Well, look, good morning. It feels rather odd standing up in front of you guys. Normally, we sit down, but we decided if we sit down in front of the slides, it wouldn't make much sense, and we haven't given you paper copies. We're standing up today. Look, really delighted to be here. I'll try and organize the slides as we go along. I'm Ronnie George, Chief Executive of Volution. You know me really well by now. Andy O'Brien, Chief Financial Officer. Been with the group for nearly seven years now. We've been doing this for some time. I thought about this this morning as I came in on the train, you know, another set of half year results, and we'll take you through it.
Look, I think in no uncertain terms, this is a really great set of results. I'm really proud along with Andy to be standing up here this morning, taking you through it in what is no doubt, you know, an ongoing sort of challenging backdrop. We'd like to take you through our results. I'll just sort of kick off with some headlines, but it is a strong first half performance and not surprising really. We had revenue growth of, you know, just over 20% on a constant currency basis, obviously benefiting from the acquisition that we made previously. We've had strong volume-led organic growth of 4.2% on a constant currency basis. All three of our regions have grown organically. Very pleased about that.
Adjusted operating profit margin is 22.6%, and that's an organic margin improvement of 40 basis points on the prior year. We had some small dilution because of Fantech, but in actual fact, the dilution from Fantech is today far less than you would have expected when we first made that acquisition. So really delighted with our operating profit margin, and we'll spend a bit more time taking you through that in a little bit of detail. Good cash conversion, 98%, and this is at the half year. Typically, we would expect cash conversion to be stronger throughout the year. Second half is stronger. 98% at the first half of the year, debt leverage 1.3 x.
Look, one of our metrics around revenue is to talk about low carbon revenue, and that increased to 72.1% of the total, and that's because of good growth throughout our heat recovery ranges. This is a sort of post half year result outcome, but we completed the acquisition of AC Industries in Australia at the beginning of February. We'll spend a little bit of time on this one as we move to the back of the presentation, but this is a super exciting new addition to the group that we completed at the beginning of February. Strengthens our position in Australasia. I'm very pleased about bringing that company into the group. Look, good organic growth and further organic margin expansion.
This slide here, I said to Andy, I won't do too much of it. In actual fact, I think it speaks for itself. These are our long-term sort of key financial targets. In actual fact, if you look at each of them individually, I won't read them out, but we are either ahead or in line with each and every one of those targets. Very pleased about this. You know, as we go through in a little bit more detail, we'll elaborate. Look, it's a really good set of results. I'm gonna try and elegantly move away now and hand over to Andy, who's gonna take you through the financial review. I'll come back then afterwards and just go through each of our three geographic areas and just spend a little bit of time there.
We think this presentation probably takes 25, 30 minutes, and then we'll leave the balance of the half an hour, if you like, the hour, for Q&A. Okay.
Which way are you going?
I don't know. I'll go this way. Right.
Morning, everybody. As Ronnie said, it feels a bit strange standing up rather than sitting down. Of course, the downside when you're 5 ft 7 is people realize that when you sit down it's not so obvious. Look, Ronnie's already. The highlights for the period in large part was the financial performance. Obviously, Ronnie's talked about a number of these pieces already. Look, we like to look at this, obviously, as I'm sure you do, over not just a one-year basis, but over a long-term consistency basis. I think, you know, if you follow all of those charts over the last five years, I think it's a really strong and consistent trajectory on all of the key things that we want to deliver.
It's not just about delivering well in this period. It's about delivering well consistently. I think, you know, I'll go into more depth on each of these key ones sort of as we go. You know, on the margin one, we've shown you what the margin would have looked like organically as well as in totality. This is where you can see that actually, you know, there was a nice organic margin improvement. You know, as Ronnie said, the Fantech margin is already moving. It's already moving in the right direction through some really good initiatives that we're driving, but there is a little bit of inevitable dilution from that. Look, overall, you know, still a really strong margin outturn from the business.
On the bottom right there, and I will do more detail obviously around cash flow as we move deeper into the slides, but, you know, the leverage there of 1.3x. Full clarity, of course, this is before the completion of AC Industries, so we completed that transaction on the 2nd of February. If you had put that pro forma into our numbers at 31st of January, then that 1.3x would have become 1.8x, which is exactly what we'd sort of signposted when we announced the transaction at pre-Christmas.
I think what it does also still show is that, you know, 1.8 x is still in a very comfortable position in terms of future M&A optionality, particularly given how strong and consistent and reliable the cash generation of the business is. This slide actually covers what we've already talked about. Maybe I'll just draw on a couple of the things that actually aren't there, but just to sort of, I guess, help the analysts with their modeling and with their numbers. Revenue operating profit, we'll talk about some more as we go into subsequent slides. Finance costs were, of course, slightly elevated in this period because of the borrowings for Fantech. The actual interest rate on our debt was slightly down compared to the prior period.
In total terms, finance costs increased from GBP 3.6 million in prior year first half to GBP 5.1 million in this first half, I say, due to the Fantech borrowing. Our tax rate was up ever so slightly, and again, we'd indicated that this would happen. Australia and New Zealand have tax rates up at 30% versus sort of low 20s for the group average before that. Our effective tax rate nudged up from 21.8% in full year 2025 to 22.5% this period. You'll also see reference there to the dividend. Interim dividend of 4 pence per share, so that's up almost 18%. You know, breaking the revenue a little bit further.
