Genuit Group plc (GEN) Earnings Call Transcript

Welcome, everybody. Good morning. Great to be here on what promises to be a fairly warm day, but not as warm as what's to come. More on that in a minute. So delighted to be here. I'm Joe Vorih, CEO of Genuit. I've got Tim Pullen with me here, our CFO, as well as a few different members of our management team. We'll all be around afterwards. Feel free to ask questions either during the session or afterwards. So let's hop into it. So we're here to present our half year results for Genuit Group for 2026. I'll give you just a quick sort of scene setting introduction, pass it over to Tim for the financial highlights and then come back and definitely wanted to give you an update on the important and really good strategic progress we've made in the last 6 months. And of course, plenty of time for Q&A. So getting right into it, it won't surprise you that we have seen a challenging trading environment in the first half. I'm really proud of the actions that our team has taken in order to navigate that quite successfully. We have seen subdued market demand, and those lower volumes are really on account of several different factors, of course. We've -- most top of mind for a lot of people is the conflict in the Middle East and the impact that's had directly, which we'll talk a little bit about, but indirectly, which I think is true for just about everybody in our industry in terms of material prices and transport costs. And Tim will talk about that as well as the work we've done to mitigate that. The other thing, too, is we're sitting here in a time where I think there's a bit of a lower U.K. growth sort of so far. Remember, entering the year, of course, we were all expecting a couple of rate cuts. Clearly, that hasn't happened. So we are in this kind of higher for longer environment. But when you have a challenging trade environment, Genuit does what we always do. And we take decisive actions. We've done that yet again. Really proud again, as I said, of what the work the team has done. Importantly, we've taken what I would characterize as balanced cost and price actions. So weighing the interests of both our investors and our customers to make sure that we really offset the impact of inflation on our business model. We also have continued to simplify the business. This has been a long-standing journey, and we've been able to identify a few more options that we've taken that in the second half will help accelerate some of the work that we actually thought was out there, but will begin to take impact and certainly improve our outlook entering '27. And of course, we've made excellent progress integrating our 2 acquisitions we made last year in the second half. Both are going really well, and we'll give you more fulsome updates on those. Of course, underpinning all of this is the Genuit Business System, which we deploy across the business increasingly, and I'll share some examples of how that's impacting actually one of our acquisitions, too. In terms of outlook, our full year expectations are unchanged. Of course, that means that we'll see a good step-up in margins sequentially in the second half. We'll give you a few insights as to where that's coming from. And importantly, the simplification work I talked about is expected to deliver over GBP 4 million of annualized savings. That will most primarily just impact 2027 and beyond. But again, it's the type of work that we do, really making sure the business is fit for the future. Importantly, and we'll spend some good time on this, the regulatory and sustainability tailwinds, which are so important to our future growth and business model are continuing to strengthen and they're much closer. We've done a lot to invest and be ready for those and I'll give you some more on that in just a bit. But in the meantime, let me turn it over to Tim to walk you through the numbers. Tim, over to you.

