Company Announcements

Genuit Group plc

Interim results for the six months ended 30 June 2022

On track to meet full year expectations

Genuit Group plc ("Genuit", the "Company" or the "Group"), a leading provider of sustainable water, climate and ventilation products for the built environment, today announces its unaudited interim results for the six months ended 30 June 2022.

Joe Vorih, Chief Executive Officer, said

"Genuit has performed well in the first half. Agile pricing leadership offset inflationary pressures, and the effect of selective business decisions helped to increase our margins. These, with more focus on operational efficiency, overcame some limited headwinds while delivering revenue growth over the prior year and improving profitability throughout the second quarter.

We continue to invest in the business, achieving increased sales from new and innovative products, and positioning us to deliver our sustainability plans which now include our Science-Based Targets. Our structural tailwinds are driven by regulation and the resulting investment needed to mitigate and adapt to effects of climate change. We remain focused on unlocking ways to accelerate growth and expand operating margin. While mindful of the macroeconomic pressures, we have good momentum as we enter the second half, and the Group anticipates meeting full year expectations."

Financial Results

Financial highlights 

·      Revenue increase of 7.6% against strong prior year comparatives, 5.7% higher on a like-for-like basis

·     Price leadership offset specific headwind events, a planned prioritisation of higher margin business and a minor decline in market-driven volume

·      Isolated cyber incident (fully mitigated) and Adey volumes held back by nationwide boiler shortages - both impacted operating profit

·      Pricing lag resolved with month-on-month improvement in Q2 EBIT margin

·      Further investment in delivering our sustainability goals, Science-Based Targets finalised for validation

·      Net debt³ of 1.5 times pro forma EBITDA⁴ in line with expectations

·      RCF of £350m renewed as a Sustainability Linked Loan ("SLL") until 2026 with a £25m private placement until 2029  

·      The Group intends to pay an interim dividend of 4.1pence, an increase of 2.5%

ESG highlights 

·      The Group remains focused on delivering its 2025 ESG targets

·      Continued focus on serving the needs created by four key sustainability drivers:

o  Increasing need for resilient drainage;

o  Need for green urbanisation;

o  Increased focus on clean healthy indoor air and ventilation; and

o  A move towards a low, or zero carbon, built environment.

·      As well as serving the needs of our sustainability-based growth drivers, we continue our progress on operating sustainably:

o  Material consumed from recycled inputs at 47.1%, against a target of 62% by 2025, with new multi-layer extrusion tooling due to come on stream in the second half;

o  Our carbon intensity is broadly in line with the last year end;

o  Increased sales of new products to a value of £161.0m (FY2021: £120.0m) resulting in a Vitality Index of 26.2%, ahead of our target of 25% by 2025; and

o  3.0% of our workforce were in accredited work and learning programmes - broadly in line with reporting at the full year results.

Additionally, the Group's Science-Based Targets ("SBTs") have been finalised for validation by the Science-Based Targets initiative ("SBTi"). SBTs are clearly defined pathways for companies to reduce greenhouse gas ("GHG") emissions, which have been validated by the SBTi.

Outlook

·      The Group has a balanced exposure underpinned by structural growth drivers

·      Despite the short term headwinds in the residential sector (including ongoing boiler supply constraints), the long term fundamentals in this market continue to be strong, driven by new housebuilding and increased interest in energy efficiency

·      Robust price leadership actions and a greater focus on operational efficiency and cost base structure are expected to offset slightly weaker demand

·      Whilst mindful of the uncertain macroeconomic and geopolitical environment, our order books remain strong and the Board anticipates the Group will meet full year expectations.

¹ Underlying profit and earnings measures exclude certain non-underlying items and, where relevant, the tax effect of these items. The Directors consider that these measures provide 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.

 ²  Underlying cash generated from operations is defined as cash generated from operations, adjusted for non-underlying cash items, after movement in net working capital and capital expenditure net of proceeds from disposals of property, plant and equipment.

 ³  Leverage is defined as net debt divided by pro forma EBITDA. Net debt within the leverage calculation is defined as loans and borrowings net of unamortised issue costs less cash and cash equivalents, excluding the effects of IFRS 16.

 ⁴  Pro forma EBITDA is defined as underlying operating profit before depreciation, amortisation and share-based payment charges for the 12 months preceding the balance sheet date, adjusted, where relevant, to include a full year of EBITDA from acquisitions made during those 12 months.

