REG - Volution Group plc - Preliminary Results for year ended 31 July 2023
05/10/2023 07:00
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RNS Number : 7435O Volution Group plc 05 October 2023
Thursday 5 October 2023
VOLUTION GROUP PLC
Preliminary Full Year Results for the year ended 31 July 2023
Strong performance; confident of further progress in the year ahead
Volution Group plc ("Volution" or "the Group" or "the Company", LSE: FAN), a
leading international designer and manufacturer of energy efficient indoor air
quality solutions, today announces its audited financial results for the 12
months ended 31 July 2023.
RESULTS SUMMARY
2023 2022 Movement
Revenue (£m) 328.0 307.7 6.6%
Adjusted operating profit (£m) 69.9 64.9 7.7%
Adjusted operating margin (%) 21.3% 21.1% 0.2pp
Adjusted profit before tax (£m) 65.1 60.9 6.8%
Adjusted basic EPS (pence) 25.8 24.0 7.5%
Reported operating profit (£m) 57.1 50.8 12.4%
Reported profit before tax (£m) 48.8 47.2 3.4%
Reported basic EPS (pence) 19.0 18.1 5.0%
Adjusted operating cash flow (£m) 75.7 50.4 50.2%
Dividend per share (p) 8.0 7.3 9.6%
The Group uses some alternative performance measures to manage and assess the
underlying performance of the business. These measures include adjusted
operating profit, adjusted profit before tax, adjusted EPS, adjusted operating
cash flow, net debt and net debt (excluding lease liabilities). A definition
of all the adjusted and non-GAAP measures is set out in the glossary of terms
in note 25 to the condensed consolidated financial statements. A
reconciliation to reported measures is set out in note 2 to the condensed
consolidated financial statements.
FINANCIAL HIGHLIGHTS
· Revenue up 6.6% with organic growth of 4.6% at constant
currency (cc). 60% of revenue now comes from non-UK customers
· Adjusted operating margin up 20bps to 21.3%, all three
regions above 21%
· Adjusted basic EPS of 25.8p, up 7.5% and ahead of consensus,
CAGR of 12.7% since IPO in 2014. Reported basic EPS up 5.0%
· Strong cash generation with adjusted operating cash flow of
£75.7m (2022: £50.4m), cash conversion of 106% (2022: 76%)
· Closing leverage (excluding lease liabilities) was 0.8x,
after spending ca. £30m on acquisitions during the year, leaving us well
placed to continue to acquire attractive ventilation businesses
· Total proposed dividend for the year increased by 9.6% to 8.0
pence per share (2022: 7.3 pence) reflecting the strong performance and
confidence in year ahead
OPERATIONAL HIGHLIGHTS
· Operating margins increased despite inflationary pressures,
with continued good price discipline, robust cost control and good factory
efficiency
· £29.7m invested in two European acquisitions:
o VMI (France), initial consideration of £7.9m. Provides Volution with
direct access to the French market, one of the largest ventilation markets in
Europe
o I-Vent (Slovenia and Croatia), initial consideration of £21.7m. Further
extends our product portfolio and European market leadership in decentralised
residential heat recovery
· Post year end, completed the acquisition of DVS (New
Zealand), a direct-to-consumer supplier of whole home residential ventilation
systems, for upfront consideration of £8.5m
· Successfully launched exciting new products in the year
including our new Vent-Axia Econiq range of centralised heat recovery units
HEALTHY AIR, SUSTAINABLY
· Excellent progress against our key sustainability targets:
o 76.2% of plastic used in own manufacturing facilities from recycled
sources (2022: 67.2%), as we continue to develop innovative strategies to
increase the utilisation and availability of recycled plastic materials
o 70.1% of revenue from low-carbon, energy saving products (2022: 66.1%),
of which 33.8% (2022: 30.1%) was from heat recovery ventilation systems
· Reduction of 9.8% in our carbon intensity, to 11.1t CO2e per
£m of revenue (2022: 12.3t)
Commenting on the Group's performance, Ronnie George, Chief Executive Officer,
said:
"Through continued successful execution of our sustainable growth model, we
have delivered a strong set of results in a year of significant headwinds. The
Group's resilience is underpinned by our strong local brands, our increasingly
wide geographic end market diversity and the greater proportion of our revenue
generated from the refurbishment market. Exceptional customer service provided
by dedicated and committed local teams, and an agile and focused approach to
fulfilling customer needs, has delivered another successful year for the
Group."
"Whilst we are mindful of the impact of higher interest rates on consumer
confidence and new build construction, the regulatory changes in our local
markets continue to drive demand for our innovative and well-positioned low
carbon product technologies. In addition, our three new acquisitions completed
in the last six months; our ongoing focus on operational excellence; and the
depth of experience and commitment across our local teams provides resilience
and gives us confidence of making further progress in the year ahead."
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Andy O'Brien, Chief Financial Officer +44 (0) 1293 441536
FTI Consulting +44 (0) 203 727 1340
Richard Mountain
Susanne Yule
A meeting for analysts will be held at 9:30am GMT today, Thursday 5 October
2023, at the offices of Berenberg, 60 Threadneedle Street, London EC2R 8HP.
Please contact FTI_Volution@fticonsulting.com to register to attend or for
instructions on how to connect to the meeting via conference facility.
A copy of this announcement and the presentation given to analysts will be
available on our website www.volutiongroupplc.com
(http://www.volutiongroupplc.com) on Thursday 5 October 2023.
Volution Group plc Legal Entity Identifier: 213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international designer and
manufacturer of energy efficient indoor air quality solutions. Volution Group
comprises 22 key brands across three regions:
UK: Vent-Axia, Manrose, Diffusion, National Ventilation, Airtech, Breathing
Buildings, Torin-Sifan.
Continental Europe: Fresh, PAX, VoltAir, Kair, Air Connection, inVENTer,
Ventilair, ClimaRad, rtek, ERI, VMI, I-Vent
Australasia: Simx, Ventair, Manrose, DVS.
For more information, please go to: www.volutiongroupplc.com
(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.
CHAIRMAN'S STATEMENT
In this, my first statement as Chair of Volution, I am pleased to report
another strong year of progress. The Group has continued to demonstrate the
strength of its business model and strategy, achieving revenue growth of 6.6%,
an adjusted operating margin of 21.3% with excellent cash generation during
the year.
Volution is a business with a strong purpose and one that has an excellent
track record of delivering value to all stakeholders. A key differentiator for
Volution amongst its peers is the increase of industry regulation designed to
make indoor air cleaner and decarbonise buildings. It is this regulation that
has continued to be a key driver of Volution's growth this year, particularly
in the UK public sector, where improving poor quality housing has become a
legal requirement. It will also provide Volution with considerable resilience
in a market where current high interest rates have had an adverse impact on
new build construction levels and consumer confidence.
Whilst macroeconomic challenges continue, Volution's performance has
demonstrated the strength and resilience of its business model, supported by
our broad geographic and product diversity.
Strategy
The three strategic pillars of the Group are organic growth, value-adding
acquisitions and operational excellence. These strategic pillars, together
with a focus on sustainability, provide the platform for the implementation of
the Group's purpose, to provide "Healthy Air, Sustainably". Solid progress was
made during the year with good organic growth, whilst the acquisition of VMI,
based in France, and I-Vent, based in Slovenia and Croatia, has further
strengthened the Group's geographic and product diversification. The Group
also acquired DVS in New Zealand, which was completed shortly after the year
end.
Performance and results
Group revenue increased to £328.0 million (2022: £307.7 million) whilst
adjusted operating profit was up 7.7% at £69.9 million (2022: £64.9
million), representing a margin of 21.3% (2022: 21.1%). Reported profit before
tax increased to £48.8 million (2022: £47.2 million).
The Group's adjusted earnings per share was 25.8 pence, representing an
increase over the prior year of 1.8 pence, up 7.5%. The compound annual growth
rate of adjusted earnings per share since IPO in 2014 is 12.7%, demonstrating
consistent delivery of double-digit earnings growth over the period. Basic
earnings per share for the year was 19.0 pence (2022: 18.1 pence).
Adjusted operating cash flow was £75.7 million (2022: £50.4 million), and we
spent £29.7 million, net of cash acquired, on two acquisitions during the
year. As a result, net debt excluding lease liabilities at the year-end
remained largely unchanged at £58.1 million (2022: £60.8 million).
Dividends
Recognising our strong performance in the year and our continued confidence in
the business, the Board has recommended a final dividend of 5.5 pence per
share, giving a total dividend for the financial year of 8.0 pence per share
(2022: 7.3 pence per share), an increase of 9.6% on the previous year. This is
in line with our ambition to progressively grow dividends each year. The
resulting adjusted earnings dividend cover for the year was 3.2x (2022: 3.3x).
Subject to approval by shareholders at the Annual General Meeting on 13
December 2023, the final dividend will be paid on 19 December 2023 to
shareholders on the register at 24 November 2023.
Environment, social and governance (ESG) objectives
Volution is committed to high standards of corporate responsibility,
sustainability and employee engagement and continues to focus on its
contribution to a more sustainable world through its operations, culture and
ventilation solutions. The Group aims to give full consideration to the
long-term impact of all business operations, which means that, wherever
feasible, our products and services are sustainably sourced.
The disclosures in our Sustainability Report, including our TCFD disclosure,
have been further developed this year to provide a better understanding of our
Scope 3 emissions and the carbon footprint of our products. In addition, the
Company has received an improved AA rating from MSCI, following improvements
in Volution's decarbonisation initiatives - one of the benchmarks for ESG
ratings. We are very proud of our London Stock Exchange Green Economy Mark,
first received in 2021.
Our people & culture
As a Board, we understand the importance of building engagement and a good
corporate culture. We regularly monitor the company culture and seek
opportunities throughout the year to engage with colleagues across the Group.
Claire Tiney, our designated Non-Executive Director for workforce engagement,
continues to participate in two Group-wide Employee Forum events each year,
enabling in-depth insights to be brought to the Board on the views, opinions
and focus areas of our people. A Group-wide workforce engagement survey will
be launched later this year and as a Board we look forward to the further
insights that this will afford us.
Safety at work is always central to everything we do, and the Group remains
focused on a zero-harm ambition. I am pleased to report good progress in the
area of Health and Safety, although we saw a small increase in the reportable
accident rate compared to last year, and the Company remains fully committed
to further strengthening the health and safety culture across all our
businesses.
Our talented people across the global business are at the heart of our
continued success and essential in the execution of Group strategy. I am
grateful to all Volution colleagues for their commitment and contribution. I
would like to welcome our new colleagues from VMI, I-Vent and DVS to the
Volution Group.
Board changes
Paul Hollingworth retired as Chairman of the Board on 23 June 2023, having
served on the Volution Board for nine years. I was delighted to be appointed
as Paul's successor and would like to thank Paul for his leadership and
contribution to Volution during his tenure. I would also like to thank my
Board colleagues for their assistance in ensuring a smooth and orderly
succession process.
As part of the succession process, I stepped down from the role of Audit Chair
and, on 23 June 2023, we were pleased to welcome Jonathan Davis to the Board
as an Independent Non-Executive Director and Chair of the Audit Committee.
With his strong financial and accounting expertise and extensive public
company and international experience, I am confident that Jonathan will make a
strong contribution to the Board.
Governance
The Group is committed to high levels of corporate governance, in line with
its status as a company with a premium listing on the Main Market of the
London Stock Exchange and as a member of the FTSE 250. We are fully compliant
with the 2018 edition of the UK Corporate Governance Code.
As a Board we are responsible to the Company's shareholders for delivering
sustainable shareholder value over the long term through effective management
and good governance. As Non-Executive Chairman, my role is to provide strong
leadership to enable the Board to operate effectively and collegiately. As a
Board, it is our view that open, thorough, and robust discussion around key
strategic matters, risks and opportunities faced by the Group is central to
reaching our strategic goals, including with regard to our acquisition
strategy. We are fortunate to have a diverse range of business experience on
the Board, enabling rigorous and productive discussions.
Nigel Lingwood
Chairman
4 October 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The results we achieved this year are a clear demonstration of Volution's
strengths as we benefited from our market leading positions, our wide
geographic and end market diversity and our ability to upsell our products
supported by industry regulations. We estimate that almost 70% of Group
revenue is focused on the refurbishment, maintenance and improvement market
("RMI"), typically more resilient than new build markets in difficult economic
times. Against a backdrop of high inflation, rising interest rates, and a
slowdown in activity in some of our end markets, we were still able to achieve
organic growth of 5.1%. Furthermore, our relentless focus on operational
excellence, including strong pricing discipline, robust cost control, value
engineering initiatives and good factory efficiency enabled us to expand our
adjusted operating margin to 21.3%.
Our organic growth was supplemented by our continued focus on acquiring strong
local brands with attractive market positions, this activity remains a key
tenet of Volution's growth strategy. During the year we were delighted to
acquire two businesses, VMI in France and I-Vent in Slovenia, with a third
business, DVS Proven Systems, acquired post year-end. These acquisitions
provide the Group with increased resilience by broadening its geographic reach
and giving it access to attractive new markets. They also bring with them
innovative low carbon product solutions to further expand our portfolio.
Volution is a leader in the international heating, ventilation and air
conditioning market and our purpose is to provide "Healthy Air, Sustainably".
Since listing in 2014 we have delivered consistent revenue and profit growth
and strong operating cash flow. It is this consistent cash generation which
underpins our ability to acquire businesses, which further increases our
already broad geographic market, and we maintain an active pipeline of
potential targets.
As we continue to grow organically, and complement our market positions with
new acquisitions, our management "bench strength" is of critical importance to
our success. During the year we further strengthened our team including hiring
a new Operations Director, for our UK businesses and commencing a Managing
Director search process for our ClimaRad business in the Netherlands. I am
pleased to say that we will be holding our fourth Management Development
Programme later this year and I know from experience how important this
programme is for retaining and enhancing our talent pool.
As previously reported, the wider supply chain difficulties experienced by the
industry in recent years have now subsided. In response to these earlier
difficulties, Volution took steps to mitigate any disruption, thus ensuring we
had excellent product availability for our customers throughout this period.
This early action served us, and our customers, well and has resulted in an
increase in our competitive advantage. There are numerous examples where we
have made local market share gains due to strong customer relationships and
apparent gaps in competitor product availability. The local teams are focused
on consolidating these opportunities in the year ahead.
Our Markets
Volution's revenues are weighted towards the refurbishment market which now
accounts for around two-thirds of sales, with the balance focused on new build
applications. Both new build and refurbishment activities are increasingly
regulated, with the former seeing an accelerated change as local economies
focus more readily on reducing carbon emissions from new buildings.
The rapid rise in interest rates has had an adverse impact on new build
construction levels and consumer confidence during the year. Whilst we are
seeing lower overall unit construction output in new residential and
commercial projects, ever tightening regulations (focusing on lowering carbon
emissions) is supporting demand for Volution's innovative and value adding low
carbon solutions, where typically the average unit value is significantly
higher than the traditional ventilation solution that it replaces.
Demand in the refurbishment market has been supportive during the year,
particularly in the UK where we saw demand in public refurbishment RMI
benefiting from the heightened awareness of health risks associated with mould
and condensation. Private RMI proved very resilient.
We believe that ventilation refurbishment is far less discretionary than other
product categories in buildings. Post the pandemic, we have noticed that there
is a more pressing need to replace ventilation products, compared to other
elements of refurbishment that can be postponed indefinitely. We have also
seen the unintended consequences of home occupiers reducing heating
temperatures during the winter months in response to higher energy prices.
This leads to lower temperatures in the dwelling which propagates the risk of
mould and condensation problems with air holding significantly more moisture
when cold, than at higher temperatures. This too makes the requirement for
ensuring good ventilation more pressing.
To deliver on net zero commitments, Governments must address our buildings
which, in Europe, are responsible for around 40% of our energy use and 36% of
our carbon emissions. Our technology provides solutions to avoid some of those
emissions, and increasing regulation is the key driver. This year we have
provided more insight in the Annual Report into the regulatory position in
each of our key geographies, covering both air quality and energy efficiency.
Our local teams and our trade associations continue to ensure our voices are
heard as the regulations provide strong tailwinds supporting the adoption of
higher value ventilation solutions.
Results
The Group delivered revenue of £328.0 million (2022: £307.7 million), an
increase of 6.6% (6.1% cc), with organic growth of 5.1% (4.6% cc) and
inorganic growth from the two acquisitions in the year, as well as the full
year effect of the acquisition in the prior year, of 1.5%. Adjusted operating
margins increased from 21.1% in the prior year to 21.3%, a strong performance
in the face of much higher inflation than in previous years. Reported profit
before tax was £48.8 million (2022: £47.2 million), an increase of 3.4%.
Sustainability
Good progress was achieved with our sustainability initiatives. Recycled
plastics content in our own production increased substantially in the year to
76.2% of total consumption. A significant proportion of the Group's injection
moulding and PVC extrusion production takes place at our Reading facility in
the UK and I am proud of the way in which the team developed innovative
strategies in the year to increase the utilisation and availability of
recycled plastic materials. This is a great example of a cross functional
initiative and whilst we still have some way to go to achieve the 90% target
by the end of our financial year 2025, the increase from under 60% in 2021
provides a good trajectory towards the target. Utilising recycled materials is
also a significant commercial advantage for our customers with many new
projects requiring a minimum recycled content in the supply of materials and
we are keen to assist in the more circular economy for the supply of products
into buildings.
Revenue from our low-carbon products has increased to 70.1% in the year, well
ahead of this year's target of 65.6%, and two years ahead of our target of 70%
by the end of 2025. We expect the growth in our low carbon product solutions
to continue to be ahead of the growth of more traditional products. The recent
acquisitions of VMI in France and I-Vent in Slovenia will positively assist
our metric in the year ahead as they already have a high concentration of
their revenue from low carbon solutions.
