It's really a very interesting time, and I'm pleased to give you a bit of an update as to how we've been doing, as we're now really coming up to three years in on our Sustainable Solution for Growth strategy. With no further ado, welcome, and let's get into it. As always, I'll give you just a short sort of overview, and then turn it over to Tim, who can run you through the numbers and some of the details there, and then I'll come back and give you an update on our Sustainable Solution for Growth strategy, take you through some of the different pieces, and then we'll aim to leave ample time for Q&A. Just first, let me start off by saying a couple of things.
I mean, obviously, I'm very, very proud of the effort that the entire team has put in to deliver an increase in our operating margins from 16 to 16.4 basis points, 40 basis points increase. This is really a testament to the fact that our strategy and our execution is working. Despite a revenue reduction of a bit over 4%, this margin improvement shows the quality of the business improving day in and day out. That was accompanied by very strong cash generation. You recall we've set our midterm targets to be over 90% cash generation, particularly strong year around 99%, which of course helps deliver. That's taken us down to about 0.9 times leverage on the balance sheet. You can do the math there. That leaves us ample firepower for further M&A investment, as well as organic investments in the business.
To that end, you'll recall that last summer we had two acquisitions of Omnie and Timoleon, strengthening our underfloor heating business and Sky Garden, investing in the fast-growing green-blue roof space. Both exciting, and quite frankly, you shouldn't be surprised if there's more to come. The group does intend, as a result, based on the board's confidence and our confidence on our midterm execution capability and the growth prospects, to go ahead and increase our dividend to GBP 0.125 in line with our progressive dividend policy. If I think about the market for a minute, I mean, longer term, our prospects, so the midterm, long-term, are excellent, right? We've got a government that is absolutely committed and focused on improving house building here in the U.K. and addressing that structural shortage.
A lot to be said about that, but it's headed in the right direction, and that focus is welcome. We know that we're getting closer now to mobilizing for the Future Homes Standard, and we're seeing signs of that across the industry as we're actively working with customers to accommodate that. Importantly, and this is something that really has picked up steam, AMP8 is out, 86%+ increase in capital spending from seven to eight AMP cycles, meaning that the water industry is going to be investing heavily in stormwater management to protect our sewage and waste systems across this country. That plays to one of our strong suits as well.
I would be remiss if I did not point out that the labor shortage, which we are all worried about as we increase productivity or increase this industry, means that we have to focus on productivity, which means that those of us manufacturers who provide better value solutions and more productive applications of our products are well suited to benefit there as well. Obviously, this year we have been focused on, or this past year, we have been focusing on outperforming what is a challenging market. We know that there has been plenty of economic uncertainty. Obviously, some of that remains. There is concern over interest rates, perhaps fewer reductions than anticipated. Consumer confidence is important. If you look at some of our key indicating segments last year, they were down. We saw new house building starts about 20% down. We saw private housing and RMI was down also.
The boiler market was down again. When you take all this together and you look back to around 2019 levels, we're still running 20-30% below volumes that we saw then. We've been improving our profitability for two years running as we've become a leaner, more fit organization. If I think about that, we're confident going into next year. We saw trading open 25 in line with our expectations. I would describe sort of the market conditions as pretty similar to what we were seeing at the end of last year. We're waiting for a strong uptick, and we're absolutely ready for when it comes. Let me turn over to Tim, and he can rattle through some of the numbers for you. Tim, over to you.
All right. Thank you, Joe. Thank you all for coming this morning. I appreciate it. On what I know is a busy week for results, I'm delighted to present our results this morning, what represents a really resilient performance, we think. Revenue down 4% year on year, based on volume reduction of about 4% as well. A strong outperformance, we think, versus some of those market stats which Joe has just talked us through. Importantly, pleased to present that we're improving our operating margin here by 40 basis points, which really represents strong progression towards that medium-term target of over 20% operating margin for the group. EBIT of about GBP 92 million for the year is down just 2%, given that improvement in margin. Really strong cash conversion as well, though.
Ninety-nine percent conversion on cash, and that has meant that we continue to deliver our balance sheet now at 0.9 times leverage, which gives us plenty of firepower to invest in the future of the group, both organically and inorganically, which Joe will talk a bit more about later on. Also, with that balance sheet strength and because of the board's confidence in the future direction of the business and our execution of our medium-term strategy, we are proposing an increase in our dividend to GBP 0.125. Let's dig into a little more detail on the P&L.
Here you can see that top-line performance of 4% down. Really strong gross margin performance here, 220 basis points improvement in gross margin, which is underpinned really by two key things. One is improving the purchasing in the group. That is both buying more strategically and also aggregating the spend of the group better.