Great. Thank you, Joe. Good morning, everyone. Delighted to present our results for the first half of 2026 to you this morning. Thank you for coming. We start with the financial highlights. You can see that we've actually got good revenue growth for the half at 3% on a reported basis, including the acquisitions that we bought last year, offsetting a like-for-like decline of about 5%. But I'll remind you of our 4 months trading update to April, that was down about 8% at that point. So you can see that trading for May and June has been solid and obviously buoyed by the double-digit price increase that we put through in response to the cost inflation. So although a very challenging market, as Joe sets out, but actually, our profit just slightly down 1.6% to GBP 43.9 million and our EBIT margin down about 70 basis points as a result. Cash conversion remains very strong. We have the usual phasing where H1 is slightly lower than the full year. So over 70% cash conversion at the half, still on track for over 90% for the full year. And because we have a lot of confidence in our strategy execution over the medium term, we've held our dividend at 4.2p despite those challenging market conditions. Leverage at 1.6x is well within the 1 to 2x range that we target, and that will delever further as we go through the second half as well. So looking at the summary P&L, you can see there the revenue increase of 3% on a reported basis. It's important here, I think, to point out the gross margins, which have remained strong, which I think shows the cost control and the price management that Joe was referring to coming through the P&L there. Obviously, we did have a bit of a lag there where we had inflation in March and April before price increases kicked in, in May. So the second half dynamic will be slightly different. Overall, though, that margin being affected by the cost and price lag, also by a couple of issues at AB, which I'll come on to talk about in the segmented results, but really offset to an extent by those accretive acquisitions coming through the P&L as well. So this is how our revenue breakdown looks. Water division representing about 70% of the business, our Climate division representing just under 30%. And looking at it by sector, housebuilding is about 1/3 of our business. Obviously, we've seen some, I think, resilience there in the first half, but with an outlook that looks like it could be a bit weaker. But really, the strength of the Genuit portfolio is in that breadth across different areas. So almost 1/3 of the business coming from RMI, 27% almost from non-housing, including commercial and civils and infrastructure type work and about 10% internationally. It's worth pointing out that the Middle East, whilst we did see some direct revenue loss when the conflict erupted in kind of March, April, that is now pretty much back to normal and July was a very -- sorry, June was a good month for the Middle East operation. So if we look at our profits, GBP 43.9 million underlying operating profit, just slightly down on a reported basis as a result of those lower volumes, which obviously do affect our gearing, the cost inflation that we saw before price increases kicked in and those operational issues. We do have GBP 5 million contributed by the acquisitions, which are accretive on a margin basis. And we've also been working on the cost base in this environment to bring forward or accelerate our simplification initiatives, which particularly affects the Davidson businesses. I'll talk a bit more on those when we look at water in particular. If you break it down then into the segmentation, you can see both divisions growing on a reported basis, that climate reduction in profitability, really the majority of that is those 2 issues. So looking at Climate in particular, revenue there is up 2.4% on a reported basis. It's down 8% on a like-for-like basis. But there's 2 different dynamics going on there, which are important to unpack. So ventilation is actually one of our relatively strong sectors in the first half of the year. And actually, if you look at ventilation on a trailing 12-month basis, we're about flat, which in this market is pretty good, both on the commercial side, in particular, the schools sector, which Joe will talk a bit more about in our strategic update section, but also in residential as well and the continuing theme of the addressing of dampen mall problems in social housing. So ventilation remains strong. And really, that's offset to an extent by our heating business, which is weaker. There, we're more exposed to the RMI market in our AB business associated with boilers and in our new heat business in underfloor heating. There, we are seeing lower levels of renovations, extensions and refurbishments, et cetera, and therefore, lower levels of business. Two specific issues in AB that happened in the first half that won't recur in the second are one, a slow-moving stock provision of GBP 1.5 million related to some particular products and also a supplier issue with an impact of about GBP 0.8 million, and that's the loss of sales plus the cost of addressing that issue. We're confident that both items have been root caused and won't recur in the second half. On the positive news front, we've seen really good progress in integrating Monodraught into our Climate business. And actually, the technical integration of the controls capability is a fantastic new story. So we can now go to market with a combined school solution with new air mechanical ventilation and Monodraught hybrid ventilation, we think a unique offering in the marketplace, and we've already received our first orders in July. So great momentum there. The Water Division revenue is about 4% higher on a reported basis, about 3% lower on a like-for-like basis. Residential markets have been subdued, I think, both in new house building and in the RMI sector. And we have seen some project delays in civils and infrastructure markets, really a reflection of lower business confidence in the current macro environment. But there are some positive areas as well. Our Manthorpe business actually grew year-on-year in the first half of the year as did our Italian business and also our operations in Ireland as well. So whilst that international sector is smaller for us at the moment, it does show we have some strength in diversification there. Underlying operating profit is broadly flat on a like-for-like level, really demonstrating strong price and cost management, as Joe said. This is the sector that's most affected by the cost inflation. Obviously, we saw rapid inflation in March. And we've seen that whilst the situation remains volatile, we haven't seen the worst-case scenario. So we haven't seen supply shortages, but we do still see elevated levels of polymer costs. And hence, our price increases have been important to stabilize things, and you can see the business has covered that well with this result. Again, the acquisition side of things has gone really well. So Davidson has been integrated well, and we've accelerated that simplification. So 2 of the 3 sites will be closed for Davidson and integrated into our larger strategic sites. That means there'll be no loss of capacity. It's underpinning a big chunk of the GBP 4 million savings that we're talking about for next year. And also, it gives us the scope for more sales and operational synergies by co-locating those operations. That will be completed by the end of the year, as I say, those cost savings will be generated next year, which brings us into the non-underlying items. We've got about GBP 17 million or so, about GBP 9 million of that is noncash impacting. That includes GBP 4 million investment in a multiyear IT systems transformation. And this is a really important pairing with GBS. So deploying modern Software-as-a-Service software platforms to complement the lean operational input that we're putting in with GBS. And as is normal practice for cloud-based systems, this is accounted for through exceptional items as opposed to previously on-premise systems that would have been capitalized and depreciated over time. So expect to see a run rate at about this level going forward. And as we get more into the program and drive the consistency, efficiency and productivity through that combination of modern software platforms with lean thinking, we'll start reporting the benefits alongside that in the future as well. Our restructuring costs associated with the simplification work that we've done in the half are GBP 3.9 million. So that's underpinning over GBP 4 million of savings from next year. We've also got a loss on the Polydeck disposal that we completed in the first half of the year of about GBP 1 million to tidy up the accounting there. In terms of cash flow, really positive result here. You can see the strong cash conversion of 70%, in line with our phasing expectations. And in particular, I'd highlight the working capital here where we continue to focus and drive real benefit. A lot of that is coming from inventory management. Remember, GBS is not just about efficiency in the site. It's also about that working capital management to really help with our cash flow. So net debt, about GBP 190 million and our leverage about 1.6x. So just a final word then on capital allocation to round things off. I think we continue to invest in the business. We're confident in the strategy despite the challenging environment, so investing in capacity, innovation and sustainability for our capital spend. We've got that optionality for additional bolt-on acquisitions given the strength of our balance sheet. We're maintaining our dividends, and we also have optionality for buybacks if conditions are right in the future. Okay. That's the financial results. Happy to take questions at the end. But for now, I'll invite Joe back on to the stage for our strategy.

