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Good morning. Delighted to be here. This is 1 year in and 2 weeks for me. Many of you were here a year ago when I stood up and said I've been here exactly 2 weeks so I ask Paul all the tough questions. So I'll take a few now. But look, really pleased to be here, obviously, to share our full year 2022 results. And also importantly, we'll give you a good update on some of this progress because I think it's really important that we reflect not only on the challenging year we've just had and a lot of the external conditions, which certainly were probably difficult to foresee as we were sitting here a year ago, right at the beginning of the Ukraine war, at a time when people were still debating how much inflation we were going to get and just how transient it was going to be. Answer to that turned out to be a lot and not very.
The supply chain issues, which, of course, we've seen in '21, continuing in '22 exacerbated by some of the Ukraine issues. And then a lot of housing uncertainty, which of course, last autumn, kicked up a notch with the sort of challenges we had in the transient government. Despite all of these headwinds, I'm really pleased to stand here and tell you that we increased our revenue by nearly 5%, our operating -- underlying operating profit by about 3%. And I really think these were quite solid results and also represent the beat to consensus, which is pleasing all around. Our underlying basic operating profit is up to 30.8p, which is -- sorry, our base EPS, which is pleasing. We have our net debt at about 1.2x pro forma EBITDA, which I think importantly, is at the lower end of the target range that we said we would operate at. You may recall from the Capital Markets Day that while we've consistently said 1 to 2x with our proven ability to delever is a good range. We did also say that in this time of uncertainty, staying in the lower half of that is probably a good move so we're squarely within that. Despite all of this, we were able to make a significant investment in the business with over GBP 41 million in capital spend over a wide range of new products, new capacity, new recycling usage capability. And that's, of course, very important to do in times like this. So as a result, our final dividend will come in about 8.2p, and, therefore, full year, we're up from 12.2p in 2021 to 12.3p in 2022. So our strong cash focus, our strong operational execution and our agility and resilience of our business model's allowed us to get through what has been certainly an interesting year and have what I'd consider to be quite pleasing results. Let me take you through a couple of the highlights. If I think about our strategy, during the summer of last year, we had an extensive strategic review progress. For those of you who weren't at the Capital Markets Day, I did explain then that we took a very involved process. We had about 50 of our senior leaders. We did a lot of research, a lot of external customer validation and discussions and developed our thesis, which I believe, as I told you when I got here, was intrinsically true, into a very firm focus on sustainable growth as drivers for the long-term success of the Genuit business. We announced in our sustainable solutions for growth strategy at the Capital Markets Day in November. We also said at the time we would organize in 3 business units, as you see, which have much better strategic alignment, which is very important internally for our people as well as for our customers as we brought together the different businesses, which have the ability to sell complete solutions and to provide better value to them. And of course, from an investment standpoint, it also makes our strategy and the results against that strategy much more transparent. I'll talk more about climate management, water management and sustainable building solutions in the coming slides. Importantly, our team is the heart of everything we do, and we have been working firmly on our talent upgrade. We've also, in particular, added resources in key strategy execution and operational roles that helped us to realize synergy as well. This -- having a more coherent Genuit structure and culture across the business is quite important. If we're going to deliver synergies, we need the teams working well together. And if we're going to attract and retain the very best talent, we want them to be working for a purpose-driven company with the values and behaviors that they believe in. So this will remain a key piece of what we do. A meeting with me wouldn't be complete if we didn't talk about the Genuit Business System and our lean transformation, and I'll share with you some early results from the 2 lighthouse transformation sites, 1 of the 2 lighthouse transformation sites that's already underway, and we will be kicking off a third site later this year. Our initial restructuring and our purchasing initiatives, you'll recall we communicated at the time of the trading update last autumn, are delivering annualized savings about GBP 8 million. And as I've said, simplification remains a key piece of what we'll do, and we'll be continuing this work into 2023. If I turn to our sustainability, our path to Net Zero. You know that our really, fundamentally sustainability is at the heart of our strategy. And with our path to Net Zero that we've laid out, we believe we will continue to lead the way in execution with a very clear road map of how to get there. In terms of this past year, our Scope 1 and 2 carbon intensity was lower by 3.6% year-over-year, and that's down over 50% since our 2019 baseline. We're very proud of that, and we see a clear path forward to continue on that progress. We have submitted our science-based targets, and we are already working on that implementation, so that road map is firm and has a good path ahead of us. Our recyclate use was broadly flat at 48.7% last year, just on marginally from 2021. That was really held back by a temporary shift away from high recyclate content underground products. That will reverse, of course, as market starts and completions ebb and flow. But importantly, we've actually invested and brought on new capacity, which then provides about another 1/4 of the road map from our 48%, 49% to 62%, which is our target in 2025. That investment is online and ramping as we speak in 2023 so we're quite excited about that. As a result, we're on track for our target of hitting 62% recycled by 2025, and we'll continue to share progress as we move forward. We retained our Silver Status in The 5% Club, but we did increase the percentage of Genuit employees in earn-and-learn programs from 3.2% in 2021 to 3.5% this year. That represents all of our apprentices, people in our driver academies and other credit learning programs and, of course, our graduates. And we have a strong focus across the business to continue to improve that participation. Our vitality did increase from 20.2% the prior year to 24.7% this year on the back of a series of new product introductions, and we have more in the pipeline as we move forward. So as you can see, it's been a busy year. And at this point, I'd like to turn it over to Paul to give you a little more detail on the financial highlights of the business. Paul, over to you.
