REG - Volution Group plc - Half year Results
09/03/2023 07:00
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RNS Number : 3676S Volution Group plc 09 March 2023
Thursday 9 March 2023
VOLUTION GROUP PLC
Half year Results for the six months ended 31 January 2023
Strong first half performance, underpinned by structural growth drivers
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 2023.
RESULTS SUMMARY
6 months to 6 months to Movement
31 January 2023 31 January 2022
Revenue (£m) 162.3 149.6 +8.5%
Adjusted operating profit (£m) 34.2 31.9 +7.1%
Adjusted operating margin (%) 21.1% 21.3% (0.2)pp
Adjusted profit before tax (£m) 31.8 30.0 +6.0%
Adjusted basic EPS (pence) 12.4 11.7 +6.0%
Reported operating profit (£m) 27.8 23.3 +19.6%
Reported profit before tax (£m) 22.6 21.4 +5.6%
Reported basic EPS (pence) 8.6 8.2 +4.9%
Adjusted operating cash flow (£m) 30.6 16.2 +88.1%
Net debt (£m)(1) 79.2 104.0 (24.8)
Interim dividend per share (p) 2.50 2.30 +8.7%
(1) H1 2023 includes lease liabilities of £23.3 million (H1 2022: £24.8
million).
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 16 to the condensed consolidated
financial statements. A reconciliation to reported measures is set out in note
2 to the condensed consolidated financial statements.
FINANCIAL HIGHLIGHTS
· Revenue up 8.5%; 7.3% organic growth (6.3% at constant currency
('cc')) and 1.2% inorganic growth (1.2% at cc). All three regions grew
organically, delivered through both volume and price
· Adjusted operating margin of 21.1% (H1 2022: 21.3%), above our
long-term operating margin target as we successfully mitigated inflationary
headwinds
· Adjusted operating cash flow significantly up on prior year at
£30.6 million as inventory levels normalised (H1 2022: £16.2 million),
leading to a cash conversion of 88% (H1 2022: 50%)
· Balance sheet remains strong (leverage ex-leases at 0.8x),
providing significant headroom for earnings accretive acquisitions
· Reported profit before tax up 5.6% to £22.6 million (H1 2022:
£21.4 million), with higher operating profits partially offset by increased
finance charges as a result of interest rate rises
· Interim dividend up 8.7% to 2.50 pence per share (H1 2022: 2.30
pence)
OPERATIONAL HIGHLIGHTS
· Excellent levels of customer service underpinned by our
group-wide optimisation of component inventory
· Pricing discipline in all three geographical regions underpinned
margin delivery
· Improved Health & Safety performance, with significant
reduction in accident frequency rate, at 0.15 per 100,000 hours worked (H1
2022: 0.25)
· Good progress on a number of important new product development
programs, with several new product launches anticipated during the second half
of the year
HEALTHY AIR, SUSTAINABLY
· Continued progress against our key sustainability targets:
o 76.4% of plastic used in own manufacturing facilities from recycled
sources vs. target of 90% by end FY25 (H1 2022: 58.0%)
o 69.4% of revenue from low-carbon, energy saving products vs. target of 70%
by end FY25 (H1 2022: 65.1%)
· Heat recovery further increased to 32.2% of the total Group
revenue
Commenting on the Group's performance, Ronnie George, Chief Executive Officer,
said:
"We delivered a strong first half performance across our three regions, driven
in particular by strong UK residential RMI demand. We have successfully
managed inflationary headwinds and supply chain challenges through pricing
discipline and inventory optimisation and in doing so maintained our operating
margin at 21%. This strong result is testament to the hard work and commitment
of our employees."
"The importance of indoor air quality to our health and the need for energy
efficient, low carbon buildings, are moving even further up the global agenda
and increasingly supported by government policy and regulation, driving demand
for Volution's innovative ventilation and heat recovery systems. This was
evidenced in the first half by strong refurbishment demand, particularly in
the UK, as homeowners and landlords focused on fixing mould and condensation
issues, exacerbated by a reduction in heating use in response to the energy
crisis.
"Looking ahead, although mindful of the cautious sentiment in some of our
segments, residential RMI demand remains supportive, and inflationary
pressures and supply chain challenges are easing.
With our excellent levels of customer service, agile manufacturing, a
well-developed M&A pipeline and strong balance sheet position, coupled
with significant geographic revenue diversity, we are well placed to make
further progress."
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Andy O'Brien, Chief Financial Officer +44 (0) 1293 441536
FTI Consulting +44 (0) 203 727 1340
Richard Mountain
Susanne Yule
A meeting for analysts will be held at 10:00am GMT today, Thursday 9 March
2023, at the offices of Berenberg, 60 Threadneedle Street, London EC2R 8HP.
Please contact FTI_Volution@fticonsulting.com to register to attend or for
instructions on how to connect to the meeting via conference facility.
A copy of this announcement and the presentation given to analysts will be
available on our website www.volutiongroupplc.com
(http://www.volutiongroupplc.com) on Thursday 9 March 2023.
Volution Group plc Legal Entity Identifier: 213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international designer and
manufacturer of energy efficient indoor air quality solutions. Volution Group
comprises 19 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
Overview
We have reported a strong performance in the first half of the year, and I
want to congratulate our valued colleagues in delivering these results. Our
end market activity continues to be characterised by a greater proportion of
revenue in providing refurbishment solutions for buildings with, approximately
70% of our revenue being RMI and 30% being in new build applications. A
growing focus on decarbonising buildings, the impact that poorly heated and
ventilated dwellings can have on our health and a greater awareness post
Covid-19 of the inextricable link between good ventilation and healthy homes,
is providing a structural underpinning to the long-term revenue trends across
our Group. Despite the uncertain global macroeconomic environment, we continue
to see a widespread willingness and funding support to invest in good quality
ventilation for buildings.
During the first half, our teams successfully navigated supply chain
interruptions and inflationary pressures and our customer service levels have
been exemplary across all areas of the Group.
I am immensely proud of the progress we have made, not just with our financial
performance but also with the key sustainability initiatives that our
colleagues champion daily. Progress with recycled content in our production,
the proportion of our revenue that is from low carbon products and our
improving health and safety performance are some of the highlights of the
first half of the year. Well done and thank you to the Volution team.
The strategic investment we made in component inventory in the last two
financial years has helped us not only deliver excellent levels of customer
service but also allowed us to respond more quickly to some encouraging demand
growth opportunities, most notably in the UK refurbishment market. The
inventory investments made in prior years have now normalised and we expect
inventory levels to remain reasonably constant, relative to revenues in
future, well positioned to support our organic growth initiatives.
Our pricing discipline and relentless pursuit of improving efficiency, coupled
with tight cost control and initiatives to reduce our material costs have
resulted in an adjusted operating margin of 21.1%, in a period when
inflationary pressures have been significant.