Thank you, Tim. Let me just set this over here, anyone look at that yet. All right. So I want to give you a quick update on the progress we've made in implementing our strategy. So remember our purpose that together, we create sustainable living, and that actually drives everything we do, tying back to our strategy, which had the 4 same tenets that we've been working on for 4 years now. First is investing in growth, organic growth in areas where there are clear sustainable climate-driven tailwinds, where we believe billions and billions need to be spent over the coming decades to deal with the impact and the mitigation of climate change. At the same time, those sustainable solutions can be augmented by great M&A as we did last year, where we can both get into higher growth segments, even for cyclical segments, but also improve our solutions. We'll talk a bit about some of those. So focusing on growth first, absolutely #1 on our agenda. At the same time, while what we do is fundamentally green, as you see from our green mark, where 70% of our revenues plus are climate-friendly solutions. How we operate the company is equally important. So continuing to push the envelope on recycled material, lowering the carbon content of our supply chains, using renewable energy throughout the business and increasingly, as I'll share in a few minutes, being able to show customers how that can actually benefit them remains very important. The Genuit business system is hard to everything we do. It's how we run the business, right? Founded in Lean thinking in the Kaizen methodology. We've continued to shared some good examples of that, and I've got another example for you today. But increasingly, as Tim alluded to earlier, we see the ability to really make this a more inclusive set of tools. So partnering with the best technology so that we can take advantage of everything that's out there, eventually even some of the AI tools as well. On the people side, investing in people has been the fourth key part of our strategy, and it underpins everything because the best team wins. So investing in our people is key. So this is our strategy remains true. But I did say at the outset, look, the warm weather today is kind of indicative of some of the things we're dealing with. And a lot of people complain about the weather, but actually, we see some real opportunity despite the difficulties. First, it won't surprise anybody that we are actually looking like we're extending what was the hottest July on record in many parts of the U.K., some of the longest drought conditions we've ever experienced in this country, right? Lots of opportunities, lots of discussion about cooling and ventilation and how we're going to deal with or essentially adapt to this climate change. At the same time, standing here, it's very difficult to catch your mind 6 months ago in this room, where we were just talking about the wettest January on record in the U.K., certainly in most of it. It's quite a duality, right? We're seeing extremes of drought and flooding, and this is becoming more common. I don't think there's much debate about that anymore. So while some companies are faced with kind of some ESG pressure, we actually see really the need to respond, innovate and release new solutions is more important than ever. Now at the same time, while the inevitable climate change issues are driving fundamental end demand, I get a lot of questions from investors about what the regulatory framework looks like. So our team prepared this incredibly complicated slide. It's very busy. And that's really the point. This is a very busy sector. There are over 10 different regulatory and framework drivers here on this slide, and this isn't all of them. This is just probably the 10 most impactful ones for us. The way to think about this broad terms is on the left, essentially is what's driving innovation and new regulations and new homes. The center is essentially getting after the 25 million homes in the U.K. that need to be upgraded. So it's really about RMI work to upgrade existing homes. And of course, the ever-growing, approaching 40% nonhousing sector for us now. We're going to highlight 2 specific areas of infrastructure and education, but there's more. A few of the things on here. The way it looks basically the stuff that's in green is already in effect now. The stuff that's in yellow will largely have already taken effect by the time we're back together for the full year results. And of course, the other stuff is actually already planned and coming, but just a year or 2 further out. All of these will stimulate more solutions company and more end market demand for us. A couple of highlights. You know that the Future Homes Standard was finally released in March. By next year, this -- by March, all new housing permits will now need to be compliant with the Future Homes Standard. And a year from that, the grace period expires. There's a separate grace period for high-risk buildings, but just 6 months after that. So the time line for the Future Homes Standard is now active and the clock is ticking. Obviously, there's Awaab's Law we've talked about. If I turn to AMP8, we are now 1.5 years into AMP8 and the momentum is seriously picking up as well as the consensus that AMP9 and 10 are probably going to be similar or larger in scope, focused on a lot of the same issues, including a heavy emphasis on storm water and flood mitigation. And of course, Construction Framework 25 is the current 4-year school rebuilding program framework. It is a serious upgrade to the ventilation and indoor air quality standards in schools, and that is what's behind a lot of the growth we're seeing at Monodraught and the solutions we'll talk about coming up. So what are we doing about it? This is a case study in our water business. As Tim said, while parts of the overall traditional civils business are still a bit slow, feeds housing and other sectors, this part is actually growing very well. At this time last year, we had 2 million of quotes in our quote bank, meaning quotes issued, active projects that we're going after winning. That's 9 million today, okay? We've already been taking orders. This is actually a real live order for Yorkshire Water that's been delivered recently. And you can see from the top left, these are more complex assembled solutions made from our large best-in-class, nearly fully recycled polymer products that we make in our [ Lubro ] plant. And