TIDMFAN
RNS Number : 7435O
Volution Group plc
05 October 2023
Thursday 5 October 2023
VOLUTION GROUP PLC
Preliminary Full Year Results for the year ended 31 July
2023
Strong performance; confident of further progress in the year
ahead
Volution Group plc ("Volution" or "the Group" or "the Company",
LSE: FAN), a leading international designer and manufacturer of
energy efficient indoor air quality solutions, today announces its
audited financial results for the 12 months ended 31 July 2023.
RESULTS SUMMARY
2023 2022 Movement
------------------------------------ ----- ----- --------
Revenue (GBPm) 328.0 307.7 6.6%
Adjusted operating profit (GBPm) 69.9 64.9 7.7%
Adjusted operating margin (%) 21.3% 21.1% 0.2pp
Adjusted profit before tax (GBPm) 65.1 60.9 6.8%
Adjusted basic EPS (pence) 25.8 24.0 7.5%
Reported operating profit (GBPm) 57.1 50.8 12.4%
Reported profit before tax (GBPm) 48.8 47.2 3.4%
Reported basic EPS (pence) 19.0 18.1 5.0%
Adjusted operating cash flow (GBPm) 75.7 50.4 50.2%
Dividend per share (p) 8.0 7.3 9.6%
------------------------------------ ----- ----- --------
The Group uses some alternative performance measures to manage
and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted EPS, adjusted operating cash flow, net debt and net
debt (excluding lease liabilities). A definition of all the
adjusted and non-GAAP measures is set out in the glossary of terms
in note 25 to the condensed consolidated financial statements. A
reconciliation to reported measures is set out in note 2 to the
condensed consolidated financial statements.
FINANCIAL HIGHLIGHTS
-- Revenue up 6.6% with organic growth of 4.6% at constant
currency (cc). 60% of r evenue now comes from non-UK customers
-- Adjusted operating margin up 20bps to 21.3%, all three regions above 21%
-- Adjusted basic EPS of 25.8p, up 7.5% and ahead of consensus,
CAGR of 12.7% since IPO in 2014. Reported basic EPS up 5.0%
-- Strong cash generation with adjusted operating cash flow of
GBP75.7m (2022: GBP50.4m), cash conversion of 106% (2022: 76%)
-- Closing leverage (excluding lease liabilities) was 0.8x,
after spending ca. GBP30m on acquisitions during the year, leaving
us well placed to continue to acquire attractive ventilation
businesses
-- Total proposed dividend for the year increased by 9.6% to 8.0
pence per share (2022: 7.3 pence) reflecting the strong performance
and confidence in year ahead
OPERATIONAL HIGHLIGHTS
-- Operating margins increased despite inflationary pressures,
with continued good price discipline, robust cost control and good
factory efficiency
-- GBP29.7m invested in two European acquisitions:
o VMI (France), initial consideration of GBP7.9m. Provides
Volution with direct access to the French market, one of the
largest ventilation markets in Europe
o I-Vent (Slovenia and Croatia), initial consideration of
GBP21.7m. Further extends our product portfolio and European market
leadership in decentralised residential heat recovery
-- Post year end, completed the acquisition of DVS (New
Zealand), a direct-to-consumer supplier of whole home residential
ventilation systems, for upfront consideration of GBP8.5m
-- Successfully launched exciting new products in the year
including our new Vent-Axia Econiq range of centralised heat
recovery units
HEALTHY AIR, SUSTAINABLY
-- Excellent progress against our key sustainability targets:
o 76.2% of plastic used in own manufacturing facilities from
recycled sources (2022: 67.2%), as we continue to develop
innovative strategies to increase the utilisation and availability
of recycled plastic materials
o 70.1% of revenue from low-carbon, energy saving products
(2022: 66.1%), of which 33.8% (2022: 30.1%) was from heat recovery
ventilation systems
-- Reduction of 9.8% in our carbon intensity, to 11.1t CO2e per
GBPm of revenue (2022: 12.3t)
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"Through continued successful execution of our sustainable
growth model, we have delivered a strong set of results in a year
of significant headwinds. The Group's resilience is underpinned by
our strong local brands, our increasingly wide geographic end
market diversity and the greater proportion of our revenue
generated from the refurbishment market. Exceptional customer
service provided by dedicated and committed local teams, and an
agile and focused approach to fulfilling customer needs, has
delivered another successful year for the Group."
"Whilst we are mindful of the impact of higher interest rates on
consumer confidence and new build construction, the regulatory
changes in our local markets continue to drive demand for our
innovative and well-positioned low carbon product technologies. In
addition, our three new acquisitions completed in the last six
months; our ongoing focus on operational excellence; and the depth
of experience and commitment across our local teams provides
resilience and gives us confidence of making further progress in
the year ahead."
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Andy O'Brien, Chief Financial Officer +44 (0) 1293 441536
FTI Consulting +44 (0) 203 727 1340
Richard Mountain
Susanne Yule
A meeting for analysts will be held at 9:30am GMT today,
Thursday 5 October 2023, at the offices of Berenberg, 60
Threadneedle Street, London EC2R 8HP. Please contact
FTI_Volution@fticonsulting.com to register to attend or for
instructions on how to connect to the meeting via conference
facility.
A copy of this announcement and the presentation given to
analysts will be available on our website www.volutiongroupplc.com
on Thursday 5 October 2023.
Volution Group plc Legal Entity Identifier:
213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international
designer and manufacturer of energy efficient indoor air quality
solutions. Volution Group comprises 22 key brands across three
regions:
UK: Vent-Axia, Manrose, Diffusion, National Ventilation,
Airtech, Breathing Buildings, Torin-Sifan.
Continental Europe: Fresh, PAX, VoltAir, Kair, Air Connection,
inVENTer, Ventilair, ClimaRad, rtek, ERI, VMI, I-Vent
Australasia: Simx, Ventair, Manrose, DVS.
For more information, please go to: www.volutiongroupplc.com
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
CHAIRMAN'S STATEMENT
In this, my first statement as Chair of Volution, I am pleased
to report another strong year of progress. The Group has continued
to demonstrate the strength of its business model and strategy,
achieving revenue growth of 6.6%, an adjusted operating margin of
21.3% with excellent cash generation during the year.
Volution is a business with a strong purpose and one that has an
excellent track record of delivering value to all stakeholders. A
key differentiator for Volution amongst its peers is the increase
of industry regulation designed to make indoor air cleaner and
decarbonise buildings. It is this regulation that has continued to
be a key driver of Volution's growth this year, particularly in the
UK public sector, where improving poor quality housing has become a
legal requirement. It will also provide Volution with considerable
resilience in a market where current high interest rates have had
an adverse impact on new build construction levels and consumer
confidence.
Whilst macroeconomic challenges continue, Volution's performance
has demonstrated the strength and resilience of its business model,
supported by our broad geographic and product diversity.
Strategy
The three strategic pillars of the Group are organic growth,
value-adding acquisitions and operational excellence. These
strategic pillars, together with a focus on sustainability, provide
the platform for the implementation of the Group's purpose, to
provide "Healthy Air, Sustainably". Solid progress was made during
the year with good organic growth, whilst the acquisition of VMI,
based in France, and I-Vent, based in Slovenia and Croatia, has
further strengthened the Group's geographic and product
diversification. The Group also acquired DVS in New Zealand, which
was completed shortly after the year end.
Performance and results
Group revenue increased to GBP328.0 million (2022: GBP307.7
million) whilst adjusted operating profit was up 7.7% at GBP69.9
million (2022: GBP64.9 million), representing a margin of 21.3%
(2022: 21.1%). Reported profit before tax increased to GBP48.8
million (2022: GBP47.2 million).
The Group's adjusted earnings per share was 25.8 pence,
representing an increase over the prior year of 1.8 pence, up 7.5%.
The compound annual growth rate of adjusted earnings per share
since IPO in 2014 is 12.7%, demonstrating consistent delivery of
double-digit earnings growth over the period. Basic earnings per
share for the year was 19.0 pence (2022: 18.1 pence).
Adjusted operating cash flow was GBP75.7 million (2022: GBP50.4
million), and we spent GBP29.7 million, net of cash acquired, on
two acquisitions during the year. As a result, net debt excluding
lease liabilities at the year-end remained largely unchanged at
GBP58.1 million (2022: GBP60.8 million).
Dividends
Recognising our strong performance in the year and our continued
confidence in the business, the Board has recommended a final
dividend of 5.5 pence per share, giving a total dividend for the
financial year of 8.0 pence per share (2022: 7.3 pence per share),
an increase of 9.6% on the previous year. This is in line with our
ambition to progressively grow dividends each year. The resulting
adjusted earnings dividend cover for the year was 3.2x (2022:
3.3x).
Subject to approval by shareholders at the Annual General
Meeting on 13 December 2023, the final dividend will be paid on 19
December 2023 to shareholders on the register at 24 November
2023.
Environment, social and governance (ESG) objectives
Volution is committed to high standards of corporate
responsibility, sustainability and employee engagement and
continues to focus on its contribution to a more sustainable world
through its operations, culture and ventilation solutions. The
Group aims to give full consideration to the long-term impact of
all business operations, which means that, wherever feasible, our
products and services are sustainably sourced.
The disclosures in our Sustainability Report, including our TCFD
disclosure, have been further developed this year to provide a
better understanding of our Scope 3 emissions and the carbon
footprint of our products. In addition, the Company has received an
improved AA rating from MSCI, following improvements in Volution's
decarbonisation initiatives - one of the benchmarks for ESG
ratings. We are very proud of our London Stock Exchange Green
Economy Mark, first received in 2021.
Our people & culture
As a Board, we understand the importance of building engagement
and a good corporate culture. We regularly monitor the company
culture and seek opportunities throughout the year to engage with
colleagues across the Group. Claire Tiney, our designated
Non-Executive Director for workforce engagement, continues to
participate in two Group-wide Employee Forum events each year,
enabling in-depth insights to be brought to the Board on the views,
opinions and focus areas of our people. A Group-wide workforce
engagement survey will be launched later this year and as a Board
we look forward to the further insights that this will afford
us.
Safety at work is always central to everything we do, and the
Group remains focused on a zero-harm ambition. I am pleased to
report good progress in the area of Health and Safety, although we
saw a small increase in the reportable accident rate compared to
last year, and the Company remains fully committed to further
strengthening the health and safety culture across all our
businesses.
Our talented people across the global business are at the heart
of our continued success and essential in the execution of Group
strategy. I am grateful to all Volution colleagues for their
commitment and contribution. I would like to welcome our new
colleagues from VMI, I-Vent and DVS to the Volution Group.
Board changes
Paul Hollingworth retired as Chairman of the Board on 23 June
2023, having served on the Volution Board for nine years. I was
delighted to be appointed as Paul's successor and would like to
thank Paul for his leadership and contribution to Volution during
his tenure. I would also like to thank my Board colleagues for
their assistance in ensuring a smooth and orderly succession
process.
As part of the succession process, I stepped down from the role
of Audit Chair and, on 23 June 2023, we were pleased to welcome
Jonathan Davis to the Board as an Independent Non-Executive
Director and Chair of the Audit Committee. With his strong
financial and accounting expertise and extensive public company and
international experience, I am confident that Jonathan will make a
strong contribution to the Board.
Governance
The Group is committed to high levels of corporate governance,
in line with its status as a company with a premium listing on the
Main Market of the London Stock Exchange and as a member of the
FTSE 250. We are fully compliant with the 2018 edition of the UK
Corporate Governance Code.
As a Board we are responsible to the Company's shareholders for
delivering sustainable shareholder value over the long term through
effective management and good governance. As Non-Executive
Chairman, my role is to provide strong leadership to enable the
Board to operate effectively and collegiately. As a Board, it is
our view that open, thorough, and robust discussion around key
strategic matters, risks and opportunities faced by the Group is
central to reaching our strategic goals, including with regard to
our acquisition strategy. We are fortunate to have a diverse range
of business experience on the Board, enabling rigorous and
productive discussions.
Nigel Lingwood
Chairman
4 October 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The results we achieved this year are a clear demonstration of
Volution's strengths as we benefited from our market leading
positions, our wide geographic and end market diversity and our
ability to upsell our products supported by industry regulations.
We estimate that almost 70% of Group revenue is focused on the
refurbishment, maintenance and improvement market ("RMI"),
typically more resilient than new build markets in difficult
economic times. Against a backdrop of high inflation, rising
interest rates, and a slowdown in activity in some of our end
markets, we were still able to achieve organic growth of 5.1%.
Furthermore, our relentless focus on operational excellence,
including strong pricing discipline, robust cost control, value
engineering initiatives and good factory efficiency enabled us to
expand our adjusted operating margin to 21.3%.
Our organic growth was supplemented by our continued focus on
acquiring strong local brands with attractive market positions,
this activity remains a key tenet of Volution's growth strategy.
During the year we were delighted to acquire two businesses, VMI in
France and I-Vent in Slovenia, with a third business, DVS Proven
Systems, acquired post year-end. These acquisitions provide the
Group with increased resilience by broadening its geographic reach
and giving it access to attractive new markets. They also bring
with them innovative low carbon product solutions to further expand
our portfolio.
Volution is a leader in the international heating, ventilation
and air conditioning market and our purpose is to provide "Healthy
Air, Sustainably". Since listing in 2014 we have delivered
consistent revenue and profit growth and strong operating cash
flow. It is this consistent cash generation which underpins our
ability to acquire businesses, which further increases our already
broad geographic market, and we maintain an active pipeline of
potential targets.
As we continue to grow organically, and complement our market
positions with new acquisitions, our management "bench strength" is
of critical importance to our success. During the year we further
strengthened our team including hiring a new Operations Director,
for our UK businesses and commencing a Managing Director search
process for our ClimaRad business in the Netherlands. I am pleased
to say that we will be holding our fourth Management Development
Programme later this year and I know from experience how important
this programme is for retaining and enhancing our talent pool.
As previously reported, the wider supply chain difficulties
experienced by the industry in recent years have now subsided. In
response to these earlier difficulties, Volution took steps to
mitigate any disruption, thus ensuring we had excellent product
availability for our customers throughout this period. This early
action served us, and our customers, well and has resulted in an
increase in our competitive advantage. There are numerous examples
where we have made local market share gains due to strong customer
relationships and apparent gaps in competitor product availability.
The local teams are focused on consolidating these opportunities in
the year ahead.
Our Markets
Volution's revenues are weighted towards the refurbishment
market which now accounts for around two-thirds of sales, with the
balance focused on new build applications. Both new build and
refurbishment activities are increasingly regulated, with the
former seeing an accelerated change as local economies focus more
readily on reducing carbon emissions from new buildings.
The rapid rise in interest rates has had an adverse impact on
new build construction levels and consumer confidence during the
year. Whilst we are seeing lower overall unit construction output
in new residential and commercial projects, ever tightening
regulations (focusing on lowering carbon emissions) is supporting
demand for Volution's innovative and value adding low carbon
solutions, where typically the average unit value is significantly
higher than the traditional ventilation solution that it
replaces.
Demand in the refurbishment market has been supportive during
the year, particularly in the UK where we saw demand in public
refurbishment RMI benefiting from the heightened awareness of
health risks associated with mould and condensation. Private RMI
proved very resilient.
We believe that ventilation refurbishment is far less
discretionary than other product categories in buildings. Post the
pandemic, we have noticed that there is a more pressing need to
replace ventilation products, compared to other elements of
refurbishment that can be postponed indefinitely. We have also seen
the unintended consequences of home occupiers reducing heating
temperatures during the winter months in response to higher energy
prices. This leads to lower temperatures in the dwelling which
propagates the risk of mould and condensation problems with air
holding significantly more moisture when cold, than at higher
temperatures. This too makes the requirement for ensuring good
ventilation more pressing.
To deliver on net zero commitments, Governments must address our
buildings which, in Europe, are responsible for around 40% of our
energy use and 36% of our carbon emissions. Our technology provides
solutions to avoid some of those emissions, and increasing
regulation is the key driver. This year we have provided more
insight in the Annual Report into the regulatory position in each
of our key geographies, covering both air quality and energy
efficiency. Our local teams and our trade associations continue to
ensure our voices are heard as the regulations provide strong
tailwinds supporting the adoption of higher value ventilation
solutions.
Results
The Group delivered revenue of GBP328.0 million (2022: GBP307.7
million), an increase of 6.6% (6.1% cc), with organic growth of
5.1% (4.6% cc) and inorganic growth from the two acquisitions in
the year, as well as the full year effect of the acquisition in the
prior year, of 1.5%. Adjusted operating margins increased from
21.1% in the prior year to 21.3%, a strong performance in the face
of much higher inflation than in previous years. Reported profit
before tax was GBP48.8 million (2022: GBP47.2 million), an increase
of 3.4%.
Sustainability
Good progress was achieved with our sustainability initiatives.
Recycled plastics content in our own production increased
substantially in the year to 76.2% of total consumption. A
significant proportion of the Group's injection moulding and PVC
extrusion production takes place at our Reading facility in the UK
and I am proud of the way in which the team developed innovative
strategies in the year to increase the utilisation and availability
of recycled plastic materials. This is a great example of a cross
functional initiative and whilst we still have some way to go to
achieve the 90% target by the end of our financial year 2025, the
increase from under 60% in 2021 provides a good trajectory towards
the target. Utilising recycled materials is also a significant
commercial advantage for our customers with many new projects
requiring a minimum recycled content in the supply of materials and
we are keen to assist in the more circular economy for the supply
of products into buildings.
Revenue from our low-carbon products has increased to 70.1% in
the year, well ahead of this year's target of 65.6%, and two years
ahead of our target of 70% by the end of 2025. We expect the growth
in our low carbon product solutions to continue to be ahead of the
growth of more traditional products. The recent acquisitions of VMI
in France and I-Vent in Slovenia will positively assist our metric
in the year ahead as they already have a high concentration of
their revenue from low carbon solutions.
Our Sustainability Committee, comprising of our senior
leadership team and our non-executive director, Amanda Mellor, met
twice in the year, where we reviewed progress against our published
targets and key initiatives for the years ahead.
Strategy
Organic Growth
We delivered organic growth of 5.1% (4.6% cc) driven by
increases in both price and volume.
Volution has a long-term target to consistently deliver annual
organic growth in the range of 3-5%. We have again delivered
organic growth at the top end of the range, despite the more
difficult trading environment in the year. As in previous years,
our more vertically integrated business model, our intentional
approach to holding a higher component inventory and our resulting
excellent service levels have helped us to deliver this growth.
Across the Group there have been notable market share gains
directly attributable to superior service levels.