As usual, Ronnie will go through the regional color and the regional details in subsequent slides. I think, you know, what's really pleasing about that block in green is, you know, 4.2% constant currency. You know, above the midpoint of our 3%-5% stated range despite, you know, I'd say, generally speaking, still unhelpful markets, which, you know, Ronnie said I've been doing this for seven years. He's been doing it for 18. I think for the seven years, I think I've been saying unhelpful markets for most of those seven years, but that, I think it's definitely the case this time around.
Actually, what's really pleasing, and we did talk a little bit about this at the year-end, we said that, you know, the last couple of years we've had really strong organic growth, but there's been pockets of super strength and some pockets that have been tougher. I think what we'd signposted was that we expected a bit more of a normalization around that, around that sort of 3%-5% range. Indeed, what you see there is, you know, all three of the regions really pleasingly delivering within, or in the case of Europe, slightly above that range. Bottom in the green strap line there, you'll see the sort of how we've analyzed the 4.2% between volume and price.
It is very, very much a volume-driven growth. Price 0.6% overall blended for the period. Of course, you know, looking back to the margin or indeed looking forward to the margin, you know, that 0.6% price is still clearly, I think as this would demonstrate correctly pitched because we've been able to continue to expand the organic margins actually of all three regions. If you look at the bottom middle bit there, where you've got the regional breakdown of margins for this period compared to half one of 2025, you know, U.K. now up north of 26%, which leaves a fantastic margin. You know, Europe again, 120 basis points growth.
In Australasia, of course, this is where the Fantech mix effect comes in. If you looked at the organic margin, that was up again in the period. Look, a really, really pleasing set of numbers on all of the businesses there. If I move to the next slide. A little bit more detail maybe on this one. Cash conversion, as Ronnie said at the outset, we set ourselves a target of being sort of 90% or above cash conversion on a full year basis. We generate cash reliably through the year, but generally speaking, our conversion might be slightly higher in the second half of a normal year than a first half. Actually, 98%, I think in that context, is a really, really pleasing outcome.
You know, if you just look at the waterfall there on the left in terms of how and where we've used that cash over the period. Working capital, there was a small increase or small outflow, GBP 4 million, but that's very much in line with activity growth. I think, you know, actually our working capital is well managed. Our inventory, you know, over the previous couple of years, we'd seen a little bit of optimization. This was where perhaps, you know, two, three years ago when supply chains were particularly difficult, we had, as you'll remember, deliberately increased our inventory, which we think is absolutely the right thing to do for customer service perspective. We then said that perhaps that had opened up a few opportunities to slightly optimize.
I think over the previous couple of years we've done that, and I think now we've got working capital very much at the right level for the business. I would expect that typically now to flow in line with activity, which I think is what you see there. We spent GBP 4.3 million on CapEx in the period. We've always talked of a sort of GBP 8 million-GBP 10 million full year spend, so it's very much in that range. It's slightly higher than we spent in the equivalent first half of last year, which was GBP 2.8 million. I think again, you know, we, our CapEx is not a big number, but that's not because we hold it back.
You know, we're always keen to invest in things which support and grow the organic business. In the period, you know, some continuing exciting investment around new products. We spent just under GBP 1 million on new product development projects and initiatives across the business. A similar number, just under GBP 1 million in Reading. A number of you have been around our Reading facility. Those who've been around more recently will have seen some of the big investment that we've done there in terms of injection molding capacity, and that's all about efficiency, future-proofing capacity for further growth. We've also continued with programs such as the capacity expansion in Erion, North Macedonia, which will take place over the next couple of years.
The acquisition number there, the GBP 30.1 million , that is the deferred consideration for the Fantech acquisition. You'll probably remember that when we completed that in 2024, there was a $60 million, GBP 30 million deferred element of the consideration. That went out in this period. As I mentioned earlier, you know, the leverage of 1.3x there is pre the AC Industries transactions. With that, it would have been 1.8 x. Return on invested capital, you know, again, really what we sort of said here is our target is 20% and above, while continuing to invest in really attractive and value accretive acquisitions into the business.
This is the methodology we use here is to have last 12 months of earnings and measure that against a three-point average on the balance sheet. This is the first period where actually you see the complete effect of Fantech in that return on invested capital number there. The fact that it only nudged down slightly from 25 to 24.6, I think is, you know, having done by far the biggest acquisition we've ever done, I think that's sort of really supportive of the strength of this metric.
There, as you know, as we said on the third bullet point, if we hadn't had that Fantech effect this time around, again, the organic returns for the business would have improved. I don't normally take this one, but in terms of sustainability, as Ronnie mentioned earlier, low carbon revenue percentage continuing to expand. In fact, quite meaningfully there from just under 68% to just over 72%. We think this is the direction of travel. Whether this is, you know, as we've said in the bullet point there, continued growth in heat recovery, and actually in the U.K., it's also been the sort of continuous running solutions which the regulations have supported over recent years. Recycled plastics, you know, we're now up at a very strong level north of 80%.
We're continuing to work on opportunities and new materials and new ways of nudging that number up, but it does get difficult. I mean, in this period, we increased the tonnage of recycled plastics that we used across our facilities, but in terms of percentages, it's come off ever so slightly. There have been a few availability challenges, and this is where we continue to sort of trial and look to develop new sources. You know, north of 80% is a really strong number. I think, you know, I'm sure when we come into the Q&A, we might talk a little bit about what's going on in the world right now.
I think, you know, with oil price volatility, I think the benefit of recycled plastics, which are somewhat insulated from that effect, I think is definitely something that we think is important. Health and safety, slight worsening in the metric here, which is a disappointment. This is something which we continue to focus on very strongly as a group. You know, how can we share best practice? How can we support the smaller businesses and the bigger businesses, continue to improve that culture and that methodology here? We've had a new U.K. operations director who's joined us in this period, and she's made a great start in terms of supporting the U.K. operations, but she's also very steeped in health and safety.
