REG - Volution Group plc - Preliminary Results for year ended 31 July 2024
10/10/2024 07:00
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RNS Number : 6199H Volution Group plc 10 October 2024
Thursday 10 October 2024
VOLUTION GROUP PLC
Full year results for the year ended 31 July 2024
Continuing to deliver strong compounding growth
Volution Group plc ("Volution" or "the Group" or "the Company", LSE: FAN), a
leading international designer and manufacturer of energy efficient indoor air
quality solutions, today announces its audited financial results for the 12
months ended 31 July 2024.
RESULTS SUMMARY
2024 2023 Change
Revenue (£m) 347.6 328.0 +6.0%
Adjusted operating profit (£m)(( 1 (#_ftn1) )) 78.0 69.9 +11.7%
Adjusted operating profit margin (%)(1) 22.5% 21.3% +1.2pp
Adjusted profit before tax (£m)(1) 70.7 65.1 +8.7%
Adjusted basic EPS (pence)(1) 28.0 25.8 +8.5%
Adjusted operating cash flow (£m)(1) 85.8 75.7 +13.4%
Statutory operating profit (£m) 70.4 57.1 +23.2%
Statutory profit before tax (£m) 56.6 48.8 +15.9%
Statutory basic EPS (pence) 21.6 19.0 +13.7%
Dividend per share (pence) 9.0 8.0 +12.5%
Return on Invested Capital (ROIC)(1) 27.8% 27.4% +0.4pp
Adjusted operating cash conversion(1) 107% 106% +1.0pp
FINANCIAL HIGHLIGHTS
· Group revenue up 6.0%; +1.5% organic (cc), +6.5% inorganic, offset
by a 2.0% adverse foreign exchange impact
· Adjusted operating profit margin up 120bps to 22.5% (2023: 21.3%),
driven by strong UK performance, with enhanced mix and benefits from wider
group value engineering, procurement initiatives and operational excellence
· Excellent cash conversion of 107% (2023: 106%), above our target of
90%, assisted by further inventory optimisation
· Adjusted basic EPS up 8.5% at 28.0 pence (2023: 25.8 pence), with
reported basic EPS at 21.6 pence (2023: 19.0 pence)
· High return on invested capital maintained: ROIC (pre-tax) of 27.8%
(2023: 27.4%)
· Proposed final dividend of 6.2p, bringing total dividend for the
year to 9.0p, up 12.5% (2023: 8.0p)
OPERATIONAL & STRATEGIC HIGHLIGHTS
· Excellent organic growth in UK residential (+17.1%) with continued
strong demand in Public RMI coupled with good growth in new build systems
supported by regulatory changes
· Strong growth in ClimaRad NL and Australia, offsetting weaker
performance and more challenging market conditions in UK OEM, Germany and New
Zealand
· New product introductions contributing well especially in the UK
with our residential applications, in Australia where we are moving more
quickly to low carbon ceiling fan solutions and in France via the roll out of
an extended range of group products
· Completed the acquisition of DVS (New Zealand) at the start of the
year, initial consideration of £8.5 million, net of cash acquired
· Signed an agreement post year end to acquire the Fantech Group in
Australasia ('Fantech') for AUD$280 million, our largest acquisition to date,
with closing currently anticipated by the end of calendar year 2024
SUSTAINABILITY HIGHLIGHTS
· First Group-wide Employee Engagement Survey completed in the year,
strong overall engagement
· Our fourth Management Development Programme with 17 internal
participants completes in October 2024
· Significant improvement in reportable accident frequency, down from
0.30 (2023) to 0.20 (2024) per 100,000 hours worked
· Continued progress on "product" and "planet" targets with
low-carbon revenue at 70.9% (2023: 70.1%) and recycled plastics 78.1% (2023:
76.2%), albeit with a small increase in carbon intensity to 12.8tCO(2)/£m
revenue (2023: 12.3tCO2/£m revenue)
· Our SBTi aligned carbon emissions targets, have been technically
validated and final evaluation is in progress
Commenting on the Group's performance, Ronnie George, Chief Executive Officer,
said:
"Volution has delivered another strong set of results and made further good
progress against our strategic and financial priorities in the year that we
celebrated our tenth year as a listed company. I am incredibly proud of how,
during this time, we have moved from being a largely UK centric ventilation
leader to having a broad-based presence across the UK, Continental European
and Australasian ventilation markets.
The further enhanced operating profit margin delivered in the year, against
continuing challenging markets, is a testament to our scale, diversification,
and strong cohesion between the local operating areas, as well as our
group-wide technical, procurement and product management functions. We
continue to be equally focused on converting profitability into cash, and I
was delighted to see another year of excellent cash conversion, well above our
90% target.
The new financial year has started as anticipated, with both revenue and
adjusted operating profit ahead of the same period last year. Also, in an
exciting post year-end development, we have announced an agreement to acquire
Fantech's ventilation activities in Australia and New Zealand, which would
represent our largest acquisition to date by some considerable distance.
This, along with the momentum we have across many parts of the business,
provides the Board with confidence of another year of good progress across the
Group."
-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 09:30am GMT today, Thursday 10 October
2024, at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street,
London, EC1A 4HD. 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 10 October 2024.
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
I am pleased to report another year of strong performance, demonstrating the
strength and resilience of Volution's business model and strategy. In June
this year, the Group celebrated its 10-year anniversary since IPO. We are
proud of the excellent progress made over that period, which is testament to
our strong corporate culture, differentiated business model, compounding
growth strategy and consistent delivery. Over that 10-year period, Volution's
Total Shareholder Return (TSR) was 272%, compared with the FTSE 250 Index's
TSR of 71%.
Performance and results
Group revenue increased to £347.6 million (2023: £328.0 million), whilst
adjusted operating profit was up 11.7% at £78.0 million (2023: £69.9
million), giving an adjusted operating margin of 22.5% (2023: 21.3%). Reported
profit before tax increased to £56.6 million (2023: £48.8 million). The
Group's adjusted earnings per share was 28.0 pence, representing an increase
over the prior year of 2.2 pence, up 8.5%. Since our IPO in 2014, the compound
annual growth rate of adjusted basic earnings per share is 12.3%,
demonstrating strong earnings growth over that period. Reported basic earnings
per share for the year was 21.6 pence (2023: 19.0 pence). Adjusted operating
cash flow was £85.8 million (2023: £75.7 million), and we spent £8.5
million, net of debt acquired, on the acquisition of DVS during the year. Net
debt excluding lease liabilities at the year-end was £31.6 million (2023:
£58.1 million).
Agreement to acquire Fantech, Australasia
Shortly after the year-end, on 20 September 2024, we were pleased to announce
the agreement to acquire the Fantech Group in Australasia ('Fantech') for a
consideration of AUD$280 million (£143.7 million 2 (#_ftn2) ) on a debt/cash
free basis, financed through newly arranged bank facilities. The Board
anticipates being able to complete on the transaction, which is subject to
antitrust approvals, by the end of the calendar year 2024. Once completed
Fantech, will be our largest acquisition to date, provides Volution with a
great platform to continue our growth ambitions in Australasia and
demonstrates the Board's commitment to the strategy of building a broader
market position and set of businesses to enhance returns to shareholders.
Dividends
Recognising our strong performance in the year and our continued confidence in
the business, the Board has recommended a final dividend of 6.2 pence per
share, giving a total dividend for the financial year of 9.0 pence per share
(2023: 8.0 pence per share), an increase of 12.5% 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 3.1x (2023:
3.2x).
Subject to approval by shareholders at the Annual General Meeting on 11
December 2024, the final dividend will be paid on 17 December 2024 to
shareholders on the register at 22 November 2024.
Strategy
Volution's purpose is central to our strategic ambition, driving value for all
our shareholders and stakeholders. Continued development of industry
regulation designed to make indoor air cleaner, and to decarbonise buildings,
remains a central driver of growth, demonstrated again by the strong set of
results. Underpinning the successful delivery of the Group's purpose - to
provide 'Healthy air, sustainably' are our strategic pillars of organic
growth, value-adding acquisitions and operational excellence. Good progress
was made during the year, with positive organic growth in spite of some
challenging end markets, whilst the announcement in September 2024 of the
intention to acquire Fantech demonstrates our ambition to further strengthen
the Group's market reach and product diversification. We continued our
relentless focus on operational excellence, delivering excellent customer
service, optimising supply chains and improving our sustainability.
Environmental, social and governance objectives
Our commitment to high standards of sustainability, corporate responsibility,
and engagement with our people provides the platform from which the Group can
contribute to a more sustainable world. Our ventilation systems and products
provide clean air solutions that protect people's health and increase their
comfort in an ethical and responsible way. Wherever feasible, our products and
services are sustainably sourced. The Sustainability section within the
Annual Report and Accounts explains our commitments in more detail, including
our work to reduce the carbon footprint of our products.
Our people and culture
A key focus for the Board is building on our workplace engagement and ensuring
good corporate culture, and we regularly monitor indicators of the Company's
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 the Group-wide Employee
Forum events, reporting insights to the Board. We were delighted by the
results of the first Group-wide employee engagement survey, which signalled
engagement levels of over 74%, although we do recognise that the bulk of the
work will come with delivering on the action plans that have been developed in
response to the feedback.
The Group remains focused on a zero-harm ambition, and I am pleased to report
good progress in the area of health and safety in the year, with a notable
reduction in our reportable accident frequency rate to 0.20 reportable
accidents per 100,000 hours worked (2023: 0.30). Our work on health and safety
initiatives is ongoing and will continue to be a key focus for the Board for
the year ahead.
I am grateful to all our Volution colleagues for their commitment, talent and
contribution, which is essential for the continued successful delivery of
our strategy.
Board changes
Following the changes in the last financial year, when I became Chair of the
Board and Jonathan Davis was appointed as the new Audit Committee Chair, we
have had a quieter period, with no changes to the Board composition since that
time. Margaret Amos has decided not to stand for re-election at the 2024 AGM
and Claire Tiney's tenure on the Board reaches the nine-year mark next year.
The Board intends to begin a search for their replacements in the coming year.
Governance
The Group is fully committed to high levels of corporate governance. We are
fully compliant with the 2018 edition of the UK Corporate Governance Code.
It is our responsibility as a Board to retain a sharp focus and to deliver
sustainable shareholder value over the long term, through effective management
and good governance. Open, thorough, and robust discussion around key
strategic matters, risks and opportunities faced by the Group at Board level
is central to reaching our goals, whilst taking account of the impact on all
our stakeholders. As a Board we ensure that good governance is central to all
we do.
Nigel Lingwood
Non-Executive Chair
9 October 2024
Chief Executive Officer's Review
Overview
We are delighted with our progress this year, our tenth full year as a listed
company. Against a backdrop of challenging end markets, most notably in the
area of new build construction, we made good steps forward across all aspects
of our strategy. We achieved organic growth of 1.5% at constant currency (cc),
lower than our long-term expected range of between 3% and 5%, however our
performance was ahead of the wider market. This was supplemented by inorganic
growth from the latest three acquisitions which have been successfully
integrated in the year, delivering an overall revenue growth of 8.0% at cc and
enhanced by further operating profit margin expansion of 120 bps, resulting in
an 11.7% increase in adjusted operating profit, up to £78.0 million.
Adjusted operating margins increased to 22.5%, supported by the significant
progress made in the UK.
In recent years, we have navigated the higher inflationary environment well.
The year just ended was characterised by moderating material cost inflation,
but with ongoing labour, overhead and facility cost inflation. An important
and ongoing focus within the Group is the enhancement of product gross margins
through technical assisted value engineering and our increasing procurement
scale and more sophisticated and wider supplier partnerships. We made
significant progress in the year with these initiatives, both with existing
Group brands and the new additions to the Group.
Organic growth was slightly higher in the second half of the year, with a full
year growth of 1.5% at cc over the prior year. This growth was delivered
against a headwind of significant revenue decline in our OEM activities in the
UK, where revenue reduced by 36%. Adjusting for this significant decline in
revenues, the Group would have delivered a stronger organic growth in line
with our long-term range of expectations. The revenue decline in OEM led us to
bring forward the implementation of a two-into-one site consolidation in
Swindon, which was completed early in the new financial year 2025.
Cash generation is an essential enabler of our M&A-led compounding growth
strategy. An excellent adjusted operating cash conversion of 107% enabled us
to bring net debt leverage levels down to the lowest ratio since listing in
2014. Early in the year, we completed the acquisition of DVS in New Zealand
and successfully integrated both this business and the two acquisitions
completed towards the end of the previous financial year. Volution operates in
three key geographic areas: UK, Continental Europe and Australasia, with
acquisitions focused primarily in the latter two areas. Our ambition over time
is to become one of the leading ventilation providers for residential and
commercial buildings in these chosen three geographical areas - we made
further good progress on this ambition in the year. Our pipeline of
opportunities remains interesting, and we will continue to exhibit pricing
discipline and agility in pursuit of further deals.