Okay. So thank you, Joe. Good morning, everyone. If you'd like to turn to Slide 8, I'll take you through those financial results. The group achieved an underlying operating profit or EBIT of GBP 98.2 million after the effects of the cyber incident and some supply constraints, with the impacts of these totaling some GBP 7 million of underlying profit. Without these impacts, underlying operating profit would have been some GBP 105 million for the year with an operating margin of some 16.4%. Now in the first half, we encountered volume decline of about 4%, and this accelerated somewhat in the third quarter to circa 10%. And then let's not forget this was against strong 2021 comparators. Yet despite all of this, we achieved sequential month-to-month improvement in group operating margin percentages from July through to November, with December being a half month through a robust price leadership and a number of self-help measures on cost control, and this resulted in a small beat on expectations for underlying operating profitability for the year of just under 3%. Despite borrowing levels not too dissimilar to 2021, borrowing costs were GBP 7.6 million, up 81% on last year's -- or 2021's GBP 4.2 million, and this was driven by the increase in base rates, particularly in the second half. We have GBP 25 million worth of private placement loan notes that we took out in August at what looked like now very preferential rates. And this acts as something of a mitigation. But 2023's borrowing costs are likely to be at the level of GBP 10 million to GBP 11 million. Underlying basic earnings per share was up 0.7% on 2021 despite this effect, and dividends per share for the year was up 1% at 12.3p. The underlying effective tax rate was near enough 16% for 2022, and I anticipate it to be circa 20% for the current year '23, the increase driven by the introduction of higher statutory corporate tax levels. The underlying effective tax rate was lower in 2022 compared to '21 as we benefited from the full year effect of so-called super-deductions and capital allowances on our investments. Now I hope Slide 9 will make things a little clearer when it comes to revenue and underlying operating profit. The waterfall charts many of you should be familiar with. The top row is showing the walk-through of revenue from last year to this, and the bottom row is underlying operating profit or EBIT. And if I go from left to right on the columns and just talk you through them. Revenue growth was driven through taking a price leadership position in the market and was partially offset by a decline in volumes of circa 7% against that strong 2021 comparative as the group was then still bouncing back with the tailwind of post-lockdown pent-up demand. In normal inflationary times, we used to say we would compensate for inflation in absolute pound note terms, and this would have a margin dilutive effect in the past. Clearly, we have shifted the paradigm to a more substantial price increases to try to sustain margin through price leadership as well as the business working tirelessly to reduce the amount of time between when inflation bites and when we have effective price leadership -- price increases, sorry, in the market. In the first half, the group achieved sequential improvements in operating margin, but this took a knock in Q3 when normally expected seasonal uptick did not materialize. Action was taken then and there to remove costs, and the group reverted to sequential monthly improvement in operating margin to more acceptable levels by the start of the fourth quarter. As we announced in November, we have taken additional measures to simplify the business by taking out layers and removing spans of control -- reviewing spans of control as well as better leveraging our scale for procurement benefits, and this will deliver the GBP 8 million on a fully annualized basis that Joe mentioned. Apart from this, SG&A cost growth in '22 was modest and indeed flat on a like-for-like basis in a highly inflationary period. The 3 acquisitions from '21 show an operating profit margin of over 20%, and with the business being 90% U.K.-based, currency effects are relatively negligible for our group. Now included the subtotal, if you like, and after taking into account conscious management decisions to improve the quality of business, excluding the distinct effects of supply constraints caused by component shortages, operating margins would have been at circa 16.4% with underlying operating profit at some GBP 105 million. The cyber incident, although largely mitigated by the end of the year and supply constraints, have reduced revenues by about GBP 19 million. This cyber incident proved a catalyst and provided the impetus for the group to review its cyber defenses in a very short space of time, accelerating existing upgrade plans. And some of these costs are contained in underlying expenses with a smaller proportion charged to exceptionals. Now if we move to Slide 10 and just look at our performance according to the 2 divisions, Residential Systems and Commercial and Infrastructure Systems. As of January 1 this year, as we announced in November, the group is now organized along those 3 business units, consisting of sustainable business solutions, management solutions and cloud management solutions or SBS, WMS and CMS, respectively. In the Residential Systems segment, we saw 5% like-for-like revenue growth this year. And I contend that, that's a robust performance, given everything we had to face. Underlying operating profit was up 8.2% at GBP 79.1 million with an increased operating margin of 20.1%. But it is worth emphasizing, we had that strong sequential month-on-month growth in operating margin as the second half progressed after the nonappearance of that seasonal uptick in demand. We remain confident of our position within RMI, particularly as there is a mix shift towards retrofitting technologies that improve heating efficiency in the current high-cost environment and away from other types of spend, and our evidence of this is that Nu-Heat, the business we purchased in February '21, has grown its revenue by well over 20% this year. In the Commercial and Infrastructure Systems segment on Slide 11, revenue was broadly flat on a like-for-like basis, adjusting for the acquisitions only. But this segment was disproportionately affected by the cyber incident, albeit business largely recovered from this in the course of the second half and key supplier shortages. Without these impacts, operating margin would have been broadly in line with '21. And we made a small acquisition in this space in the first half, a melting based business called Keytec in North Backenshow that specializes in the installation of water management systems and is geographically complementary to Solitec, a business we acquired as part of the Alderburgh acquisition in 2019. Slide 12 shows the breakdown of non-underlying items totaling GBP 45 million before tax, nearly GBP 36 million which is noncash in nature. There's been some uptick in amortization following the 2021 acquisitions, but the key driver of non-underlying items in 2022 consists of 3 components: impairment to goodwill, impairment of intangible assets and restructuring costs. The goodwill impairment was itself driven by a substantial increase in the discount rates of 250 basis points, that's 2.5 percentage points, and we now consider the matter dealt with. The GBP 2.8 million impairment of intangible assets was driven by the early end of customer agreements, which happened to be a low margin and the absolute impact on group profit is immaterial. All our other customer agreements in that part of the business remain ongoing and more profitable. The GBP 9.3 million restructuring cost, like much of the annualized savings I've already talked about, and we expect such costs to continue into 2023 and then a matter of restructuring will draw to a close as we optimize cost efficiency in the current year. Now to Slide 13 and cash flows. Just a couple of highlights. First of all, CapEx of GBP 40.9 million is net of proceeds for disposals of our car fleet as part of [indiscernible] leasing it back and as part of our efforts to renew the car policy to encourage large-scale phasing out of internal combustion engine in our car fleet. The project has been a huge success with