Kingspan Group plc

Geoff Doherty - Chief Financial Officer Gene Murtagh - Chief Executive Officer

Florence Donoghue - Davy Andy Murphy - Bank of America Merrill Lynch Robert Eason - Goodbody Emily Biddulph - JPMorgan Gregor Kuglitsch - UBS Yves Bromehead - Exane BNP Paribas Lush Mahendrarajah - Berenberg

Thank you, and good morning, everybody. Just before we go into the results of the period, we'd just like to refresh people on what our strategy is as an organization.

So if you've got the presentation in front of you, you might move to Slide Number 4. We've set this out for a long time now.

But in essence, our aim is to be the world leader in high-performance insulation and pan building envelopes, and we aim to achieve that by having the most innovative products possible. And by innovative, we mean particularly around thermal and fire performance and no compromise on either of those fronts.

And we aim to achieve our growth by penetrating markets both in Europe and way beyond, where uses of high performance insulation materials are at relatively low levels, and in some countries, not even used at all. Globalizing our business has been a strategy we've been, I'd say, significantly focused on for the last 8 or 10 years.

At this stage, there's about close to 20% of our business now is U.K. sourced.

If you look back 10 years ago, that was probably in excess of 70%. So we've been on a path to making our business much more evenly spread worldwide, and we're going to continue, and if anything, ramp-up that dimension of our business over the coming years, and all the while, we'll deal with this with a little more depth later.

Internally, we want to achieve this by having a net zero operating environment, and by that, we mean that we will either use or consume only [indiscernible] generated power throughout our organization. On Slide Number 5 and Number 6, this really deals with the essence of our product portfolio.

We would be, I guess, the only full-spectrum provider of materials, effectively covering almost all forms of insulation, both in terms of core, insulation board and the insulated panel offering, so right the way through from traditional styrenes and fibers; fibers, in this case, being used as a corner insulated panel rather than an insulation board, and then all the way through the more advanced insulation materials, all the way up to our more recent product introductions like QuadCore, up to more and still soon to be launched, what we call next-generation core brand to be confirmed. This product, we aim to be launched in 2020.

It will be fiber-free, relatively low land by comparison to traditional alternative, and will achieve Class A fire performance. On Slide Number 6, again, this is something we've demonstrated.

It focuses particularly around the thermal performance of our product. And in essence, you can see that the majority of what we offer between PIR, QuadCore, Kooltherm, would be up to almost twice as efficient as traditional alternatives.

And this becomes more and more critical, as demand for insulation increases and space, obviously, becomes more an area of focus. And as I've said earlier, we want to achieve all of this without the compromise in terms of whole system fire performance.

That's been a crucial area for us over many years, and we welcome that increased focus worldwide. On Slide Number 7, completing the envelope.

We obviously are the world leader in rigid board, world leader in insulated panels. And that's something that we, as I said, need to continue on a wider geographical spread.

But beyond that, we've embarked on a strategy to become a world leader in what we term Light & Air, so this will be around daylighting, ventilation and smoke management in buildings, obviously, through the ventilation process. But that's a business we've been assembling over the last few years.

It will achieve revenue in excess of 300 million this year, and as we've outlined before, we have near-term eyes and around 500 million of the globalized business there. Industrial insulation, we still remain embryonic, and as is the case with flat roof membrane, both of which offer significant avenue for high-performance insulation materials.

We see these as both from an organic and an acquisition platform perspective, very suitable areas for us to grow longer term as well. So plenty of scope for our organization, both in terms of the existing products and sectors, and the ones that we've yet to really make a mark on.

On Slide 8 then, the plan is important to us, and our commitment too has been clear for the last seven or eight years. As I said, we want to operate a net zero organization, which has not been easy to achieve, and I guess, for a lot of our peers, would be even more difficult to achieve.

But we set about trying to find a target a 2020 net zero position. And as of this year, by the end of 2018, we expect to be comfortably in excess of 70%, and that includes the impact of having to obviously deal with unabsorbed acquisitions as well.