An acceleration of regulatory support; the impact of higher
energy costs; and our strong local brands, managed by local,
motivated, and empowered teams, have enabled us to deliver an above
market growth performance. Our strapline, "Healthy Air,
Sustainably", which we introduced in 2020, resonates strongly
across the Group.
Acquisitions
We completed two acquisitions in the year. In April we announced
the completion of the acquisition of Ventilairsec (VMI) for an
initial consideration of GBP7.9 million (EUR9.0 million), net of
cash acquired. VMI, based in Nantes, France, designs and
manufactures a range of residential ventilation systems focused on
a low carbon positive input ventilation technology known as "VMI".
The acquisition provides Volution with direct access to the French
market, one of the largest ventilation markets in Europe. Our
position in France, whilst currently quite small, is eminently
scalable in the years ahead. A new managing director was recruited
and a successful handover from the owner has already been
completed. We are confident that our wider ranging ventilation
solutions from across the Group can assist the local team to grow
more rapidly in the period ahead.
The VMI acquisition included an earn-out payment of up to EUR5
million, which will be calculated on the basis of the EBIDTA for
the year ended 31 December 2023.
In June 2023 we completed the acquisition of I-Vent for an
initial consideration of GBP21.7 million (EUR25.2 million), net of
cash acquired, with further contingent consideration of up to EUR15
million based on stretching growth targets for the financial
results for the three years up to and including 31 December 2025.
I-Vent, based in Slovenia and Croatia, designs, manufactures, and
supplies residential ventilation systems, primarily focused on
decentralised heat recovery. Similar to the technology in InVENTer,
Germany, we see complementarity in the respective ranges and our
teams are already working out how we can utilise the increased
strength in our product portfolio to optimise our offering.
Post year end we also completed the acquisition of DVS (Proven
Systems Ltd) in New Zealand. DVS supplies directly to consumers and
installs a range of energy-efficient centralised ventilation
systems, incorporating positive input, heat recovery, heat
transfer, and heating and cooling solutions. Their products can be
installed in both new and existing properties and are sold under
the DVS Home Ventilation brand. DVS will be integrated into our
Australasian business and provides an additional sales channel to
supply low carbon solutions.
Operational excellence
Maintaining our long-term adjusted operating margin at, or
above, 20% is an important objective for Volution. In the year we
delivered a 20bps margin improvement to 21.3% in the face of
significant inflationary pressures across materials, labour, and
infrastructure costs. Delivering a consistently strong operating
profit margin is the culmination of many smaller initiatives across
the entire business. Pricing discipline, long term supply chain
partnerships, focus on value engineering and operational efficiency
initiatives and good investment in new moulding, extrusion and
other plant and equipment in 2023, helped underpin our margin.
People
A key highlight of the year was a full return to normal working
practices post the pandemic. Our Group is now truly international,
and the ability to freely visit all facilities was a tremendous
boost. During the year we held more employee engagement meetings
than in our recent past. I am privileged to lead such a diverse and
talented organisation and the feedback from the people in our local
companies is hugely enriching and invaluable to our decision-making
processes.
I was delighted to observe lots of examples of cross border
co-operation on so many levels. Our technical and procurement
resources are managed functionally and provide Volution with a
significant resource to support our local operating companies to
outperform their local competitors. Enhancing collaboration across
these and other working groups is key to our success.
We also held two group wide employee engagement and
communication meetings, also attended by Claire Tiney,
Non-Executive Director, and chair of the Remuneration Committee,
with specific focus on sustainability at one meeting and product
development and innovation at the other.
Retention and development of our talented teams is key to our
success. Since 2012 we have successfully run three management
development programmes across the Group. We are now planning a
fourth programme for late October 2023. This current cohort will
consist of eighteen high potential managers from all geographic and
functional areas of the Group. I am very much looking forward to
the programme kick-off, and I also know how excited the
participants are to be involved. A look back at the first three
management development programmes reveals a retention rate of over
70%.
I believe we have a strong culture of success at Volution, but
also a culture where our teams work closely together and have a lot
of fun in providing "Healthy Air, Sustainably".
Outlook
Through continued successful execution of our sustainable growth
model, we have delivered a strong set of results in a year of
significant headwinds. The Group's resilience is underpinned by our
strong local brands, our increasingly wide geographic end market
diversity and the greater proportion of our revenue generated from
the refurbishment market. Exceptional customer service provided by
dedicated and committed local teams, and an agile and focused
approach to fulfilling customer needs, has delivered another
successful year for the Group.
Whilst we are mindful of the impact of higher interest rates on
consumer confidence and new build construction, the regulatory
changes in our local markets continue to drive demand for our
innovative and well-positioned low carbon product technologies. In
addition, our three new acquisitions completed in the last six
months; our ongoing focus on operational excellence; and the depth
of experience and commitment across our local teams provides
resilience and gives us confidence of making further progress in
the year ahead.
Ronnie George
Chief Executive Officer
4 October 2023
Regional Review
United Kingdom
2023 2022 Change (cc)
Market sector revenue GBPm GBPm %
-------------------------------------- ------- ------ ------------
UK
Residential 89.7 75.1 19.5
Commercial 30.2 31.0 (2.8)
Export 12.1 11.7 1.7
OEM 24.1 25.9 (8.0)
-------------------------------------- ------- ------ ------------
Total UK Revenue 156.1 143.7 8.3
-------------------------------------- ------- ------ ------------
Adjusted operating profit 35.3 29.3 20.6
-------------------------------------- ------- ------ ------------
Adjusted operating profit margin (%) 22.6 20.4 2.2pp
-------------------------------------- ------- ------ ------------
Reported operating profit 28.1 22.3 26.2
-------------------------------------- ------- ------ ------------
The UK delivered the standout performance of the year with
strong revenue and profit growth. UK revenues increased from
GBP143.7 million to GBP156.1 million, an 8.6 % increase (8.3% at
cc), building on good organic growth delivered in the prior year.
The UK saw strong demand in Residential RMI, particularly in the
public sector. Alongside this, exceptional customer service, an
agile and focused team, and residential market share gains helped
deliver this excellent performance. Adjusted operating profit
increased from GBP29.3 million to GBP35.3 million with a
significant increase in the adjusted operating margin at 22.6% up
220 bps from 20.4% in the prior year. The organisational changes
made in the prior year bedded in well delivering a more agile and
responsive outcome across the business. Revenue growth accelerated
in the second half of the year, and we are well placed to deliver
further progress in the year ahead. Although high inflation and
rises in interest and mortgage rates are stifling new construction
activity, Volution's overall market demand continues to be
underpinned by regulatory and wider consumer awareness of the
importance of indoor air quality.
Residential
Sales in our Residential market sector were GBP89.7 million
(2022: GBP75.1 million), an impressive organic growth of 19.5%,
building on last year's strong organic growth. Moreover, we saw an
acceleration of growth in the second half.
In residential new build we delivered another year of revenue
growth supported by the increasing penetration of energy efficient
ventilation technology in new house construction. In June 2022
revisions to Part F and Part L of the Building Regulations provided
increasing support for low carbon energy efficient ventilation
systems for new house building. Those changes inevitably take time
to impact demand for low carbon solutions, as existing construction
sites at the time of the regulatory change will continue to be
constructed to the original plan. During the year we certainly
benefited from these new changes, but we expect to see a greater
proportion of new houses being built with more efficient technology
in the year ahead. New account wins have assisted us to grow market
share and our exceptional levels of customer service and full
product availability to customers, at all times, have set us apart
from the competition. Whilst we are confident that regulatory
changes in 2022, and further changes to the Future Homes Standard
planned for 2025 (delivering buildings that are net zero ready)
will underpin sales of new technology solutions, the new build
market faces significant challenge from the effects of high
interest and mortgage rates. Housing starts reduced considerably in
the year and will result in fewer completions in the period ahead.
This will inevitably result in some moderation of demand for energy
efficient ventilation systems. Nevertheless, the medium to long
term drivers of demand remain compelling. During the year we made
iterative changes to our leading ranges of energy efficient
ventilation solutions. Our UK ventilation brands provide the widest
product range and solutions and are well supported by new
investment in injection moulding and extrusion capacity to
safeguard our excellent levels of customer service and
availability.
The awareness and understanding of the importance of good
quality ventilation in delivering healthy air inside buildings is
now widespread. The strong demand we experienced for our
refurbishment solutions through the pandemic has continued, which
validates our view that ventilation refurbishment is far less
discretionary than other types of building refurbishment.
Our residential refurbishment category in the UK was the fastest
growing area across the entire Group. Our high end, aesthetically
attractive, near silent, comprehensively controlled, private
refurbishment solutions continued to deliver good growth in the
year.
Across our Vent-Axia, National Ventilation and Manrose brands,
we have strong links to our important professional and retail
distribution routes to market. We value our distribution customer
relationships very highly and the sales teams worked very hard
during the year to help educate and train these outlets on the
important aspects of the ventilation industry and our market
leading solutions.
We have a simple but relentless approach to providing excellent
stock availability and customer service, at the centre of which is
first class relationships with our suppliers and customers. The
Group has the largest UK ventilation sales force supporting
customer needs.
Public housing refurbishment demand was very strong in the year.
On 9 February 2023, the Government tabled amendments to the Social
Housing (Regulation) Bill to introduce 'Awaab's Law', which will
require all landlords to investigate and fix reported hazards in
their homes within a specified time frame, or rehouse tenants where
a home cannot be made safe. 'Awaab's Law', was put in place
following the death of a young boy who died due to exposure to
black mould in his socially managed home which had 'inadequate
ventilation". This sad event has further emphasised the importance
of refurbishment in this market sector. As a result, we witnessed a
sharp increase in demand for energy efficient ventilation solutions
and this delivered accelerated revenue growth in the second half of
the year.
Volution has been well placed to support these vital
refurbishment needs. In the 2022 Annual Report we explained how we
were utilising our innovative decentralised heat recovery product
solutions from other parts of the Group to support the UK social
housing ambition to deliver their 2030 net zero carbon targets. In
the year we have been successful in supplying decentralised heat
recovery ventilation solutions to projects that require a further
step up in their ventilation needs following a more structural
refurbishment of the dwelling. Greater air tightness through
insulation, an obvious and important upgrade as part of a low
carbon refurbishment, then warrants heat recovery ventilation to
recover energy and keep fuel bills low. The fuel poverty crisis in
the UK resulted in greater mould and condensation risks during the
last winter, due to the unintended consequence of turning down
heating thermostats to save costs. Colder air temperatures means
less moisture can be held in the air; the resultant issue is water
droplets forming at lower temperatures which leads to greater
condensation and mould. The impact of 'Awaab's Law', the lower
property temperatures, and consumers investigating how to solve
their condensation problems, resulted in a significant increase in
demand for "Positive Input Ventilation" technologies. Utilising our
strong relationships with our distribution customers, we were able
to ensure that contractors could source the exact products they
required to service this strong demand. During the latter part of
2023 we further enhanced our product range and have ensured that
our customers are well placed to service the expected strong market
demand in the year ahead.
Commercial
Sales in our UK Commercial sector were GBP30.2 million (2022:
GBP31.0 million), an organic decline of 2.8%. Volution has a
relatively small share of the larger commercial ventilation market,
albeit with a leading share in the niche area of fan coil
ventilation. The year finished strongly, and saw an increase in
second half revenue, following a decline in the first half.
Excellent progress with our enhanced range of fan coil ventilation
enabled us to make good progress with the supply of products to the
main market of new London commercial offices. Whilst the commercial
office market has generally been more subdued, we are seeing a
growing trend and need for more desirable working environments.
Employees are demanding brighter, more energy efficient work places
and we see a good pipeline of work for both new build and
refurbishment needs for fan coil units. During the year we
completed key new developments for products that provide commercial
heat recovery or commercial heat recycling. This delivered some
success in the second half of the year and puts us in a stronger
position to gain market share in the year ahead. Our investment in
more advanced metal cutting capability at our Dudley facility
provides the capacity to support any increase in
demand.
Export
Sales in our UK Export sector were GBP12.1 million (2022:
GBP11.7 million), an organic growth rate of 1.7% at constant
currency. Export revenues had declined in the first half of the
year, largely due to a significant customer de-stocking exercise,
but performed well in the second half, growing at close to 10% on a
constant currency basis. Our long-term collaborative relationship
with our distributor in Eire delivered another year of growth and
given the stronger Irish housing market, we see good underpinning
of demand for energy efficient heat recovery solutions in the year
ahead.
OEM
Third party Sales in our OEM sector were disappointing at
GBP24.1 million (2022: GBP25.9 million), an organic decline of 8.0%
at constant currency. This was linked to a reduction in customer
demand for motorised impellers utilised in products focusing on the
new build market. However we delivered a significant increase in
the internal supply of our EC3 motorised impellers in the year with
several new initiatives underway to capture more of our internal
needs in the year ahead. A huge strength of the Group is the
vertical integration of moulding, extrusion, and component supply
capability and this has been particularly beneficial in recent
years where we have faced supply chain challenges. Our strategic
intention is to greater utilise our OEM capability to capture more
of the internal demand. This initiative is particularly relevant as
we foresee ongoing weakness of demand for motorised impellers due
to more subdued end market demand for new construction.
Continental Europe
Change
2023 2022 (cc)
Market sector revenue GBPm GBPm %
-------------------------------------- ----------- ------------- --------------
Continental Europe
Central Europe 75.4 65.1 12.7
Nordics 49.1 53.3 (5.7)
-------------------------------------- ----------- ------------- --------------
Total Continental Europe revenue 124.5 118.4 4.4
-------------------------------------- ----------- ------------- --------------
Adjusted operating profit 28.4 29.6 (4.0)
-------------------------------------- ----------- ------------- --------------
Adjusted operating profit margin (%) 22.8 25.0 (2.2)pp
-------------------------------------- ----------- ------------- --------------
Reported operating profit 25.1 23.2 7.9
-------------------------------------- ----------- ------------- --------------
Our Continental Europe revenues increased from GBP118.4 million
to GBP124.5 million, growth of 4.4% at constant currency, within
which organic growth was 0.6% on a constant currency basis. The
sector benefited from the acquisition of VMI in April 2023, I-Vent
in June 2023 and the full-year effect of the acquisition of ERI in
September 2021. Adjusted operating profit was down 4.0% at GBP28.4
million versus a prior year of GBP29.6 million. The adjusted
operating profit margin declined in the year by 220bps to 22.8%,
partly due to the dilutionary impact of the acquisitions, but also
due to the changing mix of revenues with both the higher margin
Nordic and German market revenues declining at a higher rate than
the growth areas such as ERI in North Macedonia.
Central Europe
Sales in the Central Europe region grew 12.7% at constant
currency to GBP75.4 million compared to the prior year of GBP65.1
million. Organic revenue growth was 5.9% on a constant currency
basis, with inorganic growth coming from the acquisition of VMI,
I-Vent and the full-year effect of the acquisition of ERI.
Revenues in Germany in the second half of the year were much
weaker than the prior year. Unlike the usual 70%/30% Group wide
split of revenues between refurbishment and new build, we have a
high concentration of German revenue focused on the new build
market. New build construction was much weaker in the second half
of the year, coupled with inconsistencies around government
subsidies supporting low carbon technologies. Germany has been a
strong contributor to our organic growth since 2019 and a revenue
decline in the year was unusual. In recent months we have refocused
our selling efforts on the significant refurbishment opportunities
in the market. Germany, alongside every other country is working
out how to achieve its net zero carbon targets. Local government is
now providing more clarity on subsidies for various low carbon
technologies, and we had some good successes towards the end of the
year. Strong pricing management, excellent cost controls and some
innovative new product solutions enabled us to maintain our local
gross margins. Whilst the new build outlook remains fragile, the
medium-term dynamic of heat recovery technology demand in Germany,
both in new build and increasingly in refurbishment, remains
compelling.
In the Netherlands, ClimaRad delivered strong organic growth,
accelerating in the second half of the year. Our "total cost of
ownership" model is reaping significant dividends as we demonstrate
the substantial savings that a ClimaRad decentralised heat recovery
system can deliver in a structural refurbishment. The Netherlands
market is one of the most progressive in Europe with a focus on
decarbonising buildings and an established approach to the future
ban of gas boiler installations in the new build market.
This is a hugely supportive change in the market increasing the
utilisation of heat pump technology and an increased investment in
greater insulation for residential buildings. This positions our
decentralised heat recovery technology in ClimaRad very well. The
project orderbook remains strong and we remain confident that we
will make further inroads in the market with our compelling
solution in the year ahead.
In Belgium we delivered organic growth, however, the
introduction of our new extended range of higher airflow heat
recovery systems was delayed until the end of the financial year
2023. Our Econiq range of heat recovery is the culmination of a
significant product development investment, and our new application
software technology will materially aid commissioning and an
improved user experience. Whilst a much later than planned
introduction to the market, we are excited about the opportunity to
regain lost share in the new financial year.
Nordics
Sales in the Nordics region were GBP49.1 million (2022: GBP53.3
million), an organic decline of 5.7% at constant currency compared
to the previous year. The Nordics market was especially challenging
in the second half of the year with weaker demand and significant
customer destocking resulting in a revenue decline. Strong pricing
discipline in the Nordics, a moderating of input cost inflation,
and the increasing benefits of our new production facility in
Växjö, helped us to maintain a strong gross margin performance.
Customer de-stocking is largely completed and whilst the local
markets, as with all of our markets, are grappling with the higher
cost of borrowing, we believe that demand reached its low point in
H2 2023. Our Nordic activities are weighted around 65% to
refurbishment, which is similar to the rest of the Group, the
balance being new build construction. Whilst new build markets are
likely to continue to be subdued whilst interest rates remain at
elevated levels, we continue to exploit opportunities in
refurbishment for higher value adding solutions such as the
significant growth in decentralised heat recovery from a low start
point. Volution is the European leader for the supply of
decentralised heat recovery in residential buildings and this is a
key area of focus for the period ahead.
Acquisitions
Energy Recovery Industries ("ERI"), a leading provider of
aluminium heat exchanger cells for heat recovery applications
delivered another year of strong revenue growth. In line with our
original investment plan to increase our manufacturing capacity in
North Macedonia and boost efficiency, we have also invested in new
equipment during the year enabling us to shorten lead times and
deliver efficiency benefits which further enhanced our operating
profit margin. The long-term growth drivers for heat recovery
ventilation are strong and we plan to make further investments to
enhance our manufacturing facility and capacity in the year
ahead.
In April 2023 we acquired VMI in France. Whilst a relatively
small player in the French market we are delighted to now have a
structural presence in this important market. VMI has an
experienced and passionate team of ventilation experts and coupled
with the access to our wider portfolio of existing and new product
developments we see an opportunity to deliver good organic growth
in the French market. Specialising in energy efficient positive
input ventilation technology, VMI will benefit from enhancing its
product range and new customer relationships.
