TIDMFAN
RNS Number : 2809O
Volution Group plc
07 October 2021
Thursday 7 October 2021
Volution Group plc
Preliminary Announcement of Final Results for the year ended 31
July 2021
Record results with significant revenue growth, achievement of
our 20% adjusted operating margin target and delivering on our
sustainability agenda
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 2021.
RESULTS SUMMARY
2021 2020 Movement
Revenue (GBPm) 272.6 216.6 25.8%
Adjusted operating profit (GBPm) 56.9 33.7 68.8%
Adjusted operating margin (%) 20.9 15.6 5.3pp
Adjusted profit before tax (GBPm) 53.2 31.2 70.2%
Adjusted EPS (pence) 21.0 12.1 73.9%
Reported operating profit (GBPm) 34.2 18.2 87.7%
Reported profit before tax (GBPm) 30.0 14.6 106.3%
Reported basic EPS (pence) 10.5 4.9 115.2%
Adjusted operating cash flow (GBPm) 56.9 43.4 31.2%
Net debt (GBPm) 79.2(1) 74.2 5.0
Net debt (excluding lease liabilities ) (GBPm) 53.8 51.1 2.7
Total dividend per share (p) 6.3 - N/A
----------------------------------------------- ------- ----- --------
(1) 2021 includes lease liabilities of GBP25.4 million due to
the adoption of IFRS 16 (2020: GBP23.1 million).
The Group uses some alternative performance measures to manage
and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted EPS, adjusted operating cash flow and net debt. A
definition of all the adjusted and non-GAAP measures is set out in
the glossary of terms in note 25 to the condensed consolidated
financial statements. A reconciliation to reported measures is set
out in note 2 to the condensed consolidated financial
statements.
Financial highlights
* Significant revenue growth up GBP56.0 million to
GBP272.6 million (2020: GBP216.6 million; 2019
GBP235.7 million) including organic growth of 22.0%
(20.5% at cc) and inorganic growth from the three
acquisitions in the year of 3.8% (3.9% at cc)
* Achieved our 20% adjusted operating margin target six
months earlier than planned with adjusted operating
margin of 20.9% (2020: 15.6%; 2019: 17.8%) despite
ongoing supply chain challenges and inflationary
pressures faced by the Group
* Reported profit before tax GBP30.0 million (2020:
GBP14.6 million)
* Business remains highly cash generative with
operating cash flow up 30.6% to GBP56.9 million
(2020: GBP43.4 million), and strong cash conversion
of 97%, as a result of our asset light business model
* GBP42.2 million invested in three acquisitions in the
Netherlands, Sweden and Finland further enhancing our
product range and low-carbon credentials
* Net debt (excluding lease liabilities) stable at
GBP53.8 million (2020: GBP51.1 million) with leverage
(measured as net debt excluding lease liabilities
divided by adjusted EBITDA) ending the year at 0.9x
(2020 1.3x)
* Adjusted earnings per share of 21.0p with a
compounded annual growth rate of 13.2% since IPO in
2014
* Dividends resumed, with total dividend for the year
of 6.3 pence per share reflecting strong
profitability, free cash generation and confidence in
our business model to deliver continued growth
Operational highlights
* The safety and wellbeing of our employees through the
ongoing Covid-19 pandemic remains our number one
priority with some of our regions still experiencing
local 'lockdowns'
* Three acquisitions completed in the year, ClimaRad in
the Netherlands, Klimatfabriken in Sweden, and Rtek
in Finland with a fourth transaction to acquire ERI
Corporation signed during the year with completion in
early FY22
* Relocated our principal factory in Sweden to a more
energy efficient and well invested facility in
Växjö with considerable capacity headroom
to support our ambitions for growth in the region
* Continued investment in the most innovative and
energy efficient ventilation solutions for our
markets to meet the growing needs and awareness of
how ventilation in buildings is critical to health
and the reduction of Covid-19 transmission risks
Healthy Air, Sustainably
* Awarded the LSE Green Economy Mark - Our products
save energy, reduce carbon emissions and help to
build healthy sustainable homes and buildings
* Our business is committed to a Net zero roadmap and
is carbon neutral for scope 1 and 2 emissions this
year
* Good progress against our key sustainability targets
with 59.7% (2020: 56%) of plastic used in our own
manufacturing facilities from recycled sources, and
62.1% (2020: 59%) of our revenue is from low-carbon,
energy saving products
* GBP150 million Sustainability Linked revolving credit
facility established, further underlining our
commitment to delivery of ESG targets
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"I am immensely proud of our committed employees and the
substantial progress we made in the year. We have delivered strong
revenue growth, expanded our adjusted operating margin ahead of our
20% target and completed three acquisitions in the year with a
fourth transaction completed early in the new financial year. All
four acquisitions are ventilation solution providers of
predominantly low-carbon solutions and a perfect fit with our
purpose of providing "Healthy Air, Sustainably". We made excellent
progress with our key sustainability metrics, increasing the
proportion of our sales that are low-carbon solutions and a further
increase in the usage of recycled plastic materials in our
products. I am particularly proud of the way in which all our
employees are embracing our focus on sustainability which provides
positive impacts on our environment and customers.