Across our Group we have started to see material cost inflation pressures
subsiding, although facilities and labour cost inflation pressures remain. The
impact of these costs has largely been mitigated through higher selling
prices, higher factory volumes and improving levels of efficiency, in several
cases underpinned by investment in new plant, tooling and equipment.
With excellent levels of customer service across our group, and our supply
chains now in good shape, our innovation and product development teams have
been focused on the launch of several new products planned for the second half
of the year including new MVHR (mechanical ventilation with heat recovery)
solutions for both residential and commercial.
Results
Adjusted operating margin was consistent with the last two full financial
years at 21.1% (H1 2022: 21.3%).
Revenue grew by 8.5%, 7.5% at constant currency, with revenue growth in all
three of our geographic regions enabling the Group to deliver organic growth
of 6.3% on a constant currency basis.
Our adjusted operating profit increased 7.1% to £34.2 million in H1 2023 from
£31.9 million in the prior period. Reported operating profit was £27.8
million (H1 2022: £23.3 million).
Adjusted operating cash inflow increased to £30.6 million (H1 2022: £16.2
million) as inventory levels normalised with a cash conversion rate of 88% (H1
2022: 50%). Our balance sheet is strong, with leverage (ex-leases) at 0.8x,
giving ample headroom to make earnings accretive acquisitions.
In the first half of financial year 2023 we acquired the remaining shares of
ERI Corporation UK Limited for consideration of £0.4 million. Our pipeline of
potential acquisition opportunities is encouraging, and with our balance sheet
strength and headroom, we are optimistic of being able to add further earnings
accretive acquisitions to the Group.
Focus on sustainability
Our purpose, to deliver "Healthy Air, Sustainably" is hugely important to us
and we made strong progress with our key sustainability initiatives in the
first half of the year.
The proportion of our revenue from low carbon, energy saving products
increased to 69.4% versus our long term target of 70% by end of FY25 (H1 FY22:
66.1%). This was aided by the growth in heat recovery ventilation which now
represents 32.2% of the total revenue of the Group. Our new product innovation
team developments are focused on adding innovative new low carbon product
solutions to our portfolio.
Continuing the excellent progress we made in H2 2022, where breakthroughs were
made in applying alternative types of recycled materials to our injection
moulding processes, the proportion of recycled plastics used in our
manufacturing increased to 76.4% versus our long term target of 90% by end of
FY25 (H1 2022: 67.2%). I would like to thank our technical and operational
teams in the UK for delivering this significant progress.
We are also pleased that our continued focus on 'keeping everyone safe' has
led to a significant reduction in our accident frequency rate, at 0.15 per
100,000 hours worked compared to 0.25 last year. As always, our ambition
remains that all of our colleagues should go home safely every day.
We are well positioned to make further good progress with these important KPIs
in the second half of the year.
Regulatory Drivers and indoor air quality
Following the changes to Part F and Part L of the Building Regulations in the
UK, we are now seeing a greater transition to continuous ventilation solutions
among housebuilders. This increases our average sales value per house and this
trend is expected to continue. We await the Future Homes Standard public
consultation from Government due later this year which we expect to further
support energy efficient ventilation in new build.
Following several widely reported cases of health issues and fatalities linked
to exposure to mould, we are seeing an increased urgency and focus on air
quality in social housing. We also await the publication of the Decent Home
Standard for the Private Rented sector after the consultation completed in
October 2022.
In Continental Europe, The Industry, Research and Energy Committee adopted its
position on the proposed revision of the Energy Performance of Buildings
Directive (EPBD). According to the text, residential buildings would have to
achieve at least energy performance class E by 2030, and D by 2033.
Non-residential and public buildings would have to achieve the same classes by
2027 and 2030 respectively. These changes support further air tightness
improvements to buildings and therefore the requirement for energy efficient
ventilation solutions.
Interim dividend
The Board has declared an interim dividend of 2.5 pence per share, up 8.7% (H1
2022: 2.3 pence), reflecting the strong first half performance and
demonstrating the Board's confidence in the performance of the Group. The
interim dividend will be paid on 2 May 2023 to shareholders on the register at
the close of business on 24 March 2023.
Outlook
Looking ahead, although mindful of the cautious sentiment in some of our
segments, residential refurbishment demand remains supportive, and
inflationary pressures and supply chain challenges are easing.
With our excellent levels of customer service, agile manufacturing, a
well-developed M&A pipeline and strong balance sheet position, coupled
with significant geographic revenue diversity, we are well placed to make
further progress.
Ronnie George
Chief Executive Officer
8 March 2023
MARKET BY MARKET
United Kingdom
Market sector revenue 6 months to 31 Jan 2023 6 months to 31 Jan 2022 Growth
£m £m %
UK
Residential 41.4 35.8 15.7
Commercial 14.3 15.8 (9.3)
Export 5.3 5.6 (5.9)
OEM 12.7 12.6 0.2
Total UK Revenue 73.7 69.8 5.5
Adjusted operating profit 15.6 13.9 12.5
Adjusted operating profit margin (%) 21.2 19.9 1.3pp
Reported operating profit 13.4 9.2 45.7
UK revenue grew by 5.5% (5.3% at constant currency) to £73.7 million with
adjusted operating profit at £15.6 million, an increase of £1.7 million on
the prior year. Adjusted operating profit margin was 21.2% compared to the
first half of 2022 of 19.9%, an increase of 1.3 percentage points. This brings
the UK operating profit margin close to our other two market sector areas,
Continental Europe, and Australasia.
A year ago, we made some changes to the UK's organisational structure to
strengthen the performance of the region. The development of the leadership
team focusing on our three key areas of UK residential RMI, UK residential new
build and commercial ventilation has enabled us to more closely focus and
support each of these areas. The residential growth of 15.7% in the first half
of the year is an outstanding performance and offsets the more difficult
commercial end market.
Pricing discipline, cost reduction and efficiency initiatives and a growing
mix shift towards higher value, higher gross margin low carbon and innovative
solutions has been a key driver of performance. Excellent customer service and
stock availability across the UK business have also enabled us to make further
share gains in the residential market.
Revenue in our Residential sector was up 15.7% to £41.4 million (H1 2022:
£35.8 million). The detail of our key residential end markets is as follows.
Social housing refurbishment demand has delivered the strongest revenue growth
in our UK residential market. On 19 November 2022, Housing Secretary Michael
Gove, wrote a letter to all providers of social housing, headed, "Ensuring
Quality in Social Housing." This letter was in response to the tragic death of
Awaab Ishak, a two-year-old boy, with the Coroner citing mould and
poor-quality ventilation in his home as the direct reason attributable to his
death. Amendments have since been tabled to the Social Housing Regulation Bill
to introduce 'Awaab's law' which will require social housing landlords to fix
reported health hazards within specified timeframes.
