Hello, welcome to today's Kingspan 2018 interim results. Throughout this, all participants will be in listen-only mode. Afterwards, there will be a question and answer session. Just to remind you, this is being recorded. Today, I am pleased to present Gene Murtagh, Chief Executive Officer, and Geoff Doherty, Chief Financial Officer. Gene, please begin.
Thank you. Good morning, everybody. Just before we go into the results of the period, we would like to just refresh people on what our strategy is as an organization. If you have got the presentation in front of you might move to slide number four. We have set this out for a long time now, but in essence, our aim is to be the world leader in high-performance insulation and building envelopes. We aim to achieve that by having the most innovative products possible. By innovative, we mean particularly around thermal and fire performance. No compromise on either of those fronts. We aim to achieve our growth by penetrating markets both in Europe and way beyond, where uses of high-performance insulation materials are at relatively low levels, and in some countries, not even used at all.
Globalizing our business has been a strategy we have been, I would say, significantly focused on for the last eight or 10 years. At this stage, there is around close to 20% of our business now is U.K. sourced. If you look back 10 years ago, that was probably in excess of 70%. We have been on a path to making our business much more evenly spread worldwide. We are going to continue, and if anything, ramp up that dimension of our business over the coming years. All the while, and we will deal with this in a little more depth later, internally, we want to achieve this by having a net zero operating environment. By that we mean that we will either use or consume only renewably generated power throughout our organization. On slide number five and six, this really deals with the essence of our product portfolio.
We would be, I guess, the only full spectrum provider of materials effectively covering almost all forms of insulation, both in terms of core insulation board and the insulated panel offering. Right the way through from traditional styrenes and fibers. Fibers in this case being used as a core in an insulated panel rather than as an insulation board. Then all the way through the more advanced insulation materials, all the way up to our more recent product introductions like QuadCore, Optim-R, and soon to be launched, what we call next generation core brand to be confirmed. This product we aim to be launched in 2020. It will be fiber free, relatively low lambda by comparison to traditional alternatives and will achieve Class A fire performance. On slide number six, again, this is something we have demonstrated. It focuses particularly around the thermal performance of our products.
In essence, you can see that the majority of what we offer between PIR, QuadCore, Kooltherm, would be up to almost twice as efficient as traditional alternatives. This becomes more and more critical as demand for insulation increases and space obviously becomes more an area of focus. As I said earlier, we want to achieve all of this without a compromise in terms of whole system fire performance. That's been a crucial area for us over many years, and we welcome that increased focus worldwide. On slide number seven, completing the envelope. We obviously are the world leader in rigid board, world leader in Insulated Panels, and that's something that we, as I said, need to continue in a wider geographical spread. Beyond that, we've embarked on a strategy to become a world leader in what we term light and air.
This will be around daylighting, ventilation, and smoke management in buildings, obviously through the ventilation process. That's a business we've been assembling over the last few years. It will achieve revenue in excess of EUR 300 million this year. As we've outlined before, we have near-term eyes on around EUR 500 million of a globalized business there. Industrial insulation, we still remain embryonic in, as is the case with flat roof membrane, both of which offer significant avenue for high performance insulation materials. We see these as both from an organic and an acquisition platform perspective, very suitable areas for us to grow longer term as well. Plenty of scope for our organization, both in terms of the existing products and sectors, and the ones that we've yet to really make a mark on.
On slide eight, the planet's important to us and our commitment to it has been clear for the last seven or eight years. As I said, we want to operate a net zero organization. Which has not been easy to achieve, and I guess for a lot of our peers will be even more difficult to achieve. We set about trying to target a 2020 net zero position. As of this year, by the end of 2018, we expect to be comfortably in excess of 70%, and that includes the impact of having to obviously deal with and absorb acquisitions as well. Once we achieve that 100% level, we're going to maintain that clearly as we grow and expand and acquire, et cetera. In terms of recycling, obviously a critical issue going forward. We live in a world of plastic, whether we like it or not.