 ⁵  Carbon intensity is defined as tonnes of carbon per tonne of output using the market-based method.

Capital Markets Event

We plan to hold a capital markets event in the Autumn.  Further information will be published in due course.

Enquiries:

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

There will be a presentation for analysts and investors at 0830hrs (BST) on Tuesday 16 August 2022 at Brunswick Group's offices, 16 Lincoln's Inn Fields, London, WC2A 3ED. Please contact Genuit@brunswickgroup.com to confirm your attendance.

The presentation will also be available to listen into via webcast. Please register for access to the webcast via the following link: https://www.investis-live.com/genuit-group/62ea7a4ab973541f0011b16c/dfghjk

We recommend you register by 0815hrs (BST).

The webcast will be recorded and a replay will be available shortly after the webcast ends via the same link above.

The presentation is also available on the Reports, Results and Presentations page on Genuit's website at https://www.genuitgroup.com/investors/

Notes to Editors:

Genuit Group plc ("Genuit", the "Company" or the "Group"), a leading provider of sustainable water and climate management solutions for the built environment, is the largest manufacturer in the UK, and among the ten largest manufacturers in Europe, of piping systems for the residential, commercial, civils and infrastructure sectors by revenue. It is also a leading designer and manufacturer of energy efficient solutions in water-based heating systems in the UK.

The Group operates from 30 facilities in total and manufactures the UK's widest range of solutions for

heating, plumbing, drainage and ventilation. The Group primarily targets 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.

Genuit Group plc changed its name from Polypipe Group plc on 6 April 2021. The Group was

established in 1980 and has been listed on the premium segment of the London Stock Exchange since 2014.

Group Results

Revenue for the six months ended 30 June 2022 was 7.6% higher than the prior year at £318.0m (2021: £295.6m). On a like-for-like basis, excluding the impact of acquisitions, revenue was 5.7% higher than prior year. The Group successfully implemented further price increases in the period and delivered additional operating efficiencies to mitigate the extent of the raw material cost inflation. The Group remained focused on its medium-term drivers - a structural UK housing shortage, the regulatory and environmental drivers around water and climate management, and indoor air quality.

Underlying operating profit was £47.4m (2021: £48.6m), a reduction of 2.5% on the prior year, driven by the timing of the price increase at the start of Q2 compensating for inflation experienced in Q1 as well as management decisions in respect of certain volume to drive the quality of the business. This represented an underlying operating margin of 14.9% in the period, a decline of 150 basis points on the prior year. The H1 performance was impacted by the effects of an isolated cyber incident at one of our businesses in Q2 which had a negative impact of some £4.4m during the period. In addition, supply constraints, most noticeably in respect of semiconductors and printed circuit boards in our Adey business meant that we were unable to satisfy customer demand and which had an impact of some £2.6m during the period. Without these two issues, the Group would have reported underlying operating profit of £54.4m and a margin of 16.5%. Sequential month-on-month improvement in margins in the second quarter are expected to come through more fully in the second half of the year.

Underlying finance costs of £2.8m (2021: £2.1m) were broadly in line with expectations driven by larger levels of drawdown of the Revolving Credit Facility compared to prior year.

Non-underlying operating costs of £11.7m (2021: £12.3m) consist of acquisition costs, some severance costs, the costs associated with resolving a cyber incident and amortisation of intangible assets arising from acquisitions.

The total tax charge for the period was £7.9m (2021: £14.7m). The underlying tax charge of £9.8m (2021: £8.2m) represents an effective underlying tax rate of 22.0% (2021: 17.6%).

Underlying profit after tax was lower than the prior year at £34.8m (2021: £38.3m). Underlying basic earnings per share decreased to 14.0 pence (2021: 15.8 pence).

Including non-underlying items, profit after tax increased to £25.0m (2021: £19.1m). Basic earnings per share increased to 10.1 pence (2021: 7.9 pence).

The Board recognises the importance of dividends to shareholders and has declared an interim dividend of 4.1 pence per share. This dividend will be paid on 28 September 2022 to shareholders on the register at the close of business on 2 September 2022.