Our Sustainability Committee, comprising of our senior leadership team and our
non-executive director, Amanda Mellor, met twice in the year, where we
reviewed progress against our published targets and key initiatives for the
years ahead.
Strategy
Organic Growth
We delivered organic growth of 5.1% (4.6% cc) driven by increases in both
price and volume.
Volution has a long-term target to consistently deliver annual organic growth
in the range of 3-5%. We have again delivered organic growth at the top end of
the range, despite the more difficult trading environment in the year. As in
previous years, our more vertically integrated business model, our intentional
approach to holding a higher component inventory and our resulting excellent
service levels have helped us to deliver this growth. Across the Group there
have been notable market share gains directly attributable to superior service
levels.
An acceleration of regulatory support; the impact of higher energy costs; and
our strong local brands, managed by local, motivated, and empowered teams,
have enabled us to deliver an above market growth performance. Our strapline,
"Healthy Air, Sustainably", which we introduced in 2020, resonates strongly
across the Group.
Acquisitions
We completed two acquisitions in the year. In April we announced the
completion of the acquisition of Ventilairsec (VMI) for an initial
consideration of £7.9 million (€9.0 million), net of cash acquired. VMI,
based in Nantes, France, designs and manufactures a range of residential
ventilation systems focused on a low carbon positive input ventilation
technology known as "VMI". The acquisition provides Volution with direct
access to the French market, one of the largest ventilation markets in Europe.
Our position in France, whilst currently quite small, is eminently scalable in
the years ahead. A new managing director was recruited and a successful
handover from the owner has already been completed. We are confident that our
wider ranging ventilation solutions from across the Group can assist the local
team to grow more rapidly in the period ahead.
The VMI acquisition included an earn-out payment of up to €5 million, which
will be calculated on the basis of the EBIDTA for the year ended 31 December
2023.
In June 2023 we completed the acquisition of I-Vent for an initial
consideration of £21.7 million (€25.2 million), net of cash acquired, with
further contingent consideration of up to €15 million based on stretching
growth targets for the financial results for the three years up to and
including 31 December 2025. I-Vent, based in Slovenia and Croatia, designs,
manufactures, and supplies residential ventilation systems, primarily focused
on decentralised heat recovery. Similar to the technology in InVENTer,
Germany, we see complementarity in the respective ranges and our teams are
already working out how we can utilise the increased strength in our product
portfolio to optimise our offering.
Post year end we also completed the acquisition of DVS (Proven Systems Ltd) in
New Zealand. DVS supplies directly to consumers and installs a range of
energy-efficient centralised ventilation systems, incorporating positive
input, heat recovery, heat transfer, and heating and cooling solutions. Their
products can be installed in both new and existing properties and are sold
under the DVS Home Ventilation brand. DVS will be integrated into our
Australasian business and provides an additional sales channel to supply low
carbon solutions.
Operational excellence
Maintaining our long-term adjusted operating margin at, or above, 20% is an
important objective for Volution. In the year we delivered a 20bps margin
improvement to 21.3% in the face of significant inflationary pressures across
materials, labour, and infrastructure costs. Delivering a consistently strong
operating profit margin is the culmination of many smaller initiatives across
the entire business. Pricing discipline, long term supply chain partnerships,
focus on value engineering and operational efficiency initiatives and good
investment in new moulding, extrusion and other plant and equipment in 2023,
helped underpin our margin.
People
A key highlight of the year was a full return to normal working practices post
the pandemic. Our Group is now truly international, and the ability to freely
visit all facilities was a tremendous boost. During the year we held more
employee engagement meetings than in our recent past. I am privileged to lead
such a diverse and talented organisation and the feedback from the people in
our local companies is hugely enriching and invaluable to our decision-making
processes.
I was delighted to observe lots of examples of cross border co-operation on so
many levels. Our technical and procurement resources are managed functionally
and provide Volution with a significant resource to support our local
operating companies to outperform their local competitors. Enhancing
collaboration across these and other working groups is key to our success.
We also held two group wide employee engagement and communication meetings,
also attended by Claire Tiney, Non-Executive Director, and chair of the
Remuneration Committee, with specific focus on sustainability at one meeting
and product development and innovation at the other.
Retention and development of our talented teams is key to our success. Since
2012 we have successfully run three management development programmes across
the Group. We are now planning a fourth programme for late October 2023. This
current cohort will consist of eighteen high potential managers from all
geographic and functional areas of the Group. I am very much looking forward
to the programme kick-off, and I also know how excited the participants are to
be involved. A look back at the first three management development programmes
reveals a retention rate of over 70%.
I believe we have a strong culture of success at Volution, but also a culture
where our teams work closely together and have a lot of fun in providing
"Healthy Air, Sustainably".
Outlook
Through continued successful execution of our sustainable growth model, we
have delivered a strong set of results in a year of significant headwinds. The
Group's resilience is underpinned by our strong local brands, our increasingly
wide geographic end market diversity and the greater proportion of our revenue
generated from the refurbishment market. Exceptional customer service provided
by dedicated and committed local teams, and an agile and focused approach to
fulfilling customer needs, has delivered another successful year for the
Group.
Whilst we are mindful of the impact of higher interest rates on consumer
confidence and new build construction, the regulatory changes in our local
markets continue to drive demand for our innovative and well-positioned low
carbon product technologies. In addition, our three new acquisitions completed
in the last six months; our ongoing focus on operational excellence; and the
depth of experience and commitment across our local teams provides resilience
and gives us confidence of making further progress in the year ahead.
Ronnie George
Chief Executive Officer
4 October 2023
Regional Review
United Kingdom
Market sector revenue 2023 2022 Change (cc)
£m £m %
UK
Residential 89.7 75.1 19.5
Commercial 30.2 31.0 (2.8)
Export 12.1 11.7 1.7
OEM 24.1 25.9 (8.0)
Total UK Revenue 156.1 143.7 8.3
Adjusted operating profit 35.3 29.3 20.6
Adjusted operating profit margin (%) 22.6 20.4 2.2pp
Reported operating profit 28.1 22.3 26.2
The UK delivered the standout performance of the year with strong revenue and
profit growth. UK revenues increased from £143.7 million to £156.1 million,
an 8.6 % increase (8.3% at cc), building on good organic growth delivered in
the prior year. The UK saw strong demand in Residential RMI, particularly in
the public sector. Alongside this, exceptional customer service, an agile and
focused team, and residential market share gains helped deliver this excellent
performance. Adjusted operating profit increased from £29.3 million to £35.3
million with a significant increase in the adjusted operating margin at 22.6%
up 220 bps from 20.4% in the prior year. The organisational changes made in
the prior year bedded in well delivering a more agile and responsive outcome
across the business. Revenue growth accelerated in the second half of the
year, and we are well placed to deliver further progress in the year ahead.
Although high inflation and rises in interest and mortgage rates are stifling
new construction activity, Volution's overall market demand continues to be
underpinned by regulatory and wider consumer awareness of the importance of
indoor air quality.
Residential
Sales in our Residential market sector were £89.7 million (2022: £75.1
million), an impressive organic growth of 19.5%, building on last year's
strong organic growth. Moreover, we saw an acceleration of growth in the
second half.
In residential new build we delivered another year of revenue growth supported
by the increasing penetration of energy efficient ventilation technology in
new house construction. In June 2022 revisions to Part F and Part L of the
Building Regulations provided increasing support for low carbon energy
efficient ventilation systems for new house building. Those changes inevitably
take time to impact demand for low carbon solutions, as existing construction
sites at the time of the regulatory change will continue to be constructed to
the original plan. During the year we certainly benefited from these new
changes, but we expect to see a greater proportion of new houses being built
with more efficient technology in the year ahead. New account wins have
assisted us to grow market share and our exceptional levels of customer
service and full product availability to customers, at all times, have set us
apart from the competition. Whilst we are confident that regulatory changes in
2022, and further changes to the Future Homes Standard planned for 2025
(delivering buildings that are net zero ready) will underpin sales of new
technology solutions, the new build market faces significant challenge from
the effects of high interest and mortgage rates. Housing starts reduced
considerably in the year and will result in fewer completions in the period
ahead. This will inevitably result in some moderation of demand for energy
efficient ventilation systems. Nevertheless, the medium to long term drivers
of demand remain compelling. During the year we made iterative changes to our
leading ranges of energy efficient ventilation solutions. Our UK ventilation
brands provide the widest product range and solutions and are well supported
by new investment in injection moulding and extrusion capacity to safeguard
our excellent levels of customer service and availability.
The awareness and understanding of the importance of good quality ventilation
in delivering healthy air inside buildings is now widespread. The strong
demand we experienced for our refurbishment solutions through the pandemic has
continued, which validates our view that ventilation refurbishment is far less
discretionary than other types of building refurbishment.
Our residential refurbishment category in the UK was the fastest growing area
across the entire Group. Our high end, aesthetically attractive, near silent,
comprehensively controlled, private refurbishment solutions continued to
deliver good growth in the year.
Across our Vent-Axia, National Ventilation and Manrose brands, we have strong
links to our important professional and retail distribution routes to market.
We value our distribution customer relationships very highly and the sales
teams worked very hard during the year to help educate and train these outlets
on the important aspects of the ventilation industry and our market leading
solutions.
We have a simple but relentless approach to providing excellent stock
availability and customer service, at the centre of which is first class
relationships with our suppliers and customers. The Group has the largest UK
ventilation sales force supporting customer needs.
Public housing refurbishment demand was very strong in the year. On 9 February
2023, the Government tabled amendments to the Social Housing (Regulation) Bill
to introduce 'Awaab's Law', which will require all landlords to investigate
and fix reported hazards in their homes within a specified time frame, or
rehouse tenants where a home cannot be made safe. 'Awaab's Law', was put in
place following the death of a young boy who died due to exposure to black
mould in his socially managed home which had 'inadequate ventilation". This
sad event has further emphasised the importance of refurbishment in this
market sector. As a result, we witnessed a sharp increase in demand for
energy efficient ventilation solutions and this delivered accelerated revenue
growth in the second half of the year.
Volution has been well placed to support these vital refurbishment needs. In
the 2022 Annual Report we explained how we were utilising our innovative
decentralised heat recovery product solutions from other parts of the Group to
support the UK social housing ambition to deliver their 2030 net zero carbon
targets. In the year we have been successful in supplying decentralised heat
recovery ventilation solutions to projects that require a further step up in
their ventilation needs following a more structural refurbishment of the
dwelling. Greater air tightness through insulation, an obvious and important
upgrade as part of a low carbon refurbishment, then warrants heat recovery
ventilation to recover energy and keep fuel bills low. The fuel poverty crisis
in the UK resulted in greater mould and condensation risks during the last
winter, due to the unintended consequence of turning down heating thermostats
to save costs. Colder air temperatures means less moisture can be held in the
air; the resultant issue is water droplets forming at lower temperatures which
leads to greater condensation and mould. The impact of 'Awaab's Law', the
lower property temperatures, and consumers investigating how to solve their
condensation problems, resulted in a significant increase in demand for
"Positive Input Ventilation" technologies. Utilising our strong relationships
with our distribution customers, we were able to ensure that contractors could
source the exact products they required to service this strong demand. During
the latter part of 2023 we further enhanced our product range and have ensured
that our customers are well placed to service the expected strong market
demand in the year ahead.
Commercial
Sales in our UK Commercial sector were £30.2 million (2022: £31.0 million),
an organic decline of 2.8%. Volution has a relatively small share of the
larger commercial ventilation market, albeit with a leading share in the niche
area of fan coil ventilation. The year finished strongly, and saw an increase
in second half revenue, following a decline in the first half. Excellent
progress with our enhanced range of fan coil ventilation enabled us to make
good progress with the supply of products to the main market of new London
commercial offices. Whilst the commercial office market has generally been
more subdued, we are seeing a growing trend and need for more desirable
working environments. Employees are demanding brighter, more energy efficient
work places and we see a good pipeline of work for both new build and
refurbishment needs for fan coil units. During the year we completed key new
developments for products that provide commercial heat recovery or commercial
heat recycling. This delivered some success in the second half of the year and
puts us in a stronger position to gain market share in the year ahead. Our
investment in more advanced metal cutting capability at our Dudley facility
provides the capacity to support any increase in demand.
Export
Sales in our UK Export sector were £12.1 million (2022: £11.7 million), an
organic growth rate of 1.7% at constant currency. Export revenues had declined
in the first half of the year, largely due to a significant customer
de-stocking exercise, but performed well in the second half, growing at close
to 10% on a constant currency basis. Our long-term collaborative relationship
with our distributor in Eire delivered another year of growth and given the
stronger Irish housing market, we see good underpinning of demand for energy
efficient heat recovery solutions in the year ahead.
OEM
Third party Sales in our OEM sector were disappointing at £24.1 million
(2022: £25.9 million), an organic decline of 8.0% at constant currency.
This was linked to a reduction in customer demand for motorised impellers
utilised in products focusing on the new build market. However we delivered
a significant increase in the internal supply of our EC3 motorised impellers
in the year with several new initiatives underway to capture more of our
internal needs in the year ahead. A huge strength of the Group is the vertical
integration of moulding, extrusion, and component supply capability and this
has been particularly beneficial in recent years where we have faced supply
chain challenges. Our strategic intention is to greater utilise our OEM
capability to capture more of the internal demand. This initiative is
particularly relevant as we foresee ongoing weakness of demand for motorised
impellers due to more subdued end market demand for new construction.
Continental Europe
Market sector revenue 2023 2022 Change
£m £m (cc)
%
Continental Europe
Central Europe 75.4 65.1 12.7
Nordics 49.1 53.3 (5.7)
Total Continental Europe revenue 124.5 118.4 4.4
Adjusted operating profit 28.4 29.6 (4.0)
Adjusted operating profit margin (%) 22.8 25.0 (2.2)pp
Reported operating profit 25.1 23.2 7.9
Our Continental Europe revenues increased from £118.4 million to £124.5
million, growth of 4.4% at constant currency, within which organic growth was
0.6% on a constant currency basis. The sector benefited from the acquisition
of VMI in April 2023, I-Vent in June 2023 and the full-year effect of the
acquisition of ERI in September 2021. Adjusted operating profit was down 4.0%
at £28.4 million versus a prior year of £29.6 million. The adjusted
operating profit margin declined in the year by 220bps to 22.8%, partly due to
the dilutionary impact of the acquisitions, but also due to the changing mix
of revenues with both the higher margin Nordic and German market revenues
declining at a higher rate than the growth areas such as ERI in North
Macedonia.
Central Europe
Sales in the Central Europe region grew 12.7% at constant currency to £75.4
million compared to the prior year of £65.1 million. Organic revenue growth
was 5.9% on a constant currency basis, with inorganic growth coming from the
acquisition of VMI, I-Vent and the full-year effect of the acquisition of ERI.
Revenues in Germany in the second half of the year were much weaker than the
prior year. Unlike the usual 70%/30% Group wide split of revenues between
refurbishment and new build, we have a high concentration of German revenue
focused on the new build market. New build construction was much weaker in the
second half of the year, coupled with inconsistencies around government
subsidies supporting low carbon technologies. Germany has been a strong
contributor to our organic growth since 2019 and a revenue decline in the year
was unusual. In recent months we have refocused our selling efforts on the
significant refurbishment opportunities in the market. Germany, alongside
every other country is working out how to achieve its net zero carbon targets.
Local government is now providing more clarity on subsidies for various low
carbon technologies, and we had some good successes towards the end of the
year. Strong pricing management, excellent cost controls and some innovative
new product solutions enabled us to maintain our local gross margins. Whilst
the new build outlook remains fragile, the medium-term dynamic of heat
recovery technology demand in Germany, both in new build and increasingly in
refurbishment, remains compelling.
In the Netherlands, ClimaRad delivered strong organic growth, accelerating in
the second half of the year. Our "total cost of ownership" model is reaping
significant dividends as we demonstrate the substantial savings that a
ClimaRad decentralised heat recovery system can deliver in a structural
refurbishment. The Netherlands market is one of the most progressive in Europe
with a focus on decarbonising buildings and an established approach to the
future ban of gas boiler installations in the new build market.
This is a hugely supportive change in the market increasing the utilisation of
heat pump technology and an increased investment in greater insulation for
residential buildings. This positions our decentralised heat recovery
technology in ClimaRad very well. The project orderbook remains strong and
we remain confident that we will make further inroads in the market with our
compelling solution in the year ahead.
In Belgium we delivered organic growth, however, the introduction of our new
extended range of higher airflow heat recovery systems was delayed until the
end of the financial year 2023. Our Econiq range of heat recovery is the
culmination of a significant product development investment, and our new
application software technology will materially aid commissioning and an
improved user experience. Whilst a much later than planned introduction to the
market, we are excited about the opportunity to regain lost share in the new
financial year.
Nordics
Sales in the Nordics region were £49.1 million (2022: £53.3 million), an
organic decline of 5.7% at constant currency compared to the previous year.
The Nordics market was especially challenging in the second half of the year
with weaker demand and significant customer destocking resulting in a revenue
decline. Strong pricing discipline in the Nordics, a moderating of input cost
inflation, and the increasing benefits of our new production facility in
Växjö, helped us to maintain a strong gross margin performance. Customer
de-stocking is largely completed and whilst the local markets, as with all of
our markets, are grappling with the higher cost of borrowing, we believe that
demand reached its low point in H2 2023. Our Nordic activities are weighted
around 65% to refurbishment, which is similar to the rest of the Group, the
balance being new build construction. Whilst new build markets are likely to
continue to be subdued whilst interest rates remain at elevated levels, we
continue to exploit opportunities in refurbishment for higher value adding
solutions such as the significant growth in decentralised heat recovery from a
low start point. Volution is the European leader for the supply of
decentralised heat recovery in residential buildings and this is a key area of
focus for the period ahead.