As a business, we see significant advantage in being able to recycle PET-based bottles. At present, we're using over a quarter of a billion of those products in our solutions, and it's our ambition to at least double that to 500 million units in five years' time. That's critical, and these materials effectively get recycled into the highest performing insulation materials that you can find. That's a significant commitment of ours going forward. I'll jump to slide 10 now, which gives us a snapshot of the past 20-odd years or so. Obviously, that's been the product of the strategy we've been committed to. Revenue growth compound is in excess of 17%, and even consensus this year of around EUR 4.2 billion as an expectation. That just kind of is a snapshot of what we're about, where we're going, where we've come from.
I'll jump now to the issue of the day, which is the results for the first half, that's on slide number 13. At a top-line revenue of 15% to just over EUR 2 billion, which is a first time for us in the first six months of the year. Trading profit up 10%, basic EPS up 8% to almost EUR 0.81. Insulated Panels had a sluggish start, as was the case with insulation boards, grew by 14%. Geoff will go through the detail of what's underlying mix acquisition, et cetera. Critically important has been the growth of the QuadCore technology, which is up 76% and now represents 6% of our global Insulated Panels. That figure, incidentally, is 18% for the U.K. and Ireland, which is the area where we started off in.
That 18% for these markets, we would expect to exceed 25% by the close of this year. Making very significant progress there on a technology that is really groundbreaking when it comes to thermal and indeed fire performance. Our board business up 15%. Obviously, there was a significant impact of inflationary cost recovery from MDI over the course of last year, which carried forward into this year. Kooltherm, obviously a critical product stream for us, growth of 12%, that now represents 35% of global insulation, 37%, in fact, if you strip out the effect of acquisitions in the period. Great progress on that front. The light and air business, as I outlined, is on track to achieve EUR 300 million, up 11% like for like, significantly more clearly when we add on the impact of acquisitions. Margins in that area also improving.
We'd expect to exit the year at a trading margin of around 8%, which is very second half loaded. It's just the nature of the business is it's second half based, we would expect to have a very strong period ahead of us. Water and energy, used to be environmental. We'll be focusing clearly on those two segments going forward, broadly in line with prior year, after, like everywhere else, a slow enough start. Access floors predictably is 7% behind as office construction impacts us in the U.S., also we anticipate continued slowdown in the U.K., which quite aside from any Brexit material, is something that we would've physically felt was going to impact us in any event around this year and next year.
Significantly from the development perspective, we've made a significant step into Southern Europe with the acquisition of Synthesia, something that's been going exceptionally well in the first six months of ownership. Indeed, we've entered India through the establishment of Kingspan Jindal. This is a business now that's got two manufacturing locations in India. We would expect to add a third over the course of the next 12-18 months. Obviously, it's at a critical point in terms of this market is really embryonic and the consumption of high-performance insulation materials, like Latin America, just isn't even on the register by comparison to more developed markets. We see very exciting long-term prospects for our businesses in these regions. On slide 14, I'll hand you over to Geoff now to deal with the financial numbers.
Thanks, Gene. I'm now on page 14. Just at the outset, we make some reference to constant currency measures in the statement. The two principal currency movements in the period were euro/sterling and euro/dollar. Our average sterling rate was 0.86 in H1 2017, compared to 0.88 in H1 2018. The US dollar to euro was 1.08 first half last year and 1.21 first half this year. They're the principal drivers of the currency changes. Beyond that, as Gene outlined, group revenues just ahead of EUR 2 billion in the first half of the year, ahead by 15%. I'll come to the constituents of that in a second. Trading profit at EUR 195.3 million, ahead by 10%. EBITDA at EUR 231.6 million, ahead by 11%. That translated down to earnings per share growth of 8% with an after-tax EPS in the first half of EUR 0.807.
The interim dividend is up by EUR 0.01 or 9% to EUR 0.12 per share. Our free cash flow, I'll break this out in a second, was EUR 38.4 million, broadly in line with free cash generation in the first half of 2017. Our net debt was about EUR 300 million higher than the first half of last year, with development activity and acquisitions being a key theme in that regard. Our trading margin down by 50 basis points half year on half year. I'll break that out by division in a few moments. Our leverage, our net debt to EBITDA at the end of June, 1.59 times. Our return on capital employed, 15.6%, but the truer measure would be after the annualized impact of acquisitions, which implies a return on capital employed of 16.6%. Turning to page 15 to look at the divisional margin performance.