In June 2023 we completed the acquisition of I-Vent, a provider
of decentralised heat recovery ventilation systems in Slovenia and
Croatia. The acquisition gives the Group access to fast growing new
markets, and I-Vent's innovative Low Carbon product solutions will
further enrich our Group's expansive product portfolio,
particularly in decentralised heat recovery. Retro-fitting heat
recovery into existing residential dwellings is a key strategic
focus for the Group across Europe. With the majority of existing
revenue arising in Slovenia, the Croatian market position, although
much smaller, provides potentially a faster growing opportunity due
to our lower market penetration.
Australasia
2023 2022 Change (cc)
Market sector revenue GBPm GBPm %
-------------------------------------- ------ ------ ------------
Total Australasia revenue 47.4 45.6 3.6
-------------------------------------- ------ ------ ------------
Adjusted operating profit 11.3 9.9 13.9
-------------------------------------- ------ ------ ------------
Adjusted operating profit margin (%) 23.9 21.8 2.1pp
-------------------------------------- ------ ------ ------------
Reported operating profit 10.7 8.8 22.0
-------------------------------------- ------ ------ ------------
Sales in our Australasia region were GBP47.4 million, with
organic growth of 3.6% at constant currency. Adjusted operating
margins improved to 23.9% versus 21.8% in the prior year. Following
a period of substantial organic growth in Australia, organic growth
rates moderated in the year as expected. Pricing discipline and
excellent cost control enabled us to further increase operating
profit margins to 23.9% a significant improvement over the prior
year.
Simx in New Zealand delivered a good performance. Revenue has
increased beyond the high levels of previous years when demand had
been boosted by the Healthy Homes Act. New Zealand has a structural
demand for additional new residential construction, however, as
with other markets, higher interest and mortgage costs are stifling
demand. Similar to the wider group, our revenue focus is
predominantly refurbishment led and we continue to see
opportunities to introduce more innovative technology to this
market.
The post year end acquisition of DVS Proven Systems, completed
on 4 August 2023, further strengthens our position in the
residential "Smart Vent" market. With DVS Proven Systems' unique
consumer focused approach to ventilation in the local market, we
see huge potential to increase sales our value-added solutions.
Through direct consumer marketing, we are confident that we can
encourage greater penetration of both central and de-central heat
recovery systems in New Zealand.
In Australia we continue to make good progress and the launch of
our Sky Fan DC range of ceiling fans was particularly successful in
the year. We launched our Manrose brand into the DIY sector in the
year and we plan to extend this range in the coming months. Ventair
has been part of the Group since 2019 and we are delighted that
over four years after the successful introduction to the Group we
have secured a long-term agreement with the founder and other
members of the senior team, so we can continue to work together to
further grow our market penetration in Australia. Important
elements of our success are the key supplier relationships that we
have fostered since the business was founded and the increasing
strength of the local team, which is well positioned to capitalise
on these relationships.
FINANCIAL REVIEW
Volution delivered another strong financial performance for the
year, with good organic revenue growth, adjusted operating margins
maintained ahead of our 20% target, and robust growth in adjusted
EPS (up 7.5% to 25.8 pence) despite the adverse impacts of higher
interest rates on our financing costs.
I am also pleased to report that the Group delivered an
excellent cash generation performance, with a working capital net
inflow of GBP2.8 million (2022: GBP17.7 million outflow)
contributing to a cash conversion for the year of 106%, well above
our stated 90% target.
Reported and adjusted results
Reported Adjusted(1)
-------------------------------------- ---------- ----------- --------
Year ended Year ended
Year ended Year ended 31 July 31 July
31 July 2023 31 July 2022 Movement 2023 2022 Movement
--------------------------- ------------- ------------- -------- ---------- ----------- --------
Revenue (GBPm) 328.0 307.7 6.6% 328.0 307.7 6.6%
EBITDA (GBPm) 78.3 74.2 5.5% 79.3 73.9 7.4%
Operating profit (GBPm) 57.1 50.8 12.4% 69.9 64.9 7.7%
Net finance costs (GBPm) 6.4 2.0 216.7% 4.8 3.4 44.1%
Profit before tax (GBPm) 48.8 47.2 3.4% 65.1 60.9 6.8%
Basic EPS (p) 19.0 18.1 5.0% 25.8 24.0 7.5%
Dividend per share (p) 8.0 7.3 9.6% 8.0 7.3 9.6%
Operating cash flow (GBPm) 74.7 50.8 47.1% 75.7 50.4 50.2%
Net debt (GBPm)(2) 89.3 85.8 (3.5) 89.3 85.8 (3.5)
ROIC (%) 27.4% 28.8% (1.4)pp 27.4% 28.8% (1.4)pp
--------------------------- ------------- ------------- -------- ---------- ----------- --------
(1) The Group uses some alternative performance measures to
track and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted EPS, adjusted operating cash flow, net debt and net
debt (excluding lease liabilities). The reconciliation of the
Group's reported profit before tax to adjusted measures of
performance is summarised in the table below and in detail in note
2 to the consolidated financial statements. For a definition of all
the adjusted and non-GAAP measures, please see the glossary of
terms in note 25 to the consolidated financial statements.
(2) Net debt, excluding lease liabilities of GBP31.2 million
(2022: GBP25.0 million) would be GBP58.1 million (2022: GBP60.8
million).
Good organic growth, particularly in the UK
Revenue for the year to 31 July 2023 was GBP328.0 million, up
6.6% (2022: GBP307.7 million) within which organic growth accounted
for 4.6% (cc) and inorganic growth 1.5%, with a benefit of 0.5%
from currency translation impacts.
Our strongest performing region was the UK (up 8.3%), with
residential revenue very strong (up 19.5%) fuelled by high public
RMI demand as housing providers and tenants became increasingly
aware of the health risks associated with mould and condensation.
Private RMI also performed well underpinned by both price and
volume increases and demonstrating the less "discretionary" nature
of our RMI demand. Our more challenging sectors in the UK were in
OEM and Commercial, though the latter did return to growth in the
second half of the year.
A more mixed picture in Continental Europe saw us report organic
revenue growth (cc) of 0.6%. Good performances in ClimaRad and ERI
were offset by challenging market conditions in Germany and the
Nordics, linked to weak new build residential markets, and in the
case of Germany to the withdrawal of some previously available
subsidy programs for energy efficiency investments. Inorganic
growth in Continental Europe (3.8%) reflected one month of ERI
revenue in September 2022, and then the impact of our new
acquisitions in France and Slovenia towards the end of the second
half.
Australasia revenue grew 3.6% (cc) after a number of years of
very strong growth, a solid performance given relatively subdued
market conditions and weaker consumer confidence levels.
Adjusted operating margin of 21.3%
Adjusted operating profit increased by 7.7% in the year to
GBP69.9 million (2022: GBP64.9 million). The increase of GBP5.0
million in adjusted operating profit consisted of GBP4.3 million
from organic growth, GBP0.5 million from acquisitions, and GBP0.2
million from favourable currency movements.
Inflationary cost pressures on materials diminished through the
year. This contrasted with the picture for staff costs, property
costs and other categories of overhead costs which continued to
experience inflationary pressures. Coupled with good factory
performance, efficient customer service and continued judicious
selling price management, this enabled us to deliver a 60bps
improvement in gross margins to 48.4% (2022: 47.8%) and a 20bps
improvement in adjusted operating margin to 21.3% (2022:
21.1%).
Adjusted profit before tax of GBP65.1 million was 6.8% higher
than 2022 (GBP60.9 million). Reported profit before tax was GBP48.8
million (2022: GBP47.2 million) and is after charging:
-- GBP11.1 million in respect of amortisation of intangible assets (2022: GBP14.5 million);
-- GBP1.7 million (2022: credit of GBP0.4 million) of other
costs of business combinations, of which:
-- GBP1.0 million relates to costs associated with business
combinations (2022: GBP0.2 million); and
-- GBP0.7 million in respect of contingent consideration in ERI
(2022: reduction GBP0.6 million)
-- GBP1.6 million loss due to the fair value measurement of
financial instruments (2022: gain of GBP1.4 million); and
-- GBP1.9 million re-measurement of future consideration
relating to ClimaRad (2022: GBP1.0 million).
Higher financing costs
Despite leverage (excl. leases) remaining below 1.0x at both the
half year and the full year as a result of our strong cash
generation, the Group's adjusted financing costs nevertheless
increased by 44.1% to GBP4.8 million (2022: GBP3.4 million) as a
consequence of the significant increase in bank base rates through
the period. Our weighted average interest rates on gross debt in
the year was 4.44% (2022: 2.02%).
Year ended 31 July 2023 Year ended 31 July 2022
------------------------------- -------------------------------
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- ----------- -------- -------- ----------- --------
Revenue 328.0 -- 328.0 307.7 -- 307.7
---------------------------------- -------- ----------- -------- -------- ----------- --------
Gross profit 158.9 -- 158.9 147.1 -- 147.1
Administration and distribution
costs excluding the costs
listed below (89.0) -- (89.0) (82.2) -- (82.2)
Amortisation of intangible
assets acquired through
business combinations (11.1) 11.1 -- (14.5) 14.5 --
Contingent consideration(1) (0.7) 0.7 -- 0.6 (0.6) --
Costs of business combinations(2) (1.0) 1.0 -- (0.2) 0.2 --
---------------------------------- -------- ----------- -------- -------- ----------- --------
Operating profit 57.1 12.8 69.9 50.8 14.1 64.9
Re-measurement of financial
liability 0.1 -- 0.1 (0.6) -- (0.6)
Re-measurement of future
consideration(3) (1.9) 1.9 -- (1.0) 1.0 --
Net loss on financial instruments
at FV(4) (1.6) 1.6 -- 1.4 (1.4) --
Other net finance costs (4.9) -- (4.9) (3.4) -- (3.4)
---------------------------------- -------- ----------- -------- -------- ----------- --------
Profit before tax 48.8 16.3 65.1 47.2 13.7 60.9
Income tax (11.3) (3.0)(5) (14.3) (11.5) (2.1) (13.6)
---------------------------------- -------- ----------- -------- -------- ----------- --------
Profit after tax 37.5 13.3 50.8 35.7 11.6 47.3
---------------------------------- -------- ----------- -------- -------- ----------- --------
Notes
1. GBP0.7 million in respect of a contingent consideration in
ERI (2022: reduction of GBP0.6 million).
2. GBP1.0 million relates to costs associated with business
combinations (2022: GBP0.2 million).
3. GBP1.9 million re-measurement of future consideration
relating to the business combination of ClimaRad (2022: GBP1.0
million).
4. GBP1.6 million loss was due to the fair value measurement of
financial instruments (2022: gain of GBP1.4 million).
5. GBP3.0 million tax adjustment relates to the tax on the adjusted items above.
Currency impacts
Aside from Sterling, the Group's key trading currencies for our
non-UK businesses are the Euro, representing approximately 25% of
Group revenues, Swedish Krona (approximately 9%), New Zealand
Dollar (approximately 7%) and Australian Dollar (approximately 7%).
We do not hedge the translational exchange risk arising from the
conversion of the results of overseas subsidiaries, although we do
denominate some of our borrowings in our non-sterling trading
currencies, which offsets some of the translation risk relating to
net assets.
The average rates of sterling versus our principal non-sterling
trading currencies are shown in the table below.
Average Average
rate rate
2023 2022 Movement
Euro 1.149 1.182 (2.8)%
Swedish Krona 12.802 12.229 4.7%
New Zealand
Dollar 1.965 1.952 0.7%
Australian
Dollar 1.803 1.825 (1.2)%
--------------- -------- -------- --------
The Group had Euro denominated borrowings as at 31 July 2023 of
GBP79.4 million (2022: GBP71.9 million) and Swedish Krona
denominated borrowings of GBPnil million (2022: GBP2.4 million).
The Sterling value of these foreign currency denominated loans, net
of cash, increased by GBP1.3 million as a result of exchange rate
movements (2022: decreased by GBP0.9 million).
Transactional foreign exchange exposures arise principally in
the form of US Dollar denominated purchases from our suppliers in
China. We aim to purchase a substantial proportion of our expected
requirements approximately twelve months forward, and as such, we
have forward currency contracts in place for approximately 85% of
our forecast average forward requirements for the 2024 financial
year (approximately $19 million).
Earnings per share
Our adjusted basic earnings per share for the year was 25.8
pence (2022: 24.0 pence) and our reported basic earnings per share
for the year was 19.0 pence (2022: 18.1 pence).
High returns on invested capital (ROIC)
Strong profit and cash generation is a key focus of Volution's
financial model, and we look to allocate our capital to investments
(both organic and inorganic) that further underpin the future
growth of the business and create value for our shareholders.
Over recent years we have reported our return on acquisition
investment (ROAI) KPI, measuring our success at generating returns
from our inorganic growth strategy. We are pleased to introduce a
new financial KPI in this year's annual report, Return on Invested
Capital (ROIC), measuring the returns for the Group as a whole.
We believe ROIC is not only helpful for shareholders to monitor
the returns generated by Volution on an ongoing basis, but another
metric which helps demonstrate the underlying quality of the
business versus our global peers and its ability to generate
shareholder value.
Whilst we will continue to monitor and report the performance of
individual acquisitions as they reach the three-year measurement
point, we believe that the ROIC will provide a more comprehensive
overall measure and so this will be adopted in our KPIs.
The Group's ROIC (pre-tax) for the financial year was 27.4%,
measured as adjusted operating profit for the year divided by
average net assets adding back net debt, acquisition related
liabilities, and historic goodwill and acquisition related
amortisation charges (net of the associated deferred tax). The
measure also excludes the goodwill and intangible assets arising
from the original transaction that created the Group when it was
bought out via a leveraged buy-out transaction by private equity
house Towerbrook Capital Partners in 2012.
Our ROIC of 27.4% for financial year 2023 is slightly lower than
the prior year's 28.8%, as a result of the timing of acquisitions.
Our main acquisition in the prior year (ERI) generated 11 months of
operating profit in 2022 relative to two-thirds of the associated
invested capital being included in the net assets as a result of
our three-point average methodology. By contrast our two
acquisitions in this financial year were both towards the end of
the financial year and so had a very modest contribution to our
operating profit. The timing impact of the acquisitions was partly
offset by a benefit from both organic growth and operating margin
expansion.
Importantly, our ROIC of 27.4% is significantly ahead of the
Group's estimated pre-tax Weighted Average Cost of Capital of 10%.
Volution continues to have exciting plans for growth, both through
organic and inorganic investment. Although, at the time of entry to
the Group, acquisitions will be dilutive to ROIC, our track record
of improving the returns post acquisition, coupled with continued
organic growth, mean we are confident of maintaining Group ROIC
above 20% over the medium term while continuing to invest to grow
the business.
Taxation
Our reported effective tax rate for the year was 23.4% (2022:
24.4%), the decrease of 1.0pp was driven by favourable business mix
effect, increase in Patent Box relief and lower non-deductible
items, offsetting the impact of the increase in UK Corporation Tax
rate from 19% to 25%. The reduction in effective adjusted tax rate
to 21.9% (2022: 22.4%) is lower than the reduction in reported
effective tax rates primarily due to non-taxable contingent
consideration. Our reported effective tax rate for the year was
23.2% (2022: 24.4%).
We expect our medium-term underlying effective tax rate to be in
the range of 22% to 25% of the Group's adjusted profit before tax,
depending on the business mix and the profile of acquisitions.
Capital allocation priorities
Volution aims to deliver strong financial returns and cash
generation. Our capital allocation priorities, which remain
unchanged, are:
-- Investment for organic growth, including through capital
expenditure, product development and innovation, and ongoing
development of our people
-- Value-adding acquisitions; and
-- Regular returns to shareholders through dividends.
Strong cash generation and balance sheet
Volution's asset light business model and operations are
strongly cash generative. Underpinned by a working capital inflow
of GBP2.8 million in the year (2022: outflow of GBP17.7 million),
the Group delivered a strong adjusted operating cash flow of
GBP75.7 million (2022: GBP50.4 million). Group cash conversion,
defined as adjusted operating cash flow as a percentage of adjusted
earnings before interest, tax and amortisation (see the glossary of
terms in note 25 to the consolidated financial statements) was 106%
(2022: 76%).
A summary of the year's cash flow is shown in the tables below,
with the principal outflows being in relation to acquisitions
(GBP30.7 million including acquisitions and associated fees),
dividends (GBP14.8 million) and tax paid (GBP14.0 million). Capital
expenditure for the year was GBP7.8 million (2022: GBP6.9 million),
focussed on new product development spend of GBP2.3 million and
operational and capacity enhancements totalling GBP1.2 million in
North Macedonia (ERI), Bosnia (ClimaRad) and the UK. There was also
further investment in IT and our vehicle fleets which we are
progressively transitioning to hybrid vehicles.
Net debt at 31 July 2023 was GBP89.3 million (2022: GBP85.8
million), and is set out in the table below. With low leverage
(excluding finance leases) of 0.8x at 31 July 2023 (2022: 0.9x),
our strong balance sheet and reliable high levels of cash
conversion give us significant capability for future growth
investment.
Value adding acquisitions
Acquisition spend in the year net of cash acquired was GBP29.7
million (2022: GBP24.4 million). We completed two acquisitions,
Ventilairsec (VMI) in France, and I-Vent based in Slovenia and
Croatia. We agreed a further acquisition, DVS Proven Systems (New
Zealand), which was completed shortly after the year end.
VMI, based in Nantes, France, was acquired for an initial
consideration of GBP7.9 million (EUR9.0 million), net of cash
acquired. VMI designs and manufactures a range of residential
ventilation systems focused on a low carbon positive input
ventilation approach. The acquisition provides Volution with direct
access to the French market, one of the largest ventilation markets
in Europe. The VMI acquisition included an earn-out payment of up
to EUR5 million Euros, which will be calculated on the basis of the
EBITDA for the year ended 31 December 2023.
In June 2023 we completed the acquisition of I-Vent for an
initial consideration of GBP21.7 million (EUR25.2 million), net of
cash acquired, with further contingent consideration of up to EUR15
million based on stretching growth targets for the financial
results for the three years up to and including 31 December 2025.
I-Vent, based in Slovenia and Croatia, designs, manufactures and
supplies residential ventilation systems, primarily focused on
decentralised heat recovery.