The productivity improvements that come from the Genuit Business System, which is really gaining momentum now in the business and coming through, are hitting that gross margin line, which means that you can see the real sustainability of that margin improvement. With good control in this current environment on our SG&A line, that filters through into that 40 basis points improvement on our operating margins, as you can see there. Net finance costs are reduced in the year because of our reduced borrowing, and you can see the effect of the annualization of tax coming through on our earnings per share, and hence why we're confident still to increase our dividend, even though that's slightly lower. It's worth pointing out that the resilience really in our revenue performance comes from the breadth of the portfolio. You'll be familiar with our three business units.
We're operating across sustainable building solutions, climate management, and water management, approximately 40%, 30/30 across the business units. If you cut the business differently by U.K. new house building, U.K. non-housing, and also the RMI sector, you can see it's about 30% or so for each of those sectors, and again with about 11% for international business, which we do aim to grow over the medium term to a bigger proportion of revenue as well. Real resilience in the portfolio that we've seen this year. That's helped, as well as the improvement in the business that we've achieved in the profitability. We've got that productivity and the purchasing savings coming through. As Joe mentioned, we've maintained capacity throughout this period. We simplified the business, you might remember, in 2023.
We further improved it in 2024, and we've got that 20-30% capacity, which would easily be able to support 20-30% revenue growth, which would take us back to that period, kind of 2017 to 2019, where we saw more normal levels. Importantly, there's negligible P&L cost of holding onto that capacity, and that's one of the benefits of our business model. That's important to recognize. There is a headwind coming in the cost base in terms of the National Insurance and Minimum Wage increases from the U.K. government budget in the autumn. We'll remind you of that. That's about GBP 5 million that we talked about last November. Our aim is to try and offset that through balanced price management and productivity savings and continue that improvement journey on an underlying basis.
If we look at a bridge of the business from 2023 to 2024, you can see all three business units are down. Importantly, looking at the right-hand chart there, you can see the improvement, particularly in CMS and SBS. Despite that revenue reduction, we have actually increased the magnitude of profitability in both of those businesses. Really strong performance there. WMS, even though that is down, actually, there is a drop through there that is commensurate with the kind of operating deleverage that you would expect in that business with volumes down. That is a business which is more project-based, and it explains the reduction. Let's dig into those business units a little bit more, starting with climate management solutions. Here, our revenue was down 2.6% for the year, about 4% on a like-for-like basis.
We did see some headwinds continue in that market, particularly within the commercial ventilation market and the boiler market as well, which affects AD sales. Actually, AD did improve towards the back end of last year. Q4 was a strong quarter for AD, which was really encouraging to see. Actually, we had some really good growth in our residential ventilation as well, which is a multi-year trend based on the need to solve the damp and mould problems in social housing in particular. This is a business unit which has deployed the Genuit Business System to really great effect.
We've got some great case studies here, and 120 basis point improvement in their operating margin is a really good result for the team there, who also integrated the Omnie business during the year as well to strengthen that offering in the underfloor heating space, which is a small but due-to-be rapidly growing sector of the market, thinking ahead to things like the Future Home Standard. Moving on to water management solutions, revenue 5.6% lower during the year, about 7.5% on a like-for-like basis. We did see subdued volumes here. Project-based business, as I say, is a much higher proportion of revenue here. That can be affected when you have poor weather or you have lower business confidence, as we saw in the back end of last year.
A degree of operational deleverage during the year, but we have a long way to go to be able to improve that business. It started the Genuit Business System journey probably later than in climate management or sustainable building solutions. We are accelerating now into WMS to improve this business this year, and we will expect to see the margins improving here. Again, an integration in this business with Sky Garden, really exciting vertical integration opportunity with our Permavoid business and our Keytec installation business, offering that full solution in blue-green roofs, like with underfloor heating. That is a small but due-to-be rapidly growing market over the next couple of years. Finally, our largest business, sustainable building solutions. Here, we have to give credit to the team for a really resilient and strong performance.
This is a business that has great products, great market share, great innovation in the year as well in product launches, and has achieved a revenue performance which is only slightly down in what was a very challenging market, which I think shows how well the team have managed there. Operating margin up 160 basis points, which really shows what can be achieved with the Genuit Business System. We are really pleased with the result in this business unit. Just a note then on some of our non-underlying items affecting our reported profitability. Most of these actually were affecting the first half of the year, so were in our interim results. Actually, most of this is non-cash. About GBP 24.4 million of the GBP 33 million is non-cash impacting items. Non-cash amortization is the usual amortization line there.
