Half-year Report
10/03/2022 07:00
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RNS Number : 2683E Volution Group plc 10 March 2022
Thursday 10 March 2022
VOLUTION GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2022
Early and decisive action on supply chain management and pricing delivers
strong revenue and profit growth
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 unaudited interim financial results for
the six months ended 31 January 2022.
RESULTS SUMMARY
6 months to 6 months to Movement
31 January 2022 31 January 2021
Revenue (£m) 149.6 131.7 +13.6%
Adjusted operating profit (£m) 31.9 27.7 +15.0%
21.3% 21.1% +0.2pp
Adjusted operating margin (%)
Adjusted profit before tax (£m) 30.0 26.1 +14.7%
Adjusted EPS (pence) 11.7 10.1 +15.8%
Reported operating profit (£m) 23.3 15.9 +46.0%
Reported profit before tax (£m) 21.4 14.2 +50.5%
Reported basic EPS (pence) 8.2 5.2 +57.7%
Adjusted operating cash flow (£m) 16.2 29.6 (45.2)%
Net debt (£m) 104.0 92.0 +12.0
Net debt (excluding leased liabilities) (£m) 79.2 65.5 +13.7
Interim dividend per share (p) 2.30 1.90 +21.1%
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 and net debt. A definition of all the adjusted and non-GAAP measures
is set out in the glossary of terms in note 18 to the condensed consolidated
financial statements. A reconciliation to reported measures is set out in note
2 to the condensed consolidated financial statements.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
· Early and decisive action on supply chain management and price increases
across all of our markets has helped deliver an adjusted operating profit
margin of 21.3% (21.1% in H1 2021), with adjusted operating profit up 15.0% to
£31.9 million (H1 2021: £27.7 million).
· Revenue growth of 13.6% (16.9% at constant currency "cc") with organic revenue
growth of 7.9% cc as all three geographic regions grew in the period,
benefitting from both volume and price increases. Inorganic revenue growth was
8.5% reflecting the acquisitions of ClimaRad, Klimatfabriken and Energent in
FY2021 and Energy Recovery Industries ("ERI") in H1 2022.
· Good customer service maintained throughout the period due to management
action to invest in inventory to ensure component and raw material
availability for our production facilities.
· Strong organic revenue growth in Australasia of 10.9% (13.8% cc) assisted by
the roll out of a significant new retail account in Australasia and share
gains across the region.
· The integration of ERI, a leading manufacturer of heat recovery cells for the
European market, is progressing well and performance has been in line with our
expectations. We have commenced the previously announced investment plan to
significantly increase the ERI manufacturing capacity.
· Reported profit before tax increased by 50.5% to £21.4 million (H1 2021:
£14.2 million) due to adjusted operating profit expansion and lower
acquisition related costs of £0.1 million (H1 2021: £3.5 million).
· Investment in working capital led to a lower than normal cash conversion at
50% (H1 2021: 105%), though leverage (excluding lease liabilities) remains
lower than H1 2021 at 1.2x, (H1 2021: 1.4x).
· Interim dividend of 2.30 pence per share (H1 2021: 1.90 pence), demonstrating
the Board's continuing confidence in the performance of the Group.
SUSTAINABILITY HIGHLIGHTS
Our products save energy, reduce carbon emissions and help to build healthy,
sustainable homes and buildings. We made good progress with low carbon
sustainability targets in the first half of the year and although we were held
back by the sourcing of recycled plastics in the period, we have made several
technical breakthroughs in applying new recycled materials in our production
facilities which will help secure delivery of our long term targets.
· 58.0% (H1 2021: 63.1%) of plastic used in our own
manufacturing facilities was from recycled sources.
· 65.1% (H1 2021: 62.1%) of our revenue was from
low-carbon, energy saving products.
Commenting on the Group's performance, Ronnie George, Chief Executive Officer,
said:
"Our early and decisive action to invest in additional inventory as well as
increase selling prices in response to the unprecedented levels of input cost
inflation, has enabled us to deliver strong revenue and profit growth in the
first half of the year with operating margins increasing to 21.3%. The agility
and experience of our employees has underpinned good levels of customer
service and product availability despite the well-publicised supply chain
difficulties across the sector.
Further tightening of regulatory drivers relating to carbon reduction in
buildings, as well as heightened awareness of the importance of indoor air
quality to health, continues to provide a supportive foundation to our
strategy."
Outlook
The macroeconomic and geo-political backdrop resulting from the devastating
invasion of Ukraine by Russia has created substantial uncertainty, the full
implications of which are difficult to predict at this moment. However, we
continue to focus on customer service, underpinned by good availability in our
inventory of key assembly components, and coupled with some slowing of input
cost inflation, we are well positioned for the rest of this financial year.
-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
Tulchan Communications +44 (0) 207 353 4200
James Macey White
Victoria Boxall
A meeting for analysts will be held at 10am today, Thursday 10 March 2022, at
the offices of Berenberg, 60 Threadneedle Street, London EC2R 8HP. Please
contact volutiongroup@tulchangroup.com (mailto:volutiongroup@tulchangroup.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
(http://www.volutiongroupplc.com) from 7.00 am on Thursday 10 March 2022.
Certain information contained in this announcement would have constituted
inside information (as defined by Article 7 of Regulation (EU) No 596/2014 as
amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019) prior to
its release as part of this announcement.
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 20 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
Australasia: Simx, Ventair, Manrose.
For more information, please go to: www.volutiongroupplc.com
(http://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.
CHIEF EXECUTIVE OFFICER'S REVIEW
I am delighted with our performance in the first half of the year and the
incredible efforts of our dedicated employees as we have begun to emerge from
the global Covid-19 pandemic. In all our geographic areas we are experiencing
a relaxing of local Covid-19 related restrictions and we continue to adjust
our operating model accordingly in line with these changes. The flexibility,
agility and commitment of our employees has enabled us to deliver a strong
performance in H1 2022.
Volution has continued to make excellent progress in the first half of the
year relative to a strong comparative period in H1 2021. Our investment to
increase our inventory levels over the last twelve months has enabled us to
deliver good levels of customer service in all our markets and service levels
are now consistently at or ahead of pre-Covid-19 levels. Good component
inventory availability in our production facilities as well as a structured
and disciplined implementation of customer price increases has enabled us to
offset the impacts of unprecedented input cost inflation. Adjusted operating
margin increased to 21.3% (H1 2021: 21.1%) underpinned by our good customer
service, selling price increases and continuing focus on operational
excellence.
Revenue grew strongly by 13.6%, 16.9% at constant currency, with revenue
growth in all three of our geographic regions enabling the Group to deliver
organic growth of 7.9% on a constant currency basis.
Strong organic and inorganic revenue growth as well as an adjusted operating
margin increase to 21.3% has resulted in a 15.0% increase in our adjusted
operating profit up from £27.7 million in the prior year to £31.9 million in
H1 2022. Reported operating profit was £23.3 million (H1 2021: £15.9
million). Management decision to increase inventory levels across the Group to
service our customers better in the period has increased working capital and
reduced our cash generation, with adjusted operating cash inflow of £16.2
million (H1 2021: £29.6 million) and a cash conversion rate of 50% (H1 2021:
105%).
We have completed one acquisition in the first half of financial year 2022. In
September we announced the completion of the acquisition of Energy Recovery
Industries ("ERI") for an initial consideration of €20.0 million. 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.
REGIONAL PERFORMANCE REVIEW
Group Results by Operating Segment
United Kingdom
Market sector revenue 6 months to 6 months to Growth
31 January 2022 31 January 2021 %
£m £m
UK
Residential RMI 23.8 21.8 9.3
New Build Residential Systems 12.0 12.6 (5.2)
Commercial 15.8 14.7 7.5
Export 5.6 5.3 6.8
OEM 12.6 12.1 4.2
Total UK Revenue 69.8 66.5 5.0
Adjusted operating profit 13.9 14.3 (2.8)
Adjusted operating profit margin (%) 19.9 21.5 (1.6)pp
Reported operating profit 9.2 8.9 3.0
The UK's revenue grew by 5.0% (5.8% at constant currency) to £69.8 million
with adjusted operating profit of £13.9 million, a slight decrease on the
prior year. Adjusted operating profit margin was 19.9% compared to a prior
first half 2021 of 21.5%; the operating margin decline due to the
unprecedented increase in input costs. Whilst we have made excellent progress
during the period with delivering the price increases necessary to offset the
input cost inflation, some areas of our UK business (notably New Build
Residential Systems and Commercial) did see a delay before increases were
realised due to previous period order intake at lower prices. These increases
were steadily built upon month on month during the first half and in addition
to this action we have recently implemented several plastic material
initiatives, utilising an increased amount of recycled alternative into our
production, which has a lower cost than virgin material.
The move to a more functional management structure in the UK has worked well.