Alongside this issue we are witnessing a winter period where fuel bills have
been the highest on record. As some households understandably reduce their
heating use, the lower temperatures drive a higher incidence of mould and
condensation. These factors, as well as an accelerated approach to delivering
the net zero carbon targets for the future, have driven strong demand for our
low carbon ventilation solutions. Our Vent-Axia brand is the first in the UK
to launch a fully PAS2035 compliant decentralised heat recovery solution fully
suitable for retrofit.
We have also achieved strong revenue growth in our private RMI market with
similar demand drivers as public housing. Homeowners as well as private
landlords and their tenants are increasingly aware of the dangers of damp,
mould and indoor pollutants, and are turning to ventilation products as part
of the solution. Whilst wider discretionary building products purchases have
been under pressure in the last twelve months, we continue to believe that
ventilation refurbishment in our dwellings is being seen as an increasingly
necessary and worthwhile investment required to maintain the health of both
the building and its occupants.
Sales in our UK New Build Residential Systems sector were also strong in the
first half of the year with revenue considerably up on the same period last
year. Building regulations changes in June 2022 will move the market to a
"systems only" approach soon, where all new build housing will incorporate
higher value, whole building ventilation systems, and we predict that very few
new developments will utilise traditional, less energy efficient single
exhaust fans in the future. We have been pleased to work closely with our
trade association and house builders in helping define an energy efficient and
cost-effective ventilation strategy for the homes of the near future.
Order intake levels remain encouraging, but we are mindful of the significant
reduction in sales rates across the housebuilder community since the "mini
budget" late in 2022. We expect unit revenue rates per new dwelling to
continue to increase as newer, more energy efficient products, including heat
recovery system solutions, are applied. This will help to offset any
potentially weaker volumes in the period ahead.
UK Commercial market revenue declined by 9.3% in the period to £14.3 million
(H1 2022: £15.8 million). Commercial refurbishment was more challenged in the
first half of the year. The prior year comparator period was a strong
post-Covid-19 restart for many retailers, restaurants and offices, whilst we
witnessed weak demand for our refurbishment solutions in the first half. Our
solutions for the new build education sector also performed weakly although a
further enhancement to the product range was added at the end of the period
with expectations to recover market share in the months ahead. The better
performer in our commercial revenue stream was our range of energy efficient
fan coils where the order book remains strong and there is a further range
enhancement planned for the second half of the year.
UK Export market revenue was £5.3 million, down 5.9% (6.7% at constant
currency). Weaker demand in the period from the Republic of Ireland market
notably in December and January was exacerbated by some customer destocking
over the calendar year end to meet reducing demand. However, we have already
seen this demand return at the start of the second half of the financial year.
OEM revenue was £12.7 million, an increase of 0.2% (decline 0.7% at constant
currency). Whilst overall this is a disappointing revenue performance, we have
seen a continuation of the revenue mix trend away from older, less energy
efficient technology towards newer, leading low carbon EC3 range of products.
The shift in demand has been so pronounced in the period that our existing EC3
production capacity is largely full, and we have now added new capacity. This
investment commenced in early FY23 and, became operational at the beginning of
March 2023. The shift away from older technology products will continue, but
the reducing significance of this category lessens the impact of the decline,
whilst we are optimistic about the continued growth of our EC3 ranges.
Continental Europe
Market sector revenue 6 months to 31 Jan 2023 6 months Growth
£m to 31 Jan 2022 %
£m
Continental Europe
Nordics 26.6 27.0 (1.4)
Central Europe 37.7 30.4 23.9
Total Continental Europe revenue 64.3 57.4 12.0
Adjusted operating profit 15.4 14.8 4.0
Adjusted operating profit margin (%) 24.0 25.8 (1.8)pp
Reported operating profit 12.1 11.6 4.3
Revenue in Continental Europe was £64.3 million, with growth of £6.9
million, an increase of 12.0% (11.4% at constant currency). Organic revenue
grew by 8.9% (8.2% at constant currency) and adjusted operating profit was
£15.4 million, up from £14.8 million, in the same period in the prior year.
The margin reduction year-on-year in Continental Europe is primarily due to
business mix, although European margins remain the highest in the Group. ERI,
our heat exchanger business acquired in September 2021 grew strongly, as did
ClimaRad in the Netherlands, with the Nordics broadly flat and a decline in
Germany after three and a half years of exceptionally strong revenue growth.
Revenue in the Nordics was £26.6 million (H1 2022: £27.0 million), a
decrease of 1.4% (growth 0.4% at constant currency). Sales in the Nordics have
been challenging in the first half of the year. The weakness is predominantly
across the new build market in Sweden, Denmark, and Finland. Our DIY and trade
routes to market for refurbishment solutions meanwhile have performed well
over the period and our disciplined approach to pricing has enabled us to
maintain our adjusted operating margins.
We continued to make strong progress in Central Europe, delivering revenue of
£37.7 million and growth of 23.9% (21.2% at constant currency) compared to
the previous period, helped by the acquisition of ERI. Organic revenue grew by
18.0% (15.2% at constant currency).
Our InVENTer brand in Germany had a weaker performance in the first half of
the year as activity and sentiment in the market was much softer. The local
nervousness over gas supplies during the winter period and higher interest
rates impacting new build demand made for a challenging backdrop in the
period. InVENTer has delivered strong organic growth over the last three and a
half years, and we see the most recent period as a temporary setback. Quote
levels remain high, supply chain difficulties have eased and we are optimistic
about the long-term growth drivers for decentralised heat recovery ventilation
products in this market.
The trend towards decentralised heat recovery solutions, particularly for
major refurbishments, is demonstrated by the strong performance delivered by
our ClimaRad brand in the Netherlands. The project order pipeline is also
strong, and we are confident about the direction of travel for the second half
of the year. The investment payback for decentralised heat recovery is now
much shorter than before due to higher energy costs.
In Belgium the late launch of our new and upgraded range of mechanical
ventilation with heat recovery held back revenues in the first half but we
have now launched our upgraded range of products into the market. The project,
whilst delayed by Covid-19 and our own electronics development, is now
available to the market and enables us to access areas of the market
previously unavailable to us.
ERI continues to deliver strong growth and our investment to substantially
increase capacity remains on track to deliver benefits in the balance of FY23
and into the following year. We continue to develop new, innovative, and more
efficient product solutions and have had some success in developing the North
American market for additional business. The long-term structural underpinning
of the demand for aluminium cross counterflow heat exchangers remains exciting
and we will add additional capacity headroom to grow in the coming months.
Australasia
Market sector revenue 6 months to 31 Jan 2023 6 months Growth
£m to 31 Jan 2022 %
£m
Total Australasia revenue 24.3 22.4 8.9
Adjusted operating profit 5.5 4.9 11.3
Adjusted operating profit margin (%) 22.6 22.1 0.5pp
Reported operating profit 4.9 4.4 12.4
Revenue in Australasia was £24.3 million, and grew by 8.9% (4.5% at constant
currency). Adjusted operating profit increased by 11.3% to £5.5 million, with
our adjusted operating margin increasing to 22.6% (H1 2022: 22.1%).