this is the installation going. And you'll note also in the background, it's a really challenging environment. It's right in the middle of a housing estate, some traditional homes, petrol station. So we're essentially retrofitting the country with much better storm water mitigation to protect our sewers and our waterways. This is challenging. And what's really exciting about this is that these integrated plastic solutions are lighter, easier, faster and lower carbon to install than any of the alternatives, including concrete. So we do think that the opportunity here will continue to grow. While the projects are growing and we're starting to ship this year, it will be much more material impact in 2027. And so we've actually -- we've done some Kaizen work in the [ Lubro ] plant. We've authorized some additional investments. We have enough capacity now. But looking 2 and 3 years down the road, we want to make sure that we are ahead of the game because we believe this will continue to be quite a fast-growing market for us. That's water. On the climate side, as Tim said earlier, first, I'd like to say, look, our acquisition last year of Monodraught was underpinned on the commercial strength of that business. That has continued and just gone from strength to strength. In the 11 months to date of the acquisition compared to the 11 months before the acquisition, same period, their orders are up 24%, this is really exciting. This is before the synergy potential of the new solution. That new solution, as Tim said earlier, is essentially the release of this product right here. This is the very last rapid prototype version. The production tools are in place, and we'll be shipping this in production in September, okay? What this is, very exciting product. I'm sure you're thinking the same. It's actually an interface box that was designed in just 6 months, fully tested, released to market and has now been for sale since June. What does this do? Essentially, as it shows there, and as Tim said earlier, if you take a complete school system, although this could be many other applications, an office building, a doctor's surgery, a community center, any building that has essentially a multimode ventilation system and higher air quality standards will benefit from this. It allows the hybrid systems of Monodraught, which essentially directly outside -- access outside air and allow natural ventilation, which often is very good and a lot of fresh air to be linked directly to the new air units, which are the powered units often found in, say, the hallways, the canteens, the gymnasiums, the kitchens. So when you think about all of those different applications, all this interface box allows all the new air products needed to now interface into the Monodraught ecosystem. That is the Medina wall controllers, which are state-of-the-art easy-to-use configurable wall controllers, which can do the whole ventilation system and control heating. And Acuity, which is the brains of the whole operation, one per building, which also allows us to remote monitor and diagnose and troubleshoot systems, which has been a great. If you ever get a chance to visit Monodraught, you'll see there, you can actually see every installed system in the U.K. they've ever done, right, which is really fantastic. So as of now, all the new air products that are needed can interface through this box into the whole system. This is first to market in this case, and we've already received our first orders in July, totaling over GBP 1 million just for the first 2 projects. So quite exciting. So despite already being up 24% strength to strength. So the question I often get is, well, do you have the capacity for all this growth? Well, glad you asked or anticipating your question, I guess, I should say, right? Our GBS case study we wanted to share today actually is exactly that. It's a really good example of the business. In this case, Monodraught, our newly acquired business, saying, we need some help. We see big orders coming. We need to increase our output. So we had a Kaizen team together of Monodraught people, plus people from ventilation and across the patch in Genuit work for a week on how to improve the assembly cell there. As a result of this work, by the end of the week, they demonstrated a new cell, which is now in full operation, if you go there, which it takes up half the floor space, has demonstrated 40% more output capacity. So they're ahead of the 24% increase, and I'm confident they'll be able to do more than that and gets a nearly 30% productivity benefit, pretty impressive and typical of the kind of results we can get and clearly addressing core business needs. Now on the sustainability side, as I mentioned earlier, we lead with lowest carbon products with a high content of recycling. We continue to be the industry leader here. So the question then comes, how do you actually document this? So EPDs or environmental product declarations are affect the carbon passports for products, right? It's become pretty much the industry standard approach to do this. Our customers are asking for these increasingly. We joined sort of a clearing house for this called One Click LCA last year. And in the first 6 months of this year, we saw over 3,000 views of these EPDs from almost -- about 350 end users. These are people around the industry, architects, specifiers, engineers, project managers, sustainability experts. And they've been attached then being used and sort of put into the documentation for nearly 700 active projects. So this is proof, and this has grown very, very rapidly. So the adaptation of this is important. Why this matters is because we continue to push, right? At the end of last year, we were at 57% of our revenue coverage, had these EPDs in place. That's definitely over 60% now, and we -- it takes a bit of work to calculate. So we'll update you as we go forward. But the goal is to get more than 80% of our product line covered, right? The second thing that's important is that 2/3 of the time, right, when people compare our products, we are at the lowest carbon alternative. And that is really important as well. So this is gaining momentum. Again, something we've worked on for years, but there's tangible examples of where this is really starting to matter. On the people side, this is just a fantastic article in one of the trade magazines with some of our graduates and apprentices. And it's just kind of -- it's