Acquisitions
Energy Recovery Industries ("ERI"), a leading provider of aluminium heat
exchanger cells for heat recovery applications delivered another year of
strong revenue growth. In line with our original investment plan to increase
our manufacturing capacity in North Macedonia and boost efficiency, we have
also invested in new equipment during the year enabling us to shorten lead
times and deliver efficiency benefits which further enhanced our operating
profit margin. The long-term growth drivers for heat recovery ventilation are
strong and we plan to make further investments to enhance our manufacturing
facility and capacity in the year ahead.
In April 2023 we acquired VMI in France. Whilst a relatively small player in
the French market we are delighted to now have a structural presence in this
important market. VMI has an experienced and passionate team of ventilation
experts and coupled with the access to our wider portfolio of existing and new
product developments we see an opportunity to deliver good organic growth in
the French market. Specialising in energy efficient positive input ventilation
technology, VMI will benefit from enhancing its product range and new customer
relationships.
In June 2023 we completed the acquisition of I-Vent, a provider of
decentralised heat recovery ventilation systems in Slovenia and Croatia. The
acquisition gives the Group access to fast growing new markets, and I-Vent's
innovative Low Carbon product solutions will further enrich our Group's
expansive product portfolio, particularly in decentralised heat recovery.
Retro-fitting heat recovery into existing residential dwellings is a key
strategic focus for the Group across Europe. With the majority of existing
revenue arising in Slovenia, the Croatian market position, although much
smaller, provides potentially a faster growing opportunity due to our lower
market penetration.
Australasia
Market sector revenue 2023 2022 Change (cc)
£m £m %
Total Australasia revenue 47.4 45.6 3.6
Adjusted operating profit 11.3 9.9 13.9
Adjusted operating profit margin (%) 23.9 21.8 2.1pp
Reported operating profit 10.7 8.8 22.0
Sales in our Australasia region were £47.4 million, with organic growth of
3.6% at constant currency. Adjusted operating margins improved to 23.9% versus
21.8% in the prior year. Following a period of substantial organic growth in
Australia, organic growth rates moderated in the year as expected. Pricing
discipline and excellent cost control enabled us to further increase operating
profit margins to 23.9% a significant improvement over the prior year.
Simx in New Zealand delivered a good performance. Revenue has increased
beyond the high levels of previous years when demand had been boosted by the
Healthy Homes Act. New Zealand has a structural demand for additional new
residential construction, however, as with other markets, higher interest and
mortgage costs are stifling demand. Similar to the wider group, our revenue
focus is predominantly refurbishment led and we continue to see opportunities
to introduce more innovative technology to this market.
The post year end acquisition of DVS Proven Systems, completed on 4 August
2023, further strengthens our position in the residential "Smart Vent" market.
With DVS Proven Systems' unique consumer focused approach to ventilation in
the local market, we see huge potential to increase sales our value-added
solutions. Through direct consumer marketing, we are confident that we can
encourage greater penetration of both central and de-central heat recovery
systems in New Zealand.
In Australia we continue to make good progress and the launch of our Sky Fan
DC range of ceiling fans was particularly successful in the year. We launched
our Manrose brand into the DIY sector in the year and we plan to extend this
range in the coming months. Ventair has been part of the Group since 2019 and
we are delighted that over four years after the successful introduction to the
Group we have secured a long-term agreement with the founder and other members
of the senior team, so we can continue to work together to further grow our
market penetration in Australia. Important elements of our success are the key
supplier relationships that we have fostered since the business was founded
and the increasing strength of the local team, which is well positioned to
capitalise on these relationships.
FINANCIAL REVIEW
Volution delivered another strong financial performance for the year, with
good organic revenue growth, adjusted operating margins maintained ahead of
our 20% target, and robust growth in adjusted EPS (up 7.5% to 25.8 pence)
despite the adverse impacts of higher interest rates on our financing costs.
I am also pleased to report that the Group delivered an excellent cash
generation performance, with a working capital net inflow of £2.8 million
(2022: £17.7 million outflow) contributing to a cash conversion for the year
of 106%, well above our stated 90% target.
Reported and adjusted results
Reported Adjusted(1)
Year ended 31 July 2023 Year ended Movement Year ended Year ended Movement
31 July 2022 31 July 2023 31 July 2022
Revenue (£m) 328.0 307.7 6.6% 328.0 307.7 6.6%
EBITDA (£m) 78.3 74.2 5.5% 79.3 73.9 7.4%
Operating profit (£m) 57.1 50.8 12.4% 69.9 64.9 7.7%
Net finance costs (£m) 6.4 2.0 216.7% 4.8 3.4 44.1%
Profit before tax (£m) 48.8 47.2 3.4% 65.1 60.9 6.8%
Basic EPS (p) 19.0 18.1 5.0% 25.8 24.0 7.5%
Dividend per share (p) 8.0 7.3 9.6% 8.0 7.3 9.6%
Operating cash flow (£m) 74.7 50.8 47.1% 75.7 50.4 50.2%
Net debt (£m)(2) 89.3 85.8 (3.5) 89.3 85.8 (3.5)
ROIC (%) 27.4% 28.8% (1.4)pp 27.4% 28.8% (1.4)pp
(1) The Group uses some alternative performance measures to track and
assess the underlying performance of the business. These measures include
adjusted operating profit, adjusted profit before tax, adjusted EPS, adjusted
operating cash flow, net debt and net debt (excluding lease liabilities). The
reconciliation of the Group's reported profit before tax to adjusted measures
of performance is summarised in the table below and in detail in note 2 to the
consolidated financial statements. For a definition of all the adjusted and
non-GAAP measures, please see the glossary of terms in note 25 to the
consolidated financial statements.
(2) Net debt, excluding lease liabilities of £31.2 million (2022: £25.0
million) would be £58.1 million (2022: £60.8 million).
Good organic growth, particularly in the UK
Revenue for the year to 31 July 2023 was £328.0 million, up 6.6% (2022:
£307.7 million) within which organic growth accounted for 4.6% (cc) and
inorganic growth 1.5%, with a benefit of 0.5% from currency translation
impacts.
Our strongest performing region was the UK (up 8.3%), with residential revenue
very strong (up 19.5%) fuelled by high public RMI demand as housing providers
and tenants became increasingly aware of the health risks associated with
mould and condensation. Private RMI also performed well underpinned by both
price and volume increases and demonstrating the less "discretionary" nature
of our RMI demand. Our more challenging sectors in the UK were in OEM and
Commercial, though the latter did return to growth in the second half of the
year.
A more mixed picture in Continental Europe saw us report organic revenue
growth (cc) of 0.6%. Good performances in ClimaRad and ERI were offset by
challenging market conditions in Germany and the Nordics, linked to weak new
build residential markets, and in the case of Germany to the withdrawal of
some previously available subsidy programs for energy efficiency investments.
Inorganic growth in Continental Europe (3.8%) reflected one month of ERI
revenue in September 2022, and then the impact of our new acquisitions in
France and Slovenia towards the end of the second half.
Australasia revenue grew 3.6% (cc) after a number of years of very strong
growth, a solid performance given relatively subdued market conditions and
weaker consumer confidence levels.
Adjusted operating margin of 21.3%
Adjusted operating profit increased by 7.7% in the year to £69.9 million
(2022: £64.9 million). The increase of £5.0 million in adjusted operating
profit consisted of £4.3 million from organic growth, £0.5 million from
acquisitions, and £0.2 million from favourable currency movements.
Inflationary cost pressures on materials diminished through the year. This
contrasted with the picture for staff costs, property costs and other
categories of overhead costs which continued to experience inflationary
pressures. Coupled with good factory performance, efficient customer service
and continued judicious selling price management, this enabled us to deliver a
60bps improvement in gross margins to 48.4% (2022: 47.8%) and a 20bps
improvement in adjusted operating margin to 21.3% (2022: 21.1%).
Adjusted profit before tax of £65.1 million was 6.8% higher than 2022 (£60.9
million). Reported profit before tax was £48.8 million (2022: £47.2 million)
and is after charging:
· £11.1 million in respect of amortisation of intangible assets
(2022: £14.5 million);
· £1.7 million (2022: credit of £0.4 million) of other costs of
business combinations, of which:
· £1.0 million relates to costs associated with business
combinations (2022: £0.2 million); and
· £0.7 million in respect of contingent consideration in ERI (2022:
reduction £0.6 million)
· £1.6 million loss due to the fair value measurement of financial
instruments (2022: gain of £1.4 million); and
· £1.9 million re-measurement of future consideration relating to
ClimaRad (2022: £1.0 million).
Higher financing costs
Despite leverage (excl. leases) remaining below 1.0x at both the half year and
the full year as a result of our strong cash generation, the Group's adjusted
financing costs nevertheless increased by 44.1% to £4.8 million (2022: £3.4
million) as a consequence of the significant increase in bank base rates
through the period. Our weighted average interest rates on gross debt in the
year was 4.44% (2022: 2.02%).
Year ended 31 July 2023 Year ended 31 July 2022
Reported Adjustments Adjusted Reported Adjustments Adjusted
£m £m results £m £m results
£m £m
Revenue 328.0 ─ 328.0 307.7 ─ 307.7
Gross profit 158.9 ─ 158.9 147.1 ─ 147.1
Administration and distribution costs excluding the costs listed below (89.0) ─ (89.0) (82.2) ─ (82.2)
Amortisation of intangible assets acquired through business combinations (11.1) 11.1 ─ (14.5) 14.5 ─
Contingent consideration(1) (0.7) 0.7 ─ 0.6 (0.6) ─
Costs of business combinations(2) (1.0) 1.0 ─ (0.2) 0.2 ─
Operating profit 57.1 12.8 69.9 50.8 14.1 64.9
Re-measurement of financial liability 0.1 ─ 0.1 (0.6) ─ (0.6)
Re-measurement of future consideration(3) (1.9) 1.9 ─ (1.0) 1.0 ─
Net loss on financial instruments at FV(4) (1.6) 1.6 ─ 1.4 (1.4) ─
Other net finance costs (4.9) ─ (4.9) (3.4) ─ (3.4)
Profit before tax 48.8 16.3 65.1 47.2 13.7 60.9
Income tax (11.3) (3.0)(5) (14.3) (11.5) (2.1) (13.6)
Profit after tax 37.5 13.3 50.8 35.7 11.6 47.3
Notes
1. £0.7 million in respect of a contingent consideration in ERI
(2022: reduction of £0.6 million).
2. £1.0 million relates to costs associated with business
combinations (2022: £0.2 million).
3. £1.9 million re-measurement of future consideration relating to
the business combination of ClimaRad (2022: £1.0 million).
4. £1.6 million loss was due to the fair value measurement of
financial instruments (2022: gain of £1.4 million).
5. £3.0 million tax adjustment relates to the tax on the adjusted
items above.
Currency impacts
Aside from Sterling, the Group's key trading currencies for our non-UK
businesses are the Euro, representing approximately 25% of Group revenues,
Swedish Krona (approximately 9%), New Zealand Dollar (approximately 7%) and
Australian Dollar (approximately 7%). We do not hedge the translational
exchange risk arising from the conversion of the results of overseas
subsidiaries, although we do denominate some of our borrowings in our
non-sterling trading currencies, which offsets some of the translation risk
relating to net assets.
The average rates of sterling versus our principal non-sterling trading
currencies are shown in the table below.
Average rate 2023 Average rate 2022 Movement
Euro 1.149 1.182 (2.8)%
Swedish Krona 12.802 12.229 4.7%
New Zealand Dollar 1.965 1.952 0.7%
Australian Dollar 1.803 1.825 (1.2)%
The Group had Euro denominated borrowings as at 31 July 2023 of £79.4 million
(2022: £71.9 million) and Swedish Krona denominated borrowings of £nil
million (2022: £2.4 million). The Sterling value of these foreign currency
denominated loans, net of cash, increased by £1.3 million as a result of
exchange rate movements (2022: decreased by £0.9 million).
Transactional foreign exchange exposures arise principally in the form of US
Dollar denominated purchases from our suppliers in China. We aim to purchase a
substantial proportion of our expected requirements approximately twelve
months forward, and as such, we have forward currency contracts in place for
approximately 85% of our forecast average forward requirements for the 2024
financial year (approximately $19 million).
Earnings per share
Our adjusted basic earnings per share for the year was 25.8 pence (2022: 24.0
pence) and our reported basic earnings per share for the year was 19.0 pence
(2022: 18.1 pence).
High returns on invested capital (ROIC)
Strong profit and cash generation is a key focus of Volution's financial
model, and we look to allocate our capital to investments (both organic and
inorganic) that further underpin the future growth of the business and create
value for our shareholders.
Over recent years we have reported our return on acquisition investment (ROAI)
KPI, measuring our success at generating returns from our inorganic growth
strategy. We are pleased to introduce a new financial KPI in this year's
annual report, Return on Invested Capital (ROIC), measuring the returns for
the Group as a whole.
We believe ROIC is not only helpful for shareholders to monitor the returns
generated by Volution on an ongoing basis, but another metric which helps
demonstrate the underlying quality of the business versus our global peers and
its ability to generate shareholder value.
Whilst we will continue to monitor and report the performance of individual
acquisitions as they reach the three-year measurement point, we believe that
the ROIC will provide a more comprehensive overall measure and so this will be
adopted in our KPIs.
The Group's ROIC (pre-tax) for the financial year was 27.4%, measured as
adjusted operating profit for the year divided by average net assets adding
back net debt, acquisition related liabilities, and historic goodwill and
acquisition related amortisation charges (net of the associated deferred
tax). The measure also excludes the goodwill and intangible assets arising
from the original transaction that created the Group when it was bought out
via a leveraged buy-out transaction by private equity house Towerbrook Capital
Partners in 2012.
Our ROIC of 27.4% for financial year 2023 is slightly lower than the prior
year's 28.8%, as a result of the timing of acquisitions. Our main acquisition
in the prior year (ERI) generated 11 months of operating profit in 2022
relative to two-thirds of the associated invested capital being included in
the net assets as a result of our three-point average methodology. By
contrast our two acquisitions in this financial year were both towards the end
of the financial year and so had a very modest contribution to our operating
profit. The timing impact of the acquisitions was partly offset by a benefit
from both organic growth and operating margin expansion.
Importantly, our ROIC of 27.4% is significantly ahead of the Group's estimated
pre-tax Weighted Average Cost of Capital of 10%. Volution continues to have
exciting plans for growth, both through organic and inorganic investment.
Although, at the time of entry to the Group, acquisitions will be dilutive to
ROIC, our track record of improving the returns post acquisition, coupled with
continued organic growth, mean we are confident of maintaining Group ROIC
above 20% over the medium term while continuing to invest to grow the
business.
Taxation
Our reported effective tax rate for the year was 23.4% (2022: 24.4%), the
decrease of 1.0pp was driven by favourable business mix effect, increase in
Patent Box relief and lower non-deductible items, offsetting the impact of the
increase in UK Corporation Tax rate from 19% to 25%. The reduction in
effective adjusted tax rate to 21.9% (2022: 22.4%) is lower than the reduction
in reported effective tax rates primarily due to non-taxable contingent
consideration. Our reported effective tax rate for the year was 23.2% (2022:
24.4%).
We expect our medium-term underlying effective tax rate to be in the range of
22% to 25% of the Group's adjusted profit before tax, depending on the
business mix and the profile of acquisitions.
Capital allocation priorities
Volution aims to deliver strong financial returns and cash generation. Our
capital allocation priorities, which remain unchanged, are:
· Investment for organic growth, including through capital
expenditure, product development and innovation, and ongoing development of
our people
· Value-adding acquisitions; and
· Regular returns to shareholders through dividends.
Strong cash generation and balance sheet
Volution's asset light business model and operations are strongly cash
generative. Underpinned by a working capital inflow of £2.8 million in the
year (2022: outflow of £17.7 million), the Group delivered a strong adjusted
operating cash flow of £75.7 million (2022: £50.4 million). Group cash
conversion, defined as adjusted operating cash flow as a percentage of
adjusted earnings before interest, tax and amortisation (see the glossary of
terms in note 25 to the consolidated financial statements) was 106% (2022:
76%).
A summary of the year's cash flow is shown in the tables below, with the
principal outflows being in relation to acquisitions (£30.7 million including
acquisitions and associated fees), dividends (£14.8 million) and tax paid
(£14.0 million). Capital expenditure for the year was £7.8 million (2022:
£6.9 million), focussed on new product development spend of £2.3 million and
operational and capacity enhancements totalling £1.2 million in North
Macedonia (ERI), Bosnia (ClimaRad) and the UK. There was also further
investment in IT and our vehicle fleets which we are progressively
transitioning to hybrid vehicles.
Net debt at 31 July 2023 was £89.3 million (2022: £85.8 million), and is set
out in the table below. With low leverage (excluding finance leases) of 0.8x
at 31 July 2023 (2022: 0.9x), our strong balance sheet and reliable high
levels of cash conversion give us significant capability for future growth
investment.
Value adding acquisitions
Acquisition spend in the year net of cash acquired was £29.7 million (2022:
£24.4 million). We completed two acquisitions, Ventilairsec (VMI) in France,
and I-Vent based in Slovenia and Croatia. We agreed a further acquisition, DVS
Proven Systems (New Zealand), which was completed shortly after the year end.
VMI, based in Nantes, France, was acquired for an initial consideration of
£7.9 million (€9.0 million), net of cash acquired. VMI designs and
manufactures a range of residential ventilation systems focused on a low
carbon positive input ventilation approach. The acquisition provides Volution
with direct access to the French market, one of the largest ventilation
markets in Europe. The VMI acquisition included an earn-out payment of up to
€5 million Euros, which will be calculated on the basis of the EBITDA for
the year ended 31 December 2023.
In June 2023 we completed the acquisition of I-Vent for an initial
consideration of £21.7 million (€25.2 million), net of cash acquired, with
further contingent consideration of up to €15 million based on stretching
growth targets for the financial results for the three years up to and
including 31 December 2025. I-Vent, based in Slovenia and Croatia, designs,
manufactures and supplies residential ventilation systems, primarily focused
on decentralised heat recovery.