The increased focus on our manufacturing operations and customer service
because of the change introduced just under one year ago has enabled us to
successfully navigate the significant supply chain and input cost inflation
challenges that we have faced. Our increased inventory levels, the agility of
our engineering teams in developing alternative solutions in the face of
microchip shortages and strong supply chain partnerships gives us confidence
in continuing good levels of customer service.
Revenue in our Residential RMI sector was £23.8 million up 9.3% on the strong
comparative prior year period. Since the onset of the Covid-19 pandemic
consumers have a heightened awareness of how important it is to have good
indoor air quality. Our position in the private Residential RMI sector,
utilising our three strong trade brands, has enabled us to make good progress
with our "premium fan up-sell" approach. Utilising our National Ventilation
brand we launched a new premium fan range, the Energy Saver Intellisense,
another example of cross selling accessing a range of products that we already
sell in the Nordic market.
Within the Residential RMI sector we are seeing strong growth in public
housing refurbishment as a result of the pent-up demand from the Covid-19
pandemic. Access to these publicly managed properties was limited during the
height of the pandemic and demand has recovered strongly in the first half of
the year as restrictions have eased and access improved. There is also a
growing awareness of the need to meet carbon reduction targets in this area
and this has resulted in a significant increase in demand for our unique
decentralised heat recovery solutions. Coupling this strong demand with some
competitor supply difficulties, we are making excellent progress in this
market.
Sales in our UK New Build Residential Systems sector were down 5.2% on the
prior period at £12.0 million (H1 2021: £12.6 million). Activity levels were
subdued against a backdrop of strong new housing sales and good levels of
activity in the market. Whilst our supply capability was intact, we
experienced delays to call offs for our systems which we believe is because of
the wider supply chain difficulties in the sector. This is further supported
by our strong order book and an encouraging start to the second half of the
year.
We continue to target the major housebuilders and were recently notified that
we have been successful in securing the exclusive supply agreement to another
top five housebuilder. The contract will commence in late Spring with revenues
ramping up later in the calendar year.
The Publication of Part F and L of the Building Regulations for England in
December 2021 was as we expected. Greater focus on continuous ventilation, a
further 30% reduction in the target emissions in dwellings, and the addition
of CO2 monitoring in higher risk areas recognising the impact of indoor air
quality on health provides further directional support for the Volution
product ranges.
UK Commercial market revenue increased by 7.5% in the period to £15.8 million
(H1 2021: £14.7 million). As anticipated, our strong order book underpinned
an excellent revenue performance in the first half of the year. Our energy
efficient fan coil range is the preferred cooling and heating product solution
in new commercial construction and this area performed particularly well in
the first half of the year. In the second half of this year, we are launching
an upgraded and more versatile range of energy efficient fan coils and the
project order book continues to be strong. Our Breathing Buildings revenue for
the education sector was disappointing in the first half of the year and
despite the strong outlook for revenue in commercial buildings we are
expecting the weaker activity to continue in the short term.
Refurbishment demand in commercial continues to be assisted by the nervousness
around the post pandemic "return to the office" and as in the residential
sector we see a lasting benefit from the increased awareness of the importance
of good indoor air quality.
UK Export market sales were £5.6 million, growth of 6.8% (11.5% at constant
currency). We have seen continued good progress in our export markets, notably
a good recovery in the Republic of Ireland as the construction market reopened
in the early part of the new financial year.
OEM revenue was £12.6 million, an increase of 4.2% (6.3% at constant
currency). Our OEM activities are benefitting from the structural increase in
demand for low carbon energy efficient motorised impellors. Our EC3 range of
motorised impellers delivered good growth in the first half of the year, and
we commenced the investment in an additional production line at our Swindon
factory that went live at the end of February 2022. This additional capacity,
coupled with significant customer interest in the face of competitor supply
difficulties, provides us with a strong demand outlook for our EC3 range of
impellers in the second half of the year. We also made excellent progress
insourcing this motorised impeller into our own manufactured products in the
first half of the year and will develop this initiative further in the second
half of FY 2022.
Continental Europe
Market sector revenue 6 months to 6 months to Growth
31 January 2022 31 January 2021 %
£m £m
Continental Europe
Nordics 27.0 25.7 5.3
Central Europe 30.4 19.4 56.4
Total Continental Europe revenue 57.4 45.1 27.3
Adjusted operating profit 14.8 11.6 28.1
Adjusted operating profit margin (%) 25.8 25.7 0.1pp
Reported operating profit 11.6 8.6 35.7
Revenue in Continental Europe was £57.4 million, with growth of £12.3
million, an increase of 34.7% at constant currency. Organic revenue grew by
2.5% (8.2% at constant currency) and adjusted operating profit was £14.8
million, up from £11.6 million, in the same period in the prior year. This
28.1% adjusted operating profit growth was underpinned by both an increase in
revenues and an adjusted operating profit margin increase from 25.7% to 25.8%.
Our proactive approach to price rises has enabled us to fully offset the
impact of unprecedented input cost inflation and to maintain our operating
margins.
Sales in the Nordics were £27.0 million (H1 2021: £25.7 million), an
increase of 5.3% (10.8% at constant currency). Our new factory facility in
Växjö has been operational for over a year now and helped support the demand
from our Nordic market. The supply chain challenges were especially evident in
the early part of the new financial year, and we are now providing good levels
of customer service.
Both our trade and DIY refurbishment markets have performed well across the
Nordics. In Denmark we are building on the opportunity created by the
acquisition of a sales company over two years ago, and new account wins in the
Danish DIY sector also help support our growth ambitions in the refurbishment
sector.
In the new build markets, we have seen a strong performance from our Voltair
brand and in Finland we have successfully integrated the Energent acquisition
announced in FY21 to complement our existing Pamon brand. We expect to make
further good progress in Finland as a result of a more comprehensive and wider
product range.
We continue to make strong progress in Central Europe, delivering sales of
£30.4 million and growth of 56.4% (66.1% at constant currency) compared to
the previous period, helped by the acquisition of ClimaRad BV in the
Netherlands in December 2020 and the acquisition of ERI in September 2021.
Organic revenue grew by 10.1% (16.9% at constant currency).
Our inVENTer brand in Germany continues to deliver excellent organic growth
building on a strong performance in FY21. Our leading range of decentralised
heat recovery is well placed to support the low carbon residential
refurbishment growth agenda in Germany, and we have enjoyed a very successful
first half of 2022. Our new product innovation to provide a wireless
connectivity for the decentralised heat recovery range has made retrofitting
far easier and we believe this will help us to capture new opportunities in
the future. We believe that the German ventilation market along with a similar
approach in the Netherlands are the most progressive markets with respect to
having a focus on reducing carbon emissions from existing buildings.
In Belgium we are preparing for the launch of our next generation, larger
airflow and heat recovery systems. These products are planned for launch in
May 2022, later than originally anticipated, a deliberate delay as we focussed
our engineering resources on the protection of product supply and
reconfiguring of our PCB electronics to cope with the intermittent supply of
some microprocessors.
In the Netherlands our Vent-Axia brand has continued to extend its range of
products to the electrical wholesaler customer base. Our ClimaRad business,
the Netherlands market leader for decentralised heat recovery, delivered
reasonable levels of activity although Covid-19 restrictions have led to some
major project delays that will likely impact this financial year. The new
project order intake has been particularly strong, and we have already secured
two substantial projects for financial year 2023. ClimaRad in the Netherlands,
as with InVENTer in Germany, are well placed to benefit from the growing trend
to refurbish residential buildings with increased air tightness and
retrofitted decentralised heat recovery.
ERI is an exciting new addition to the Group and has performed in line with
our expectations in the first few months since acquisition. The growth outlook
for heat recovery cells for heat recovery ventilation applications is positive
and we have already commenced with the previously announced €2.6 million
investment plan to significantly increase the capacity of the ERI facility in
Bitola, North Macedonia. With acquiring the adjacent land, building the
factory extension and the investment in new equipment, we expect the full
uplift in capacity to be available in the first half of calendar year 2023.
Australasia
Market sector revenue 6 months to 6 months to Growth
31 January 2022 31 January 2021 %
£m £m
Total Australasia revenue 22.4 20.1 10.9
Adjusted operating profit 4.9 4.4 11.4
Adjusted operating profit margin (%) 22.1 22.0 0.1pp
Reported operating profit 4.4 1.5 193.4
Revenue in Australasia was £22.4 million, growing by 10.9% (13.8% at constant
currency). Adjusted operating profit increased to £4.9 million from £4.4
million in the prior period, an increase of 11.4% (14.3% at constant
currency), with our adjusted operating margin increasing from 22.0% in the
first half of FY21 to 22.1%.
We continue to deliver significant organic revenue growth in the Australasian
market despite a period of Covid-19 related lockdowns in New Zealand in the
first half of the year. In Australia the roll out of store supply to our new
DIY customer is progressing in line with our plan and there will be further
progress in the second half of the year. The development of a new, low energy
EC ceiling fan has helped support the revenue growth in the market. We
continue to invest in local sales teams, with the expansion of our sales teams
in Australia an important ingredient to underpin our ongoing growth ambitions
for the market.