significant uptake of electrical vehicles and hybrids by Genuit employees totaling [ 140 million ] vehicles at the end of February this year. At the half year, I guided CapEx to be in the region of GBP 40 million. For this current year 2023, I expect CapEx to be maintained at GBP 40 million or so. Now you will see the increase of GBP 19.7 million in working capital and trading rate capital is broken down more fully in the next slide, Slide 14. But before we get there, a few more comments on cash flow. It's worth highlighting the ongoing recovery of dividends. And for this year, it will increase again in the cash flow as we sustain our 2.5x coverage ratio. In the cash flow, we could also see the impacts of non-underlying restructuring costs I talked about earlier and debt issue costs driven by the refinancing and conversion of our revolving credit facility into a sustainability linked loan or SLL. On Slide 14, we can see that movement in trading working capital. The increase in inventory levels was driven partly by significant inflation, some supply chain issues upstream of the group, particularly with respect to manufacturing and supply of blowers as well as a more modest increase in media levels, in inventory levels in selected areas to improve customer service, most notably through more OTIF deliveries, on time in full deliveries. As part of our lean focus going forward, we intend to increase stock turns in our key businesses. And this, combined with continued control of debt as credits, where we're going to return to a much more modest working capital increases going forward. As for the banking facility shown on Slide 15, I already mentioned earlier our transition to a 4-year sustainability linked loan. This new loan is combined with a 7-year uncommitted private placement shelf facility, of which GBP 25 million is now committed. As of the year-end, the old SLL had significant headroom and the covenants did not come close to touching the sides. Finance costs, we anticipate being around GBP 11 million -- GBP 10 million to GBP 11 million for the full year 2023, and we'll work hard to carry a smaller cash balance to help mitigate those costs. As for the group's financial position at the end of December, leverage was in line with expectations at 1.2x EBITDA, representing a reduction of 0.3 turns since the half year and remains well within our interest cover covenant despite the increase in borrowing costs. The next slide should be of interest to you, and it portrays our cost base, and I think it's particularly important when illustrating the group's resilience in the face of some uncertainty. The chart breaks down all costs between net revenue and underlying operating profit and amply illustrates that the greater part of our cost base, over 80%, is driven by raw materials and labor costs. Now much has been written and talked about raw materials, with roughly half in volume terms being derived from recyclate. And the group has effectively responded to inflation over the past 2 years. Although there are some signs of stability in raw materials pricing, it is an area we quite naturally watch very closely. And as for labor costs, we as a group are committed to ensure all our colleagues have a decent wage in the face of a cost living crisis. And this year's pay awards were heavily geared towards [indiscernible] lower wages, and it was considerably less of a percentage increase for the likes of Joe and me. And that is right and only fair. In general, payrolls have concluded -- are concluded and their outcomes locked into our forecast for the coming year. We have done much to mitigate costs in areas such as transport and with an in-house fleet, we've also taken steps to retain skilled HGV drivers. And the final cost worthy of mention is energy. Now it always slightly surprises people that it is a relatively small proportion of our cost base, and it's mostly electricity, which is heavily hedged to further into this year and is almost entirely based on renewables. So the cost base is remarkably flexible, albeit with different phasings on that is some costs will take longer to reduce than others. But we've long said, we have several hundred molding and extrusion machines. This number can be adjusted for volume fluctuations in small increments and decrements very quickly. If you look at a recent extreme example, the group lost 2/3 of its volume overnight upon the first lockdown in March 2020. And there was a large hole in our production and sales for Q2 2020 following that lockdown, yet we were still able to achieve an operating margin of over 10% for that year. Now my final slide repeats many of the points I've made during the last few minutes with respect to technical guidance. CapEx is forecast to be circa GBP 40 million, although we reserve the right to review this, and I expect cash flow conversion to be in the region of 70%, making further progress towards our midterm target of 90%. Net finance costs will be higher, up to GBP 11 million, although I hope to mitigate this slightly with lower levels of cash and a focus on debt reduction for the year. And I expect leverage with all others to be equal to be at or around or perhaps slightly under 1x EBITDA at the end of 2023. Well, listen, thank you for listening to me, and I'd like to now hand back to Joe. Thank you.
Thank you, Paul. Well, now that you've got a better understanding of our financial results and some of the guidance from that perspective, I thought it would be appropriate to take a bit of a time to recap some of the progress we've made on our sustainable solutions for growth strategy. So as you see on the next slide here, there really are 4 aspects of this strategy, which on a go-forward basis will continue to drive progress at the Genuit Group. First is to invest in climate-driven growth initiatives, most particularly in our Climate Management and Water Management Solutions businesses, where the investment pounds needed to actually mitigate and adapt to climate change will result in money spent by our customers and sales opportunities and solution opportunities that create value for us. On the sustainability side, as I've said several times, sustainability is fundamentally at the heart of what we do, not just in the growth strategy but also in becoming the lowest-carbon choice supplier for all of our customers. This is important. It takes the recycling journey we've already been on, our ability to deliver environmental product disclosures showing that competitive benefit and continue to innovate and lead the way in the solutions that our customers will need as they plot their successful path to meet their net zero ambitions. The Genuit Business System is that flywheel for creating continuous value creation every single year going forward. We've started that path. You'll hear much more about it as we go forward and I've got some examples coming. And of course, no team is better than its people and no business is better than its people. And so continuing to invest in people, talent and culture will remain a core tenet of our business. I did mention also that we will be simplifying the business, and that will be more of a short and midterm initiative and one that we'll continue to focus on in 2023 as we unlock the unrealized synergies that we can see, particularly now with our new organization structure. Speaking of that structure, let me give you a view of what this business -- what our 2022 results would look like in our new operating structure. And if Paul didn't mention, we will be making pro forma reconciliations available after the meeting to make all of your lives easier. But here is what it would look like and let me say a few things about this. Our Climate Management business, which brings together Nuaire, Adey, Nu-Heat and several of our other competitive brands, is now well positioned to, as an example, in a house of the future, have an integrated solution for MVHR, mechanical ventilation heat recovery, underfloor heating, renewable energy, filters from Adey that help preserve the efficiency of those systems, all designed to work together better. We're beginning that cross-selling effort already, as I'll tell you more about. And -- but I would like to show that one thing about this business is important is while 15.7%, if we did the results this way, it suffered probably more than