Movements in net debt position for the year ended 31 July
2023 2022
£m £m
Opening net debt 1 August (85.8) (79.2)
Movements from normal business operations:
Adjusted EBITDA1 79.3 73.9
Movement in working capital 2.8 (17.7)
Share-based payments 1.4 1.1
Capital expenditure (7.8) (6.9)
Adjusted operating cash flow: 75.7 50.4
- Interest paid net of interest received (3.7) (2.7)
- Income tax paid (14.0) (12.2)
- Cash flow relating to business combination costs (1.0) (0.2)
- Dividend paid (14.8) (13.3)
- Purchase of own shares (1.8) (1.9)
- FX on foreign currency loans/cash (3.1) 0.7
- Issue costs of new borrowings (0.3) (0.3)
- IFRS 16 payment of lease liabilities (4.5) (3.2)
- IFRS 16 decrease/(increase) in lease liabilities (6.2) 0.5
Movements from business combinations:
- Business combination of subsidiaries, net of cash acquired (29.7) (16.5)
- Contingent consideration relating to Ventair from operating activities - (3.2)
- Contingent consideration relating to Ventair from investing activities - (0.9)
- Business combination of subsidiaries, debt repaid (0.1) (3.8)
Closing net debt 31 July (89.3) (85.8)
(1) A reconciliation of the Group's reported profit before tax to adjusted
measures of performance are shown in detail in note 2 to the consolidated
financial statements.
Reconciliation of Bank debt to Net debt
2023 2022
£m £m
Bank debt (79.4) (74.3)
Cash 21.3 13.5
Net debt (excluding lease liabilities) (58.1) (60.8)
Lease liabilities (31.2) (25.0)
Net debt (89.3) (85.8)
Reconciliation of adjusted operating cash flow
2023 2022
£m £m
Net cash flow generated from operating activities 68.5 41.7
Net capital expenditure (7.8) (6.9)
UK and overseas tax paid 14.0 12.2
Contingent consideration relating to the acquisition of Ventair - 3.2
Cash flow relating to business combination costs 1.0 0.2
Adjusted operating cash flow 75.7 50.4
Funding facilities and liquidity
In December 2022, the Group exercised the option to extend its £150 million
multicurrency "Sustainability Linked Revolving Credit Facility", together with
an additional accordion of up to £30 million, by a period of twelve months.
The maturity date of the facility is now 2 December 2025.
As at 31 July 2023, the Group had £70.6 million of undrawn, committed bank
facilities (2022: £75.7 million) and £21.3 million of cash and cash
equivalents on the consolidated statement of financial position (2022: £13.5
million).
Returns to shareholders
Adjusted earnings per share increased by 7.5% to 25.8 pence (2022: 24.0
pence). The Board is recommending a final dividend of 5.5 pence which,
together with an interim dividend paid of 2.5 pence per share, gives a total
dividend per share of 8.0 pence (2022: 7.3 pence), up 9.6% in total. The final
dividend is subject to approval by shareholders at the AGM on 13 December 2023
and, if approved, will be paid on 19 December 2023.
Employee Benefit Trust
During the year £1.8 million of non-recourse loans (2022: £1.9 million) were
made to the Volution Employee Benefit Trust for the purpose of purchasing
shares in Volution Group plc to meet the Company's obligations under its share
incentive plans. The Volution Employee Benefit Trust acquired 550,000 shares
at an average price of £3.33 per share in the period (2022: £4.10) and
920,250 shares (2022: 402,407 shares) were released by the trustees with a
value of £3,018,420 (2022: £1,114,667). The Volution Employee Benefit Trust
has been consolidated into our results and the shares purchased have been
treated as treasury shares deducted from shareholders' funds.
Andy O'Brien
Chief Financial Officer
4 October 2023
Directors' responsibilities in respect of the financial statements
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
· the Strategic report includes a fair review of the development
and performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face. We
consider the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
The contents of this announcement, including the responsibility statement
above, have been extracted from the annual report and accounts for the year
ended 31 July 2023 which may be found at www.volutiongroupplc.com and will be
despatched to shareholders on or around 19 October 2023. Accordingly this
responsibility statement makes reference to the financial statements of the
Company and the group and to the relevant narrative appearing in that annual
report and accounts rather than the contents of this announcement.
On behalf of the Board
Ronnie
George
Andy O'Brien
Chief Executive
Officer
Chief Financial Officer
4 October
2023
4 October 2023
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2023
Notes 2023 2022
£000 £000
Revenue from contracts with customers 3 328,008 307,701
Cost of sales (169,149) (160,603)
Gross profit 158,859 147,098
Administrative and distribution expenses (100,095) (96,693)
Operating profit before separately disclosed items 58,764 50,405
Costs of business combinations (1,032) (215)
Contingent consideration (640) 598
Operating profit 57,092 50,788
Finance revenue 5 65 1,333
Finance costs 5 (6,513) (3,369)
Re-measurement of financial liabilities 54 (583)
Re-measurement of future consideration (1,879) (955)
Profit before tax 48,819 47,214
Income tax 6 (11,437) (11,542)
Profit after tax 37,382 35,672
Attributable to the shareholders 37,373 35,610
Attributable to non-controlling interest 9 62
Other comprehensive income
Other comprehensive income that may be reclassified to profit or loss in
subsequent periods:
Exchange differences arising on translation of foreign operations (3,015) 1,944
Loss on currency loans relating to the net investment in foreign operations (1,309) (1,744)
Other comprehensive (loss)/income for the year (4,324) 200
Total comprehensive income for the year 33,058 35,872
Attributable to the shareholders 33,049 35,810
Attributable to non-controlling interest 9 62
Earnings per share
Basic earnings per share 7 19.0p 18.1p
Diluted earnings per share 7 18.7p 17.8p
Consolidated Statement of Financial Position
At 31 July 2023
Notes 2023 2022
£000 £000
Non-current assets
Property, plant and equipment 8 29,448 28,235
Right-of-use assets 17 29,902 23,567
Intangible assets - goodwill 9 164,873 142,661
Intangible assets - others 11 83,863 87,592
308,086 282,055
Current assets
Inventories 13 58,980 57,151
Trade and other receivables 14 52,336 57,526
Other financial assets 15 - 1,091
Cash and short-term deposits 21,244 13,543
132,560 129,311
Total assets 440,646 411,366
Current liabilities
Trade and other payables 16 (47,108) (48,837)
Refund liabilities (9,817) (10,268)
Income tax (4,662) (5,564)
Other financial liabilities 18 (330) -
Interest-bearing loans and borrowings 19 (3,754) (3,599)
Provisions 20 (1,791) (1,684)
(67,462) (69,952)
Non-current liabilities
Interest-bearing loans and borrowings 19 (116,704) (104,433)
Other financial liabilities 18 (16,597) (14,132)
Provisions 20 (301) (319)
Deferred tax liabilities 21 (13,337) (14,222)
(146,939) (133,106)
Total liabilities (214,401) (203,058)
Net assets 226,245 208,308
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (2,390) (3,574)
Capital reserve 93,855 93,855
Share-based payment reserve 5,584 5,058
Foreign currency translation reserve (1,225) 3,099
Retained earnings 116,894 96,247
Total shareholders' equity 226,245 208,212
Non-controlling interest - 96
Total equity 226,245 208,308
The consolidated financial statements of Volution Group plc (registered
number: 09041571) were approved by the Board of Directors and authorised for
issue on 4 October 2023.
On behalf of the Board
Ronnie
George
Andy O'Brien
Chief Executive
Officer
Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 July 2023
Share Share Treasury Capital Share-based Foreign Retained Shareholders' Non- Total
capital premium shares reserve payment currency earnings equity controlling equity
£000 £000 £000 £000 reserve translation £000 £000 interest £000
£000 reserve £000
£000
At 31 July 2021 2,000 11,527 (3,739) 93,855 4,090 2,899 74,658 185,290 - 185,290
Profit for the year - - - - - - 35,610 35,610 62 35,672
Other comprehensive income - - - - - 200 - 200 - 200
Total comprehensive income - - - - - 200 35,610 35,810 62 35,872
Acquisition of businesses - - - - - - - - 34 34
Purchase of own shares - - (1,900) - - - - (1,900) - (1,900)
Exercise of share options - - 2,065 - (1,129) - (749) 187 - 187
Share-based payment including tax - - - - 2,097 - - 2,097 - 2,097
Dividends paid (note 22) - - - - - - (13,272) (13,272) - (13,272)
At 1 August 2022 2,000 11,527 (3,574) 93,855 5,058 3,099 96,247 208,212 96 208,308
Profit for the year - - - - - - 37,373 37,373 9 37,382
Other comprehensive loss - - - - - (4,324) - (4,324) - (4,324)
Total comprehensive income - - - - - (4,324) 37,373 33,049 9 33,058
Purchase of own shares - - (1,834) - - - - (1,834) - (1,834)
Exercise of share options - - 3,018 - (1,379) - (1,639) - - -
Share-based payment including tax - - - - 1,905 - - 1,905 - 1,905
Dividends paid (note 22) - - - - - - (14,823) (14,823) - (14,823)
Acquisition of non-controlling interest - - - - - - (264) (264) (105) (369)
At 31 July 2023 2,000 11,527 (2,390) 93,855 5,584 (1,225) 116,894 226,245 - 226,245
Treasury shares
The treasury shares reserve represents the cost of shares in Volution Group
plc purchased in the market and held by the Volution Employee Benefit Trust to
satisfy obligations under the Group's share incentive schemes.
Capital reserve
The capital reserve is the difference in share capital and reserves arising
from the use of the pooling of interest method for preparation of the
financial statements in 2014. This is a non-distributable reserve.
Share-based payment reserve
The share-based payment reserve is used to recognise the value of
equity-settled share-based payments provided to key management personnel, as
part of their remuneration.
Foreign currency translation reserve
Exchange differences arising on translation of the Group's foreign
subsidiaries into GBP are included in the foreign currency translation
reserve. The Group hedges some of its exposure to its net investment in
foreign operations; foreign exchange gains and losses relating to the
effective portion of the net investment hedge are accounted for by entries
made to other comprehensive income. No hedge ineffectiveness has been
recognised in the statement of comprehensive income for any of the periods
presented.
Retained earnings
The parent company of the Group, Volution Group plc, had distributable
retained earnings at 31 July 2023 of £131,795,000 (2022: £120,294,000).
Consolidated Statement of Cash Flows
For the year ended 31 July 2023
Notes 2023 2022
£000 £000
Operating activities
Profit for the year after tax 37,382 35,672
Adjustments to reconcile profit for the year to net cash flow from operating
activities:
Income tax 11,437 11,542
Gain on disposal of property, plant and equipment and intangible assets - (17) (51)
other
Costs of business combinations 1,032 215
Contingent consideration 640 (598)
Cash flows relating to business combination costs (1,032) (215)
Re-measurement of financial liability relating to business combination of (54) 583
ClimaRad
Re-measurement of future consideration relating to business combination of 1,879 955
ClimaRad
Finance revenue 5 (65) (1,333)
Finance costs 5 6,513 3,369
Share-based payment expense 1,357 1,115
Depreciation of property, plant and equipment 8 4,102 3,816
Depreciation of right-of-use assets 17 3,895 3,612
Amortisation of intangible assets 11 12,574 16,026
Working capital adjustments:
Decrease/(increase) in trade receivables and other assets 6,925 (6,418)
Decrease/(increase) in inventories 310 (9,805)
Decrease in trade and other payables (4,505) (1,235)
Movement in provisions 89 (242)
Cash generated by operations 82,462 57,008
UK income tax paid (4,171) (3,000)
Overseas income tax paid (9,819) (9,155)
Contingent consideration relating to the acquisition of Ventair 12 - (3,211)
Net cash flow generated from operating activities 68,472 41,642
Investing activities
Payments to acquire intangible assets 11 (3,049) (2,238)
Purchase of property, plant and equipment 8 (4,914) (4,773)
Proceeds from disposal of property, plant and equipment and intangible assets 175 179
- other
Business combination of subsidiaries, net of cash acquired 12 (29,696) (15,996)
Contingent consideration relating to the acquisition of Air Connection 12 - (476)
Contingent consideration relating to the acquisition of Ventair 12 - (952)
Interest received 65 4
Net cash flow used in investing activities (37,419) (24,252)
Financing activities
Repayment of interest-bearing loans and borrowings (62,240) (33,626)
Repayment of VMI debt acquired (92) -
Repayment of ERI debt acquired - (3,227)
Repayment of ClimaRad vendor loan - (504)
Proceeds from new borrowings 65,950 36,428
Issue costs of new borrowings (300) (330)
Interest paid (3,748) (2,662)
Payment of principal portion of lease liabilities (4,482) (3,202)
Dividends paid (14,823) (13,272)
Purchase of own shares (1,834) (1,900)
Net cash flow used in financing activities (21,569) (22,295)
Net increase/(decrease) in cash and cash equivalents 9,484 (4,905)
Cash and cash equivalents at the start of the year 13,543 19,456
Effect of exchange rates on cash and cash equivalents (1,783) (1,008)
Cash and cash equivalents at the end of the year 21,244 13,543
Volution Group plc (the Company) is a public limited company and is
incorporated and domiciled in the UK (registered number: 09041571). The share
capital of the Company is listed on the London Stock Exchange. The address of
its registered office is Fleming Way, Crawley, West Sussex RH10 9YX.
Notes to the Consolidated Financial Statements
For the year ended 31 July 2023
The preliminary results were authorised for issue by the Board of Directors on
4 October 2023. The financial information set out herein does not constitute
the Group's statutory consolidated financial statements for the years ended 31
July 2023 or 2022 but is derived from those accounts. Statutory consolidated
financial statements for 2023 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their report was unqualified and did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
1. Basis of preparation
The Group's consolidated financial statements have been prepared in accordance
with UK-adopted international accounting standards (UK-adopted IAS). The
consolidated financial statements have been prepared under the historical cost
convention, except as disclosed in the accounting policies under the relevant
notes.
The preparation of the consolidated financial information in conformity with
IFRS requires the use of certain critical accounting estimates and requires
management to exercise judgement in the process of applying the Group's
accounting policies. Accounting policies, including critical accounting
judgements and estimates used in the preparation of the financial statements,
are described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and all values are
rounded to the nearest thousand (£000), except as otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 July 2023. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power
over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
• Power over the investee (i.e., existing rights that give it
the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement
with the investee
• The ability to use its power over the investee to affect its
returns
The Group reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
The financial statements of subsidiaries are prepared for the same reporting
periods using consistent accounting policies. All intercompany transactions
and balances, including unrealised profits arising from intra-group
transactions, have been eliminated on consolidation.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence in the foreseeable future, assessed for
the period up until 31 January 2024.
The financial position of the Group, its cash flows and liquidity position are
set out in the financial statements.
The financial statements have been prepared on a going concern basis. In
adopting the going concern basis, the Directors have considered all of the
above factors, including potential scenarios arising from the political and
macroeconomic uncertainty that has arisen post-Covid and since the invasion of
Ukraine early in 2022, including the actions of central banks in raising
interest rates to curb inflation and the impact that this may have on housing
and construction, and from its other principal risks. Under a severe but
plausible downside scenario, the Group remains within its debt facilities and
the attached financial covenants under the 18 months from the balance sheet
date period of assessment and the Directors therefore believe, at the time of
approving the financial statements, that the Company is well placed to manage
its business risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised below.
Our financial position remains robust with committed facilities totalling
£150 million, and an accordion of a further £30 million, maturing in
December 2025.
The financial covenants on these facilities are for leverage (net
debt/adjusted EBITDA) of not more than three times and for adjusted interest
cover of not less than four times.
Our base case scenario has been prepared using robust forecasts from each of
our operating companies, with each considering the risks and opportunities the
businesses face.
We have then applied a severe but plausible downside scenario in order to
model the potential concurrent impact of:
• a general economic slowdown reducing revenue by 20%
compared to plan.
• supply chain difficulties or input price increases
reducing gross profit margin by 10%; and
• a significant acquisition increasing debt but with no
positive cash flow contribution.
A reverse stress test scenario has also been modelled which shows a revenue
contraction of c37% with no mitigations would be required to breach covenants,
which is considered extremely remote in likelihood of occurring. Mitigations
available within the control of management include reducing discretionary
capex and discretionary indirect costs.
Over the short period of our Climate Change assessment (aligned to our Going
Concern assessment) we have concluded that there is no material adverse impact
of Climate Change and hence have not included any impacts in either our base
case or downside scenarios of our Going Concern assessment. We have not
experienced material adverse disruption during periods of adverse or extreme
weather in recent years and we would not expect this to occur to a material
level over the period of our Going Concern assessment.
The Directors have concluded that the results of the scenario testing combined
with the significant liquidity profile available under the revolving credit
facility confirm that there is no material uncertainty in the use of the going
concern assumption.
Non-controlling interest
Non-controlling interests are identified separately from the Group's equity.
Non-controlling interests consist of the amount of those interests at the date
of the business combination and the non-controlling interest's share of
changes in equity since that date. Non-controlling interests are measured at
the non-controlling interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling interest at a
future date, the non-controlling interest will be recognised on the business
combination, and subsequently when the obligation to purchase liability is
recognised the amount is reclassified from equity to a financial liability and
the non-controlling interest is derecognised. Any difference between the
carrying value of the non-controlling interest and the liability is adjusted
against retained earnings.
The financial liability for the non-controlling interest is subsequently
accounted for under IFRS 9, with all changes in the carrying amount, including
the non-controlling interest share of profit, recognised as a re-measurement
in the income statement. When the obligation or "put liability" is exercised,
the carrying amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Foreign currencies
The individual financial statements of each subsidiary are presented in the
currency of the primary economic environment in which the entity operates (its
functional currency). For the purpose of the Group financial statements, the
results and financial position of each entity are expressed in GBP (£000),
which is the functional currency of the Company and the presentational
currency of the Group.