During the year we were impacted by significant disruptions
across our supply chain and input cost inflation both for materials
as well as in bound and out bound logistics costs. Our agile,
flexible, and capex-light business model enabled us to mitigate
most of these challenges and our strong trade brands, market share
and innovative and wide product portfolio have enabled us to pass
on the additional costs through selling price increases.
The continuing Covid-19 pandemic, coupled with a greater focus
from governments across the world in dealing with the issues of
climate change, has led to a far greater awareness of the
importance that indoor air quality and ventilation have on both the
energy efficiency and health environment inside buildings. We
expect that awareness to continue to grow in the period ahead."
Outlook
The significant interruptions to the supply chain and high
levels of input cost inflation and logistics costs increases which
we were faced with throughout most of FY21, particularly in the UK,
have continued into the start of the new financial year. Despite
these challenges, as well as recent and ongoing Covid-19 related
lockdowns in our Australasian market, overall, we are providing
good levels of customer service as well as securing price rises to
mitigate the impact of cost inflation. Our service levels have been
assisted by actions taken in FY21, notably a strategy of holding
more inventory for key raw material components, which has enabled
us to mitigate many of the well-publicised and industry wide supply
challenges.
The new financial year has started well delivering organic
revenue ahead of the same period in the prior year. With our market
leading products and brands, implementation of price increases,
agile approach to product assembly and supply, and the benefit of
the four acquisitions executed in the last twelve months, we expect
to make further good progress in the year.
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Andy O'Brien, Chief Financial Officer +44 (0) 1293 441536
Tulchan Communications +44 (0) 207 353 4200
James Macey White
Victoria Boxall
A conference call for analysts will be held at 9:30am today,
Thursday 7 October. Please contact volutiongroup@tulchangroup.com
to register and for instructions on how to connect to the
conference facility.
A copy of this announcement and the presentation given to
analysts will be available on our website www.volutiongroupplc.com
from 7:00 am on Thursday 7 October.
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014 as amended by The Market Abuse
(Amendment) (EU Exit) Regulations 2019 ) prior to its release as
part of this announcement.
Volution Group plc Legal Entity Identifier:
213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international
designer and manufacturer of energy efficient indoor air quality
solutions. Volution Group comprises 19 key brands across three
regions:
UK: Vent-Axia, Manrose, Diffusion, National Ventilation,
Airtech, Breathing Buildings, Torin-Sifan.
Continental Europe: Fresh, PAX, VoltAir, Kair, Air Connection,
Rtek, inVENTer, Ventilair, ClimaRad, ERI Corporation.
Australasia: Simx, Ventair, Manrose.
For more information, please go to: www.volutiongroupplc.com
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
Chairman's Statement
I am delighted by how well Volution has recovered from a period
of unprecedented global disruption and uncertainty caused by the
Covid-19 pandemic. The resilience of Volution's business model and
strategy is proving to be highly effective, demonstrated by the
Group's financial performance during the financial year under
review, despite the unpredictable trading environments in some of
our regions.