Movements in net debt position for the year ended 31 July
2023 2022
GBPm GBPm
---------------------------------------------------- ------ ------
Opening net debt 1 August (85.8) (79.2)
---------------------------------------------------- ------ ------
Movements from normal business operations:
Adjusted EBITDA1 79.3 73.9
Movement in working capital 2.8 (17.7)
Share-based payments 1.4 1.1
Capital expenditure (7.8) (6.9)
---------------------------------------------------- ------ ------
Adjusted operating cash flow: 75.7 50.4
- Interest paid net of interest received (3.7) (2.7)
- Income tax paid (14.0) (12.2)
- Cash flow relating to business combination costs (1.0) (0.2)
- Dividend paid (14.8) (13.3)
- Purchase of own shares (1.8) (1.9)
- FX on foreign currency loans/cash (3.1) 0.7
- Issue costs of new borrowings (0.3) (0.3)
- IFRS 16 payment of lease liabilities (4.5) (3.2)
- IFRS 16 decrease/(increase) in lease liabilities (6.2) 0.5
Movements from business combinations:
- Business combination of subsidiaries, net of cash
acquired (29.7) (16.5)
- Contingent consideration relating to Ventair from
operating activities - (3.2)
- Contingent consideration relating to Ventair from
investing activities - (0.9)
- Business combination of subsidiaries, debt repaid (0.1) (3.8)
---------------------------------------------------- ------ ------
Closing net debt 31 July (89.3) (85.8)
---------------------------------------------------- ------ ------
(1) A reconciliation of the Group's reported profit before tax
to adjusted measures of performance are shown in detail in note 2
to the consolidated financial statements.
Reconciliation of Bank debt to Net debt
2023 2022
GBPm GBPm
--------------------------------------- ------ ------
Bank debt (79.4) (74.3)
--------------------------------------- ------ ------
Cash 21.3 13.5
--------------------------------------- ------ ------
Net debt (excluding lease liabilities) (58.1) (60.8)
--------------------------------------- ------ ------
Lease liabilities (31.2) (25.0)
--------------------------------------- ------ ------
Net debt (89.3) (85.8)
--------------------------------------- ------ ------
Reconciliation of adjusted operating cash flow
2023 2022
GBPm GBPm
----------------------------------------------------- ----- -----
Net cash flow generated from operating activities 68.5 41.7
----------------------------------------------------- ----- -----
Net capital expenditure (7.8) (6.9)
UK and overseas tax paid 14.0 12.2
Contingent consideration relating to the acquisition
of Ventair - 3.2
Cash flow relating to business combination costs 1.0 0.2
----------------------------------------------------- ----- -----
Adjusted operating cash flow 75.7 50.4
----------------------------------------------------- ----- -----
Funding facilities and liquidity
In December 2022, the Group exercised the option to extend its
GBP150 million multicurrency "Sustainability Linked Revolving
Credit Facility", together with an additional accordion of up to
GBP30 million, by a period of twelve months. The maturity date of
the facility is now 2 December 2025.
As at 31 July 2023, the Group had GBP70.6 million of undrawn,
committed bank facilities (2022: GBP75.7 million) and GBP21.3
million of cash and cash equivalents on the consolidated statement
of financial position (2022: GBP13.5 million).
Returns to shareholders
Adjusted earnings per share increased by 7.5% to 25.8 pence
(2022: 24.0 pence). The Board is recommending a final dividend of
5.5 pence which, together with an interim dividend paid of 2.5
pence per share, gives a total dividend per share of 8.0 pence
(2022: 7.3 pence), up 9.6% in total. The final dividend is subject
to approval by shareholders at the AGM on 13 December 2023 and, if
approved, will be paid on 19 December 2023.
Employee Benefit Trust
During the year GBP1.8 million of non-recourse loans (2022:
GBP1.9 million) were made to the Volution Employee Benefit Trust
for the purpose of purchasing shares in Volution Group plc to meet
the Company's obligations under its share incentive plans. The
Volution Employee Benefit Trust acquired 550,000 shares at an
average price of GBP3.33 per share in the period (2022: GBP4.10)
and 920,250 shares (2022: 402,407 shares) were released by the
trustees with a value of GBP3,018,420 (2022: GBP1,114,667). The
Volution Employee Benefit Trust has been consolidated into our
results and the shares purchased have been treated as treasury
shares deducted from shareholders' funds.
Andy O'Brien
Chief Financial Officer
4 October 2023
Directors' responsibilities in respect of the financial
statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face. We consider the annual report and
financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
The contents of this announcement, including the responsibility
statement above, have been extracted from the annual report and
accounts for the year ended 31 July 2023 which may be found at
www.volutiongroupplc.com and will be despatched to shareholders on
or around 19 October 2023. Accordingly this responsibility
statement makes reference to the financial statements of the
Company and the group and to the relevant narrative appearing in
that annual report and accounts rather than the contents of this
announcement.
On behalf of the Board
Ronnie George Andy O'Brien
Chief Executive Officer Chief Financial Officer
4 October 2023 4 October 2023
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2023
2023 2022
Notes GBP000 GBP000
---------------------------------------------------- ----- --------- ---------
Revenue from contracts with customers 3 328,008 307,701
Cost of sales (169,149) (160,603)
---------------------------------------------------- ----- --------- ---------
Gross profit 158,859 147,098
Administrative and distribution expenses (100,095) (96,693)
---------------------------------------------------- ----- --------- ---------
Operating profit before separately disclosed
items 58,764 50,405
Costs of business combinations (1,032) (215)
Contingent consideration (640) 598
---------------------------------------------------- ----- --------- ---------
Operating profit 57,092 50,788
Finance revenue 5 65 1,333
Finance costs 5 (6,513) (3,369)
Re-measurement of financial liabilities 54 (583)
Re-measurement of future consideration (1,879) (955)
---------------------------------------------------- ----- --------- ---------
Profit before tax 48,819 47,214
---------------------------------------------------- ----- --------- ---------
Income tax 6 (11,437) (11,542)
---------------------------------------------------- ----- --------- ---------
Profit after tax 37,382 35,672
---------------------------------------------------- ----- --------- ---------
Attributable to the shareholders 37,373 35,610
Attributable to non-controlling interest 9 62
Other comprehensive income
Other comprehensive income that may be reclassified
to profit or loss in subsequent periods:
Exchange differences arising on translation
of foreign operations (3,015) 1,944
Loss on currency loans relating to the net
investment in foreign operations (1,309) (1,744)
---------------------------------------------------- ----- --------- ---------
Other comprehensive (loss)/income for the
year (4,324) 200
---------------------------------------------------- ----- --------- ---------
Total comprehensive income for the year 33,058 35,872
---------------------------------------------------- ----- --------- ---------
Attributable to the shareholders 33,049 35,810
Attributable to non-controlling interest 9 62
Earnings per share
Basic earnings per share 7 19.0p 18.1p
Diluted earnings per share 7 18.7p 17.8p
---------------------------------------------------- ----- --------- ---------
Consolidated Statement of Financial Position
At 31 July 2023
2023 2022
Notes GBP000 GBP000
-------------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 8 29,448 28,235
Right-of-use assets 17 29,902 23,567
Intangible assets - goodwill 9 164,873 142,661
Intangible assets - others 11 83,863 87,592
-------------------------------------- ----- --------- ---------
308,086 282,055
-------------------------------------- ----- --------- ---------
Current assets
Inventories 13 58,980 57,151
Trade and other receivables 14 52,336 57,526
Other financial assets 15 - 1,091
Cash and short-term deposits 21,244 13,543
-------------------------------------- ----- --------- ---------
132,560 129,311
-------------------------------------- ----- --------- ---------
Total assets 440,646 411,366
-------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 16 (47,108) (48,837)
Refund liabilities (9,817) (10,268)
Income tax (4,662) (5,564)
Other financial liabilities 18 (330) -
Interest-bearing loans and borrowings 19 (3,754) (3,599)
Provisions 20 (1,791) (1,684)
-------------------------------------- ----- --------- ---------
(67,462) (69,952)
-------------------------------------- ----- --------- ---------
Non-current liabilities
Interest-bearing loans and borrowings 19 (116,704) (104,433)
Other financial liabilities 18 (16,597) (14,132)
Provisions 20 (301) (319)
Deferred tax liabilities 21 (13,337) (14,222)
-------------------------------------- ----- --------- ---------
(146,939) (133,106)
-------------------------------------- ----- --------- ---------
Total liabilities (214,401) (203,058)
-------------------------------------- ----- --------- ---------
Net assets 226,245 208,308
-------------------------------------- ----- --------- ---------
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (2,390) (3,574)
Capital reserve 93,855 93,855
Share-based payment reserve 5,584 5,058
Foreign currency translation reserve (1,225) 3,099
Retained earnings 116,894 96,247
-------------------------------------- ----- --------- ---------
Total shareholders' equity 226,245 208,212
-------------------------------------- ----- --------- ---------
Non-controlling interest - 96
-------------------------------------- ----- --------- ---------
Total equity 226,245 208,308
-------------------------------------- ----- --------- ---------
The consolidated financial statements of Volution Group plc
(registered number: 09041571) were approved by the Board of
Directors and authorised for issue on 4 October 2023.
On behalf of the Board
Ronnie George Andy O'Brien
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 July 2023
Foreign
Share-based currency Non-
Share Share Treasury Capital payment translation Retained Shareholders' controlling Total
capital premium shares reserve reserve reserve earnings equity interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 31 July 2021 2,000 11,527 (3,739) 93,855 4,090 2,899 74,658 185,290 - 185,290
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Profit for the
year - - - - - - 35,610 35,610 62 35,672
Other
comprehensive
income - - - - - 200 - 200 - 200
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Total
comprehensive
income - - - - - 200 35,610 35,810 62 35,872
Acquisition of
businesses - - - - - - - - 34 34
Purchase of own
shares - - (1,900) - - - - (1,900) - (1,900)
Exercise of
share
options - - 2,065 - (1,129) - (749) 187 - 187
Share-based
payment
including tax - - - - 2,097 - - 2,097 - 2,097
Dividends paid
(note 22) - - - - - - (13,272) (13,272) - (13,272)
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 1 August 2022 2,000 11,527 (3,574) 93,855 5,058 3,099 96,247 208,212 96 208,308
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Profit for the
year - - - - - - 37,373 37,373 9 37,382
Other
comprehensive
loss - - - - - (4,324) - (4,324) - (4,324)
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Total
comprehensive
income - - - - - (4,324) 37,373 33,049 9 33,058
Purchase of own
shares - - (1,834) - - - - (1,834) - (1,834)
Exercise of
share
options - - 3,018 - (1,379) - (1,639) - - -
Share-based
payment
including tax - - - - 1,905 - - 1,905 - 1,905
Dividends paid
(note 22) - - - - - - (14,823) (14,823) - (14,823)
Acquisition of
non-controlling
interest - - - - - - (264) (264) (105) (369)
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 31 July 2023 2,000 11,527 (2,390) 93,855 5,584 (1,225) 116,894 226,245 - 226,245
---------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Treasury shares
The treasury shares reserve represents the cost of shares in
Volution Group plc purchased in the market and held by the Volution
Employee Benefit Trust to satisfy obligations under the Group's
share incentive schemes.
Capital reserve
The capital reserve is the difference in share capital and
reserves arising from the use of the pooling of interest method for
preparation of the financial statements in 2014. This is a
non-distributable reserve.
Share-based payment reserve
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to key management
personnel, as part of their remuneration.
Foreign currency translation reserve
Exchange differences arising on translation of the Group's
foreign subsidiaries into GBP are included in the foreign currency
translation reserve. The Group hedges some of its exposure to its
net investment in foreign operations; foreign exchange gains and
losses relating to the effective portion of the net investment
hedge are accounted for by entries made to other comprehensive
income. No hedge ineffectiveness has been recognised in the
statement of comprehensive income for any of the periods
presented.
Retained earnings
The parent company of the Group, Volution Group plc, had
distributable retained earnings at 31 July 2023 of GBP131,795,000
(2022: GBP120,294,000).
Consolidated Statement of Cash Flows
For the year ended 31 July 2023
2023 2022
Notes GBP000 GBP000
------------------------------------------------------ ----- -------- --------
Operating activities
Profit for the year after tax 37,382 35,672
Adjustments to reconcile profit for the year
to net cash flow from operating activities:
Income tax 11,437 11,542
Gain on disposal of property, plant and equipment
and intangible assets - other (17) (51)
Costs of business combinations 1,032 215
Contingent consideration 640 (598)
Cash flows relating to business combination
costs (1,032) (215)
Re-measurement of financial liability relating
to business combination of ClimaRad (54) 583
Re-measurement of future consideration relating
to business combination of ClimaRad 1,879 955
Finance revenue 5 (65) (1,333)
Finance costs 5 6,513 3,369
Share-based payment expense 1,357 1,115
Depreciation of property, plant and equipment 8 4,102 3,816
Depreciation of right-of-use assets 17 3,895 3,612
Amortisation of intangible assets 11 12,574 16,026
Working capital adjustments:
Decrease/(increase) in trade receivables and
other assets 6,925 (6,418)
Decrease/(increase) in inventories 310 (9,805)
Decrease in trade and other payables (4,505) (1,235)
Movement in provisions 89 (242)
------------------------------------------------------ ----- -------- --------
Cash generated by operations 82,462 57,008
------------------------------------------------------ ----- -------- --------
UK income tax paid (4,171) (3,000)
Overseas income tax paid (9,819) (9,155)
Contingent consideration relating to the acquisition
of Ventair 12 - (3,211)
------------------------------------------------------ ----- -------- --------
Net cash flow generated from operating activities 68,472 41,642
------------------------------------------------------ ----- -------- --------
Investing activities
Payments to acquire intangible assets 11 (3,049) (2,238)
Purchase of property, plant and equipment 8 (4,914) (4,773)
Proceeds from disposal of property, plant and
equipment and intangible assets - other 175 179
Business combination of subsidiaries, net of
cash acquired 12 (29,696) (15,996)
Contingent consideration relating to the acquisition
of Air Connection 12 - (476)
Contingent consideration relating to the acquisition
of Ventair 12 - (952)
Interest received 65 4
------------------------------------------------------ ----- -------- --------
Net cash flow used in investing activities (37,419) (24,252)
------------------------------------------------------ ----- -------- --------
Financing activities
Repayment of interest-bearing loans and borrowings (62,240) (33,626)
Repayment of VMI debt acquired (92) -
Repayment of ERI debt acquired - (3,227)
Repayment of ClimaRad vendor loan - (504)
Proceeds from new borrowings 65,950 36,428
Issue costs of new borrowings (300) (330)
Interest paid (3,748) (2,662)
Payment of principal portion of lease liabilities (4,482) (3,202)
Dividends paid (14,823) (13,272)
Purchase of own shares (1,834) (1,900)
------------------------------------------------------ ----- -------- --------
Net cash flow used in financing activities (21,569) (22,295)
------------------------------------------------------ ----- -------- --------
Net increase/(decrease) in cash and cash equivalents 9,484 (4,905)
Cash and cash equivalents at the start of the
year 13,543 19,456
Effect of exchange rates on cash and cash equivalents (1,783) (1,008)
------------------------------------------------------ ----- -------- --------
Cash and cash equivalents at the end of the
year 21,244 13,543
------------------------------------------------------ ----- -------- --------
Volution Group plc (the Company) is a public limited company and
is incorporated and domiciled in the UK (registered number:
09041571). The share capital of the Company is listed on the London
Stock Exchange. The address of its registered office is Fleming
Way, Crawley, West Sussex RH10 9YX.
Notes to the Consolidated Financial Statements
For the year ended 31 July 2023
The preliminary results were authorised for issue by the Board
of Directors on 4 October 2023. The financial information set out
herein does not constitute the Group's statutory consolidated
financial statements for the years ended 31 July 2023 or 2022 but
is derived from those accounts. Statutory consolidated financial
statements for 2023 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
1. Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with UK-adopted international accounting standards
(UK-adopted IAS). The consolidated financial statements have been
prepared under the historical cost convention, except as disclosed
in the accounting policies under the relevant notes.
The preparation of the consolidated financial information in
conformity with IFRS requires the use of certain critical
accounting estimates and requires management to exercise judgement
in the process of applying the Group's accounting policies.
Accounting policies, including critical accounting judgements and
estimates used in the preparation of the financial statements, are
described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and
all values are rounded to the nearest thousand (GBP000), except as
otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 31 July 2023.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee.
Specifically, the Group controls an investee if, and only if,
the Group has:
-- Power over the investee (i.e., existing rights that give it
the current ability to direct the relevant activities of the
investee)
-- Exposure, or rights, to variable returns from its involvement with the investee
-- The ability to use its power over the investee to affect its returns
The Group reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
The financial statements of subsidiaries are prepared for the
same reporting periods using consistent accounting policies. All
intercompany transactions and balances, including unrealised
profits arising from intra-group transactions, have been eliminated
on consolidation.
Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence in the
foreseeable future, assessed for the period up until 31 January
2024.
The financial position of the Group, its cash flows and
liquidity position are set out in the financial statements.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis, the Directors have
considered all of the above factors, including potential scenarios
arising from the political and macroeconomic uncertainty that has
arisen post-Covid and since the invasion of Ukraine early in 2022,
including the actions of central banks in raising interest rates to
curb inflation and the impact that this may have on housing and
construction, and from its other principal risks. Under a severe
but plausible downside scenario, the Group remains within its debt
facilities and the attached financial covenants under the 18 months
from the balance sheet date period of assessment and the Directors
therefore believe, at the time of approving the financial
statements, that the Company is well placed to manage its business
risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised
below.
Our financial position remains robust with committed facilities
totalling GBP150 million, and an accordion of a further GBP30
million, maturing in December 2025.
The financial covenants on these facilities are for leverage
(net debt/adjusted EBITDA) of not more than three times and for
adjusted interest cover of not less than four times.
Our base case scenario has been prepared using robust forecasts
from each of our operating companies, with each considering the
risks and opportunities the businesses face.
We have then applied a severe but plausible downside scenario in
order to model the potential concurrent impact of:
-- a general economic slowdown reducing revenue by 20% compared to plan.
-- supply chain difficulties or input price increases reducing
gross profit margin by 10%; and
-- a significant acquisition increasing debt but with no positive cash flow contribution.
A reverse stress test scenario has also been modelled which
shows a revenue contraction of c37% with no mitigations would be
required to breach covenants, which is considered extremely remote
in likelihood of occurring. Mitigations available within the
control of management include reducing discretionary capex and
discretionary indirect costs.
Over the short period of our Climate Change assessment (aligned
to our Going Concern assessment) we have concluded that there is no
material adverse impact of Climate Change and hence have not
included any impacts in either our base case or downside scenarios
of our Going Concern assessment. We have not experienced material
adverse disruption during periods of adverse or extreme weather in
recent years and we would not expect this to occur to a material
level over the period of our Going Concern assessment.