Focus on sustainability
Our sustainability objectives continue to gain good traction across the
organisation. Supply chain challenges, in particular relating to the
availability of recycled PVC, restricted our recycled plastics usage to 58% of
total plastics processed (FY21 62.1%). However, this has been partially
offset by the successful adoption of new sources of recycled ABS and a greater
adoption of HIPS across our injection-moulded parts. We are confident that our
trajectory towards our 90% target by the end of 2025 is directionally in line
with the conversions expected at the polymer level and as the supply chain
challenges experienced in the first half ease. The breakthroughs we have made
with utilising new materials in our processes will result in a significant
step up in the second half of 2022.
With the acquisitions of ClimaRad and ERI and stronger organic growth than the
average growth rate applying to low carbon product ranges, sales of low carbon
products are now progressing ahead of target with 65.1% of our sales now in
products that use less energy than the ones they replaced. Importantly, heat
recovery sales are growing and represent an increasing proportion of the
product mix.. These products are carbon positive, saving more energy than they
use.
Regulatory Drivers and indoor air quality
In the EU, the Green Deal taxonomy supporting energy efficiency in building is
driving a recast of the Energy Performance of Buildings Directive. Within the
proposals, there is a focus on tackling worst performing buildings with the
highest potential and most cost-effective renovations. This priority is
reflected in the introduction of Minimum Energy Performance Standards (MEPS)
that require all EPC class G buildings to be renovated and upgraded to class F
by 2027 and class E by 2030. Besides the acceleration of renovations, the
EPBD proposal bans any financial incentives for fossil fuel boilers from 2027
onwards. These changes support further air tightness improvements to buildings
and therefore the requirement for energy efficient ventilation solutions.
Our markets continue to be underpinned by several factors. The debate
regarding indoor air quality has been significantly heightened over the last
two years throughout the global Covid-19 pandemic at the same time as
governments and local communities are redoubling their efforts to reduce
carbon emissions and improve their sustainability. Our purpose, to provide
"Health Air, Sustainably" positions us well to benefit from these ongoing
trends.
Interim dividend
The Board has declared an interim dividend of 2.30 pence per share, up 21.1%
(H1 2021: 1.9 pence), demonstrating the Board's continuing confidence in the
performance of the Group. The interim dividend will be paid on 3 May 2022 to
shareholders on the register at the close of business on 25 March 2022.
Outlook
The macroeconomic and geo-political backdrop resulting from the devastating
invasion of Ukraine by Russia has created substantial uncertainty, the full
implications of which are difficult to predict at this moment. However, we
continue to focus on customer service, underpinned by good availability in our
inventory of key assembly components, and coupled with some slowing of input
cost inflation, we are well positioned for the rest of this financial year.
Ronnie George
Chief Executive Officer
9 March 2022
FINANCIAL REVIEW
Trading performance summary
Group revenue for the 6 months ended 31 January 2022 was £149.6 million (H1
2021: £131.7 million), an increase of 13.6%. On a constant currency basis
revenue grew by 16.9%, of which 7.9% was organic and 9.0% due to acquisitions,
with an adverse 3.3% impact from foreign exchange due to the strengthening of
Sterling against all four of our major non-Sterling trading currencies.
Adjusted operating profit increased by 15.0% (19.3% at constant currency) to
£31.9 million (H1 2021: £27.7 million), delivering a 0.2pp expansion in
Group adjusted operating margin to 21.3% (H1 2021: 21.1%), as strong pricing
actions offset the impacts of inflation in the supply chain. We also
benefited in the period from a reduction of £0.8 million in central costs,
principally as a result of lower bonus and related costs.
Adjusted earnings per share increased by 15.8% to 11.7p, compared with 10.1p
in H1 2021. Our reported basic earnings per share grew by 57.7% to 8.2 pence
(H1 2021: 5.2 pence) and is higher than our increase in adjusted earnings per
share due to acquisition related items in H1 2021, including the re-assessment
of future contingent consideration payable in respect of Ventair Pty Ltd, and
costs associated with the acquisition in the period of ClimaRad BV.
Reported Adjusted(1)
6 months to 6 months to Movement 6 months to 6 months to Movement
31 January 2022 31 January 2021 31 January 2022 31 January 2021
Revenue (£m) 149.6 131.7 13.6% 149.6 131.7 13.6%
EBITDA (£m) 36.1 28.1 28.4% 36.3 31.6 14.7%
Operating profit (£m) 23.3 15.9 46.0% 31.9 27.7 15.0%
Net finance costs (£m) 0.9 1.7 (45.2)% 1.6 1.5 5.4%
Profit before tax (£m) 21.4 14.2 50.5% 30.0 26.1 14.7%
Basic EPS (p) 8.2 5.2 57.7% 11.7 10.1 15.8%
Interim dividend per share (p) 2.30 1.90 21.1% 2.30 1.90 21.1%
Operating cash flow (£m) 16.1 26.2 (38.4)% 16.2 29.6 (45.2)%
Net debt (£m) 104.0 92.0 12.0 104.0 92.0 12.0
Net debt (excluding leased liabilities) (£m) 79.2 65.5 13.7 79.2 65.5 13.7
Note
1. 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 condensed consolidated financial
statements. For a definition of all the adjusted and non-GAAP measures,
please see the glossary of terms in note 18 to the condensed consolidated
financial statements.
Reported and adjusted results
The Board and key management use 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 basic
EPS, adjusted operating cash flow and net debt. These measures are deemed more
appropriate to track underlying financial performance as they exclude income
and expenditure that is not directly related to the ongoing trading of the
business. A reconciliation of these measures of performance to the
corresponding reported figure is shown below and is detailed in note 2 to the
condensed consolidated financial statements.
Adjusted profit before tax of £30.0 million was 14.7% higher than H1 2021
(£26.1 million). Reported profit before tax was £21.4 million (H1 2021:
£14.2 million).
6 months ended 31 January 2022 6 months ended 31 January 2021
Reported Adjustments Adjusted Reported Adjustments Adjusted
£m £m results £m £m results
£m £m
Revenue 149.6 ─ 149.6 131.7 ─ 131.7
Gross profit(1) 71.3 ─ 71.3 63.7 0.6 64.3
Administration and distribution costs excluding the costs listed below (39.4) ─ (39.4) (36.6) ─ (36.6)
Amortisation of intangible assets acquired through business combinations (8.5) 8.5 ─ (8.4) 8.4 ─
Contingent consideration adjustment(2) ─ ─ ─ (2.4) 2.4 ─
Acquisition costs(3) (0.1) 0.1 ─ (0.4) 0.4 ─
Operating profit 23.3 8.6 31.9 15.9 11.8 27.7
Re-measurement of financial liability (0.3) ─ (0.3) (0.1) ─ (0.1)
Re-measurement of future consideration(4) (0.7) 0.7 ─ ─ ─ ─
Net loss on financial instruments at fair value(5) 0.7 (0.7) ─ (0.1) 0.1 ─
Other net finance costs (1.6) ─ (1.6) (1.5) ─ (1.5)
Profit before tax 21.4 8.6 30.0 14.2 11.9 26.1
Income tax (5.1) (1.7) (6.8) (3.9) (2.2) (6.1)
Profit after tax 16.3 6.9 23.2 10.3 9.7 20.0
Note
1. £nil adjustments in H1 2022 impacting Gross
profit. (H1 2021: £0.6 million amortisation of acquired inventory fair
value adjustments)
2. £nil adjustments in H1 2022 to contingent
consideration. (H1 2021: £2.4 million related to Ventair)
3. £0.1 million acquisition costs relate to
professional fees and expenses for acquisitions. (H1 2021: £0.4 million)
4. £0.7 million revaluation relating to the
re-measurement of future consideration in ClimaRad (H1 2021: £nil)
5. £0.7 million gain due to the fair value of
financial derivatives (H1 2021: £0.1 million loss)
Adverse currency impact on reported revenue and profit
The Group's key trading currencies, other than Sterling, are the Euro, Swedish
Krona, New Zealand Dollar and Australian Dollar. Average exchange rates are
used to translate results in the Income Statement. During the six months,
Sterling strengthened on average against all four of our principal
non-Sterling trading currencies, relative to the Euro by 3.9%, Swedish Krona
by 3.7%, New Zealand Dollar by 0.9% and Australian Dollar by 3.3%.
If we had translated the H1 2022 performance of the Group at our full year
2021 exchange rates, the reported revenue would have been £4.4 million higher
at £154.0 million, and adjusted operating profit would have been £1.2
million higher at £33.1 million.
If exchange rates remain at current levels, we would expect a further negative
currency translation effect in the second half of financial year 2022 compared
to the same period last year.