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rate of exchange prevailing at the dates of the
transactions. At the end of each reporting period, monetary items denominated
in foreign currencies are retranslated at the rate prevailing at the end of
the reporting period.
Non-monetary items that are measured at historical cost in a foreign currency
are translated using the exchange rate at the date of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rate at the date the fair value was determined.
For the purpose of presenting consolidated financial information, the assets
and liabilities of the Group's foreign operations are expressed in GBP using
exchange rates prevailing at the end of the reporting period. Income and
expenses are translated at the average exchange rate for the period. Exchange
differences arising are classified as other comprehensive income and are
transferred to the foreign currency translation reserve. All other translation
differences are taken to profit and loss with the exception of differences on
foreign currency borrowings to the extent that they are used to finance or
provide a hedge against Group equity investments in foreign operations, in
which case they are taken to other comprehensive income together with the
exchange difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, management is required
to make judgements, estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources.
The key judgement, apart from any involving estimations, that has the most
significant effect on the amounts recognised in the financial statements is
the identification of the Group's cash generating units (CGUs) and the
grouping of those CGUs for goodwill impairment testing purposes. This
judgement could have a significant impact on the carrying value of goodwill
and other intangible assets in the financial statements. Hence, the Directors
have concluded that this is a key judgment under the scope of paragraph 122 of
IAS1. Further details can be found in note 10 - impairment assessment of
goodwill and note 11 - intangible assets other.
The Directors have concluded that there are no major sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next financial
year.
Other judgements and estimates, which the directors do not believe to be
critical accounting judgements or key sources of estimation uncertainty under
the scope of paragraph 122 or 125 of IAS1, but for which additional
disclosures have been made in the relevant notes include i) estimates and
assumptions made related to: impairment assessment of goodwill (note 9),
intangible assets - other (note 11), ii) estimates and assumptions relating to
refund liabilities arising from retrospective volume rebates (note 3), and
iii) financial liabilities relating to the business combination of ClimaRad,
ERI, VMI and I-Vent (notes 12 and 18).
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that have a significant risk of causing a
material adjustment to the carrying amounts of the assets and liabilities
within the next financial year are described under the relevant notes.
The Group based its assumptions and estimates on parameters available when
these financial statements were prepared. Existing circumstances and
assumptions about future developments, however, may change due to market
changes or circumstances arising beyond the control of the Group. Such changes
are reflected in the assumptions when they occur. The Directors have
considered a range of potential scenarios arising from the current
macroeconomic uncertainty and how these have impacted the significant
judgements, estimates and assumptions in these financial statements is
included under the relevant notes.
In preparing the financial statements, we have considered the impact of
climate change, particularly in the context of the risks identified in the
TCFD disclosure. Whilst we do not currently expect any material short and
medium term impacts from climate change under the scenarios we have
considered, the risks over the long term are more uncertain. However, there
have been no risks of climate change identified which would have a material
impact on the judgements and estimates made in preparation of these financial
statements.
These are short term (less than 5 years) which is the period over which we
prepare detailed bottom up plans, medium term (5-15 years) which is the period
over which our continued strategy to provide healthy air sustainability under
our three strategic pillars will be delivered including specific targets to
reduce carbon, and long term (beyond 15 years) which is the period aligned to
the useful economic life of some of our property assets and where the
potential impacts under different scenarios are less certain. These different
periods have allowed us to assess risks and opportunities that are immediate
and well defined to those which may arise over time but which are much less
certain.
Separately disclosed items
The Group discloses some items on the face of the consolidated statement of
comprehensive income by virtue of their nature, size or incidence to allow a
better understanding of the underlying trading performance of the Group. These
separately disclosed items include, but are not limited to, significant
restructuring costs and significant business combination and related
integration and earn-out costs.
New standards and interpretations
The standards or interpretations listed below have become effective since 1
August 2022 for annual periods beginning on or after 1 January 2022.
The following amendments became effective as at 1 January 2022:
· Amendments to IFRS3 "Reference to the Conceptual Framework"
· Amendments to IAS 16 "Property, plant and equipment - proceeds
before intended use"
· Amendments to IAS37 "Onerous Contracts - Costs of Fulfilling a
Contract"
· Amendments to IFRS 9 "Financial Instruments - Fees in the '10 per
cent' test for derecognition of financial liabilities"
At the date of authorisation of these Consolidated Financial Statements, the
Group has not applied the following new and revised IFRS Standards that have
been issued but are not yet effective.
The following amendments became effective as at 1 January 2023:
· Amendments to IAS 12 "Deferred tax related to assets and
liabilities arising from a single transaction"
· Amendments to IAS 8 "Definition of accounting estimates"
· Amendments to IAS 1 and IFRS Practice Statement 2 - "Disclosure of
accounting policies"
The following amendments became effective as at 1 January 2024:
· Amendments to IAS 1 "Classification of liabilities as current or
non-current"
· Amendments to IFRS 16 "Lease liability in a sale and leaseback"
· Amendments to IAS 1 "Non-current liabilities with covenants"
· Amendments to IAS 7 "Supplier Finance Arrangements"
The Directors do not expect that the adoption of the Standards listed above
will have a material impact on the Consolidated Financial Statements of the
Group in future periods.
2. Adjusted earnings
The Board and key management personnel use some alternative performance
measures to track and assess the underlying performance of the business. These
measures include adjusted operating profit and adjusted profit before tax.
These measures are deemed more helpful as they remove items that do not
reflect the day-to-day trading operations of the business and therefore their
exclusion is relevant to an assessment of the day-to-day trading operations,
as opposed to overall annual business performance. Such alternative
performance measures are not defined terms under IFRS and may not be
comparable with similar measures disclosed by other companies. Likewise, these
measures are not a substitute for IFRS measures of profit. A reconciliation of
these measures of performance to the corresponding reported figure is shown
below.
2023 2022
£000 £000
Profit after tax 37,382 35,672
Add back:
Contingent consideration 640 (598)
Cost of business combinations 1,032 215
Re-measurement of future consideration relating to the business combination of 1,879 955
ClimaRad
Net gain on financial instruments at fair value 1,599 (1,329)
Amortisation and impairment of intangible assets acquired through business 11,088 14,485
combinations
Tax effect of the above (2,788) (2,085)
Adjusted profit after tax 50,832 47,315
Add back:
Adjusted tax charge 14,225 13,627
Adjusted profit before tax 65,057 60,942
Add back:
Interest payable on bank loans, lease liabilities and amortisation of 4,914 3,369
financing costs
Re-measurement of financial liabilities relating to the business combination (54) 583
of ClimaRad
Finance revenue (65) (4)
Adjusted operating profit 69,852 64,890
Add back:
Depreciation of property, plant and equipment 4,102 3,816
Depreciation of right-of-use assets 3,895 3,612
Amortisation of development costs, software and patents 1,486 1,541
Adjusted EBITDA 79,335 73,859
For definitions of terms referred to above see note 25, Glossary of terms.
3. Revenue from contracts with customers
Accounting policy
Revenue from contracts with customers is recognised when the control of goods
or services is transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those
goods and services. The performance obligation is satisfied upon delivery of
the equipment and payment is generally due within 30 to 90 days from delivery.
Sale of products
Revenue from the sale of products is recognised at the point in time when
control of the asset is transferred to the buyer, usually on the delivery of
the goods.
The Group considers whether there are other promises in the contract that are
separate performance obligations to which a portion of the transaction price
needs to be allocated (e.g. warranties and volume rebates). In determining the
transaction price for the sale of ventilation products, the Group considers
the effects of variable consideration (if any).
Volume rebates
The Group provides retrospective volume rebates to certain customers once the
quantity of products purchased during the period exceeds a threshold specified
in the contract. To estimate the variable consideration for the expected
future rebates, the Group applies the expected value method for contracts with
more than one volume threshold. The Group then applies the requirements on
constraining estimates of variable consideration and recognises a liability
for the expected future rebates.
Before including any amount of variable consideration in the transaction
price, the Group considers whether the amount of variable consideration is
constrained. The Group determined that the estimates of variable consideration
are not constrained, other than with respect to volume rebates, based on its
historical experience, business forecasts and the current economic conditions.
In addition, the uncertainty on the variable consideration will be resolved
within a short timeframe.
Warranty obligations
The Group typically provides warranties for general repairs of defects that
existed at the time of sale. These assurance-type warranties are accounted for
under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Refer
to the accounting policy on warranty provisions in note 20, Provisions.
Installation services
The Group provides installation services that are bundled together with the
sale of equipment to a customer.
Contracts for bundled sales of equipment and installation services are
comprised of two performance obligations because the promises to transfer
equipment and provide installation services are capable of being distinct and
separately identifiable. Accordingly, the Group allocates the transaction
price based on the relative stand-alone selling prices of the equipment and
the cost-plus margin approach for installation services.
The Group recognises revenue from installation services at a point in time
after the service has been performed; this is because installation of the
ventilation equipment is generally over a small timeframe, usually around one
to two days. Revenue from the sale of the ventilation equipment is recognised
at a point in time, generally upon delivery of the equipment.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for goods and
services transferred to the customer. A contract asset is recognised when the
Group transfers goods or services to the customer before the customer pays
consideration. There is no contract asset included within the statement of
financial position as revenue is recognised at a point in time, after
installation. Consideration is recognised immediately as a receivable and is
unconditional (only the passage of time is required before payment of
consideration is due). The Group's accounting policy on trade receivables is
detailed in note 14.
Contract liabilities
There are no contract liabilities recognised in the comparative period or in
the financial year ended 31 July 2023.
Estimates and assumptions
Liabilities arising from retrospective volume rebates
The Group has a number of customer rebate agreements that are recognised as a
reduction from sales (collectively referred to as rebates). Rebates are based
on an agreed percentage of revenue, which increases with the level of revenue
achieved. These agreements typically are not coterminous with the Group's year
end and some of the amounts payable are subject to confirmation after the
reporting date, of the total rebates, approximately £3.6m is non-coterminous
with the year end and is based on actual revenue recorded to 31 July 2023
however, final rebate % are dependent on estimated performance to December
based on the bottoms up board approved budget and managements experience and
knowledge of the customers. Estimates are made as to which % band each
customer will fall into.
At the reporting date, the Directors make estimates of the amount of rebate
that will become payable by the Group under these agreements; to estimate the
variable consideration for the expected future rebates, the Group applies the
expected value method for contracts with more than one volume threshold. Where
the respective customer has been engaged with the Group for a number of years,
historical settlement trends are also used to assist in ensuring an
appropriate estimate is recorded at the reporting date and that appropriate
internal approvals and reviews take place before rebates are recorded.
Given that the rebate provision represents an estimate within the financial
statements, there is a risk that the Directors' estimate of the potential
liability may be incorrect. However, the Directors do not consider it
reasonably possible, at the balance sheet date, that this was a major source
of estimation uncertainty that could have a significant risk of resulting in a
material adjustment to the liabilities recorded under the scope of paragraph
125 of IAS1.
Revenue recognised in the statement of comprehensive income is analysed below:
2023 2022
£000 £000
Sale of goods 320,808 301,097
Installation services 7,200 6,604
Total revenue from contracts with customers 328,008 307,701
Market sectors 2023 2022
£000 £000
UK
Residential 89,680 75,040
Commercial 30,151 31,031
Export 12,119 11,670
OEM (Torin-Sifan) 24,120 25,908
Total UK 156,070 143,649
Nordics(1) 49,126 53,303
Central Europe(2) 75,410 65,128
Total Continental Europe 124,536 118,431
Total Australasia 47,402 45,621
Total revenue from contracts with customers 328,008 307,701
Notes
1. Included in the Nordics revenue is £nil of inorganic revenue
from the business combination of Klimatfabriken and Rtek (2022: £3,514,000 of
inorganic revenue from the business combination of Klimatfabriken and Rtek).
2. Included in the Central Europe revenue is £4,530,000 of
inorganic revenue from the business combination of ERI, VMI and I-Vent (2022:
£18,950,000 of inorganic revenue from the business combination of ClimaRad BV
and ERI).
4. Segmental analysis
Accounting policy
The method of identifying reporting segments is based on internal management
reporting information that is regularly reviewed by the chief operating
decision maker, which is considered to be the Chief Executive Officer of the
Group.
In identifying its operating segments, management follows the Group's market
sectors. These are UK including OEM (Torin-Sifan), Continental Europe (Nordics
and Central Europe) and Australasia.
The measure of revenue reported to the chief operating decision maker to
assess performance is total revenue for each operating segment. The measure of
profit reported to the chief operating decision maker to assess performance is
adjusted operating profit (see note 25 for definition) for each operating
segment. Gross profit and the analysis below segment profit is additional
voluntary information and not "segment information" prepared in accordance
with IFRS 8.
Finance revenue and costs are not allocated to individual operating segments
as the underlying instruments are managed on a Group basis.
Total assets and liabilities are not disclosed as this information is not
provided by operating segment to the chief operating decision maker on a
regular basis.
Transfer prices between operating segments are on an arm's length basis on
terms similar to transactions with third parties.
Year ended 31 July 2023 UK Continental Australasia Central/ Consolidated
£000 Europe £000 eliminations £000
£000 £000
Revenue from contracts with customers
External customers 156,070 124,536 (1) 47,402 - 328,008
Inter-segment 24,908 38,779 188 (63,875) -
Total revenue from contracts with customers 180,978 163,315 47,590 (63,875) 328,008
Gross profit 74,254 60,616 23,989 - 158,859
Results
Adjusted segment EBITDA 39,562 31,707 12,568 (4,502) 79,335
Depreciation and amortisation of development costs, software and patents (4,277) (3,283) (1,239) (684) (9,483)
Adjusted operating profit/(loss) 35,285 28,424 11,329 (5,186) 69,852
Amortisation of intangible assets acquired through business combinations (7,163) (3,338) (587) - (11,088)
Business combination-related operating costs - - - (1,672) (1,672)
Operating profit/(loss) 28,122 25,086 10,742 (6,858) 57,092
Unallocated expenses
Net finance cost - - (90) (6,358) (6,448)
Re-measurement of future consideration - - - (1,879) (1,879)
Re-measurement of financial liability - - - 54 54
Profit/(loss) before tax 28,122 25,086 10,652 (15,041) 48,819
Year ended 31 July 2022 UK Continental Australasia Central/ Consolidated
£000 Europe £000 eliminations £000
£000 £000
Revenue from contracts with customers
External customers 143,649 118,431( 1) 45,621 - 307,701
Inter-segment 20,318 30,038 179 (50,535) -
Total revenue from contracts with customers 163,967 148,469 45,800 (50,535) 307,701
Gross profit 62,397 61,984 22,456 - 146,837
Results
Adjusted segment EBITDA 33,052 32,810 11,236 (3,239) 73,859
Depreciation and amortisation of development costs, software and patents (3,799) (3,201) (1,292) (677) (8,969)
Adjusted operating profit/(loss) 29,253 29,609 9,944 (3,916) 64,890
Amortisation of intangible assets acquired through business combinations (6,978) (6,365) (1,142) - (14,485)
Business combination-related operating costs - - - 383 383
Operating profit/(loss) 22,275 23,244 8,802 (3,533) 50,788
Unallocated expenses
Net finance cost - - 99 (2,135) (2,036)
Re-measurement of future consideration - - - (955) (955)
Re-measurement of financial liability - - - (583) (583)
Profit/(loss) before tax 22,275 23,244 8,901 (7,206) 47,214
Note
1. Included in the Continental Europe revenue is £4,530,000 of
inorganic revenue from the business combination of ERI, VMI and I-Vent (2022:
£22,464,00000 of inorganic revenue from the business combination of ClimaRad
BV, Klimatfabriken, Rtek and ERI).
Geographic information
Revenue from external customers by customer destination 2023 2022
£000 £000
United Kingdom 132,507 119,371
Europe (excluding United Kingdom and Sweden) 119,289 112,886
Sweden 23,328 24,431
Australasia 47,668 45,780
Rest of the world 5,216 5,233
Total revenue from contracts with customers 328,008 307,701
Non-current assets excluding deferred tax 2023 2022
£000 £000
United Kingdom 121,458 117,704
Europe (excluding United Kingdom and Nordics) 106,502 79,408
Nordics 33,901 35,930
Australasia 46,225 49,013
Total 308,086 282,055
Information about major customers
Annual revenue from no individual customer accounts for more than 10% of Group
revenue in either the current or prior year.
5. Finance revenue and costs
Accounting policy
Finance revenue
Finance revenue is recognised as interest accrues using the effective interest
method. The effective interest rate is the rate that discounts estimated
future cash receipts through the expected life of the financial instrument to
its net carrying amount.
Net financing costs
Net financing costs comprise interest income on funds invested, gains/losses
on the disposal of financial instruments, changes in the fair value of
financial instruments, interest expense on borrowings and foreign exchange
gains/losses. Interest income and expense is recognised as it accrues in the
statement of comprehensive income using the effective interest method.
2023 2022
£000 £000
Finance revenue
Net gain on financial instruments at fair value - 1,329
Interest receivable 65 4
Total finance revenue 65 1,333
Finance costs
Net loss on financial instruments at fair value (1,599) -
Interest payable on bank loans (3,087) (1,828)
Amortisation of finance costs (452) (442)
Lease interest (635) (520)
Other interest (740) (579)
Total finance costs (6,513) (3,369)
Net finance costs (6,448) (2,036)
The net loss or gain on financial instruments at each year-end date relates to
the measurement of fair value of the financial derivatives and the Group
recognises any finance losses or gains immediately within net finance costs.
The fair value of the Group's financial derivatives can be found in note 18.
6. Income tax
Accounting policy
Current income tax assets and liabilities are measured at the amount expected
to be recovered from, or payable to, the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted at the
reporting date.