any other business from the supply chain issues, obviously, with Nuaire having some supply constraints and the boiler issues which held back Adey's profitability. I'd remind you that this is a business that on those components, if you go back in time, actually has the demonstrated ability to be over 20% in EBIT, and we do expect it to return there in due course. We do think that, that business has perhaps the highest long-term EBIT percent potential. Water Management Solutions continues to be well positioned to deal with the mitigation side of the climate change. That is storm water management as well as harvesting and reusing rainwater with the Permavoid Green Roofs solutions and more. The business affected perhaps the most by the inflation and mix issues as they're underground impacted site starts, so opening up new sites, which, of course, has abated a bit. But very importantly, it also has the highest material content, and therefore, saw the biggest sort of negative arbitrage, if you will, effect of the pricing and inflation issues we saw. This business has historically operated closer to 15%, as we said in our Capital Markets Day, and our aim is to get it back there as quickly as possible. So as a result, from its relatively low base, it has the most midterm upward margin potential. And finally, Sustainable Building Solutions at 20.9% up from last year, as Paul mentioned earlier, was really pleasing to see. This is the traditional core of our business. It's extremely well positioned. It was also the piece of the business that was suffering the most from the pricing lag and commercial lack of agility earlier in the year that we committed to fix. I'm pleased we've done that and the step-up in year-on-year margins has demonstrated that well. So it is important to note that the traditional core of our business is healthy and resilient as well. Saying a few words about each of the segments, we go to the next. So Climate Management, as I said, is really about the ability to provide both water- and air-based climate management solutions. So dealing with things like hotter summers, the need for more fresh air and the new building regulations, the need for alternative energy and renewable energy heating solutions. All of this is both about comfort as climate change happens and about lowering the carbon footprint of our buildings in use. We're well positioned to bring the portfolio of technologies together. And already in the second half of '22 and coming into 2023, that new organization is working together and beginning the process of cross-selling, for example, putting Adey filters through our Nu-Heat front-end channel, which is quite strong. It's well positioned to some of the best growing subsegments of the market. Paul mentioned that Nu-Heat grew over 20% last year. What's important to note about that is a lot of that growth was actually driven by RMI. And so what you see is that not all RMI is created equal. And one of the important areas is the interest in improving energy efficiency and switching to renewables, which we continue to believe will be one of the fastest-growing segments of RMI. We also have new product launches. One of the notable ones was actually the ability to include a cooling unit in a ventilation heat recovery system, which allows for things like apartments and houses to stay marginally cooler in the hottest summer days, a product that's already launched and has very strong interest in its early months. If I turn to Water Management, this is our industry-leading use of recyclate business. So today, the largest plant in this business is already delivering about 82% recycled content use in their products. It also has our own mechanical recycling plant. So this business is leading the way on the recycling and low-carbon journey. We have strengthened our design expertise, including our ability to install complete solutions. The Keytec acquisition, which Paul mentioned, which we completed last year, has performed very well in its first partial year on board and again extends our reach and ability to deliver more complete solutions. The Permavoid model continues to perform well. It's highly scalable and allows us to begin to take advantage of the green urbanization trend, which is still in its early days. I would add that in addition to the fact that we've seen this business perform better in the past, it is a business where we see significant synergy opportunity remaining. If I turn to sustainable Building Solutions then, I mean, we're committed to driving out carbon from our product ranges and make sure that we are and remain the lowest-carbon choice supplier for all of our businesses. We've introduced new product lines, including one in our Terrain range. This allows us to take what used to be 100% virgin underground product, a drain product and actually make it with up to 65% recycled product now, so significant capital investment made last year that's come online and is ramping as we go through '23. Hence, why I have confidence in telling you that we've nailed down about 1/4 of the path to our 62% and that we have a large funnel of projects behind that. So progress like that is important so that we have a clear road map to hit our SBTi and our net zero ambitions. The other thing that's important is when we think about environmental product declarations, this is something that many people are working on now. In our case, this is particularly important because we see it as a commercial advantage. Because we offer truly some of the lowest, if not the lowest, carbon product solutions out there. The use of third-party environmental product disclosures allows our customers to ensure that they are actually going to meet their Scope 3 requirements for lower carbon. This is already happening and we're seeing continued and expanded interest in this, not only at our direct supplier level but also upstream as developers are interested in understanding how net zero projects are actually delivered as they were intended. And lastly, I'd like to highlight our Advantage product line. This is a new product line we started up just a couple of years ago. It's part of our Polypipe Building Services business, and it allows constructors to bring drawings and then have complete modular floor-by-floor preassembled drain stacks, which can then be installed on site in significantly less time, saving labor on site in a short labor environment. It saves installation cost, right? And it saves on the carbon footprint of both the products and the installation services on site. This business actually more than doubled in turnover last year, and we're very excited to see just how far we can take that in the coming years. I promised an update on the Genuit Business System. I've taken quite a few questions on that. We've made good progress. As I said, we have started what I refer to as lean lighthouse transformations at 3 of our sites. Well, 2 of our sites have started. A third will start by the middle of the year. Adey started in the fourth quarter. Polypipe Building products, Doncaster and some of the other facilities started in January of this year. And we're finalizing the third site, but I can tell you that those 3 lighthouse transformations will cover about 2/3 of our revenue. So this is impactful work that we've undertaken. We've also launched strategy deployment, which is a key tool which helps to link our strategy, which you've seen and understand now, to actual actions that our teams can implement and execute and track monthly as we progress through 2023 and beyond to make sure that we actually execute the strategy that we set forward. We've hired a group head of our Genuit Business System, which in addition to some of the on-site help we've been getting, allows us to become self-sufficient and to embed GBS fundamentally into everything we do. And lastly, I want to highlight some early results from a Kaizen or rapid continuous improvement team event that was held at Adey just 2 weeks ago. There's a piece of work they're looking to bring in-house. There's a manufacturing cell where they assemble filters. And what they've been able to do in 1 week is design several new layouts and then pick one and implement it. So they were able to get a 25% productivity improvement and nearly a 50% floor space reduction, all with the people actually working