Once we achieve that 100% level, we're going to maintain that clearly as we grow and expand and acquire, et cetera. In terms of recycling, obviously, a critical issue going forward.

We live in a world of plastic whether we like it or not. As a business, we see a significant advantage in being able to recycle PET-based bottles, and at present, we're using over 0.25 billion of those products in our solutions, and it's our ambition to at least double that 500 million units in five years time.

So that's critical, and these materials effectively get recycled into the highest-performing insulation materials that you can find, so that's a significant commitment of ours, going forward. I'll jump to Slide 10 now, which gives us a snapshot of the past 20 odd years or so, and obviously, that's been the product of the strategy we've been committed to.

So revenue growth compound is in excess of 17%, and give you consensus this year of around 4.2 billion as an expectation. And that's just kind of as a snapshot of what we're about, where we're going, where we've come from.

I'll jump now to the issue of the day, which is the results for the first half, and that's on Slide number 13. So had a topline revenue of 15% to just over 2 billion, which is the first time for us in the first six months of the year, trading profit of 10%, and basic EPS of 8% to almost €0.81.

So Insulated Panels have a sluggish start, as was the case with Insulation Boards, grew by 14%. Geoff will go through the detail of our underlying mix, acquisition, et cetera.

And critically important has been the growth of the QuadCore technology, which is up 76%, and now represent 6% of our global inflated panels. And that figure, incidentally, is 18% for the UK and Ireland, which is the area where we started often.

And that 18%, for these markets, we would expect to exceed 25% by the close of this year. So making very significant progress there on the technology that is really groundbreaking when it comes to thermal, and indeed, fire performance.

Our Board business, up 15%. Obviously, there was a significant impact of inflationary cost recovery from MDI over the course of last year, which carried forward into this year.

And Kooltherm, obviously, a critical product stream for us, growth of 12%. And that now represents 35% of global insulation and 37%, in fact, if you strip out the effect of acquisitions in the period.

So great progress on that front. The Light & Air business, as I outlined, is on track to achieve 300 million, up 11% like-for-like, and significantly more clearly when we add-on the impact of acquisitions, and margins in that area also improving.

We'd expect to exit the year to trading margin of around 8%, which is very second half loaded. It's just the nature of the businesses.

It's second half based, and we would expect to have a very strong period ahead of us. Water and energy used to be environmental.

We'll be focusing clearly on those two segments, going forward, broadly in line with prior year after, like everywhere else, a slow enough start, and Access Floors, predictably is 7% behind, as office construction impacts us in the U.S. and also we anticipate continued slowdown in the U.K., which quite aside from any Brexit material is something that we would have cyclically felt was going to impact us, in any event, around this year or next year.

And significantly from the development perspective, we've made a significant step into Southern Europe with the acquisition of Synthesia, something that's been going exceptionally well in the first six months of ownership, and indeed, we ventured in India through the establishment of Kingspan Jindal. This Is a business now that's got two manufacturing locations in India.

We would expect to add a third over the course of next 12 to 18 months. And obviously, it's at a critical point in terms of this market is really embryonic, and the consumption of high-performance insulation materials, like Latin America, just isn't even on the register by comparison to more developed markets.

So we see very exciting long-term prospects for our businesses in these regions. On Slide 14, I hand you over to Geoff now to deal with the financial highlights.

Thanks, Gene. I'm now on Page 14.

As you look at the outset, we made some reference to constant currency measures in this table, as the two principal currency movements in the period were euro sterling, euro dollar, so average sterling rate was 0.86 in H1 '17 compared to 0.88 in H1 '18. And the U.S.

dollar to euro was 1.08 at first half last year and 1.21 first half this year, so they're the principal drivers of the currency changes. Beyond that, as Gene outlined, group revenue, just ahead of €2 billion in the first half of the year, and by 15%, and that comes to the extensions of that in the second trading profit of €195.3 million and by 10% EBITDA at €231.6 million, ahead by 11%.

That translated down to earnings per share growth of 8%, with an absolute EPS in the first half of €0.807. The interim dividend is up by €0.01 or 9% to €0.12 per share.