We continue to develop our product portfolio for both the New Zealand and
Australian markets and despite the slower activity in the new build
construction market we are confident about our opportunities for further
growth and are capturing further market share in our key area of residential
refurbishment. Delivering a 22.6% operating profit margin, with excellent
levels of customer service and the widest offering of residential product
solutions in the Australasian market, we are delighted about the continuing
progress made in the first half of the year.
FINANCIAL REVIEW
Trading performance summary
Group revenue for the six months ended 31 January 2023 was £162.3 million (H1
2022: £149.6 million), an increase of 8.5%. On a constant currency basis
revenue grew by 7.5%, of which 6.3% was organic and 1.2% inorganic due to the
prior year acquisition of ERI, with a favourable 1.0% impact from foreign
exchange.
Adjusted operating profit increased by 7.1% (6.4% at constant currency) to
£34.2 million (H1 2022: £31.9 million). The strong adjusted operating margin
of 21.1% remained in line with the prior two full financial years (H1 2022:
21.3%). On a regional level, UK adjusted operating margin increased to 21.2%
(H1 2022: 19.9%) with strong price discipline, good progress in terms of
product mix, and good operational performance. European margins remain the
highest in the Group at 24.0% albeit slightly down on the prior year period
(H1 2022: 25.7%) due principally to business mix. Reported operating profit
increased by 19.6% to £27.8 million (H1 2022: £23.3 million), of which £2.3
million was attributable to the increase in adjusted operating profit and a
further £2.3 million was due to a reduced amortisation charge as a number of
intangibles assets reached the end of their amortisation life.
Adjusted earnings per share increased by 6.0% to 12.4p, compared with 11.7p in
H1 2022. This is despite an adverse impact on our finance costs (up 21.6%) due
to the marked increase in global bank base rates. Our reported basic earnings
per share also increased by 4.9% to 8.6 pence (H1 2022: 8.2 pence).
Reported Adjusted(2)
6 months to 6 months to Movement 6 months to 6 months to Movement
31 January 2023 31 January 2022 31 January 2023 31 January 2022
Revenue (£m) 162.3 149.6 8.5% 162.3 149.6 8.5%
EBITDA (£m) 38.6 36.1 6.7% 38.7 36.3 6.8%
Operating profit (£m) 27.8 23.3 19.6% 34.2 31.9 7.1%
Net finance costs (£m) 3.5 0.9 280.2% 2.0 1.6 21.6%
Profit before tax (£m) 22.6 21.4 5.6% 31.8 30.0 6.0%
Basic EPS (p) 8.6 8.2 4.9% 12.4 11.7 6.0%
Interim dividend per share (p) 2.50 2.30 8.7% 2.50 2.30 8.7%
Operating cash flow (£m) 30.4 16.1 88.4% 30.6 16.2 88.1%
Net debt (£m)1 79.2 104.0 24.8 79.2 104.0 24.8
(1) H1 2023 includes lease liabilities of £23.3 million (H1 2022: £24.8
million)
(2) 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 16 to the condensed consolidated financial statements.
Revenue growth - H1 2022 to H1 2023 (£m)
Adjusted operating profit growth - H1 2022 to H1 2023 (£m)
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 £31.8 million was 6.0% higher than H1 2022
(£30.0 million). Reported profit before tax £22.6 million was 5.6% higher
than H1 2022 (£21.4 million).
6 months ended 31 January 2023 6 months ended 31 January 2022
Reported Adjustments Adjusted Reported Adjustments Adjusted
£m £m results £m £m results
£m £m
Revenue 162.3 ─ 162.3 149.6 ─ 149.6
Gross profit 76.9 ─ 76.9 71.3 ─ 71.3
Administration and distribution costs excluding the costs listed below (42.7) ─ (42.7) (39.4) ─ (39.4)
Amortisation of intangible assets acquired through business combinations (6.2) 6.2 ─ (8.5) 8.5 ─
Acquisition costs(1) (0.2) 0.2 ─ (0.1) 0.1 ─
Operating profit 27.8 6.4 34.2 23.3 8.6 31.9
Re-measurement of financial liability (0.4) ─ (0.4) (0.3) ─ (0.3)
Re-measurement of future consideration(2) (1.3) 1.3 ─ (0.7) 0.7 ─
Net loss on financial instruments at fair value(3) (1.5) 1.5 ─ 0.7 (0.7) ─
Other net finance costs (2.0) ─ (2.0) (1.6) ─ (1.6)
Profit before tax 22.6 9.2 31.8 21.4 8.6 30.0
Income tax (5.7) (1.7) (7.4) (5.1) (1.7) (6.8)
Profit after tax 16.9 7.5 24.4 16.3 6.9 23.2
(1) £0.2 million acquisition costs relate to professional fees and expenses
for acquisitions. (H1 2022: £0.1 million)
(2) £1.3 million revaluation relating to the re-measurement of future
consideration in ClimaRad and ERI (H1 2022: £0.7 million)
(3) £1.5 million loss due to the fair value of financial derivatives (H1
2022: £0.7 million gain)
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, the
movement of Sterling against our four principal non-Sterling trading
currencies were as follows: Euro weakened by 2.3%, Swedish Krona
strengthened by 4.4%, New Zealand Dollar weakened by 1.6% and Australian
Dollar weakened by 6.0%.
If we had translated the H1 2023 performance of the Group at our H1 2022
exchange rates, the reported revenue would have been £1.5 million lower at
£160.8 million, and adjusted operating profit would have been £0.2 million
lower at £33.9 million.
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 2023 we had borrowings
denominated in Swedish krona of £nil million (31 July 2022: £2.4 million),
and Euro-denominated bank borrowings of £72.5 million (31 July 2022: £71.9
million). The Sterling value of our foreign currency-denominated loans, net of
cash, increased by £4.4 million (H1 2022: decreased by £0.9 million) as a
consequence of exchange rate movements.
Finance costs
Reported net finance costs were £3.5 million (H1 2022: £0.9 million)
including £1.5 million of net loss on the revaluation of financial
instruments (H1 2022: gain £0.7 million). Adjusted finance costs were £2.0
million (H1 2022: £1.6 million), the increase compared to prior year
reflecting higher interest rates across our areas of operation.
Taxation
Our underlying effective tax rate, on adjusted profit before tax, was 23.2%
(H1 2022: 22.6%). The increase of 0.6 percentage points in our adjusted
effective tax rate compared to the prior period was primarily a result of part
year impact of the change in the UK rate from 19% to 25%.
Our reported effective tax rate for the period was 25.0% (H1 2022: 23.8%).
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
Group cash conversion, defined as adjusted operating cash flow as a percentage
of adjusted earnings before interest, tax and amortisation (see note 16) was
88% (H1 2022: 50%). With the Group's typical cash seasonality profile
weighted slightly more towards the second half of the year, this is well on
track to exceed our stated financial target of 90% for the full year 2023.