The crisis has continued to demonstrate the relevance,
importance and sustainability of Volution's products and solutions
in improving indoor air quality, and the strength of our business
model, in particular our operating cash generation and geographic
and product diversity. I believe we are in a strong position to
continue to manage any future disruption caused by the Covid-19
pandemic.
People and culture
The Board's first priority throughout the Covid-19 pandemic has
been ensuring the safety and wellbeing of our employees and their
families. Whilst we have had to manage the challenge of staff
absences and shortages due to self-isolation requirements, all of
our sites have kept operating throughout the year. We have provided
regular testing for our production staff, coupled with enhanced
cleaning and social distancing measures. The Board expresses its
thanks to our employees for their commitment and contribution in
ensuring a safe workplace and to the strong outperformance achieved
by the business.
Performance and results
This strong set of results reflects the resilience of the
business through the pandemic with the Group's revenue increasing
by 25.8% compared to last year to GBP272.6 million (2020: GBP216.6
million). Adjusted operating profit was GBP56.9 million (2020:
GBP33.7 million), representing 20.9% of revenue and a GBP23.2
million improvement compared to the prior year. Reported profit
before tax increased by 106.3% to GBP30.0 million (2020: GBP14.6
million).
Basic earnings per share for the year was 10.5 pence (2020: 4.9
pence). Our adjusted earnings per share was 21.0 pence,
representing a 73.6% increase over the adjusted earnings per share
for the prior year of 12.1 pence. The compound annual growth rate
of adjusted earnings per share since IPO in 2014 was 13.2%.
Cash generation was good with adjusted operating cash flow of
GBP56.9 million (2020: GBP43.4 million). Net debt at the year end
was GBP79.2 million (2020: GBP74.2 million), GBP5.0 million higher
than last year, after having completed three acquisitions,
incurring a net cash outflow of GBP42.2 million.
Dividends
Following the suspension of dividends during the financial year
ended 31 July 2020 as a result of the impact of the Covid-19
pandemic on the business, I was pleased that the strength and
performance of the business during the financial year under review
enabled the Board to declare an interim dividend which was paid on
4 May 2021. The strong financial results have now led the Board to
recommend a final dividend of 4.4 pence per share, giving a total
dividend for the financial year of 6.3 pence per share. As a
consequence of this recommendation, the resulting adjusted earnings
dividend cover for the year was 3.3 times. Subject to approval by
shareholders at the Annual General Meeting on 9 December 2021, the
final dividend will be paid on 16 December 2021 to shareholders on
the register at 19 November 2021.
Strategy
During the year the Board undertook a strategy review, which
confirmed and supported that the strategic direction Volution
should follow should remain unchanged. The three strategic pillars
of organic growth, growth through value-adding acquisitions and
operational excellence remained the optimal way to fulfil the
Group's purpose and create long-term value for all our
stakeholders.
Good progress was made during the year with organic growth,
whilst the acquisitions of ClimaRad in the Netherlands,
Klimatfabriken in Sweden and Rtek in Finland and an agreement to
acquire ERI Corporation, based in North Macedonia, (completed on 9
September 2021), have further strengthened the Group's geographic
and product diversification. On behalf of the Board I am delighted
to welcome our new colleagues to the Group. Our dedication to
operational excellence has underpinned the Group's substantial
operating margin expansion to 20.9% and our strong focus on ESG
improvements.
Environmental, social and governance (ESG) objectives
Volution is committed to high standards of corporate
responsibility, sustainability and employee engagement and
continues to focus on its contribution to a more sustainable world
through its operations, culture and ventilation solutions. We aim
to give full consideration to the long-term impact of all business
operations, which means that, where feasible, our products and
services are sustainably sourced.
It was pleasing that our efforts were recognised in June 2021
with Volution being awarded the Green Economy Mark by the London
Stock Exchange.
Board
There were no changes to the Board during the year under review.
Tony Reading has been a Board member and Senior Independent
Director since IPO in June 2014 and has notified the Board of his
wish to retire at the conclusion of the Annual General Meeting in
December 2021, which the Board has accepted.