Our free cash flow and I'll break this out in a second. That was €38.4 million, broadly in line with free cash generation in the first half of 2017.

Our net debt was €300 million higher than the first half of last year, with development activity and acquisitions being a key theme in that regard. Our trading margin, down by 50 basis points half year on half year, and I'll break that out by division in a few moments.

Our leverage, our net debt-to-EBITDA at the end of June, 1.59 times. Our return on capital employed, at 15.6%.

But the truer measure would be after the annualized impact of acquisitions, which implies a return on capital employed of 16.6%. Turning to Page 15 to look at the divisional margin performance.

Insulated Panels, in the first instance, had a margin of 9.7%, and down by 30 basis points on last year's full year margin. Essentially two drivers of that the first thing, the relative mix of market in the period; but also, the initially dilutive impact of some of the acquisitions made in the initial phases.

Our Insulation Boards division recorded a margin of 12.4%, so very strong, and the key theme there was the relative mix of Kooltherm. Kooltherm volumes were very positive during the first half of the year, and that had an impact on the margin mix within the division.

Light & Air is very much a second half-weighted business, so its trading margin of 4% is broadly in line with the first half of last year. And as Gene outlined, it's trending at about 8% for the full year.

Water and energy, at 5.7%, again, in terms of more significant second half, would have had a soft Q1 due to the prolonged winter, but is trading to plan. Raised Access Floors, at 10.3%.

Again, this is really a reflection of the market mix. And we would expect for the full year, the trading margin in that division to be at or around 11%.

So the mix of all of those, combined, make up a group margin of 9.7% for the half year. And we would expect at this point, for full year, the margin to be up around 10%, group wise.

Page 16 deals with the group sales and profit bridges. So due to the sales in the first instance, the relative conversion of exchange rates year-on-year sits 4% of sales or minus €70 million.

Acquisitions contributed to 15% or €257 million in the half year period, and underlying sales grew by 4%. If you look at the quarter-on-quarter performance of Q1, underlying sales were ahead by 1%.

Q2, as we indicated in our trading statement in April, Q2 was busier. The Q2 sales were ahead by 7%.

On the right-hand side of the page, beginning with trading profit, the currency impact was a negative of €6 million. Acquisitions contributed €21 million in the first half, and underlying profitability, ahead by €2.5 million.

Free cash flow is set out on Page 17. Naturally, the biggest driver of free cash flow was the EBITDA of €231 million in the first half.

Seasonally, working capital in June is higher than it is in December. So we had an outflow of €92 million in the first half of the year.

That compares to an outflow of €81 million in the first half of 2017. Our working capital to sales ratio is slightly higher than normal at 13.8%, and we expect that to be up the order of 12.8% for full year.

So as we go through the second half of the year, approximately half of that €92 million will reverse in the second half of the year. Other movements in terms of free cash generation, our interest bill, 7 million.

Taxation came in at 30.8 million, and net capital expenditure, up 68.1 million, combining, to give free cash generation of 38.4 million in the period. Page 18 reconciles net debt for the -- of the division.

Acquisitions were the key cash flow item in the period. So cash out the door was 235 million.

But also with respect to one acquisition, there was a deferred payment of 30 million, which we've accounted for debt, which will be settled in April of next year. The dividend outflow is 46.7 million.

The net debt at the end of the year, 739 million, which gives leverage of 1.59x, as I summarized earlier. Turning to Page 19, return on capital employed, still at a relatively high level, 16.6% when you annualize for the impact of acquisitions.

And naturally, you will be seeking to build that over time with our long-term target being on the order of 20%. The strength of our balance sheet is set out on Page 20.

At the end of the half year, our total available cash balances and committed undrawn facilities, 671 million. We referenced late last year that we've redefined the papers of 175 million that was drawn in January of 2018.

Our principal syndicated bank facility is a 500 million facility, which was substantially undrawn at the end of the period, and with an additional 50 million bilateral facility, which we drew down in February of this year. So when you add up the -- some of our debt facilities, the weighted average maturity of our debt is 5.8 years.