in that cell so they are excited about that outcome. It probably doesn't take a lot to imagine that as this starts to roll out across the business, we'll be unlocking significant potential as well as the ability to serve our customers in a much better way. So more to come on that. If we think back to our sustainable solutions for growth strategy, going back to the earlier points, we said we would focus on high-growth, sustainable driven markets. I think you see how we've done that. That we will continue to strengthen our position as the lowest-carbon choice supplier for our customers. We made progress on that this year. We simplified the business. The reorganization is, of course, the first step in that. There is more to come. And we will create value through the Genuit Business System. And while the example I shared is just a piece of our business, it is typically the results I expect to see as we go down this path over the coming years. And as I said at the time, we will continue to look for smart, disciplined M&A when the environment is right and when the strategic fit is solid. To reiterate our midterm targets, which we shared in November, we expect that through the cycle, this allows us to grow 2% to 4% above the broader U.K. construction market. These steps will allow us to reach our target operating margin of 20% and beyond, allow us to get our cash conversion back to and maintained to the 90%-plus levels that it has been before the COVID disruptions and to take a return on capital back to and then above 15%, again, levels we've seen, but we expect to be able to maintain and, in time, exceed. Importantly, we won't do any of this without remaining focused on the impact that we have on our climate and our people. And so our net zero path, our SBTi and our commitment to The 5% Club will remain intact. If I could turn just briefly to the outlook, this will be a briefer section. Of course, we are dealing with the same situation everybody is. But I would say that our expectations for the year have largely been based upon, as we have historically done, the CPA winter forecast. I shared that on the right side. You see that at the winter forecast, there was an expectation of a broader construction market decline of around 6.1%. As Paul showed though, when we looked at our cost structure, we have a very resilient business, was one that we can control expenses, perhaps better than most. And we've shown in the past our ability to deal with significant disruptions very effectively and preserve good levels of profitability. What I wanted to focus really more on is on the left side of the chart, where today, our business is still roughly 1/3 new build, 1/3 RMI and 1/3 international, commercial and infrastructure. But just to remind you of a couple of key points. On the new build side, right, while we could obviously see a lower level of house building, we would also point out the fact that one trend we're starting to see is more and more inclusion of underfloor heating and renewables being announced by housebuilders, which, among other things, means that the content that we're exposed to in new houses should continue to increase over time. That's a partial mitigating factor in addition to our ability to respond very effectively to volume changes. In RMI, I would highlight that 2 of the fastest-growing segments -- subsegments within RMI are water and plumbing; and two, energy efficiency; two areas which I think you can see we focus on heavily. So through and through, we expect the RMI to continue to be a more resilient segment for our business, perhaps more resilient than some other subsegments of RMI. And lastly, I would say that the other parts of our business on the strength of some solid growth we've had in other markets and our increasing exposure to other segments, we do expect that will be a larger percent of our business going forward than it has been in the past. So let me recap our outlook. We're positioned very well to deliver, I believe. 2023 has started well. We consider trading to be in line with our expectations. It is a challenging and uncertain market and the conditions are such that, that's likely to continue into 2023. We've taken good actions on pricing and self-help. We made progress last year. Those actions we've already taken will carry forward. We have more work that we can do, and we think that will continue to position us strongly. And that self-help is one of the best things that we can do with market uncertainty. We're confident to start measurable progress toward our midterm commitments, as I laid out on the previous slide. And of course, we'll remain focused on our climate-driven growth initiatives, our leadership in sustainable materials and unlocking the full power of all of our people through both our talent and culture initiatives and deploying the Genuit Business System for the long term. So like we're building a strong company, a strong team and a single sustainable purpose, and we look forward to seeing that play out. With that, I included the investment case so you've got it in your presentations, but I think we'll move on to Q&A. Do you have a microphone going around or how are we doing this? Okay.
It's Robert Chantry from Berenberg. Just 3 questions. Firstly, you talked about price leadership in the presentation. Could you just kind of give us some more color on that in terms of the percentage differences versus the market, timing, surcharges, et cetera? Secondly, you helpfully gave us the volume breakout during the year, 4% down at H1, 12% in Q3. Are there any more recent kind of volume updates? And is it possible to back out destocking and inventory reduction in the different kind of routes to market? And then thirdly on organizational structure. I think on Page 37, you kind of gave a breakout going back to 2021. Can I confirm that this is the way you're reporting from the first half '23? And do you have any more historical data e.g. 2019 for these divisions?
I think all 3 through those for you.
Yes. Rob, good to see you. Yes. So in terms of what price leadership, what that meant, basically, since inflation really started to kick in from 2 years ago, the group really did adopt overall a price leadership position. That means going pretty much first everywhere on pricing. And also, as I've said in my presentation, we deliver paradigm shifts because we moved from passing on inflation pound note terms to actually trying to preserve margin. That meant far higher increases and reduced the lag, the time it took between when inflation was biting our business and when we had effective price increases in the market. So that's what it meant. And if I go back to a little bit of history, I think I presented it a year ago. One of our key raw materials is PVC Prime. And over that period back then, it went up 50% on pounds per [ tonne ], if you like. So we had to take some pretty extreme action. And also the number of price increases we've done. So traditionally, before inflation was with us, it would be one price increase typically at the beginning of the year. We've actually had 2, 3, 4 price increases depending which part of the business, so there's been a much more frequent resort to price increases where it's necessary once we understood what's happening in inflation. In terms of surcharges, we never went down the surcharge route. So all our price increases have been contractual price increases, so therefore, sticky. More recent on volume. So recent trading is pretty much -- all I can say is pretty much in line with what CPI said, okay? So we are -- CPI forecasts, I think, for [ year and years ] down 6%. We are at maybe slightly above but at or around that sort of level so far this year. It's very early days, right? I mean, I've only got under my belt 8 weeks' worth of trading, so we'll see. In terms of destocking, there's been a bit here and there but there's not been a, forgive the expression, wholesale rush to do so as of yet that I've seen so we'll watch that space. And yes, the organizational structure, I can confirm that, that is how we're going to be reporting the group going forward as of effective January 1. And my team, as Joe's alluded to, are more than happy to assist those who would like data going back a bit further. I'm sure we can arrange that from our wonderful [ one-stream ] consolidation system.