I think she's gonna be a really powerful advocate for continuing that and supporting some of our smaller businesses in how they move forward there as well. With that, I'll pass back across to Ronnie.
Thanks, Andy, for that. As I say, it's a cracking set of numbers to go through. We're really very pleased about the performance in the first half. A little bit about what's sort of been happening. Volution at a glance, not surprisingly, our proportion of total group revenue in Australasia has been growing. The important takeaway from this slide is geographic diversity.
I think what we've talked about for some time when we've stood up in the past is we've had some really strong revenue growth in the U.K., which I know has been sort of counterintuitive to some of you in terms of the overall performance of the market, and that was very much sort of regulatory-led and benefiting from some share gains and some innovation that we brought to the market. Look, we're still super excited about the UK market medium term, but we know that it's a little bit more challenging at the moment in terms of, you know, new build housing activity, for example.
What we've got is this geographic diversity, and as much as Andy and I would love to be standing up here and saying every individual element across all three of our geographies is pointing up at the same time, the reality in life is that that's not always the case. Clearly what we've got at the moment is some stronger performance in some of the other areas. We're absolutely nailed to these three geographic areas. I'll talk a little bit about AC Industries towards the end of the presentation, but of course, our proportion of total revenue in Australasia will grow further with that addition. You can see it nicely here. You know, we've been listed since 2014.
I became Chief Executive in 2012, and this was all about a classic buy and build international expansion strategy, and we've delivered that really well. We're culminating now with a third of our revenue still in Europe. Not to spend too much time on the sort of M&A and the outlook and so forth, but by definition, we're underweight here and to a lesser extent here. Of course, that's where we continue to focus a lot of our time and attention in terms of future M&A opportunities.
Just going through each of the sort of regional areas in a bit of detail, you know, I remember probably, I think Andy joined in 2019, we had a U.K. operating profit margin that had been a little bit subdued through quite a big investment that we'd made in Reading, and we were talking about 18%-19% operating profit margin. We've just landed at 26.3%. It's a very established, mature U.K. operating structure here, where we're getting huge economies of scale and running our brands really well into the market. The way to think about this is our residential ventilation grew 4.2% in the year, which we're actually really pleased about. We had a strong, very strong residential performance throughout all of FY 2025.
If we look at the moment, we're still underpinned by regulatory changes. We still see opportunity for share gains. Tactically, we think there's an opportunity there, but we are clearly against a backdrop of, you know, a little bit less certainty around house building, and I think by now we probably hope that house building was recovering at a faster rate. Nevertheless, we're delighted about the performance in the first half of the year, and regulations will continue to be a theme. Of course, sticking with that, Awaab's Law isn't so much a regulation but an awareness issue in U.K. social housing. We've seen, you know, ongoing strong social housing demand. We think that's set to continue, but there is also the balance of affordability versus the demand. The demand for ventilation solutions in social housing refurbishment is strong.
We see that sort of tailwind being there for many years into the future, but then you come back to the affordability for these, housing associations and so forth. Look, these are areas where we consider ourselves to have a leadership position across residential new build, social housing refurbishment and private RMI by some considerable distance. I think that's a good segue into commercial, down 7.3%. Tough market. We don't think the market's been particularly easy. We're not particularly happy about our performance in U.K. commercial, and it remains an opportunity. It remains an opportunity because we are subscale, we are smaller, and we made some investments in the year. We've taken on an additional facility in Dudley, in the West Midlands. We've effectively grown our footprint two times. That's incorporated in the numbers.
Our 26.3% operating profit margin includes the facility that we now have and that we're scaling up. We remain ambitious in this U.K. commercial market, but I think it will take us some time tactically to actually start eking out share gains and so forth into the future. It's absolutely an important priority for us. Export, it's a small number, grew really well, 20% revenue growth. A lot of that in Ireland. Ireland, house building trajectory is what we would probably like to see from a U.K. perspective, but we're not there yet. Strong regulatory drivers, strong market position, quite a bit of innovation, perform really well, and I think the outlook is equally quite strong.
I saw a statistic the other day about, you know, whether or not necessarily you believe it, but, you know, Irish house building getting up to 60,000 units in the year into the future, and we're probably only running at about 40,000 units at the moment. We still think there's a strong market outlook. Just finally on the U.K., parts, OEM. This OEM revenue is third-party customers. A lot of our motorized impellers are increasingly used internally. We'd struggled with our OEM proposition a couple of years ago, done some tremendous work closing two facilities into one, improving the quality of the business, and we're really delighted about the contribution in terms of organic and profit growth that the OEM part of the U.K. business has delivered in the year.
Look, overall, you know, 3.8% organic growth, good margin expansion, you know, adjusted operating profit up 6.2%. Moving to Europe, I think in particular, I'm pleased about the Nordics. You know, for many years, we'd sort of come to these presentations talking about the strength of our Nordic business, and it's undoubtedly been really quite tough over the last few years. We've seen, you know, really good recovery in our Nordic business, and I think it's fair to say that recovery was more pronounced in Q2 rather than Q1. The trajectory is definitely very encouraging. You know, as we come into the more recent months, you know, we're seeing that in the start of the second half of the year continue to go very well.