Working capital increased by £5.0 million in the period (H1 2022: £17.5
million), within which inventory increased by £2.5 million (H1 2022: £8.3
million). Approximately £0.5 million of the increase in inventory was due to
movements in foreign exchange rates, with receipt of components ahead of the
lunar New Year holiday period and a small amount of revaluation due to
increased input costs also being factors.
Capital expenditure in the period of £4.1 million (H1 2022: £3.6 million),
included £1.0 million in product development across the Group and £1.0
million on plant and equipment in the UK, as well as investment to expand the
EC3 motorised impeller production capacity in our OEM business and on
continuing the capacity expansion investment in ERI in North Macedonia.
Dividend payments in the period were £9.9 million (H1 2022: £8.7 million),
whilst tax payments were also higher at £6.5 million (H1 2022: £6.3
million).
Acquisition spend of £0.4 million (H1 2022: £24.4 million) related to the
acquisition of the remaining 49% share purchase of ERI Corporation UK Limited
(see note 9).
Net debt at 31 January 2023 was £79.2 million (H1 2022: £104.0 million),
comprised of bank borrowings of £72.5 million (H1 2022: £94.4 million), net
of cash and cash equivalents of £16.6 million (H1 2022: £15.2 million) and
including lease liabilities of £23.3 million (H1 2022: £24.8 million). Net
debt (excluding leased liabilities) of £55.9 million (H1 2022: £79.2
million) represents leverage of 0.8x adjusted EBITDA (H1 2022: 1.2x).
6 months to 6 months to
31 January 2023 31 January 2022
£m £m
Opening net debt at 1 August (85.8) (79.2)
Movements from normal business operations:
Adjusted EBITDA 38.7 36.3
Movement in working capital (5.0) (17.5)
Share-based payments 1.0 1.0
Capital expenditure (4.1) (3.6)
Adjusted operating cash flow: 30.6 16.2
- Interest paid net of interest received (1.4)
(1.5)
- Income tax paid (6.5) (6.3)
- Business combination related operating costs (0.2) (0.1)
- Dividend paid (9.9) (8.7)
- Purchase of own shares by the Employee Benefit Trust (0.9) ─
- FX on foreign currency loans/cash (4.4) 0.9
- Issue costs of new borrowings (0.3) ─
- Lease liabilities 1.7 0.7
- Payments of lease liabilities (1.6) (1.7)
Movements from acquisitions:
- Acquisition of non-controlling interest (0.4) ─
- 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)
Closing net debt at 31 January (79.2) (104.0)
6 months to 6 months to
31 January 2023 31 January 2022
£m £m
Bank Debt (72.5) (94.4)
Cash 16.6 15.2
Net Debt (excluding leased liabilities) (55.9) (79.2)
Lease liabilities (23.3) (24.8)
Closing net debt at 31 January (79.2) (104.0)
Reconciliation of adjusted operating cash flow
6 months to 6 months to
31 January 2023 31 January 2022
£m £m
Net cash flow generated from operating activities 28.0 10.2
Capital expenditure (4.1) (3.6)
UK and overseas tax paid 6.5 6.3
Contingent consideration relating to the acquisition of Ventair from operating ─ 3.2
activities
Cash flow relating to business combination costs 0.2 0.1
Adjusted operating cash flow 30.6 16.2
Bank facilities, refinancing and liquidity
In December 2022, the Group exercised the option to extend its £150 million
multicurrency "Sustainability Linked Revolving Credit Facility", together with
an accordion of up to £30 million, by a further period of twelve months.
The maturity date of the facility is now 2 December 2025.
At 31 January 2023, the Group had £77,544,000 (31 July 2022: £75,649,000) of
the facility unutilised.
Employee Benefit Trust
During the period a £0.9 million loan was made to the Volution Employee
Benefit Trust for the purpose of purchasing shares in Volution Group plc in
order to partly fulfil the Company's obligations under its share incentive
plans (H1 2022: £nil). In the period 162,542 shares (H1 2022: 305,024) were
exercised and released by the trustees with a value of £533,000 (H1 2022:
£845,000). 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 July 2024 and these condensed consolidated
financial statements have therefore been prepared on a going concern basis.
Please refer to Note 1 Basis of preparation.
Andy O'Brien
Chief Financial Officer
8 March 2023
Principal Risks and Uncertainties
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
2022, which can be found at www.volutiongroupplc.com
(http://www.volutiongroupplc.com) .
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 2022 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
8 March
2023
8 March 2023
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 2023 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 16. 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 2023 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) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 are
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".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
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, including our Conclusions
Relating to Going Concern, are 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) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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
8 March 2023
Interim Condensed Consolidated Statement of Comprehensive Income
For the period ended 31 January 2023
Notes 2023 2022
Unaudited Unaudited
£000 £000
Revenue from contracts with customers 3 162,287 149,574
Cost of sales (85,378) (78,284)
Gross profit 76,909 71,290
Administrative and distribution expenses (48,904) (47,910)
Operating profit before separately disclosed items 28,005 23,380
Costs of business combinations (187) (126)
Operating profit 27,818 23,254
Finance revenue 33 695
Re-measurement of financial liability 11 (428) (292)
Re-measurement of future consideration 11 (1,336) (691)
Finance costs (3,531) (1,615)
Profit before tax 22,556 21,351
Income tax 5 (5,639) (5,082)
Profit for the period 16,917 16,269
Attributable to the shareholders 16,908 16,240
Attributable to non-controlling interests 9 29
Other comprehensive (expense)/income
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations 2,934 (3,751)
(Loss)/Gain on hedge of net investment in foreign operations (3,805) 2,104
Other comprehensive expense for the period (871) (1,647)
Total comprehensive income for the period 16,046 14,622
Attributable to the shareholders 16,037 14,593
Attributable to non-controlling interests 9 29
Earnings per share
Basic earnings per share 6 8.6 8.2
Diluted earnings per share 6 8.5 8.1
Interim Condensed Consolidated Statement of Financial Position
At 31 January 2023
Notes 31 January 2023 31 July
Unaudited 2022
£000 Audited
£000
Non-current assets
Property, plant and equipment 10 29,108 28,235
Right-of-use assets 23,184 23,567
Intangible assets - goodwill 7 145,182 142,661
Intangible assets - others 8 81,884 87,592
279,358 282,055
Current assets
Inventories 59,392 57,151
Right of return assets 296 -
Trade and other receivables 53,563 57,526
Other financial assets 11 - 1,091
Cash and short-term deposits 16,604 13,543
129,855 129,311
Total assets 409,213 411,366
Current liabilities
Trade and other payables (42,333) (48,837)
Refund liabilities (10,305) (10,268)
Income tax (6,517) (5,564)
Other financial liabilities 11 (661) -
Interest-bearing loans and borrowings 12 (1,888) (3,599)
Provisions (1,556) (1,684)
(63,260) (69,952)
Non-current liabilities
Interest-bearing loans and borrowings 12 (102,957) (104,433)
Other financial liabilities 11 (15,896) (14,132)
Provisions (465) (319)
Deferred tax liabilities (12,474) (14,222)
(131,792) (133,106)
Total liabilities (195,052) (203,058)
Net assets 214,161 208,308
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (1,467) (3,574)
Capital reserve 93,855 93,855
Share-based payment reserve 4,647 5,058
Foreign currency translation reserve 2,228 3,099
Retained earnings 101,371 96,247
Total shareholders' equity 214,161 208,212
Non-controlling interest - 96
Total equity 214,161 208,308
The consolidated financial statements of Volution Group plc (registered
number: 09041571) were approved by the Board of Directors and authorised for
issue on 8 March 2023.