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
bank borrowings in both Euro and Swedish Krona, which offsets some of the
translation risk relating to net assets. At 31 January 2022 we had borrowings
denominated in Swedish krona of £11.5 million (31 July 2021: £16.0 million),
and Euro-denominated bank borrowings of £71.7 million (31 July 2021: £57.3
million). The Sterling value of our foreign currency-denominated loans, net of
cash, decreased by £0.9 million (H1 2021: decreased by £2.3 million) as a
consequence of exchange rate movements.
Finance costs
Reported net finance costs were £0.9 million (H1 2021: £1.6 million)
including £0.7 million of net gain on the revaluation of financial
instruments (H1 2021: loss £0.1 million). Adjusted finance costs were £1.6
million (H1 2021: £1.5 million), albeit the costs for the first half of 2021
included £0.4 million in relation to charging the unamortised costs
associated with the Group's previous revolving credit facility which was
replaced in December 2020.
Taxation
Our underlying effective tax rate, on adjusted profit before tax, was 22.6%
(H1 2021: 23.3%). The decrease of 0.7 percentage points in our adjusted
effective tax rate compared to the prior period was primarily a result of a
change in our relative profit mix, with the average adjusted effective tax
rate of our overseas jurisdictions for the half year of 24.9% (H1 2021:
25.4%). We also benefitted in the period from an increased proportion of our
revenues being derived from products that benefit from the UK's patent box tax
incentive. There were no changes to corporation tax rates enacted during the
period in any of our geographies.
Our reported effective tax rate for the period was 23.8% (H1 2021: 27.7%).
We expect our medium term underlying effective tax rate to be in the range of
23% to 25% of the Group's adjusted profit before tax.
Cash flow and net debt
Management decision to increase inventory levels was a key part of our
strategy to mitigate the challenges of global supply chain uncertainty and
ensure good levels of customer service in the period. As a consequence, the
Group's working capital increased by £17.5 million in the period (H1 2021:
£0.6 million). The increase in working capital, coupled with a higher capital
expenditure in the period of £3.6 million (H1 2021: £2.5 million), reduced
our cash conversion (adjusted operating cash flow as a percentage of adjusted
earnings before interest, tax and amortisation - see note 18) to 50% (H1 2021:
105%). With inventory levels now in a good position across the Group, we do
not expect working capital to increase further and so should see a stronger
cash conversion in the second half of the year.
Dividend payments in the period were £8.7 million (H1 2021: £nil), whilst
tax payments were also higher at £6.3 million (H1 2021: £4.3 million).
Acquisition spend of £24.4 million (H1 2021: £37.7 million) related to the
initial consideration for the acquisition of ERI (see note 10) of £16.0
million as well as payment of contingent consideration in respect of Ventair
(£4.1 million), Air Connection (£0.5 million), repayment of ERI debt
acquired of (£3.3 million) and part repayment of ClimaRad vendor loan (£0.5
million).
Net debt at 31 January 2022 was £104.0 million (H1 2021: £92.0 million),
comprised of bank borrowings of £94.4 million (H1 2021: £81.2 million), cash
and cash equivalents of £15.2 million (H1 2021: £15.7 million) and
long-term lease liabilities of £24.8 million (H1 2021: £26.5 million). Net
debt (excluding leased liabilities) of £79.2 million (H1 2021:
£65.5 million) represents leverage of 1.2x adjusted EBITDA (H1 2021: 1.4x).
6 months to 6 months to
31 January 2022 31 January 2021
£m £m
Opening net debt at 1 August (79.2) (74.2)
Movements from normal business operations:
Adjusted EBITDA 36.3 31.6
Movement in working capital (17.5) (0.6)
Share-based payments 1.0 1.1
Capital expenditure (3.6) (2.5)
Adjusted operating cash flow: 16.2 29.6
- Interest paid net of interest received (1.4) (0.9)
- Income tax paid (6.3) (4.3)
- Income tax refund ─ 0.2
- Business combination related operating costs (0.1) (0.4)
- Dividend paid (8.7) ─
- Purchase of own shares by the Employee Benefit Trust ─ (0.6)
- FX on foreign currency loans/cash 0.9 2.3
- Issue costs of new borrowings ─ (1.2)
- Long term lease liabilities 0.7 (3.3)
- Payments of lease liabilities (1.7) (1.5)
Movements from acquisitions:
- Contingent consideration relating to the acquisition of Ventair from (3.2) ─
operating activities
- Contingent consideration relating to the acquisition of Ventair from (0.9) ─
investing activities
- Acquisition consideration net of cash acquired and debt repaid (20.3) (37.7)
Closing net debt at 31 January (104.0) (92.0)
6 months to 6 months to
31 January 2022 31 January 2021
£m £m
Bank Debt (94.4) (81.2)
Cash 15.2 15.7
Net Debt (excluding leased liabilities) (79.2) (65.5)
Long term lease liabilities (24.8) (26.5)
Closing net debt at 31 January (104.0) (92.0)
Reconciliation of adjusted operating cash flow
6 months to 6 months to
31 January 2022 31 January 2021
£m £m
Net cash flow generated from operating activities 10.2 27.6
Capital expenditure (3.6) (2.5)
UK and overseas tax paid 6.3 4.3
Income tax refund ─ (0.2)
Contingent consideration relating to the acquisition of Ventair from operating 3.2 ─
activities
Cash flow relating to business combination costs 0.1 0.4
Adjusted operating cash flow 16.2 29.6
Bank facilities, refinancing and liquidity
In December 2021, the Group took the option to extend its multicurrency
"Sustainability Linked Revolving Credit Facility", together with an accordion
of up to £30 million by a period of 12 months. The maturity date is now
December 2024.
At 31 January 2022, the Group had £55,620,000 (31 July 2021: £76,707,000) of
the facility unutilised.
Employee Benefit Trust
During the period no loans were made to the Volution Employee Benefit Trust
for the exclusive purpose of purchasing shares in Volution Group plc in order
to partly fulfil the Company's obligations under its share incentive plans (H1
2021: £550,000). In the period 305,024 shares (H1 2021: 45,365) were
exercised and released by the trustees with a value of £845,000 (H1 2021:
£83,300). 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.
Going concern
After reviewing the Group's current liquidity, net debt, financial forecasts
and stress testing of potential risks, the Board confirms there are no
material uncertainties which impact the Group's ability to continue as a going
concern for the period to 31 January 2024 and these condensed consolidated
financial statements have therefore been prepared on a going concern basis.
Andy O'Brien
Chief Financial Officer
9 March 2022
PRINCIPAL RISKS AND UNCERTANTIES
The Directors have reviewed the principal risks and uncertainties which could
have a material impact on the Group's performance and have concluded that they
has been no material change from those described in Volution's Annual Report
2021, which can be found at www.volutiongroupplc.com
(http://www.volutiongroupplc.com) .
The invasion of Ukraine by Russia has exacerbated an already uncertain
macro-economic backdrop. Whilst Volution's direct exposure to the region is
minimal with only c0.2% of Group revenue being with customers in Russia or
Ukraine, the impact on consumer confidence and potential demand is difficult
to predict.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of their knowledge:
The condensed consolidated set of financial statements has been prepared in
accordance with International Accounting Standard 34 'Interim Financial
Reporting' as adopted by the United Kingdom and that the interim management
report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or the performance of the Group during that period; and any changes
in the related party transactions described in the Annual Report 2021 that
could do so.
The full list of current Directors can be found on the Company's website at
www.volutiongroupplc.com.
By order of the Board
Ronnie
George
Andy O'Brien
Chief Executive
Officer
Chief Financial Officer
9 March
2022
9 March 2022
INDEPENDENT REVIEW REPORT TO VOLUTION GROUP PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
January 2022 which comprises the interim condensed consolidated statement of
comprehensive income, the interim condensed consolidated statement of
financial position, the interim condensed consolidated statement of changes in
equity, the interim condensed consolidated statement of cash flows and the
related explanatory notes 1 to 18. We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 January 2022 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion is based on procedures that are
less extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the conclusions
we have formed.