The Directors have concluded that the results of the scenario
testing combined with the significant liquidity profile available
under the revolving credit facility confirm that there is no
material uncertainty in the use of the going concern
assumption.
Non-controlling interest
Non-controlling interests are identified separately from the
Group's equity. Non-controlling interests consist of the amount of
those interests at the date of the business combination and the
non-controlling interest's share of changes in equity since that
date. Non-controlling interests are measured at the non-controlling
interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling
interest at a future date, the non-controlling interest will be
recognised on the business combination, and subsequently when the
obligation to purchase liability is recognised the amount is
reclassified from equity to a financial liability and the
non-controlling interest is derecognised. Any difference between
the carrying value of the non-controlling interest and the
liability is adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the Group financial statements, the results and
financial position of each entity are expressed in GBP (GBP000),
which is the functional currency of the Company and the
presentational currency of the Group.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rate
of exchange prevailing at the dates of the transactions. At the end
of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rate prevailing at the end of
the reporting period.
Non-monetary items that are measured at historical cost in a
foreign currency are translated using the exchange rate at the date
of the initial transaction. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rate
at the date the fair value was determined.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are expressed in GBP using exchange rates prevailing at
the end of the reporting period. Income and expenses are translated
at the average exchange rate for the period. Exchange differences
arising are classified as other comprehensive income and are
transferred to the foreign currency translation reserve. All other
translation differences are taken to profit and loss with the
exception of differences on foreign currency borrowings to the
extent that they are used to finance or provide a hedge against
Group equity investments in foreign operations, in which case they
are taken to other comprehensive income together with the exchange
difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The key judgement, apart from any involving estimations, that
has the most significant effect on the amounts recognised in the
financial statements is the identification of the Group's cash
generating units (CGUs) and the grouping of those CGUs for goodwill
impairment testing purposes. This judgement could have a
significant impact on the carrying value of goodwill and other
intangible assets in the financial statements. Hence, the Directors
have concluded that this is a key judgment under the scope of
paragraph 122 of IAS1. Further details can be found in note 10 -
impairment assessment of goodwill and note 11 - intangible assets
other.
The Directors have concluded that there are no major sources of
estimation uncertainty that have a significant risk of resulting in
a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Other judgements and estimates, which the directors do not
believe to be critical accounting judgements or key sources of
estimation uncertainty under the scope of paragraph 122 or 125 of
IAS1, but for which additional disclosures have been made in the
relevant notes include i) estimates and assumptions made related
to: impairment assessment of goodwill (note 9), intangible assets -
other (note 11), ii) estimates and assumptions relating to refund
liabilities arising from retrospective volume rebates (note 3), and
iii) financial liabilities relating to the business combination of
ClimaRad, ERI, VMI and I-Vent (notes 12 and 18).
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial
year are described under the relevant notes.
The Group based its assumptions and estimates on parameters
available when these financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur. The Directors have considered a range
of potential scenarios arising from the current macroeconomic
uncertainty and how these have impacted the significant judgements,
estimates and assumptions in these financial statements is included
under the relevant notes.
In preparing the financial statements, we have considered the
impact of climate change, particularly in the context of the risks
identified in the TCFD disclosure. Whilst we do not currently
expect any material short and medium term impacts from climate
change under the scenarios we have considered, the risks over the
long term are more uncertain. However, there have been no risks of
climate change identified which would have a material impact on the
judgements and estimates made in preparation of these financial
statements.
These are short term (less than 5 years) which is the period
over which we prepare detailed bottom up plans, medium term (5-15
years) which is the period over which our continued strategy to
provide healthy air sustainability under our three strategic
pillars will be delivered including specific targets to reduce
carbon, and long term (beyond 15 years) which is the period aligned
to the useful economic life of some of our property assets and
where the potential impacts under different scenarios are less
certain. These different periods have allowed us to assess risks
and opportunities that are immediate and well defined to those
which may arise over time but which are much less certain.
Separately disclosed items
The Group discloses some items on the face of the consolidated
statement of comprehensive income by virtue of their nature, size
or incidence to allow a better understanding of the underlying
trading performance of the Group. These separately disclosed items
include, but are not limited to, significant restructuring costs
and significant business combination and related integration and
earn-out costs.
New standards and interpretations
The standards or interpretations listed below have become
effective since 1 August 2022 for annual periods beginning on or
after 1 January 2022.
The following amendments became effective as at 1 January
2022:
-- Amendments to IFRS3 "Reference to the Conceptual Framework"
-- Amendments to IAS 16 "Property, plant and equipment - proceeds before intended use"
-- Amendments to IAS37 "Onerous Contracts - Costs of Fulfilling a Contract"
-- Amendments to IFRS 9 "Financial Instruments - Fees in the '10
per cent' test for derecognition of financial liabilities"
At the date of authorisation of these Consolidated Financial
Statements, the Group has not applied the following new and revised
IFRS Standards that have been issued but are not yet effective.
The following amendments became effective as at 1 January
2023:
-- Amendments to IAS 12 "Deferred tax related to assets and
liabilities arising from a single transaction"
-- Amendments to IAS 8 "Definition of accounting estimates"
-- Amendments to IAS 1 and IFRS Practice Statement 2 - "Disclosure of accounting policies"
The following amendments became effective as at 1 January
2024:
-- Amendments to IAS 1 "Classification of liabilities as current or non-current"
-- Amendments to IFRS 16 "Lease liability in a sale and leaseback"
-- Amendments to IAS 1 "Non-current liabilities with covenants"
-- Amendments to IAS 7 "Supplier Finance Arrangements"
The Directors do not expect that the adoption of the Standards
listed above will have a material impact on the Consolidated
Financial Statements of the Group in future periods.
2. Adjusted earnings
The Board and key management personnel use some alternative
performance measures to track and assess the underlying performance
of the business. These measures include adjusted operating profit
and adjusted profit before tax. These measures are deemed more
helpful as they remove items that do not reflect the day-to-day
trading operations of the business and therefore their exclusion is
relevant to an assessment of the day-to-day trading operations, as
opposed to overall annual business performance. Such alternative
performance measures are not defined terms under IFRS and may not
be comparable with similar measures disclosed by other companies.
Likewise, these measures are not a substitute for IFRS measures of
profit. A reconciliation of these measures of performance to the
corresponding reported figure is shown below.
2023 2022
GBP000 GBP000
---------------------------------------------------------- ------- -------
Profit after tax 37,382 35,672
Add back:
Contingent consideration 640 (598)
Cost of business combinations 1,032 215
Re-measurement of future consideration relating to
the business combination of ClimaRad 1,879 955
Net gain on financial instruments at fair value 1,599 (1,329)
Amortisation and impairment of intangible assets acquired
through business combinations 11,088 14,485
Tax effect of the above (2,788) (2,085)
---------------------------------------------------------- ------- -------
Adjusted profit after tax 50,832 47,315
Add back:
Adjusted tax charge 14,225 13,627
---------------------------------------------------------- ------- -------
Adjusted profit before tax 65,057 60,942
Add back:
Interest payable on bank loans, lease liabilities
and amortisation of financing costs 4,914 3,369
Re-measurement of financial liabilities relating to
the business combination of ClimaRad (54) 583
Finance revenue (65) (4)
---------------------------------------------------------- ------- -------
Adjusted operating profit 69,852 64,890
Add back:
Depreciation of property, plant and equipment 4,102 3,816
Depreciation of right-of-use assets 3,895 3,612
Amortisation of development costs, software and patents 1,486 1,541
---------------------------------------------------------- ------- -------
Adjusted EBITDA 79,335 73,859
---------------------------------------------------------- ------- -------
For definitions of terms referred to above see note 25, Glossary
of terms.
3. Revenue from contracts with customers
Accounting policy
Revenue from contracts with customers is recognised when the
control of goods or services is transferred to the customer at an
amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods and services. The
performance obligation is satisfied upon delivery of the equipment
and payment is generally due within 30 to 90 days from
delivery.
Sale of products
Revenue from the sale of products is recognised at the point in
time when control of the asset is transferred to the buyer, usually
on the delivery of the goods.
The Group considers whether there are other promises in the
contract that are separate performance obligations to which a
portion of the transaction price needs to be allocated (e.g.
warranties and volume rebates). In determining the transaction
price for the sale of ventilation products, the Group considers the
effects of variable consideration (if any).
Volume rebates
The Group provides retrospective volume rebates to certain
customers once the quantity of products purchased during the period
exceeds a threshold specified in the contract. To estimate the
variable consideration for the expected future rebates, the Group
applies the expected value method for contracts with more than one
volume threshold. The Group then applies the requirements on
constraining estimates of variable consideration and recognises a
liability for the expected future rebates.
Before including any amount of variable consideration in the
transaction price, the Group considers whether the amount of
variable consideration is constrained. The Group determined that
the estimates of variable consideration are not constrained, other
than with respect to volume rebates, based on its historical
experience, business forecasts and the current economic conditions.
In addition, the uncertainty on the variable consideration will be
resolved within a short timeframe.
Warranty obligations
The Group typically provides warranties for general repairs of
defects that existed at the time of sale. These assurance-type
warranties are accounted for under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Refer to the accounting policy
on warranty provisions in note 20, Provisions.
Installation services
The Group provides installation services that are bundled
together with the sale of equipment to a customer.
Contracts for bundled sales of equipment and installation
services are comprised of two performance obligations because the
promises to transfer equipment and provide installation services
are capable of being distinct and separately identifiable.
Accordingly, the Group allocates the transaction price based on the
relative stand-alone selling prices of the equipment and the
cost-plus margin approach for installation services.
The Group recognises revenue from installation services at a
point in time after the service has been performed; this is because
installation of the ventilation equipment is generally over a small
timeframe, usually around one to two days. Revenue from the sale of
the ventilation equipment is recognised at a point in time,
generally upon delivery of the equipment.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for
goods and services transferred to the customer. A contract asset is
recognised when the Group transfers goods or services to the
customer before the customer pays consideration. There is no
contract asset included within the statement of financial position
as revenue is recognised at a point in time, after installation.
Consideration is recognised immediately as a receivable and is
unconditional (only the passage of time is required before payment
of consideration is due). The Group's accounting policy on trade
receivables is detailed in note 14.
Contract liabilities
There are no contract liabilities recognised in the comparative
period or in the financial year ended 31 July 2023.
Estimates and assumptions
Liabilities arising from retrospective volume rebates
The Group has a number of customer rebate agreements that are
recognised as a reduction from sales (collectively referred to as
rebates). Rebates are based on an agreed percentage of revenue,
which increases with the level of revenue achieved. These
agreements typically are not coterminous with the Group's year end
and some of the amounts payable are subject to confirmation after
the reporting date, of the total rebates, approximately GBP3.6m is
non-coterminous with the year end and is based on actual revenue
recorded to 31 July 2023 however, final rebate % are dependent on
estimated performance to December based on the bottoms up board
approved budget and managements experience and knowledge of the
customers. Estimates are made as to which % band each customer will
fall into.
At the reporting date, the Directors make estimates of the
amount of rebate that will become payable by the Group under these
agreements; to estimate the variable consideration for the expected
future rebates, the Group applies the expected value method for
contracts with more than one volume threshold. Where the respective
customer has been engaged with the Group for a number of years,
historical settlement trends are also used to assist in ensuring an
appropriate estimate is recorded at the reporting date and that
appropriate internal approvals and reviews take place before
rebates are recorded.
Given that the rebate provision represents an estimate within
the financial statements, there is a risk that the Directors'
estimate of the potential liability may be incorrect. However, the
Directors do not consider it reasonably possible, at the balance
sheet date, that this was a major source of estimation uncertainty
that could have a significant risk of resulting in a material
adjustment to the liabilities recorded under the scope of paragraph
125 of IAS1.
Revenue recognised in the statement of comprehensive income is
analysed below:
2023 2022
GBP000 GBP000
-------------------------------------------- ------- -------
Sale of goods 320,808 301,097
Installation services 7,200 6,604
-------------------------------------------- ------- -------
Total revenue from contracts with customers 328,008 307,701
-------------------------------------------- ------- -------
2023 2022
Market sectors GBP000 GBP000
-------------------------------------------- ------- -------
UK
Residential 89,680 75,040
Commercial 30,151 31,031
Export 12,119 11,670
OEM (Torin-Sifan) 24,120 25,908
-------------------------------------------- ------- -------
Total UK 156,070 143,649
-------------------------------------------- ------- -------
Nordics(1) 49,126 53,303
Central Europe(2) 75,410 65,128
-------------------------------------------- ------- -------
Total Continental Europe 124,536 118,431
-------------------------------------------- ------- -------
Total Australasia 47,402 45,621
-------------------------------------------- ------- -------
Total revenue from contracts with customers 328,008 307,701
-------------------------------------------- ------- -------
Notes
1. Included in the Nordics revenue is GBPnil of inorganic
revenue from the business combination of Klimatfabriken and Rtek
(2022: GBP3,514,000 of inorganic revenue from the business
combination of Klimatfabriken and Rtek).
2. Included in the Central Europe revenue is GBP4,530,000 of
inorganic revenue from the business combination of ERI, VMI and
I-Vent (2022: GBP18,950,000 of inorganic revenue from the business
combination of ClimaRad BV and ERI).
4. Segmental analysis
Accounting policy
The method of identifying reporting segments is based on
internal management reporting information that is regularly
reviewed by the chief operating decision maker, which is considered
to be the Chief Executive Officer of the Group.
In identifying its operating segments, management follows the
Group's market sectors. These are UK including OEM (Torin-Sifan),
Continental Europe (Nordics and Central Europe) and
Australasia.
The measure of revenue reported to the chief operating decision
maker to assess performance is total revenue for each operating
segment. The measure of profit reported to the chief operating
decision maker to assess performance is adjusted operating profit
(see note 25 for definition) for each operating segment. Gross
profit and the analysis below segment profit is additional
voluntary information and not "segment information" prepared in
accordance with IFRS 8.
Finance revenue and costs are not allocated to individual
operating segments as the underlying instruments are managed on a
Group basis.
Total assets and liabilities are not disclosed as this
information is not provided by operating segment to the chief
operating decision maker on a regular basis.
Transfer prices between operating segments are on an arm's
length basis on terms similar to transactions with third
parties.
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2023 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
124,536
External customers 156,070 (1) 47,402 - 328,008
Inter-segment 24,908 38,779 188 (63,875) -
--------------------------------------- ------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 180,978 163,315 47,590 (63,875) 328,008
--------------------------------------- ------- ----------- ----------- ------------- ------------
Gross profit 74,254 60,616 23,989 - 158,859
--------------------------------------- ------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 39,562 31,707 12,568 (4,502) 79,335
Depreciation and amortisation
of development costs, software
and patents (4,277) (3,283) (1,239) (684) (9,483)
--------------------------------------- ------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 35,285 28,424 11,329 (5,186) 69,852
Amortisation of intangible
assets acquired through business
combinations (7,163) (3,338) (587) - (11,088)
Business combination-related
operating costs - - - (1,672) (1,672)
--------------------------------------- ------- ----------- ----------- ------------- ------------
Operating profit/(loss) 28,122 25,086 10,742 (6,858) 57,092
Unallocated expenses
Net finance cost - - (90) (6,358) (6,448)
Re-measurement of future consideration - - - (1,879) (1,879)
Re-measurement of financial
liability - - - 54 54
--------------------------------------- ------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 28,122 25,086 10,652 (15,041) 48,819
--------------------------------------- ------- ----------- ----------- ------------- ------------
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2022 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
External customers 143,649 118,431 (1) 45,621 - 307,701
Inter-segment 20,318 30,038 179 (50,535) -
--------------------------------------- ------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 163,967 148,469 45,800 (50,535) 307,701
--------------------------------------- ------- ----------- ----------- ------------- ------------
Gross profit 62,397 61,984 22,456 - 146,837
--------------------------------------- ------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 33,052 32,810 11,236 (3,239) 73,859
Depreciation and amortisation
of development costs, software
and patents (3,799) (3,201) (1,292) (677) (8,969)
--------------------------------------- ------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 29,253 29,609 9,944 (3,916) 64,890
Amortisation of intangible
assets acquired through business
combinations (6,978) (6,365) (1,142) - (14,485)
Business combination-related
operating costs - - - 383 383
--------------------------------------- ------- ----------- ----------- ------------- ------------
Operating profit/(loss) 22,275 23,244 8,802 (3,533) 50,788
Unallocated expenses
Net finance cost - - 99 (2,135) (2,036)
Re-measurement of future consideration - - - (955) (955)
Re-measurement of financial
liability - - - (583) (583)
--------------------------------------- ------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 22,275 23,244 8,901 (7,206) 47,214
--------------------------------------- ------- ----------- ----------- ------------- ------------
Note
1. Included in the Continental Europe revenue is GBP4,530,000 of
inorganic revenue from the business combination of ERI, VMI and
I-Vent (2022: GBP22,464,00000 of inorganic revenue from the
business combination of ClimaRad BV, Klimatfabriken, Rtek and
ERI).
Geographic information
2023 2022
Revenue from external customers by customer destination GBP000 GBP000
-------------------------------------------------------- ------- -------
United Kingdom 132,507 119,371
Europe (excluding United Kingdom and Sweden) 119,289 112,886
Sweden 23,328 24,431
Australasia 47,668 45,780
Rest of the world 5,216 5,233
-------------------------------------------------------- ------- -------
Total revenue from contracts with customers 328,008 307,701
-------------------------------------------------------- ------- -------
2023 2022
Non-current assets excluding deferred tax GBP000 GBP000
---------------------------------------------- ------- -------
United Kingdom 121,458 117,704
Europe (excluding United Kingdom and Nordics) 106,502 79,408
Nordics 33,901 35,930
Australasia 46,225 49,013
---------------------------------------------- ------- -------
Total 308,086 282,055
---------------------------------------------- ------- -------
Information about major customers
Annual revenue from no individual customer accounts for more
than 10% of Group revenue in either the current or prior year.
5. Finance revenue and costs
Accounting policy
Finance revenue
Finance revenue is recognised as interest accrues using the
effective interest method. The effective interest rate is the rate
that discounts estimated future cash receipts through the expected
life of the financial instrument to its net carrying amount.
Net financing costs
Net financing costs comprise interest income on funds invested,
gains/losses on the disposal of financial instruments, changes in
the fair value of financial instruments, interest expense on
borrowings and foreign exchange gains/losses. Interest income and
expense is recognised as it accrues in the statement of
comprehensive income using the effective interest method.