In Central Europe, I think it's a little bit more of a mixed bag with some outstanding performance from ClimaRad, with our decentralized heat recovery ventilation. That's continued to perform very well. The outlook's positive. The order book's been growing. In Germany, we've probably seen some stabilization, and in Energy Recovery Industries, Andy's already alluded to some of the investments that we have made and are making, and our ambitions for that particular revenue stream as we grow it into the future. Actually much smaller from a revenue perspective inside our continental European business is Belgium and France. As we always say, it doesn't matter how small or immaterial it might be, we drive each of these individual areas equally well.
We think that the outlook there in the second half of the year is probably slightly better for us in many respects, some of the self-help and the things that we're doing. You know, very significant margin expansion and 16% operating profit growth in the first half of the year, operating margins up to 25.3%. So very pleased about our continental European activities. As I say, Volution is still relatively underweight in this market. There's still white spaces on the map that we would look to tackle into the future. Then finally, Australasia. Organic growth of 3.3%, but we split this now into residential and commercial across both Australia and New Zealand. New Zealand has been difficult.
We've talked about that for some years, but it's certainly better, and I think clearly having a leadership position across multiple brands in both Australia and New Zealand, tactically, we're able to apply that to try and take share. You know, this is what it's about for us. You know, clearly, the Fantech acquisition was super exciting in terms of the size and the scale that it brings, but it's also about having different routes to markets and brands that we can leverage to capture more of the opportunity. Residential, very good. Commercial, a little bit more difficult. Overall, we've talked about an organic margin expansion, and I'd like to think of our Australian, Australasian model as being the sort of steps on the path are to follow into what we've established with that mature U.K. platform.
Certainly working with the local leadership team, I'm actually due to be out in about three weeks, but traveling through a slightly different route. It's about encouraging that team to follow what we've clearly done very well at in the U.K. There's a lot of sharing of knowledge and experience there. Look, operationally across the three areas, very pleased about the first half of the year. You know, sometimes I do feel we turn up and talk about more challenging backdrops and markets, but they are challenging.
I think that the performance that we've had in the first half of the year is a credit to our local teams' dexterity and just picking out share gain opportunities and just being absolutely obsessive around customer service, a conversation I had with somebody in the U.K. more recently, and also that discipline around initiatives and how we track those initiatives that effectively underpin our margin expansion. Just quickly on AC Industries. We didn't have the opportunity to talk to you about this. We announced it in December. We completed it at the beginning of February. This is an adjacency for us. It's ventilation systems in the mining sector. It's very exciting. We've had the first month of revenue in February, and that's performed really well.
You know, we're looking at an EBITDA margin here of 35%, so clearly it's above our 20% target, and we're in very good shape here and excited about what we can do. We're spending a little bit of time now just helping the team think about the international growth. We're going through what we call a 200-day plan integration, and that's really important just to bring it inside of the group, and then we'll start working with the local team about how we can grow this proposition internationally outside of Australia, where we have a very big market share. Summary and outlook. We had to get this slide in just quickly. We won't spend too much time on it. That's what we've talked about for the first half of the year.
As I say, you know, sometimes you have to sort of pinch yourself when you turn up talking about 20% revenue growth and 19% improvement in earnings per share. You know, these are sort of numbers that over the medium term we couldn't necessarily look to repeat in every half. Really outstanding first half performance. Just onto the outlook. Of course, we started drafting these papers and materials a few weeks back, and we've certainly had a sort of self-reflection on, you know, the current state of the world, as it were, and how that fits for us. I think just not to read it all individually, but there are a couple of important points to pick out of here, and I think it's this one about being mindful of the heightened geopolitical risks.
Of course, they are quite fluid, but remaining agile and proactive to these potentially changing conditions. You know, I hate to mention it, but through COVID, we had what we consider to be a good COVID, where from a supply chain and sort of operational customer service performance, it was very strong. I think that experience that we had is hugely underpinning for whatever might happen next. Look, we think we're in really good shape. As a result of that, you know, the board now expects adjusted earnings per share for the year to be at the top end of the range of market expectations. We think we're in good shape, notwithstanding the wider geopolitical risks. I think we did manage to do the 30 minutes as usual.
That is the sort of formal part of our presentation. I think Andy and I will come and sit down now, but we'd just love to have your questions. I know we get some really interesting questions from the floor. Okay.
Thanks. Aynsley Lambert from Investec. I think I've got three, actually. First of all, the kind of obvious one, I'm interested where you see the kind of direct and indirect risk around the geopolitical situation. So energy costs, supply chain, as you mentioned. Second question, just on the kind of obviously great performance on the margin, I think pricing was only up 0.6%. Just interested how kind of, you know, were cost inflation, was it running higher? Did you take out costs? Kind of how that all fits with the low increase in the pricing. And then maybe, Andy, I don't know if you'd give some guidance around the absolute level of net debt you expect for the end of the year pre any more acquisitions, obviously. Thanks.
On the first one, I mean, the geopolitical risk, we had our board meeting on Tuesday, and we put a risk paper together and sort of articulated, you know, gone through it in some detail. If you sort of break it down into the constituent parts, of course, you've got demand, and you know, I'm not gonna sit here and predict in any detail what's gonna happen to demand other than I did say that if you think about energy security, what I think this does to, from a sort of low carbon energy transition perspective, is it further focuses the mind. Now, that's medium term. That's not gonna help us in the second half of our financial year. There is definitely an increasing awareness around energy security, and this is a stark reminder right now.
Look, I think the long-term dynamics underpinning regulations and so forth, this is, dare I say, a good thing. In terms of demand and so forth, I don't think it has a material impact on us directly, but of course, there could potentially be a widening consumer confidence issue over time. I think that's the sort of macro. Coming back to individually, what does it mean for us? Look, specifically, we're not energy intensive as a business. We're not CapEx intensive. The two probably go hand in hand. And if you think about issues such as, you know, our biggest energy cost is heating and lighting our facilities. We've always taken a long-term view in terms of protecting ourselves on costs.