On behalf of the Board, I would like to thank Tony for his
invaluable contribution to Board discussions over the past seven
years. The Board has greatly appreciated his depth of knowledge and
experience on Board matters and Tony has provided wise counsel to
me personally in his capacity as Senior Independent Director. I
would like to wish Tony all the very best for the future.
A search process has commenced to find a successor to Tony which
is focused on increasing the diversity of the Board to better
reflect our customer base and the wider population in our markets.
Once the Board has approved the appointment of a new independent
Non-Executive Director, an announcement will be made to the London
Stock Exchange.
As part of the succession planning process the Board discussed
the successor to the role of Senior Independent Director and has
appointed Amanda Mellor to the role with effect from the conclusion
of the Annual General Meeting in December 2021. Amanda has been a
Board member since March 2018 and has also been appointed as the
Board representative for ESG matters and attends the Management
Sustainability Committee.
Governance
The Group continues to be committed to high levels of corporate
governance, in line with its status as a company with a premium
listing on the Main Market of the London Stock Exchange and a
member of the FTSE 250. We are fully compliant with the 2018
edition of the UK Corporate Governance Code.
During the year, a formal performance evaluation of the Board
and Committees took place to assist in their development. The
results of the evaluations confirmed that the Board and Committees
continue to function effectively and that there are no significant
concerns among the Directors about their effectiveness.
Summary
The importance of indoor air quality is now understood much
better than before the pandemic and Volution is in a strong
position to offer customers ventilation solutions which enhance our
indoor environments. Although many of our products already
demonstrate high levels of sustainability, we continue to work hard
to increase the sustainability of all our products and our Annual
Report will set out the strategy and actions we have set to achieve
this.
Whilst the pandemic continues to create uncertainty across the
globe, Volution has demonstrated the strength and resilience of its
business model, helped by our geographic and product diversity. We
will continue to protect the health, safety and wellbeing of our
employees and the Board will make decisions to ensure the long-term
success of the business.
Paul Hollingworth
Chairman
6 October 2021
Chief Executive Officer's Review
Overview
This financial year has been a year of extraordinary progress by
the Group, hugely underpinned by the considerable efforts made
during the more difficult and more significantly Covid-19 impacted
2020 financial year. Whilst we continue to focus on the safety and
wellbeing of our employees, customers, and wider stakeholders the
preparations we made in the prior year have helped us navigate a
market where we are benefitting from strong demand but also
significant supply chain and Covid-19 related challenges.
In all of our markets there has been a greater recognition of
the importance that indoor air quality and ventilation can have on
health. In the early days of the Covid-19 pandemic the focus was on
hygiene, hand washing and sanitising but as global awareness of how
the virus is transmitted there has been an acute realisation of how
important it is to properly ventilate inside buildings. Coupled
with the growing awareness of the importance of ventilation there
has been a consistent and continuing increase in demand for
ventilation in refurbishment applications.
Volution benefits in its key markets from having one of the most
innovative and comprehensive ranges of products to suit customer
needs. At the same time, we are seeing an ongoing and favourable
regulatory backdrop across all our markets as countries look to
decarbonise their buildings and meet their long-term net zero
carbon targets. The focus on reaching net zero carbon will
undoubtedly result in a steady stream of new regulations across
each of our markets continuing to favour low-carbon, energy
efficient and in many cases heat recovery ventilation products. In
simple terms, building more efficiently, better insulated and more
airtight results in a need to significantly increase the quality
and controls provided by ventilation and we are well placed with
one of the leading ranges of residential products in the
market.
With strong demand in all markets throughout the year the most
notable challenge has been managing our supply chain, material, and
freight cost inflation. We anticipated this early in the year when
demand recovered very quickly. There have been occasions during the
year when our service has been impacted, however we have in the
main provided continuity of supply and a full range of products
throughout.