The geography and the split of it is set out on Page 21, and compare this, H1 '18 to H1 '17. And the movements of notes would be in Britain and Northern Ireland, which was 26% in the first half of '17, and was 23% in the first half of '18.

Mainland Europe, 47% as opposed to 43% a year ago. And with the completion of the Balex acquisition shortly after the period end, that Mainland European dimension of our business will be in excess of 50% on a run-rate basis.

The Americas were broadly similar year-on-year at 19%, as is the case of rest of the world. So that is a summary of the key financials.

And with that, I'll hand you back to Gene.

Thanks, Geoff. We still propose on including all the detail of the divisional slides, which no doubt the audience would have read through.

But we would like to deal with the outlook, which is on Slide Number 28. I think it's kind of hard to make out that number 28, but that's -- it's titled, Outlook.

And in essence, the momentum does -- that we saw in quarter 2 has continued largely through the first couple of months of quarter 3. In particular, we'd highlight Germany, France, North America, Latin America are all areas that are tracking comfortably ahead of prior year.

And the U.K., clearly, we would expect, for obvious reasons, to ease back. But the order book presently stands at around 6% ahead of the same period prior year, which despite all of this going on, is reasonably strong showing.

So with the combination of all of that, I think we should be well able to deal with any anticipated reduction in activity in the UK. But what we have found in that factor incidentally is that there's a lot of Brexit diagnostic projects that continue to perform well in the particular highlight areas, such as the online retail infrastructure, which irrespective of in or out, or what version of that takes place, these kind of projects are continuing unabated, so that's been a very supportive end sector for our business.

But with regard to what I term our regular business or normal activity in industrial market in the UK, clearly, there have been pushout and postponements and all sorts which is not surprising. So like anybody else, we look forward to an outcome, whatever that outcome is over the next six months, we can then take whatever the appropriate actions are to deal with that.

So in essence, we would expect to finish the year in reasonable shape and comfortably ahead of last year. So happy now to hand over to Q&A session.

Just a couple for me. One, just on the UK, going back to the UK there, just looking for a little bit more color maybe by the product categories.

You mentioned, obviously, panels. Just wondering now what the business mix there looks like.

On the board side, just wondering how much of it has been driven by price in terms of your growth, and where that kind of leaves you in terms of market share dynamics. And also, just a word on Access Floors in the UK, I think, from the statement, it looks like your language there has become a bit more constructive.

Second question then, I guess, this is probably more for Geoff. Just would appreciate it, Geoff, if you could give us maybe a little bit more of a steer on the full year contribution from the acquisition or H2 contribution from acquisitions with Balex onboard.

And just wondering, looking through the numbers, it looks like the margin on acquisitions in H1 was just over 8%. Is that the kind of number we should be thinking about in this for the year overall?

Or does it progress a little bit in the second half?

So just in material, yes, UK panels got off to a poor start, had a strong recovery of around 6% in unit intake in the second quarter. As I said, the order bank is around that much, if not, slightly more than that, ahead of the same period, prior year.

And actually, our project pipeline, mainly around larger project, as I say, not the regular business, medium and small size, it's actually quite attractive for the remainder of the year. On the board business, you rightly pointed out that there has been obviously significant inflation, particularly around the PIR board, which was all MDI related to last year.

And that's -- it's a broad subject because the unit sales for our board business are actually down in the U.K. around that.

Kooltherm, well, PIR are down, and it's down for a couple of reasons. One is the overall sector would have lost share due to the lack of competitiveness, and I think we'd have highlighted that, ad nauseam, 6 -- probably even 12 months ago.

So and as a company, I think we've probably taken an even higher stance than most of the industry, and as a result, perhaps given up some share to other PIR players in the process. And that's clearly a tactic, and that's something we can address whenever we feel it's appropriate.

But for the time being, that is what's keeping unit sales in the U.K. subdues, PIR and its price.

Now I should add that MDI has been unwinding, again, as we would have highlighted six months ago. So I'd say significant deflation on that material.