We had an impairment charge in the first half of the year related to the AD business, and that was really based on the continuing subdued boiler market. As I say, there was improvement there in the second half, which is encouraging. We did have a one-off software dispute charge in the first half of the year that was fully settled and completed within the second half of the year. We did benefit from some proceeds from sale. You'll remember that we've closed six sites to date under our simplification journey that we started a couple of years ago. We were still getting the cash benefit of exiting those sites during the year. Speaking of cash, strong cash generation, as I mentioned. Cash conversion of over 99% with GBP 91.6 million or so of cash.
We've been really focusing on working capital improvement this year, and we've actually seen a 10% improvement in our stock turns, which has really underpinned that performance. We remain committed to achieving over 90% cash conversion with continued focus on working capital through the cycle. Capital allocation, we spent about GBP 26 million of capital in 2024, compared to GBP 30-35 million of guidance, so slightly lower. That was really just due to the phasing of when we entered into commitments at the end of the year, and some of that will flow through into early 2025. We are reiterating capital spend of around GBP 30-35 million for 2025. We have a really strong balance sheet now with that deleveraging. As well as investing in the capital of the business, we are also prosecuting that M&A pipeline.
We should not be surprised if we do something within the year, which Joe will talk some more around. We will continue with that progressive dividend policy as well to return value to shareholders. That is the financials. Happy to answer questions at the end, but for now, Joe will take us through our strategic developments.
Thank you, Tim. Much appreciated. Just a quick kind of review of some of the strategic progress we made during the year. As a bit of a reminder, with our purpose that together we create sustainable living, we laid out at the end of 2022 a four-piece sort of focus plan. One was to really focus on driving organic and synergistic inorganic growth that can position us well for further organic growth, focused on sustainable end markets where our differentiation really can have an impact on our ability to have long-term above-market growth rates.
Sustainability remaining at the very core of everything we do, the products we deliver and how we make them. That's important all around, of course. Leveraging the Genuit Business System, really embedding lean thinking, a lean thinking culture across the business, beginning to see that take root, and investing heavily in our people and our culture so that we can attract the most diverse and talented workforce and see them thrive and have, therefore, a competitive advantage. If I just focus on some of the growth bits, obviously, Tim took you through the financial shape of each of the three divisions, but I thought I'd just highlight a couple of growth points here. We mentioned strong residential ventilation. This is a market that's actually growing ahead of house building right now as we see products like mechanical ventilation with heat recovery, mechanical ventilation recovery with cooling penetrate into that market.
Other areas that you see here, for example, are regulatory tailwinds that are coming into place, obviously, with the Future Home Standard and with Awaab's Law , which comes in later on this year, driving compelling social housing improvements, which means better ventilation is a key part of that as well. As Tim mentioned, AD's strong performance, I mean, this is still a really good business. It is a business that has the ability to expand overseas, to continue to find new ways to drive heating accessory innovation across the business. Of course, Omni is an acquisition that came not only with additional presence in underfloor heating solutions, but with a new product line, these emitter boards, which they are really good at and lead the market. That actually improved the offering that we have in the growing underfloor heating segment.
Folks, going forward, clearly very much being ready to take advantage of the Future Home Standard, eventually, we have got to get into the repair, or I should say the upgrade of all the other existing homes in the future, and the solution selling that becomes more important both in residential ventilation and in some of the solutions we can provide in commercial and sort of light buildings like schools, which are a big focus going forward. Great business unit. I mean, shown the improvement in profitability already, and we are confident it is going to have outstanding long-term growth potential. In water management, this is a business where we are well positioned for a wave that is coming. Stormwater management is, of course, increasingly important.
We saw it in the Middle East this past year where they too are seeing some of these regional focuses that are meaning they've got to invest more in stormwater attenuation. Our business is well positioned there. We've seen it in the U.K. as we tee up and are ready for AMP8, which is shifting a lot of the focus from repairing drinking water and potable water piping and supply to now how do we protect the stormwater and sewer systems from stormwater incursion. This is going to be a really important focus going forward, and that 86% increase in AMP8 spending compared to AMP7 is heavily weighted towards stormwater management, stormwater protection. That's positive. We're integrating Sky Garden, which gave us much more exposure to the blue-green roof and pedestal space.