Our teams have responded with agility and flexibility, with
solutions ranging from redesigning electronic printed circuit
boards to mitigate the non-availability of components, substituting
plastic materials and in some cases accelerating the application of
a greater recycled content and a strategic decision to hold greater
stocks of key raw materials across our facilities. This has enabled
us to capitalise with a strong revenue progression in each of our
three geographic areas.
Working arrangements throughout the pandemic have varied in each
region. In New Zealand, where the success in locking out the
pandemic has been heralded throughout, we have seen mostly near
normal working arrangements with all staff attending our
facilities. Until recently, we have seen limited impact on our
working arrangements.
In the UK and across Europe there have been various approaches
including more flexible working and hybrid arrangements with
employees being in our facilities or working from home. The
priority as always is the safety and wellbeing of our employees and
to minimise the risk of the virus transmission. Our employees have
again been truly inspirational throughout and their dedication
throughout the year is evidenced in the strong financial results we
have delivered.
The Group delivered revenue of GBP272.6 million (2020: GBP216.6
million), an increase of 25.8% (24.4% at cc). Adjusted operating
margins increased from 15.6% in the prior year to 20.9% in the year
achieving our short-term target to improve operating margins to
20%.
During the year we made good progress with our Operational
Excellence initiatives, resulting in consistent delivery of an
adjusted operating margin of greater than 20%. In Sweden we
relocated the Nordic headquarters and injection moulding and
assembly facility from its original location in Gemla to a more
modern, energy efficient and better laid out facility in Växjö.
This project was delivered on time, without any customer disruption
and provides significant headroom for growth and further
opportunity for efficiency gains.
Sustainability
We are building on the progress we have made in our ESG
initiatives, and this year have added ambitious carbon reduction
targets and will report our performance and continue to lead by
example. We have set out our roadmap to Net zero carbon and 2021 is
our first year as a carbon neutral business. I can report that our
chosen measure of carbon intensity (CO2 tonnes per GBP million of
revenue) has reduced by a further 25.5% and is now 60.8% lower than
it was when we started reporting in 2014.
We support the recommendations of the Taskforce on Climate
Related Financial Disclosures and have made detailed disclosures in
this report which we will continue to develop and set clear targets
and report performance against.
Our low-carbon content of total revenue has increased to 62.1%
in the year, and we remain on track to deliver our target of 70% of
all revenues from low-carbon products by the end of 2025. Recycled
plastics content in our production also increased in the year to
59.7% although greater progress was hampered due to the
availability of materials. During the year we have moved all
consumption of PVC (Polyvinyl chloride) for extrusion purposes to
recycled sources and finished the year with HIPS (High Impact
Polystyrene) consumption at more than 90% recycled content. Trials
also took place throughout the year experimenting with the
application of recycled ABS (Acrylonitrile butadiene styrene). I am
delighted to advise that the trials performed excellently, and we
expect to roll out a significant proportion of recycled content in
our production during the year 2022. Whilst we have set a
stretching target to achieve 90% recycled content in our plastics
production by the end of 2025, I am confident that the strides made
in 2021 put us on the right track to deliver against this important
sustainability objective.
I am proud of the work we have made in our facilities to reduce
our carbon emissions and apply low-carbon building technologies to
our facilities. We continue to work across all facilities on this
important initiative and I am delighted with the way in which our
employees have embraced the opportunity to improve our low-carbon
credentials.
To embed our targets even further we have for the first time
introduced sustainability related performance criteria in the
long-term incentive plans of our senior management to ensure that
they are incentivised to continue to deliver excellent financial
results, sustainably. As a result of our actions to date we were
delighted to receive the LSE Green Economy Mark - one of the first
in our industry.
Acquisitions
We completed three acquisitions in the year, ClimaRad, the
market leader for decentralised heat recovery ventilation in the
Netherlands, Klimatfabriken in Sweden, a high-end provider of
premium ventilation for refurbishment and Rtek in Finland, a
supplier of heat recovery ventilation systems for both new and
refurbishment applications. A fourth transaction, ERI Corporation,
was signed at the end of the year, with completion taking place on
9 September 2021 at the start of financial year 2022. These
acquisitions, coupled with our existing range of products,
positions us with one of the most comprehensive ranges of
ventilation products in the market and well placed to benefit from
the more impinging regulations that will be issued in the coming
years. The increasing focus of governments in achieving their local
net zero carbon targets, the International Building Regulation
response plus key recommendations made recently in the "Fit for
55"(1) announcement are all structural growth drivers for the use
of energy efficient ventilation solutions including heat
recovery.