We've probably been slower to give that up, as you might expect, and as a result, we we'll have lost some share. Overall, I'd say the sector, because of the severity of the increases, that product is seen, not just in the U.K.

but in the wider area in Europe, the sector would have given up share to some traditional products, like polystyrene and even forms of mineral fiber. So I think it'd be interesting to see how that all pans out, as PIR becomes more even competitive as it would have been 12 or 18 months ago.

So that's all I've got to play out at, say, over the next 6 or 9 months. From an Access Floors perspective, obviously, there's some potential Brexit impact, as you'd expect.

Banks aren't exactly wanting to construct large offices in the U.K. presently.

But quite aside from that, we would have expected a cyclical downturn here anywhere around this time, and that's transpiring to be the case. But the focus for the team is obviously just to consolidate that position or to shift our emphasis towards Mainland Europe, which traditionally for us hasn't been a great outlet for Access Floors.

But we now have manufacturing presence in Belgium, and we'd be expecting the team to compensate for any U.K. downturn over in those markets.

And then on the margins, Geoff?

On your question regarding the contribution from acquisitions, in the second half of the year, we would expect sales from the acquired businesses is now in the order of €350 million. So in other words, the total acquisition impact this year of the order of €600 million for the total year.

The trading margin will be somewhere in the range of 7% to 8%. It's hard to be specific on that because it depend on the mix of activity, but that's the shape of it.

And naturally, over time, we'd be thinking to develop that. But for this year, that's the general shape of the business.

Gene, just to go back to your comment on boards, on what you're saying about the PIR, I take it that's what you referred in the statement, Re: Benelux, that's exactly the situation there, what's happened?

Absolutely, if anything, floor is more pronounced there.

I have three questions. I suppose two of them are related.

First one, on the Indian JV, can you just give a bit of color around that, what you're investing in, what the returns you're expecting? So just a bit more sort of a flavor for what you're doing there and what the opportunity is?

And secondly, on the sort of energy efficiency side, can you talk about what you actually mean by zero energy? I know you've used it before.

I don't know -- I just don't know what it means, so I wonder if you could flesh that out. And then, obviously, pretty interested in your ocean harvesting ideas for the plastic bottles.

Can you just talk about where the bottles come from that, where they're sourced and how prices around -- what the characteristics of these bottles have that allow you to use them?

Yes, okay. Just in terms of the India question, the expected sales for the business there this year would be approximately €50 million.

And that's sourced out of two facilities: one very recent one in Central India, and we are in Indore, and the other in Northern India, which has been in place around 10 years. So we would expect over the course of next year to pretty much fully utilize that capacity and invest in a third facility, more than likely in Southern India with our partners there.

So the consumption of Insulated Panels for starters, not to mention, insulation is really microscopic by comparison to any other market that we've been present in. So we kind of see it as a very early-stage positioning of our business and our brand there.

In terms of zero energy, what we mean by that is that all the energy consumed within Kingspan will either be manufactured on our side or procured from renewable sources. There's only so much that we can actually produce on site for obvious reasons, restrictions in terms of wind, et cetera.

That's effectively what we mean, so fully certified consumption of only renewable power for our entire manufacturing infrastructure worldwide. In terms of the PET bottle area, again, it's an area we're fully committed to.

As I said, whether we like it or not, we're surrounded by plastic and will be for many years ahead even though there'll be attempts to reduce that. However, speaking of the ocean aspect, I think it's at very early stages.

But we will be committing significant investment towards that whole initiative, bringing the product back into Spain where we would produce polyols, which will then go into insulation materials. And when we set a target there of €500 million, to be honest with you, that could be multiples of that if this goes the right direction.

And believe it or not, from a performance perspective, it's actually a preferred material for us to consume in our PIR insulation.

Just two broad areas of questioning. Firstly, just on M&A activity.

Obviously, we've come off back of a very busy period in terms of acquisitions. So just really wondering what is the appetite for acquisitions over the next kind of 12 to 18 months?