We figure that's a GBP 300 million market just in the U.K., growing at 17-18% per year CAGR, exactly the type of acquisition we want that takes us into higher growth segments. Importantly, as Tim alluded to, this is the business unit that kind of started on the GBS journeys last, still has the most upside potential. I'd reiterate the fact that at our capital markets day, we said we believe this will be a good growth business and can reach 15% EBIT targets. Setback with the volume issues this past year, we're still committed to those targets. A lot to come. I would say that the same approach we've taken that's been so successful in SBS and is now showing success in CMS will work here too. Speaking of SBS, we've been focused here on cementing our already good share and gaining further.
We've been able to introduce new products to market like Polyplum Enhanced, which is a new line of push-fit fitting with extra security, which plumbers love. Our Polypipe Advantage is really an added value solution capability where we can do preassembled sets of product, which allow for much reduced labor time, much reduced transportation, decreasing the carbon that's on-site, and of course, improving the lead time, shortening the lead time for building. This is really important as we're facing a labor-constrained market going forward. Lastly, new-build underfloor heating actually is something that SBS is also exposed to as they've been working with a wide range of national and regional house builders to get them ready for bulk introduction of underfloor heating at scale as we approach the Future Home Standard, something that we've seen ample signs of commitment toward and we're remaining excited about.
Going forward for this business is to continue to focus on gaining share, to manage the business incredible, be ready for the Future Home Standard, and again, focus on expanding the range of value-added solutions and the modern methods of construction engagement that we can have with off-site manufacturers and the divisions of some of the house builders as well. Lots to play for here. Great business, great execution, good results last year, well positioned for the market recovery. I often get a lot of questions around the Genuit Business System and what does this mean. Give me some examples, Joe, could you please? Yes, I will. Here we go. These are, I have just got three simple case studies. I will not go into detail. Happy to discuss later, but I want to share some of the results we are seeing across the business.
Last year, we did over 20 Kaizen events. These are week-long rapid continuous improvement events. Over 15% of our workforce has now participated in these Kaizen events and in-depth training, which means, by the way, 85% to go and still lots more room to run in terms of driving productivity through the business. This is one example where a team in our Aylesford site focused on single-minute exchange of die. That is rapid tool change. As you move from one product being molded to another, you reduce the downtime from when you are not producing parts, which is not helpful, right? From four hours down to less than an hour, right? That is an 80% reduction in non-productive time on the machines. Across that whole department, as they complete the rollout, that will basically be 10,000 more hours of machine productivity without a single capital pound spent. Really impactful.
Of course, these are tools which apply everywhere, but the best way is to see case studies. In terms of sustainability, GBS and sustainability play together well. We use environmental product disclosures. They're essentially the passports, the carbon passports for all of our products. As a leader in this industry, we've committed to making sure that our product range is substantially covered by environmental product disclosures so that our customers who insist on this know that they're getting the lowest carbon product. This is a time-consuming process. They're independently verified outside by a third party, and it was taking us too long to do it. We actually took a Kaizen event approach, and we're able to increase the pace of we're doing this from one every five months to four a month. That's a 20-fold productivity improvement in a back office process.
That's actually pretty important, and it shows the power of GBS across the back office as well as on the shop floor. That's in line with our ambition to be able to do 25 EPDs per month as we grow going forward and a great result for the team. Another example that's related to sustainability is the team has a carbon reduction tool that they've now embedded into the way we're operating inside so that the teams can come up with ideas for how we reduce carbon in the way we operate the business, not the products, but the way we operate the business. They used daily management and process improvement tools in a Kaizen setting and identified the opportunity to take out about 1,600 tons of carbon, which also represents about GBP 400,000 annualized savings. Again, not bad for a week's work, right?
Those are a few examples of GBS in action. Importantly, as I mentioned earlier, it's the people who make GBS work. GBS turns out to be one of the best engagement tools there is. There's nothing really better than telling somebody who's skillful and experienced, saying, "You know what? Go ahead and improve your business. Here are the tools." Really positive engagement opportunity, and it fits with our commitment to having the best people and culture you can possibly have. In an age where there's a lot of scrutiny around diversity and inclusion, I want to be really clear. We view diversity and inclusion as an absolute competitive advantage for Genuit, and we are not rolling back one bit. This is important. We want to be the place where people want to come work, can build their careers, they know we'll invest in their capabilities.
A few things that we've done. We actually have over 18% of our workforce now in earn and learn programs. These are everything from internships to graduate schemes, apprenticeships. This is powerful. We're part of the 5% Club, which is the industry group that's committed to reinvesting in our future generation, and we've earned gold status last year. Frankly, 18%, two more years, we're on track for platinum status, and maybe they'll invent a new category at some point. This is investment in our people that is really valuable, and it helps them know that they can build a career here. Over 15% of our people that were involved in GBS training, that's going to keep going up every year. Somebody asked me, "Could that go faster?" Sure, but what's more important is that it goes well and that the people really see that benefit.