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 2023
Share Share Treasury Capital Share-based Foreign Retained Shareholder's equity Non-Controlling Interest Total
capital premium shares reserve payment currency earnings £000 £000 Equity
£000 £000 £000 £000 reserve translation £000 £000
£000 reserve
£000
At 31 July 2021 (Audited) 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 expense ─ ─ ─ ─ ─ (1,647) ─ (1,647) ─ (1,647)
Total comprehensive income ─ ─ ─ ─ ─ (1,647) 16,240 14,593 29 14,622
Acquisition of businesses ─ ─ ─ ─ ─ ─ ─ ─ 34 34
Exercise of shares options ─ ─ 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 (Unaudited) 2,000 11,527 (1,675) 93,855 3,853 1,252 81,387 192,199 63 192,262
Profit for the period ─ ─ ─ ─ ─ ─ 19,370 19,370 33 19,403
Other comprehensive income ─ ─ ─ ─ ─ 1,847 ─ 1,847 ─ 1,847
Total comprehensive income ─ ─ ─ ─ ─ 1,847 19,370 21,217 33 21,250
Purchase of own shares ─ ─ (1,900) ─ ─ ─ ─ (1,900) ─ (1,900)
Exercise of share options ─ ─ 1 ─ ─ ─ 43 44 ─ 44
Share-based payment including tax ─ ─ ─ ─ 1,205 ─ ─ 1,205 ─ 1,205
Dividends paid ─ ─ ─ ─ ─ ─ (4,553) (4,553) ─ (4,553)
At 31 July 2022 (Audited) 2,000 11,527 (3,574) 93,855 5,058 3,099 96,247 208,212 96 208,308
Profit for the period ─ ─ ─ ─ ─ ─ 16,908 16,908 9 16,917
Other comprehensive expense ─ ─ ─ ─ ─ (871) ─ (871) ─ (871)
Total comprehensive income ─ ─ ─ ─ ─ (871) 16,908 16,037 9 16,046
Purchase of own shares ─ ─ (911) ─ ─ ─ ─ (911) ─ (911)
Exercise of share options ─ ─ 3,018 ─ (1,379) ─ (1,639) ─ ─ ─
Share-based payment including tax ─ ─ ─ ─ 968 ─ ─ 968 ─ 968
Dividend paid ─ ─ ─ ─ ─ ─ (9,881) (9,881) ─ (9,881)
Acquisition of non-controlling interest ─ ─ ─ ─ ─ ─ (264) (264) (105) (369)
(note 9)
At 31 January 2023 (Unaudited) 2,000 11,527 (1,467) 93,855 4,647 2,228 101,371 214,161 ─ 214,161
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 2023 of £111,793,000 (31 January 2022
£116,822,000).
Interim Condensed Consolidated Statement of Cash Flows
For the period ended 31 January 2023
Notes 2023 2022
Unaudited Unaudited
£000 £000
Operating activities
Profit for the period after tax 16,917 16,269
Adjustments to reconcile profit for the period to net cash flow from operating
activities:
Income tax 5,639 5,082
Gain on disposal of property, plant and equipment (2) (4)
Acquisition related operating costs 187 126
Cash flows relating to acquisition costs (187) (126)
Re-measurement of financial liability 428 292
Re-measurement of future consideration 1,336 691
Finance revenue (33) (695)
Finance costs 3,531 1,615
Share-based payment expense 968 1,035
Depreciation of property, plant and equipment 10 1,974 1,854
Depreciation of right of use assets 1,870 1,801
Amortisation of intangible assets 8 6,892 9,229
Working capital adjustments:
Decrease/(Increase) in trade receivables and other assets 3,963 (3,060)
Increase in inventories (2,537) (8,282)
Decrease in trade and other payables (6,467) (5,960)
Movement in provisions 18 (153)
Cash generated by operations 34,497 19,714
UK income tax paid (2,320) (1,000)
Overseas income tax paid (4,170) (5,264)
Contingent consideration relating to the acquisition of Ventair 9 ─ (3,211)
Net cash flow generated from operating activities 28,007 10,239
Investing activities
Payments to acquire intangible assets 8 (1,622) (595)
Purchase of property, plant and equipment 10 (2,513) (3,075)
Proceeds from disposal of property, plant and equipment 19 80
Acquisition of subsidiaries, net of cash acquired 9 ─ (16,466)
Contingent consideration relating to the acquisition of Ventair 9 ─ (952)
Interest received 33 1
Net cash flow used in investing activities (4,083) (21,007)
Financing activities
Repayment of interest-bearing loans and borrowings (18,700) (12,237)
Repayment of ERI debt acquired ─ (3,285)
Repayment of ClimaRad vendor loan ─ (504)
Proceeds from new borrowings 13,000 35,428
Acquisition of non-controlling interest 9 (369) ─
Issue costs of new borrowings (300) ─
Interest paid (1,554) (1,371)
Payment of principal portion of lease liabilities (1,584) (1,657)
Dividends paid (9,881) (8,719)
Purchase of own shares (911) ─
Net cash flow (used)/generated in financing activities (20,299) 7,655
Net increase/(decrease) in cash and cash equivalents 3,625 (3,113)
Cash and cash equivalents at the start of the year 13,543 19,456
Effect of exchange rates on cash and cash equivalents (564) (1,183)
Cash and cash equivalents at the end of the period 16,604 15,160
Notes to the Interim Condensed Consolidated Financial Statements
For the period ended 31 January 2023
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
8 March 2023. The financial information set out herein does not constitute the
Group's statutory consolidated financial statements for the 6 months ended 31
January 2023 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 2022. The financial information for
the half years ended 31 January 2023 and 31 January 2022 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 UK-adopted international accounting standards. The
comparative financial information for the year ended 31 July 2022 included
within this report does not constitute the full statutory accounts for that
period. The Annual Report 2022 has been filed with the Registrar of Companies.
The Independent Auditor's Report on the Annual Report 2022 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 financial statements have been prepared on a going concern basis. The
Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence in the foreseeable future, assessed for
the 18 month period ending 31 July 2024.
The financial position remains robust with committed facilities totalling
£150 million, and an accordion of a further £30 million, maturing in
December 2025 (having been extended by 12 months during the period as set out
in note 12). The financial covenants on these facilities are for leverage (net
debt/adjusted EBITDA) of not more than three times and for adjusted interest
cover of not less than four times.
