	14.6
Underlying diluted	25.1	30.5

The Directors consider that the underlying basic earnings per share (EPS) measure provides a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance.

Underlying basic EPS decreased by 18.2% in 2023 predominantly the result of increased interest and tax costs, driven by external factors.

Dividend

The final dividend of 8.3 pence (2022: 8.2 pence) per share is being recommended for payment on 5 June 2024 to shareholders on the register at the close of business on 3 May 2024. The ex-dividend date will be 2 May 2024. The proposed increase in the full-year dividend reflects the Group's strong balance sheet and confidence in its medium-term strategy.

 

The Group aims to pay a progressive dividend, based on dividend cover of 2.0x or greater over the business cycle. The Directors intend that the Group will pay the total annual dividend in two tranches, an interim dividend and a final dividend, announced at the time of publication of the interim and preliminary results.

 

Balance Sheet

The Group's balance sheet is summarised below:

	2023 £m	2022 £m
Property, plant and equipment	176.4	169.9
Right-of-use assets	22.9	22.3
Goodwill	454.1	455.4
Other intangible assets	142.7	159.7
Net working capital	28.3	33.8
Taxation	(44.7)	(47.9)
Other current and non-current assets and liabilities	6.2	0.1
Net debt (loans and borrowings, and lease liabilities, net of cash and cash equivalents)	(149.3)	(166.2)
Net assets	636.6	627.1

The net value of property, plant and equipment has increased by £6.5m following the continued focus on investing in targeted capital expenditure offset by the sale of two additional sites.

Cash flow and net debt

The Group's cash flow statement is summarised below:

	2023 £m	2022 £m
Operating cash flows before movement in net working capital	105.6	113.6
Add back non-underlying cash items	14.2	9.6
Underlying operating cash flows before movement in net working capital	119.8	123.2
Movement in net working capital	4.1	(19.7)
Net Capital expenditure excluding non-underlying proceeds of sale	(33.8)	(40.9)
Settlement of lease liabilities	(7.6)	(6.2)
Underlying cash generated from operations after net capital expenditure excluding non-underlying proceeds of sale	82.5	56.4
Income tax paid	(12.1)	(7.0)
Interest paid	(13.4)	(3.7)
Non-underlying proceeds of sale	6.9	-
Other non-underlying cash items	(14.2)	(9.6)
Settlement of deferred and contingent consideration	(1.6)	(0.5)
Acquisition of businesses	-	(2.6)
Debt issue costs	-	(3.1)
Dividends paid	(30.5)	(30.5)
Proceeds from exercise of share options net of purchase of own share	0.3	0.4
Other	(0.7)	2.2
Movement in net debt - excluding IFRS 16	17.2	2.0
Movement in IFRS 16	(0.3)	(2.5)
Movement in net debt - including IFRS 16	16.9	(0.5)

 

Delivery of strong cash generation remains core to the Group's strategy. Underlying operating cash conversion of 87.7% (2022: 57.4%) calculated as underlying operating cashflow (after payments for capital expenditure excluding non-underlying proceeds of sale and lease liabilities) divided by underlying operating profit. The Group remains committed to achieving a conversion rate of 90.0% over the medium term.

A positive working capital movement in the year was achieved through lower levels of inventory following increases in prior periods to improve customer service performance following the recovery in demand and supply chain disruption that followed the pandemic.

Net capital expenditure investment (excluding non-underlying proceeds from sale) decreased to £33.8m (2022: £40.9m) as the Group continued to focus on investing in targeted manufacturing facility development, capacity and key, strategic and innovative projects.

Net debt of £149.3m comprised:

	2023 £m	2022 £m
Bank loans	(145.0)	(195.9)
Cash and cash equivalents	17.0	50.0
Net debt (excluding unamortised debt issue costs)	(128.0)	(145.9)
Unamortised debt issue costs	2.1	2.8
IFRS 16	(23.4)	(23.1)
Net debt	(149.3)	(166.2)
Net debt (excluding unamortised deal issue costs): pro-forma EBITDA	1.1	1.2

Financing

The Group has a Sustainability-Linked Loan (SLL) committed through to August 2027 with two further uncommitted annual renewals through to August 2029 following a refinancing with the existing bank syndicate in 2022. The facility limit is £350.0m with an additional uncommitted 'accordion' facility of up to £50.0m. At 31 December 2023, £120.0m of the RCF was drawn down. Additionally, in 2022 the Group entered a fixed rate £25.0m seven-year private placement loan note until August 2029 with an uncommitted shelf facility of an additional £125.0m.

The Group is subject to two financial covenants. At 31 December 2023, there was significant headroom and facility interest cover and net debt to EBITDA covenants were comfortably achieved:

Covenant

	Covenant requirement	Position at 31 December 2023
Interest cover	>4.0:1	8.2:1
Leverage	<3.0:1	1.1:1

Going Concern

The Group continues to meet its day-to-day working capital and other funding requirements through a combination of long-term funding and cash deposits. The Group's bank financing facilities consist of a £350.0m Sustainability-Linked Loan with an uncommitted 'accordion' facility of £50.0m and a seven-year private placement loan note of £25.0m with an uncommitted £125.0m shelf facility. At 31 December 2023, liquidity headroom (cash and undrawn committed banking facilities) was £247.0m (2022: £229.1m). The Group's focus will continue to be on deleveraging, and its net debt to EBITDA ratio stood at 1.1x pro-forma EBITDA at 31 December 2023 (2022: 1.2x). This headroom means the Group is well-positioned with a strong balance sheet.