On 20 September 2024, the Group announced an agreement to acquire Fantech,
subject to anti-trust approvals. Fantech is a leading provider of commercial
ventilation solutions in Australia and New Zealand, and complements our
existing local market positions in Ventair, Simx and DVS very well. Post the
anticipated completion of the Fantech transaction and on an annualised basis,
Australasia will represent over 30% of Volution's revenue.
Ever mindful of the significant year-on-year expansion ambitions of the
Group, we continue to invest in our people. Management Development Programme
number four completes in October 2024, with plans for the fifth programme
already underway and earmarked to kick off in spring 2025. New hires were made
to the Senior Management Team and our bench was further strengthened by these
new joiners. Our first Group-wide employee engagement survey was a huge
success with over 80% of employees taking part, and we will soon embark on our
annual follow-up with positive expectations of progress made in the year.
Our markets
Volution's revenue continues to be weighted towards the refurbishment market
and towards residential applications. We operate in an environment that is
increasingly aware of the importance of indoor air quality and with local
market agendas firmly focusing on decarbonising buildings. There is a more
material influence of regulations on our new build activities, as very clearly
demonstrated by our UK new build residential activities in 2024, and these
trends are becoming more impactful everywhere in all local jurisdictions. This
has been an underpinning factor in the performance and resilience of
Volution's ventilation activities in the last year. Our lesser exposure to new
build activities has been a decisive factor in our outperformance of the
wider market as we believe that ventilation refurbishment activities are more
resilient and far less discretionary than other product categories. With many
examples in recent years of the inextricable link between poor indoor air
quality, insufficiently ventilated properties and the ill-health of tenants,
ventilation demand today is more structurally underpinned than at any time
in our history.
We continue to repeat an important statistic whereby over 40% of energy use
and 36% of carbon emissions in Europe is from buildings. Every year we see
examples of where local regulations are changing to support the decarbonising
of buildings. Mostly starting with the reduced air leakage and increased
insulation of a building, ventilation strategies become essential in avoiding
'sick building syndrome' or the build-of up harmful humidity causing
propagation of mould and condensation problems.
Volution is present in most local trade associations and actively participates
in consultation processes formulating the regulations that will exist for new
and existing buildings for the future. Although the pace of these regulatory
changes is increasing, sometimes the immediate impact can be quite limited,
instead building up over the medium term. For example, the changes to Part F
and Part L of UK building regulations in 2022 only had a material impact on
the type of ventilation solutions fitted in new homes in the UK in 2024,
Volution's Vent-Axia brand benefiting hugely as a result of a new range of
ultralow-carbon efficient ventilation solutions launched over two years ago.
Results
The Group delivered revenue of £347.6 million (2023: £328.0 million), an
increase of 6.0% (8.0% at cc), with organic decline of 0.3% (growth of 1.5% at
cc) and inorganic growth from the acquisition of DVS in the year, as well as
from the full-year effect of the acquisition in the prior year, of 6.3% (6.5%
at cc). Adjusted operating margins increased from 21.3% in the prior year to
22.5%, a strong performance and an impressive margin expansion despite the
immediately margin-dilutive impact of the three most recent acquisitions
(i-Vent, VMI and DVS). Reported profit before tax was £56.6 million (2023:
£48.8 million), an increase of 15.9%.
Sustainability
This year we have continued to make good progress on our key Sustainability
KPIs. Recycled plastics content in our own production increased in the year to
78.1% of total consumption. With such a high proportion of the Group's
injection moulding and PVC extrusion production taking place at our Reading
facility in the UK, the team there has done a great job of finding, trialling
and ultimately using a range of new materials from different sources. The
learnings from our Reading site have enabled us to develop robust processes
and testing regimes, helping us to understand the properties and suitability
at a batch level. We have been able to leverage these learnings and to help
increase the adoption in the Nordics, where our run rate exiting the year sets
us up well for improvement in FY25.
Revenue from our low-carbon products has increased to 70.9%. We continue to
see strong regulatory tailwinds helping to drive the adoption of more energy
efficient solutions across our geographies. This year's acquisition of DVS in
New Zealand has helped contribute to our low-carbon sales in addition to a
full year's contribution from VMI in France and i-Vent in Slovenia. More
detail is provided within the regional reviews.
Our Sustainability Committee, comprising our Senior Management 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. In addition, we have now submitted our targets under the Science
Based Target Initiative and have passed the Eligibility Verification and
Technical Screening stages. We are now awaiting the Target Evaluation stage to
begin.
This year both the UK and Nordic teams have started to provide customers with
embodied carbon data and expect to issue our first Environmental Product
Declarations during FY25.
Strategy
Organic growth
We delivered Group organic growth of 1.5% at cc, though the underlying picture
behind this was mixed. UK organic growth was 3.1% with strong residential
outperformance offset by weaker commercial market demand and significant
weakness in our OEM activities.
Volution has a long-term target to consistently deliver organic growth in the
range of 3 - 5% and whilst we were below that level at 1.5% in 2024, our
performance was ahead of the wider market, which remained very challenging. As
interest rates fall and new home affordability improves, coupled with ever
tightening regulation, we expect new build activity to improve. In the UK we
are seeing what we believe is a multi-year refurbishment and standards
improvement agenda underway in public housing as well as a target to hit
Energy Performance Certificate (EPC) level 'C' by 2030. All of this is driving
increased demand for low-carbon and continuous running ventilation solutions.
Acquisitions
We completed one acquisition in the year. In August 2023, we announced the
completion of the acquisition of DVS in New Zealand for an initial
consideration of £8.5 million (NZ$17.7 million), net of cash acquired, with
further contingent cash consideration of up to NZ$9.0 million. 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, supplying into both newbuild and
refurbishment applications. A combination of difficult market conditions in
New Zealand coupled with slower than originally planned implementation of key
product cost initiatives meant that performance in the first year was short of
our forecast. Progress is now being made with the initiatives and we are
confident that DVS will be a key contributor to 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 120bps margin
improvement to 22.5% despite the dilutionary impact of the three most recent
acquisitions that participated in the year and the continuing inflationary
pressures across mainly labour, and infrastructure costs. Our technically led
value engineering initiatives and Group procurement-led sourcing programmes
have again delivered good support for our gross margin improvement.
During the period we announced two UK site closures. Due to lower demand in
our OEM activities in Swindon, we have consolidated our two production
facilities into one on the original 'Greenbridge' site. investment has been
made in improving the facility, reducing our carbon emissions and improving
the working environment. Our Soham facility is also closing, with the
production of natural and hybrid ventilation moving to our existing facility
in Dudley, West Midlands. These changes, whilst regrettable due to the
redundancy of valued colleagues, was necessary to maintain our competitiveness
for both product ranges. These projects will be completed early in financial
year 2025.
People
I am hugely proud that we completed our first Group-wide employee engagement
survey in the year with c1,500 employees participating and a participation
rate of 80%. Volution is absolutely committed to involving and inspiring our
colleagues to deliver 'Healthy air, sustainably' and without this engagement
we will not fulfil our true potential.
Since joining us in early 2022, our Group Head of HR, Michelle Dettman, has
made significant progress with our employee engagement agenda, and we are
delighted to have signed up to the Construction Inclusion Coalition in 2024.
We believe that a diverse and rich culture across our workforce is a source of
strong competitive advantage, and I am honoured to lead such an incredible
group of people.
Our fourth Management Development Programme completes at the end of October
2024 and our 17 participants from across all areas of the Group have been
working hard to assist us on our carbon emissions reduction journey. The
feedback from the programme is that it has been rewarding and stimulating, and
we are pleased to feature some of the programme participants in this year's
annual report. Such is the importance of developing our employees, we have
already earmarked our fifth programme cohort who will embark on their
programme in spring 2025.
As Group Chief Executive I believe it is important to be visible in the
business. During the year I was able to attend many of our locations and to
take part in employee briefing and Q&A sessions. These are a rich source
of information and an important part of the fully inclusive culture we want to
perpetuate. As in previous years we held two Group-wide employee and
engagement communication meetings attended by Claire Tiney, Non-Executive
Director, and chair of the Remuneration Committee, as well as multiple senior
managers' briefing meetings virtually attended by approximately one hundred
senior and middle management colleagues.
Our strengthening of the team continued with several new key hires in the
year. Martin Goodfellow, with significant experience in the nuclear industry
and with a long career of technical leadership, joined us in the spring of
2024 as Group Technical Director. Martin has made great progress in further
harnessing the talented group of technical experts and focusing the team on
our exciting pipeline of new product development. Koen Groenewold started on 1
January 2024 as Managing Director of ClimaRad, succeeding the previous owner,
as we prepare to acquire the balance of the 25% of shares of the company on a
predetermined and previously announced basis, completing by 31 December 2024.
And finally, in Australasia, Jeff Nicol joined us in June 2024, as Regional
Managing Director elect, taking over from Ian Borley, our previous local
leader who has been with us since Simx joined the Group in 2018 and who is
retiring this year. I would like to thank Ian for his significant contribution
to the group since 2018, developing a sizeable market position in Australasia.
I continue to 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
Volution has delivered another strong set of results and made further good
progress against our strategic and financial priorities in the year we
celebrated our tenth year as a listed company. I am incredibly proud of how,
during this time, we have moved from being a largely UK centric ventilation
leader to having a broad-based presence across the UK, Continental Europe and
Australasian ventilation markets.
The further enhanced operating profit margin delivered in the year, against
continuing challenging markets, is a testament to our scale, diversification,
and strong cohesion between the local operating areas, as well as our
group-wide technical, procurement and product management functions. We
continue to be equally focused on converting profitability into cash, and I
was delighted to see another year of excellent cash conversion, well above our
90% target.
The new financial year has started as anticipated, with both revenue and
adjusted operating profit ahead of the same period last year. Also, in an
exciting post year-end development, we have announced an agreement to acquire
Fantech's ventilation activities in Australia and New Zealand, which would
represent our largest acquisition to date by some considerable distance.
This, along with the momentum we have across many parts of the business,
provides the Board with confidence of another year of good progress across the
Group.
Ronnie George
Chief Executive Officer
9 October 2024
Regional Review - UK
Market sector revenue 2024 2023 Growth Growth (cc)
£m
£m
%
%
UK
Residential 105.0 89.7 17.1 17.1
Commercial 28.2 30.2 (6.6) (6.6)
Export 12.1 12.1 - 1.2
OEM 15.5 24.1 (36.0) (35.6)
Total revenue 160.8 156.1 3.0 3.1
Adjusted operating profit 40.2 35.3 13.9
Adjusted operating profit margin (%) 25.0 22.6 2.4pp
Reported operating profit 34.6 28.1 22.9
The UK delivered good organic revenue growth over the prior year. UK revenues
increased from £156.1 million to £160.8 million, a 3.0% increase (3.1% at
cc). The standout performance was residential ventilation activity which was a
huge underpinning factor in the good results delivered by the Group. Given
our end markets were generally challenging, with commercial and OEM
activities quite weak, overall organic revenue growth of 3.1% was a good
achievement.
Adjusted operating profit increased from £35.3 million to £40.2 million with
a significant increase in the adjusted operating profit margin at 25.0% up 240
bps from 22.6% in the prior year. Our gross margins expanded through a
combination of favourable product mix, initiatives to reduce product cost and
increased utilisation of our Reading, Crawley and Dudley factories. Indirect
costs were tightly controlled, although there were higher than usual bonus
payments made to the teams that helped deliver the 17.1% revenue growth in the
residential market.
Residential
Sales in our residential market sector were £105.0 million (2023: £89.7
million), representing impressive organic revenue growth of 17.1%, and
building on last year's strong organic growth.
The structural growth drivers in the residential segment were reassuringly
similar to the prior year. The importance of indoor air quality in homes and
the need to properly ventilate to deal with the risks of mould and
condensation are better understood than ever before. We have now seen further
examples in the last twelve months where both private and public landlords
have been taken to court and prosecuted due to failing to prevent mould and
condensation inside rental properties. Our sales teams are set up to help and
assist with these issues and our offering extends beyond product supply to
include expert analysis of problems via site surveys and remediation
strategies.
During the year we further enhanced our product ranges and specifically in the
refurbishment, maintenance and improvement market we upgraded many of our
already successful product lines. Revive, already one of the most successful
continuous ventilation solutions for the public refurbishment market,
benefitted from a significant upgrade directed at reducing the size and
improving the aesthetics of the solution, whilst still maintaining its'
market leading performance. Public housing landlords are undertaking
a significant and what we expect to be, a multi-year improvement programme,
to ensure mould and condensation problems are reduced. Alongside this there is
a stated Government target to improve the energy efficiency of the public
housing stock to achieve Energy Performance Certificate (EPC) level "C" by
2030. The new Government has also recently indicated a commitment to introduce
the same requirement for private sector rented housing. Improving the
quality of a dwelling to EPC C requires in some cases much more structural
refurbishment, often increasing levels of insulation and air tightness,
therefore requiring a more sophisticated higher added value ventilation
solution. Quite often these solutions include decentralised heat recovery, an
area where Volution is one of the European leaders with probably the widest
range of solutions available to customers.