The momentum is really building this year at GBS. Over half of our Genuit leadership team have actually gone through our new Genuit leadership program. Think of it as sort of our internal leadership college. That is really exciting too, and we have quite a bit more to come. We continue to make progress on diversity and inclusion. Over 30% of our internal promotions last year were female. Strong commitment there as well. Lots more to do, but it is absolutely the right thing, and I am really proud to be part of a company that places this first. On M&A, Tim mentioned our ample firepower. We figure we have GBP 125 million-GBP 150 million available on our balance sheet. Obviously, we have the optionality to go and use equity for a particularly compelling story for our shareholders.
Sky Garden and Omni were a good example of the strategic application that fit well with our solution infill for our water management and climate management business units, respectively. We have a significant pipeline activity. We've done a lot of work in the last two years, making sure that in line, I don't expect you to read the chart in the bottom right, but you saw that one at our last capital markets update. What it says basically is that we'll add to water management solution capability, we'll add to climate management solution capability, we'll look for good quality bolt-ons that we can integrate well across the business. We'll look in the U.K., of course, as well as further afield in Europe and in North America where we believe climate management and water management can play particularly well.
This is a very active area for us, and as Tim mentioned, do not be surprised if you see some news from us this year. We believe this is key to the Genuit strategy in the long term. Finally, just kind of closing up for questions. As I mentioned before, trading for 2025 has started in line with management expectations. I would describe it as broadly similar to what we are seeing at the end of last year. We are targeting, as Tim said, to offset the employment costs with a balanced approach as we have done before with cost, price, and productivity. We do expect to deliver, and we remain committed to delivering our 20% midterm margin target through a mix of productivity and operational leverage as we continue to grow organically and inorganically.
The group is confident that the medium-term growth drivers that we have facing up against the challenges that we've got to fix here with more housing, better stormwater management, decarbonization, and addressing the labor shortages really position us well for the future. That is what we brought. We've got our investment case. I think this is exactly the one you've seen before. We believe in the long term, and I'd like to thank every single one of our 3,200-plus people for the incredibly hard work they did last year. All right. With that, I think we're ready for questions. Why don't you come back up here, Tim? I always like to have Tim here, so hand him all the tough ones, right? We've got the same system here. That's not showing—oh, it is showing here now—that we've used in prior years.
You've got a little button beside you that you can push. We can see the queue. I'd ask my esteemed analyst friends to keep the number of questions down to a memorable number. We'll come back if needed. We do have a roving mic if it's not quite loud enough. There is miking around, but you just need to speak up a little bit. Who would like to open?
There's a button right next to you.
Okay. Please. Hi. Thanks for taking my questions. I have a problem by me. How should we think about the price versus cost? Sorry, I forgot to ask you. Please introduce yourself too.
Sorry. Sorry. I'm Sasha McNally. How should we think about the price or the cost being 2025?
Specifically on costs, can you elaborate a bit more on, for example, the wage inflation, on energy cost inflation, and if we're expecting 2025?
Yeah. Our strategy with price is very much to recover the cost inflation that we see. Underlying, we actually see that inflation has come to more normalized levels for the U.K., both in terms of wage inflation, the settling down of energy costs, and also input inflation. Things like polymers and so on have stabilized. We do obviously have the headwind of the NIM minimum wage, which needs to be recovered on top. We are very focused on productivity improvements as well as price. We do think that the price increases for the NIM minimum wage things need to be staggered to support the industry with its recovery cycle. Do not expect to see that all coming on price in the beginning.
That might mean that there's a bit more pressure in the first half of the year than the full year. As we've said in our outlook, we are targeting to offset that at the operating margin level by the end of the year. Okay. Thanks, Aisle. Angie, I think you're next. Yeah.
Thanks. I've got three questions, actually. Just first of all, you've obviously mentioned M&A potential quite a bit this morning. Just interested to hear your kind of views on North America versus Europe just in terms of acquisition multiples, the attractiveness of the market, where your kind of affinity and preference lies there. That's the first question. Shall I go right through the other?
We can take them one at a time if you want. It's fine. If you've got them written down, that's easier. Okay.
Then second, just on the AMP8, obviously, big boost to capital expense. When would you start to expect to see that actually coming through to work on the ground for the? I'm sorry. On what, sorry? The AMP8, the water. Yeah. Okay. On AMP8. Yeah. So acquisitions, AMP8. Yeah. Then third question, just on SBS, I think in the pack you mentioned, the competitor X, that Q4, is there more of that to come this year in terms of market share gains maybe as the competitor?