2023 2022
GBP000 GBP000
------------------------------------------------ ------- -------
Finance revenue
Net gain on financial instruments at fair value - 1,329
Interest receivable 65 4
------------------------------------------------ ------- -------
Total finance revenue 65 1,333
------------------------------------------------ ------- -------
Finance costs
Net loss on financial instruments at fair value (1,599) -
Interest payable on bank loans (3,087) (1,828)
Amortisation of finance costs (452) (442)
Lease interest (635) (520)
Other interest (740) (579)
------------------------------------------------ ------- -------
Total finance costs (6,513) (3,369)
------------------------------------------------ ------- -------
Net finance costs (6,448) (2,036)
------------------------------------------------ ------- -------
The net loss or gain on financial instruments at each year-end
date relates to the measurement of fair value of the financial
derivatives and the Group recognises any finance losses or gains
immediately within net finance costs. The fair value of the Group's
financial derivatives can be found in note 18.
6. Income tax
Accounting policy
Current income tax assets and liabilities are measured at the
amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted at the reporting date.
The Group's deferred tax policy can be found in note 21.
(a) Income tax charges against profit for the year
2023 2022
GBP000 GBP000
------------------------------------------------------ ------- -------
Current income tax
Current UK income tax expense 4,694 4,897
Current foreign income tax expense 8,887 9,075
Tax credit relating to the prior year (638) (673)
------------------------------------------------------ ------- -------
Total current tax 12,943 13,299
------------------------------------------------------ ------- -------
Deferred tax
Origination and reversal of temporary differences (2,023) (2,851)
Effect of changes in the tax rate (223) 200
Tax charge relating to the prior year 740 894
------------------------------------------------------ ------- -------
Total deferred tax (1,506) (1,757)
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 11,437 11,542
------------------------------------------------------ ------- -------
(b) Income tax recognised in equity for the year
2023 2022
GBP000 GBP000
------------------------------------------------------- ------- -------
Increase in deferred tax asset on share-based payments (343) (685)
------------------------------------------------------- ------- -------
Net tax credit reported in equity (343) (685)
------------------------------------------------------- ------- -------
(c) Reconciliation of total tax
2023 2022
GBP000 GBP000
----------------------------------------------------------------- ------- -------
Profit before tax 48,819 47,214
Profit before tax multiplied by the standard rate of corporation
tax in the UK of 21.00% (2022: 19.00%) 10,252 8,971
Adjustment in respect of previous years 102 221
Expenses not deductible for tax purposes 1,473 1,161
Effect of changes in the tax rate (see explanation below) (164) 200
Non-taxable income - (391)
Higher overseas tax rate 184 1,602
Patent box (410) (330)
Other - 108
----------------------------------------------------------------- ------- -------
Net tax charge reported in the consolidated statement of
comprehensive income 11,437 11,542
----------------------------------------------------------------- ------- -------
Our reported effective tax rate for the period was 23.4% (2022:
24.4%). Our underlying effective tax rate, on adjusted profit
before tax, was 21.9% (2022: 22.4%).
On 24 May 2021, legislation was passed which substantively
enacted an increase in UK corporation tax rate from 19% to 25% from
April 2023. Deferred tax on the balance sheet at 31 July 2023 was
therefore measured at 25%.
The higher overseas tax rates relate to the Group's profits from
subsidiaries which are subject to tax jurisdictions with a higher
rate of tax compared to the standard rate of corporation tax in the
UK.
We expect our medium-term reported effective tax rate to be in
the range of 29% to 35% of the Group's reported profit before tax
and our underlying effective tax rate to be in the range of 22% to
25% of the Group's adjusted profit before tax.
7. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of any dilutive
potential ordinary shares into ordinary shares. There are 3,365,875
dilutive potential ordinary shares at 31 July 2023 (2022:
2,966,484).
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2023 2022
Year ended 31 July GBP000 GBP000
----------------------------------------------- ------- -------
Profit attributable to ordinary equity holders 37,382 35,672
----------------------------------------------- ------- -------
Number Number
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for basic
earnings per share 197,131,650 197,522,143
Effect of dilution from:
Share options 2,658,209 2,525,713
Weighted average number of ordinary shares for diluted
earnings per share 199,789,859 200,047,856
------------------------------------------------------- ----------- -----------
Earnings per share
Basic 19.0p 18.1p
Diluted 18.7p 17.8p
------------------------------------------------------- ----------- -----------
2023 2022
Year ended 31 July GBP000 GBP000
-------------------------------------------------------- ------- -------
Adjusted profit attributable to ordinary equity holders 50,832 47,315
-------------------------------------------------------- ------- -------
Number Number
-------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for adjusted
basic earnings per share 197,131,650 197,522,143
Effect of dilution from:
Share options 2,658,209 2,525,713
Weighted average number of ordinary shares for adjusted
diluted earnings per share 199,789,859 200,047,856
-------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Basic 25.8p 24.0p
Diluted 25.4p 23.7p
-------------------------------------------------------- ----------- -----------
The weighted average number of ordinary shares has declined as a
result of treasury shares held by the Volution Employee Benefit
Trust (EBT) during the year. The shares are excluded when
calculating the reported and adjusted EPS.
Adjusted profit attributable to ordinary equity holders has been
reconciled in note 2, Adjusted earnings.
See note 25, Glossary of terms, for an explanation of the
adjusted basic and diluted earnings per share calculation.
8. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost, net of
accumulated depreciation and impairment losses, if any. Such cost
includes the cost of replacing part of the property, plant and
equipment; when significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such
parts as individual assets with specific useful lives and
depreciates them accordingly. All other repair and maintenance
costs are recognised in the statement of comprehensive income as
incurred.
Depreciation is charged so as to write off the cost or valuation
of assets, except freehold land, over their estimated useful lives
using the straight line method. The estimated useful lives,
residual values and depreciation methods are reviewed at each year
end, with the effect of any changes in estimates accounted for on a
prospective basis.
The following useful lives are used in the calculation of
depreciation:
Buildings - 30-50 years
Plant and machinery - 5-10 years
Fixtures, fittings, tools, equipment and vehicles - 4-10 years
The gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the disposal proceeds and the carrying amount of
the asset and is recognised in the statement of comprehensive
income as part of administrative expenses.
The Group's impairment policy can be found in note 11.
Fixtures,
fittings,
Freehold tools,
land and Plant and equipment
buildings machinery and vehicles Total
2023 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2022 17,480 17,022 12,923 47,425
On business combinations - 514 - 514
Additions 486 2,110 2,318 4,914
Disposals (18) (185) (655) (858)
Net foreign currency exchange differences 61 (21) (506) (466)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2023 18,009 19,440 14,080 51,529
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2022 5,011 6,493 7,686 19,190
Charge for the year 527 1,619 1,956 4,102
Disposals (56) (129) (524) (709)
Net foreign currency exchange differences (46) (124) (332) (502)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2023 5,436 7,859 8,786 22,081
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2023 12,573 11,581 5,294 29,448
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
Freehold tools,
land and Plant and equipment
buildings machinery and vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2021 15,370 13,840 11,544 40,754
On business combinations 2,046 1,739 92 3,877
Additions 341 2,237 2,195 4,773
Disposals - (531) (812) (1,343)
Net foreign currency exchange differences (277) (263) (96) (636)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 17,480 17,022 12,923 47,425
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2021 4,542 5,795 6,509 16,846
Charge for the year 517 1,339 1,960 3,816
Disposals - (523) (709) (1,232)
Net foreign currency exchange differences (48) (118) (74) (240)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 5,011 6,493 7,686 19,190
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2022 12,469 10,529 5,237 28,235
------------------------------------------ ---------- ---------- ------------- -------
9. Intangible assets - goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group's cash generating units
that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group
are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently
if there is an indication of impairment. Impairment of goodwill is
determined by assessing the recoverable amount of the cash
generating unit to which the goodwill relates. Where the
recoverable amount of the cash generating unit is less than the
carrying value of the cash generating unit to which goodwill has
been allocated, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
See note 11 for the Group's impairment assessment.
Goodwill GBP000
------------------------------------------ -------
Cost and net book value
At 1 August 2021 137,710
On the business combination of ERI 5,134
Net foreign currency exchange differences (183)
------------------------------------------ -------
At 31 July 2022 142,661
On the business combination of VMI 4,072
On the business combination of I-Vent 19,813
On the business combination of ClimaRad 126
Net foreign currency exchange differences (1,799)
------------------------------------------ -------
At 31 July 2023 164,873
------------------------------------------ -------
10. Impairment assessment of goodwill
Accounting policy
Intangible assets, including goodwill, that have an indefinite
useful life or intangible assets not ready to use are not subject
to amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount,
where the recoverable amount is the higher of the asset's fair
value less costs of disposal and value in use.
Goodwill acquired through business combinations has been
allocated, for impairment testing purposes, to a group of cash
generating units (CGUs). These grouped CGUs are: UK Ventilation,
Central Europe, Nordics, Australasia and OEM. This is also the
level at which management is monitoring the value of goodwill for
internal management purposes.
Judgements and estimates
Impairment of goodwill
The Group's impairment test for goodwill is based on a value in
use calculation using a discounted cash flow model. The test aims
to ensure that goodwill is not carried at a value greater than the
recoverable amount, which is considered to be the higher of fair
value less costs of disposal and value in use.
The identification of the Group's cash generating units (CGUs)
used for impairment testing is considered a critical judgement
within the scope of paragraph 122 of IAS1. Management has reviewed
the Group's assets and cash inflows and identified the lowest
aggregation of assets that generate largely independent cash
inflows.
The cash flows are derived from the business plan for the
following three years. The recoverable amount is very sensitive to
the discount rate used for the discounted cash flow model as well
as assumptions and estimates of expected future cash flows and the
growth rate used for extrapolation purposes. The current economic
and political uncertainty has increased the level of estimation
uncertainty as the impact on countries and markets continues to be
uncertain; however, the Group has modelled a range of scenarios to
consider the impact on the carrying value of its assets as
described in the going concern statement in the risk management and
principal risks section.
We have tested the sensitivity of our headroom calculations in
relation to the above assumptions and estimates and the Group does
not consider that changes in these assumptions that could cause the
carrying value of the CGUs to materially exceed their recoverable
value are reasonably possible, and hence are not major sources of
estimation uncertainties under the scope of paragraph 125 of
IAS1.
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2023 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 18,637 63,109 25,673
CGU value in use headroom(1) 166,576 12,382 47,383 28,396 27,730
----------------------------- ------------ -------------- ------- ------- -----------
As at 31 July 2022 calculated headroom was:
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2022 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 19,022 35,165 27,474
CGU value in use headroom(1) 152,066 21,821 71,987 61,517 32,446
----------------------------- ------------ -------------- ------- ------- -----------
Note
1. Headroom is calculated by comparing the value in use (VIU) of
a group of CGUs to the carrying amount of its asset, which includes
the net book value of fixed assets (tangible and intangible),
goodwill and operating working capital (current assets and
liabilities).
Impairment review
Under IAS 36 Impairment of Assets, the Group is required to
complete a full impairment review of goodwill, which has been
performed using a value in use calculation. A discounted cash flow
(DCF) model was used, taking a period of five years, which has been
established using pre-tax discount rates of 13.8% to 16.8% (2022:
12.1% to 15.7%) over that period. In all CGUs it was concluded that
the carrying amount was in excess of the value in use and all CGUs
had positive headroom.
When assessing for impairment of goodwill, we have considered
the impact of climate change, particularly in the context of the
risks and opportunities identified in the TCFD disclosure in the
Annual Report. We have not identified any material short and
medium-term impacts from climate change that would impact the
carrying value of goodwill. Over the long term, the risks and
opportunities are more uncertain and we will continue to assess
these risks at each reporting period.
Assumptions in the value in use calculation
The calculation of value in use for all CGUs is most sensitive
to the following assumptions:
-- specific growth rates have been used for each of the CGUs for
the five-year forecast period based on historical growth rates and
market expectations;
-- long-term growth rates of 2% (2022: 2%) for all CGUs have
been applied to the period beyond which budgets and forecasts do
not exist, based on historical macroeconomic performance and
projections for the geographies in which the CGUs operate; and
-- discount rates reflect the current market assessment of the
risks specific to each operation. The pre-tax discount rates used
for each CGU are: UK Ventilation: 14.2% (2022: 13.0%); OEM
(Torin-Sifan): 15.4% (2022: 14.0%); Nordics: 13.8% (2022: 12.1%);
Central Europe: 14.4% (2022: 12.2%); and Australasia: 16.8% (2022:
15.7%).
The value in use headroom for each CGU has been set out above.
We have tested the sensitivity of our headroom calculations in
relation to the above assumptions and the Group does not consider
that changes in these assumptions that could cause the carrying
value of the CGUs to materially exceed their recoverable value are
reasonably possible.
11. Intangible assets - other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values
can be measured reliably. The cost of such intangible assets is
their fair value at the business combination date.
The fair value of patents, trademarks and customer base acquired
and recognised as part of a business combination is determined
using the relief-from-royalty method or multi-period excess
earnings method.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure
on an individual project is recognised as an intangible asset when
the Company can demonstrate: the technical feasibility of
completing the intangible asset so that it will be available for
use or sale; its intention to complete and its ability to use or
sell the asset; how the asset will generate future economic
benefits; the availability of resources to complete the asset; and
the ability to reliably measure the expenditure during
development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight
line basis over their estimated useful lives as follows:
Development costs - 10 years
Software costs - 5-10 years
Customer base - 5-15 years
Trademarks - 15-25 years
Patents/technology - 5-25 years
Other - 5 years
The estimated useful life and amortisation methods are reviewed
at the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
Judgements and estimates
Impairment of other intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts
of its other intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss,
if any.
Where it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of
the cash generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash generating
units, or otherwise they are allocated to the smallest group of
cash generating units for which a reasonable and consistent
allocation basis can be identified. The identification of the
Group's cash generating units (CGUs) used for impairment testing is
considered a critical judgement within the scope of paragraph 122
of IAS1.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. Impairment losses are immediately recognised in
the statement of comprehensive income.
The assumptions and sensitivities in respect of the Group's
other intangible assets are included in note 11 and are not
considered major sources of estimation uncertainties under the
scope of paragraph 125 of IAS1.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2023 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2022 7,956 9,835 160,014 54,105 3,364 1,163 236,437
Additions 2,310 568 171 - - - 3,049
On business combinations 2,466 1 1,175 1,626 - - 5,268
Disposals - (50) - - - - (50)
Net foreign currency
exchange differences - (77) (519) (471) 53 - (1,014)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2023 12,732 10,277 160,841 55,260 3,417 1,163 243,690
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2022 2,601 6,282 114,120 22,678 2,001 1,163 148,845
Charge for the
year 702 1,080 5,507 5,037 248 - 12,574
Disposals - (41) - - - - (41)
Net foreign currency
exchange differences (37) (163) (698) (583) (70) - (1,551)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2023 3,266 7,158 118,929 27,132 2,179 1,163 159,827
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2023 9,466 3,119 41,912 28,128 1,238 - 83,863
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Included in software costs are assets under construction of
GBP54,000 (2022: GBP48,000), which are not amortised. Included in
development costs are assets under construction of GBP1,505,000
(2022: GBP1,501,000), which are not amortised.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2021 6,783 9,698 147,582 51,447 3,410 1,163 220,083
Additions 1,245 238 755 - - - 2,238
On business combinations 6 39 12,957 2,933 19 - 15,954
Disposals (25) (122) - - - - (147)
Net foreign currency
exchange differences (53) (18) (1,280) (275) (65) - (1,691)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2022 7,956 9,835 160,014 54,105 3,364 1,163 236,437
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2021 2,039 5,503 106,202 18,127 1,676 1,163 134,710
Charge for the
year 620 932 9,207 4,868 399 - 16,026
Disposals (8) (122) - - - - (130)
Net foreign currency
exchange differences (50) (31) (1,289) (317) (74) - (1,761)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2022 2,601 6,282 114,120 22,678 2,001 1,163 148,845
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2022 5,355 3,553 45,894 31,427 1,363 - 87,592
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
The remaining amortisation periods for acquired intangible
assets at 31 July 2023 are as follows:
Patent/
Customer technology/
base Trademark other
---------------------------------------------- -------- --------- ------------
Volution Holdings Limited and its subsidiaries 1 year 15 years -
Fresh AB and its subsidiaries - 10 years -
PAX AB and PAX Norge AS - 11 years -
inVENTer GmbH 1 year 12 years 12 years
Ventilair Group International BVBA and its
subsidiaries 1 year 3 years -
Energy Technique Limited and its subsidiaries 2 years 14 years -
NVA Services Limited and its subsidiaries 4 years 9 years -
Breathing Buildings Limited 4 years 9 years -
VoltAir System AB 10 years 10 years -
Simx Limited 11 years 21 years -
Oy Pamon Ab 6 years 16 years 6 years
Air Connection ApS 6 years - -
Nordic Line ApS - - -
Ventair Pty Limited 8 years 18 years -
ClimaRad BV 7 years 14 years -
Nordiska Klimatfabriken AB 4 years 9 years -
Energent Oy 4 years 9 years -
ERI 9 years 19 years -
VMI 8 years 10 years 5 years
I-Vent - 20 years -
---------------------------------------------- -------- --------- ------------
Individually material intangible assets with definite useful
lives:
Remaining
Carrying amortisation
amount period
2023 2023
GBP000 Years
---------------------------------------------- -------- -------------
Customer base
Simx Limited 6,102 11 years
ClimaRad BV 10,462 7 years
ERI 10,517 9 years
---------------------------------------------- -------- -------------
Trademark
Volution Holdings Limited and its subsidiaries 16,885 15 years
ClimaRad BV 2,671 14 years
ERI 2,663 19 years
---------------------------------------------- -------- -------------
12. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition
method. The cost of the business combination is measured as the
aggregate of the consideration transferred, measured at fair value
on the date of the business combination. The business combination
costs incurred are expensed.
When the Group acquires a business it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions at the business combination
date.
Contingent consideration resulting from business combinations is
accounted for at fair value at the acquisition date as part of the
business combination. When the contingent consideration meets the
definition of a financial liability, it is subsequently re-measured
to fair value at each reporting date, with changes in fair value
recognised in profit or loss. The determination of fair value is
based on discounted cash flows. The key estimates and assumptions
used in determining the discounted cash flows take into
consideration the probability of meeting each performance target
and a discount factor.
The Group did not consider it reasonably possible, at the
balance sheet date, that this was a major source of estimation
uncertainty that could have a significant risk of resulting in a
material adjustment to the liabilities recorded and hence is not
within the scope of paragraph 125 of IAS 1.