The Group's deferred tax policy can be found in note 21.
(a) Income tax charges against profit for the year
2023 2022
£000 £000
Current income tax
Current UK income tax expense 4,694 4,897
Current foreign income tax expense 8,887 9,075
Tax credit relating to the prior year (638) (673)
Total current tax 12,943 13,299
Deferred tax
Origination and reversal of temporary differences (2,023) (2,851)
Effect of changes in the tax rate (223) 200
Tax charge relating to the prior year 740 894
Total deferred tax (1,506) (1,757)
Net tax charge reported in the consolidated statement of comprehensive income 11,437 11,542
(b) Income tax recognised in equity for the year
2023 2022
£000 £000
Increase in deferred tax asset on share-based payments (343) (685)
Net tax credit reported in equity (343) (685)
(c) Reconciliation of total tax
2023 2022
£000 £000
Profit before tax 48,819 47,214
Profit before tax multiplied by the standard rate of corporation tax in the UK 10,252 8,971
of 21.00% (2022: 19.00%)
Adjustment in respect of previous years 102 221
Expenses not deductible for tax purposes 1,473 1,161
Effect of changes in the tax rate (see explanation below) (164) 200
Non-taxable income - (391)
Higher overseas tax rate 184 1,602
Patent box (410) (330)
Other - 108
Net tax charge reported in the consolidated statement of comprehensive income 11,437 11,542
Our reported effective tax rate for the period was 23.4% (2022: 24.4%). Our
underlying effective tax rate, on adjusted profit before tax, was 21.9% (2022:
22.4%).
On 24 May 2021, legislation was passed which substantively enacted an increase
in UK corporation tax rate from 19% to 25% from April 2023. Deferred tax on
the balance sheet at 31 July 2023 was therefore measured at 25%.
The higher overseas tax rates relate to the Group's profits from subsidiaries
which are subject to tax jurisdictions with a higher rate of tax compared to
the standard rate of corporation tax in the UK.
We expect our medium-term reported effective tax rate to be in the range of
29% to 35% of the Group's reported profit before tax and our underlying
effective tax rate to be in the range of 22% to 25% of the Group's adjusted
profit before tax.
7. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on conversion of any
dilutive potential ordinary shares into ordinary shares. There are 3,365,875
dilutive potential ordinary shares at 31 July 2023 (2022: 2,966,484).
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
Year ended 31 July 2023 2022
£000 £000
Profit attributable to ordinary equity holders 37,382 35,672
Number Number
Weighted average number of ordinary shares for basic earnings per share 197,131,650 197,522,143
Effect of dilution from:
Share options 2,658,209 2,525,713
Weighted average number of ordinary shares for diluted earnings per share 199,789,859 200,047,856
Earnings per share
Basic 19.0p 18.1p
Diluted 18.7p 17.8p
Year ended 31 July 2023 2022
£000 £000
Adjusted profit attributable to ordinary equity holders 50,832 47,315
Number Number
Weighted average number of ordinary shares for adjusted basic earnings per 197,131,650 197,522,143
share
Effect of dilution from:
Share options 2,658,209 2,525,713
Weighted average number of ordinary shares for adjusted diluted earnings per 199,789,859 200,047,856
share
Adjusted earnings per share
Basic 25.8p 24.0p
Diluted 25.4p 23.7p
The weighted average number of ordinary shares has declined as a result of
treasury shares held by the Volution Employee Benefit Trust (EBT) during the
year. The shares are excluded when calculating the reported and adjusted EPS.
Adjusted profit attributable to ordinary equity holders has been reconciled in
note 2, Adjusted earnings.
See note 25, Glossary of terms, for an explanation of the adjusted basic and
diluted earnings per share calculation.
8. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost, net of accumulated
depreciation and impairment losses, if any. Such cost includes the cost of
replacing part of the property, plant and equipment; when significant parts of
property, plant and equipment are required to be replaced at intervals, the
Group recognises such parts as individual assets with specific useful lives
and depreciates them accordingly. All other repair and maintenance costs are
recognised in the statement of comprehensive income as incurred.
Depreciation is charged so as to write off the cost or valuation of assets,
except freehold land, over their estimated useful lives using the straight
line method. The estimated useful lives, residual values and depreciation
methods are reviewed at each year end, with the effect of any changes in
estimates accounted for on a prospective basis.
The following useful lives are used in the calculation of depreciation:
Buildings
- 30-50 years
Plant and
machinery
- 5-10 years
Fixtures, fittings, tools, equipment and vehicles
- 4-10 years
The gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the disposal
proceeds and the carrying amount of the asset and is recognised in the
statement of comprehensive income as part of administrative expenses.
The Group's impairment policy can be found in note 11.
2023 Freehold Plant and Fixtures, Total
land and machinery fittings, tools, £000
buildings £000 equipment
£000 and vehicles
£000
Cost
At 1 August 2022 17,480 17,022 12,923 47,425
On business combinations - 514 - 514
Additions 486 2,110 2,318 4,914
Disposals (18) (185) (655) (858)
Net foreign currency exchange differences 61 (21) (506) (466)
At 31 July 2023 18,009 19,440 14,080 51,529
Depreciation
At 1 August 2022 5,011 6,493 7,686 19,190
Charge for the year 527 1,619 1,956 4,102
Disposals (56) (129) (524) (709)
Net foreign currency exchange differences (46) (124) (332) (502)
At 31 July 2023 5,436 7,859 8,786 22,081
Net book value
At 31 July 2023 12,573 11,581 5,294 29,448
2022 Freehold Plant and Fixtures, Total
land and machinery fittings, tools, £000
buildings £000 equipment
£000 and vehicles
£000
Cost
At 1 August 2021 15,370 13,840 11,544 40,754
On business combinations 2,046 1,739 92 3,877
Additions 341 2,237 2,195 4,773
Disposals - (531) (812) (1,343)
Net foreign currency exchange differences (277) (263) (96) (636)
At 31 July 2022 17,480 17,022 12,923 47,425
Depreciation
At 1 August 2021 4,542 5,795 6,509 16,846
Charge for the year 517 1,339 1,960 3,816
Disposals - (523) (709) (1,232)
Net foreign currency exchange differences (48) (118) (74) (240)
At 31 July 2022 5,011 6,493 7,686 19,190
Net book value
At 31 July 2022 12,469 10,529 5,237 28,235
9. Intangible assets - goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment testing, goodwill
is allocated to the Group's cash generating units that are expected to benefit
from the synergies of the combination, irrespective of whether other assets or
liabilities of the Group are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently if there is an
indication of impairment. Impairment of goodwill is determined by assessing
the recoverable amount of the cash generating unit to which the goodwill
relates. Where the recoverable amount of the cash generating unit is less than
the carrying value of the cash generating unit to which goodwill has been
allocated, an impairment loss is recognised. Impairment losses relating to
goodwill cannot be reversed in future periods.
See note 11 for the Group's impairment assessment.
Goodwill £000
Cost and net book value
At 1 August 2021 137,710
On the business combination of ERI 5,134
Net foreign currency exchange differences (183)
At 31 July 2022 142,661
On the business combination of VMI 4,072
On the business combination of I-Vent 19,813
On the business combination of ClimaRad 126
Net foreign currency exchange differences (1,799)
At 31 July 2023 164,873
10. Impairment assessment of goodwill
Accounting policy
Intangible assets, including goodwill, that have an indefinite useful life or
intangible assets not ready to use are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable
amount, where the recoverable amount is the higher of the asset's fair value
less costs of disposal and value in use.
Goodwill acquired through business combinations has been allocated, for
impairment testing purposes, to a group of cash generating units (CGUs). These
grouped CGUs are: UK Ventilation, Central Europe, Nordics, Australasia and
OEM. This is also the level at which management is monitoring the value of
goodwill for internal management purposes.
Judgements and estimates
Impairment of goodwill
The Group's impairment test for goodwill is based on a value in use
calculation using a discounted cash flow model. The test aims to ensure that
goodwill is not carried at a value greater than the recoverable amount, which
is considered to be the higher of fair value less costs of disposal and value
in use.
The identification of the Group's cash generating units (CGUs) used for
impairment testing is considered a critical judgement within the scope of
paragraph 122 of IAS1. Management has reviewed the Group's assets and cash
inflows and identified the lowest aggregation of assets that generate largely
independent cash inflows.
The cash flows are derived from the business plan for the following three
years. The recoverable amount is very sensitive to the discount rate used for
the discounted cash flow model as well as assumptions and estimates of
expected future cash flows and the growth rate used for extrapolation
purposes. The current economic and political uncertainty has increased the
level of estimation uncertainty as the impact on countries and markets
continues to be uncertain; however, the Group has modelled a range of
scenarios to consider the impact on the carrying value of its assets as
described in the going concern statement in the risk management and principal
risks section.
We have tested the sensitivity of our headroom calculations in relation to the
above assumptions and estimates and the Group does not consider that changes
in these assumptions that could cause the carrying value of the CGUs to
materially exceed their recoverable value are reasonably possible, and hence
are not major sources of estimation uncertainties under the scope of paragraph
125 of IAS1.
31 July 2023 UK OEM Nordics Central Europe Australasia
Ventilation (Torin-Sifan) £000 £000 £000
£000 £000
Carrying value of goodwill 55,899 5,101 18,637 63,109 25,673
CGU value in use headroom(1) 166,576 12,382 47,383 28,396 27,730
As at 31 July 2022 calculated headroom was:
31 July 2022 UK OEM Nordics Central Australasia
Ventilation (Torin-Sifan) £000 Europe £000
£000 £000 £000
Carrying value of goodwill 55,899 5,101 19,022 35,165 27,474
CGU value in use headroom(1) 152,066 21,821 71,987 61,517 32,446
Note
1. Headroom is calculated by comparing the value in use (VIU) of a
group of CGUs to the carrying amount of its asset, which includes the net book
value of fixed assets (tangible and intangible), goodwill and operating
working capital (current assets and liabilities).
Impairment review
Under IAS 36 Impairment of Assets, the Group is required to complete a full
impairment review of goodwill, which has been performed using a value in use
calculation. A discounted cash flow (DCF) model was used, taking a period of
five years, which has been established using pre-tax discount rates of 13.8%
to 16.8% (2022: 12.1% to 15.7%) over that period. In all CGUs it was concluded
that the carrying amount was in excess of the value in use and all CGUs had
positive headroom.
When assessing for impairment of goodwill, we have considered the impact of
climate change, particularly in the context of the risks and opportunities
identified in the TCFD disclosure in the Annual Report. We have not identified
any material short and medium-term impacts from climate change that would
impact the carrying value of goodwill. Over the long term, the risks and
opportunities are more uncertain and we will continue to assess these risks at
each reporting period.
Assumptions in the value in use calculation
The calculation of value in use for all CGUs is most sensitive to the
following assumptions:
• specific growth rates have been used for each of the CGUs for
the five-year forecast period based on historical growth rates and market
expectations;
• long-term growth rates of 2% (2022: 2%) for all CGUs have been
applied to the period beyond which budgets and forecasts do not exist, based
on historical macroeconomic performance and projections for the geographies in
which the CGUs operate; and
• discount rates reflect the current market assessment of the
risks specific to each operation. The pre-tax discount rates used for each CGU
are: UK Ventilation: 14.2% (2022: 13.0%); OEM (Torin-Sifan): 15.4% (2022:
14.0%); Nordics: 13.8% (2022: 12.1%); Central Europe: 14.4% (2022: 12.2%); and
Australasia: 16.8% (2022: 15.7%).
The value in use headroom for each CGU has been set out above. We have tested
the sensitivity of our headroom calculations in relation to the above
assumptions and the Group does not consider that changes in these assumptions
that could cause the carrying value of the CGUs to materially exceed their
recoverable value are reasonably possible.
11. Intangible assets - other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and
recognised separately from goodwill where they satisfy the definition of an
intangible asset and their fair values can be measured reliably. The cost of
such intangible assets is their fair value at the business combination date.
The fair value of patents, trademarks and customer base acquired and
recognised as part of a business combination is determined using the
relief-from-royalty method or multi-period excess earnings method.
Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortisation and accumulated
impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure on an
individual project is recognised as an intangible asset when the Company can
demonstrate: the technical feasibility of completing the intangible asset so
that it will be available for use or sale; its intention to complete and its
ability to use or sell the asset; how the asset will generate future economic
benefits; the availability of resources to complete the asset; and the ability
to reliably measure the expenditure during development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight line basis
over their estimated useful lives as follows:
Development costs
- 10 years
Software
costs
- 5-10 years
Customer
base
- 5-15 years
Trademarks
- 15-25 years
Patents/technology
- 5-25 years
Other
- 5 years
The estimated useful life and amortisation methods are reviewed at the end of
each reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis.
Judgements and estimates
Impairment of other intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its other
intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss, if any.
Where it is not possible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the cash generating unit
to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to
individual cash generating units, or otherwise they are allocated to the
smallest group of cash generating units for which a reasonable and consistent
allocation basis can be identified. The identification of the Group's cash
generating units (CGUs) used for impairment testing is considered a critical
judgement within the scope of paragraph 122 of IAS1.
The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or cash
generating unit) is reduced to its recoverable amount. Impairment losses are
immediately recognised in the statement of comprehensive income.
The assumptions and sensitivities in respect of the Group's other intangible
assets are included in note 11 and are not considered major sources of
estimation uncertainties under the scope of paragraph 125 of IAS1.
2023 Development Software Customer Trademarks Patents/ Other Total
costs costs base £000 technology £000 £000
£000 £000 £000 £000
Cost
At 1 August 2022 7,956 9,835 160,014 54,105 3,364 1,163 236,437
Additions 2,310 568 171 - - - 3,049
On business combinations 2,466 1 1,175 1,626 - - 5,268
Disposals - (50) - - - - (50)
Net foreign currency exchange differences - (77) (519) (471) 53 - (1,014)
At 31 July 2023 12,732 10,277 160,841 55,260 3,417 1,163 243,690
Amortisation
At 1 August 2022 2,601 6,282 114,120 22,678 2,001 1,163 148,845
Charge for the year 702 1,080 5,507 5,037 248 - 12,574
Disposals - (41) - - - - (41)
Net foreign currency exchange differences (37) (163) (698) (583) (70) - (1,551)
At 31 July 2023 3,266 7,158 118,929 27,132 2,179 1,163 159,827
Net book value
At 31 July 2023 9,466 3,119 41,912 28,128 1,238 - 83,863
Included in software costs are assets under construction of £54,000 (2022:
£48,000), which are not amortised. Included in development costs are assets
under construction of £1,505,000 (2022: £1,501,000), which are not
amortised.
2022 Development Software Customer Trademarks Patents/ Other Total
costs costs base £000 technology £000 £000
£000 £000 £000 £000
Cost
At 1 August 2021 6,783 9,698 147,582 51,447 3,410 1,163 220,083
Additions 1,245 238 755 - - - 2,238
On business combinations 6 39 12,957 2,933 19 - 15,954
Disposals (25) (122) - - - - (147)
Net foreign currency exchange differences (53) (18) (1,280) (275) (65) - (1,691)
At 31 July 2022 7,956 9,835 160,014 54,105 3,364 1,163 236,437
Amortisation
At 1 August 2021 2,039 5,503 106,202 18,127 1,676 1,163 134,710
Charge for the year 620 932 9,207 4,868 399 - 16,026
Disposals (8) (122) - - - - (130)
Net foreign currency exchange differences (50) (31) (1,289) (317) (74) - (1,761)
At 31 July 2022 2,601 6,282 114,120 22,678 2,001 1,163 148,845
Net book value
At 31 July 2022 5,355 3,553 45,894 31,427 1,363 - 87,592
The remaining amortisation periods for acquired intangible assets at 31 July
2023 are as follows:
Customer base Trademark Patent/
technology/
other
Volution Holdings Limited and its subsidiaries 1 year 15 years -
Fresh AB and its subsidiaries - 10 years -
PAX AB and PAX Norge AS - 11 years -
inVENTer GmbH 1 year 12 years 12 years
Ventilair Group International BVBA and its subsidiaries 1 year 3 years -
Energy Technique Limited and its subsidiaries 2 years 14 years -
NVA Services Limited and its subsidiaries 4 years 9 years -
Breathing Buildings Limited 4 years 9 years -
VoltAir System AB 10 years 10 years -
Simx Limited 11 years 21 years -
Oy Pamon Ab 6 years 16 years 6 years
Air Connection ApS 6 years - -
Nordic Line ApS - - -
Ventair Pty Limited 8 years 18 years -
ClimaRad BV 7 years 14 years -
Nordiska Klimatfabriken AB 4 years 9 years -
Energent Oy 4 years 9 years -
ERI 9 years 19 years -
VMI 8 years 10 years 5 years
I-Vent - 20 years -
Individually material intangible assets with definite useful lives:
Carrying amount Remaining
2023 amortisation period
£000 2023
Years
Customer base
Simx Limited 6,102 11 years
ClimaRad BV 10,462 7 years
ERI 10,517 9 years
Trademark
Volution Holdings Limited and its subsidiaries 16,885 15 years
ClimaRad BV 2,671 14 years
ERI 2,663 19 years
12. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition method. The cost
of the business combination is measured as the aggregate of the consideration
transferred, measured at fair value on the date of the business combination.
The business combination costs incurred are expensed.
When the Group acquires a business it assesses the financial assets and
liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent
conditions at the business combination date.
Contingent consideration resulting from business combinations is accounted for
at fair value at the acquisition date as part of the business combination.
When the contingent consideration meets the definition of a financial
liability, it is subsequently re-measured to fair value at each reporting
date, with changes in fair value recognised in profit or loss. The
determination of fair value is based on discounted cash flows. The key
estimates and assumptions used in determining the discounted cash flows take
into consideration the probability of meeting each performance target and a
discount factor.