I do. I'll take the first two. You want to take that one? Yep. Okay. On M&A, first of all, in terms of where. What we see is that water management is a business that actually the trend towards stormwater management and the solutions needed is actually quite global.
That we see as sort of a target-rich environment in sort of Central and Northern Europe as well as in North America. We have been actively cultivating in both areas. I think there definitely are plenty of things available in a reasonable size and range for us. In terms of climate management, Europe is actually a better market for us because the U.S. market tends to be dominated a bit more by the air conditioning sort of world. We have been more focused on ventilation and heating in Europe as well. Of course, importantly, we remain a consolidator here in the U.K., and we do see opportunities for bolt-ons and strategic infills in the U.K. as well. In terms of valuations, it's a great question. I mean, two years ago, I would have said we're waiting for valuations to come down.
I definitely think that there is a—we do not think that there is a shortage of things that are actionable from a valuation perspective for us. Perhaps it is a better environment. I mean, private equity has been, I think, dealing with higher inflation rates for some time. I do not believe that valuations are going to be the obstacle to us getting some good quality deals done. On AMP8, we are now in year one of a five-year cycle, and normally you would expect to see sort of peak spend midway through. Sort of years three and four, a lot of these are project tenders. We have been actively working with—we have been in contact with water companies, with some of the tier one contractors, getting out and seeing these projects.
It is not something that we expect to see a big input to our revenue book this year, but definitely we will continue to build in the outgoing years. I should also add that when you talk to people in that industry, this is also not a one-and-done. This is something that is probably going to take us two or three cycles to completely address. It is a mid to long-term growth driver for us.
Yeah. In terms of market share, as you know, there is a key competitor that exited the market last year. We estimate around GBP 40 million worth of drainage business per year. We have already signed contracts to secure a quarter of that, give or take, on an annualized basis, but we are targeting more of that as well.
We've started to see some of that revenue come through in Q1, and that will have a material effect from Q2 onwards. Okay. Tony, I think you're next.
Okay. I didn't know I hit the button. Can you just—can you talk a bit about your purchasing savings and how sustainable?
I'm sorry. I can't quite hear you.
Can you talk about your purchasing savings and how sustainable those are going forward? And then second question, just characterize some of the new projects you're winning in terms of scale and scope and how competitive are those contract wins?
Shall I take the first? Yeah. Go ahead. The second. Sure. In terms of procurement savings, very sustainable in the broadest sense, actually. This is aggregating spend for the group. You may recall that previously the group was managed on a more distributed basis.
Where we can buy together, things like polymers or energy or so on, we're doing so. We're also making sure that they're sustainable in terms of security of supply. This is buying with more strategic agreements, longer-term agreements, which is great for both parties. It's better for us to get more secure pricing and availability to products, which is important as volumes come back. It also gives more visibility in terms of forecast to our suppliers as well to help us work together. I'm really sorry. I just didn't quite get your second question. It's my hearing. Go ahead.
Oh, it's okay. Can you characterize some of the new project wins that you've mentioned?
Some of the new project wins? Y
es. How do you? Yeah. Sure. I mean, there's quite a bit across all three businesses.
I mean, we've won underfloor heating installation projects with some of the national and regional house builders. We expect those to result in even bigger tenders and awards going forward. In terms of water, we do quite a lot of stormwater management projects today, and those tend to be project-oriented businesses. In the ventilation business as well, we see the opportunity in areas like schools and residential buildings. Flats, for example, will often have anywhere from a few dozen to 100 or more MVHRs. In all three of our businesses, we actually—project wins are a key piece of that. Did I get your point there? Yes. Great. Okay.
Thanks. Sorry about that.
Okay. Let's see. Where to next? Right here. Kristen.
Kristen York from Deutsche Numis. Three for me as well, please.
First of all, you hinted at more transformational M&A potentially, just sort of trying to get a sense of size, what you'd be willing to do, etc. Secondly, in WMS, just to touch on the competitive backdrop there, I know sort of previously at capital markets days, you talked about maybe some competitors catching up, just whether sort of the catch-up has come back from WMS as well. Finally, just in SBS, the sustainability of that margin and whether the margin in 2024 is a good normalized margin even if volumes recover or you could see a little bit more on that as well. Thank you.
Okay. Why don't you take them in that order? I'll take two, and you take one.