Ernst & Young LLP
London
9 March 2022
Interim Condensed Consolidated Statement of Comprehensive Income
For the period ended 31 January 2022
Notes 2022 2021
Unaudited Unaudited
£000 £000
Revenue from contracts with customers 3 149,574 131,707
Cost of sales (78,284) (68,010)
Gross profit 71,290 63,697
Administrative and distribution expenses (47,910) (44,959)
Operating profit before separately disclosed items 23,380 18,738
Costs of business combinations 10 (126) (454)
Re-measurement of contingent consideration ─ (2,357)
Operating profit 23,254 15,927
Finance revenue 5 695 57
Re-measurement of financial liability (292) (60)
Re-measurement of future consideration (691) ─
Finance costs 5 (1,615) (1,735)
Profit before tax 21,351 14,189
Income tax 6 (5,082) (3,924)
Profit for the period 16,269 10,265
Attributable to the shareholders 16,240 -
Attributable to non-controlling interests 29 -
Other comprehensive (expense)/income
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations (3,751) 1,087
Gain on hedge of net investment in foreign operations 2,104 2,322
Other comprehensive (expense)/income for the period (1,647) 3,409
Total comprehensive income for the period 14,622 13,674
Attributable to the shareholders 14,593 -
Attributable to non-controlling interests 29 -
Earnings per share
Basic earnings per share 7 8.2 5.2
Diluted earnings per share 7 8.1 5.2
Interim Condensed Consolidated Statement of Financial Position
At 31 January 2022
Notes 31 January 2022 31 July 2021
Unaudited Audited
£000 £000
Non-current assets
Property, plant and equipment 11 27,652 23,908
Right-of-use assets 12 24,031 24,477
Intangible assets - goodwill 8 141,795 137,710
Intangible assets - others 9 92,014 85,373
285,492 271,468
Current assets
Inventories 55,390 44,971
Right of return assets 3 288 99
Trade and other receivables 54,287 47,482
Other financial assets 868 507
Cash and short-term deposits 15,160 19,456
125,993 112,515
Total assets 411,485 383,983
Current liabilities
Trade and other payables (42,957) (47,435)
Refund liabilities 3 (11,793) (10,562)
Income tax (5,172) (4,629)
Other financial liabilities 13 (240) (4,608)
Interest-bearing loans and borrowings 14 (3,337) (3,454)
Provisions (1,636) (1,869)
(65,135) (72,557)
Non-current liabilities
Interest-bearing loans and borrowings 14 (124,346) (104,863)
Other financial liabilities 13 (14,175) (6,021)
Provisions (456) (376)
Deferred tax liabilities (15,111) (14,876)
(154,088) (126,136)
Total liabilities (219,223) (198,693)
Net assets 192,262 185,290
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (1,675) (3,739)
Capital reserve 93,855 93,855
Share-based payment reserve 3,853 4,090
Foreign currency translation reserve 1,252 2,899
Retained earnings 81,387 74,658
Total shareholders' equity 192,199 185,290
Non-controlling interest 63 -
Total equity 192,262 185,290
The consolidated financial statements of Volution Group plc (registered
number: 09041571) were approved by the Board of Directors and authorised for
issue on 9 March 2022.
On behalf of the Board
Ronnie George Andy O'Brien
Chief Executive Officer Chief Financial Officer
Interim Condensed Consolidated Statement of Changes in Equity
For the period ended 31 January 2022
Share Share Treasury Capital Share-based Foreign Retained Shareholder's equity Non-Controlling Interest Total Equity
capital premium shares reserve payment currency earnings £000 £000 £000
£000 £000 £000 £000 reserve translation £000
£000 reserve
£000
At 31 July 2020 (Audited) 2,000 11,527 (2,401) 93,855 1,410 701 68,463 175,555 ─ 175,555
Profit for the period ─ ─ ─ ─ ─ ─ 10,265 10,265 ─ 10,265
Other comprehensive expense ─ ─ ─ ─ ─ 3,409 ─ 3,409 ─ 3,409
Total comprehensive income ─ ─ ─ ─ ─ 3,409 10,265 13,674 ─ 13,674
Acquisition of businesses ─ ─ ─ ─ ─ ─ ─ ─ 5,795 5,795
Obligation to acquire NCI ─ ─ ─ ─ ─ ─ (11,032) (11,032) (5,795) (16,827)
Purchase of own shares ─ ─ (550) ─ ─ ─ ─ (550) ─ (550)
Vesting of shares ─ ─ 83 ─ (83) ─ ─ ─ ─ ─
Share-based payment including tax ─ ─ ─ ─ 1,708 ─ ─ 1,708 ─ 1,708
At 31 January 2021 (Unaudited) 2,000 11,527 (2,868) 93,855 3,035 4,110 67,696 179,355 ─ 179,355
Profit for the period ─ ─ ─ ─ ─ ─ 10,571 10,571 ─ 10,571
Other comprehensive income ─ ─ ─ ─ ─ (1,211) ─ (1,211) ─ (1,211)
Total comprehensive income ─ ─ ─ ─ ─ (1,211) 10,571 9,360 ─ 9,360
Purchase of own shares ─ ─ (1,555) ─ ─ ─ ─ (1,555) ─ (1,555)
Acquisition of businesses ─ ─ ─ ─ ─ ─ ─ ─ (192) (192)
Obligation to acquire NCI ─ ─ ─ ─ ─ ─ (192) (192) 192 ─
Vesting of shares ─ ─ 684 ─ (1,029) ─ 345 ─ ─ ─
Share-based payment including tax ─ ─ ─ ─ 2,084 ─ ─ 2,084 ─ 2,084
Dividends paid ─ ─ ─ ─ ─ ─ (3,762) (3,762) ─ (3,762)
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 period ─ ─ ─ ─ ─ ─ 16,240 16,240 29 16,269
Other comprehensive income ─ ─ ─ ─ ─ (1,647) ─ (1,647) ─ (1,647)
Total comprehensive income ─ ─ ─ ─ ─ (1,647) 16,240 14,593 29 14,622
Acquisition of businesses ─ ─ ─ ─ ─ ─ ─ ─ 34 34
Vesting of shares ─ ─ 2,064 ─ (1,129) ─ (792) 143 ─ 143
Share-based payment including tax ─ ─ ─ ─ 892 ─ ─ 892 ─ 892
Dividend paid ─ ─ ─ ─ ─ ─ (8,719) (8,719) ─ (8,719)
At 31 January 2022 2,000 11,527 (1,675) 93,855 3,853 1,252 81,387 192,199 63 192,262
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 January 2022 of £116,822,000 (31 January 2021
£108,184,000).
Interim Condensed Consolidated Statement of Cash Flows
For the period ended 31 January 2022
Notes 2022 2021
Unaudited Unaudited
£000 £000
Operating activities
Profit for the period after tax 16,269 10,265
Adjustments to reconcile profit for the period to net cash flow from operating
activities:
Income tax 5,082 3,924
(Gain)/Loss on disposal of property, plant and equipment (4) 14
Acquisition related operating costs 126 2,811
Amortisation of acquired inventory FV adjustment ─ 648
Cash flows relating to acquisition costs (126) (454)
Re-measurement of financial liability relating to acquisition of ClimaRad 292 60
Re-measurement of future consideration relating to business combination of 691 ─
ClimaRad
Finance revenue (695) (57)
Finance costs 5 1,615 1,735
Share-based payment expense 1,035 1,116
Depreciation of property, plant and equipment 11 1,854 1,633
Depreciation of right of use assets 12 1,801 1,600
Amortisation of intangible assets 9 9,229 8,985
Working capital adjustments:
Increase in trade receivables and other assets (3,060) (7,227)
Increase in inventories (8,282) (2,412)
Amortisation of acquired inventory FV adjustment ─ (648)
Increase/(Decrease) in trade and other payables (5,960) 9,689
Movement in provisions (153) 51
Cash generated by operations 19,714 31,733
UK income tax paid (1,000) (1,370)
UK income tax refund ─ 196
Overseas income tax paid (5,264) (2,945)
Contingent consideration relating to the acquisition of Ventair 10 (3,211) ─
Net cash flow generated from operating activities 10,239 27,614
Investing activities
Payments to acquire intangible assets 9 (595) (621)
Purchase of property, plant and equipment 11 (3,075) (2,017)
Proceeds from disposal of property, plant and equipment 80 97
Acquisition of subsidiaries, net of cash acquired 10 (16,466) (36,188)
Contingent consideration relating to the acquisition of Ventair 10 (952) ─
Interest received 1 57
Net cash flow used in investing activities (21,007) (38,672)
Financing activities
Repayment of interest-bearing loans and borrowings (12,237) (81,565)
Repayment of ERI debt acquired (3,285) ─
Repayment of ClimaRad vendor loan (504) ─
Proceeds from new borrowings 35,428 94,044
Issue costs of new borrowings ─ (1,218)
Interest paid (1,371) (997)
Payment of principal portion of lease liabilities 12 (1,657) (1,475)
Dividends paid (8,719) ─
Purchase of own shares ─ (550)
Net cash flow generated/(used) in financing activities 7,655 8,239
Net decrease in cash and cash equivalents (3,113) (2,819)
Cash and cash equivalents at the start of the year 19,456 18,493
Effect of exchange rates on cash and cash equivalents (1,183) 28
Cash and cash equivalents at the end of the period 15,160 15,702
Notes to the Interim Condensed Consolidated Financial Statements
For the period ended 31 January 2022
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.
The preliminary results were authorised for issue by the Board of Directors on
9 March 2022. The financial information set out herein does not constitute the
Group's statutory consolidated financial statements for the 6 months ended 31
January 2022 and is unaudited.