Insulated Panels, in the first instance, had a margin of 9.7%, down about 30 basis points on last year's full-year margin. Essentially two drivers of that, the first being the relative mix of markets in the periods, also the initially dilutive impact of some of the acquisitions made in the initial phases. Our insulation boards division recorded a margin of 12.4%, very strong. The key theme there was the relative mix of Kooltherm. Kooltherm volumes were very positive during the first half of the year, that had an impact on the margin mix within the division. Light and air is very much a second half weighted business, its trading margin of 4% broadly in line with the first half of last year. As Gene outlined, is trending at about 8% for the full year.
Water and energy at 5.7%, again, has a more significant second half. Would have had a soft Q1 due to the prolonged winter, is trading to plan. Raised access floors at 10.3%. Again, that's really a reflection of the market mix. We would expect for the full year the trading margin in that division to be at or around 11%. The mix of all of those combines to give a group margin of 9.7% for the half year. We would expect at this point for full year, the margin to be at or around 10% group-wide. Page 16 deals with the group sales and profit bridges. To deal with sales in the first instance, the relative conversion of exchange rates year-on-year clips 4% off sales, minus EUR 70 million.
Acquisitions contributed to 15% or EUR 257 million in the half year period, underlying sales grew by 4%. If you look at the quarter-on-quarter performances, Q1 underlying sales were ahead by 1%. Q2, as we indicated in our trading statement in April, Q2 was busier, Q2 sales were ahead by 7%. On the right-hand side of the page, dealing with trading profit, the currency impact was a negative of EUR 6 million. Acquisitions contributed EUR 21 million in the first half, underlying profitability ahead by EUR 2.5 million. Free cash flow is set out on page 17. Naturally, the biggest driver of free cash flow was the EBITDA of EUR 231 million in the first half. Seasonally, working capital in June is higher than it is in December. We had an outflow of EUR 92 million in the first half of the year.
That compares to an outflow of EUR 81 million in the first half of 2017. Our working capital to sales ratio is slightly higher than normal at 13.8%, and we expect that to be of the order of 12.8% for full year. As we go through the second half of the year, approximately half of that, EUR 92 million, will reverse in the second half of the year. Other movements in terms of free cash generation are interest bill, EUR 7 million. Taxation payments of EUR 30.8 million, and net capital expenditure of EUR 68.1 million, combining to give free cash generation of EUR 38.4 million in the period. Page 18 reconciles net debt to the opening position. Acquisitions were the key cash flow item of the period.
Cash out the door was EUR 235 million, but also in respect of one acquisition, there's a deferred payment of EUR 30 million, which we've accounted for debt which will be settled in April of next year. The dividend outflow was EUR 46.7 million. Net debt at the end of the year, EUR 739 million, which gives leverage of 1.59 times, as I summarized earlier. Turning to page 19 on return on capital employed. Still at a relatively high level, 16.6%, when you annualize for the impact of acquisitions. Naturally, we'll be seeking to build that over time with our long-term target being of the order of 20%. The strength of our balance sheet is set out on page 20. At the end of the half year, our total available cash balances and committed undrawn facilities, EUR 671 million. We referenced late last year that we had agreed a financing of EUR 175 million.
That was drawn in January of 2018. Our principal syndicated bank facility is a EUR 500 million facility, which was substantially undrawn at the end of the period. We've an additional EUR 50 million bilateral facility, which we drew down in February of this year. When you add up the sum of our debt facilities, the weighted average maturity of our debt is 5.8 years. The geography and the split of it is set out on page 21. I compared this H1 2018 to H1 2017. The movement of note would be Britain and Northern Ireland, which was 26% in the first half of 2017 and was 23% in the first half of 2018. Mainland Europe, 47%, as opposed to 43% a year ago.
With the completion of the Balex acquisition shortly after the period end, that mainland European dimension of our business will be in excess of 50% on a run rate basis. The Americas were broadly similar year-on-year at 19%, as was the case with Rest of World. That is a summary of the key financials. With that, I will hand you back to Gene.