Volution is the leading provider of ventilation solutions in
the UK residential market with a preferred route to market through
distribution. We actively work with our distributors to maintain good levels
of key products in inventory to support the many thousands of contractors who
install our products on a daily basis. During the year our engagement with
distributor partners reached new heights. Through supporting buying
conferences, hosting sales meetings at our facilities, providing training on
our products and ventilations standards we further intensified our efforts to
remain the first-choice supplier for our key customers. I also had the
benefit of attending some key distributor annual conferences where I was able
to witness first-hand the strength of our relationships with our distribution
partners.
Our successful business model is the result of us focusing on some key
basics. Firstly, we continue to innovate and improve our product solutions,
staying in close contact with all stakeholders to understand what is
important to consultants, specifiers, contractors and all parts of the supply
chain. Equally critical is our focus on continuing to deliver outstanding
customer service levels, making the widest range of product solutions
available for customers and ensuring that we can respond in a way where we
continually exceed customer expectations.
Our key residential ventilation brands in the UK; Vent-Axia, Manrose,
National Ventilation and Airtech again delivered excellent levels of customer
service whilst delivering an impressive 17.1% organic revenue growth in the
year.
Residential new build revenue performed strongly in the year and ahead of our
expectations at the start of the year. With housing completions down markedly
on the previous year the significant revenue growth achieved is even more
pleasing. The previously advised changes to Part F and Part L of the building
regulations are now beginning to have an impact and there was a material shift
to continuous ventilation solutions in the year. These solely low-carbon, more
energy efficient and more comprehensive solutions are now the default minimum
standard of ventilation in new homes. Volution benefitted from these changes
as well as achieving considerable market share gains with many new accounts
coming on board. In addition, new product innovation supported our new build
activity levels. The range was further augmented in the year with new
decentralised continuous solutions added and a new range of mechanical heat
recovery units incorporating an element of refrigerant cooling to assist with
the delivery of regulation Part O where overheating is a concern in the design
and building of new homes. Investment in both our Dudley factory, to further
scale up assembly capacity as well as increasing our injection moulding and
extrusion capacity in our Reading factory, leaves us well placed to support
further growth in residential new build in the UK.
There has been much discussion around the potential recovery of housebuilding
in the UK. The new Government's ambitious target to build 1.5 million homes in
the next five years would benefit Volution hugely and we are continuing to
invest in all aspects of our product range and service capability.
Commercial
Sales in our commercial sector were £28.2 million (2023: £30.2 million), an
organic revenue decline of 6.6%. Whilst the UK commercial ventilation market
in the UK has been challenging, we were nonetheless disappointed by our
performance. Historic product range gaps as well as sales team leadership and
resourcing have played a part in this relative underperformance, and we have
taken decisive action to address these issues.
In the UK commercial ventilation market, Volution is not currently a leading
player, and we see this as a significant opportunity to grow revenue for the
long term. During the year we further strengthened the sales team, new
commercial leadership joined towards the end of the year, and we are fully
focussed on growing this area.
In 2024 we brought several new commercial product ranges to the market. A new
and improved range of mechanical ventilation with heat recovery (Apex) was
launched at the beginning of the year. Mid-year we launched a new range of
hybrid ventilation solutions, and during the year, we started the process of
upgrading our range of fan coils to be more modular and easier for the
contractor to flex during the install. At our manufacturing facility in
Dudley, we are consolidating the previous production capability from our Soham
site that closed in August 2024.
With the new ambitious sales leadership, the additional specification selling
roles we added during the year coupled with the newly enhanced product ranges
we are confident of delivering improved results in the commercial ventilation
market in the future. Whilst currently subdued the outlook for new high rise
commercial construction in London is positive, and we are well placed to
capitalise on this opportunity with our leading and improved range of fan
coil ventilation.
Export
Sales in our UK Export sector were £12.1 million (2023: £12.1 million), an
organic revenue growth rate of 1.2% at cc. The mix of export sales changed
markedly in the year. Whilst exports excluding Ireland declined, our revenue
in Ireland grew well via our strong relationship with our exclusive Vent-Axia
partner. The outlook for the Irish market in 2025 is positive and the
introduction of our new Passivhaus approved Mechanical Ventilation with Heat
Recovery (MVHR) has already secured some exciting projects for the new
financial year.
OEM
Third party Sales in our OEM sector were again disappointing at £15.5 million
(2023: £24.1 million), an organic decline of 35.6% at cc. The significant
decline in revenue, due to a combination of much lower customer demand,
customer overstocking and the need to de-stock was a significant headwind for
the group. Early in 2024 we took decisive action to stabilise the business
and to consolidate production into one of our two production facilities. This
site consolidation project was completed in early FY25, and we now operate
from one site with significantly lower overhead costs than in the prior year.
Further investment has been made to enhance our range of EC3 motorised
impellers. Whilst third party demand declined during the year there was a
further material step up in the use of our motorised impeller solution inside
our own group products.
Regional Review - Continental Europe
Market sector revenue 2024 2023 Charge Change (cc)
£m
£m
%
%
Central Europe 87.0 75.4 15.4 17.1
Nordics 47.4 49.1 (3.6) 0.4
Total Continental Europe revenue 134.4 124.5 7.9 10.5
Adjusted operating profit 32.1 28.4 13.9
Adjusted operating profit margin (%) 23.9 22.8 1.1pp
Reported operating profit 29.1 25.1 16.0
Our Continental Europe revenues increased from £124.5 million to £134.4
million, growth of 10.5% at cc, within which organic revenue was flat. The
sector benefited from the full-year effect of the acquisitions of VMI in April
2023, and i-Vent in June 2023 with inorganic growth of 10.5% at cc. Adjusted
operating profit was up 13.9% at £32.1 million versus a prior year of £28.4
million. The adjusted operating profit margin increased in the year by 110bps
to 23.9% (2023: 22.8%).
Central Europe
Sales in the Central Europe region grew 17.1% at cc to £87.0 million compared
to the prior year of £75.4 million. Organic revenue declined by 0.3% on a cc
basis, with inorganic growth (17.4%) coming from the full-year effects of the
acquisition of VMI and i-Vent.
Revenue in Central Europe was a mixed picture, with significant revenue growth
in ClimaRad in the Netherlands and revenue declines in Germany and Ventilair
Belgium and Netherlands.
ClimaRad in the Netherlands delivered stronger organic revenue growth. Our
decentralised heat recovery product range, within which some of the products
include a heat emitter that can be connected to a heat pump, made excellent
progress in the year. Our revenue is mainly for significant refurbishment
projects, where we support housing association landlords with investment
opportunities with a tangible payback in reduced energy costs. This provides a
unique and unrivalled solution in the marketplace. The project order pipeline
and confirmed order book also grew significantly in the year and the outlook
is very positive. The Netherlands market was one of the first in Europe to ban
the adoption of gas boilers in new residential builds and has a hugely
proactive approach to low-carbon refurbishment of existing housing stock.
During the year we hired a new Managing Director, Koen Groenewold, part of
our succession planning to replace the ClimaRad founder, and in readiness for
the final purchase of the 25% of the ClimaRad shares, scheduled for the end of
calendar year 2024.
In Germany our revenues declined in the year as our greater exposure to new
house construction, compared with the rest of the Group, struggled to recover.
In the last two years we have increased our proportion of revenue in the
German refurbishment market, however this was insufficient to offset
the difficulties in the new build market. We continue to introduce new
products to the market and our new 'Taris' exhaust fan, launched later than
anticipated, has started to gain early traction in the market. Further new
product developments are planned early in 2025, including a low-cost sound
insulation cover for new project sales and retrofittable as an upgrade to past
installations. Good cost control by the local team and continued value
engineering initiatives, supported by the wider Group technical and
procurement functions, enabled us to maintain a similar operating profit
margin albeit at lower revenue.
In Belgium, like Germany, our exposure is more weighted towards new
residential construction. It was another difficult year, and our revenues
declined on the previous year. Our new range of MVHR, branded Econiq,
successfully launched in the year and we have plans to further extend the
range in early 2025. Ventilair Belgium, with the new enhanced product range,
is well placed to capture the anticipated recovery in new build residential
activity.
Energy Recovery Industries (ERI), our leading proposition of aluminium cross
counterflow and thermal wheel heat exchangers, reported a small revenue
decline in the year. Significant new innovation, initiatives to improve the
product cost and further factory efficiency gains delivered an improvement in
operating profit. ERI is significantly exposed to new construction activity,
and we are actively investing to increase our installed capacity to underpin
the expected revenue growth as new construction demand recovers and the
proportion of ventilation in buildings utilising heat recovery further
develops.
Within the two businesses we acquired in FY23, VMI, In France, and i-Vent, in
Slovenia, we have progressed well with planned initiatives. In VMI we have
substantially increased the product range available to our distribution
customers in France. Our investment thesis is to utilise the brand to grow
our coverage in the French market, and we made good progress with the
execution of this strategy in the year. Further new product introductions are
planned for 2025. In Slovenia we introduced several new products from across
the Group, including a proprietary exhaust fan solution to replace a
previously third-party sourced solution. The model is direct to consumer, and
we have increased our marketing effort to greater establish the i-Vent brand
in the marketplace in the face of increased competitor activity.
Nordics
Sales in the Nordics region were £47.4 million (2023: £49.1 million),
organic revenue growth of 0.4% at cc compared with the previous year.
The Nordic picture was very much a contrast between refurbishment and new
build markets. We saw good revenue growth in our refurbishment activities,
where typically revenues are routed through distribution customers, with the
second half of the year much improved over the first half. In our more new
build construction focused markets, most notably in Denmark and Finland,
revenues declined in the year. The ongoing higher interest rate levels have
constrained new build construction, despite there still being a structural
shortage of homes in the region.
Customer destocking with our distribution customers was largely completed in
the prior year, so demand for our products better reflects the end market
customer behaviour. We continue to have a leadership position for residential
refurbishment in Sweden and further strengthened our position in Norway during
the year, where we have increased our market share relative to our key
competitor. Initiatives to increase sales of decentralised heat recovery
solutions in refurbishment performed well and helped underpin our organic
growth in the refurbishment market. In the new build market, we introduced the
Econiq range of MVHR in Denmark and have further improved our range of heat
recovery solutions in Finland. Across the region we continued with strong cost
control and despite modest organic revenue growth in the Nordics there was an
improved contribution to the Group's profitability in the year.
Regional Review - Australasia
Market sector revenue 2024 2023 Change Change (cc)
£m
£m
%
%
Total Australasia revenue 52.4 47.4 10.6 17.5
Adjusted operating profit 11.9 11.3 5.3
Adjusted operating profit margin (%) 22.7 23.9 (1.2)pp
Reported operating profit 11.1 10.7 3.6
Sales in our Australasia region were £52.4 million, with organic growth of
0.1% at cc. The sector benefited from the acquisition of DVS in August 2023
with inorganic growth of 17.4%. Adjusted operating profit increased by 5.3% to
£11.9 million from £11.3 million in the prior year in spite of a significant
earnings translation headwind resulting from the weaker local currencies
versus GBP. Adjusted operating profit margins were down by 120bps to 22.7%
versus 23.9% in the prior year, the dilution being related to the lower margin
contribution from the newly acquired DVS.
The market in New Zealand was more challenging in the year following a good
period of growth in the prior year which impacted revenue in both Simx and
DVS. Revenues in Simx declined in the period, however operating margins were
maintained through gross margin improvement initiatives and initiatives to
control our indirect cost base. In the year we added the direct-to-consumer
sales opportunity through the acquisition of DVS. Having these two different
routes to market in the residential space gives us greater flexibility and
opportunity to introduce new products to the New Zealand market. Whilst we are
delighted to have acquired DVS, the business traditionally operates with a
much lower operating margin than our core activities. We have identified and
are now implementing significant product cost reduction initiatives, most
notably in the area of pcb electronics, and these benefits provide the
potential for a meaningful margin expansion in DVS. There is greater
seasonality in DVS than the rest of our New Zealand activities, with almost
50% of our annual revenue being generated in the Southern Hemisphere winter
months of May, June and July.
In Australia, our Ventair business had another very successful year.
Our updated ranges of DC low-carbon ceiling fans have gained significant
traction in the market, as revenues of these new product lines replace older,
lower price point AC driven technology faster than we had anticipated.
Regulations in the market favouring low-carbon technology and the use of
ceiling fans as a more energy-efficient and effective way to provide cooling
in a warmer climate have driven overall market volumes in the last few
years.
Financial Review
Results Review
I am pleased to report that despite a year of varied and in many countries
quite challenging market conditions, the Group was able to grow organically
and delivered a strong performance in terms of both adjusted operating profit
(+11.7%) and adjusted operating cash flow (+13.4%).