characteristic of the investment that we've made in our people. When I came here 4 years -- over 4 years ago, 3.5% of our people were in what we call earn and learn programs, apprenticeships, graduate programs and continuous education. It's really important not to forget about the colleagues who are already here, perhaps early levers who haven't had that kind of attention and investment. They're learning mass skills, lean work in accredited learning environments. I'm pleased to say that as of now, about 20% of our people are in this wide range of earn and learn programs, reflecting our commitment to actually putting the best team in the field and making this the kind of place where people can grow an incredible career. Very important investment there as well. On the M&A front, we've made great progress here. On the Climate Division, we acquired Monodraught last year. As I said, the revenue synergy opportunity, which really is underpinned by that solution that we walked through is better than we initially anticipated. We did the business case and we decided to do the acquisition, we thought there was a double-digit million piece of revenue to go after that actually was on top of what Nuaire or Monodraught could do separately. Without giving specific numbers, that's even higher still as we've really gotten in and learned the market better. Really pleased about that. That was the primary driver here. The technology transfer we've talked about, I mean, really collaborating together, 6-month new product release that's already driving additional revenue. And importantly, we've said at the beginning that these acquisitions need a clear pathway to get to the group margin target. Monodraught has that, and they're on track. On the Water Division side, we bought a collection of brands. You remember the Davidson acquisition. What's important is the brands inside there. Salamander Pumps and Cistermiser are water conservation brands that are really well positioned for some of the innovation needed as we do expect water conservation to make it into subsequent generations of housing regulations as that becomes -- scarcity becomes a problem. So that was really, really helpful. Talon is actually a bit like Manthorpe. They're complementary products to what we have. They go through the same channel and have done really well. Really pleased with the businesses, but perhaps even more so, we accessed the first synergies, essentially a reduction in corporate overhead, and they are on track as we had expected this year. More importantly, they had some small underinvested facilities that we are going to be consolidating into 2 really good scale Genuit facilities during the second half of this year. This is the main driver for the -- over GBP 4 million step-up in operating cost reduction that we'll see heading into 2027. But that means that they'll continue to be ahead of plan. Already, however, they are in line with our group margin target of 20%, which is fantastic. So really pleased with both acquisitions. And of course, we remain active in the space, as Tim said, with the deleveraging continuing, so we'll be in a good position to continue to make more good acquisitions like this, increasingly beyond the U.K. So if I turn to outlook, it's no surprise. Like we do -- we are counting -- well, not counting. We're prepared for the challenging market conditions to continue for the remainder of the year. The Middle East conflict has proven difficult to predict exactly how that's going to play out. Obviously, we are entering an autumn of continued political and economic circumstance and uncertainty in the U.K., another budget coming, thankfully, not in November. And underlying operating margins, however, will benefit in the second term from a few different things. One is the impact of that balanced cost price approach that really started to help in May and June, but actually will have a full impact for the second half. The non-recurrence of the isolated operational issues at Adey, we root cause those, no issue there. And the productivity gains we continue to make across the piece. I'd emphasize, as I said, most of the simplification work will actually take effect from '27 onwards, but we continue to make the kinds of improvements like the case study I shared with you at GBS across the business. As a result, we'd like to confirm that our full year expectations remain unchanged. And that, as I said, the profitability will benefit heading into '27 by that over GBP 4 million of annualized operating cost reduction. Most importantly, the structural growth drivers that we've anchored our strategy on for the last 4 years are getting closer every day. We are now in some of the key regimes, Future Home Standard, AMP8, CF25, and we see a lot more coming. So the future actually looks brighter than ever, and we are well positioned to address those climate change challenges. And I think that puts us well on path to deliver our long-term investment case where we said that we would certainly deliver -- outperform the market, which we believe we have done. But increasingly, we want that just to become much more consistent organic growth period, right, by investing in those markets that are actually growing and less cyclical. And of course, we'll augment that with really good acquisitions as well as you've done. So you saw that impact this year, certainly in the first half. Continue to be committed to taking that really large market we have, that GBP 3 billion kind of market opportunity and growing in the U.K. and make sure that it's addressing and that we are addressing those key climate change drivers so that essentially, not only are we reducing the scope of our carbon, but we're delivering more and more climate-friendly solutions. All of this then matters as a sustainable investment case where we're committed to our over 20% margin target for the business and the over 20% return on invested capital. We think that the work we've done, the growth we're seeing starting to come through in the future years and the acquisitions have us well on track for that. And finally, that strong cash conversion is really important so that we can continue to delever, make good more acquisitions, improve those through the application of the Genuit Business System and continue that cycle. So with that, I'd like to open up to questions. Tim, if you'd like to join me. That's the end of the presentation. So all right. Sure. Let's get started.