Thanks, Geoff. We do not propose going through all the detail of the divisional slides, which no doubt the audience will have read through, but we would like to deal with the outlook, which is on slide number 28. I think it is kind of hard to make out that number 28, but it is titled Outlook. In essence, the momentum that we saw in quarter two has continued largely through the first couple of months of quarter three. In particular, we would highlight that Germany, France, North America, Latin America are all areas that are tracking comfortably ahead of prior year. The U.K., clearly we would expect for obvious reasons to ease back. The order book presently stands at around 6% ahead of the same period prior year, which despite all that is going on, is a reasonably strong showing.
With the combination of all of that, I think we should be well able to deal with any anticipated reduction in activity in the U.K. What we have found in that market incidentally is that there is a lot of Brexit agnostic projects that continue to perform well. In particular I highlight areas such as the online retail infrastructure, which irrespective of in or out or what version of out takes place, these kind of projects are continuing unabated. That has been a very supportive end sector for our business. With regard to what I term our regular business or normal activity in the industrial market in the U.K., clearly there have been push outs and postponements and all sorts, which is not surprising.
Like anybody else, we look forward to an outcome, whatever that outcome is over the next six months, and we can then take whatever the appropriate actions are to deal with that. In essence, we would expect to finish the year in reasonable shape and comfortably ahead of last year. Happy now to hand over to Q&A session.
Thank you very much. Ladies and gentlemen, if you wish to ask a question, could you please press zero and then one on your phone keypad now in order to enter the queue. After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There will be a brief pause while the questions are being registered. Okay. Our first question is over the line of O'Donoghue at Davy. Please go ahead. Your line is now open. Okay, Flor. You may be on mute. If you could take your phone off mute, that would be most kind.
Sorry. Can you hear me?
Yes, Flor.
Great. Thanks, Gene. Just a couple from me. One, just on the U.K., going back to the U.K. there, just looking for a little bit more color maybe by the product categories. You mentioned obviously panels. Just wondering now what the business mix there looks like. On the board side, just wondering how much of it has been driven by price in terms of your growth and where that kind of leaves you in terms of market share dynamics and also just a word on access floors in the U.K. I think from the state it looks like your language there has become a bit more constructive. Second question, I guess this is probably more for Geoff.
Just would appreciate it, Geoff, if you could give us maybe a little bit more of a steer on the full year contribution from the acquisitions or the H2 contribution from acquisitions with Balex on board. Just wondering, given if you're looking through the numbers, it looks like the margin on acquisitions in H1 was just over 8%. Is that the kind of number we should be thinking about for the year overall, or does it progress a little bit in the second half?
That's fine, Flor. So just dealing with your-- Yeah, U.K. panels got off to a poor start and had a strong recovery of around 6% in unit intake in the second quarter. The order bank is around that much, if not slightly more than that, ahead of the same period prior year. And actually our project pipeline, mainly around larger projects, as I say, not the regular business, medium and small size, is actually quite attractive for the remainder of the year. On the board business, you rightly point out that there has been obviously significant inflation, particularly around the PIR board, which was all MDI related to last year. It's a broad subject because the unit sales for our board business are actually down in the U.K. around that. Kooltherm up, PIR down. It's down for a couple of reasons.
One, the overall sector will have lost share due to the lack of competitiveness, and I think we'd have highlighted that ad nauseam six, and probably even 12 months ago. As a company, I think we've probably taken an even harder stance than most of the industry. As a result, perhaps given up some share to other PIR players in the process. That's clearly a tactic, and that's something we can address whenever we feel it's appropriate. For the time being, that is what's keeping unit sales in the U.K. subdued, PIR and its price. I should add that MDI has been unwinding again, as we would've highlighted six months ago. I'd say, significant deflation on that material. We've probably been slower to give that up, as you might expect. As a result, we'll have lost some share.
Overall, I'd say as a sector, because of the severity of the increases that that product has seen, not just in the U.K., but in the wider area in Europe, the sector will have given up share to some traditional products like polystyrene and even forms of mineral fiber. I think it'll be interesting to see how that all pans out as PIR becomes more lean and competitive as it would've been 12 or 18 months ago. That's all got to play out, I'd say, over the next six or nine months. From an access floors perspective, obviously there's some potential Brexit impact. As you'd expect, banks aren't exactly running to construct large offices in the U.K. presently. Quite aside from that, we would've expected a cyclical downturn here anywhere around this time, and that's transpiring to be the case.