Group revenue grew 6.0% to £347.6 million (2023: £328.0 million), with
organic growth at constant currency (cc) of 1.5% and a 6.5% (cc) contribution
from acquisitions, part offset by an adverse 2.0% impact from movements in
foreign exchange. All three regions grew revenue, with UK up 3.0% (all
organic) whilst in Europe and Australasia organic revenue (cc) was flat with
growth coming from the acquisitions completed in late FY23 and early FY24.
Further information on the performance and market drivers per region is given
in the regional reviews.
Gross margins increased by 290bps to 51.3%, benefiting from effective supply
chain management and procurement savings, as well as good levels of factory
efficiency and performance. Price benefit of c2% was primarily the result of
the annualised impact from prior year increases. An increase of £11.3 million
in administration and distribution costs was primarily due to the new
acquisitions (£8.1 million) with the 'direct to consumer' business models of
both i-Vent and DVS bringing a higher level of marketing and advertising
costs. The remaining increase in administration and distribution costs was
primarily attributable to staff costs, with average salary increases
of approximately 4.8%.
Adjusted operating profit grew by 11.7% to £78.0 million (2023: £69.9
million) with adjusted operating margins expanding to 22.5%, up from 21.3% in
the prior year. Reported operating profit grew by 23.2% to £70.4 million
(2023: £57.1 million). Adjusted earnings per share increased by 8.5% to
28.0 pence (2023: 25.8 pence).
Year ended 31 July 2024 Year ended 31 July 2023
Reported Adjustments Adjusted results Reported Adjustments Adjusted
£m
£m
£m
£m
£m
results
£m
Revenue 347.6 - 347.6 328.0 - 328.0
Gross profit 178.3 - 178.3 158.9 - 158.9
Administration and distribution costs excluding the costs listed below (100.3) - (100.3) (89.0) - (89.0)
Amortisation of intangible assets acquired through business combinations (9.3) 9.3 - (11.1) 11.1 -
Contingent consideration 1.9 (1.9) - (0.6) 0.6 -
Costs of business combinations (0.2) 0.2 - (1.1) 1.1 -
Operating profit 70.4 7.6 78.0 57.1 12.8 69.9
Re-measurement of financial liabilities (0.9) - (0.9) 0.1 - 0.1
Re-measurement of contingent consideration (6.6) 6.6 - (1.9) 1.9 -
Net gain on financial instruments at fair value 0.1 (0.1) - (1.6) 1.6 -
Other net finance costs (6.4) - (6.4) (4.9) - (4.9)
Profit before tax 56.6 14.1 70.7 48.8 16.3 65.1
Income tax (13.8) (1.6) (15.4) (11.3) (3.0) (14.3)
Profit after tax 42.8 12.5 55.3 37.5 13.3 50.8
Adjusted net finance costs of £6.4 million were up 31.6% compared to prior
year (2023: £4.9 million) despite the relatively low levels of gross debt but
reflecting the higher interest rates prevailing for the year. The adverse
variance to prior year did moderate in the second half both as a result of
reduced debt levels (closing net debt excluding lease liabilities at 31 July
2024 was 45.7% lower than prior year closing) coupled with the stabilisation
of interest rates. The weighted average interest rates on gross debt in the
year was 6.8% (2023: 4.4%).
Reported profit before tax was £56.6 million, an increase of 15.9% from
£48.8 million in 2023. Adjusted profit before tax was £70.7 million, up 8.7%
versus prior year (2023: £65.1 million).
Adjusted basic earnings per share increased by 8.5% to 28.0p (2023: 25.8p).
Basic earnings per share was 21.6p (2023: 19.0p), an increase of 13.7%.
Reported and adjusted results
The Group uses some Adjusted Performance Measures to track and assess the
underlying performance of the business, as we believe they provide
stakeholders with helpful information on the performance of the business, and
a useful comparison of underlying business trends and performance from one
period to the next.
Amortisation of intangible assets acquired through business combinations was
£9.3 million (2023: £11.1 million), down £1.8 million in the year as a
number of our older intangible assets reached the end of their amortisation
life. Contingent consideration of £1.9 million consists of £1.6 million in
respect of i-Vent in Slovenia, where a strong finish to calendar year 2023 was
followed by a more difficult trading period in spring/summer 2024 which led to
a reduction in our expectation of contingent consideration payable. A small
adjustment of £0.3 million was also made in respect of estimated contingent
consideration for ERI. Costs associated with business combinations were £0.2
million (2023: £1.1 million), down £0.9 million due to the lower level of
acquisitions completed in the year compared to the prior year. Re-measurement
of contingent consideration was £6.6 million for the increase in expected
consideration for the purchase of the remaining 25% of the shares of ClimaRad
due to the strong earnings performance of the ClimaRad business through
FY24.
Currency impacts
Aside from Sterling, the Group's key trading currencies for our non-UK
businesses are the Euro, representing approximately 23% of Group revenues,
Swedish Krona (approximately 9%), New Zealand Dollar (approximately 6%) and
Australian Dollar (approximately 8%). 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.
In 2024 we experienced a significant currency headwind of £6.7 million at a
revenue level with a £1.7 million impact to adjusted operating profit. All
of our principal non-Sterling currencies weakened relative to Sterling in the
year, as shown in the below table.
Average rate 2024 Average rate 2023 Movement
Euro 1.17 1.15 1.5%
Swedish Krona 13.40 12.80 4.7%
New Zealand Dollar 2.08 1.97 5.9%
Australian Dollar 1.92 1.80 6.6%
The Group had Euro denominated borrowings as at 31 July 2024 of £49.8 million
(2023: £79.4 million). The Sterling value of these foreign currency
denominated loans, decreased by £1.1 million because of exchange rate
movements (2023: increased by £1.3 million).
Transactional foreign exchange exposures arise principally from our US Dollar
denominated purchases of materials from our suppliers in the Far East. We aim
to purchase a substantial proportion of our expected requirements
approximately 12 months forward, and as such, we have forward currency
contracts in place for approximately 80% to 85% of our forecast average
forward requirements for the 2025 financial year (approximately $20 million).
Taxation
Our adjusted effective tax rate of 21.8% (2023: 21.9%) is broadly in line with
last year, with the increase in the UK Corporation Tax rate from 19% to 25%
partially offset by favourable business mix effect and an increase in UK
Patent Box relief.
We expect our medium-term adjusted effective tax rate to be in the range of
21% to 25% of the Group's adjusted profit before tax, depending on the
business mix and the profile of acquisitions. With a current tax rate of 30%
in Australia, the anticipated addition of Fantech would be expected to
increase the current rate.
Our reported effective tax rate for the year was 24.4% (2023: 23.4%); the
increase of 1.0pp driven by higher non-deductable expenses, primarily
movements in contingent consideration.
Excellent cash generation
Volution's high operating margins and asset light business model and
operations drives a profile of strong cash generation. Underpinned by a
working capital inflow of £2.7 million in the year (2023: inflow of £2.8
million), principally due to inventory optimisation, the Group delivered a
strong adjusted operating cash flow of £85.8 million (2023: £75.7 million).
Group cash conversion, defined as adjusted operating cash flow as a percentage
of adjusted earnings before interest, tax and amortisation was 107% (2023:
106%). Performance against this KPI has now beaten our target of 90% in all
bar one of the Group's ten years as a listed business.
A summary of the year's cash flow is shown in the tables below, with the
principal outflows being in relation to dividends (£16.4 million) and tax
paid (£16.8 million), acquisitions (£13.2 million including acquisitions,
contingent consideration, earn-outs and associated fees), and capital
expenditure (£7.1 million).
Net debt at 31 July 2024 was £57.9 million (2023: £89.3 million), and is set
out in the table below. With lower leverage of net debt (excluding lease
liabilities) to adjusted EBITDA of 0.4x at 31 July 2024 (2023: 0.8x), our
strong balance sheet and reliable high levels of cash conversion give us
significant capability for future growth investment.
Movements in net debt position for the year ended 31 July
2024 2023
£m
£m
Opening net debt 1 August (89.3) (85.8)
Movements from normal business operations:
Adjusted EBITDA 89.0 79.3
Movement in working capital 2.7 2.8
Share-based payments 1.2 1.4
Capital expenditure (7.1) (7.8)
Adjusted operating cash flow: 85.8 75.7
· Interest paid net of interest received (5.0) (3.7)
· Income tax paid (16.8) (14.0)
· Cash flow relating to business combination costs (0.2) (1.0)
· Dividend paid (16.4) (14.8)
· Purchase of own shares (2.7) (1.8)
· FX on foreign currency loans/cash 0.8 (3.1)
· Issue costs of new borrowings - (0.3)
· IFRS 16 payment of lease liabilities (5.7) (4.5)
· IFRS 16 decrease/(increase) in lease liabilities 4.8 (6.2)
· Movements from business combinations:
· Business combination of subsidiaries, net of cash acquired (8.5) (29.7)
· Contingent consideration relating to (2.6) -
i-Vent
· Contingent consideration relating to ERI (1.9) -
· Business combination of subsidiaries, debt repaid (0.2) (0.1)
Closing net debt 31 July (57.9) (89.3)
Reconciliation of Bank debt to Net debt
2024 2023
£m
£m
Bank debt (49.8) (79.4)
Cash 18.2 21.3
Net debt (excluding lease liabilities) (31.6) (58.1)
Lease liabilities (26.3) (31.2)
Net debt (57.9) (89.3)
Reconciliation of reported to adjusted operating cash flow
2024 2023
£m
£m
Net cash flow generated from operating activities 75.7 68.5
Net capital expenditure (6.9) (7.8)
UK and overseas tax paid 16.8 14.0
Cash flow relating to business combination costs 0.2 1.0
Adjusted operating cash flow 85.8 75.7
Funding facilities and liquidity
As at 31 July 2024, the Group had in place a £150 million multicurrency
'Sustainability Linked Revolving Credit Facility', together with an accordion
of up to £30 million. As at 31 July 2024, the Group had £100.2 million of
undrawn, committed bank facilities (2023: £70.6 million) and £18.2 million
of cash and cash equivalents on the consolidated statement of financial
position (2023: £21.3 million).
On 10 September 2024, the Group refinanced its bank debt. The Group now has
in place a £230 million multicurrency 'Sustainability Linked Revolving Credit
Facility', together with an accordion of up to £70 million. The facility
matures in September 2027, with the option to extend for up to two additional
years. The old facility was repaid in full.
Value-adding acquisitions
Acquisition spend in the year net of cash acquired was £13.0 million (2023:
£29.7 million). We completed the acquisition of DVS (New Zealand), for an
initial consideration of £8.5million, (NZ$17.7 million), net of cash
acquired, with further contingent cash consideration of up to NZ$9.0 million
based on stretching targets for the financial results for the 12 months ended
3 August 2024 and the 12 months ended 31 March 2026. 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 is
being integrated into our Australasian business and provides an additional
sales channel to supply low-carbon solutions.
Contingent consideration of £2.6 million for the year 1 measurement period of
the FY23 acquisition of i-Vent was paid during the year, as was a deferred
payment of £1.9 million related to the FY22 acquisition of ERI.
On 20 September 2024 the Group signed an agreement to acquire Fantech for an
initial consideration of AUD$220 million (£113.4 million(2)) on a debt free
cash free basis, with further non-contingent consideration of AUD$60 million
(£30.9 million(2)) payable 12 months after the completion date. The
transaction will be financed using proceeds of the new facility, plus cash
on the balance sheet.
High Returns on Invested Capital (ROIC) maintained
Strong profit and cash generation is a key focus of Volution's financial
model, and allied to our asset light business model means the Group generates
a high Return on Invested Capital (ROIC).
The Group's ROIC (pre-tax) for the financial year was 27.8% (2023: 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 excludes the goodwill and intangible assets arising
from the original transaction that created the Group when it was bought via a
leveraged buy-out transaction by private equity house Towerbrook Capital
Partners in 2012.
The increase of 40bps versus prior year reflects the improvement in operating
profit in the year from revenue growth allied to the Group's continued
operating margin expansion in the period, offset by the effect of acquisitions
with the full-year invested capital impact from our 2023 acquisitions (VMI and
i-Vent) and two-thirds impact of DVS.
Volution continues to have ambitious plans for growth, both through organic
and inorganic investment, with the post-year-end agreement to acquire Fantech
being a clear demonstration of our ambition in what (subject to completion)
will be by some considerable distance the Group's largest acquisition to date.
Although, at the time of entry to the Group, acquisitions will be dilutive to
ROIC, our track record of improving returns post-acquisition, coupled with
continued organic growth, provides confidence in maintaining Group ROIC above
20% over the medium term while continuing to invest to grow the business.