1. Basis of preparation
These condensed consolidated financial statements have been prepared in
accordance with UK-adopted International Accounting Standards (IAS) 34
'Interim financial reporting. They do not include all disclosures that would
otherwise be required in a complete set of financial statements and should be
read in conjunction with the Annual Report 2021. The financial information for
the half years ended 31 January 2022 and 31 January 2021 do not constitute
statutory accounts within the meaning of Section 434(3) of the Companies Act
2006 and is unaudited.
The annual financial statements of Volution Group plc are prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial reporting
standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in
the European Union. The comparative financial information for the year ended
31 July 2021 included within this report does not constitute the full
statutory accounts for that period. The Annual Report 2021 has been filed with
the Registrar of Companies. The Independent Auditors' Report on the Annual
Report 2021 was unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under section 498(2) and 498(3) of
the Companies Act 2006.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period.
Going Concern
The UK Corporate Governance Code requires the Directors to state whether the
Board considers it appropriate to adopt the going concern basis of accounting
in preparing the financial statements, and to identify any material
uncertainties to the Group's ability to continue as a going concern over a
period of at least 12 months from the date of approval of the financial
statements. In adopting the going concern basis for preparing these financial
statements, the Board has considered the Group's business activities, together
with factors likely to affect its future development, its performance and
principal risks and uncertainties assessed for the period to 31 January 2024.
Our financial position remains robust. In December 2021, the Group took the
option to extend its multicurrency "Sustainability Linked Revolving Credit
Facility", together with an accordion of up to £30 million by a period of 12
months. The maturity date is now December 2024. As at 31 January 2022, we
had £55.6 million of undrawn, committed bank facilities and £15.2 million of
cash and cash equivalents on the consolidated statement of financial position.
The Group has certain banking covenants measured semi-annually on these
facilities which are for leverage (net debt/adjusted EBITDA) of not more than
three times and for adjusted interest cover of not less than four times.
The Board considered the liquidity, net debt and forecast EBITDA in the
Group's financial forecasts prepared to 31 January 2024 under a base case and
a severe but plausible downside case. Our base case scenario has been prepared
using forecasts that consider both the current challenges, and opportunities,
faced in each of our business units. These scenarios have considered the
Group's principal risks, notably related to expected demand levels in the
markets we serve. The severe but plausible case reflects a number of
pessimistic downside adjustments, including the impact on revenue of further
Covid-19 variants. None of these scenarios result in a breach of the Group's
available debt facilities or covenants.
A further downside case, more pessimistic than the severe but plausible
downside case, has been analysed to find a theoretical point at which the
modelled reduction in revenue would imply that the covenanted measure would
start to be breached. The Board considers these forecast volumes to
represent an implausibly low level, particularly when considering the wider
industry outlook for ventilation products.
Following the Russian invasion of Ukraine on 24 February 2022, the Board has
considered the impact on the Group's operations and continues to monitor the
developing situation. Whilst the Group does not have any operations in Ukraine
and Russia, and there is minimal exposure in terms of customer revenue in
these territories, we recognise that any wider impacts are difficult to fully
assess at this time.
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 acquisition and the Non-Controlling'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 acquisition,
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 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.
Employee Benefit Trust
The Company has an Employee Benefit Trust (EBT) which is used in connection
with the operation of the Company's Long Term Incentive Plan (LTIP), Deferred
Share Bonus Plan and Sharesave Plan. The Company's own shares held by the
Volution EBT are treated as treasury shares and deducted from shareholders'
funds until they vest unconditionally with employees.
At 31 January 2022, a total of 1,896,261 (31 July 2021: 2,123,072) ordinary
shares in the Company were held by the Volution EBT, all of which were under
option to employees. During the period no ordinary shares in the Company were
purchased by the trustees (H1 2021: 250,000), and 305,024 shares (H1 2021:
45,365 shares) were exercised.
The Volution EBT has agreed to waive its rights to dividends.
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.
In preparing the interim condensed consolidated financial statements, the
areas where judgement has been exercised and the key sources of estimation
uncertainty were the same as those applied to the consolidated financial
statements for the year ended 31 July 2021.
New standards and interpretations
Any new standards or interpretations in issue, but not yet effective, are not
expected to have a material impact on the Group's net assets or results.
The following new standards and amendments became effective as at 1 January
2021 and have been adopted for the financial year commencing 1 August 2021.
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but not yet effective.
- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16
- Covid-19-Related Rent Concessions beyond 30 June 2021 Amendment to IFRS 16
These have not had an impact on these interim statements.
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 appropriate as they remove income and
expenditure which is not directly related to the ongoing trading of the
business. 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.
6 months to 6 months to
31 January 2022 31 January 2021
£000 £000
Profit after tax 16,269 10,265
Add back:
Re-measurement of contingent consideration ─ 2,357
Costs of business combinations 126 454
Amortisation of acquired inventory fair value adjustments ─ 648
Re-measurement of future consideration relating to the business combination of 691 ─
ClimaRad
Net (gain)/loss on financial instruments at fair value (694) 147
Amortisation and impairment of intangible assets acquired through business 8,520 8,352
combinations
Tax effect of the above (1,697) (2,176)
Adjusted profit after tax 23,215 20,047
Add back:
Adjusted tax charge 6,779 6,100
Adjusted profit before tax 29,994 26,147
Add back:
Interest payable on bank loans, lease liabilities and amortisation of 1,615 1,588
financing costs
Re-measurement of financial liability relating to acquisition of ClimaRad 292 60
Finance revenue (1) (57)
Adjusted operating profit 31,900 27,738
Add back:
Depreciation of property, plant and equipment 1,854 1,740
Depreciation of right-of-use asset 1,801 1,493
Amortisation of development costs, software and patents 709 633
Adjusted EBITDA 36,264 31,604
For definitions of terms referred to above see note 18, Glossary of terms.
3. Revenue from contracts with customers
Revenue recognised in the statement of comprehensive income is analysed below:
6 months to 6 months to
31 January 2022 31 January 2021
£000 £000
Sale of goods 146,466 128,884
Installation services 3,108 2,823
Total revenue from contracts with customers 149,574 131,707
Market sectors 6 months to 6 months to
31 January 2022 31 January 2021
£000 £000
UK
Residential RMI 23,845 21,812
Residential New Build 11,968 12,627
Commercial 15,757 14,653
Export 5,609 5,253
OEM 12,628 12,118
Total UK 69,807 66,463
Nordics 27,023 25,663
Central Europe 30,405 19,440
Total Continental Europe 57,428 45,103
Total Australasia 22,339 20,141
Total revenue from contracts with customers 149,574 131,707
Right of return assets and refund liabilities 6 months to
31 January 2022 31 July 2021
£000 £000
Right of return assets 288 146
Refund liabilities
Arising from retrospective volume rebates 11,133 8,277
Arising from rights of return 660 871
11,793 9,148
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 Ventilation UK including OEM (Torin-Sifan), Ventilation
Europe and Ventilation Australasia. Operating segments that provide
ventilation services have been aggregated as they have similar economic
characteristics, assessed by reference to the gross margins of the segments.
In addition, the segments are similar in relation to the nature of products,
services and production processes, type of customer, method for distribution
and regulatory environment.