What areas should we expect, which activity to be in? What is the multiple environment?

And like in terms of executing those deals, just in relation to that, in your summary of your kind of -- of the strategy of Kingspan, you highlighted the membrane markets and also the industrial market. When should we expect to see progress in those two segments like we have seen in kind of Light & Air?

So that's kind of my broad question around M&A generally, and the second area is just around price cost spreads. Can you just give an indication of the extent to which you faced input cost inflation in the first half?

You've already alluded to MDIs coming off a bit, so just maybe elaborate on that a bit in terms of the extent of tailwinds that is bringing Kingspan at the moment?

You're right to say there's been lots of M&A activity over the recent months and even years. As a result, I think we'll obviously be taking it a little easier for the second half of this year, as we bed down these businesses.

The Spanish business and the South American businesses, in particular, have settled in exceptionally well and quite quickly, and we're very early days into the Balex business in Poland, and I fully expect that, that will be as smooth as the others have. It's obviously a product area in the manufacturing process, and a market that we've been in for many years and are very comfortable with.

Our appetite remains clearly, but that's, to a large extent, governed by our timing and our ability to digest also from a financial commitment perspective. So we have an internal comfort level of around 2 times debt to EBITDA, which you can do the numbers on yourself there.

It still leaves us with some headroom before we get there. The multiples that have been paid are certainly not contracting.

That would be our experience, so it's certainly for the high-profile attractive businesses, the multiples. The EBITDA multiples are higher than we would like, but at the same time, we're still able to acquire probably smaller, smaller businesses, in the overall blend, make our returns satisfactory.

North America, I would say, will be of significance in scale. I'd say North America is an area that we want to make more progress in.

Our Panels business is obviously well established. Our Boards business, less so, and that's an area that we want to have more of an impact in.

And so if you like, yes, that's an area that we can get more significant focus. For membrane and industrial, rather, this will be around having the right entry point.

What we're doing, it is something insignificant. It's got to be of scale and at least pan region, if not, global, and we're just going to be patient in terms of when and where that actually happened.

But you can take that they are very, very firmly part of our strategy, and the same way as we're executing in Light & Air. That will happen in time in these 2 product segments as well.

Just on input and inflation, inflation wasn't a strictly notably theme in the first half of the year. If we go to the 2 key components where cost improved, steel and chemicals, steel with the tariffs in the U.S., there is an element of inflation in the U.S.

on steel, but there is a modest relief elsewhere. So broadly, as it relates to steel, so a pretty stable environment overall across the business.

As we move into the second half of the year, the likelihood is that MDI prices will soften over the course of the second half of the year, but the whole insulation, the agenda that we're wrapping with this time last year, we're dealing with an entirely different environment now.

Questions please. The first one is just on Slide 31, outline of sort of the organic expansion.

Can you remind us what the approximate revenue contribution to notice over the next couple of years in total or sort of however we should think about it? And then secondly, just you obviously talked about you're continuing to see some cost inflation in the U.S.

and that's being sort of the one place where you are still seeing it. Is there anything sort of different about that market that sort of impacts your ability to pass it through?

Or are you confident that you can continue to do that and not impact the sort of penetration growth story there?

I'm in Slide 31. In broad terms, they'll be around 300 million of revenue related to all of the initiatives on that slide when we get to kind a respected level of utilization.

Some of them already have been done. Others are still greenfield, but that's it in essence.

And obviously, as we go through this, that slide will get populated by other initiatives that we'll expect to be putting in place. In terms of U.S.

inflation, it's very much tariff linked and steel linked, and it's a reasonably chaotic environment, actually, when it comes to that. Look, we're, for example, in Canada, we will be buying U.S.

sourced steel, putting the tariff on it to bring it to Canada, produce the product and then try and recover the tariffs as we send our products back out again into the U.S. We're sourcing it out of steel from Asia into that market.

Obviously, a number of those markets are subject to tariffs. But all in all, it's led to a lot of confusion, and at the end of the day, it's led to cost inflation.