Recommended dividend
The Board is recommending a final dividend of 6.2 pence which, together with
an interim dividend paid of 2.8 pence per share, gives a total dividend per
share of 9.0 pence (2023: 8.0 pence), up 12.5% in total. The final dividend is
subject to approval by shareholders at the Annual General Meeting on
11 December 2024 and, if approved, will be paid on 17 December 2024.
Employee Benefit Trust
During the year £2.7 million of non-recourse loans (2023: £1.8 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 770,000
shares at an average price of £3.903 per share in the period (2023: £3.334)
and 1,019,886 shares (2023: 920,250 shares) were released by the trustees
with a value of £3,942,724 (2023: £3,018,420). 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
9 October 2024
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 2024 which may be found at www.volutiongroupplc.com and will be
despatched to shareholders on or around 23 October 2024. 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
9 October
2024
9 October 2024
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2024
Notes 2024 2023
£000
£000
Revenue from contracts with customers 3 347,611 328,008
Cost of sales (169,344) (169,149)
Gross profit 178,267 158,859
Administrative and distribution expenses (109,545) (100,095)
Operating profit before separately disclosed items 68,722 58,764
Costs of business combinations (206) (1,032)
Contingent consideration 1,845 (640)
Operating profit 70,361 57,092
Finance income 5 283 65
Finance costs 5 (6,605) (6,513)
Re-measurement of financial liabilities 17 (870) 54
Re-measurement of future consideration 17 (6,599) (1,879)
Profit before tax 56,570 48,819
Income tax 6 (13,773) (11,437)
Profit after tax 42,797 37,382
Attributable to:
Owners of the parent 42,797 37,373
Non-controlling interest - 9
42,797 37,382
Other comprehensive loss
Other comprehensive loss that may be reclassified to profit or loss in
subsequent periods:
Exchange differences arising on translation of foreign operations (6,151) (3,015)
Gain/(loss) on currency loans relating to the net investment in foreign 1,124 (1,309)
operations
Other comprehensive loss for the year (5,027) (4,324)
Total comprehensive income for the year, net of tax 37,770 33,058
Attributable to:
Owners of the parent 37,770 33,049
Non-controlling interest - 9
37,770 33,058
Earnings per share
Basic earnings per share 7 21.6p 19.0p
Diluted earnings per share 7 21.4p 18.7p
Consolidated Statement of Financial Position
At 31 July 2024
Notes 2024 2023
£000
£000
ASSETS
Non-current assets
Property, plant and equipment 8 30,193 29,448
Right-of-use assets 16 24,894 29,902
Intangible assets - goodwill(1) 9 171,340 168,988
Intangible assets - others 11 76,902 83,863
Total non-current assets 303,329 312,201
Current assets
Inventories 13 53,112 58,980
Trade and other receivables 14 55,239 52,336
Income tax assets 392 -
Cash and short-term deposits 18,243 21,244
Total current assets 126,986 132,560
Total assets 430,315 444,761
LIABILITIES
Current liabilities
Trade and other payables 15 (46,653) (47,108)
Refund liabilities (10,847) (9,817)
Income tax liabilities (3,940) (4,662)
Other financial liabilities(1) 17 (22,068) (2,901)
Interest-bearing loans and borrowings 18 (14,363) (3,754)
Provisions 19 (1,450) (1,791)
Total current liabilities (99,321) (70,033)
Non-current liabilities
Interest-bearing loans and borrowings 18 (71,630) (116,704)
Other financial liabilities(1) 17 - (18,141)
Provisions 19 (819) (301)
Deferred tax liabilities 21 (12,622) (13,337)
Total non-current liabilities (85,071) (148,483)
Total liabilities (184,392) (218,516)
Net assets 245,923 226,245
Capital and reserves
Share capital 20 2,000 2,000
Share premium 20 11,527 11,527
Treasury shares (2,250) (2,390)
Capital reserve 93,855 93,855
Share-based payment reserve 5,427 5,584
Foreign currency translation reserve (6,252) (1,225)
Retained earnings 141,616 116,894
Total shareholders' funds 245,923 226,245
1 An adjustment has been made during the measurement period
relating to the acquisition of I-Vent to increase the fair value of contingent
consideration by €4,800,000 (£4,115,000) with an equivalent increase in
goodwill. See note 12 for further details.
The consolidated financial statements of Volution Group plc (registered
number: 09041571) were approved by the Board of Directors and authorised for
issue on 9 October 2024.
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 2024
Share capital £000 Share premium £000 Treasury shares £000 Capital reserve £000 Share-based payment reserve £000 Foreign currency translation reserve £000 Retained earnings £000 Total shareholders' funds Non-controlling interest £000 Total equity £000
£000
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
Profit for the year - - - - - - 42,797 42,797 - 42,797
Other comprehensive loss - - - - - (5,027) - (5,027) - (5,027)
Total comprehensive income - - - - - (5,027) 42,797 37,770 - 37,770
Purchase of own shares - - (2,732) - - - - (2,732) - (2,732)
Exercise of share options - - 2,872 - (1,214) - (1,658) - - -
Share-based payment including tax - - - - 1,057 - - 1,057 - 1,057
Dividends paid (note 22) - - - - - - (16,417) (16,417) - (16,417)
At 31 July 2024 2,000 11,527 (2,250) 93,855 5,427 (6,252) 141,616 245,923 - 245,923
Consolidated Statement of Cash Flows
For the year ended 31 July 2024
Notes 2024 2023
£000
£000
Operating activities
Profit for the year after tax 42,797 37,382
Adjustments to reconcile profit for the year to net cash flow from operating
activities:
Income tax 13,773 11,437
Gain on disposal of property, plant and equipment and intangible assets - (184) (17)
other
Costs of business combinations 206 1,032
Contingent consideration 1,845 (640)
Cash flows relating to business combination costs (206) (1,032)
Re-measurement of financial liabilities 17 870 (54)
Re-measurement of contingent consideration 17 6,599 1,879
Finance revenue 5 (283) (65)
Finance costs 5 6,605 6,513
Share-based payment expense 1,200 1,357
Depreciation of property, plant and equipment 8 4,413 4,102
Depreciation of right-of-use assets 16 4,738 3,895
Amortisation of intangible assets 11 11,129 12,574
Working capital adjustments net of the effect of acquisitions:
(Increase)/decrease in trade receivables and other assets (2,776) 6,925
Decrease in inventories 5,976 310
Decrease in trade and other payables (670) (4,505)
Movement in provisions 204 89
Cash generated by operations 92,546 82,462
UK income tax paid (7,019) (4,171)
Overseas income tax paid (9,817) (9,819)
Net cash flow generated from operating activities 75,710 68,472
Investing activities
Payments to acquire intangible assets 11 (1,918) (3,049)
Purchase of property, plant and equipment 8 (5,464) (4,914)
Proceeds from disposal of property, plant and equipment and intangible assets 445 175
- other
Business combination of subsidiaries, net of cash acquired 12 (8,498) (29,696)
Contingent consideration relating to the acquisition of I-Vent 12 (2,566) -
ERI deferred consideration 12 (1,874) -
Interest received 283 65
Net cash flow used in investing activities (19,592) (37,419)
Financing activities
Repayment of interest-bearing loans and borrowings (56,734) (62,240)
Repayment of VMI debt acquired (237) (92)
Proceeds from new borrowings 28,283 65,950
Issue costs of new borrowings - (300)
Interest paid (5,321) (3,748)
Payment of principal portion of lease liabilities (5,672) (4,482)
Dividends paid to equity holders of the parent (16,417) (14,823)
Purchase of own shares (2,732) (1,834)
Net cash flow used in financing activities (58,830) (21,569)
Net (decrease)/increase in cash and cash equivalents (2,712) 9,484
Cash and cash equivalents at the start of the year 21,244 13,543
Effect of exchange rates on cash and cash equivalents (289) (1,783)
Cash and cash equivalents at the end of the year 18,243 21,244
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 2024
1. Accounting policies
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 for business combinations, other financial liabilities,
share based payments, and derivative financial instruments as referred to in
the respective accounting policies below.
The preparation of the consolidated financial information in conformity with
UK-adopted IAS 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.
The Group has adjusted prior period balances for contingent consideration
liability and goodwill due to the fair value of the contingent consideration
liability and goodwill recognised on acquisition of I-Vent in 2023 being
determined only provisionally. During the 12-month re-measurement period since
acquisition a re-measurement period adjustment was identified, and adjustments
to the contingent consideration liability and goodwill have been recognised by
revising comparative information for the prior period presented in the
statement of financial position as if the accounting for the business
combination had been finalised at the acquisition date. Contingent
consideration liabilities in the prior period have been increased by
€4,800,000 (£4,115,000) and goodwill on acquisition of I-Vent has been
increased by €4,800,000 (£4,115,000). The adjustments are shown in the
condensed consolidated statement of financial position, note 9, note 12 and
note 17.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 July 2024. 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; and
· the ability to use its power over the investee to affect its returns.
The Group re-assesses 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 financial position of the Group, its cash flows and liquidity position are
set out in the financial statements. Furthermore, note 27 to the consolidated
financial statements includes the Group's objectives and policies for managing
its capital, its financial risk management objectives, details of its
financial instruments and its exposure to credit and liquidity risk.
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-month 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 the new debt facilities of £230
million, and an accordion of a further £70 million, maturing in September
2027.
The financial covenants on these facilities are for leverage
(net debt/adjusted EBITDA) of not more than 3x and for adjusted interest
cover of not less than 4x.
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 15% compared with
plan: and
· supply chain difficulties or input price increases reducing gross
profit margin by 10%.
A reverse stress test scenario has also been modelled which shows a revenue
contraction of c.21% against the base case 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.
The Board have also considered the potential impact of the announced
acquisition of Fantech Australia and modelled the impact of the Board-approved
base business case as well as applying the same downside scenario applied to
the existing business.
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 interests' share of
changes in equity since that date. Non‑controlling interests are measured at
the non-controlling interests' share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase a 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's 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. The non-controlling
interest of profit is shown in the re-measurement of financial liabilities in
the income statement, and all other charges in the carrying amount are shown
in the re-measurement of future consideration.
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 judgement under the scope of paragraph 122
of IAS 1. 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 10),
intangible assets - other (note 11), ii) estimates and assumptions relating to
refund liabilities arising from retrospective volume rebates, and iii)
financial liabilities relating to the business combination of ClimaRad, ERI
and i-Vent (notes 12 and 17).
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 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 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-term and
medium-term risks 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.
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.
Revenue from contracts with customers (note 3)
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'.
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 an estimate of the relative standalone selling prices of the
equipment and the residual 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 Group issues an
invoice or 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).
Contract liabilities
There are no contract liabilities recognised in the comparative period or in
the financial year ended 31 July 2024.
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 £4.1 million is
non-coterminous with the year-end and is based on actual revenue recorded to
31 July 2024 and an estimate of the total revenue for the rebate period. Final
rebate percentages are dependent on estimated performance to December based on
the bottom-up, Board-approved budget and management's experience and knowledge
of the customers. Estimates are made as to which percentages 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.
The sales rebate provision is recognised within refund liabilities, rather
than trade receivables, as a significant proportion of the agreements across
the Group do not provide for credit notes to be raised against receivable
balances. Rather, cash payment of the rebate amount due is expected.
Furthermore, the majority of rebate agreements do not contain a clause which
provides a legally enforceable right to offset invoiced amounts.
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 IAS 1.
Segmental analysis (note 4)
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, 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.
Finance income and costs (note 5)
Finance income
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.
Income tax (note 6)
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.
Property, plant and equipment (note 8)
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.
Tangible assets arising from a business combination are recognised initially
at fair value at the date of acquisition.
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:
Freehold land and 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.
Goodwill (note 9)
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.
Impairment assessment of goodwill (note 10)
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, Central Europe, Nordics, and Australasia. This is also
the level at which management is monitoring the value of goodwill for internal
management purposes.
Following a review of the Group's existing operating segments and considering
the changes in our OEM business during the year. It was concluded that as the
identification of operating segments is closely linked to the internal
management and reporting structure of the business and given the integration
that had occurred with our OEM business with UK Ventilation during the year,
such that information is no longer presented to the Chief Operating
Decision-Maker (CEO) separately, OEM should no longer be identified as an
operating segment separate to UK Ventilation. Similarly, the Group reviewed
the CGUs used for performing the impairment assessment under IAS 36, and
considered that the operational and management integration with UK Ventilation
and the level of interdependence, including significant intercompany trading,
means that OEM cannot be considered to produce truly independent cash flows,
and hence it was appropriate that the former OEM CGU be combined with the UK
Ventilation CGU for the purposes of impairment testing under IAS 36.
As a result of this decision to combine OEM and UK Ventilation into a single
operating segment and single CGU, an impairment test was performed on the OEM
CGU at 31 May 2024 and reviewed by the Group. There was sufficient headroom
under 'severe but plausible' downside scenarios and, as such, it was concluded
there was no requirement to impair the goodwill, nor other intangible assets,
related to OEM at 31 May 2024.
After careful consideration, and in line with the requirements of IFRS 8
'Operating segments' and IAS 36 'Impairment of assets', it has been concluded
it is appropriate to combine OEM and UK Ventilation into a single CGU and a
single operating segment, and that impairment testing at 31 July 2024 and
thereafter be conducted on the new combined UK CGU, which will also be the
level at which goodwill is monitored.