The focus for the team is obviously just to consolidate that position, to shift our emphasis towards mainland Europe, which traditionally for us hasn't been a great outlet for access floors. We now have manufacturing presence in Belgium. We'd be expecting the team to compensate for any U.K. downturn over in those markets. On the margins, yeah.
Just on your question regarding the contribution from acquisitions. In the second half of the year, we would expect sales from the acquired businesses to be of the order of EUR 350 million. In other words, the total acquisition impact this year of the order of EUR 600 million for the total year. The trading margin will be somewhere in the range of 7%-8%. It's hard to be specific on that because it'll depend on the mix of activities, but that's the shape of it. Naturally, over time, we'd be seeking to develop that. For this year, that's the general shape of it.
Thanks, Geoff. Gene, just to go back to your comments on boards, and what you're saying about the PIR. I take it that's what you refer to in the statement, re: Benelux, that that's exactly the situation there, what's happened?
Absolutely. If anything, Flor, it's more pronounced there.
Okay, great. Thanks, gentlemen. Thanks very much.
Okay, we're now open the line of Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is now open. Has he gone dead? No, Andy.
No, I'm here.
Oh, sorry. I had three questions. I suppose two of them are related. First of all, on the Indian JV, can you just give us a bit of color around that, what you're investing, what you're investing in, what the returns you're expecting. Just a bit more sort of a flavor for what you're doing there and what the opportunity is. Secondly, on the sort of energy efficiency side, can you just talk about what you actually mean by zero energy? I know you've used it before, and I just don't know what it means, so I wanted you to flesh that out. Then I was just very interested in your ocean harvesting ideas for the plastic bottles.
Can you just talk about where the bottles come from, where they're sourced or the whole process around what characteristics these bottles have that allow you to use them?
Okay. Just in terms of the India question, the expected sales for the business there this year will be approximately EUR 50 million. That's sourced out of two facilities, one very recent one in central India near Indore, and the other in northern India, which has been in place around 10 years. We would expect over the course of next year to pretty much fully utilize that capacity, and invest in a third facility, more than likely in southern India, with our partners there. The consumption of insulated panels, for starters, not to mention insulation, is really microscopic by comparison to any other markets that we've been present in. We kind of see it as a very early-stage positioning of our business and our brand there.
In terms of zero energy, what we mean by that is that all the energy consumed within Kingspan will either be manufactured on our sites or procured from renewable sources. There's only so much that we can actually produce on-site, for obvious reasons, restrictions in terms of wind, et cetera. That's effectively what we mean, so fully certified consumption of only renewable power for our entire manufacturing infrastructure worldwide. In terms of the PET bottle area, again, it's an area we'd be fully committed to. As I said, whether we like it or not, we're surrounded by plastic and will be for many years ahead, even though there'll be attempts to reduce that. Harvesting of just the ocean aspect, I think is at very early stages.
We will be committing significant investment towards that whole initiative and bringing the product back into Spain, where we will produce polyols, which will then go into insulation materials. When we set a target there of EUR 500 million, to be honest with you, that could be multiples of that if this goes the right direction. Believe it or not, from a performance perspective, it's actually a preferred material for us to consume in our PIR insulation.
Great. Okay. Thanks very much.
Okay. The next question in the queue is over to the line of Robert Eason at Goodbody. Please go ahead. Your line is now open.
Just two broad areas of questioning. Firstly, just on M&A activity. Obviously, we've come off the back of a very busy period in terms of acquisitions. Just really wondering, what is the appetite for acquisitions over the next kind of 12 to 18 months? What areas should we expect such activity to be in? What is the multiple environments like in terms of executing those deals? Just in relation to that, in your summary of the strategy of Kingspan, you highlighted the membrane market and also the industrial market. When should we expect to see progress in those two segments like we have seen in kind of light and air? That's kind of my broad questioning around M&A, generally. The second area is just around price cost spreads.
Can you just give us an indication of the extent to which you face input cost inflation in the first half? You've already alluded to MDI coming off a bit, maybe just elaborate on that a bit in terms of the extent of tailwinds that is bringing Kingspan at the moment.