Whilst the Covid-19 pandemic is still impacting the way in which
we work, the supply chain difficulties are continuing and material
and freight inflation is an ongoing risk to input costs, our strong
trade brands with significant pricing power are well placed to
capitalise on the ongoing requirements for ventilation in both new
and refurbished buildings. Our increasing geographic and product
diversity, ongoing investment in new and innovative ventilation
solutions, the drive to increase recycled plastics content in
production and our dedicated employees position us well to make
further progress with our clear strategy for growth.
(1)Fit for 55 is the European Commission legislative package
supporting its commitment to reduce net greenhouse gas emissions by
at least 55% by 2030
United Kingdom
31 July 31 July Growth
2021 2020 (cc)
Market sector revenue GBPm GBPm %
------------------------------------- ------- ------- ------
UK
Residential RMI 44.1 33.4 32.3
New Build Residential Systems 26.1 21.9 18.7
Commercial 31.1 27.3 14.3
Export 10.1 8.6 17.0
OEM 24.5 20.3 20.0
------------------------------------- ------- ------- ------
Total UK revenue 135.9 111.5 21.8
------------------------------------- ------- ------- ------
Adjusted operating profit 27.8 15.6 77.7
------------------------------------- ------- ------- ------
Adjusted operating profit margin (%) 20.4 14.0 6.4pp
------------------------------------- ------- ------- ------
Reported operating profit 17.7 4.8 262.3
------------------------------------- ------- ------- ------
In the UK our revenues increased from GBP111.5 million to
GBP135.9 million, a 21.9% increase (21.8% at cc). Adjusted
operating profit increased from GBP15.6 million to GBP27.8 million
with an adjusted operating margin increasing by 6.4pp from 14.0% to
20.4%. Our adjusted operating margin benefitted from the
Operational Excellence and Streamlining initiatives which were
largely completed in the prior year. The full integration of the
three UK acquisitions that had been made since listed in 2014
delivered efficiency gains in our indirect cost base and a strong
and scalable platform for the UK business to support future organic
growth.
With a greater dependence on our UK manufacturing from around
the Group we took the opportunity to reorganise our UK management
structure to provide greater focus on the functional elements of
sales, marketing, and manufacturing. Paul Kilburn, previously
Managing Director for our OEM activities in Torin-Sifan took on a
larger role as UK Managing Director combining both the OEM and
Ventilation activities. Paul has been with Volution for 17 years
and his experience is invaluable in this enlarged role. The Group
Technical Director also took on the responsibility for
manufacturing in the UK ventilation business with both roles
reporting directly to the Chief Executive. These changes provide
additional bandwidth and experience as we look to further improve
our UK Operational Excellence and achieve the price rises necessary
to mitigate inflation.
Sales in our UK New Build Residential Systems sector were
GBP26.1 million (2020: GBP21.9 million), an organic growth of
18.7%. Whilst this sector recovered very well in the year revenues
are still below our peak year of GBP27.8 million in 2019. During
the year we observed that completions materially outpaced new
starts as housebuilders focussed their activity on servicing the
strong demand for the supply of new housing. Our activity was much
stronger in the second half of the year and the outlook remains
positive as housebuilders ramp up output to service the ongoing
strong demand. As well as the underlying strong demand for new
house supply, we continue to benefit from regulations to reduce
carbon emissions from new buildings. The revisions to Part F and
Part L (the English and Welsh Building Regulations for Ventilation
and Conservation of Fuel and Power respectively) will again provide
a tailwind for higher value, more energy efficient continuous
running ventilation systems. As well as this regulatory driver we
are witnessing a greater awareness from potential new build
homeowners about the benefits of whole house heat recovery
ventilation systems with indoor air quality awareness significantly
greater now in this sector.