The base case scenario has been prepared using robust forecasts from each of
our operating companies, with each considering the risks and opportunities the
businesses face, including the high inflation environment and economic
uncertainty across many of the countries in which we operate, and the other
principal risks set out in the Annual report 2022.
We have then applied a severe but plausible downside scenario in order to
model the potential concurrent impact of:
- a significant economic slowdown reducing revenue by 20% in FY23
and a further 10% year-on-year in FY24 compared to plan;
- supply chain difficulties or inflationary cost increases reducing
gross profit margin by 10%; and
- significant acquisitions increasing debt but with no positive cash
flow contribution.
A reverse stress test scenario has also been modelled which shows a revenue
contraction of >35% in FY23 and a further 10% year-on-year reduction in
FY24 with no mitigations would be required to breach covenants or compromise
liquidity, which is considered an extremely remote scenario.
Mitigations available within the control of management include reducing
discretionary capex, discretionary indirect costs, and dividends. Over the
short period of our climate change assessment published in the Annual report
2022 (aligned to our going concern assessment) we have concluded that there is
no material adverse impact of climate change and hence have not included any
impacts in either our base case or downside scenarios of our going concern
assessment.
The Directors have concluded that the results of the scenario testing combined
with the significant liquidity profile available under the revolving credit
facility confirm that there is no material uncertainty in the use of the going
concern assumption.
Non-Controlling interest
Non-Controlling Interests are identified separately from the Group's equity.
Non-Controlling Interests consist of the amount of those interests at the date
of the 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 2023, a total of 2,321,123 (31 July 2022: 2,183,665) ordinary
shares in the Company were held by the Volution EBT, all of which were under
option to employees. During the period 300,000 ordinary shares in the Company
were purchased by the trustees (H1 2022: none), and 162,542 shares (H1 2022:
305,024 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 2022.
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
2022 and have been adopted for the financial year commencing 1 August 2022.
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 condensed consolidated financial
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 2023 31 January 2022
£000 £000
Profit after tax 16,917 16,269
Add back:
Costs of business combinations 187 126
Re-measurement of future consideration relating to the business combination of 1,336 691
ClimaRad
Net loss/(gain) on financial instruments at fair value 1,535 (694)
Amortisation and impairment of intangible assets acquired through business 6,174 8,520
combinations
Tax effect of the above (1,729) (1,697)
Adjusted profit after tax 24,420 23,215
Add back:
Adjusted tax charge 7,368 6,779
Adjusted profit before tax 31,788 29,994
Add back:
Interest payable on bank loans, lease liabilities and amortisation of 1,996 1,615
financing costs
Re-measurement of financial liability relating to acquisition of ClimaRad 428 292
Finance revenue (33) (1)
Adjusted operating profit 34,179 31,900
Add back:
Depreciation of property, plant and equipment 1,974 1,854
Depreciation of right-of-use asset 1,870 1,801
Amortisation of development costs, software and patents 718 709
Adjusted EBITDA 38,741 36,264
For definitions of terms referred to above see note 16, 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 2023 31 January 2022
£000 £000
Sale of goods 158,751 146,466
Installation services 3,536 3,108
Total revenue from contracts with customers 162,287 149,574
Market sectors 6 months to 6 months to
31 January 2023 31 January 2022
£000 £000
UK
Residential 41,423 35,813
Commercial 14,284 15,757
Export 5,277 5,609
OEM 12,658 12,628
Total UK 73,642 69,807
Nordics 26,649 27,023
Central Europe 37,673 30,405
Total Continental Europe 64,322 57,428
Total Australasia 24,323 22,339
Total revenue from contracts with customers 162,287 149,574
4. Segmental analysis
6 months ended 31 January 2023 UK Continental Europe Australasia Central / Eliminations Consolidated
£000 £000 £000 £000 £000
Revenue from contracts with customers
External customers 73,642 64,322 24,323 ─ 162,287
Inter-segment 11,668 19,168 116 (30,952) ─
Total revenue from contracts with customers 85,310 83,490 24,439 (30,952) 162,287
Gross profit 34,119 30,776 12,014 ─ 76,909
Results
Adjusted segment EBITDA 17,649 16,982 6,141 (2,031) 38,741
Depreciation and amortisation of (2,013) (1,554) (655) (340) (4,562)
development costs, software and patents
Adjusted operating profit/(loss) 15,636 15,428 5,486 (2,371) 34,179
Amortisation of intangible assets acquired through business combinations (2,249) (3,338) (587) ─ (6,174)
Acquisition related operating costs ─ ─ ─ (187) (187)
Operating profit/(loss) 13,387 12,090 4,899 (2,558) 27,818
Net finance cost ─ ─ ─ (1,963) (1,963)
Loss on financial instruments ─ ─ (214) (1,321) (1,535)
Re-measurement of future consideration ─ ─ ─ (1,336) (1,336)
Re-measurement of financial liability ─ ─ ─ (428) (428)
Profit/(loss) before tax 13,387 12,090 4,685 (7,606) 22,556
6 months ended 31 January 2022 UK Continental Europe Australasia Central / Eliminations Consolidated
£000 £000 £000 £000 £000
Revenue from contracts with customers
External customers 69,807 57,428 22,339 ─ 149,574
Inter-segment 9,617 12,483 70 (22,170) ─
Total revenue from contracts with customers 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
Net finance cost ─ ─ ─ (1,614) (1,614)
Gain 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
5. Income tax
Our underlying effective tax rate, on adjusted profit before tax, was 23.2%
(H1 2022: 22.6%). The increase of 0.6 percentage points in our adjusted
effective tax rate compared to the prior period was primarily a result of part
year impact of the change in the UK rate from 19% to 25%.
Our reported effective tax rate for the period was 25.0% (H1 2022: 23.8%).
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.
6. 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 3,465,898
dilutive potential ordinary shares at 31 January 2023 (H1 2022: 2,966,484).
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 2023 31 January 2022
£000 £000
Profit attributable to ordinary equity holders 16,917 16,269
Number
Number
Weighted average number of ordinary shares for basic earnings per share 197,146,809 197,605,520
Weighted average number of ordinary shares for diluted earnings per share 199,811,338 200,256,594
Earnings per share
Basic 8.6p 8.2p
Diluted 8.5p 8.1p
6 months ended 6 months ended
31 January 2023 31 January 2022
£000 £000
Adjusted profit attributable to ordinary equity holders 24,420 23,215
Number
Number
Weighted average number of ordinary shares for adjusted basic earnings per 197,146,809 197,605,520
share
Weighted average number of ordinary shares for adjusted diluted earnings per 199,811,338 200,256,594
share
Adjusted earnings per share
Basic 12.4p 11.7p
Diluted 12.2p 11.6p
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 16, Glossary of terms, for an explanation of the adjusted basic and
diluted earnings per share calculation.