Goodwill is initially recognised at cost, being the excess of
the aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash generating
units (CGUs) that are expected to benefit from the combination,
irrespective of whether assets or liabilities of the business
combination are assigned to those units.
Non-controlling interests are identified separately from the
Group's equity. Non-controlling interests consist of the amount of
those interests at the date of the business combination and the
non-controlling interest's share of changes in equity since that
date. Non-controlling interests are measured at the non-controlling
interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling
interest at a future date, the non-controlling interest will be
recognised on the business combination, and subsequently when the
obligation to purchase liability is recognised the amount is
reclassified from equity to a financial liability and the
non-controlling interest is derecognised. Any difference between
the carrying value of the non-controlling interest and the
liability is adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Business combinations in the year ended 31 July 2023
VMI
On 4 April 2023, Volution Group plc acquired the entire share
capital of Ventilairsec (VMI), a company based in Nantes, France.
VMI designs and manufactures a range of residential ventilation
systems focused on a low carbon positive input ventilation
technology known as "VMI". The acquisition provides Volution with
direct access to the French market, one of the largest ventilation
markets in Europe. The acquisition of VMI is in line with the
Group's strategy to grow by selectively acquiring value-adding
businesses in new and existing markets and geographies.
Total consideration for the purchase of the entire issued share
capital was GBP7.9 million (EUR9.0 million), net of cash acquired,
with a further contingent cash consideration of up to EUR5 million.
Contingent consideration was assessed based on the current estimate
of the future performance of the business for the year ended 31
December 2023 as GBPnil, with a range from EUR0 - EUR5,000,000,
based on EBITDA performance from EUR1,600,000 to EUR3,000,000 for
year ended 31 December 2023. If actual EBITDA for the year ended 31
December 2023 varies by 10% from the estimate, the contingent
consideration would vary by approximately GBP600,000. The fair
value of contingent consideration is calculated by estimating the
future cash flows for the company based on management's knowledge
of the business and how the current economic environment is likely
to impact performance.
Transaction costs relating to professional fees associated with
the business combination in the year ended 31 July 2023 were
GBP532,000 and have been expensed as cost of business combinations
separately disclosed on the face of the consolidated statement of
comprehensive income above operating profit.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets 1,217 2,369 3,586
Property, plant and equipment 224 - 224
Inventory 1,180 - 1,180
Trade and other receivables 1,445 - 1,445
Trade and other payables (1,314) 213 (1,101)
Debt (894) - (894)
Deferred tax liabilities - (592) (592)
Cash and cash equivalents 1,371 - 1,371
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 3,229 1,990 5,219
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 4,072
------------------------------------- ---------- ------------ ----------
Discharged by:
Cash consideration 9,291
------------------------------------- ---------- ------------ ----------
Goodwill of GBP4,072,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the business combination and the experience and skill of the
acquired workforce. The fair value of the acquired trade name and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP1,445,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
VMI generated revenue of GBP2,057,000 and profit after tax of
GBP71,000 in the period from the business combination to 31 July
2023 that are included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2022, the Group's
revenue would have been GBP8,272,000 higher and the profit after
tax from continuing operations would have been GBP796,000 higher
than reported.
I-Vent
On 22 June 2023, Volution Group plc acquired the entire share
capital of I-Vent, a company based in Slovenia and Croatia. I-Vent
designs, manufactures and supplies residential ventilation systems,
primarily focused on decentralised heat recovery. The acquisition
of I-Vent is in line with the Group's strategy to grow by
selectively acquiring value-adding businesses in new and existing
markets and geographies.
Total consideration for the purchase of the entire issued share
capital was GBP21.7 million (EUR25.2 million), net of cash
acquired, with a further contingent cash consideration of up to
EUR15.0 million. Contingent consideration was assessed based on the
current estimate of the future performance of the business as
GBPnil, with a range and performance thresholds for each of 3 years
of; year 1 range from EUR0 - EUR3,000,000, based on EBITDA
performance from EUR3,600,000 to EUR4,080,000 for year ended
31/12/23, year 2 range from EUR0 - EUR5,000,000, based on EBITDA
performance from EUR4,080,000 to EUR5,280,000 for year ended
31/12/24, and year 3 range from EUR0 - EUR7,000,000, based on
EBITDA performance from EUR5,280,000 to EUR7,5000,000 for year
ended 31/12/25. If actual EBITDA for each year varies by 10% from
the estimate, the contingent consideration would vary by
approximately GBP3,000,000. The fair value of contingent
consideration is calculated by estimating the future cash flows for
the company based on management's knowledge of the business and how
the current economic environment is likely to impact
performance.
Transaction costs relating to professional fees associated with
the business combination in the year ended 31 July 2023 were
GBP98,000 and have been expensed as cost of business combinations
separately disclosed on the face of the consolidated statement of
comprehensive income above operating profit.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets 55 1,626 1,681
Property, plant and equipment 290 - 290
Inventory 959 - 959
Trade and other receivables 290 - 290
Trade and other payables (1,011) - (1,011)
Deferred tax liabilities - (372) (372)
Cash and cash equivalents 3,099 - 3,099
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 3,682 1,254 4,936
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 19,813
------------------------------------- ---------- ------------ ----------
Discharged by:
Cash consideration 24,749
------------------------------------- ---------- ------------ ----------
Goodwill of GBP19,813,000 reflects certain intangible assets
that cannot be individually separated and reliably measured due to
their nature. These items include the value of expected synergies
arising from the business combination, the experience and skill of
the acquired workforce, and from the access to this important and
growing market that the acquisition allows. The fair value of the
acquired trade name and customer base was identified and included
in intangible assets.
The gross amount of trade and other receivables is GBP290,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
I-Vent generated revenue of GBP621,000 and profit after tax of
GBP31,000 in the period from the business combination to 31 July
2023 that are included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2022, the Group's
revenue would have been GBP8,143,000 higher and the profit after
tax from continuing operations would have been GBP2,198,000 higher
than reported.
Business combinations in the year ended 31 July 2022
ERI
On 9 September 2021, Volution Group acquired ERI Corporation, a
leading manufacturer and supplier of low-carbon, energy efficient
heat exchanger cells, for an initial consideration of EUR20.0
million with a further contingent cash consideration of up to
EUR12.4 million based on stretching targets for the financial
results for the year ending 31 December 2024. The acquisition of
ERI Corporation is in line with the Group's strategy to grow by
selectively acquiring value-adding businesses in new and existing
markets and geographies.
ERI designs and manufactures a range of innovative and highly
efficient aluminium heat exchanger cells for use primarily in
commercial heat recovery ventilation systems. Products are
manufactured in ERI's modern, high quality production facility in
Bitola, North Macedonia, and are supplied to heat recovery and air
handling unit manufacturers predominantly in Europe, including
existing Volution Group companies. The business combination
encompasses 100% of the issued share capital of ERI Corporation DOO
Bitola (North Macedonia), ERI Corporation S.R.L. (Italy) and Energy
Recovery Industries Trading SLU (Spain) and 51% of the issued share
capital of Energy Recovery Industries Corporation Ltd (UK). For the
financial year ended 31 December 2020, ERI generated revenue of
EUR11.3 million and profit before tax of EUR2.0 million.
The fair value of the net assets acquired were as follows:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------------------- ---------- ------------ ----------
Intangible assets 418 15,536 15,954
Property, plant and equipment 3,130 747 3,877
Inventory 2,276 - 2,276
Trade and other receivables 3,626 - 3,626
Trade and other payables (2,343) - (2,343)
Deferred tax liabilities - (1,589) (1,589)
Bank debt (3,227) - (3,227)
Cash and cash equivalents 896 - 896
-------------------------------------------- ---------- ------------ ----------
Total identifiable net assets 4,776 14,694 19,470
-------------------------------------------- ---------- ------------ ----------
Non-controlling interest in ERI UK (34)
-------------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 5,134
-------------------------------------------- ---------- ------------ ----------
Discharged by:
Cash consideration (including deferred cash
consideration) 16,892
Contingent consideration 7,678
-------------------------------------------- ---------- ------------ ----------
Goodwill of GBP5,134,000 reflects certain intangibles that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the business combination and the experience and skill of the
acquired workforce. The fair value of the acquired trademark and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP3,626,000.
All of the trade receivables are expected to be collected in full.
Transaction costs relating to professional fees associated with the
business combination in the period ended 31 July 2022 were
GBP126,000 and have been expensed as cost of business combinations
separately disclosed on the face of the consolidated statement of
comprehensive income above operating profit.
ERI generated revenue of GBP15,215,000 and profit after tax of
GBP2,642,000 in the period from acquisition to 31 July 2022 that
are included in the consolidated statement of comprehensive income
for this reporting period. If the combination had taken place at 1
August 2021, the Group's revenue would have been GBP309,231,000 and
the profit before tax from continuing operations would have been
GBP47,559,000.
Cash outflows arising from business combinations are as
follows:
2023 2022
GBP000 GBP000
-------------------------------------- ------- -------
VMI
Cash consideration 9,291 -
Less: cash acquired with the business (1,371) -
I-Vent
Cash consideration 24,749 -
Less: cash acquired with the business (3,099) -
ClimaRad
Cash consideration1 126 -
ERI
Cash consideration - 16,892
Less: cash acquired with the business - (896)
Ventair
Deferred cash consideration paid - 4,163
Air Connection
Deferred cash consideration paid - 476
-------------------------------------- ------- -------
Total 29,696 20,635
-------------------------------------- ------- -------
Note:
1. During the year Volution Group plc purchased a small
proportion of shares holding of ClimaRad for GBP126,000.
Operating cash flows - cost of business combinations:
2023 2022
GBP000 GBP000
------------------------------------------------- ------- -------
VMI 532 -
I-Vent 98 -
DVS 207 -
ERI - 126
Other potential or aborted business combinations 195 89
------------------------------------------------- ------- -------
Total 1,032 215
------------------------------------------------- ------- -------
13. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable
value. The cost of raw materials is purchase cost on a first in,
first out basis. The cost of work in progress and finished goods
includes the cost of direct materials and labour and an appropriate
portion of fixed and variable overhead expenses based on normal
operating capacity but excludes borrowing costs.
Net realisable value represents the estimated selling price for
inventories less all estimated costs of completion and costs to
sell.
2023 2022
GBP000 GBP000
------------------------------------ ------- -------
Raw materials and consumables 27,566 24,247
Work in progress 3,242 3,523
Finished goods and goods for resale 28,172 29,381
------------------------------------ ------- -------
58,980 57,151
------------------------------------ ------- -------
During 2023, GBP970,000 (2022: GBP865,000) was recognised as
cost of sales for inventories written off in the year.
Inventories are stated net of an allowance for excess, obsolete
or slow-moving items which totalled GBP5,634,000 (2022:
GBP5,473,000). This provision was split amongst the three
categories: GBP3,187,000 (2022: GBP2,926,000) for raw materials and
consumables; GBP111,000 (2022: GBP146,000) for work in progress;
and GBP2,336,000 (2022: GBP2,401,000) for finished goods and goods
for resale.
14. Trade and other receivables
Accounting policy
Trade and other receivables are recognised when it is probable
that a future economic benefit will flow to the Group. Trade and
other receivables are carried at original invoice or contract
amount less any provisions for discounts and expected credit
losses. Provisions are made where there is evidence of a risk of
non-payment taking into account ageing, previous experience and
general economic conditions.
Allowance for expected credit losses
Allowance for expected credit losses is measured at an amount
equal to lifetime expected credit losses (ECLs). For trade
receivables the Group applies a simplified approach in calculating
ECLs. Trade receivables have been grouped based on historical
credit risk characteristics and the number of days from date of
invoice. The expected loss rates are calculated using the provision
matrix approach.
Trade receivables are categorised by common risk characteristics
that are representative of the customers' abilities to pay all
amounts due in accordance with the contractual terms. The provision
matrix is determined based on historical observed default rates
over the expected life of the trade receivables and is adjusted for
forward-looking estimates.
Rebates receivable
The Group has a number of supplier rebate agreements that are
recognised as a reduction of cost of sales (collectively referred
to as rebates). Rebates are based on an agreed percentage of
purchases, which will increase with the level of purchases made.
These agreements typically are not coterminous with the Group's
year end and some of the amounts payable are subject to
confirmation after the reporting date.
2023 2022
GBP000 GBP000
----------------------------------- ------- -------
Trade receivables 44,968 53,431
Allowance for expected credit loss (521) (772)
----------------------------------- ------- -------
44,447 52,659
Other debtors 4,323 2,069
Prepayments 3,566 2,798
----------------------------------- ------- -------
Total 52,336 57,526
----------------------------------- ------- -------
Movement in the allowance for expected credit losses is set out
below:
2023 2022
GBP000 GBP000
---------------------------- ------- -------
At the start of the year (772) (553)
Charge for the year (39) (231)
Amounts utilised 292 19
Foreign currency adjustment (2) (7)
---------------------------- ------- -------
At the end of the year (521) (772)
---------------------------- ------- -------
Gross trade receivables are denominated in the following
currencies:
2023 2022
GBP000 GBP000
------------------- ------- -------
Sterling 25,361 30,639
US Dollar 723 677
Euro 8,165 9,665
Swedish Krona 2,713 3,216
New Zealand Dollar 2,946 3,073
Australian Dollar 3,914 4,262
Other 1,146 1,899
------------------- ------- -------
Total 44,968 53,431
------------------- ------- -------
Net trade receivables are aged as follows:
2023 2022
GBP000 GBP000
------------------------------ ------- -------
Neither past due nor impaired 40,547 41,297
Past due but not impaired
Overdue 0-30 days 2,500 5,273
Overdue 31-60 days 598 2,283
Overdue 61-90 days 349 932
Overdue more than 90 days 453 2,874
------------------------------ ------- -------
Total 44,447 52,659
------------------------------ ------- -------
The credit quality of trade receivables that are neither past
due nor impaired is assessed by reference to external credit
ratings where available; otherwise, historical information relating
to counterparty default rates is used. The Group continually
assesses the recoverability of trade receivables and the level of
provisioning required.
Trade receivables are non-interest bearing and are generally on
terms of 30 to 90 days.
15. Other financial assets
2023 2022
Current Current
GBP000 GBP000
----------------------------------- --------- --------
Financial assets
Foreign exchange forward contracts - 1,091
----------------------------------- --------- --------
Total - 1,091
----------------------------------- --------- --------
16. Trade and other payables
2023 2022
GBP000 GBP000
---------------------------------------- ------- -------
Trade payables 23,059 27,715
Social security and staff welfare costs 1,929 1,737
Accrued expenses 22,120 19,385
---------------------------------------- ------- -------
Total 47,108 48,837
---------------------------------------- ------- -------
Trade payables are non-interest bearing and are normally settled
on 60-day terms.
17. Leases
Group as a lessee
Accounting policy
The Group leases a range of assets including property, plant and
equipment and vehicles. Leases of property generally have lease
terms of up to 20 years, plant and machinery between three and six
years and motor vehicles and other equipment between two and five
years.
Right-of-use assets are initially measured at cost, and
subsequently at cost less any accumulated depreciation and
impairment losses and adjusted for certain re-measurements of the
lease liability. The cost of right-of-use assets includes the
amount of lease liabilities recognised, initial direct costs
incurred, restoration costs and lease payments made at or before
the commencement date less any lease incentives received. The
right-of-use assets are depreciated on a straight line basis over
the shorter of their estimated useful life and the lease term.
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is re-measured if there is a
modification, a change in the lease term, a change in the lease
payments (e.g. changes to future payments resulting from a change
in an index or rate used to determine such lease payments) or a
change in the assessment of an option to purchase the underlying
asset. The Group's lease liabilities are included in
interest-bearing loans and borrowings.
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e. those leases
that have a lease term of twelve months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets
are recognised as expense on a straight line basis over the lease
term.
Set out below are the carrying amounts of right-of-use assets
recognised and movements during the year:
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2023 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2022 29,069 327 3,289 32,685
Additions 2,003 38 1,376 3,417
Remeasurement 4,223 - - 4,223
Disposals - - (65) (65)
Expiration of leases (156) (93) (110) (359)
Net foreign currency exchange differences 1,602 (206) 193 1,589
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2023 36,741 66 4,683 41,490
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2022 7,320 271 1,527 9,118
Charge for the period 3,286 33 576 3,895
Disposals - - (15) (15)
Expiration of leases (156) (93) (110) (359)
Net foreign currency exchange differences (713) (180) (158) (1,051)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2023 9.737 31 1,820 11,588
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2023 27,004 35 2,863 29,902
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2021 28,073 203 2,819 31,095
Additions 2,657 30 639 3,326
Disposals - (19) (149) (168)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences (27) 191 164 328
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 29,069 327 3,289 32,685
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2021 5,298 139 1,181 6,618
Charge for the period 2,967 99 546 3,612
Disposals - (15) (51) (66)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences 689 126 35 850
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 7,320 271 1,527 9,118
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2022 21,749 56 1,762 23,567
------------------------------------------ ---------- ---------- ------------- -------
Set out below are the carrying amounts of lease liabilities
(included under interest-bearing loans and borrowings) and the
movements during the year:
Fixtures,
fittings,
tools,
equipment
Land and Plant and and
Lease liabilities buildings machinery vehicles Total
2023 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- ---------- -------
At 1 August 2022 23,775 36 1,156 24,967
Additions and remeasurement 6,226 38 1,376 7,640
Early termination - - (65) (65)
Interest expense 599 3 33 635
Lease payments (3,778) (41) (663) (4,482)
Foreign exchange movements 2,352 (3) 164 2,513
---------------------------- ---------- ---------- ---------- -------
At 31 July 2023 29,174 33 2,001 31,208
---------------------------- ---------- ---------- ---------- -------
Analysis
Current 3,599 14 141 3,754
Non-current 25,575 19 1,860 27,454
---------------------------- ---------- ---------- ---------- -------
At 31 July 2023 29,174 33 2,001 31,208
---------------------------- ---------- ---------- ---------- -------
Fixtures,
fittings,
tools,
equipment
Land and Plant and and
Lease liabilities buildings machinery vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ---------- -------
At 1 August 2021 24,281 75 1,073 25,429
Additions to lease liabilities 2,657 30 639 3,326
Early termination - (19) (149) (168)
Interest expense 470 6 44 520
Lease payments (3,362) (61) (300) (3,722)
Foreign exchange movements (271) 5 (151) (418)
------------------------------- ---------- ---------- ---------- -------
At 31 July 2022 23,775 36 1,156 24,967
------------------------------- ---------- ---------- ---------- -------
Analysis
Current 3,116 28 455 3,599
Non-current 20,659 8 701 21,368
------------------------------- ---------- ---------- ---------- -------
At 31 July 2022 23,775 36 1,156 24,967
------------------------------- ---------- ---------- ---------- -------
The following are amounts recognised in the statement of
comprehensive income:
2023 2022
GBP000 GBP000
------------------------------------------------------------ ------- -------
Depreciation expense of right-of-use assets (cost
of sales) 2,507 2,081
Depreciation expense of right-of-use assets (administrative
expenses) 1,388 1,531
Interest expense 635 520
------------------------------------------------------------ ------- -------
18. Other financial liabilities
Foreign
exchange
forward ClimaRad
contracts BV ERI Total
2023 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ---------- -------- ------- -------
Contingent consideration
At 1 August 2022 - 7,052 7,080 14,132
Re-measurement of financial liability - (54) - (54)
Re-measurement of future consideration - 1,879 640 2,519
Foreign exchange 330 - - 330
--------------------------------------- ---------- -------- ------- -------
At 31 July 2023 330 8,877 7,720 16,927
--------------------------------------- ---------- -------- ------- -------
Analysis
Current 330 - - 330
Non-current - 8,877 7,720 16,597
--------------------------------------- ---------- -------- ------- -------
Total 330 8,877 7,720 16,927
--------------------------------------- ---------- -------- ------- -------
Ventair Nordiska
Air Connection Pty ClimaRad Klimatfabriken Energent
ApS Limited BV AB Ab ERI Total
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Contingent consideration
At 1 August 2021 483 4,070 5,514 251 256 - 10,574
Re-measurement of
contractual liability
to purchase remaining
non-controlling interest - - 1,538 - - - 1,538
Further consideration
recognised - - - - - 7,080 7,080
Consideration paid (476) (4,163) - (240) (256) - (5,135)
Foreign exchange (7) 93 - (11) - - 75
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
At 31 July 2022 - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Analysis
Current - - - - - - -
Non-current - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Total - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
The fair value of contingent consideration is calculated by
estimating the future cash flows for the acquired company. These
estimates are based on management's knowledge of the business and
how the current economic environment is likely to impact
performance. The relevant future cash flows are dependent on the
specific terms of the sale and purchase agreement. For Non-current
liabilities due more than one year from the balance sheet date, the
assessed contingent liability is discounted using the discount
rates for the relevant CGU (note 10).