It's Rob Chantry from Berenberg. Just 3 questions. So firstly, can you just talk about some of the, I guess, political dynamics of the timing lag on cost recovery. So you mentioned price increases -- sorry, cost increases May and April, but it was May when you started putting the prices up. Is there any kind of conversation around increasing indexation or the kind of puts and takes of trying to get price increases in would be interesting. And secondly, could you just kind of give a bit more of a structural update on Adey in terms of the state of the boiler market, the proposition that it has, the headwinds that it could face on a multiyear view separate from the near-term issues? And then thirdly, could you just kind of give us an update on the potential pipeline of international acquisitions and expansion, like 2 really good deals last year, but both in the U.K. Is that something you're still prospecting in the, I guess, the wider climate and water space in Continental Europe?

You want to take the first 2 on pricing and Adey, and then I'll take the acquisitions piece.

Sure. Yes. So yes, I mean, on the cost dynamics, I think we've seen the inflation come through. It's a complex landscape. You can't just look at the oil indices and you can't just look at the kind of naphtha indices or things like that. The polymer pricing is really specific to the grade of polymer. So quite a complex landscape. We've put through double-digit price increases to cover that. We've seen, I guess, on average, things stabilize at the cost level. The picture remains volatile, obviously, in the Middle East. We're not seeing polymer costs come down dramatically. That may change in the second half, and we'll manage that accordingly. If we see deflation, then clearly, we'll be having conversations with customers if that comes through. It hasn't yet. It could be that it stays where it is. We can't rule out further increases if we saw further inflation, right, if there was a reescalation. So it's a dynamic picture. We've managed it well. Our procurement teams liaising across the supply chain to get as best value as possible and maintain supply, which they've been successful at doing. We just need to continue to actively manage that and see how we go. In terms of Adey, actually, there's a quality business in there. We've had 2 issues in the half, which are nonrecurring, but they have been root caused and we've made improvements there as to how we manage our inventory so that we don't get those and how we manage our suppliers, so that doesn't repeat. They are a strong gross margin business. It's a high market share product for a reason. It's the highest quality product in the market, really the first to market back in the day in terms of magnetic filtration and continuing to innovate. So as you move from boilers to heat pumps, they have products for those as well because whatever your system, a hydronic water system, it needs to be kept clean to run efficiently, to protect the heat source, whether that's a boiler or a heat pump and also to maintain the life of that system and the efficiency. So that will continue. Clearly, the more RMI work that's out there, the more people are moving house, doing renovations, extensions, all those kind of things, that will drive volume, right? So we are still at a low point in the cycle, but we do still see that that's a really important part of our overall portfolio.