The Group did not consider it reasonably possible, at the balance sheet date,
that this was a major source of estimation uncertainty that could have a
significant risk of resulting in a material adjustment to the liabilities
recorded and hence is not within the scope of paragraph 125 of IAS 1.
Goodwill is initially recognised at cost, being the excess of the aggregate of
the consideration transferred over the net identifiable assets acquired and
liabilities assumed.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the
Group's cash generating units (CGUs) that are expected to benefit from the
combination, irrespective of whether assets or liabilities of the business
combination are assigned to those units.
Non-controlling interests are identified separately from the Group's equity.
Non-controlling interests consist of the amount of those interests at the date
of the business combination and the non-controlling interest's share of
changes in equity since that date. Non-controlling interests are measured at
the non-controlling interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling interest at a
future date, the non-controlling interest will be recognised on the business
combination, and subsequently when the obligation to purchase liability is
recognised the amount is reclassified from equity to a financial liability and
the non-controlling interest is derecognised. Any difference between the
carrying value of the non-controlling interest and the liability is adjusted
against retained earnings.
The financial liability for the non-controlling interest is subsequently
accounted for under IFRS 9, with all changes in the carrying amount, including
the non-controlling interest share of profit, recognised as a re-measurement
in the income statement. When the obligation or "put liability" is exercised,
the carrying amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Business combinations in the year ended 31 July 2023
VMI
On 4 April 2023, Volution Group plc acquired the entire share capital of
Ventilairsec (VMI), a company based in Nantes, France. VMI designs and
manufactures a range of residential ventilation systems focused on a low
carbon positive input ventilation technology known as "VMI". The acquisition
provides Volution with direct access to the French market, one of the largest
ventilation markets in Europe. The acquisition of VMI is in line with the
Group's strategy to grow by selectively acquiring value-adding businesses in
new and existing markets and geographies.
Total consideration for the purchase of the entire issued share capital was
£7.9 million (€9.0 million), net of cash acquired, with a further
contingent cash consideration of up to €5 million. Contingent consideration
was assessed based on the current estimate of the future performance of the
business for the year ended 31 December 2023 as £nil, with a range from €0
- €5,000,000, based on EBITDA performance from €1,600,000 to €3,000,000
for year ended 31 December 2023. If actual EBITDA for the year ended 31
December 2023 varies by 10% from the estimate, the contingent consideration
would vary by approximately £600,000. The fair value of contingent
consideration is calculated by estimating the future cash flows for the
company based on management's knowledge of the business and how the current
economic environment is likely to impact performance.
Transaction costs relating to professional fees associated with the business
combination in the year ended 31 July 2023 were £532,000 and have been
expensed as cost of business combinations separately disclosed on the face of
the consolidated statement of comprehensive income above operating profit.
The fair value of the net assets acquired is set out below:
Book value Fair value Fair value
£000 adjustments £000
£000
Intangible assets 1,217 2,369 3,586
Property, plant and equipment 224 - 224
Inventory 1,180 - 1,180
Trade and other receivables 1,445 - 1,445
Trade and other payables (1,314) 213 (1,101)
Debt (894) - (894)
Deferred tax liabilities - (592) (592)
Cash and cash equivalents 1,371 - 1,371
Total identifiable net assets 3,229 1,990 5,219
Goodwill on the business combination 4,072
Discharged by:
Cash consideration 9,291
Goodwill of £4,072,000 reflects certain intangible assets that cannot be
individually separated and reliably measured due to their nature. These items
include the value of expected synergies arising from the business combination
and the experience and skill of the acquired workforce. The fair value of the
acquired trade name and customer base was identified and included in
intangible assets.
The gross amount of trade and other receivables is £1,445,000. The amounts
for trade and other receivables not expected to be collected are £nil.
VMI generated revenue of £2,057,000 and profit after tax of £71,000 in the
period from the business combination to 31 July 2023 that are included in the
consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2022, the Group's revenue would
have been £8,272,000 higher and the profit after tax from continuing
operations would have been £796,000 higher than reported.
I-Vent
On 22 June 2023, Volution Group plc acquired the entire share capital of
I-Vent, a company based in Slovenia and Croatia. I-Vent designs, manufactures
and supplies residential ventilation systems, primarily focused on
decentralised heat recovery. The acquisition of I-Vent is in line with the
Group's strategy to grow by selectively acquiring value-adding businesses in
new and existing markets and geographies.
Total consideration for the purchase of the entire issued share capital was
£21.7 million (€25.2 million), net of cash acquired, with a further
contingent cash consideration of up to €15.0 million. Contingent
consideration was assessed based on the current estimate of the future
performance of the business as £nil, with a range and performance thresholds
for each of 3 years of; year 1 range from €0 - €3,000,000, based on EBITDA
performance from €3,600,000 to €4,080,000 for year ended 31/12/23, year 2
range from €0 - €5,000,000, based on EBITDA performance from €4,080,000
to €5,280,000 for year ended 31/12/24, and year 3 range from €0 -
€7,000,000, based on EBITDA performance from €5,280,000 to €7,5000,000
for year ended 31/12/25. If actual EBITDA for each year varies by 10% from the
estimate, the contingent consideration would vary by approximately
£3,000,000. The fair value of contingent consideration is calculated by
estimating the future cash flows for the company based on management's
knowledge of the business and how the current economic environment is likely
to impact performance.
Transaction costs relating to professional fees associated with the business
combination in the year ended 31 July 2023 were £98,000 and have been
expensed as cost of business combinations separately disclosed on the face of
the consolidated statement of comprehensive income above operating profit.
The fair value of the net assets acquired is set out below:
Book value Fair value Fair value
£000 adjustments £000
£000
Intangible assets 55 1,626 1,681
Property, plant and equipment 290 - 290
Inventory 959 - 959
Trade and other receivables 290 - 290
Trade and other payables (1,011) - (1,011)
Deferred tax liabilities - (372) (372)
Cash and cash equivalents 3,099 - 3,099
Total identifiable net assets 3,682 1,254 4,936
Goodwill on the business combination 19,813
Discharged by:
Cash consideration 24,749
Goodwill of £19,813,000 reflects certain intangible assets that cannot be
individually separated and reliably measured due to their nature. These items
include the value of expected synergies arising from the business combination,
the experience and skill of the acquired workforce, and from the access to
this important and growing market that the acquisition allows. The fair value
of the acquired trade name and customer base was identified and included in
intangible assets.
The gross amount of trade and other receivables is £290,000. The amounts for
trade and other receivables not expected to be collected are £nil.
I-Vent generated revenue of £621,000 and profit after tax of £31,000 in the
period from the business combination to 31 July 2023 that are included in the
consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2022, the Group's revenue would
have been £8,143,000 higher and the profit after tax from continuing
operations would have been £2,198,000 higher than reported.
Business combinations in the year ended 31 July 2022
ERI
On 9 September 2021, Volution Group acquired ERI Corporation, a leading
manufacturer and supplier of low-carbon, energy efficient heat exchanger
cells, for an initial consideration of €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 2024. The
acquisition of ERI Corporation is in line with the Group's strategy to grow by
selectively acquiring value-adding businesses in new and existing markets and
geographies.
ERI designs and manufactures a range of innovative and highly efficient
aluminium heat exchanger cells for use primarily in commercial heat recovery
ventilation systems. Products are manufactured in ERI's modern, high quality
production facility in Bitola, North Macedonia, and are supplied to heat
recovery and air handling unit manufacturers predominantly in Europe,
including existing Volution Group companies. The business combination
encompasses 100% of the issued share capital of ERI Corporation DOO Bitola
(North Macedonia), ERI Corporation S.R.L. (Italy) and Energy Recovery
Industries Trading SLU (Spain) and 51% of the issued share capital of Energy
Recovery Industries Corporation Ltd (UK). For the financial year ended 31
December 2020, ERI generated revenue of €11.3 million and profit before tax
of €2.0 million.
The fair value of the net assets acquired were as follows:
Book value Fair value Fair value
£000 adjustments £000
£000
Intangible assets 418 15,536 15,954
Property, plant and equipment 3,130 747 3,877
Inventory 2,276 - 2,276
Trade and other receivables 3,626 - 3,626
Trade and other payables (2,343) - (2,343)
Deferred tax liabilities - (1,589) (1,589)
Bank debt (3,227) - (3,227)
Cash and cash equivalents 896 - 896
Total identifiable net assets 4,776 14,694 19,470
Non-controlling interest in ERI UK (34)
Goodwill on the business combination 5,134
Discharged by:
Cash consideration (including deferred cash consideration) 16,892
Contingent consideration 7,678
Goodwill of £5,134,000 reflects certain intangibles that cannot be
individually separated and reliably measured due to their nature. These items
include the value of expected synergies arising from the business combination
and the experience and skill of the acquired workforce. The fair value of the
acquired trademark and customer base was identified and included in intangible
assets.
The gross amount of trade and other receivables is £3,626,000. All of the
trade receivables are expected to be collected in full. Transaction costs
relating to professional fees associated with the business combination in the
period ended 31 July 2022 were £126,000 and have been expensed as cost of
business combinations separately disclosed on the face of the consolidated
statement of comprehensive income above operating profit.
ERI generated revenue of £15,215,000 and profit after tax of £2,642,000 in
the period from acquisition to 31 July 2022 that are included in the
consolidated statement of comprehensive income for this reporting period. If
the combination had taken place at 1 August 2021, the Group's revenue would
have been £309,231,000 and the profit before tax from continuing operations
would have been £47,559,000.
Cash outflows arising from business combinations are as follows:
2023 2022
£000 £000
VMI
Cash consideration 9,291 -
Less: cash acquired with the business (1,371) -
I-Vent
Cash consideration 24,749 -
Less: cash acquired with the business (3,099) -
ClimaRad
Cash consideration1 126 -
ERI
Cash consideration - 16,892
Less: cash acquired with the business - (896)
Ventair
Deferred cash consideration paid - 4,163
Air Connection
Deferred cash consideration paid - 476
Total 29,696 20,635
Note:
1. During the year Volution Group plc purchased a small
proportion of shares holding of ClimaRad for £126,000.
Operating cash flows - cost of business combinations:
2023 2022
£000 £000
VMI 532 -
I-Vent 98 -
DVS 207 -
ERI - 126
Other potential or aborted business combinations 195 89
Total 1,032 215
13. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable value. The cost
of raw materials is purchase cost on a first in, first out basis. The cost of
work in progress and finished goods includes the cost of direct materials and
labour and an appropriate portion of fixed and variable overhead expenses
based on normal operating capacity but excludes borrowing costs.
Net realisable value represents the estimated selling price for inventories
less all estimated costs of completion and costs to sell.
2023 2022
£000 £000
Raw materials and consumables 27,566 24,247
Work in progress 3,242 3,523
Finished goods and goods for resale 28,172 29,381
58,980 57,151
During 2023, £970,000 (2022: £865,000) was recognised as cost of sales for
inventories written off in the year.
Inventories are stated net of an allowance for excess, obsolete or slow-moving
items which totalled £5,634,000 (2022: £5,473,000). This provision was split
amongst the three categories: £3,187,000 (2022: £2,926,000) for raw
materials and consumables; £111,000 (2022: £146,000) for work in progress;
and £2,336,000 (2022: £2,401,000) for finished goods and goods for resale.
14. Trade and other receivables
Accounting policy
Trade and other receivables are recognised when it is probable that a future
economic benefit will flow to the Group. Trade and other receivables are
carried at original invoice or contract amount less any provisions for
discounts and expected credit losses. Provisions are made where there is
evidence of a risk of non-payment taking into account ageing, previous
experience and general economic conditions.
Allowance for expected credit losses
Allowance for expected credit losses is measured at an amount equal to
lifetime expected credit losses (ECLs). For trade receivables the Group
applies a simplified approach in calculating ECLs. Trade receivables have been
grouped based on historical credit risk characteristics and the number of days
from date of invoice. The expected loss rates are calculated using the
provision matrix approach.
Trade receivables are categorised by common risk characteristics that are
representative of the customers' abilities to pay all amounts due in
accordance with the contractual terms. The provision matrix is determined
based on historical observed default rates over the expected life of the trade
receivables and is adjusted for forward-looking estimates.
Rebates receivable
The Group has a number of supplier rebate agreements that are recognised as a
reduction of cost of sales (collectively referred to as rebates). Rebates are
based on an agreed percentage of purchases, which will increase with the level
of purchases made. These agreements typically are not coterminous with the
Group's year end and some of the amounts payable are subject to confirmation
after the reporting date.
2023 2022
£000 £000
Trade receivables 44,968 53,431
Allowance for expected credit loss (521) (772)
44,447 52,659
Other debtors 4,323 2,069
Prepayments 3,566 2,798
Total 52,336 57,526
Movement in the allowance for expected credit losses is set out below:
2023 2022
£000 £000
At the start of the year (772) (553)
Charge for the year (39) (231)
Amounts utilised 292 19
Foreign currency adjustment (2) (7)
At the end of the year (521) (772)
Gross trade receivables are denominated in the following currencies:
2023 2022
£000 £000
Sterling 25,361 30,639
US Dollar 723 677
Euro 8,165 9,665
Swedish Krona 2,713 3,216
New Zealand Dollar 2,946 3,073
Australian Dollar 3,914 4,262
Other 1,146 1,899
Total 44,968 53,431
Net trade receivables are aged as follows:
2023 2022
£000 £000
Neither past due nor impaired 40,547 41,297
Past due but not impaired
Overdue 0-30 days 2,500 5,273
Overdue 31-60 days 598 2,283
Overdue 61-90 days 349 932
Overdue more than 90 days 453 2,874
Total 44,447 52,659
The credit quality of trade receivables that are neither past due nor impaired
is assessed by reference to external credit ratings where available;
otherwise, historical information relating to counterparty default rates is
used. The Group continually assesses the recoverability of trade receivables
and the level of provisioning required.
Trade receivables are non-interest bearing and are generally on terms of 30 to
90 days.
15. Other financial assets
2023 2022
Current Current
£000 £000
Financial assets
Foreign exchange forward contracts - 1,091
Total - 1,091
16. Trade and other payables
2023 2022
£000 £000
Trade payables 23,059 27,715
Social security and staff welfare costs 1,929 1,737
Accrued expenses 22,120 19,385
Total 47,108 48,837
Trade payables are non-interest bearing and are normally settled on 60-day
terms.
17. Leases
Group as a lessee
Accounting policy
The Group leases a range of assets including property, plant and equipment and
vehicles. Leases of property generally have lease terms of up to 20 years,
plant and machinery between three and six years and motor vehicles and other
equipment between two and five years.
Right-of-use assets are initially measured at cost, and subsequently at cost
less any accumulated depreciation and impairment losses and adjusted for
certain re-measurements of the lease liability. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial direct
costs incurred, restoration costs and lease payments made at or before the
commencement date less any lease incentives received. The right-of-use assets
are depreciated on a straight line basis over the shorter of their estimated
useful life and the lease term.
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable. The lease payments also
include the exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating a lease, if
the lease term reflects the Group exercising the option to terminate.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is re-measured if there is a modification, a
change in the lease term, a change in the lease payments (e.g. changes to
future payments resulting from a change in an index or rate used to determine
such lease payments) or a change in the assessment of an option to purchase
the underlying asset. The Group's lease liabilities are included in
interest-bearing loans and borrowings.
The Group applies the short-term lease recognition exemption to its short-term
leases of machinery and equipment (i.e. those leases that have a lease term of
twelve months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered to be low value. Lease
payments on short-term leases and leases of low-value assets are recognised as
expense on a straight line basis over the lease term.