So I'm not sure we're benefiting from this. But from an administrative perspective, it's a bit of a headache, and obviously, from a cost perspective, it drives inflation.

Now in terms of the sensitivity of that around conversion, a lot of our conversion has been from built-up metal systems, so that would be steel, fiberglass and another layer of steel, et cetera, so from a cost component perspective, if anything, those systems are more metal dependent than the Insulated Panel is. So it doesn't affect our ability to penetrate on that front.

Contrary to that, though, when you look at walls, a lot of the walls that were trying to convert from North America are concrete based, and so those products has a disadvantage when it comes to that from a cost perspective. But when all is said and done, unless these tariffs go completely ballistic, I think our conversion strategies' still be very much on track.

I've got a few questions. So the first one is on margins.

I guess two dimensions to the question. One is obviously, you've signed lots of deals.

Things have changed around in the mix, but what's your view now where you think margins, I guess, as the business stands today should be heading towards? And then the follow-up question to that is, obviously, last year, you pretty much passed on all of the input cost.

Now you're seeing the reverse. What's actually a good environment for you?

Is a deflationary environment good for you? Or do you think, actually, it doesn't necessarily help because, obviously, if you have wild swings and you have to sort of adjust the product pricing?

And then the second question is I think you've made a point on your fire safety side. Obviously, one of your peers has been quite vocal about taking share due to that.

So I want to get your view, what you're seeing in terms of relative market share or whether you think it's more geographic point rather than anything else? I just want to understand how you're positioned there.

I'll deal with that question first. And then, Gregor, I actually didn't hear your first one because there's an alarm going off here.

But yes, in terms of fire safety, we've heard -- yes, yes, we've obviously heard throughout some of those characters you've been saying and a content substance of that shortly. But the litmus test for us really is from an Insulated Panel perspective, first of all, it's -- we're the world leader in panels, which is quite clear, and that covers all course of materials that are used in Insulated Panel, including fiber core.

So around, including the acquisitions we've done on a like-for-like basis, mineral fiber, as a core, is 11% to 12% of our square meter consumption worldwide, and that's been pretty consistent as a figure, and by consistent, I mean fairly exact. It's not even slightly down year-on-year over the last three, four, five years.

So I just had a pure measure, but when you take all of the excitement out of it, that's one area that's just indisputable. From a rigid board perspective, we would acknowledge all day long that there are certain applications in high-rise residential, where there will be some slippage towards higher fire performing solutions, and that's larger around high-rise residential in the U.K.

for obvious reason. Now for us as a business, that -- it represents around 1% of our revenue.

So having said all that, there's a lot of confusion out there, and I'm not going to get into a tactical fire discussion here. But suffice it to say that the language of combustibility is very informative and the assumption that something that's combustible is safe, is not safe, and something that's not incombustible is safe is very flawed.

So we really deferred to large-scale fire testing of materials, irrespective of what the inputs are, combustible or not. And I think that nothing compensates, really, for that large scale testing.

Overtime, the science of that, ultimately, is what's going to prevail. But in the near term, I'd accept that there is a vacuum in that segment of the market, and there's a shift across that material.

Let's see how that evolves. All I can tell you is that Kingspan will find a solution for that application.

It might take as little time, but any square meter we lose, rest assured, we regain it at some point in the future.

So I'll repeat the first question because we got cut off by the fire alarm. So just on margins, so the question was twofold.

One, where do you think, with the current shape of business, obviously, bottomed, number of businesses that are a bit different to your historic business, so where do you think margins are or should be for the group, as it stands today? Obviously, we can't predict future transaction, which may impact that in due course.

And the second question to that is do you think deflation on commodities is good or bad news for Kingspan? Obviously, last year, you managed to pass on most of the input cost quite successfully.

Do you think now that, perhaps, well, some products such as MDI are going down, whether that will be a net benefit to your earnings or not?

I'll deal with your second one. If we were to take a very short term view, it's probably a benefit because, well, clearly, we'll be more reluctant to pass it on at the pace we will get it, which was the case on the way up as well.