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 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
and that goodwill is monitored by management.
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 IAS 1.
See note 10 for the Group's impairment assessment.
Intangible assets - other (note 11)
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
- 10-25 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.
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 CGU to which the
asset belongs. Where a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual CGUs, or
otherwise they are allocated to the smallest group of CGUs for which a
reasonable and consistent allocation basis can be identified. The
identification of the Group's CGUs used for impairment testing is considered a
critical judgement within the scope of paragraph 122 of IAS 1.
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 CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) 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 10 and are not considered major sources of
estimation uncertainties under the scope of paragraph 125 of IAS 1.
Business combinations (note 12)
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 (note 17) 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. During the measurement period (12 months from the date of
acquisition) adjustments could be made to goodwill as a result of new
information relating to events or circumstances relating to the acquisition
date.
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 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.
Inventories (note 13)
Inventories and work in progress are stated at the lower of cost and net
realisable value.
Inventory acquired as part of business combinations is valued at fair value
less cost to sell.
Costs represents direct costs incurred and, where appropriate, production or
conversion costs and other costs to bring the inventory to its existing
location and condition. 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. The cost of raw materials is purchase cost on a
first in, first out basis.
Net realisable value represents the estimated selling price for inventories
less all estimated costs of completion and costs to sell.
Provisions are made to write down slow-moving, excess and obsolete items to
net realisable value, based on an assessment of technological and market
developments and on an analysis of historical and projected usage with regard
to quantities on hand.
Trade and other receivables (note 14)
Trade and other receivables are recognised when it is probable that a future
economic benefit will flow to the Group (which is considered a reasonable
proxy for fair value). 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 considering 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.
Trade and other payables (note 15)
Trade and other payables principally comprise of amounts outstanding for trade
purchases and ongoing costs. These are recognised at the amounts expected to
be paid.
Leases (note 16)
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
12 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.
The interest portion of lease payments is presented under financing activities
in the consolidated statement of cash flows.
Interest-bearing loans and borrowings (note 18)
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.
Provisions (note 19)
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.
Deferred tax liabilities (note 21)
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 IAS
1, 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 2024, the Group had not recognised a deferred tax asset in respect
of gross tax losses of £5,195,000 (2023: £5,195,000) relating to
management expenses, capital losses of £4,098,000 (2023: £3,975,000) arising
in UK subsidiaries and gross tax losses of £nil (2023: £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 2024, the Group had no deferred tax liability (2023: £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.
Dividends paid and proposed (note 22)
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 Annual General Meeting and, in relation
to interim dividends, when paid.
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. Treasury shares
are recognised at cost and deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or cancellation of the Group's
own equity instruments. Any difference between the carrying amount and the
consideration, if reissued, is recognised in share premium. Share options
exercised during the period are satisfied with treasury shares.
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
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.
New standards or interpretations
The standards or interpretations listed below have become effective since 1
August 2023 for annual periods beginning on or after 1 January 2023.
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'; and
· Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure of
accounting policies'.
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 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'; and
· Amendments to IAS 7 'Supplier finance arrangements'.
The following amendments will become effective after 1 January 2025:
· Amendments to IFRS 18 'Presentation and disclosure in financial
statements'.
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.
In June 2023, the UK Government substantively enacted legislation introducing
a global minimum corporate income tax rate, to have effect from 2024 in line
with the OECD's Pillar Two model framework on large multinational enterprises
with a consolidated group revenue of €750 million plus. The Group has
performed an assessment of its potential exposure to Pillar Two income taxes
and based on an assessment of the most recent information available regarding
the financial performance of the constituent entities in the Group, we do not
expect to be within the scope of Pillar Two and therefore do not expect it to
have a material impact on the Group's tax rate or tax payments.
2. Adjusted earnings
The Board and key management 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. For definitions of terms
referred to see note 25.
2024 2023
£000
£000
Profit after tax 42,797 37,382
Add back:
Contingent consideration (1,845) 640
Cost of business combinations 206 1,032
Re-measurement of contingent consideration (note 17) 6,599 1,879
Net (gain)/loss on financial instruments at fair value (144) 1,599
Amortisation and impairment of intangible assets acquired through business 9,322 11,088
combinations
Tax effect of the above (1,664) (2,788)
Adjusted profit after tax 55,271 50,832
Add back:
Adjusted tax charge 15,437 14,225
Adjusted profit before tax 70,708 65,057
Add back:
Interest payable on bank loans, lease liabilities and amortisation of 6,605 4,914
financing costs
Re-measurement of financial liabilities 870 (54)
Finance revenue (139) (65)
Adjusted operating profit 78,044 69,852
Add back:
Depreciation of property, plant and equipment 4,413 4,102
Depreciation of right-of-use assets 4,738 3,895
Amortisation of development costs, software and patents 1,807 1,486
Adjusted EBITDA 89,002 79,335
3. Revenue from contracts with customers
Revenue recognised in the statement of comprehensive income is analysed below:
2024 2023
£000
£000
Sale of goods 341,207 320,808
Installation services 6,404 7,200
Total revenue from contracts with customers 347,611 328,008
Market sectors 2024 2023
£000
£000
UK
Residential 105,039 89,680
Commercial 28,158 30,151
Export 12,130 12,119
OEM 15,448 24,120
Total UK 160,775 156,070
Nordics 47,376 49,126
Central Europe(1) 87,016 75,410
Total Continental Europe 134,392 124,536
Total Australasia(2) 52,444 47,402
Total revenue from contracts with customers 347,611 328,008
Notes
1. Included in the Central Europe revenue is £12,915,000 of
inorganic revenue from the business combination of VMI and i-Vent (2023:
£4,530,000 of inorganic revenue from the business combination of ERI, VMI and
i-Vent).
2. Included in the Australasia revenue is £7,801,000 of inorganic
revenue from the business combination of DVS (2023: £nil of inorganic revenue
from the business combination of DVS).
4. Segmental analysis
The Group's reportable segments are described below. The segmental regional
structure reflects the current internal reporting provided to the Chief
Operating Decision-Maker (considered to be the CEO of the Group) on a regular
basis.
The segmental results include an allocation of central head office costs,
where the costs are attributable to a segment. Costs of running the PLC are
reported separately as central costs.
Year ended 31 July 2024 UK Continental Australasia Eliminations/ central costs Total
£000
Europe
£000
£000
£000
£000
Revenue from contracts with customers
External customers 160,775 134,392(1) 52,444(2) - 347,611
Inter-segment 26,949 37,718 101 (64,768) -
Total 187,724 172,110 52,545 (64,768) 347,611
Adjusted segment EBITDA 45,161 35,859 13,458 (5,476) 89,002
Depreciation and amortisation of development costs, software and patents (4,956) (3,801) (1,534) (667) (10,958)
Adjusted operating profit/(loss) 40,205 32,058 11,924 (6,143) 78,044
Amortisation of intangible assets acquired through business combinations (5,634) (2,895) (793) - (9,322)
Contingent consideration - - - 1,845 1,845
Business combination-related operating costs - - - (206) (206)
Operating profit/(loss) 34,571 29,163 11,131 (4,504) 70,361
Unallocated expenses
Net finance income/(cost) - - 24 (6,346) (6,322)
Re-measurement of contingent consideration - - - (6,599) (6,599)
Re-measurement of financial liabilities - - - (870) (870)
Profit/(loss) before tax 34,571 29,163 11,155 (18,319) 56,570
Note
1. Included in the Continental Europe revenue is £12,915,000 of
inorganic revenue from the business combination of VMI and i-Vent (2023:
£4,530,000 of inorganic revenue from the business combination of ERI, VMI and
i-Vent).
2. Included in the Australasia revenue is £7,801,000 of inorganic
revenue from the business combination of DVS (2023: £nil).
Year ended 31 July 2023 UK Continental Australasia Eliminations/ central costs Total
£000
Europe
£000
£000
£000
£000
Revenue from contracts with customers
External customers 156,070 124,536 47,402 - 328,008
Inter-segment 24,908 38,779 188 (63,875) -
Total 180,978 163,315 47,590 (63,875) 328,008
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)
Contingent consideration - - - (640) (640)
Business combination-related operating costs - - - (1,032) (1,032)
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
Geographic information
The Group operates in several geographical locations and sells on to external
customers in all parts of the world. No individual country amounts to more
than 5% of revenue, other than those noted below. The following is an analysis
of revenue from continuing operations by geographical destination.
Revenue from external customers by customer destination 2024 2023
£000 £000
United Kingdom 142,231 132,440
Germany 18,919 22,471
Netherlands 24,978 24,878
Sweden 26,134 26,388
Rest of Europe 77,109 68,989
Australia 25,048 24,375
New Zealand 27,698 23,338
Rest of the world 5,494 5,129
Total revenue from contracts with customers 347,611 328,008
Non-current assets excluding deferred tax 2024 2023
£000 £000
United Kingdom 112,515 121,458
Europe (excluding United Kingdom and Nordics) 109,560 106,502
Nordics 30,274 33,901
Australasia 50,980 46,225
Total 303,329 308,086
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 income and costs
2024 2023
£000
£000
Finance revenue
Net gain on financial instruments at fair value 144 -
Interest receivable 139 65
Total finance revenue 283 65
Finance costs
Net loss on financial instruments at fair value - (1,599)
Interest payable on bank loans (4,427) (3,087)
Amortisation of finance costs (692) (452)
Lease interest (763) (635)
Other interest (723) (740)
Total finance costs (6,605) (6,513)
Net finance costs (6,322) (6,448)
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.
Due to the refinancing that completed in September 2024, the amortisation of
finance costs in the year included an element of accelerated amortised finance
costs of £240,000.
6. Income tax
(a) Income tax charges against profit for the year
2024 2023
£000
£000
Current income tax
Current UK income tax expense 5,571 4,694
Current foreign income tax expense 10,278 8,887
Tax credit relating to the prior year (80) (638)
Total current tax 15,769 12,943
Deferred tax
Origination and reversal of temporary differences (2,224) (2,023)
Effect of changes in the tax rate 58 (223)
Tax charge relating to the prior year 170 740
Total deferred tax (1,996) (1,506)
Net tax charge reported in the consolidated statement of comprehensive income 13,773 11,437
(b) Income tax recognised in equity for the year
2024 2023
£000
£000
Decrease/(increase) in deferred tax asset on share-based payments 380 (264)
Translation differences (212) (79)
Net tax charge/(credit) reported in equity 168 (343)
(c) Reconciliation of total tax
2024 2023
£000
£000
Profit before tax 56,570 48,819
Profit before tax multiplied by the standard rate of corporation 14,143 10,252
tax in the UK of 25.00% (2023: 21.00%)
Adjustment in respect of previous years 89 102
Expenses not deductible for tax purposes 2,738 1,473
Effect of changes in the tax rate (see explanation below) 58 (164)
Effect of overseas tax rates (931) 184
Patent-related tax relief (719) (410)
Other (1,605) -
Net tax charge reported in the consolidated statement of comprehensive income 13,773 11,437
Our reported effective tax rate for the period was 24.4% (2023: 23.4%). Our
underlying effective tax rate, on adjusted profit before tax, was 21.8% (2023:
21.9%).
The effect of overseas tax rates relates to the Group's profits from
subsidiaries which are subject to tax jurisdictions with a blended lower
average 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.
In June 2023, the UK Government substantively enacted legislation introducing
a global minimum corporate income tax rate, to have effect from 2024 in line
with the OECD's Pillar Two model framework on large multinational enterprises
with a consolidated group revenue of €750 million plus. The Group has
performed an assessment of its potential exposure to Pillar Two income taxes
and based on an assessment of the most recent information available regarding
the financial performance of the constituent entities in the Group,
we do not expect to be within the scope of Pillar Two and therefore do not
expect it to have a material impact on the Group's tax rate or tax payments.
7. Earnings per share (EPS)
Basic EPS 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 2,143,783
dilutive potential ordinary shares at 31 July 2024 (2023: 3,365,875).