I think Andy reminded me that, you know, we're hedged on gas prices to the end of 2027 for all of our U.K. activities. Actually, it's not that material anyway as a cost relative to other risks. Andy's talked about input cost materials. We are long term in terms of hedging and fixing our material input prices, and I think that's completely covered off, you know, almost zero risk in half two. Then beyond that, if there is a wider market implication, then, you know, we talked about price agility and so forth and pricing power, then we would act. We don't see a need to do that right now. I don't think things are materially different. The other issue is around logistics and supply chain and so forth.
We've got quite a large sort of Southeast Asia supply chain. In actual fact, this crisis doesn't really have a huge impact on that. We've already been sailing ships from China and so forth around the Cape for the last 12 months because of the Houthi-type dispute or threat. This for us is maybe some impact on sea freight costs, but probably and nowhere near as pronounced as what we had in COVID. You know, if you look at what happened to 40 ft container rates in COVID relative to where they might potentially go now, I don't see it as a big risk. I think we're in really good shape. Andy talked about the working capital investment in the year. Our customer service generally across the group is at exceptionally good levels.
We've hired a new U.K. Operations Director, been with us for about three months. We talked about that individual in one of the earlier slides. I think from a customer service perspective and operational sort of cadence, we're very, very happy about where we are. Just moving in, the second question, Ainsley, was around how we delivered the margin expansion. A little bit of price. I think there has been a little bit of price there. I think price increases have moderated more recently. I think they were bigger earlier, going back over the last couple of years. We are very, very focused around initiatives, whether it be product value engineering initiatives, whether it be supply chain, whether it be operational excellence, whether it be indirect cost efficiencies.
We haven't really talked about technology and AI, but we're starting to apply more technology in the business to drive efficiency. My sense is what you saw there in the operating margin expansion in the first half of the year were the efforts that we've been making over the last couple of years. What I'm absolutely confident of is the pipeline of issues that we are driving going forwards to continue to underpin that. This isn't sort of campaign-driven initiatives. This is part of our DNA. I do genuinely believe this is how people operate each and every day when they come to work.
Yeah. Just quickly on the net debt, Ainsley, if you don't mind, I will talk excluding leases because I still think that's the best way to do. We were just under GBP 143 million at the half year point. Obviously, that was before the ACI spend, which give or take is GBP 75 million pounds. If you add that on, and then you have our sort of normal amount of cash generation in the second half of the year, you know, I think you're ending up sort of close to GBP 200 million, maybe a little bit less than GBP 200 million in terms of net debt. One thing I would say, so I'm not going to predict it, but just a little watch out for is the exposure, how that impacts from currency translation.
Effectively, all of our debt is denominated in non-sterling currencies. Most of it now is in Aussie dollars because we match it with the acquisitions. You know, when you look through the cash flow detail in the statement here, you'll see that actually in the first half, the Aussie dollar did swing quite a bit towards the end of the period. We actually had a GBP 6 million increase in reported net debt simply 'cause of translation. It's probably gone a little bit more in the period since then. Who knows what happens over the next few months? That may skew it slightly, but that's roughly where you are.
Rob? Yes, please. Thank you.
Hi. Rob Chantry at Berenberg. Thanks for the presentation, guys, as usual. Yeah, three questions from me. Firstly, just on AC Industries, clearly mining, specialist industrial. I suppose just interested in your experience in the market post-acquisition and completion with regards to, do you want to do more in specialist industrial? How has the industry responded to kind of a non-mining kind of ventilation business getting involved? How do you see the scope for more specialist industrial going forward? Secondly, Nordics, I think commentary was around an improvement through the period. Clearly many geographies, but just the dynamics there would be helpful and the kind of the run rate. Thirdly, U.K. residential, can you just put that 4.2% organic performance into a market context, i.e., how has market share evolved? Where are you winning?
Where are you? You're missing out? Thank you.
When we first started to look at M&A back in 2012, the available capital to deploy was quite small, and we had a very focused residential-only strategy. What I'd love to tell you with M&A is that we could define what we do and when, but of course, the reality is that it takes two to sort of tango in this regard. We can't be certain when opportunities will manifest whether or not we'll be successful. Through a sort of a development agenda over the last years, we've widened the scope, but there are some really important factors to consider. It's going to be air quality.
It's got to be air quality because we believe that we're quite good at providing solutions around air quality, and we don't have any interest, desire to move outside of that. That's absolutely sacrosanct. When we met the owners of AC Industries and started to talk about, we turn up and we use our public presentation and we talk to them about what we do, the owner said to me, "This feels like us." Why? They provide healthy, good quality air in mining. You can't ignore the fact that people work in mining. It's not an AI threat. We're still gonna send people down into mines. They got it, and it was just really exciting, and I think that's why we got the deal away.
Now we know, we won't disclose it here, but we know that there were two very big industrial trade suitors, and we don't believe we paid the highest price, but we were the best partner. That's where we create a lot of value. You know, we acquire a business at a multiple of earnings that is super exciting with an EBITDA margin that's above the group average that we think has organic growth capabilities beyond, potentially beyond our 3%-5% in a sector that is exciting. There's everything to like, and we bring, we do bring some synergies. We'll bring some synergies in terms of, I think, how we can help them grow internationally. Part of our wider infrastructure in Australasia, we've already got above-ground mining activities. It's not that far away really.