In terms of transformational M&A, I mean, we've been clear from the beginning that one of the reasons we love this space, particularly in climate and water management, but also bolt-ons, is that there are ample bolt-ons which would fit well within our existing firepower. You could think of deals that could easily be sort of GBP 50 million-GBP 100 million deals. A lot of those are quite strategic as well, so that's good. The nice thing about this space too is, look, in the fullness of time, there definitely are transformational things that we could do. That's not our first priority right now. I would say that if it's something that's incredibly compelling for shareholders, we do think we've got good support, and we would feel free to bring those to those shareholders because, obviously, that would take some equity thinking.
Look, the nice thing is I think we've got optionality at both ends of the scale. Your second question was?
My second question was on the competitive backdrop.
Oh, right. On WMS. Sure. Water management solutions on a product base, so just drain pipes and fittings and stuff, is a fairly competitive market. There are some smaller players. They have been investing, and in a downturn in the market, you do see some price competition there. Importantly, though, we've been on a journey to shift upstream to be closer to solutions. This is something we've been doing for several years, probably five years or more. The further we go there, the smaller competitors, I think, are well-positioned to compete for larger contracts and tenders, the type that we'd expect to see coming out of AMP8, for example.
In general, moving upstream into solutions is very good for that business, whether it's in the stormwater attenuation side or in the blue-green roof and green urbanization side. Both of those are good as we move away from just drainage products, although large drainage products. The other thing I would say is that from a sustainability basis, this is a business that is 80% plus recycled material that leads the industry in its category. That will be more important going forward because these are large products too. We have excellent coverage with our environmental product disclosures there. These are also competitive advantages that smaller players may struggle to catch up on. We always try to increase the width of the moat.
In terms of SBS, really strong margin performance, of course, and sustainable in the sense that this is a really well-run business, really great products, great strong brand and reputation with customers, which gives us stickiness. Probably at the slightly higher end of the range we would expect to achieve for this margin, boosted by internally generated savings from procurement and productivity. We do have some headwinds coming with the national insurance and minimum wage. When I think around our margins as a group, as I say, if we can target to offset the increased employment cost that we have, that would be a good result for the year. Within that, we might see WMS coming up slightly in margin as we improve that business and perhaps a slight pullback in SBS.
Through the cycle, we still believe that low 20% margin for that SBS business is very sustainable.
Okay. Come back over to the center room. Go ahead.
Jeremy Kasper from JPMorgan. Just keeping on the margin topics, was a bit surprised by WMS step-down in HQ. Just wondering what was driving that. Was it something apart from volumes?
Sure. Do you want to take that?
Yeah. It is volume-related, and it's the operational deleverage that you get with that reduction in volumes. SuDS is a particularly project-based business that does not have the same specification element that you might see in SBS, for example, where you've got more surety over those longer-term revenues. We're convinced in the longer-term drivers for that business, you only have to look around at the flooded fields in the U.K. and Dubai Airport underwater or whatever it may be.
The world needs more stormwater attenuation to deal with these increased risk of flood events. We see the longer-term drivers are there. As that volume comes through, the operational benefits on the profits can really be seen. We saw that actually in October and November last year where you get a seasonal uptick in most of our businesses. Actually, we saw much stronger margins in that business as well. We know it's there, but we need that volume to come through to really see it. In the meantime, we are focused on improving that business as we've talked about, and there are things that we can do to do that through productivity. Yeah.
Yeah. The playbook that we've used in SBS and CMS will absolutely work there. They're just a bit further behind. It's interesting.
This is the kind of volume performance you tend to see in this type of industry and business. We're just starting to get people used to not seeing that, which is fantastic. We just need to get that there too. Sam, I think you're next.
Yeah. Morning, everyone. Sam Kellogg from Billhorn. I've got two as well. First one is on margin again. If you look at the group gross margin, should we view that as sort of peak because you've got a bit of a favorable mix benefit with SBS being better than WMS and probably a favorable price-cost mix, or is that a sustainable level for the group going forward?
Absolutely. As I say, you might see that SBS pulls back a little bit and WMS improves, but if we can get to the same level this year, we'll have done well to offset that cost.
Of course, our medium-term target is over 20% operating margins, which can really come through the operational gearing of the group. It's great to report a 40 basis point improvement in margin, but for me, the most exciting thing is how much that operational leverage is really improving so that as we get that market recovery, if you go back to that period we often talk about, 2017 to 2019, where volumes were 20-30% higher, as Joe's talked about, we've got the capacity to serve that from our existing site footprint. With the drop-through you get from that, we'll drive that profitability even higher.
The second one is on underfloor heating in the new build space. How do those contracts work? Do you win the contractor survey site? Do you serve a regional division of a house builder?