So on the M&A, great question. So as I said, we've been quite active. These 2 deals, one was a process, one was actually a bilateral piece of effort on our part, the ones that they closed. They're representative of many of the things we'd like to see going forward, good easy bolt-on size, good strategic fit, right? The one thing that they didn't do is bring us a bit more geographic diversification. Obviously, the solution infill was really pleasant on both of them, especially Monodraught. Our funnel is quite active. We remain, as I've always said, we'd like to be cultivating between 5 and 10 active discussions at a given time. It's always difficult to know when things will happen, of course. But I can tell you right now that we're at the upper end of that range. And most of those deals that we're actively discussing with people hoping to make something happen, cultivating relationships are outside the U.K. Our main focus is on ventilation first and then storm water management, because we see those are the 2 end markets, which, by the way, not just in the U.K., have those same sorts of macroeconomic drivers everywhere. I mean these are issues. Those slides I showed earlier, I mean, those are true across all of Europe as well. So the climate issues, the mitigations there and the need for better ventilation is actually a universal issue today, too. So I hope that answers your question. All right. Let's see, Aynsley. We'll try to get -- we have time to get everyone, so...

Aynsley Lammin from Investec. Just 2 for me, please. Just wondering, obviously, like-for-like decline in revenue for May and June was better than the first 4 months. Just wondering how much of that was kind of better pricing versus the volumes actually trend a bit better as well and what you've seen in July? And then the second question, just on the fact that PVC price, polymer price has gone up. Is there a kind of risk in the second half, you get more substitution for copper? I mean I'm not sure how that dynamic works, what the price differential is. Any color on that would be interesting.

Want to take the first one?

I'll take second.

Yes. So sorry, the first one was on the...

May, June, the improvement like...

The improvement May, June, yes. So obviously, there's a big price impact there. We put through double-digit price impacts on about 60% of our business. So that's had a big effect. But we did also see a seasonal uptick. So you normally expect May, June to be higher on a seasonal basis, given the activity levels in the construction industry as a whole, and that did come through. So that's a solid sign. So I would say the market volumes really are still being slightly negative year-on-year overall, but stabilized and not getting worse. And that's really come through in July as well. So July was in line with our expectations and is consistent with the kind of seasonal phasing of May and June.

So on your second question, on -- could we see some sort of reverse substitution with the pricing increases? I really don't think so. Two different sides. One is if you think about plumbing, the switch from copper to plastic has been going on steadily for decades now. And one of the things that -- it's a completely different way of working. Push fit ease, much faster assembly work, much more assurance of not having leaks. I think going back to soldering is something I don't think you'll see a lot of plumbers who haven't already made the switch or have made the switch won't be going back. The other thing that I remind people that as much as a double-digit price increase in plumbing is significant for us in the product line. Plumbing is still like less than 1% of the cost of a house. So the overall pressure to shift is probably bigger on other issues. And I think you'll see higher up to build materials, perhaps a bit more substitution pressure over time. We're not worried about that. On the drainage side, the substitution has been largely from concrete to plastic over the years, similar situation. We think that the total installed cost of the solution is still far superior. So we're not anticipating or modeling for a reverse substitution to happen. I will go over there and then we'll come back over to this side. How is that?

It's Charlie Campbell at Stifel. A couple from me as well, please, if I can. So first of all, just as we get very close to Future Homes, finally, I suppose. Just wonder if you've got a feel now for kind of pounds per house under a house -- for a house now versus pounds per house in a Future Home Standard sort of fully compliant unit with selling everything that you could into it. And then the second question was just on, again, that plastic concrete point. I'm just wondering if that's coming through as you expect under AMP8.

Sure. I'll take both of those. On the Future Home Standard, what we said, we did modeling early on in this. And really, it hasn't changed much. If you think about a house today, it could have GBP 800 to GBP 1,200 worth of plastic plumbing. If you think about -- and of course, each individual house design in the Future Homes may be a bit different, have different combination of heat pumps, underfloor heating, different ventilation solutions, filtration, wastewater heat recovery, right? So if I think about all the things that we can deliver to a house, it's still somewhere in that sort of 2 or 3x more revenue to up to 5x more revenue. That would be -- the 5x would be 2 floors of underfloor heating, mechanical ventilation heat recovery, the best filtration and heat recovery options. And of course, there's hybrids all the way in. In any case, it is clearly a net revenue gain for us, and we expect the penetration of these solutions to be quite high as it's pretty much consensus that everything is pretty much going to air source heat pumps. And that really changes the dynamic of both the heating and how you heat the house because you need much larger emitters, more efficient systems. And actually the impact of ventilation with heat recovery. Because if you don't have heat recovery in the ventilation, you're going to be increasing the operating cost of house over time. Some of this may take a few years to play out, but it's quite positive, and we still think that's about the right range, okay? On the concrete substitution, so when we did the AMP8 modeling in particular, we assumed the traditional sort of 1/3, 2/3, 1/3 being plastic, 2/3 being concrete, right? Very -- I mean, this is very broad strokes. What we do believe, and we see some indications that we're going to be able to apply plastic solutions in this retrofit. Retrofit sort of not the right term, right? But I mean, you're essentially going into developed areas, subdivisions, right, areas and sometimes urban environments where you have to go in and essentially put in drainage where it wasn't originally anticipated. So the ability to get more products in on each lorry, right, fewer lorries, faster time install, much easier, less heavy equipment. All of that is really significantly advantaged by using a plastic solution. So we do expect that conversion actually to be better with AMP8 going forward for us. Let's see, maybe I guess, Christian, and then we'll just kind of work our way back on this side maybe. Okay. Let's go there first. That's fine. We won't -- Christian, we'll get you eventually don't worry. No, no, Priyal, go ahead.