As a result, the Directors have satisfied themselves that the Group has adequate financial resources to continue in operational existence for a period of at least the next 21 months to 31 December 2025. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

Principal Risks and Uncertainties

The Board continually assesses and monitors the key risks of the Business, and the Group has developed a risk management framework to identify, report, and manage its principal risks and uncertainties. The principal risks and uncertainties that could have a material impact on the Group's performance and prospects, and the mitigating activities which are aimed at reducing the impact or likelihood of a major risk materialising are those detailed in the Group's Annual Report and Accounts. They have not changed significantly during the year.

Forward-Looking Statements

This report contains various forward-looking statements that reflect management's current views with respect to future events and financial and operational performance. These forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond the Group's control, and which may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements. All statements (including forward-looking statements) contained herein are made and reflect knowledge and information available as of the date of preparation of this report and the Group disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein. Nothing in this report should be construed as a profit forecast.

 

Directors' Responsibilities

Each of the Directors confirms that, to the best of their knowledge, the consolidated financial statements, prepared in accordance UK-Adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and undertakings included in the consolidation taken as a whole; and the Group Results, Chief Executive Officer Review and Financial Review includes a fair review of the development and performance of the business and the position of the Group and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

Annual General Meeting

The Annual General Meeting is scheduled to be held on 28 May 2024.

 

By order of the Board:

 

Joe Vorih	Tim Pullen
Chief Executive Officer	Chief Financial Officer

 

 

 

 

Group Statement of Comprehensive Income

For the year ended 31 December 2023

         

		2023				2022
	Notes	Underlying £m		Non-underlying £m	Total £m	Underlying £m	Non-underlying £m	Total £m
Revenue	2	586.5		-	586.5	622.2	-	622.2
Cost of sales		(338.7)		(2.0)	(340.7)	(372.1)	(2.5)	(374.6)
Gross profit		247.8		(2.0)	245.8	250.1	(2.5)	247.6
Selling and distribution costs		(73.5)		(1.0)	(74.5)	(81.5)	-	(81.5)
Administration expenses		(79.4)		(11.8)	(91.2)	(70.2)	(12.3)	(82.5)
Amortisation of intangible assets		(0.8)		(14.8)	(15.6)	(0.2)	(15.2)	(15.4)
Impairment of intangible assets		-		(2.5)	(2.5)	-	(2.8)	(2.8)
Impairment of goodwill		-		-	-	-	(12.0)	(12.0)
Operating profit	2	94.1		(32.1)	62.0	98.2	(44.8)	53.4
Finance costs	5	(13.6)		-	(13.6)	(7.6)	(0.4)	(8.0)
Profit before tax		80.5		(32.1)	48.4	90.6	(45.2)	45.4
Income tax	6	(17.9)		8.0	(9.9)	(14.1)	5.2	(8.9)
Profit for the period attributable to the owners of the parent company		62.6		(24.1)	38.5	76.5	(40.0)	36.5
Basic earnings per share (pence)	7				15.5			14.7
Diluted earnings per share (pence)	7				15.4			14.6
Dividend per share (pence) - interim Dividend per share (pence) - final	8				4.1   8.3			4.1   8.2
					12.4			12.3

 

 

Non-underlying items are presented separately and are detailed in note 4. 

 

Group Statement of Comprehensive Income

For the year ended 31 December 2023

 

	2023 £m	2022 £m
Profit for the period attributable to the owners of the parent company	38.5	36.5
Other comprehensive income:
Items which may be reclassified subsequently to the income statement:
Effective portion of changes in fair value of forward foreign currency derivatives	0.1	0.1
Exchange differences on translation of foreign operations	(0.1)	-
Other comprehensive income for the period net of tax	-	0.1
Total comprehensive income for the period attributable to the owners of the parent company	38.5	36.6

 

 

 

Group Balance Sheet

At 31 December 2023

 

	Notes	31 December  2023 £m	31 December  2022 £m
Non-current assets
Property, plant and equipment	9	176.4	169.9
Right-of-use assets	10	22.9	22.3
Intangible assets	11	596.8	615.1
Total non-current assets		796.1	807.3
Current assets
Inventories		69.2	89.9
Trade and other receivables		73.9	68.1
Income tax receivable		5.4	2.2
Cash and cash equivalents	13	17.0	50.0
Derivative financial instruments	13	0.1	-
Assets held-for-sale		17.1	10.7
Total current assets		182.7	220.9
Total assets		978.8	1,028.2
Current liabilities
Trade and other payables		(114.8)	(124.2)
Lease liabilities	10, 13	(5.0)	(5.8)
Liabilities held-for-sale		(2.8)	(2.6)
Deferred and contingent consideration	12	(8.2)	-
Total current liabilities		(130.8)	(132.6)
Non-current liabilities
Loans and borrowings	13	(142.9)	(193.1)
Lease liabilities	10, 13	(18.4)	(17.3)
Deferred and contingent consideration	12	-	(8.0)
Deferred income tax liabilities		(50.1)	(50.1)
Total non-current liabilities		(211.4)	(268.5)
Total liabilities		(342.2)	(401.1)
Net assets		636.6	627.1
Capital and reserves
Equity share capital		0.2	0.2
Share premium		93.6	93.6
Capital redemption reserve		1.1	1.1
Hedging reserve		0.1	-
Foreign currency retranslation reserve		(0.1)	-
Other reserves		116.5	116.5
Retained earnings		425.2	415.7
Total equity		636.6	627.1