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2024 2023
£000
£000
Profit attributable to ordinary equity holders 42,797 37,382
Number Number
Weighted average number of ordinary shares for basic earnings per share 197,739,417 197,131,650
Effect of dilution from:
Share options 2,143,783 2,658,209
Weighted average number of ordinary shares for diluted earnings per share 199,883,200 199,789,859
Earnings per share
Basic 21.6p 19.0p
Diluted 21.4p 18.7p
2024 2023
£000
£000
Adjusted profit attributable to ordinary equity holders 55,271 50,832
Number Number
Weighted average number of ordinary shares for adjusted basic earnings per 197,739,417 197,131,650
share
Effect of dilution from:
Share options 2,143,783 2,658,209
Weighted average number of ordinary shares for adjusted diluted earnings per 199,883,200 199,789,859
share
Adjusted earnings per share
Basic 28.0p 25.8p
Diluted 27.6p 25.4p
The weighted average number of ordinary shares has increased 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
2024 Freehold land and buildings Plant and machinery Fixtures, fittings, tools, equipment and vehicles Total
£000
£000
£000
£000
Cost
At 1 August 2023 18,009 19,440 14,080 51,529
On business combinations 31 88 66 185
Additions 423 1,561 3,424 5,408
Disposals (12) (242) (1,283) (1,537)
Net foreign currency exchange differences (164) (137) (183) (484)
At 31 July 2024 18,287 20,710 16,104 55,101
Accumulated depreciation
At 1 August 2023 5,436 7,859 8,786 22,081
Charge for the year 526 1,906 1,981 4,413
Disposals (12) (241) (1,107) (1,360)
Net foreign currency exchange differences (44) (22) (160) (226)
At 31 July 2024 5,906 9,502 9,500 24,908
Net book value
At 31 July 2024 12,381 11,208 6,604 30,193
2023 Freehold land and buildings Plant and machinery Fixtures, fittings, tools, equipment and vehicles Total
£000
£000
£000
£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
Accumulated 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
9. Intangible assets - goodwill
Goodwill £000
Cost and net book value
At 1 August 2022 142,661
On the business combination of VMI 4,072
On the business combination of i-Vent 23,928
On the business combination of ClimaRad 126
Net foreign currency exchange differences (1,799)
At 31 July 2023(1) 168,988
On the business combination of DVS 5,037
Net foreign currency exchange differences (2,685)
At 31 July 2024 171,340
Note:
1. An adjustment has been made during the measurement period relating
to the acquisition of i-Vent. See note 15 for further details.
10. Impairment assessment of goodwill
31 July 2024 UK Nordics Central Europe £000 Australasia
£000
£000
£000
Carrying value of goodwill 61,000 18,151 62,827 29,362
CGU value-in-use headroom(1) 249,557 49,409 66,028 45,101
31 July 2023 UK OEM Nordics Central Europe £000 Australasia
Ventilation
(Torin-Sifan)
£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
Note:
1. Headroom is shown at the date of impairment testing, and 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 12.2%
to 15.0% (2023: 13.8% to 16.8%) 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-term 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% (2023: 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 13.5% (2023: 14.2%); Nordics: 12.2% (2023: 13.8%); Central Europe: 12.4%
(2023: 14.4%); and Australasia: 15.0% (2023: 16.8%).
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.
Following a review of the Group's existing operating segments and considering
the changes in our OEM business during the year. It was concluded that as the
identification of operating segments is closely linked to the internal
management and reporting structure of the business and given the integration
that had occurred with our OEM business with UK Ventilation during the year,
such that information is no longer presented to the Chief Operating
Decision-Maker (CEO) separately, OEM should no longer be identified as an
operating segment separate to UK Ventilation. Similarly, the Group reviewed
the CGUs used for performing impairment assessments under IAS 36, and
considered that the operational and management integration with UK Ventilation
and the level of interdependence, including significant intercompany trading,
means that OEM cannot be considered to produce truly independent cash flows,
and hence it was appropriate that the former OEM CGU be combined with the UK
Ventilation CGU for the purposes of impairment testing under IAS 36.
As a result of this decision to combine OEM and UK Ventilation into a single
operating segment and single CGU, an impairment test was performed on the OEM
CGU at 31 May 2024 and reviewed by the Group. There was sufficient headroom
under 'severe but plausible' downside scenarios and, as such, it was concluded
there was no requirement to impair the goodwill, nor other intangible assets,
related to OEM at 31 May 2024.
After careful consideration, and in line with the requirements of IFRS 8
'operating segments' and IAS 36 'Impairment of assets', it has been concluded
it is appropriate to combine OEM and UK Ventilation into a single CGU and a
single operating segment, and that future impairment testing at 31 July 2024
and thereafter will be conducted on the new combined UK CGU, which will also
be the level at which goodwill is monitored.
11. Intangible assets - other
2024 Development costs Software costs £000 Customer base £000 Trademarks £000 Patents/ Other £000 Total £000
£000
technology £000
Cost
At 1 August 2023 12,732 10,277 160,841 55,260 3,417 1,163 243,690
Additions 1,578 318 - - - - 1,896
On business combinations - 35 1,667 2,309 - - 4,011
Disposals (21) (75) (84) - - - (180)
Net foreign currency exchange differences (288) 176 (1,544) (554) (61) - (2,271)
At 31 July 2024 14,001 10,731 160,880 57,015 3,356 1,163 247,146
Accumulated amortisation
At 1 August 2023 3,266 7,158 118,929 27,132 2,179 1,163 159,827
Charge for the year 847 1,035 6,333 2,718 196 - 11,129
Disposals (21) (75) - - - - (96)
Net foreign currency exchange differences (186) 8 (17) (361) (60) - (616)
At 31 July 2024 3,906 8,126 125,245 29,489 2,315 1,163 170,244
Net book value
At 31 July 2024 10,095 2,605 35,635 27,526 1,041 - 76,902
Included in software costs are assets under construction of £226,000 (2023:
£54,000), which are not amortised. Included in development costs are assets
under construction of £1,516,000 (2023: £1,505,000), which are not
amortised.
2023 Development costs Software costs £000 Customer base £000 Trademarks £000 Patents/ Other £000 Total £000
£000
technology £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
Accumulated 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
The remaining amortisation periods for acquired intangible assets at 31 July
2024 are as follows:
Customer Trademark Patent/
base
technology/
other
Volution Holdings Limited and its subsidiaries - 14 years -
Fresh AB and its subsidiaries - 9 years -
PAX AB and PAX Norge AS - 10 years -
inVENTer GmbH - 11 years 11 years
Ventilair Group International BVBA and its subsidiaries - 2 years -
Energy Technique Limited and its subsidiaries 1 years 13 years -
NVA Services Limited and its subsidiaries 3 years 8 years -
Breathing Buildings Limited 3 years 8 years -
VoltAir System AB 9 years 9 years -
Simx Limited 10 years 20 years -
Oy Pamon Ab 5 years 15 years 5 years
Air Connection ApS 5 years - -
Nordic Line ApS - - -
Ventair Pty Limited 7 years 17 years -
ClimaRad BV 6 years 13 years -
Nordiska Klimatfabriken AB 3 years 8 years -
Energent Oy 3 years 8 years -
ERI 8 years 18 years -
VMI 7 years 9 years 4 years
i-Vent - 10 years -
Individually material intangible assets with definite useful lives:
Carrying Remaining amortisation
amount
2024
2024
Years
£000
Customer base
Simx Limited 5,224 10 years
ClimaRad BV 8,356 6 years
ERI 9,059 8 years
Trademark
Volution Holdings Limited and its subsidiaries 15,605 14 years
ClimaRad BV 2,413 13 years
ERI 2,473 18 years
12. Business combinations
Business combinations in the year ended 31 July 2024
DVS
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. The acquisition of DVS is in line with
the Group's strategy to grow by selectively acquired value-adding businesses
in new and existing markets and geographies.
Total consideration for the purchase of the trade and assets of DVS was £8.5
million (NZ$17.7 million), net of cash acquired, with further contingent cash
consideration of up to NZ$9 million based on stretching targets for the
financial results for the 12 months ended 3 August 2024 and the 12 months
ended 31 March 2026. Contingent consideration was assessed based on the
current estimate of the future performance of the business for the 12 months
ended 3 August 2024 as £nil, with NZ$3 million payable if EBITDA exceeds NZ$3
million, and for the 12 months ended 31 March 2026 as NZ$nil with a range of
NZ$nil to NZ$6 million based on EBITDA performance from NZ$3.5 million to NZ$4
million.
If EBITDA for each period for which contingent consideration is measured is
10% higher than expected, contingent consideration would be £1.5 million
higher, discounted to present value. 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 ending 31 July 2024 were £31,000 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 Fair value adjustments Fair
value
£000
value
£000
£000
Intangible assets 35 3,976 4,011
Property, plant and equipment 185 - 185
Inventory 875 - 875
Trade and other receivables 130 - 130
Trade and other payables (627) - (627)
Deferred tax liabilities - (1,113) (1,113)
Total identifiable net assets 598 2,863 3,461
Goodwill on the business combination 5,037
Discharged by:
Cash consideration 8,498
Goodwill of £5,037,000 reflects certain intangibles that cannot be
individually separated and reliably measured due to their nature. These items
include the value of expected synergies arising from the business combination
and the experience and skill of the acquired workforce. The fair value of the
acquired tradename and customer base was identified and included in intangible
assets.
DVS generated revenue of £7,801,000 and generated a profit after tax of
£280,000 in the period from acquisition to 31 July 2024 that is included in
the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2023, the Group's revenue and
profit before tax would have been the same as reported, as the acquisition
took place on 4 August 2023.
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 based on the performance
for the year ended 31 December 2023; £nil consideration was earned or paid.
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 Fair value Fair
value
adjustments
value
£000
£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.
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 in the prior year.
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 in the year to 31
July 2023.
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 three years of: year 1 range from €0 to €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 to €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 to €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 Fair value Fair
value
adjustments
value
£000
£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 Group has adjusted prior period balances for contingent
consideration liability and goodwill due to the fair value of the contingent
consideration liability and goodwill recognised on acquisition of i-Vent in
2023 being determined only provisionally. During the 12-month re-measurement
period since acquisition a re-measurement period adjustment was identified,
and adjustments to the contingent consideration liability and goodwill have
been recognised by revising comparative information for the prior period
presented in the statement of financial position as if the accounting for the
business combination had been finalised at the acquisition date. Contingent
consideration liabilities in the prior period have been increased by
€4,800,000 (£4,115,000) and goodwill on acquisition of i-Vent has been
increased by €4,800,000 (£4,115,000).
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 in the prior year.
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 in the year to 31
July 2023.
Cash outflows arising from business combinations are as follows:
2024 2023
£000
£000
DVS
Cash consideration 8,498 -
I-Vent
Contingent consideration 2,566 -
ERI
Deferred payment 1,874 -
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 consideration(1) - 126
Total 12,938 29,696
Note:
1. During the prior year Volution Group plc purchased a small
proportion of shares capital of ClimaRad for £126,000.
Operating cash flows - cost of business combinations:
2024 2023
£000
£000
VMI 35 532
I-Vent 45 98
DVS 31 207
Other potential or aborted business combinations 95 195
Total 206 1,032
13. Inventories
2024 2023
£000
£000
Raw materials and consumables 25,231 27,566
Work in progress 2,257 3,242
Finished goods and goods for resale 25,624 28,172
53,112 58,980
During 2024, £1,320,000 (2023: £970,000) 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 £5,855,000 (2023: £5,634,000). This provision was
split amongst the three categories: £3,363,000 (2023: £3,187,000) for raw
materials and consumables; £195,000 (2023: £111,000) for work in progress;
and £2,297,000 (2023: £2,336,000) for finished goods and goods for resale.
14. Trade and other receivables
2024 2023
£000
£000
Trade receivables 45,694 44,968
Allowance for expected credit loss (514) (521)
45,180 44,447
Other debtors 5,532 4,323
Prepayments 4,527 3,566
Total 55,239 52,336
Movement in the allowance for expected credit losses is set out below:
2024 2023
£000
£000
At the start of the year (521) (772)
Charge for the year (22) (39)
Amounts utilised 32 292
Foreign currency adjustment (3) (2)
At the end of the year (514) (521)
Gross trade receivables are denominated in the following currencies:
2024 2023
£000
£000
Sterling 24,466 25,361
US Dollar 926 723
Euro 9,216 8,165
Swedish Krona 2,830 2,713
New Zealand Dollar 2,720 2,946
Australian Dollar 4,029 3,914
Other 1,507 1,146
Total 45,694 44,968
Net trade receivables are aged as follows:
2024 2023
£000
£000
Current 41,711 40,547
Past due
Overdue 0-30 days 2,123 2,500
Overdue 31-60 days 465 598
Overdue 61-90 days 74 349
Overdue more than 90 days 807 453
Total 45,180 44,447
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 are
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. Trade and other payables
2024 2023
£000
£000
Trade payables 21,224 23,059
Social security and staff welfare costs 2,030 1,929
Accrued expenses 23,399 22,120
Total 46,653 47,108
Trade payables are non-interest bearing and are normally settled on 60-day
terms.