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 18 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
6 months ended 31 January 2022 UK Continental Europe Australasia Central / Eliminations Consolidated
£000 £000 £000 £000 £000
Revenue
External customers 69,807 57,428 22,339 ─ 149,574
Inter-segment 9,617 12,483 70 (22,170) ─
Total revenue 79,424 69,911 22,409 (22,170) 149,574
Gross profit 29,645 30,713 10,982 (50) 71,290
Results
Adjusted segment EBITDA 15,725 16,425 5,537 (1,423) 36,264
Depreciation and amortisation of (1,828) (1,591) (609) (336) (4,364)
development costs, software and patents
Adjusted operating profit/(loss) 13,897 14,834 4,928 (1,759) 31,900
Amortisation of intangible assets acquired through business combinations (4,708) (3,244) (568) ─ (8,520)
Acquisition related operating costs ─ ─ ─ (126) (126)
Operating profit/(loss) 9,189 11,590 4,360 (1,885) 23,254
Unallocated expenses
Net finance cost ─ ─ ─ (1,614) (1,614)
Gain/(Loss) on financial instruments ─ ─ 211 483 694
Re-measurement of future consideration ─ ─ ─ (691) (691)
Re-measurement of financial liability ─ ─ ─ (292) (292)
Profit/(loss) before tax 9,189 11,590 4,571 (3,999) 21,351
6 months ended 31 January 2021 UK Continental Europe Australasia Central / Eliminations Consolidated
£000 £000 £000 £000 £000
Revenue
External customers 66,463 45,103 20,141 ─ 131,707
Inter-segment 9,170 6,814 117 (16,101) ─
Total revenue 75,633 51,917 20,258 (16,101) 131,707
Gross profit 29,734 24,068 9,895 ─ 63,697
Results
Adjusted segment EBITDA 16,018 12,835 5,000 (2,249) 31,604
Depreciation and amortisation of (1,717) (1,255) (577) (317) (3,866)
development costs, software and patents
Adjusted operating profit/(loss) 14,301 11,580 4,423 (2,566) 27,738
Amortisation of intangible assets acquired through business combinations (5,378) (2,394) (580) ─ (8,352)
Amortisation of acquired inventory fair value adjustments ─ (648) ─ ─ (648)
Acquisition related operating costs ─ ─ (2,357) (454) (2,811)
Operating profit/(loss) 8,923 8,538 1,486 (3,020) 15,927
Unallocated expenses
Net finance cost ─ ─ ─ (1,531) (1,531)
Gain/(Loss) on financial instruments ─ ─ 155 (302) (147)
Re-measurement of financial liability ─ ─ ─ (60) (60)
Profit/(loss) before tax 8,923 8,538 1,641 (4,913) 14,189
Geographic information
Revenue from external customers by customer destination 6 months ended 6 months ended 31 January 2021
31 January 2022 £000
£000
United Kingdom 58,321 54,672
Europe (excluding United Kingdom and Sweden) 53,484 41,488
Sweden 13,215 13,422
Australasia 22,467 20,221
Rest of the world 2,087 1,904
Total revenue from contracts with customers 149,574 131,707
Non-current assets excluding deferred tax 6 months ended 6 months ended
31 January 2022 31 January 2021
£000 £000
United Kingdom 118,968 124,046
Europe (excluding United Kingdom and Nordics) 82,760 67,478
Nordics 35,653 34,276
Australasia 48,111 53,790
Total 285,492 279,590
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
6 months ended 6 months ended
31 January 2022 31 January 2021
£000 £000
Finance revenue
Interest receivable 1 57
Net gain on financial instruments at fair value 694 ─
Total finance revenue 695 57
Finance costs
Interest payable on bank loans (1,072) (797)
Unamortised finance costs written off ─ (450)
Net gain on financial instruments at fair value ─ (147)
Interest on lease liabilities (256) (254)
Other interest (287) (87)
Total finance expense (1,615) (1,735)
Net finance costs (920) (1,678)
The net loss or gain on financial instruments at each period-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.
6. Income tax
Our underlying effective tax rate, on adjusted profit before tax, was 22.6%
(H1 2021: 23.3%). The decrease of 0.7 percentage points in our adjusted
effective tax rate compared to the prior period was as a result of a change in
our relative profit mix, our overseas jurisdictions have an average tax rate
for the half year 24.9%. Our reported effective tax rate for the period was
23.8% (H1 2021: 27.7%).
We expect our medium term underlying effective tax rate to be in the range of
23% 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 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 net profit
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 2,966,484
dilutive potential ordinary shares at 31 January 2022 (H1 2021: 649,644).
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
6 months ended 6 months ended
31 January 2022 31 January 2021
£000 £000
Profit attributable to ordinary equity holders 16,269 10,265
Number
Number
Weighted average number of ordinary shares for basic earnings per share 197,605,520 198,021,975
Weighted average number of ordinary shares for diluted earnings per share 200,256,594 198,641,207
Earnings per share
Basic 8.2p 5.2p
Diluted 8.1p 5.2p
6 months ended 6 months ended
31 January 2022 31 January 2021
£000 £000
Adjusted profit attributable to ordinary equity holders 23,215 20,047
Number
Number
Weighted average number of ordinary shares for adjusted basic earnings per 197,605,520 198,021,975
share
Weighted average number of ordinary shares for adjusted diluted earnings per 200,256,594 198,641,207
share
Adjusted earnings per share
Basic 11.7p 10.1p
Diluted 11.6p 10.1p
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
period. 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 18, Glossary of terms, for an explanation of the adjusted basic and
diluted earnings per share calculation.
8. Intangible assets - goodwill
Goodwill Total
£000
At 31 July 2020 116,778
On acquisition of ClimaRad Holdings B.V. and its subsidiaries 20,258
On acquisition of Klimatfabriken 2,646
On acquisition of Rtek 1,096
Net foreign currency exchange differences (3,068)
At 31 July 2021 137,710
On acquisition of ERI and its subsidiaries 6,098
Net foreign currency exchange differences (2,013)
At 31 January 2022 141,795
9. Intangible assets - other
Total
2022 £000
Cost
At 1 August 2021 220,083
Additions 595
Additions through acquisition 15,956
Disposals (56)
Net foreign currency exchange differences (2,436)
At 31 January 2022 234,142
Amortisation
At 1 August 2021 134,710
Charge for the period 9,229
Disposals (51)
Net foreign currency exchange differences (1,760)
At 31 January 2022 142,128
Net book value
At 31 January 2022 92,014
10. Business combinations
Acquisitions in the half year ended 31 January 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 €20.0 million with a further
contingent cash consideration of up to €12.4 million based on stretching
targets for the financial results for the year ending 31 December 2023. The
acquisition of ERI Corporation is in line with the Group's strategy to grow by
selectively acquired 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 €11.3 million and profit before tax
of €2.0 million.
The provisional fair value of the net assets acquired were as follows:
Book value Fair Value adjustments
£000 £000 Fair value
£000
Intangible assets 420 15,536 15,956
Property, plant and equipment 3,199 ─ 3,199
Inventory 2,326 ─ 2,326
Trade and other receivables 3,745 ─ 3,745
Trade and other payables (2,413) ─ (2,413)
Deferred tax liabilities ─ (1,923) (1,923)
Bank debt (3,285) ─ (3,285)
Cash and cash equivalents 902 ─ 902
Total identifiable net assets 4,894 13,613 18,507
Non-controlling Interest in ERI UK (34)
Goodwill on the business combination 6,098
Discharged by:
Cash consideration (including deferred cash consideration) 16,893
Contingent consideration 7,678
Goodwill of £6,098,000 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 tradename and customer base was identified and included
in intangible assets.
The fair value of the property, plant and equipment is assessed to be same as
book value.
The gross amount of trade and other receivables is £3,745,000. 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 January 2022 were £126,000 and have been expensed.
ERI generated revenue of £5,700,000 and generated a profit after tax of
£1,209,000 in the period from acquisition to 31 January 2022 that is 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 £151,104,000 and the profit before tax from
continuing operations would have been £21,696,000.
Cash outflows arising from business combinations are as follows
6 months ended 6 months ended
31 January 2022 31 January 2021
£000 £000
ERI
Cash consideration 16,892 ─
Less: cash acquired with the business (902) ─
Ventair
Deferred cash consideration paid 4,163 ─
Air Connection
Deferred cash consideration paid 476 ─
ClimaRad BV
Cash consideration ─ 37,067
Less: cash acquired with the business ─ (879)
Total 20,629 36,188
11. Property, plant and equipment
Property, plant and equipment excluding right-of-use assets Land and buildings Plant and Fixtures, fittings, tools, equipment and vehicles Total
2022 £000 Machinery £000s £000
£000
Cost
At 1 August 2021 15,370 13,840 11,544 40,754
Transferred to right-of-use assets (17) ─ (191) (208)
Additions 44 1,912 1,119 3,075
Additions on acquisition 1,329 1,776 94 3,199
Disposals ─ (11) (302) (313)
Net foreign currency exchange differences (248) 3 (263) (508)
At 31 January 2022 16,478 17,520 12,001 45,999
Depreciation
At 1 August 2021 4,542 5,795 6,509 16,846
Transferred to right-of-use assets (7) ─ ─ (7)
Charge for the period 255 631 968 1,854
Disposals ─ (11) (231) (242)
Net foreign currency exchange differences (62) 48 (90) (104)
At 31 January 2022 4,728 6,463 7,156 18,347
Net book value
At 31 January 2022 11,750 11,057 4,845 27,652
Commitments for the acquisition of property, plant and equipment as of 31
January 2022 £1,154,000 (31 July 2021: £1,380,000).
12. Leases
Accounting policy
The Group has lease contracts for various items of plant, machinery, vehicles
and other equipment used in its operations. Leases of plant and machinery
generally have lease terms between 3 and 6 years, while motor vehicles and
other equipment generally have lease terms between 3 and 5 years.
The Group also has certain leases of machinery with lease terms of 12 months
or less and leases of office equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions for
these leases.