Okay, Robert. You're right to say there's been lots of M&A activity over recent months and even years. As a result, I think we've obviously been taking it a little easier for the second half of this year as we bed down these businesses. The Spanish business and the South American businesses, in particular, have settled in exceptionally well and quite quickly. We're very early days into the Balex business in Poland, and I'd fully expect that that'll be as smooth as the others have. It's obviously a product area and a manufacturing process and a market that we've been in for many years and are very comfortable with. Our appetite remains clearly, but that's to a large extent governed by our timing and our ability to digest also from a financial commitment perspective.
We have an internal comfort level of around 2 times debt EBITDA, which you can do the numbers on yourself there. It still leaves us with some headroom before we would get there. The multiples that are being paid are certainly not contracting. That would be our experience. It's certainly for high-profile attractive businesses, the EBITDA multiples are higher than you'd like. At the same time, we're still able to acquire probably smaller businesses that in the overall blend make our returns satisfactory. North America, I'd say, will be of significance and scale. I'd say North America is an area that we want to make more progress in. Our panels business is obviously well established, our boards business less so. That's an area that we want to have more of an impact in.
If you like, yeah, that's an area that will get more significant focus. From membrane and industrial, Robert, this will be around having the right entry point. What we don't want to do is something insignificant. It's got to be of scale, at least pan-region, if not global. We're just going to be patient in terms of when and where that actually happens. You can take it they're very firmly part of our strategy, and the same way as we're executing on light and air, that will happen in time in these two product segments as well.
Just on input and inflation. Inflation wasn't a particularly notable theme in the first half of the year. If we look at the two key components of our cost of goods, steel and chemicals. Steel, with the tariffs in the U.S., there is an element of inflation in the U.S. on steel, but there is some modest relief elsewhere. Broadly, as it relates to steel, pretty stable environment overall across the business. As we move into the second half of the year, the likelihood is that MDI prices will soften over the course of the second half of the year. The whole inflationary agenda that we were grappling with this time last year, we're dealing with an entirely different environment now.
Thank you.
We now go to the line of Emily Biddulph at J.P. Morgan. Please go ahead. Your line is now open.
Questions, please. The first one's just on slide 31, outlines sort of the organic expansion. Can you remind us what the approximate revenue contribution from those is over the next couple of years in total or sort of however we should think about it? Secondly, just you obviously talked about continuing to see some cost inflation in the U.S. and that being sort of the one place where you are still seeing it. Is there anything sort of different about that market that sort of impacts your ability to pass it through? Or are you confident that you can continue to do that and not impact the sort of penetration growth story there? Thanks.
Slide 31, in broad terms, would be around EUR 300 million of revenue related to all of the initiatives on that slide when we get to kind of a respectable level of utilization. Some of them already have been done, others are still green fields. That's it in essence. Obviously as we go through this, that slide will get populated by other initiatives that we'll expect to be putting in place. In terms of U.S. inflation, it's very much tariff linked and steel linked. It's a reasonably chaotic environment, actually, when it comes to that. For example, in Canada, we'll be buying U.S.-sourced steel, putting the tariff on it to bring it to Canada, produce the product, then try and recover the tariffs as we send that product back south again into the U.S.
We're sourcing a lot of steel from Asia into that market. Obviously, a number of those markets are subject to tariffs. All in all, it's led to a lot of confusion, and at the end of the day, it's led to cost inflation. I'm not sure who's benefiting from this. From an administrative perspective, it's a bit of a headache. Obviously from a cost perspective, it drives inflation. In terms of the sensitivity of that around conversion, a lot of our conversion has been from built-up metal systems. That would be steel, fiberglass, and another layer of steel, et cetera. From a cost component perspective, if anything, those systems are more metal dependent than the insulated panel is. It doesn't affect our ability to penetrate on that front.
Contrary to that, though, when you look at walls, a lot of the walls we're trying to convert from in North America are concrete based. It does put us at a disadvantage when it comes to that from a cost perspective. When all's said and done, unless these tariffs go completely ballistic, I think our conversion strategy will still be very much on track.
Thanks.