16. Leases
Group as a lessee
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 machinery Fixtures, fittings, tools, equipment and vehicles Total
buildings
£000
£000
£000
2024
£000
Cost
At 1 August 2023 36,741 66 4,683 41,490
Additions 897 - 776 1,673
Modifications and other (790) - - (790)
Expiration of leases (869) (29) (535) (1,433)
Net foreign currency exchange differences (893) (6) (259) (1,158)
At 31 July 2024 35,086 31 4,665 39,782
Accumulated depreciation
At 1 August 2023 9,737 31 1,820 11,588
Charge for the period 3,881 13 844 4,738
Expiration of leases (869) (29) (535) (1,433)
Net foreign currency exchange differences (33) (2) 30 (5)
At 31 July 2024 12,716 13 2,159 14,888
Net book value
At 31 July 2024 22,370 18 2,506 24,894
Right-of-use assets Land and Plant and machinery Fixtures, fittings, tools, equipment and vehicles Total
buildings
£000
£000
£000
2023
£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
Accumulated 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
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 machinery Fixtures, fittings, tools, equipment and vehicles Total
buildings
£000
£000
£000
2024
£000
At 1 August 2023 29,174 33 2,001 31,208
Additions 897 - 776 1,673
Modifications and other (790) - - (790)
Interest expense 721 2 40 763
Lease payments (4,516) (15) (1,141) (5,672)
Foreign exchange movements (859) (4) (290) (1,153)
At 31 July 2024 24,627 16 1,386 26,029
Analysis
Current 3,522 8 1,228 4,758
Non-current 21,105 8 158 21,271
At 31 July 2024 24,627 16 1,386 26,029
Lease liabilities Land and Plant and machinery Fixtures, fittings, tools, equipment and vehicles Total
buildings
£000
£000
£000
2023
£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
The following are amounts recognised in the statement of comprehensive income:
2024 2023
£000
£000
Depreciation expense of right-of-use assets (cost of sales) 2,904 2,507
Depreciation expense of right-of-use assets (administrative expenses) 1,834 1,388
Interest expense 763 635
17. Other financial liabilities
2024 Foreign ClimaRad I-Vent ERI Total
exchange
BV
£000
£000
£000
forward
£000
contracts
£000
Contingent consideration
At 1 August 2023 330 8,877 4,115 7,720 21,042
Re-measurement of financial liabilities - 870 - - 870
Re-measurement of contingent consideration - 6,599 (1,529) (316) 4,754
Consideration paid - - (2,566) (1,874) (4,440)
Foreign exchange (138) - (20) - (158)
At 31 July 2024 192 16,346 - 5,530 22,068
Analysis
Current 192 16,346 - 5,530 22,068
Non-current - - - - -
Total 192 16,346 - 5,530 22,068
2023 Foreign ClimaRad I-Vent ERI Total
exchange
BV
£000
£000
£000
forward
£000
contracts
£000
Contingent consideration
At 1 August 2022 - 7,052 7,080 14,132
Further consideration recognised - - 4,131 - 4,131
Re-measurement of financial liabilities - (54) - - (54)
Re-measurement of contingent consideration - 1,879 640 2,519
Foreign exchange movements 330 - (16) - 314
At 31 July 2023 330 8,877 4,115 7,720 21,042
Analysis
Current 330 - 2,571 - 2,901
Non-current - 8,877 1,544 7,720 18,141
At 31 July 2023 330 8,877 4,115 7,720 21,042
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).
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, less interest and principal on the Vendor loan
already paid, 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
€11,600,000 (£9,605,000) 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 at 31 July 2024 was
assessed based on the current estimate of the future performance of the
business as £16,346,000, discounted to present value (2023: £8,877,000).
The liability has increased significantly, largely as a result of increasing
the estimate of expected EBITDA performance for the year ended 31 December
2024 (as well as the impact of unwinding the discounted amount by one year).
At 31 July 2023, a sensitivity analysis concluded that the valuation of this
contingent consideration was not a major source of estimation uncertainty at
that date. However, EBITDA performance for the current period was beyond the
sensitivities considered reasonable at 31 July 2023. Given the short period of
time remaining in the assessment year to 31 December 2024, the Group considers
a 10% EBITDA variance sensitivity appropriate at 31 July 2024. If actual
EBITDA for the year ended 31 December 2024 varies by 10% from the estimate,
the contingent consideration would vary by approximately £2,400,000.
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).
On 14 October 2022, Volution Group plc acquired the remaining 49% of the
issued share capital of Energy Recovery Industries Corporation Ltd (UK). The
contingent consideration at 31 July 2024 was assessed based on the current
estimate of the future performance of the business as £5,530,000 (2023:
£7,720,000), with a range from €0 to €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
£1,700,000.
The contingent consideration at 31 July 2024 related to the acquisition of
I-Vent was assessed as £Nil (2023:£4,115,000), the reduction being the
result of the €3,000,000 related to year 1 performance being paid in March
2024 and the €2,000,000 related to year 2 performance being reduced to £Nil
as a result of a change in the estimate of performance for year 2 (the year
ended 31 December 2024). The strong finish to calendar year 2023 was followed
by a more difficult trading period in spring/summer 2024 as a result of the
introduction of local competition from April 2024 which caused some disruption
in the local market. Although performance has since improved, the Group
estimate that the previously expected performance for the year 2 and year 3
measurement years will not be achieved.
If the forecast EBITDA for year 2 and year 3 were 10% higher, the contingent
consideration would remain Nil. The forecast EBITDA for year 2 and 3 would
need to increase by c60% for the contingent consideration threshold to be met.
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.
18. Interest-bearing loans and borrowings
2024 2023
Current Non-current Current Non-current
£000
£000
£000
£000
Unsecured - at amortised cost
Borrowings under the revolving credit facility (maturing 2025) - 49,794 - 79,369
Cost of arranging bank loan - - - (692)
- 49,794 - 78,677
Lease liabilities (note 20) 4,758 21,271 3,754 27,454
Other loans - 565 - 802
ClimaRad vendor loan 9,605 - - 9,771
Total 14,363 71,630 3,754 116,704
Revolving credit facility - at 31 July 2024
Currency Amount outstanding Termination Repayment Rate %
£000
date
frequency
GBP - 2 December 2025 One payment SONIA + margin%
Euro 49,794 2 December 2025 One payment EURIBOR + margin%
Swedish Krona - 2 December 2025 One payment STIBOR + margin%
Total 49,794
Revolving credit facility - at 31 July 2023
Currency Amount outstanding Termination Repayment Rate %
£000
date
frequency
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
On 9 September 2024, the Group refinanced its bank debt. The Group now has in
place a £230 million multicurrency 'Sustainability Linked Revolving Credit
Facility', together with an accordion of up to £70 million. The facility
matures in September 2027, with the option to extend for up to two additional
years. The old facility was repaid in full early, on 11 September 2024, and a
new multicurrency 'Sustainability Linked Revolving Credit Facility' was
entered into.
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 2024, Group leverage
was below 1.0:1 and therefore the margin will remain at 1.25%. (31 July 2023:
Group leverage was below 1.0:1 with the margin at 1.25%).
At 31 July 2024, the Group had £100,200,000 (2023: £70,631,000) 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 exchange movement £000 New/ Interest 31 July
2023
£000
£000
2024
£000 other
£000
£000
Non-current interest-bearing loans and borrowings (excluding lease 79,369 (28,451) (1,124) - - 49,794
liabilities)
Debt related to the business combination of VMI (see note 15) 802 (237) - - - 565
Lease liabilities 31,208 (5,672) (1,153) 883 763 26,029
ClimaRad vendor loan 9,771 - (166) - - 9,605
Total liabilities from financing activities 121,150 (34,360) (2,443) 883 763 85,993
The ClimaRad vendor loan is at a 5.0% fixed rate of interest.
1 August Cash flows Foreign New leases £000 Changes due to business combination £000 Interest/ 31 July
2022
£000
exchange movement £000
other
2023
£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
19. Provisions
2024 Product Property Total
warranties
dilapidations
£000
£000
£000
At 1 August 2023 1,625 467 2,092
Arising during the year 1,869 6 1,875
Utilised (1,674) - (1,674)
Foreign currency adjustment (24) - (24)
At 31 July 2024 1,796 473 2,269
Analysis
Current 1,400 50 1,450
Non-current 396 423 819
Total 1,796 473 2,269
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
Product warranties
A provision is recognised for warranty costs expected to be incurred in the
following 12 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 12 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.
20. Authorised and issued share capital and reserves
Number of ordinary shares issued and fully paid Ordinary Share
shares
premium
£000
£000
At 31 July 2023 and 31 July 2024 200,000,000 2,000 11,527
The 200,000,000 authorised ordinary shares of £0.01p each.
At 31 July 2024, a total of 2,151,214 (2023: 2,471,100) ordinary shares in the
Company were held by the Volution EBT, all of which were unallocated and
available for transfer to participants of the Long Term Incentive Plan,
Deferred Share Bonus Plan and Sharesave Plan on exercise. During the year,
700,000 ordinary shares in the Company were purchased by the trustees (2023:
550,000) and 1,019,886 (2023: 262,565) were released by the trustees at
£3,942,724 (2023: £973,960). The market value of the shares at 31 July 2024
was £11,767,140 (2023: £9,923,938).
The Volution EBT has agreed to waive its rights to dividends.
21. Deferred tax liabilities
Deferred tax liabilities
2024 1 August (Charged)/ Credited to equity Translation difference On business combinations 31 July
2023
credited to income
£000
£000
2024
£000
£000 £000
£000
Temporary differences
Depreciation in advance of capital allowances (2,896) 64 - - - (2,832)
Fair value movements of derivative financial instruments 123 (52) - - - 71
Development costs, customer base, trademark and patents (15,147) 1,816 - 216 (1,113) (14,228)
Unutilised tax losses 1 27 - - - 28
Other temporary differences 1,275 45 - (4) - 1,316
Share-based payments 3,307 96 (380) - - 3,023
Deferred tax assets (13,337) 1,996 (380) 212 (1,113) (12,622)
2023 1 August (Charged)/ Credited to equity Translation difference On business combinations 31 July
2022
credited to income
£000
£000
£000
2023
£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
Development costs, customer base, trademark and patents (16,464) 2,142 - 139 (964) (15,147)
Unutilised tax 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)
22. Dividends paid and proposed
2024 2023
£000
£000
Cash dividends on ordinary shares declared and paid
Interim dividend for 2024: 2.80 pence per share (2023: 2.50 pence) 5,538 4,942
Proposed dividends on ordinary shares
Final dividend for 2024: 6.2 pence per share (2023: 5.50 pence) 12,267 10,879
An interim dividend payment of £5,538,000 is included in the consolidated
statement of cash flows (2023: £4,942,000).
A final dividend payment of £10,879,000 is included in the consolidated
statement of cash flows relating to 2023 (2023: £9,891,000).
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 2024.
There are no income tax consequences attached to the payment of dividends in
either 2024 or 2023 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 2024 or 31 July 2023.
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. The details of the
Directors' total remuneration are provided in the Directors' Remuneration
Report.
Compensation of key management personnel
2024 2023
£000
£000
Short-term employee benefits 4,888 3,886
Share-based payment charge 904 1,003
Total 5,792 4,889
Key management personnel is defined as the CEO, the CFO and the 15 (2023: 14)
individuals who report directly to the CEO.
The Group also incurred fees and expenses of £414,000 (2023: £400,000) in respect of Claire Tiney, Amanda Mellor, Nigel Lingwood, Margaret Amos and Jonathan Davis for their services as Non-Executive Directors.
24. Events after the reporting period
After the year end, on 10 September 2024, the Group refinanced its bank debt.
The Group now has in place a £230 million multicurrency "Sustainability
Linked Revolving Credit Facility", together with an accordion of up to £70
million. The facility matures in September 2027, with the option to extend
for up to two additional years. The old facility was repaid in full early, on
11 September 2024, and a new multicurrency "Sustainability Linked Revolving
Credit Facility" was entered into.
After the year-end, on 20 September 2024, the Group signed an agreement to
acquire Fantech for an initial consideration of AUD$220 million (£113.4
million(2)) on a debt free cash free basis, with further non contingent
consideration of AUD$60 million (£30.9 million(2)) payable twelve months
after the completion date. Conditions to completion of the transaction include
anti-trust approvals which we are optimistic will be satisfied within
approximately two to three months of signing.
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 2,143,783 dilutive potential ordinary shares at 31 July 2024 (2023:
3,365,875).
Adjusted EBITA: adjusted operating profit before amortisation.
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 2024 at the average exchange rate for the year ended 31
July 2023. In addition, we have converted the UK operating companies' sale and
purchase transactions in the year ended 31 July 2024, which were denominated
in foreign currencies, at the average exchange rates for the year ended 31
July 2023.
EBITA: profit before net finance costs, tax, and amortisation.
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).
1 (#_ftnref1) The Group uses some alternative performance measures (APMs) to
track and assess the underlying performance of the business. These measures
include adjusted operating profit, adjusted operating profit margin, adjusted
profit before tax, adjusted basic EPS, adjusted operating cash flow, return on
invested capital, net debt, net debt (excluding lease liabilities) and
adjusted operating cash conversion. The reconciliation of the Group's
statutory profit before tax to adjusted profit measures of performance is
summarised in note 2 to the condensed consolidated financial statements. For a
definition of all the adjusted and non-GAAP measures, please see the glossary
of terms in note 25 to the condensed consolidated financial statements.
2 (#_ftnref2) Based on an AUD$:£ exchange rate of 1.948:1 being the
closing rate as at 19 September 2024
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