It's Jon Bell at Deutsche Bank. I think I've got 3. Could you remind us of any key regulatory milestones that lie ahead and could be tailwinds to the business? The second question is on the synergies, the GBP 8 million. Could you break out any key captions and just give an indication on timings? And then thirdly, one of the housebuilders, the listed housebuilders has announced a rollout of air-sourced heat pumps. I think at one stage, Nu-Heat didn't serve the new build market. I guess the question is, does it do now and what market share might you have in that area, if so?
Okay. Thanks, Jon. Good to see you. I think I can answer most of those. If I miss something, bring me back to it. There's good stuff in there. In terms of regulatory milestones, so there's quite a lot, right? First is the part of and part of all the building regulations, which were implemented last year, right? Actually, there is time still to get those impacted so we're still seeing new benefits, of course, and it depends on the timing of all the houses when they were started, projects that had started before, each of those took effect. Obviously, we'll have to be completed with the old regs. But some of the milestones we see there are more pushed for MVHR as building ventilation requirements have gotten tighter, the inclusion of filtration from the likes of Adey into protective systems. So quite a range of products that we'll see starting to benefit there. Of course, underfloor heating. As we look ahead to the 2025 future home standards and eventual stopping of using of gas boilers in new build, that's still a tailwind that will roll out. And I think the announcement by one of the homebuilders to use not just underfloor heating but also renewables, right, there was really 2 pieces to that is a really good example of some of the homebuilders now starting to first do it at higher-priced houses but also in that one particular case study, it's the one I'm thinking of, actually across our whole portfolio. To your other question around Nu-Heat, so Nu-Heat interestingly historically was all new build single-family higher-priced tag houses. During the last year or 2, what we've seen is a big pivot toward RMI as the interest in existing houses being converted to being low carbon and more renewables taken on. Importantly, and we don't talk about this enough, our Polypipe business also has a significant underfloor business where we provide engineering services as well, but those products are distributed through the merchant channel. They do supply a significant amount of product into new build today. So we've actually got several ways to access that market. And you could imagine that seeing those types of announcements are quite interesting and key development opportunities for us as well. See, what else did I -- did I miss anything there?
[indiscernible]
Sure, Paul. You slipped that in there. I was right and fiercely and all the rest of your points.
I was hoping you can answer that. You're good. So all the actions, I think are right in saying that we pretty much took them all towards the end of last year to gear ourselves up for the GBP 8 million. So that's a fully annualized benefit that starts kicking in this year, and that's in the consensus by now in all the numbers. The -- so that's the timing. You can expect it to ramp in this year. It's broken down -- there's obviously talked about quite a bit, the simplification of the business, they're taking the layers out of the control, that sort thing. But also there is this component where we're taking greater advantage from our scale for procurement. So that's something perhaps, as a group, we haven't overly exploited in the past. So we've actually created a new group-wide procurement function. And basically, we are aggregating demand across the group when we're going out and buying stuff. So that's obviously generating quite a lot of savings going forward. The trick with that, of course, having done it several times, is making sure we capture those savings. We don't spend back. So there's -- we're putting quite a lot of control in not falling into that trap. And indeed, for this budget for this year, we've actually baked into the budget, the savings that we've achieved so far on procurement.
Front row.
Christen Hjorth from Numis. Three from me. Could you touch on the performance of Nuaire in a little bit more detail? I mean, obviously, you talked about the supply chain issues. But maybe excluding that, how the business is doing, the outlook going forward, and yes, just generally around Nuaire? Secondly, around Water Management Solutions, again, a little bit more color because, obviously, the margin level is not at a level you're happy with. So what's going on there in terms of competitive backdrop, et cetera? And what gives you that confidence of a recovery rather than it's just not a structural change in that sort of subsector or industry? And then just finally on Adey, obviously, you had the boiler upstream supply issues. Just an update on that, maybe around what's current trading doing now? Are you starting to see a bounce-back following those issues?
Sure. Want me to start on those? Sure. So Nuaire, so the situation of Nuaire, if you've -- for any of you who've been to Nuaire, I mean, Nuaire makes a wide range of quite complex absolute market performance-leading ventilation products. So as a result, they actually have quite a complex supply chain compared to some of our businesses. It is -- as a result, one of the things they do is they have significant amounts of sourcing, both inside and outside the U.K. And one of the things we've seen, as Paul has mentioned in previous meetings, is the continued issues around the supplier, what we call blowers, which are really integrated fan units with an electronic control module. This is one of the parts of the business that continue to suffer from supply chain shortages in semiconductor chips. We've had to -- because our products are so highly engineered and, therefore, some of the highest value in the market, we can't just substitute products easily. So we have to do a significant amount of reengineering. That's an ongoing issue. We, of course, like everybody else had hoped that would have abated by now. Those supply chain issues, while we have an excellent team, and in fact, we've strengthened our team there, remains something that we have to struggle with sort of day to day. That said, the team is managing it. But once we see further alleviation, we -- there's no reason to believe that Nuaire won't be continuing to perform extremely well going forward. In terms of that business, they actually are now part of the Climate Management Solutions business. We've strengthened the team there, and I'm very optimistic, very confident that, that business will actually return to its former form and continue to expand because they do have exactly the products that are needed as we get to the future home standards and part of. In terms of WMS, look, I mean, I believe it's right to be completely transparent with what we have. So I showed you that number, even though it's not perhaps the most attractive one. What is absolutely true is that business was around 15% before some of the issues, commercial issues, COVID issues and supply chain issues we faced. Because I can -- if you know that it's 82% recycled content and if you've seen the Horncastle plant, these the very largest pipes, 1-meter, 3-meter diameter pipes in those 2 facilities, right? They are the highest material content product we have. As we've started to see some of the plastic pricing alleviate, this is one of the businesses that will benefit most from that opening back around of the sort of price benefit cap. This will take time, but it's part of what -- on the material side, part of what gives us confidence that we should get back to those margins. As I also said, we've done several smaller acquisitions in that business, right? We did say clearly that this is one of the businesses where we believe there's still more synergy to unlock. And so the combination of those things continue to strengthen management and the application of lean, I have no reason to believe we can't get there at this point.