We now go to Gregor Kuglitsch at UBS. Please go ahead. Your line is now open.
Hi. Hello. Can you hear me? Just cut you off there.
Hello. Yes, we can. Please go ahead.
Excellent. I've got a few questions. The first one is on margins. I guess two dimensions to the question. One is, obviously you've done lots of deals, things have changed around in the mix, what's your view now where you think margins, I guess, as the business stands today, should be heading towards? The follow-up question to that is, obviously last year you pretty much passed on all of the input costs. Now you're seeing the reverse. What's actually a good environment for you? Is a deflationary environment good for you, or do you think actually it doesn't necessarily help? Because obviously if you have wild swings, then you have to sort of adjust the product pricing. The second question is-
Gregor
I think you made a point on your fire safety side. Obviously, one of your peers has been quite vocal about taking share due to that. I want to get your view, what you're seeing in terms of relative market share, or whether you think it's more a geographic point rather than anything else. I just want to understand-
Yeah
How you're positioned there. Thanks.
Okay. I'll deal with that question first in any event, Gregor. I actually didn't hear your first one because there was an alarm going off here. Yeah, in terms of fire safety-
Fire alarm
we've heard
Ironically
Yeah. We've obviously heard what some of those characters have been saying, and I'll come to the substance of that shortly. The litmus test for us really is from an insulated panel perspective, first of all, we're the world leader in panels, which is quite clear. That covers all cores of materials that are used in insulated panels, including fiber core. Including the acquisitions we've done on a like for like basis, mineral fiber as a core is 11%-12% of our sq m consumption worldwide. That's been pretty consistent as a figure. By consistent, I mean fairly exact. It's not even slightly down year-on-year over the last three, four, five years. Just at a pure measure, when you take all of the excitement out of it, that's one area that's just indisputable.
From a rigid board perspective, we would acknowledge all day long that there are certain applications in high-rise residential where there will be some slippage towards higher fire performing solutions. That's largely around high-rise residential U.K. for obvious reasons. For us as a business, that represents around 1% of our revenue. Having said all that, there's a lot of confusion out there, and I'm not going to get into a technical fire discussion here, but suffice it to say that the language of combustibility is very misleading. The assumption that something that's combustible is not safe and something that's non-combustible is safe, is very flawed. We really defer to large scale fire testing of materials irrespective of what the inputs are, combustible or non. I think nothing compensates really for that large scale test.
Over time, the science of that ultimately is what's going to prevail. In the near term, I'd accept that there is a vacuum in that segment of the market and there is a shift across to that material. Let's see how that evolves. All I can tell you is that Kingspan will find a solution for that application. Might take us a little time, but any square meter we lose, rest assured, we'll regain it at some point in the future.
Thank you. Repeat the first question because it got cut off by the fire alarm. Just on margins. The question was twofold. One, what do you think with the current shape of business, obviously bought some number of businesses that are a bit different to historic business. What do you think margins are or should be for the group as it stands today? Obviously, we can't predict future transactions which may impact that in due course. Then the second question to that is, do you think deflation on commodities is good or bad news for Kingspan? Obviously, last year you managed to pass on most of the input cost quite successfully. Do you think now that perhaps, well, some products such as MDI are going down, whether that'll be a net benefit to your earnings or not?
Dealing with your second one, if you're to take a very short-term view, it's probably a benefit because we clearly would be more reluctant to pass it on at the pace we would get it, which was the case on the way up as well. All in all, when you set aside the kind of quarter on quarter ups and downs or whatever, the more competitive our systems can be, the more beneficial it's going to be long term. Deflation ultimately, when you take a long-term view, enhances our ability to convert. That's our preferred position.
Just on your question as it relates to margins, Gregor. Overall, in the first half, the portfolio was at 9.7%. All things being equal, for full year, we'd be at or around 10%, and that is our medium-term margin guidance. When you take account of the mix of businesses that we have, the mix of markets that we have, acquired businesses that are initially dilutive, adding all of that up in a broad sense, implies approximately 10%.
Okay, thanks a lot.
Any further questions?
Yes. Our next question is over the line of Yves Plamont at Exane BNP Paribas. Please go ahead. Your line is now open.
Good morning. Can you hear me?