Does it mean that now the next acquisition will be mining-related? It could be, but it might not be. What I'm saying is that the scope, and this is what's attractive for us, is that we don't see, Andy and I don't see any reason why in the coming years our cash conversion is any lower than it has been. In actual fact, there was quite a nice article written about us recently, and they looked at it from just a purely cash generation perspective, and the bar's growing materially over time. You know, the risk for us over time is not being able to deploy that capital into M&A and creating that compounding performance that we believe. You know, we believe now after delivering sort of 13% compounding nearly for 12 years, it should start to shine through.
Long answer to the question, but it is really important. We've got wider scope of opportunities. We've got areas that obviously were underweight in terms of Continental Europe that we'd like to address. We think the Australasian market's very attractive, and you get that economies of scale and back office synergy effect because when we buy brands or assets in geographies where we've got scale, then we're able to incorporate them really well. I think that hopefully covers off where it'll be, but it will absolutely always be around air quality.
Just on the Nordics then, Rob. We, just a reminder, we are very much residentially oriented in the Nordics, but more RMI, but a bit of new build as well. I guess over the last few periods where we've talked about it being a difficult market, the refurbishment had been reasonably resilient through that period, but it was probably the new build that was absolutely the toughest. I think what we've seen in this most recent period is actually the refurbishment has not just stabilized, but hopefully is starting to sort of nudge upwards. Also the new build is getting better.
I think you know the whether that's a function of interest rates there, 'cause well, not of course, but a lot of consumers in the Nordics are on purely variable rates. Typically when rates are going up, they feel it first, and then when rates are moving in a hopefully a more favorable direction, again, they feel that first. I think the new build conditions, the new build order book has got better. Refurbishment has continued to perform well, so the residential is coming through nicely.
Over the years to come, you know, we're a bit like the UK really, you know, commercial is another opportunity for us where we're currently relatively minor, perhaps try and eke out a bit more gain there as well.
Third element was U.K. Sorry, what?
U.K. resi.
Residential, yes. I think I covered it off probably quite well in the presentation. I mean, the U.K. residential new build regulations changed in 2022. Part F, L, and O all very supportive in terms of regulatory growth. We've seen that benefit. You know, we've certainly seen a huge benefit through 2023, 2024 and 2025. Our sense is that there is still a further regulatory benefit to be had, but we probably had hoped by now that we would have seen a volume growth. I think it's probably fair to say in the period that we've just talked about, volumes you could probably argue at best flat and probably slightly down.
There's been quite a lot of consternation around things like apartment builds and some of the approvals under what the so-called Gateway Two. Our sense is that residential new build, notwithstanding the wider backdrop, but mortgage rates had been becoming more competitive. How long that's offset by, we don't know. You know, we've certainly seen others talk about the recovery being delayed, but we're still optimistic about our own position. I mean, we always talk about this internally. You know, it's the market will be what it will be, but if we just wait for the market to recover, that's not acceptable, and that's not the way we work anywhere. We've got some really good innovation.
We think we can take further share gains in terms of what we're doing. We've made quite a bit of investment in our Reading facility and a further investment that goes live in about six weeks to increase our capability and our responsiveness with an ambition to grow share. We've got a couple of segments in the U.K. market that we think we're underweight in that we can go after. I think what I'm saying is it's gonna come largely down to self-help rather than the market necessarily being strong. I don't think the RMI market is necessarily any weaker. I think it's reasonably okay, but I'm not arguing that the consumers are ultra confident and spending more in the next six months. We can certainly do more.
Thanks. Thank you. Thanks very much.
Thanks. Christen Hjorth from Deutsche Bank. Just two questions for me. First of all, maybe just sort of slightly technical on the ACI, just what is the contribution to EPS in your guidance for FY 2026? So just to understand that piece. And then secondly, you know, sticking maybe with U.K. house building, are your products there at the same margin as the U.K. overall? And I suppose, do you get any sort of, you know, house builders struggling with affordability? Do you get pushback on the level of margins that you make? Or actually is the solution you're providing, is that the sales point, not necessarily the price per se? Thank you.
Yes. I'll take the first one, and I'm sure Ronnie will take the second one, Christian. When we started talking about this back in December when we announced it, we said that, look, if you put in, you know, the sort of revenue of ACI, it's very strong margin. It's north of 30%, as Ronnie mentioned. But of course, then you put in the GBP 75 million debt that we're taking, we're drawing down to use it, you basically end up at around 1 pence of additional EPS in FY 2026. Of course, then you go into FY 2027, you're paying the debt down and hopefully the business is continuing to grow.
As a quick reminder, we did say at the time of acquiring that it had been consistently growing low double digits over the preceding years. This is, you know, this is a business we're very excited about.
U.K. residential new build or product margins more generally, they're plus minus very similar. I mean, we could pick out outliers and so forth. The story in residential new build for us was started a couple of years before we really started to see the revenue. We looked at the regulations, and we could understand that the market would go continuous decentralized with certain performance requirements in the product around specific fan power and controls. Quite frankly, we nailed it from a development perspective, not just in terms of the performance, but also the cost. Because it, you know that sector really well.
It wasn't for us to be able to turn up and say, "We've delivered this solution that ticks all of your boxes from an install reliability, from a noise objection, from a specific fan power and approval perspective in SAP, but it's gonna cost you X, and X is too much." We had a cost price target to deliver against that from an engineering and operational perspective, we got there. We were able to go to the customer and say, "Here's a solution." They went, "That's great, and it's actually a little bit cheaper than some of the other ones I'm taking. It ticks all the boxes." We make what we believe is an appropriate and fair margin for all of the effort that we've made. It's just a really good example of being totally joined up across the business.