Set out below are the carrying amounts of right-of-use assets recognised and
movements during the year:
Right-of-use assets Land and Plant and Fixtures, Total
2023 buildings machinery fittings, tools, £000
£000 £000 equipment
and vehicles
£000
Cost
At 1 August 2022 29,069 327 3,289 32,685
Additions 2,003 38 1,376 3,417
Remeasurement 4,223 - - 4,223
Disposals - - (65) (65)
Expiration of leases (156) (93) (110) (359)
Net foreign currency exchange differences 1,602 (206) 193 1,589
At 31 July 2023 36,741 66 4,683 41,490
Depreciation
At 1 August 2022 7,320 271 1,527 9,118
Charge for the period 3,286 33 576 3,895
Disposals - - (15) (15)
Expiration of leases (156) (93) (110) (359)
Net foreign currency exchange differences (713) (180) (158) (1,051)
At 31 July 2023 9.737 31 1,820 11,588
Net book value
At 31 July 2023 27,004 35 2,863 29,902
Right-of-use assets Land and Plant and Fixtures, Total
2022 buildings machinery fittings, tools, £000
£000 £000 equipment
and vehicles
£000
Cost
At 1 August 2021 28,073 203 2,819 31,095
Additions 2,657 30 639 3,326
Disposals - (19) (149) (168)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences (27) 191 164 328
At 31 July 2022 29,069 327 3,289 32,685
Depreciation
At 1 August 2021 5,298 139 1,181 6,618
Charge for the period 2,967 99 546 3,612
Disposals - (15) (51) (66)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences 689 126 35 850
At 31 July 2022 7,320 271 1,527 9,118
Net book value
At 31 July 2022 21,749 56 1,762 23,567
Set out below are the carrying amounts of lease liabilities (included under
interest-bearing loans and borrowings) and the movements during the year:
Lease liabilities Land and Plant and Fixtures, Total
2023 buildings machinery fittings, tools, £000
£000 £000 equipment and
vehicles
£000
At 1 August 2022 23,775 36 1,156 24,967
Additions and remeasurement 6,226 38 1,376 7,640
Early termination - - (65) (65)
Interest expense 599 3 33 635
Lease payments (3,778) (41) (663) (4,482)
Foreign exchange movements 2,352 (3) 164 2,513
At 31 July 2023 29,174 33 2,001 31,208
Analysis
Current 3,599 14 141 3,754
Non-current 25,575 19 1,860 27,454
At 31 July 2023 29,174 33 2,001 31,208
Lease liabilities Land and Plant and Fixtures, Total
2022 buildings machinery fittings, tools, £000
£000 £000 equipment and
vehicles
£000
At 1 August 2021 24,281 75 1,073 25,429
Additions to lease liabilities 2,657 30 639 3,326
Early termination - (19) (149) (168)
Interest expense 470 6 44 520
Lease payments (3,362) (61) (300) (3,722)
Foreign exchange movements (271) 5 (151) (418)
At 31 July 2022 23,775 36 1,156 24,967
Analysis
Current 3,116 28 455 3,599
Non-current 20,659 8 701 21,368
At 31 July 2022 23,775 36 1,156 24,967
The following are amounts recognised in the statement of comprehensive income:
2023 2022
£000 £000
Depreciation expense of right-of-use assets (cost of sales) 2,507 2,081
Depreciation expense of right-of-use assets (administrative expenses) 1,388 1,531
Interest expense 635 520
18. Other financial liabilities
2023 Foreign ClimaRad BV ERI Total
exchange £000 £000 £000
forward
contracts
£000
Contingent consideration
At 1 August 2022 - 7,052 7,080 14,132
Re-measurement of financial liability - (54) - (54)
Re-measurement of future consideration - 1,879 640 2,519
Foreign exchange 330 - - 330
At 31 July 2023 330 8,877 7,720 16,927
Analysis
Current 330 - - 330
Non-current - 8,877 7,720 16,597
Total 330 8,877 7,720 16,927
2022 Air Connection Ventair Pty ClimaRad BV Nordiska Energent Ab Total
ApS Limited £000 Klimatfabriken £000 £000
£000 £000 AB ERI
£000 £000
Contingent consideration
At 1 August 2021 483 4,070 5,514 251 256 - 10,574
Re-measurement of contractual liability to purchase remaining non-controlling - - 1,538 - - - 1,538
interest
Further consideration recognised - - - - - 7,080 7,080
Consideration paid (476) (4,163) - (240) (256) - (5,135)
Foreign exchange (7) 93 - (11) - - 75
At 31 July 2022 - - 7,052 - - 7,080 14,132
Analysis
Current - - - - - - -
Non-current - - 7,052 - - 7,080 14,132
Total - - 7,052 - - 7,080 14,132
The fair value of contingent consideration is calculated by estimating the
future cash flows for the acquired company. These estimates are based on
management's knowledge of the business and how the current economic
environment is likely to impact performance. The relevant future cash flows
are dependent on the specific terms of the sale and purchase agreement. For
Non-current liabilities due more than one year from the balance sheet date,
the assessed contingent liability is discounted using the discount rates for
the relevant CGU (note 10).
Non-current
On 17 December 2020, Volution Group plc acquired 75% of the issued share
capital of ClimaRad Holding B.V. and subsidiaries (ClimaRad), a company based
in the Netherlands. Total consideration for the purchase of 75% of the issued
share capital was €41,100,000 (£37,100,000) with a commitment to purchase
the remaining 25% on or before 28 February 2025. The future consideration for
the purchase of the remaining 25% is set at 25% of 13 times the EBITDA of
ClimaRad for the financial year ended 31 December 2024, plus the
non-controlling interest share of profits earned in the periods up to and
including 31 December 2024, and is subject to a cap of €100 million. The
expected value of the future consideration is partially in the form of a
vendor loan of €12,000,000 (£10,686,000) payable to certain individuals
including the co-founder and management team of ClimaRad on completion of the
purchase of the remaining 25% on or before 28 February 2025, and an additional
element of contingent consideration. The contingent consideration was assessed
based on the current estimate of the future performance of the business as
£8,877,000, discounted to present value (2022: £7,052,0000). If actual
EBITDA for the year ended 31 December 2024 varies by 10% from the estimate,
the contingent consideration would vary by approximately £1,800,000.
On 9 September 2021, Volution Group plc acquired 100% of the issued share
capital of ERI Corporation DOO Bitola (North Macedonia), ERI Corporation
S.R.L. (Italy) and Energy Recovery Industries Trading SLU (Spain) and 51% of
the issued share capital of Energy Recovery Industries Corporation Ltd (UK).
The contingent consideration was assessed based on the current estimate of the
future performance of the business as £7,720,000 (2022: £7,080,000), with a
range from €0 - €12,400,000, based on EBITDA performance from €4,500,000
to €8,500,000 for year ended 31 December 2024. If actual EBITDA for the year
ended 31 December 2024 varies by 10% from the estimate, the contingent
consideration would vary by approximately £1,500,000.
The foreign exchange forward contracts are carried at their fair value with
the gain or loss being recognised in the Group's consolidated statement of
comprehensive income.
19. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are initially
measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial
liability or, where appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
2023 2022
Current Non-current Current Non-current
£000 £000 £000 £000
Unsecured - at amortised cost
Borrowings under the revolving credit facility (maturing 2025) - 79,369 - 74,351
Cost of arranging bank loan - (692) - (843)
- 78,677 - 73,508
IFRS 16 lease liabilities (note 17) 3,754 27,454 3,599 21,368
Other loans - 802 - -
ClimaRad vendor loan - 9,771 - 9,557
Total 3,754 116,704 3,599 104,433
In December 2022, the Group took the option to extend its multicurrency
"Sustainability Linked Revolving Credit Facility", together with an accordion
of up to £30 million, by a period of twelve months; the maturity date is now
December 2025.
Revolving credit facility - at 31 July 2023
Currency Amount Termination Repayment Rate %
outstanding date frequency
£000
GBP - 2 December 2025 One payment SONIA + margin%
Euro 79,369 2 December 2025 One payment EURIBOR + margin%
Swedish Krona - 2 December 2025 One payment STIBOR + margin%
Total 79,369
Revolving credit facility - at 31 July 2022
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 year ended 31 July 2023, Group leverage
was below 1.0:1 and therefore the margin will remain at 1.25%.
At 31 July 2023, the Group had £70,631,000 (2022: £75,649,000) of its
multicurrency revolving credit facility unutilised, plus an unutilised
accordion of up to £30,000.000.
Changes in liabilities arising from financing activities
1 August Cash flows Foreign New leases Changes due Interest 31 July
2022 £000 exchange £000 to business / other 2023
£000 movement combination £000 £000
£000 £000
Non-current interest-bearing loans and borrowings (excluding lease 74,351 3,710 1,308 - - - 79,369
liabilities)
Debt related to the business combination of VMI (see note 15) - (92) - - 894 - 802
Lease liabilities 24,967 (4,482) 2,513 7,640 - 570 31,208
ClimaRad vendor loan 9,557 - 214 - - - 9,771
Total liabilities from financing activities 108,875 (864) 4,035 7,640 894 570 121,150
1 August Cash flows Foreign New leases Changes due Interest 31 July
2021 £000 exchange £000 to business / other 2022
£000 movement combination £000 £000
£000 £000
Non-current interest-bearing loans and borrowings (excluding lease 73,293 2,802 (1,744) - - - 74,351
liabilities)
Debt related to the business combination of ERI (see note 12) - (3,227) - - 3,227 - -
Lease liabilities 25,429 (3,202) (418) 3,326 - (168) 24,967
ClimaRad vendor loan 10,551 (504) (490) - - - 9,557
Total liabilities from financing activities 109,273 (4,131) (2,652) 3,326 3,227 (168) 108,875
20. Provisions
Accounting policy
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
Provisions for the expected costs of maintenance guarantees are charged
against profits when products have been invoiced.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation taking into account the risks and
uncertainties surrounding the obligation. The timings of cash outflows are by
their nature uncertain and are therefore best estimates. Provisions are not
discounted as the time value of money is not considered material.
Provisions for warranties and property dilapidations
Provisions for warranties are made with reference to recent trading history
and historical warranty claim information, and the view of management as to
whether warranty claims are expected.
Warranty provisions are determined with consideration given to recent customer
trading and management experience.
Dilapidation provisions relate to dilapidation charges relating to leasehold
properties. The timing of cash flows associated with the dilapidation
provision is dependent on the timing of the lease agreement termination.
2023 Product Property Total
warranties dilapidations £000
£000 £000
At 1 August 2022 1,540 463 2,003
Arising during the year 1,873 15 1,888
Utilised (1,811) - (1,811)
Foreign currency adjustment 23 (11) 12
At 31 July 2023 1,625 467 2,092
Analysis
Current 1,381 410 1,791
Non-current 244 57 301
Total 1,625 467 2,092
2022 Product Property Total
warranties dilapidations £000
£000 £000
At 1 August 2021 1,787 458 2,245
Arising during the year 921 9 930
Utilised (1,142) - (1,142)
Foreign currency adjustment (26) (4) (30)
At 31 July 2022 1,540 463 2,003
Analysis
Current 1,279 405 1,684
Non-current 261 58 319
Total 1,540 463 2,003
Product warranties
A provision is recognised for warranty costs expected to be incurred in the
following twelve months on products sold during the year and in prior years.
Product warranties are typically one to two years; however, based on
management's knowledge of the products, claims in relation to warranties after
more than twelve months are rare and highly immaterial.
Property dilapidations
A provision has been recognised for dilapidations relating to obligations
under leases for leasehold buildings and will be payable at the end of the
lease term.
21. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
· where the temporary differences arise from the initial
recognition of goodwill or of an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
· in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that the Directors
consider it is probable that there will be taxable profits from which the
deductible temporary differences, carried forward tax credits or tax losses
can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at
tax rates that are expected to apply when the related asset is realised or
liability is settled, based on tax rates enacted or substantively enacted by
the reporting date.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred tax assets and liabilities relate to income taxes levied
by the same taxation authority on either the same taxable entity or different
taxable entities and there is an intention to settle the balances on a net
basis.
The carrying amount of deferred tax assets is reviewed at each reporting date.
Deferred tax assets and liabilities are offset only if a legally enforceable
right exists to set off current tax assets against current tax liabilities,
the deferred taxes relate to the same taxation authority and that authority
permits the Group to make a single net payment.
Deferred tax is charged or credited to other comprehensive income if it
relates to items that are charged or credited to other comprehensive income.
Similarly, deferred tax is charged or credited directly to equity if it
relates to items that are credited or charged directly to equity.
Management judgement is required to determine the amount of deferred tax
assets that can be recognised, based on the likely timing and level of future
taxable profits together with an assessment of the effect of future tax
planning strategies. Uncertainties exist with respect to the interpretation of
complex tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing contractual
agreements, differences arising between the actual results and the assumptions
made, or future changes to such assumptions, could necessitate future
adjustments to tax income and expense already recorded.
However, the Group does not consider this to be an accounting judgement, apart
from those involving estimations, that has a significant effect on the amount
recognised in the financial statements under the scope of paragraph 122 of
IAS1, nor the estimates and assumptions to be major sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next financial
year under the scope of paragraph 125 of IAS 1.
At 31 July 2023, the Group had not recognised a deferred tax asset in respect
of gross tax losses of £5,195,000 (2022: £5,195,000) relating to management
expenses, capital losses of £3,975,000 (2022: £3,975,000) arising in UK
subsidiaries and gross tax losses of £nil (2022: £nil) arising in overseas
entities as there is insufficient evidence that the losses will be utilised.
These losses are available to be carried indefinitely.
At 31 July 2023, the Group had no deferred tax liability (2022: £nil) to
recognise for taxes that would be payable on the remittance of certain of the
Group's overseas subsidiaries' unremitted earnings. Deferred tax liabilities
have not been recognised as the Group has determined that there are no
undistributed profits in overseas subsidiaries where an additional tax charge
would arise on distribution.
2023 1 August (Charged)/ Credited Translation On 31 July
2022 credited to equity difference business 2023
£000 to income £000 £000 combinations £000
£000 £000
Temporary differences
Depreciation in advance of capital allowances (1,714) (1,180) - (2) - (2,896)
Fair value movements of derivative financial instruments (182) 305 - - - 123
Customer base, trademark and patent (16,464) 2,142 - 139 (964) (15,147)
Losses 63 (62) - - - 1
Other temporary differences 1,125 208 - (58) - 1,275
Share based payments 2,950 93 264 - - 3,307
Deferred tax liability (14,222) 1,506 264 79 (964) (13,337)
2022 1 August (Charged)/ Credited Translation On 31 July
2021 credited to equity difference business 2022
£000 to income £000 £000 combinations £000
£000 £000
Temporary differences
Depreciation in advance of capital allowances (1,721) 11 - (4) - (1,714)
Fair value movements of derivative financial instruments 11 (193) - - - (182)
Customer base, trademark and patent (17,274) 2,409 - (10) (1,589) (16,464)
Losses 407 (344) - - - 63
Other temporary differences 1,246 (176) - 55 - 1,125
Share based payments 2,455 50 445 - - 2,950
Deferred tax liability (14,876) 1,757 445 41 (1,589) (14,222)
22. Dividends paid and proposed
Accounting policy
Dividends are recognised when they meet the criteria for recognition as a
liability. In relation to final dividends, this is when the dividend is
approved by the Directors in the general meeting and, in relation to interim
dividends, when paid.
2023 2022
£000 £000
Cash dividends on ordinary shares declared and paid
Interim dividend for 2023: 2.50 pence per share (2022: 2.30 pence) 4,942 4,553
Proposed dividends on ordinary shares
Final dividend for 2023: 5.50 pence per share (2022: 5.00 pence) 10,863 9,891
An interim dividend payment of £4,942,000 is included in the consolidated
statement of cash flows (2022: £4,553,000).
A final dividend payment of £9,891,000 is included in the consolidated
statement of cash flows relating to 2022 (2022: £8,719,000).
The proposed final dividend on ordinary shares is subject to approval at the
Annual General Meeting and is not recognised as a liability at 31 July 2023.
There are no income tax consequences attached to the payment of dividends in
either 2023 or 2022 by the Group to its shareholders.
23. Related party transactions
Transactions between Volution Group plc and its subsidiaries, and transactions
between subsidiaries, are eliminated on consolidation and are not disclosed in
this note. A breakdown of transactions between the Group and its related
parties is disclosed below.
No related party loan note balances exist at 31 July 2023 or 31 July 2022.
There were no material transactions or balances between the Company and its
key management personnel or members of their close family other than the
compensation shown below. At the end of the period, key management personnel
did not owe the Company any amounts.
The Companies Act 2006 and the Directors' Remuneration Report Regulations 2013
require certain disclosures of Directors' remuneration.
Compensation of key management personnel
2023 2022
£000 £000
Short-term employee benefits 3,886 3,517
Share-based payment charge 1,003 1,049
Total 4,889 4,566
Key management personnel is defined as the CEO, the CFO and the fourteen
(2022: thirteen) individuals who report directly to the CEO.
24. Events after the reporting period
On 4 August 2023, Volution Group acquired the trade and assets of Proven
Systems Limited ("DVS"), a market leading supplier and installer of home
ventilation solutions in New Zealand, for an initial consideration of NZ$18
million with a further contingent cash consideration of up to NZ$9 million
based on stretching targets for the financial results in the next 12 months
and the year ending 31 March 2025.
Transaction costs relating to professional fees associated with the
acquisition in the period ended 31 July 2023 were £207,000 and have been
expensed as cost of business combinations separately disclosed on the face of
the consolidated statement of comprehensive income above operating profit.
25. Glossary of terms
Adjusted basic and diluted EPS: calculated by dividing the adjusted
profit/(loss) for the period attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during
the period.
Diluted earnings per share amounts are calculated by dividing the adjusted net
profit/(loss) attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the period plus
the weighted average number of ordinary shares that would be issued on
conversion of any dilutive potential ordinary shares into ordinary shares.
There are 3,365,875 dilutive potential ordinary shares at 31 July 2023 (2022:
2,966,484).
Adjusted EBITDA: adjusted operating profit before depreciation and
amortisation.
Adjusted finance costs: finance costs before net gains or losses on financial
instruments at fair value and the exceptional write off of unamortised loan
issue costs upon refinancing.
Adjusted operating cash flow: adjusted EBITDA plus or minus movements in
operating working capital, less net investments in property, plant and
equipment and intangible assets.
Adjusted operating profit: operating profit before exceptional operating
costs, release of contingent consideration and amortisation of assets acquired
through business combinations.
Adjusted profit after tax: profit after tax before exceptional operating
costs, release of contingent consideration, exceptional write off of
unamortised loan issue costs upon refinancing, net gains or losses on
financial instruments at fair value, amortisation of assets acquired through
business combinations and the tax effect on these items.
Adjusted profit before tax: profit before tax before exceptional operating
costs, release of contingent consideration, exceptional write off of
unamortised loan issue costs upon refinancing, net gains or losses on
financial instruments at fair value and amortisation of assets acquired
through business combinations.
Adjusted tax charge: the reported tax charge less the tax effect on the
adjusted items.
CAGR: compound annual growth rate.
Cash conversion: calculated by dividing adjusted operating cash flow by
adjusted EBITA.
Constant currency: to determine values expressed as being at constant currency
we have converted the income statement of our foreign operating companies for
the year ended 31 July 2023 at the average exchange rate for the year ended 31
July 2022. In addition, we have converted the UK operating companies' sale and
purchase transactions in the year ended 31 July 2023, which were denominated
in foreign currencies, at the average exchange rates for the year ended 31
July 2022.
EBITDA: profit before net finance costs, tax, depreciation and amortisation.
Net debt: bank borrowings and lease liabilities less cash and cash
equivalents.
Operating cash flow: EBITDA plus or minus movements in operating working
capital, less share-based payment expense, less net investments in property,
plant and equipment and intangible assets.
ROIC: measured as adjusted operating profit for the year divided by average
net assets adding back net debt, acquisition related liabilities, and historic
goodwill and acquisition related amortisation charges (net of the associated
deferred tax).
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