Business Review

The Group led the industry in robust pricing moves and reduced implementation time lags to mitigate the effects of input cost inflation. Management has increased its commercial focus, walking away from low margin sales and increasing the quality of the Group's business. Inflation has been a considerable challenge as well as supply constraints, most noticeably semiconductors and printed circuit boards but there are signs that raw materials inflation at least is starting to ease.

During the period we experienced an isolated cyber incident on our Climate & Ventilation division that was ultimately unsuccessful but resulted in temporary disruption to manufacturing and sales in April and May. We implemented new, stronger protection across the Group in the first half. Our order books remain strong, and we anticipate that most of the lost volume will be made up in the second half of the year.

The combined impacts on EBIT for both the cyber incident and constraints on upstream boiler manufacturing was some £7m in the period and we expect the portion attributable for the cyber incident at least to be fully recoverable in the second half and for there to be some mitigation of the effects of the shortfalls in boiler manufacturing also in H2.

The acquisition of Keytec Geomembranes for £2.6m was made during the period and has exceeded expectations, and its integration into the Group is progressing well. This business strengthens our water management systems installation capabilities. 

Revenue for the six months ended 30 June 2022 was 7.6% higher than the prior year at £318.0m (2021: £295.6m). On a like-for-like basis, excluding the impact of acquisitions, revenue was 5.7% higher than prior year.

Revenue in Residential Systems was 8.2% ahead of prior year and 6.1% on a like-for-like basis. In Commercial and Infrastructure Systems, revenue was 6.5% ahead of prior year and 5.2% on a like-for-like basis. New product innovation remains strong. In Residential Systems, we launched several new ranges in the first half of the year, including Nuaire's DX Cooling modules designed to work in conjunction with existing MVHR ventilation units to tackle the challenges of overheating in apartments. Adey launched a number of new products to expand their range of performance enhancing heating system additives, including the new MCXS leak sealant additive. In Commercial and Infrastructure Systems, our Civils and Green Urbanisation business launched SciClone X, a new stormwater treatment device for removing pollutants from surface water runoff.

Residential Systems

Trading in the Residential Systems segment performed strongly, with revenue of £198.9m (2021: £183.8m) 8.2% above prior year, and 6.1% ahead on a like-for-like basis, driven by robust price leadership in the market. The residential sector remains strong, driven by the continued structural housing shortage and pent-up demand with house prices remaining buoyant. Confidence remains in the sector over the short to medium term. Overall, the CPA is forecasting that 2022 housing activity will be 1% up on 2021.

Margin recovery continued through the first half of the year reaching 18.8% for the half with robust sequential margin improvement throughout the second quarter. Excluding the impacts of upstream supply chain issues affecting Adey and the cyber incident, divisional EBIT margin would have been some 19.7% for the period.

Commercial and Infrastructure Systems

Revenue of £119.1m (2021: £111.8m) in Commercial and Infrastructure Systems improved by 6.5% vs 2021 (5.2% on a like-for-like basis). Sales in our ventilation business is driven by increased focus on the importance of air quality in the workplace when it was temporarily impacted by a cyber incident in the second half of April that curtailed manufacturing and sales for six weeks. The order book remains strong, and management anticipates recovering most of this lost volume in the second half of the year.

The division reported an underlying operating margin of 8.5% during the period, which excluding the impact of the cyber incident, would have been some 11.5% for the period. Our Water Management solutions have performed well with the ongoing requirement for new housing and our most recent acquisition in Keytec has strengthened our ability to supply and install our attenuation systems, which is also helping to bridge the onsite skills shortage gap.  

Environmental, Social & Governance

We remain committed to be carbon neutral by 2050, as we continue our improvement trajectory beyond the targets we have set out for 2025. We continue to place innovation at the heart of our business, ensuring we have the solutions for the emerging challenges faced by the construction sector.

Our commitment to employee development and social mobility is reflected in our membership of The 5% Club, our proportion of qualifying colleagues at 3.0%. Our use of recycled material in the first half was 47.1% of our total tonnage.  By 2025, recycled materials should represent 62% of our total polymer consumption and we expect a new multi-layer extrusion tooling due to come on stream in the second half. During the period, the Group began its migration of its company car fleet to electric vehicles and plug-in hybrid electric vehicles.