7. Intangible assets - goodwill
Goodwill Total
£000
Cost and net book value
At 31 July 2021 137,710
On acquisition of ERI and its subsidiaries 5,134
Net foreign currency exchange differences (183)
At 31 July 2022 142,661
Net foreign currency exchange differences 2,521
At 31 January 2023 145,182
8. Intangible assets - other
Total
2023 £000
Cost
At 1 August 2022 236,437
Additions 1,622
Net foreign currency exchange differences 888
At 31 January 2023 238,947
Amortisation
At 1 August 2022 148,845
Charge for the period 6,892
Net foreign currency exchange differences 1,326
At 31 January 2023 157,063
Net book value
At 31 January 2023 81,884
9. Business combinations and acquisitions of non-controlling interests
Acquisitions in the half year ended 31 January 2023
Acquisition of additional interest in Energy Recovery Industries Corporation
Ltd (UK)
On 14 October 2022, the Group acquired the additional 49% interest in the
voting shares of Energy Recovery Industries Corporation Ltd (UK), increasing
its ownership to 100%. Cash consideration of £369,000 was paid to the
non-controlling shareholder. The following is a schedule of additional
interest acquired in Energy Recovery Industries Corporation Ltd (UK):
£000
Cash consideration paid to non-controlling shareholder 369
Carrying value of the non-controlling interest in Energy Recovery Industries (105)
Corporation Ltd (UK)
Difference recognised in retained earnings 264
Cash outflows arising from business combinations and acquisitions of
non-controlling interests are as follows
6 months ended 6 months ended
31 January 2023 31 January 2022
£000 £000
Operating activities
Ventair
Deferred cash consideration paid ─ 3,211
Total contingent consideration in operating activities ─ 3,211
Investing activities
ERI
Cash consideration ─ 16,892
Less: cash acquired with the business ─ (902)
─ 15,990
Air Connection
Deferred cash consideration paid ─ 476
Total Acquisition of subsidiaries ─ 16,466
Ventair
Deferred cash consideration paid ─ 952
Total contingent consideration in Investing activities ─ 952
Financing activities
ERI
Cash consideration paid to non-controlling shareholder 369 ─
Total acquisition of non-controlling interest 369 ─
10. Property, plant and equipment excluding right-of-use assets
Total
2023 £000
Cost
At 1 August 2022 47,425
Additions 2,513
Disposals (211)
Net foreign currency exchange differences 270
At 31 January 2023 49,997
Depreciation
At 1 August 2022 19,190
Charge for the period 1,974
Disposals (194)
Net foreign currency exchange differences (81)
At 31 January 2023 20,889
Net book value
At 31 January 2023 29,108
Commitments for the acquisition of property, plant and equipment as of 31
January 2023 are £524,000 (31 July 2022: £730,000).
11. Other financial assets and liabilities
Other financial assets:
31 January 2023 31 July
£000 2022
£000
Foreign exchange forward contracts - 1,091
Total - 1,091
Other financial liabilities:
2023 Foreign exchange forward contracts Contingent consideration ClimaRad BV Contingent consideration ERI Total
£000 £000 £000 £000
At 1 August 2022 - 7,052 7,080 14,132
Re-measurement of financial liability - 428 - 428
Re-measurement of future consideration - 1,326 10 1,336
Foreign exchange forward contracts 661 - - 661
At 31 January 2023 661 8,806 7,090 16,557
Analysis
Current 661 - - 661
Non-current - 8,806 7,090 15,896
Total 661 8,806 7,090 16,557
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.
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 2024 is 10% higher than expected, contingent
consideration would be £1,400,000 higher, discounted to present value.
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
12. Interest-bearing loans and borrowings
31 January 2023 31 July 2022
Current Non-current Current Non-current
£000 £000 £000 £000
Unsecured - at amortised cost
Borrowings under the revolving credit facility (maturing 2025) ─ 72,456 ─ 74,351
Cost of arranging bank loan ─ (968) ─ (843)
─ 71,488 ─ 73,508
ClimaRad vendor loan ─ 10,061 ─ 9,557
Lease liabilities 1,888 21,408 3,599 21,368
Total 1,888 102,957 3,599 104,433
In December 2022, the Group exercised the option to extend its £150 million
multicurrency "Sustainability Linked Revolving Credit Facility", together with
an accordion of up to £30 million by a period of twelve months. The
maturity date is now 2 December 2025.
Revolving credit facility - at 31 January 2023
Currency Amount Termination Repayment Rate %
outstanding date frequency
£000
GBP ─ 2 December 2025 One payment Sonia + margin%
Euro 72,456 2 December 2025 One payment Euribor + margin%
Swedish Krona ─ 2 December 2025 One payment Stibor + margin%
Total 72,456
Revolving credit facility - at 31 July 2022
Currency Amount Termination Repayment Rate %
outstanding date frequency
£000
GBP ─ 2 December 2024 One payment Sonia + margin%
Euro 71,932 2 December 2024 One payment Euribor + margin%
Swedish Krona 2,419 2 December 2024 One payment Stibor + margin%
Total 74,351
The interest rate on borrowings includes a margin that is dependent on the
consolidated leverage level of the Group in respect of the most recently
completed reporting period. For the period ended 31 January 2023, Group
leverage was below 1.0:1 and therefore the margin remains at 1.25% in H2 2023.
At 31 January 2023, the Group had £77,544,000 (31 July 2022: £75,649,000) of
its multicurrency revolving credit facility unutilised.
13. 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 11. 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.
14. Dividends paid and proposed
The Board has declared an interim dividend of 2.50 pence per ordinary share in
respect of the half year ended 31 January 2023 (6 months to 31 January 2022:
2.30 pence per ordinary share) which will be paid on 2 May 2023 to
shareholders on the register at the close of business on 24 March 2023. 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.
15. 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 2023 or 31 January 2022.
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.
16. Glossary of terms
Adjusted basic and diluted EPS: calculated by dividing the adjusted
profit/(loss) for the period attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during
the period.
Diluted earnings per share amounts are calculated by dividing the adjusted net
profit/(loss) attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the period plus
the weighted average number of ordinary shares that would be issued on
conversion of any dilutive potential ordinary shares into ordinary shares.
There are 3,465,898 dilutive potential ordinary shares at 31 January 2023 (H1
2022: 2,966,484).
Adjusted EBITDA: adjusted operating profit before depreciation and
amortisation.
Adjusted finance costs: finance costs before net gains or losses on financial
instruments at fair value and the exceptional write off of unamortised loan
issue costs upon refinancing.
Adjusted operating cash flow: adjusted EBITDA plus or minus movements in
operating working capital, less net investments in property, plant and
equipment and intangible assets 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 2023 at the average exchange rate for the period
ended 31 January 2022. In addition, we have converted the UK operating
companies' sale and purchase transactions in the period ended 31 January 2023,
which were denominated in foreign currencies, at the average exchange rates
for the period ended 31 January 2022.
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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