But all in all, when you set aside that the kind of quarter-on-quarter ups and downs or whatever, the more competitive our systems can be, the more beneficial it's going to be long term, and so deflation, ultimately, we take a long term view, enhances our ability to convert. So that's our preferred position.

Just on your question as it relates to margin, Gregor, overall, in the first half, although that 9.7%, all things equal for full year, will at or around 10%, and that is our medium term margin guidance. When you take account of the mix of businesses that we have, the mix of markets that we have, acquired businesses that are initially was dilutive, adding all of that up, in a broad sense, is probably is approximately 10%.

So yes, just a few questions on my side. Just looking at Slide number 7, where you show the Kingspan solution in completing the building analog, are there any products that are not shown in that slide that you could also get into to complete that overall building envelope and get a strategic fit in time?

Then my other question is on the change in the NEMO, the environmental division, is that purely for commercial purposes? Or should we read something else in this such as a potential divestment opportunity in time?

And then one -- my last question would be on your raw material bill. Could you maybe give us a sense of what is the share of polyol in terms of that raw material bill?

So completing the envelope, to be honest with you, there will be some other areas we'll get in the future. But I think we're quite immune to digest here in any event.

And obviously, we're going to limit it to the energy sensitive part of the envelope. So there'll be all kinds of things in the building that have no influence, one way or the other, on the energy performance of the building, and that's not of any interest to us.

At the core of what we're about is that comes with some agenda. I think dealing with the aspects we've highlighted give us more than enough scope for growth.

In terms of the water and energy, there's nothing to read into that, except that's going to be the focus of this business, rather than it being a platform for our divestment. So we've probably been, and I've talked of it over many years, probably less disciplined than we maybe should have been in terms of product segments we get into.

So it's really focusing on storage and water treatment, and that's really what that's about rather than any kind of commercial or marketing agenda. And then from a chemical perspective, our consumption of polyols would be approximately €200 million from a cost base perspective.

And if I could just have a follow-up on the insulation board division, am I right in understanding that, actually, the price-mix was sequentially higher in H1 '18 versus H2 '17?

Yes. I mean, the underlying sales growth in boards in the first half is 7%.

And in terms of the outline of the business that the price dimension was sort of 10% with some softness in volume.

So that's up quarter -- H1 '18 versus H2 '17, yes?

That's H1 '18, the underlying sales growth in Insulation Board.

But can you maybe give us a sense of whether or not the price increases was sequentially higher in the first half of '18 versus second half of '17?

The price, we would have had some run rate expenditures coming into H1 '18, and price that were mentioned in the second half of last year. So there would have been more absolute price increase delivered in the second half of last year.

And actually, we had a run rate impact then in the first half of the year.

…which is more pronounced versus the first half of last year.

Absolutely, yes.

I've got two questions, if I may, the first follow-up on the last one actually. Just in terms of that flat pricing run rate, am I right in assuming in H1 that was a 6% impact?

And then should we expect sort of nothing into H2, given price inflation in MDI? And just on that as well, could you give a quick reminder of the steel and MDI sort of cost build for 2017?

And then secondly, obviously, QuadCore is growing of the share of your products in panels. Does that have the same positive impact on your margin, so Kooltherm versus boards?

Or is that of less of a benefit?

We'll deal with that as best as we can, Lush. Pricing in the second half won't see any inflation as far as potentially some applications in North America, which would be steepening.

But on the whole, as a group, there's potentially deflation in the second half, particularly around the Board business. And in terms of QuadCore, QuadCore is clearly designed around differentiation and designed around, first of all, margin protection and indeed enhancements.

So yes, that will be a key driver of our margin profile into the future. And we also expect to launch a QuadCore insulation board for flat roofing applications probably towards the end of this year to differentiate that business in the flat roofing segment as well.

Sorry, you asked about our steel and MDI build?

Yes. Just on the twokey possibilities, steel is approximately €1 billion annually now, and our chemical build across the business is approximately €800 million.

That's it. Thank you, Hugh, for your support there.

And everybody else, thanks for joining the call, and we'll be in touch over the coming days.