In terms of Adey in the filter situation, this is another really good example of nobody seems to understand what the outlook looks like, the boiler manufacturing problem, certainly, the CPA consensus was last year, it should have been levied by midyear. By midyear, we thought by the end of the year. It's now clear it's with us into 2023. Some manufacturers doing slightly better than others. But overall, we are still under-delivering the historical number of around 1.6 million, 1.7 million boilers a year, largely into RMI, of course. Only about 1/10 of that goes into new build. Adey is still positioned very well in there. We're continuing to invest in improving their cost structure in that business, and they're innovating and bringing on new products to strengthen their position there. It's a question of when and not if, right? But we're very confident that Adey is every bit as great a business as it was. And as I said, with new channels to market, like for example, Nu-Heat and others, we've got lots of ways to grow organically, not the least of which is a fairly quick effort around cross-selling, which as I said -- sorry.
Is it fair to say there's a pent-up element as well as to the border in...
There is a pent-up element of a [indiscernible] that's not going away. I think I got all your questions there. If you can get Sam here a mic.
Sam Cullen from Peel Hunt. I've got 3, if possible. First one for Paul, I guess. At the end of the year, you're saying sort of 1x leverage. How do you think about kind of capital allocation towards the back end of the year if the valuation of the shares are where they are in 8 months' time? Do you look at another buyback perhaps for the business? And given you're going to be nudging under that 1x probably by Q1 2024. Secondly, on Joe, your point about kind of mix shift in the new build sector in terms of taking more product in the coming 12, 18 months than they would have in the prior 18 months, can you give an idea of kind of pound note spend for an average house, what value of product you would have sold into an average 3-bedder versus what you'll sell under the new building regulations would be useful for give us idea of the uplift. And then the last one is about sort of trying to bridge, I guess, the consensus and where the numbers are for this year. If we look at the CPA forecast of, let's call it, 6% to 10% down on volumes and probably similar for [indiscernible] pricing, so a flattish revenue number. Should we be looking at a [ 6 40 ] million as a starting base? I take point about some of the boiler issues still maintain, but you won't have a cyber issue, I hope, again this year. And then if I look at the consensus of GBP 75 million of PBT at back [ 11 ], you're looking at margins of 13% to 14%. Is that -- are those sort of numbers you recognize? Or would you have to do a bit better on margin, given the pricing dynamic you've got at the moment?
Paul, you do 1, 3, and I'll take the question on the show notes.
Okay. In strict sequential order because that gives you more time on 3.
Go for it. That's good. You can...
So capital at the end of the year, yes, absolutely. So technical guidance is at or around 1, hopefully, a tad under. I'd love to be there actually in the personally. In terms of capital allocation and how we would deploy that more advantageous position, I personally is of a radical view. I think buyback is what you do when you run out of ideas as a management team, okay? We've got still plenty of opportunities to invest in this business, to grow this business. And we're very excited about the opportunities that are out there. So I would not expect a buyback anytime soon from Genuit Group plc. I would expect continued investment with strong returns going forward. So that's my view.
So in terms of the mix shift, so historically, we would have said that the Polypipe business, right, and I use that term specifically, would have enjoyed something like [ 2,000, 2,500 pounds ] of product in a typical new build house. And again, I'm speaking about new build and there's quite a few because it really depends. As we move forward and houses start to have MVHR units, they start to have filter units, they start to have underfloor heating, they start to have air-sourced heat pumps, I mean, it can vary wildly, but you could be safe to assume it's at least a 5x sort of potential higher value compared to where we are today. You, of course, have to think about like-for-like. I mean, the cost of an air-sourced heat pump is quite a bit more than a boiler, of course. Underfloor heating is -- it's more installation cost, which, of course, benefits us than perhaps radiators. But at the same time, all of this together is a significant higher exposure opportunity for us. So conservatively, I think if you just assume that over time, we'll probably see the ability to grow our share by multiples sort of 5x or more. I think that's a reasonable starting point.
Comparable margins...
Comparable or better margins, yes, should be. So I think that's probably a good starting point. To be fair, Sam, this is an area we'll continue to do a lot of work on. And as we've seen by some of the recent announcement, it depends on who takes what parts of what solutions, right? And a really good example is actually in the building regulations around ventilation because there are simple ways that you can get the air exchange requirements, but they're really not good when you combine them with energy-efficient heating sources like renewables. So therefore, you end up going with higher-value things like MVHR, which, of course, is significantly more than simple ventilators. So we'll have to see that evolve. And then consensus?
Yes. I mean, the main moving parts is very straightforward model. You've probably got -- you're right, I mean, the volume -- the forecast volume decreases per CPA, probably roughly work out to be what we say we expect from price. We also got some price going in now. I didn't actually emphasize -- overly emphasized the point earlier, but actually this time around, we're not leading in many successes actually the competition that's going ahead. So that's actually, for me, quite pleasing to see. But if you factor that in, you've got that, you've got a bit of effect from prior year price increase. But it all, in the round, probably does mean that revenue -- net revenue is probably going to be roughly flat year-on-year. So that's a fair assumption. And then I would just apply the normal metrics. So on the price, most of that is going to be taken up with cost inflation. There might be a slight benefit but basically that's the intention. And then a normal drop-through on the volume. I think you're going to be getting to the consensus at the moment for '23 simply coalescing around in EBIT terms in the sort of mid-80s at that sort of level. I'm fairly okay with that. And of course, the only sort of new news has been the uptick in financing costs. So that's getting you down to the mid-70s, I'd say, on PBT. That seems to be, at the moment, sensible, but it's early days, right, in a very uncertain market. I reserve the right to firm up an opinion perhaps when we start doing other trading updates later on in the year, particularly around the AGM perhaps.