That's where we are. It's just, I'm just thinking about one specific product. I'm not gonna mention it by name, but that was the example, and we did it really well. It's, for me, it's about value-based pricing. If we solve customers problems efficiently and competitively, then if we make a better margin than somebody else, they're not really interested in that. It's about what we do for them, and it's about, you know, customer centricity. That I think is what we do, you know, phenomenally well all over.
I mean, I could take you to the Netherlands, and we've got, you know, operating profit margins generated in our decentralized heat recovery solution that's grown phenomenally well, that are above where we're at here because we solve the problem really efficiently and there is a total cost of ownership payback that the customer buys into. That's really important. Every product development that we talk about, we had a really good session at the board on Tuesday with the technical director talking about this. I just think we're really good at it, and we coordinate those resources group wide. Every time we make an acquisition, we learn something new because every company we acquire has something about them that we don't, that we don't know.
David.
Oh, Charlie was just first. So
Thanks. Charlie Campbell at Stifel here. Couple of questions, really around margin. You, I think, alluded in the presentation that Fantech's margin's gone up because you said it's less dilutive than it would have been. I guess that's what you mean there. Just wondered what you've done to improve the margin there. That'd be really interesting to see in the context of M&A. If we think about Australasia, really this is a question kind of before adding in AC, margin obviously is lower than the rest of the group because I'm guessing that commercial's a higher share of the revenues than anywhere else. Is that the right way to think about it?
That structurally that Australasian business ex ACI stays at 20% and can't really get to 25%, or would you challenge yourself to hit it even with more commercial? Yeah.
Little feedback to Ronnie taking the first one, which is more detail around Fantech. So look, I mean, if you actually looked at the previous presentations prior to the Fantech acquisition, Charlie, I think you'd have seen that actually the businesses that we'd had there since 2017, 2018 were very much on a par, or in fact in some periods, slightly above the UK European margins. So there was no, you know, we weren't, we were starting from a very strong position. Fantech, which Ronnie will just elaborate a little bit more on some of the initiatives. You know, we've said consistently throughout, it's about, it started life about 6 percentage points lower at both a gross and an operating margin level. I don't think that's intrinsically because it was commercial. I think 60.
Well, first of all, you know, what we came up with, we said 16% is not a bad margin, and most, a lot of other competitors would love to have that. But we could already see that there was an opportunity to move it up, which I guess Ronnie will sort of touch on. AC will then come in and we'll move the mix in another direction again. Look, I mean, I guess in a nutshell, as long as we can do what we think we can and are already starting with Fantech to nudge it towards and hopefully ahead of the 20%.
What we won't do in periods to come is talk explicitly about Fantech margin or this margin, that margin, because as Ronnie mentioned earlier, you know, where we really wanna get to here is having a really well-run integrated region like the U.K., where we've got multiple different brands and multiple channels that the customer sees and recognizes. Behind the scenes, how can we pull that all together into a really coherent and well, you know, efficient and integrated sort of back office setup. You know, we're not gonna say, "Oh, this cost belongs to here, and this cost belongs to here." Look, long story short, it's not resi-commercial. It's you know, we're ACI is commercial.
I'm smiling because my answer to your question one was to explain how we would run a very integrated. Andy's already done that, so I won't repeat it, but that is the approach. Look, we've got, I think this is a confidence in our ability. If we make an acquisition somewhere, it has to be on the basis that we can create some additional value. Those value levers that we pull are not the same in every acquisition. With AC, it will be different. We won't make material differences to the cost price of the product. We think they're very good at it. High-density polyethylene textile material. We think that we might increase the robustness around the supply chain and some protection because it's a key material, but we won't.
In the case of Fantech, and what we're doing in that local region at the moment is it's on that treadmill of initiatives as with everything else. So our sense is that we've got really good, strong technical and procurement capabilities group wide that we're able to leverage into the local region. Our product knowledge, our product management knowledge is really strong. You know, I can see the sorts of things. I was sitting there last night, and the local regional leader, Anthony Lamarra, who might be listening now, sent me a picture of a new product that we're introducing and said. It's just really good attention to initiatives, and I applaud that. So we're not setting a margin target for Australasia.
We are being conservative about more than 20%, but we're already in, you know, a good place and think we can enhance things over time. I think Andy's answer was the sort of backbone, the structure that helps deliver that.
[audio distortion]
Okay. David?
Those were my questions. Just a question in terms of kind of the shape of the first half organic revenue. Obviously, first four months was 5%, kind of implies that the last two months were kind of below 3%. Kind of what's going on there? What's kind of working against you? Obviously, some of your peers have called out weather in the U.K. Then I guess as you kind of look into the second half of the year, what could kind of lift that run rate up higher? My second question was just a little bit more detail in terms of kind of the, what's going on in commercial in Australia, obviously down during the period, kind of how you're seeing that end market?
Obviously, you know, I think we're all quite aware of what's happening in U.K. commercial, but Australia, an outlook would be helpful.
Yeah. Okay.
If I take the first one, David. You're quite right. 4.2% for the six months, we were circa 5% at the four months. Yes, you know, by definition, December and in particular January were tougher. You know, I'd loathe to call out the weather, but certainly everything I read and see suggests that January was a pretty difficult month for a number of people in a number of different industries, and I think we sort of saw and felt that. You know, we have talked, and again, back to what I was saying earlier about the, perhaps the normalization of the growth levels across the three regions.