Financial Review

Finance Costs

Net underlying finance costs for the six months ended 30 June 2022 increased to £2.8m (2021: £2.1m) due to increased interest rates on a higher level of borrowing through the first half of the year.  With effect from 4 January 2022, interest was payable on the Group's RCF at the Standard Overnight Index Average (SONIA) plus an interest rate margin ranging from 0.90% to 2.75% depending on leverage. The interest rate margin at 30 June 2022 was 1.40% (30 June 2021: 1.65%).

Taxation

The Group's tax charge for the six months ended 30 June 2022 decreased to £7.9m (2021: £14.7m) as the prior year included an adjustment in respect of changes in the income tax rate. The underlying tax rate (underlying tax: underlying profit) has been provided at the estimated full year rate of 22.0% (2021 full year: 17.6%), driven by a prior year adjustment in respect of a corporate interest restriction in one of our group companies.

Dividend

Our dividend policy is normally to pay a minimum of 40% of the Group's annual underlying profit after tax. The Directors intend that the Group will pay the total annual dividend in two tranches, an interim dividend and a final dividend, to be announced at the time of announcement of the interim and preliminary results respectively with the interim dividend being approximately one half of the prior year's final dividend.

Cash Flow and Net Debt

Cash generated from operations during the period amounted to an inflow of £18.4m (2021: £23.6m inflow). This result includes a working capital outflow of £37.4m (2021: £31.1m). A first half working capital outflow is a normal feature of the Group's annual working capital cycle and arose due to rebate settlements and the impact of raw material inflation on inventory valuation.

Capital expenditure decreased to £9.4m (2021: £15.1m) with larger projects forecasted to be completed in the second half of the year. The full year 2022 capital expenditure is expected to be in the region of £40m, with a primary focus on key commercial and innovation lead projects.

Net debt (including unamortised debt issue costs but excluding the effects of IFRS 16 capitalisation) decreased to £167.9m at 30 June 2022 (2021: £169.6m). Leverage was in line with prior year and expectations at 1.5 times pro forma EBITDA.

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 were subsequently renewed on 10 August 2022 and consist of a £350.0m RCF and a seven year committed £25.0m private placement. At 30 June 2022, the Group's RCF was £300m of which £82.0m was undrawn (2021: £102.0m) and the Group's liquidity headroom (cash and undrawn committed banking facilities) was £131.7m (2021: £129.6m). Our focus will continue to be on deleveraging and our net debt to EBITDA ratio stood at 1.5 times pro forma EBITDA at 30 June 2022 (2021: 1.5 times pro forma EBITDA), increasing to 1.6 times pro forma EBITDA including the effects of IFRS 16. This headroom means the Group is well-positioned with a strong balance sheet.

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 15 months. Accordingly, they continue to adopt the going concern basis in preparing the condensed set of consolidated financial statements.

Principal Risks and Uncertainties

The Board continually assesses and monitors the key risks of the business and Genuit 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, have not changed from those which are set out in detail in the principal risks and uncertainties section of our 2021 Annual Report and Accounts.

These principal risks and uncertainties include macro-economic and political conditions; climate change; raw materials supply and pricing; information systems disruption; reliance on key customers and recruitment and retention of key personnel.

The Board is mindful of the global macro-economic uncertainty from the ongoing tragic events in Ukraine. The impact of this situation on the Group in the first half of the year has been minimal and the Group is well positioned to mitigate any further risk for the full year 2022.

A copy of the 2021 Annual Report and Accounts is available on the Company's website www.genuitgroup.com.

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' Responsibility Statement

We confirm that to the best of our knowledge:

·      The condensed set of consolidated financial statements has been prepared in accordance with UK adopted International Accounting Standard (IAS) 34, Interim Financial Reporting; and

·      The Interim Management Report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b)  DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last Annual Report and Accounts that could do so.

This report was approved by the Board of Directors on 15 August 2022 and is available on the Company's website www.genuitgroup.com.

The Directors of the Company are:

Ron Marsh                     Chairman

Joe Vorih                        Chief Executive Officer

Paul James                    Chief Financial Officer

Matt Pullen                     Chief Operating Officer

Mark Hammond              Non-executive Director and Senior Independent Director

Louise Hardy                   Non-executive Director

Lisa Scenna                    Non-executive Director

Louise Brooke-Smith      Non-executive Director

Kevin Boyd                     Non-executive Director

By order of the Board:

J M Vorih                                                    P A James

Chief Executive Officer                            Chief Financial Officer