Morning, yes.
Good. Thank you very much. Yeah, just a few questions on my side. Just looking at slide number seven, where you show the Kingspan solution in completing the building envelope, are there any products that are not shown in that slide that you could also get into to complete the overall building envelope and get a strategic fit in time? My other question is on the change in the name of the environmental division. Is that purely for commercial purposes, or should we read something else in this, such as a potential divestment opportunity in time? My last question would be on your raw material bill. Could you maybe give us a sense of what is the share of polyol in terms of that raw material bill? Thank you very much.
Okay. Completing the envelope, to be honest with you, Yves, there may be some other areas we'll get in the future, but I think we've quite a meal to digest here in any event. Obviously, we're going to limit it to the energy-sensitive part of the envelope. There'll be all kinds of things in a building that have no influence one way or another on the energy performance of the building, and that's not of any interest to us. At the core of what we're about is that conservation agenda, and I think dealing with the aspects we've highlighted gives us more than enough scope for growth. In terms of the water and energy, there's nothing to read into that except that's going to be the focus of this business rather than it being a platform for divestment.
We've probably been, and I mean, I'm talking about over many years, probably less disciplined than we maybe should have been in terms of product segments we get into. It's really focusing on storage and water treatment. That's really what that's about rather than any kind of commercial or marketing agenda. From a chemical perspective, our consumption of polyols would be approximately EUR 200 million, from a cost-based perspective.
Okay, thank you. If I could just have a follow-up on the insulation board division. Am I right in understanding that actually the price mix was sequentially higher in H1 2018 versus H2 2017?
I mean, the underlying sales growth in boards in the first half was 7%, and in terms of the outlined split of that, the price dimension was plus 10%, with some softness in volume.
That's up quarter H1 2018 versus H2 2017, yes?
H1 2018 underlying sales growth in insulation boards.
Okay. Can you maybe give us a sense of whether or not the price increases was sequentially higher in the first half of 2018 versus second half of 2017?
First half of 2018.
The price, we would have had some run rate benefits coming into H1 2018 of prices that were implemented in the second half of last year. Naturally, we had a run rate impact then in the first half of the year.
Which is more pronounced versus the first half of last year.
Absolutely.
Yeah.
Yeah.
All right, great. Thank you very much.
Okay, before we go on to the next question, which is from Lush Mahendrarajah of Berenberg, if anyone has any further questions, please do press zero and then one on your phone keypad now. Lush, please go ahead. Your line is now open.
Good morning. Can you hear me?
Yes.
Hi there. I've got two questions, if I may. The first sort of follow-up on the last one actually, just in terms of that pricing runway, am I right in assuming in H1 that was a 6% impact? Should we expect sort of nothing into H2, given price inflation in MDI? On that as well, could you just give a quick reminder of the steel and MDI sort of cost bill for 2017. Secondly, obviously QuadCore is growing as a share of your products in panels. Does that have the same positive impact on your margins as sort of Kooltherm boards or is that of less of a benefit? Thank you.
Okay. We'll deal with that as best we can, Lush. Pricing in the second half won't see any inflation, bar potentially some applications in North America which will be steel linked. On the whole as a group, there's potentially deflation in the second half, particularly around the board business. In terms of QuadCore is clearly designed around differentiation and designed around, first of all, margin protection and indeed enhancement. Yes, that'll be a key driver of our margin profile into the future. We also expect to launch a QuadCore insulation board for flat roofing applications, probably towards the end of this year to differentiate that business in the flat roofing segment as well.
Okay. Thank you very much.
Oh, Lush, sorry. You asked about our steel and MDI bills.
Yeah. Just on the two key inputs, Lush. Steel is approximately EUR 1 billion annually now, and our chemical bill across the business is approximately EUR 800 million.
Okay. Thank you.
Lush, do you have any other further questions?
No, that's fine. Thank you.
Okay, well, if that was the final question for today's call. Gentlemen, can I please pass it back to you for any closing comments at this stage?
No, that's it. Thank you, Hugh, for your support there, and everybody else, thanks for joining the call, and we'll be in touch over the coming days.
Okay, well, this now concludes today's call, so thank you all very much for attending, and you can now disconnect your line.