If I can just actually add 1 thing to the comment on leverage. And that is that I agree with Paul's comment that our preference is to find good -- lots of other good organic and inorganic things to do their money before we go to buybacks. And while we haven't spoken a lot about it, perhaps appropriately, given financing costs and just uncertainty in the market, we remain very active in cultivating our M&A funnel, and we believe there's still significant strategic acquisition opportunity out there for us. Frankly, there's probably more opportunity than capital right now, so let's keep working on getting more capital and leverage available and go do it. So I remain very optimistic there over time.
Just 2 questions from me. One, regarding inventory, one on new product development, please. So just trying to understand where you think you are with inventory. Obviously, at this start of the year, you started to go into the seasonal ramp. Wondering whether that's kind of happening again or whether you've actioned any multiple activity as yet. That's the first question. And secondly on new product development. I think spend in '22 was flat on '21, just short of GBP 9 million, I think, if I read it correctly. Should we expect an increase in that number in pounds since? And also as a follow-on from that, with the Vitality Index, is that a number which will sort of ebb and flow? Is there anything in the early part of that measurement period which will drop out and make it more challenging for the Vitality Index to keep going up? Or is it upwards forever?
Want to start? The inventory?
Yes, sure. So yes, as I said, I think inventory, you mean stock, right, has increased this year, as I said, is obviously driven by as an inflationary element, there has been a genuine increase in natural quantum volume held for good reasons because of the supply chain challenges we've got. So when we get hold of blowers, we buy a lot and we put them in stock. I mean, that's what you do in such circumstances. But going forward, absolutely, particularly with the backdrop of lean, we'll be looking to target an increase of about 1 turn a year in inventory. And so that will drive a much better working capital pattern in terms of when the business is growing and I'd like to get working capital as a whole. The increased working capital well back into the single-digit increases when the business is growing healthily. So that's kind of the backdrop I've got behind that. In terms of investment, yes, I mean, that's roughly the right figure. The Vitality Index is already very close to where we targeted for 2025. But it is -- and we've said this before, it's quite a lumpy measure. So you got to be a bit careful because stuff sort of expires and you've got to make sure you've got a continuous flow of new products coming in all the time. And so yes, I think it's a very healthy level to be at. I think also you've got to look within the Vitality Index and differentiate a little bit between product that truly is groundbreaking and new and a product that's sort of an iterative development. And that's, I think, something else we should look at as a business going forward to make sure we try and push the boundaries in terms of true innovation.
And just to add, Toby, I think overall, we certainly are not -- there are no issues of spending more money on R&D. But as we bring the teams together in these new organizations, the other thing we're getting is leverage is several engineering teams that didn't use to work together, starting to work together more. So we're actually going to be able to, I think, be much more effective in our R&D spend and get more out of it. Look, as Paul said, I mean, it will ebb and flow but the pipeline is -- we've got good projects in the pipeline. I think over the long term, we're well positioned on Vitality and R&D and therefore, new products. And as we've seen and Paul said many times, those tend to correlate very well with good margins. So thank you. Good question. Others? Some online, yes?
Yes, perfect. First one from Graeme Kyle at Shore Capital asks, how do we get from an operating margin of 15.8% to the 20% target? Should we expect the rejection of lower-margin volumes to accelerate? And then a final one, should we also expect the divestment of lower-margin businesses, for example, within Water Management?
Okay. Thank you, Graeme. Good question, which I'm sure you don't expect me to fully answer in detail. But let me talk broadly about and then Paul, feel free to add. So broadly speaking from this, the 15.8% to 20%, I mean, as we've said several times, if you go back and look at the business sort of in 2019, which was the last sort of relatively undisturbed year, we were in the low to mid-17% range. And as you see, a lot of the things we've been doing have been aimed at making sure we get back to that range. And fundamentally, there's nothing in the business that's been broken and no reason we don't expect to get back there. We just have to get a lot of the supply chain stabilization out, which a lot of it was a matching of pricing, matching of supply costs. I think you can see that, that progress is underway. Beyond that, as we said, the simplification, we saw early the ability to take about GBP 8 million annualized out of the business. I have been transparent that I believe there's more to come. We will tell you about that as and when we take the respective actions, of course, is only appropriate. And so that obviously will help as well. And lastly, the lean journey tends to be one that delivers operating margin expansion year-on-year and in the out-years will help us to reach that 20% limit. Yes, specifically about how we're going to handle low-margin businesses. You saw last year, we weren't afraid to take some action on low-margin businesses. As Paul mentioned, if we get pressed heavily on margins and we think it's not a good business, we're not afraid to walk away from that. And in terms of divestitures, obviously, I won't be making any comments on that until we take a decision. But if we do, well, you'll be the first to know. Okay. Thank you. Are there online questions?
Nothing more.
Nothing more. Anything from the room? Okay. Well, thank you all for coming. Delighted to be here at year-end. I look forward to more of these updates. We've got a lot of good questions around learning more about lean. You'll hear more about this in the course of the year. We'll try to help illuminate that journey as we go forward. But we appreciate the support. I hope it's very clear that the business is well positioned. We've done a lot to improve the strength and resilience of the business as we move into yet another interesting and somewhat unpredictable year. And I think we're well positioned to continue to execute against our strategic plan and our long-term goal to be the low carbon supplier of choice and a business which has sustainability as close to the heart of its people and its growth as you possibly could be. So with that, thank you all for coming, and we will see you again at the half year.