It's Priyal Woolf from Jefferies. I've just got 2 questions. The first is a follow-up on the Future Home Standard. So you've obviously talked about this 2 to 3x to 5x uplift. Does that kick in mainly from March 2027? Or are there some particularly volume house builders who might already be building to the Future Home Standard already? Just trying to work out the sort of curve of that uplift that might come through. And then the second question is just on the GBP 4 million of cost savings that you've been talking about. Should we -- should we think about that as incremental to profit next year or potentially just offsetting weakness that you might see in the market or more cost inflation that might come through?

I'll do the Future Home Standard, you'll do the cost?

Okay.

So on the Future Home Standard, so some of the large house builders have already started implementing some of these so that they make sure they're ready. Nobody is expecting to all of a sudden flip a switch on March of next year and go from 0 to 100% for a few reasons, right? First of all, from March of next year, new projects can't be permitted unless they have all the plans in place will be Future Home compliant. Things that are already in flight will be completed as they are. 1.5 years from now, you won't be able to complete anything that isn't compliant. We're talking about stand-alone houses and pitched roof house building right now. There is a slight lag for high-risk buildings, right, about another roughly 6 months. But -- so you can think that between now and essentially 2 years from now, everything will need to be compliant that gets a building certificate, okay? So that's sort of the phase-in period. Now there's 2 other factors. One is some builders are already building already, and we've done about 3,000 plots are doing -- either completed or are doing about 3,000 plots of underfloor heating for small -- for midsized and large house builders already. So they're essentially ramping up ahead to debug the system, okay? So that's underfloor heating. The other thing that we'll see is there's work to do by different housing designs to see what ventilation solutions will be needed. And so in the beginning, we expect we'll see more one floor underfloor heating, that could become 2 at some point in the future. And the mix between distributed ventilation and mechanical ventilation and recovery, we think will shift over time toward more MVHR. So it is a bit of a phase, starting small now. We'll certainly pick up between March of next year and March of '28. At which point, all new houses will need to be compliant. And then the question is, how do we actually continue to improve? Because the point I've made many times before is it's not like one and done. This is the beginning of an innovation cycle, I believe. So I think we'll see quite a lot more coming out. There are other parts of the regulations, including wastewater heat recovery that still needs to be worked out. Well, it's there. Now we have to figure out how we're going to meet it. And the government did say they'll come back and take a look at Part O at a future date. That's overheating. I suspect there's going to be pressure to do that sooner rather than later. So I think that what we'll see is this a little bit of activity now starting to ramp up over the next 24 months and then continuing to find more ways to add value.

On the GBP 4 million, yes, I mean, today is the reiteration of the number that we obviously talked about in May with our trading update. I think at that point, most of our analysts, many of whom are in the room today, updated next year's numbers and included that in there. So I'm expecting GBP 4 million to be incremental to this year's result when you look on a year-on-year build, but not necessarily incremental to what's currently in consensus for next year.

We have 2 here. Sure, go ahead. You're back, then Christen.

Jamie Murray from Bank of America. Two questions, please. First is following the news over the weekend about Vistry, that is an insurer, is cutting supplier credit insurance by 70%. Can I just ask what sort of exposure you have to Vistry and what sort of impact this might have for you? And how will you manage this development going forward? And then the second, if you could just provide some color on the like-for-like growth of Monodraught and Davidson, please?

I'll take the first and then...

You take both if you want.

So yes, I mean, we'd never comment on any specific customers. But if I perhaps explain the way our chain works. We sell our product into the merchant network, and that's for reasons of getting nationwide distribution coverage. Our end house builders, we may have an agreement with that they will be using contractors, obviously, to purchase our products from the merchant network. So we would never see that we have a direct credit exposure to any of the house builders directly, although, of course, we have an interest as everyone does in the overall health of the industry overall. I'm sorry, the second question was on?