New product development and innovation has been essential for us
to maintain our market leading position in this sector. During the
year we made good progress with extending our range of mechanical
ventilation with heat recovery, and further efficiency and airflow
performance improvements with our decentralised mechanical extract
ventilation products. Both solutions are now entering the tooling
stage and will be introduced to the market during 2022. In the UK
we benefit from having three leading brands that provide solutions
for this market. Vent-Axia, the leading provider of ventilation
systems into the new project market, National Ventilation a
specialist provider to the self-build and small project market and
our Manrose brand providing the ducting and accessories essential
for a system that is essentially plumbed into the building during
the construction phase.
Sales in our UK Residential RMI sector were GBP44.1 million
(2020: GBP33.4 million), an organic growth of 32.3% and over 12%
ahead of our previous peak revenue year of 2019. Volution is very
well positioned in the UK refurbishment market with four different
brands each serving slightly different areas of the market. This
multi brand approach to the UK market enables us to position our
solutions to provide coverage for all consumer requirements.
Since listing in 2014 we have made tremendous progress in
upselling our solutions towards greater high end, silent and
improved controls. These products with greater functionality and
increased consumer benefits are sold at a higher price point and
deliver a higher gross margin and now represent over 25% of our
solutions sold into the private refurbishment market. Cross selling
of products from the Nordics as well as a new range of product
launched at the end of 2020 have underpinned this positive trend.
Since acquiring Klimatfabriken earlier in the year we have worked
on another new introduction which is being launched under the
National Ventilation brand in the first quarter of 2022.
Whilst 2021 was a more difficult year for face-to-face customer
interactions our distribution sales teams worked effectively
through virtual meetings to materially increase the number of
stockists for our higher end solutions. We have developed our
private refurbishment propositions to become the "must have"
products for our stockists. The investments we made in our new
Reading factory in 2018 have enabled us to support a significant
increase on our previous peak year of revenue and we are well
placed to service the market as additional growth initiatives roll
out in 2022.
Good progress was also made with the public refurbishment market
in the year despite the cautious approach from social housing
landlords as a result of the Covid-19 pandemic. Our market
intelligence suggests that major refurbishment projects have been
side-lined and that there is a large volume of catch-up required in
this sector to deal with the poor quality of some of the housing
stock.
Sales in our UK Commercial sector were GBP31.1 million (2020:
GBP27.3 million), an organic growth of 14.3% and a good recovery
from the prior year but still below 2019 sales level. Activity was
markedly better in the second half of the year and the project
order book at the end of 2021 was strong with good coverage
throughout the early part of the financial year 2022.
Our project business is focussed on both commercial offices and
new school builds. With the greater realisation that Covid-19
transmission risks are primarily airborne, and that ventilation
strategies in buildings will have a huge impact of mitigating these
risks, we see the outlook for these markets as attractive. At the
midpoint of 2021 we kicked off a new product development project to
upgrade and simplify the production of our leading range of
ventilation fan coils. We also made good progress with our leading
range of Natural Ventilation with Heat Recycling (NVHR) and during
the year 2022 there will be new innovative products added to both
ranges.
In the commercial refurbishment sector we experienced strong
demand for replacement products where we have a very significant
existing estate of previously supplied products that may require
updating or replacing. This refurbishment demand is expected to
continue as advice to ventilate is becoming more prescriptive with
landlords and tenants increasingly aware of the importance of
ventilation.
Sales in our UK Export sector were GBP10.1 million (2020: GBP8.6
million), an organic growth of 17.0% at constant currency. Our main
export markets Eire and France, both performed well. In Eire we are
benefitting from further tightening of building regulations in the
residential new build space. Addition regulations were introduced
in the year to do with the way in which ventilation systems,
particularly Mechanical Extract Ventilation ("MEV") perform in a
building. This change in regulations was well met by the launch of
a new range of MEV products and we have also secured a strong
project order book for 2022. In France we provide an OEM range of
solutions to a leading ventilation group and those products were
refreshed and upgraded in the year.