Non-current
On 17 December 2020, Volution Group plc acquired 75% of the
issued share capital of ClimaRad Holding B.V. and subsidiaries
(ClimaRad), a company based in the Netherlands. Total consideration
for the purchase of 75% of the issued share capital was
EUR41,100,000 (GBP37,100,000) with a commitment to purchase the
remaining 25% on or before 28 February 2025. The future
consideration for the purchase of the remaining 25% is set at 25%
of 13 times the EBITDA of ClimaRad for the financial year ended 31
December 2024, plus the non-controlling interest share of profits
earned in the periods up to and including 31 December 2024, and is
subject to a cap of EUR100 million. The expected value of the
future consideration is partially in the form of a vendor loan of
EUR12,000,000 (GBP10,686,000) payable to certain individuals
including the co-founder and management team of ClimaRad on
completion of the purchase of the remaining 25% on or before 28
February 2025, and an additional element of contingent
consideration. The contingent consideration was assessed based on
the current estimate of the future performance of the business as
GBP8,877,000, discounted to present value (2022: GBP7,052,0000). If
actual EBITDA for the year ended 31 December 2024 varies by 10%
from the estimate, the contingent consideration would vary by
approximately GBP1,800,000.
On 9 September 2021, Volution Group plc acquired 100% of the
issued share capital of ERI Corporation DOO Bitola (North
Macedonia), ERI Corporation S.R.L. (Italy) and Energy Recovery
Industries Trading SLU (Spain) and 51% of the issued share capital
of Energy Recovery Industries Corporation Ltd (UK). The contingent
consideration was assessed based on the current estimate of the
future performance of the business as GBP7,720,000 (2022:
GBP7,080,000), with a range from EUR0 - EUR12,400,000, based on
EBITDA performance from EUR4,500,000 to EUR8,500,000 for year ended
31 December 2024. If actual EBITDA for the year ended 31 December
2024 varies by 10% from the estimate, the contingent consideration
would vary by approximately GBP1,500,000.
The foreign exchange forward contracts are carried at their fair
value with the gain or loss being recognised in the Group's
consolidated statement of comprehensive income.
19. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are
initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently
measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or, where
appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
2023 2022
-------------------- --------------------
Current Non-current Current Non-current
GBP000 GBP000 GBP000 GBP000
-------------------------------------- ------- ----------- ------- -----------
Unsecured - at amortised cost
Borrowings under the revolving credit
facility (maturing 2025) - 79,369 - 74,351
Cost of arranging bank loan - (692) - (843)
-------------------------------------- ------- ----------- ------- -----------
- 78,677 - 73,508
-------------------------------------- ------- ----------- ------- -----------
IFRS 16 lease liabilities (note 17) 3,754 27,454 3,599 21,368
Other loans - 802 - -
ClimaRad vendor loan - 9,771 - 9,557
-------------------------------------- ------- ----------- ------- -----------
Total 3,754 116,704 3,599 104,433
-------------------------------------- ------- ----------- ------- -----------
In December 2022, the Group took the option to extend its
multicurrency "Sustainability Linked Revolving Credit Facility",
together with an accordion of up to GBP30 million, by a period of
twelve months; the maturity date is now December 2025.
Revolving credit facility - at 31 July 2023
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ --------------- ----------- -----------------
GBP - 2 December 2025 One payment SONIA + margin%
Euro 79,369 2 December 2025 One payment EURIBOR + margin%
Swedish Krona - 2 December 2025 One payment STIBOR + margin%
-------------- ------------ --------------- ----------- -----------------
Total 79,369
-------------- ------------ --------------- ----------- -----------------
Revolving credit facility - at 31 July 2022
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ --------------- ----------- -----------------
GBP - 2 December 2024 One payment SONIA + margin%
Euro 71,932 2 December 2024 One payment EURIBOR + margin%
Swedish Krona 2,419 2 December 2024 One payment STIBOR + margin%
-------------- ------------ --------------- ----------- -----------------
Total 74,351
-------------- ------------ --------------- ----------- -----------------
The interest rate on borrowings includes a margin that is
dependent on the consolidated leverage level of the Group in
respect of the most recently completed reporting period. For the
year ended 31 July 2023, Group leverage was below 1.0:1 and
therefore the margin will remain at 1.25%.
At 31 July 2023, the Group had GBP70,631,000 (2022:
GBP75,649,000) of its multicurrency revolving credit facility
unutilised, plus an unutilised accordion of up to
GBP30,000.000.
Changes in liabilities arising from financing activities
Changes
Foreign due
1 August exchange to business Interest 31 July
2022 Cash flows movement New leases combination / other 2023
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease
liabilities) 74,351 3,710 1,308 - - - 79,369
Debt related to
the business combination
of VMI (see note
15) - (92) - - 894 - 802
Lease liabilities 24,967 (4,482) 2,513 7,640 - 570 31,208
ClimaRad vendor
loan 9,557 - 214 - - - 9,771
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
Total liabilities
from financing activities 108,875 (864) 4,035 7,640 894 570 121,150
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
Changes
Foreign due
1 August exchange to business Interest 31 July
2021 Cash flows movement New leases combination / other 2022
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease
liabilities) 73,293 2,802 (1,744) - - - 74,351
Debt related to
the business combination
of ERI (see note
12) - (3,227) - - 3,227 - -
Lease liabilities 25,429 (3,202) (418) 3,326 - (168) 24,967
ClimaRad vendor
loan 10,551 (504) (490) - - - 9,557
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
Total liabilities
from financing activities 109,273 (4,131) (2,652) 3,326 3,227 (168) 108,875
----------------------------- -------- ---------- --------- ---------- ------------ -------- -------
20. Provisions
Accounting policy
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions for the expected costs of maintenance guarantees are
charged against profits when products have been invoiced.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation taking into
account the risks and uncertainties surrounding the obligation. The
timings of cash outflows are by their nature uncertain and are
therefore best estimates. Provisions are not discounted as the time
value of money is not considered material.
Provisions for warranties and property dilapidations
Provisions for warranties are made with reference to recent
trading history and historical warranty claim information, and the
view of management as to whether warranty claims are expected.
Warranty provisions are determined with consideration given to
recent customer trading and management experience.
Dilapidation provisions relate to dilapidation charges relating
to leasehold properties. The timing of cash flows associated with
the dilapidation provision is dependent on the timing of the lease
agreement termination.
Product Property
warranties dilapidations Total
2023 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2022 1,540 463 2,003
Arising during the year 1,873 15 1,888
Utilised (1,811) - (1,811)
Foreign currency adjustment 23 (11) 12
---------------------------- ----------- -------------- -------
At 31 July 2023 1,625 467 2,092
---------------------------- ----------- -------------- -------
Analysis
Current 1,381 410 1,791
Non-current 244 57 301
---------------------------- ----------- -------------- -------
Total 1,625 467 2,092
---------------------------- ----------- -------------- -------
Product Property
warranties dilapidations Total
2022 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2021 1,787 458 2,245
Arising during the year 921 9 930
Utilised (1,142) - (1,142)
Foreign currency adjustment (26) (4) (30)
---------------------------- ----------- -------------- -------
At 31 July 2022 1,540 463 2,003
---------------------------- ----------- -------------- -------
Analysis
Current 1,279 405 1,684
Non-current 261 58 319
---------------------------- ----------- -------------- -------
Total 1,540 463 2,003
---------------------------- ----------- -------------- -------
Product warranties
A provision is recognised for warranty costs expected to be
incurred in the following twelve months on products sold during the
year and in prior years. Product warranties are typically one to
two years; however, based on management's knowledge of the
products, claims in relation to warranties after more than twelve
months are rare and highly immaterial.
Property dilapidations
A provision has been recognised for dilapidations relating to
obligations under leases for leasehold buildings and will be
payable at the end of the lease term.
21. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following
exceptions:
-- where the temporary differences arise from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised only to the extent that the
Directors consider it is probable that there will be taxable
profits from which the deductible temporary differences, carried
forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an
undiscounted basis at tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax
rates enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
The carrying amount of deferred tax assets is reviewed at each
reporting date. Deferred tax assets and liabilities are offset only
if a legally enforceable right exists to set off current tax assets
against current tax liabilities, the deferred taxes relate to the
same taxation authority and that authority permits the Group to
make a single net payment.
Deferred tax is charged or credited to other comprehensive
income if it relates to items that are charged or credited to other
comprehensive income. Similarly, deferred tax is charged or
credited directly to equity if it relates to items that are
credited or charged directly to equity.
Management judgement is required to determine the amount of
deferred tax assets that can be recognised, based on the likely
timing and level of future taxable profits together with an
assessment of the effect of future tax planning strategies.
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international
business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and
expense already recorded.
However, the Group does not consider this to be an accounting
judgement, apart from those involving estimations, that has a
significant effect on the amount recognised in the financial
statements under the scope of paragraph 122 of IAS1, nor the
estimates and assumptions to be major sources of estimation
uncertainty that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year under the scope of paragraph 125 of IAS
1.
At 31 July 2023, the Group had not recognised a deferred tax
asset in respect of gross tax losses of GBP5,195,000 (2022:
GBP5,195,000) relating to management expenses, capital losses of
GBP3,975,000 (2022: GBP3,975,000) arising in UK subsidiaries and
gross tax losses of GBPnil (2022: GBPnil) arising in overseas
entities as there is insufficient evidence that the losses will be
utilised. These losses are available to be carried
indefinitely.
At 31 July 2023, the Group had no deferred tax liability (2022:
GBPnil) to recognise for taxes that would be payable on the
remittance of certain of the Group's overseas subsidiaries'
unremitted earnings. Deferred tax liabilities have not been
recognised as the Group has determined that there are no
undistributed profits in overseas subsidiaries where an additional
tax charge would arise on distribution.
(Charged)/ On
1 August credited Credited Translation business 31 July
2022 to income to equity difference combinations 2023
2023 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation in advance of
capital allowances (1,714) (1,180) - (2) - (2,896)
Fair value movements of derivative
financial instruments (182) 305 - - - 123
Customer base, trademark and
patent (16,464) 2,142 - 139 (964) (15,147)
Losses 63 (62) - - - 1
Other temporary differences 1,125 208 - (58) - 1,275
Share based payments 2,950 93 264 - - 3,307
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
Deferred tax liability (14,222) 1,506 264 79 (964) (13,337)
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
(Charged)/ On
1 August credited Credited Translation business 31 July
2021 to income to equity difference combinations 2022
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation in advance of
capital allowances (1,721) 11 - (4) - (1,714)
Fair value movements of derivative
financial instruments 11 (193) - - - (182)
Customer base, trademark and
patent (17,274) 2,409 - (10) (1,589) (16,464)
Losses 407 (344) - - - 63
Other temporary differences 1,246 (176) - 55 - 1,125
Share based payments 2,455 50 445 - - 2,950
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
Deferred tax liability (14,876) 1,757 445 41 (1,589) (14,222)
----------------------------------- -------- ---------- ---------- ----------- ------------- --------
22. Dividends paid and proposed
Accounting policy
Dividends are recognised when they meet the criteria for
recognition as a liability. In relation to final dividends, this is
when the dividend is approved by the Directors in the general
meeting and, in relation to interim dividends, when paid.
2023 2022
GBP000 GBP000
------------------------------------------------------- ------- -------
Cash dividends on ordinary shares declared and paid
Interim dividend for 2023: 2.50 pence per share (2022:
2.30 pence) 4,942 4,553
------------------------------------------------------- ------- -------
Proposed dividends on ordinary shares
Final dividend for 2023: 5.50 pence per share (2022:
5.00 pence) 10,863 9,891
------------------------------------------------------- ------- -------
An interim dividend payment of GBP4,942,000 is included in the
consolidated statement of cash flows (2022: GBP4,553,000).
A final dividend payment of GBP9,891,000 is included in the
consolidated statement of cash flows relating to 2022 (2022:
GBP8,719,000).
The proposed final dividend on ordinary shares is subject to
approval at the Annual General Meeting and is not recognised as a
liability at 31 July 2023.
There are no income tax consequences attached to the payment of
dividends in either 2023 or 2022 by the Group to its
shareholders.
23. Related party transactions
Transactions between Volution Group plc and its subsidiaries,
and transactions between subsidiaries, are eliminated on
consolidation and are not disclosed in this note. A breakdown of
transactions between the Group and its related parties is disclosed
below.
No related party loan note balances exist at 31 July 2023 or 31
July 2022.
There were no material transactions or balances between the
Company and its key management personnel or members of their close
family other than the compensation shown below. At the end of the
period, key management personnel did not owe the Company any
amounts.
The Companies Act 2006 and the Directors' Remuneration Report
Regulations 2013 require certain disclosures of Directors'
remuneration.
Compensation of key management personnel
2023 2022
GBP000 GBP000
----------------------------- ------- -------
Short-term employee benefits 3,886 3,517
Share-based payment charge 1,003 1,049
----------------------------- ------- -------
Total 4,889 4,566
----------------------------- ------- -------
Key management personnel is defined as the CEO, the CFO and the
fourteen (2022: thirteen) individuals who report directly to the
CEO.
24. Events after the reporting period
On 4 August 2023, Volution Group acquired the trade and assets
of Proven Systems Limited ("DVS"), a market leading supplier and
installer of home ventilation solutions in New Zealand, for an
initial consideration of NZ$18 million with a further contingent
cash consideration of up to NZ$9 million based on stretching
targets for the financial results in the next 12 months and the
year ending 31 March 2025.
Transaction costs relating to professional fees associated with
the acquisition in the period ended 31 July 2023 were GBP207,000
and have been expensed as cost of business combinations separately
disclosed on the face of the consolidated statement of
comprehensive income above operating profit.
25. Glossary of terms
Adjusted basic and diluted EPS: calculated by dividing the
adjusted profit/(loss) for the period attributable to ordinary
equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing
the adjusted net profit/(loss) attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the period plus the weighted average
number of ordinary shares that would be issued on conversion of any
dilutive potential ordinary shares into ordinary shares. There are
3,365,875 dilutive potential ordinary shares at 31 July 2023 (2022:
2,966,484).
Adjusted EBITDA: adjusted operating profit before depreciation
and amortisation.
Adjusted finance costs: finance costs before net gains or losses
on financial instruments at fair value and the exceptional write
off of unamortised loan issue costs upon refinancing.
Adjusted operating cash flow: adjusted EBITDA plus or minus
movements in operating working capital, less net investments in
property, plant and equipment and intangible assets.
Adjusted operating profit: operating profit before exceptional
operating costs, release of contingent consideration and
amortisation of assets acquired through business combinations.
Adjusted profit after tax: profit after tax before exceptional
operating costs, release of contingent consideration, exceptional
write off of unamortised loan issue costs upon refinancing, net
gains or losses on financial instruments at fair value,
amortisation of assets acquired through business combinations and
the tax effect on these items.
Adjusted profit before tax: profit before tax before exceptional
operating costs, release of contingent consideration, exceptional
write off of unamortised loan issue costs upon refinancing, net
gains or losses on financial instruments at fair value and
amortisation of assets acquired through business combinations.
Adjusted tax charge: the reported tax charge less the tax effect
on the adjusted items.
CAGR: compound annual growth rate.
Cash conversion: calculated by dividing adjusted operating cash
flow by adjusted EBITA.
Constant currency: to determine values expressed as being at
constant currency we have converted the income statement of our
foreign operating companies for the year ended 31 July 2023 at the
average exchange rate for the year ended 31 July 2022. In addition,
we have converted the UK operating companies' sale and purchase
transactions in the year ended 31 July 2023, which were denominated
in foreign currencies, at the average exchange rates for the year
ended 31 July 2022.
EBITDA: profit before net finance costs, tax, depreciation and
amortisation.
Net debt: bank borrowings and lease liabilities less cash and
cash equivalents.
Operating cash flow: EBITDA plus or minus movements in operating
working capital, less share-based payment expense, less net
investments in property, plant and equipment and intangible
assets.
ROIC : measured as adjusted operating profit for the year
divided by average net assets adding back net debt, acquisition
related liabilities, and historic goodwill and acquisition related
amortisation charges (net of the associated deferred tax).
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END
FR LZLLBXBLBFBX
(END) Dow Jones Newswires
October 05, 2023 02:00 ET (06:00 GMT)
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