Do you get a national contract with a house builder? Do you sit on a framework with other suppliers? Interested to explore that.
Yeah. We're working through this, right? I mean, this is early. What we did initially is we agreed to quite a few cases where we demonstrated the ability to deliver entire sites. We shared Pocklington, for example, last year we did with Barrett, was a pilot of 300 homes. That's complete. We took that and made sure that this is a win-win situation. It's a range, right? In some cases, we've got builders that are looking to have a national tender for this. In other cases, there will be probably a regional sort of project basis.
In general, what we found through that industry is that as the GBS team has been in there working on this, we've often been the first one in to really take a holistic approach and to work directly with them. That's been well received. There could be a range of solutions, but we're well positioned. Okay. Let's see. Yep. Over here.
Hi. Thanks. I have a couple of questions. The first one was, can you just confirm you don't need additional capacity to support demand if there is a volume uptake in 2025? Is that the case?
Yeah. We've got 20-30% capacity in place across the group. Typically, it's machine time or even idle machines. We have a lot of injection. I mean, think of it this way.
We've got hundreds and hundreds of injection molding and extrusion machines as well as assembly benches. Some of them are not working three shifts. Some of them are only working one shift. Some of the machines themselves are idle or remain dedicated to single product lines. With our single-minute exchange of die capability, we can turn them over and then free up more utilized time. It is there. We'll just need some more people, fewer than we used to have, and a little bit higher electricity bill. Of course, ordering more raw material. Perfect.
My second question is, can you quantify the GBS cost efficiency attribution in 2025 from 2024 to get a sense on how profitability can improve if we assume volumes, low single digits, price costs flat by the end of the year, gross margin same level, just to quantify a bit where profitability can end up in 2025?
Yeah. It is not quite that simple because, as you probably got a sense from the different case studies, it is organic and throughout the business. What I would say, though, is a statistic that we shared back two and a half years ago. Mature businesses that have been on this journey for a while typically get 3-5% productivity savings every year, right? You know that we are not at sort of full momentum yet. We are not getting all of that.
We're definitely seeing in places where we're implementing it, some of the CMS businesses, for example, or SBS businesses, we're seeing more than that in terms of productivity gains. A couple percent per year productivity gains, absolutely reasonable. It might take us a year or two to get in. As Tim said, when we're confronted with something like the national insurance increases, whatever we don't get through balance cost and price could take a little bit, but we're confident we can get there.
Thank you.
Let's see. I think that's pretty much wrapped it up for questions. I don't see any more buttons here. Oh, one more. Go ahead. Priyal . I was almost disappointed there.
It's just one question. You talked about the sector is now mobilizing for future homes. Can you just give a little bit more detail on that?
As in, are you just at the stage where you're trying to lock yourself in for use? Are you actually selling into homes which are being built according to that standard? What's your latest sense on how genuine it's being considered versus alternative products?
Sure. We could actually spend 20 minutes on that topic, but we won't. It varies. First of all, what we see across the house builders is actually good support for that. There's a little bit of work left to do to kind of finalize everything, including some of the details around timing. Best estimates I've heard, we're expecting to be really starting that certainly by the end of this year. As we transition into 2026, this is going to take a bigger impact. What I would say is quite a few house builders are already starting to build toward those standards.
Either have committed to, say, underfloor heating or air source heat pumps broadly are expected to be the preferred solution. In discussions with some of the leaders of the different house builders, being constraints around everything from not putting gas mains into new sites where they know they are going to be future homes eventually, they will go electric now rather than have two sources of energy. The industry is clearly going that way. My sense is that over the next 18-24 months, we are going to have made that transition. Accordingly, we are selling products now, in some cases ahead of the legislation, in some cases driven by the building code updates two years ago, which really presaged a lot of what is in there. I would say this.
The other parts where there's a few remaining bits to be sorted around the Future Home Standard do not tend to affect the products that we sell from what I've seen. We remain confident. It's just a question of making sure that we can do everything to make it as easy as possible for our house building customers to achieve these standards.
Okay. All right. That was you.
I think that's it. Okay. Thank you all for coming. Just to kind of wrap up, look, this was another year where we made good progress on our strategic execution. Our team delivered incredibly resilient performance, improved operating margins despite volume and revenue decline. We are well positioned for the future. We've got great firepower. We know there are lots of exciting additions to the business to be made.
Importantly, the Genuit Business System gains momentum and people are excited about our future. I hope you are too. Thank you all for coming. We will be around for questions. Worst case, we will see you in six months.