Set out below are the carrying amounts of right-of-use assets recognised and
movements during the period:
Right-of-use assets Land and buildings Plant and Fixtures, fittings, tools, equipment and vehicles Total
2022 £000 Machinery £000s £000
£000
Cost
At 1 August 2021 28,073 203 2,819 31,095
Transferred from property, plant and equipment 17 ─ 191 208
Additions 1,085 10 439 1,534
Disposals ─ (17) (98) (115)
Expiration of leases (98) (7) (8) (113)
Net foreign currency exchange differences (196) - (43) (239)
At 31 January 2022 28,881 189 3,300 32,370
Depreciation
At 1 August 2021 5,298 139 1,181 6,618
Transferred from property, plant and equipment 7 ─ ─ 7
Charge for the period 1,477 29 295 1,801
Disposals ─ (12) (38) (50)
Expiration of leases (98) (7) (8) (113)
Net foreign currency exchange differences 171 4 (99) 76
At 31 January 2022 6,855 153 1,331 8,339
Net book value
At 31 January 2022 22,026 36 1,969 24,031
Set out below are the carrying amounts of lease liabilities (included under
interest bearing-loans and borrowings) and the movements during the period:
Lease liabilities Land and buildings Plant and Fixtures, fittings, tools, equipment and vehicles Total
2022 £000 Machinery £000s £000
£000
At 1 August 2021 24,281 75 1,073 25,429
Additions to lease liabilities 1,085 10 439 1,534
Disposals ─ (13) (72) (85)
Interest expense 232 4 20 256
Lease payments (1,736) (35) (142) (1,913)
Foreign exchange movements (385) 7 (76) (454)
At 31 January 2022 23,477 48 1,242 24,767
Analysis
Current 2,828 36 473 3,337
Non-current 20,649 12 769 21,430
At 31 January 2022 23,477 48 1,242 24,767
The following are amounts recognised in the statement of comprehensive income:
Total
£000
Depreciation expense of right-of-use assets (cost of sales) 1,048
Depreciation expense of right-of-use assets (administrative expenses) 753
Interest expense 256
13. Other financial liabilities
2022 Air Connection Ventair Pty ClimaRad BV Nordiska Energent Ab ERI Total
ApS Limited £000 Klimatfabriken AB £000 £000 £000
£000 £000 £000
Contingent consideration
At 1 August 2021 483 4,070 5,514 251 256 - 10,574
Contractual liability to purchase remaining non-controlling interest - - -
- - 983 983
Contingent consideration - - - - - 7,678 7,678
Consideration paid during the year (476) (4,163) - - (256) - (4,895)
Foreign exchange (7) 93 - (11) - - 75
At 31 January 2022 - - 6,497 240 - 7,678 14,415
Analysis
Current - - - 240 - - 240
Non-current - - 6,497 - - 7,678 14,175
Total - - 6,497 240 - 7,678 14,415
The financial liability to purchase the non-controlling interest in ClimaRad
BV is sensitive to the estimation of the expected future performance of
ClimaRad which is used to calculate the future amount payable - based on an
EBITDA multiple. If EBITDA for the calendar year ended 31 December 2024 is
10% higher than expected, contingent consideration would be £1,600,000
higher, discounted to present value.
At the 31 July 2021 £507,000 was paid into escrow as part of consideration
but deferred relating to Nordiska Klimatfabriken AB £251,000 and Energent
£256,000, during the period the £256,000 relating to Energent was
transferred to the seller.
The financial liability to pay contingent consideration relating to the
acquisition in the period of ERI is sensitive to the estimation of the
expected future performance of ERI which is used to calculate the future
amount payable - based on an EBITDA multiple. If EBITDA for the calendar
year ended 31 December 2023 is 10% higher than expected, contingent
consideration would be £1,400,000 higher, discounted to present value.
2021 Air Connection Ventair Pty ClimaRad BV Nordiska Energent Ab Total
ApS Limited £000 Klimatfabriken AB £000 £000
£000 £000 £000
Contingent consideration
At 1 August 2020 508 960 - - - 1,468
Contractual liability to purchase remaining non-controlling interest 5,514
- - - - 5,514
Further consideration recognised - 3,287 - 261 258 3,806
Foreign exchange (25) (177) - (10) (2) (214)
At 31 July 2021 483 4,070 5,514 251 256 10,574
Analysis
Current 483 4,070 - - - 4,553
Non-current - - 5,514 251 256 6,021
Total 483 4,070 5,514 251 256 10,574
14. Interest-bearing loans and borrowings
31 January 2022 31 July 2021
Current Non-current Current Non-current
£000 £000 £000 £000
Unsecured - at amortised cost
Borrowings under the revolving credit facility (maturing 2024) ─ 94,380 ─ 73,293
Cost of arranging bank loan ─ (1,051) ─ (956)
─ 93,329 ─ 72,337
ClimaRad vendor loan ─ 9,587 ─ 10,551
Long term lease liabilities 3,337 21,430 3,454 21,975
Interest-bearing loans and borrowings 3,337 124,346 3,454 104,863
In December 2021, the Group took the option to extend its multicurrency
"Sustainability Linked Revolving Credit Facility", together with an accordion
of up to £30 million by a period of 12 months the maturity date is now
December 2024. At the 31 January 2022 we had £300,000 of fees relating to the
option to extend the revolving credit facility included in accruals.
Revolving credit facility - at 31 January 2022
Currency Amount Termination Repayment Rate %
outstanding date frequency
£000
GBP 11,200 2 December 2024 One payment Sonia + margin%
Euro 71,680 2 December 2024 One payment Euribor + margin%
Swedish Krona 11,500 2 December 2024 One payment Stibor + margin%
Total 94,380
During the period the rate of interest used by the bank on our GBP loans has
transitioned from the London Interbank Offered Rate (LIBOR) to Sterling
Overnight Indexed Average (SONIA).
Revolving credit facility - at 31 July 2021
Currency Amount Termination Repayment Rate %
outstanding date frequency
£000
GBP ─ 2 December 2023 One payment Libor + margin%
Euro 57,304 2 December 2023 One payment Euribor + margin%
Swedish Krona 15,989 2 December 2023 One payment Stibor + margin%
Total 73,293
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 period ended 31 January 2022, Group
leverage was below 1.5:1 but greater than 1.0:1 and therefore the margin will
increase to 1.50% in H2 2022.
At 31 January 2022, the Group had £55,620,000 (31 July 2021: £76,707,000) of
its multicurrency revolving credit facility unutilised.
15. Fair values of financial assets and financial liabilities
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
· Level 1 - quoted (unadjusted) prices in active markets
for identical assets or liabilities;
· Level 2 - other techniques for which all inputs that
have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
· Level 3 - techniques which use inputs which have a
significant effect on the recorded fair value that are not based on observable
market data.
Financial instruments carried at fair value comprise the derivative financial
instruments and the contingent consideration in note 13. For hierarchy
purposes, derivative financial instruments are deemed to be Level 2 as
external valuers are involved in the valuation of these contracts. Their fair
value is measured using valuation techniques, including a DCF model. Inputs to
this calculation include the expected cash flows in relation to these
derivative contracts and relevant discount rates.
Contingent consideration is deemed to be Level 3. Contingent consideration is
based on the level of EBITDA achieved during the earn-out period. The
contingent consideration has been recognised in line with management's best
estimate of the level of EBITDA expected to be achieved during the earn-out
period. Whilst the level of EBITDA to be achieved is as yet unobservable,
management's estimate has been based on the available budget and forecasts.
Contingent consideration has not been discounted when the payment is expected
to be made within 1 year as the impact is considered to be immaterial.
16. Dividends paid and proposed
The Board has declared an interim dividend of 2.30 pence per ordinary share in
respect of the half year ended 31 January 2022 (6 months to 31 January 2021:
1.90 pence per ordinary share) which will be paid on 3 May 2022 to
shareholders on the register at the close of business on 25 March 2022. The
total dividend payable has not been recognised as a liability in these
accounts. The Volution EBT has agreed to waive its rights to all dividends.
17. 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.
No related party balances exist at 31 January 2022 or 31 January 2021.
There were no material transactions or balances between the Company and its
key management personnel or members of their close family. At the end of the
period, key management personnel did not owe the Company any amounts.
18. 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 2,966,484 dilutive potential ordinary shares at 31 January 2022 (H1
2021: 649,644).
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 less the operating activities part of the
contingent consideration.
Adjusted operating profit: operating profit before adjustments to
re-measurement of contingent consideration, costs of business combinations,
amortisation of acquired inventory fair value adjustments and amortisation of
assets acquired through business combinations.
Adjusted profit after tax: profit after tax before adjustments to
re-measurement of contingent consideration, net gains or losses on financial
instruments at fair value, costs of business combinations, amortisation of
acquired inventory fair value adjustments, amortisation of assets acquired
through business combinations and the tax effect on these items.
Adjusted profit before tax: profit before tax before adjustments to
re-measurement of contingent consideration, net gains or losses on financial
instruments at fair value, costs of business combinations, amortisation of
acquired inventory fair value adjustments 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: is 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 6 months ended 31 January 2022 at the average exchange rate for the period
ended 31 January 2021. In addition, we have converted the UK operating
companies' sale and purchase transactions in the period ended 31 January 2022,
which were denominated in foreign currencies, at the average exchange rates
for the period ended 31 January 2021.
EBITDA: profit before net finance costs, tax, depreciation and amortisation.
Net debt: bank borrowings 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.
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