We said back at the year end and before that, you know, the regulatory kicker and the share gains and the good stuff that had very much underpinned our U.K. residential, you know, that was in. We're still continuing to look for share gain opportunities. Don't worry about that. But in terms of the mix effect, we said that was largely gonna have played its way into the numbers during the course of the first half of this year. That's no longer a year-over-year impact in the way that it was. What of course we now all, I think, hope for in U.K. new build is the volume piece. That's definitely leveled off, somewhat.
You know, as again, as we moved through the period, we talked about the Nordics being better in Q2 than Q1, so that's going in the alternative direction. Look, I mean, I think wouldn't wanna over-predict what the second half looks like, but I think, you know, you've seen where we've sort of guided it to. I think we're still confident that, you know, that portfolio effect is gonna come through really, really nicely, and that we can continue to deliver, you know, good organic growth relative to market for sure.
Commercial Australia and New Zealand, I think that if you look at the New Zealand market more generally, I think that'd been tougher. Certainly if we look at, you know, it's only a couple of months, but we're seeing some signs of recovery. Yeah, I mean, our commercial share in Australia is very significant. So there is always a risk around, you know, market's tough. How do you mitigate that? Some new product introductions at the moment that I think will be helpful. Certainly we've as a result of our wider group experience, there's a couple of things that we're launching that we think we can help us. The last couple of months have probably been a little bit better.
I mean, the December, January issue is always slightly amusing for us in terms of Australasia, because of course, we talk about how good the summer is and how much longer it takes after Christmas for people to come back to work and so forth. There is an element of that. Yeah, overall, I think we're pleased about the direction of travel in the last couple of months.
Yeah. Thanks.
Okay. I think we have. Anyone, any other questions in the room? I'm very happy to take any. No, we have a couple of questions online, I believe.
The first question is from Roland French, from Penman Securities . Can you talk about your comment that recycled plastics is more insulated from higher oil prices and how you're thinking about cost of goods inflation and procurement given the macro backdrop?
Yes. Okay. The issue around recycled plastics is that because of course it's a recycled source. It's not reliant on oil going into that material. It's effectively recycling a material that's there. We have a couple of really good, you know, one in particular, long-term strategic partnerships that we've tied into. The use of that material is in itself quite difficult. We think we are, in the sense of a partnership, tied to the supplier, and I think the supplier is tied to us in terms of being able to utilize that material, and we've committed that long term.
One of the things that was disappointing for us in the first half of the year is we had a slight reduction in the proportion, the percentage of overall plastics recycling we used, but it was an absolute increase in volume. Okay. Because our volume had grown, but we had used slightly less percentage. We've actually had a few breakthroughs more recently, one last week. Group procurement director has found an additional source to supplement that, and the good news for us is that the use of recycled plastics versus virgin is a significant saving. We think we're very well, sort of hedged and supported around plastics. Wider material input costs.
In actual fact, before this crisis more recently, I was citing metals commodity prices as being the bigger risk to input costs over time and expected that to probably manifest towards the second half of this calendar year. Look, we remain agile, both in terms of the sourcing and the commitments and of course any offset through value engineering and initiatives, and then of course the ability or the requirement to maybe nudge prices up if necessary during the course of the year, but don't have a concern about gross and operating profit margins as we go forward.
I mean, just to add to that, in terms of sort of direct cost to ourselves from energy, we are a very, very low user of gas and electricity. To the extent that we are a user still, gas in the U.K., we're fixed pricing through to September 2027. Electricity, we're fixed through to the end of this year. As I say, we're, you know, because of the nature of our process, we're a very, very low direct user anyway.
Yeah. One more.
Yeah.
I think.
The next question is from Florence O'Donoghue from Davy. Can you update on operating costs, labor, raw materials? There appears to be a number of senior management appointments recently, U.K. operations director, Germany, and so on. Can you discuss this investment?
Yes. Actually, I'm sort of pleased in a way that we hadn't called out, you know, wage inflation and so forth, but, you know, Volution isn't immune to that. We've certainly had wage inflation very similar to other companies in our space. I guess one of the reasons why we didn't call it out in so much detail is that clearly the operating profit margins haven't been impacted because of it. We didn't need to sort of cite the fact that that had been a drag on our results. Of course, we would expect labor inflation to continue. It may have moderated more recently, but nevertheless, it's something we always try to target operationally to mitigate any labor inflation through efficiency. That's gotta be the annual improvement target.
Quite a lot of initiatives going in at the moment that we think probably haven't fully manifested the benefits yet. I think from a material perspective, that's in good shape. I mean, Florence, a really good acknowledgment around people. Probably an opportunity now for me to just credit the wider senior management team and the wider employee base for the great results in the first half of the year. We're investing for the future. You know, we're building stronger teams to underpin our ambitions.
The appointment in the U.K. around operations was that, I think we've performed really well operationally and customer service wise, but we know we can do better and I'm delighted that we have a new leader in that role who in the first few months is having quite a profound impact, not just in terms of the operations, but also the leadership and developing the team. I think that's really exciting. The appointment in Germany I think was, quite honestly, we've had a situation in Germany where the market's been really tough for some time. We had a local leader who'd been with us since we acquired the business in 2014, and I think it just came to a natural point where maybe freshening up and changing for both was a good place to be.
That's part of our regional structure under one of our two regional managing directors for Europe, and we're really excited about the new individual joining us at the beginning of April. That's underway, and we think that can just help reinvigorate the opportunity in Germany. The German market is tough, but we again believe that there are share gain opportunities, and we think that new leadership will be really helpful. Okay, I think we've just gone slightly over. Thank you very much for your attention. Thank you for your questions. Look forward to seeing you next time. Thank you. Thanks very much.