Sales in our OEM sector were GBP24.5 million (2020: GBP20.3
million), an organic growth of 20.0% at constant currency. Our EC3
motorised impellor proposition delivered good growth in the year
both in the UK and export markets. We continue to invest to extend
the power wattage range of these products and with supply chain
difficulties across all areas of the market we were able to gain
new accounts in the year.
Continental Europe
31 July 31 July Growth
2021 2020 (cc)
Market sector revenue GBPm GBPm %
------------------------------------- ------- ------- ------
Nordics 51.6 41.6 20.1
Central Europe 43.9 33.1 31.8
------------------------------------- ------- ------- ------
Total Continental Europe revenue 95.5 74.7 25.3
------------------------------------- ------- ------- ------
Adjusted operating profit 25.4 15.3 65.5
------------------------------------- ------- ------- ------
Adjusted operating profit margin (%) 26.6 20.5 6.1pp
------------------------------------- ------- ------- ------
Reported operating profit 18.1 12.1 49.5
------------------------------------- ------- ------- ------
Our Continental Europe activities had a very strong year, and we
delivered excellent progress on the prior year, which had
experienced only a modest impact in revenue due to the covid-19
pandemic.
Sales in Continental Europe were GBP95.5 million (2020: GBP74.7
million), growth of 25.3% at constant currency, within which
organic growth was 14.2% on a constant currency basis. The sector
also benefited from the acquisition of ClimaRad BV in the
Netherlands in December 2020, Klimatfabriken in Sweden in February
2021 and Rtek in Finland in May 2021. Adjusted operating profit was
GBP25.4 million versus a prior year of GBP15.3 million, and
adjusted operating margins increased by 6.1pp to 26.6%.
It was another busy year with initiatives, the most important
and successfully delivered in the first half of the year, being the
closure of our older, less well laid out facility in Gemla, Sweden,
to a more modern facility in Växjö. This change of location was
timed to coincide with the lease expiry at our old facility and
will underpin further efficiency gains in the Nordic business into
the new financial year. These streamlining and efficiency
initiatives, coupled with strong indirect cost control, selling
price and enhancing our various product ranges, enabled us to
deliver an adjusted operating margin of 26.6%.
Sales in the Nordics region were GBP51.6 million (2020: GBP41.6
million), an increase of 20.1% at constant currency compared to the
previous year. Organic growth was 17.6% on a constant currency
basis, with inorganic growth from the acquisition Klimatfabriken in
Sweden in February 2021 and Rtek in Finland in May 2021.
The Nordic refurbishment demand was strong in all countries
through both our retail and trade routes to market. In Denmark we
greatly benefitted from being in full control of our distribution
arrangements following the small acquisition of Nordic Line we made
in the prior year, and we see the potential for further market
share gains in the new financial year. Prices were increased to
mitigate the impact of cost inflation and we continue to enjoy a
significant market share in the high-end refurbishment market,
complemented by the acquisition of Klimatfabriken during the
year.
The project business supplying into the new build market
benefitted from an improved product range and stronger
co-ordination of our offer. Our approach is to offer a co-ordinated
comprehensive range of heat recovery products suitable for both the
residential and light commercial applications. That range was
enhanced further with the acquisition of Rtek in Finland in the
second half of the year.
Sales in Central Europe region were GBP43.9 million compared to
the prior year of GBP33.1 million, growth of 31.8% on a constant
currency basis, helped by the acquisition of ClimaRad BV in the
Netherlands in December 2020. Organic revenue growth was 10.0% on a
constant currency basis and represents growth of 41.6% compared to
FY19.
In Germany we delivered another strong performance building on
the record performance of 2020. Our market leading range of
decentralised heat recovery is utilised in new and refurbishment
applications. Regulations in Germany are increasingly supportive
and our product range developments in the year have further
underpinned our leadership position. Our Xenion range of
decentralised heat recovery is widely recognised as the best
performing products available and the quieter sound versus our
competitors are a significant advantage in winning new projects.
Our wireless control infrastructure is now fully available to the
market and will further enhance our selling approach in the New
Year.
In the Netherlands we added the ClimaRad proposition, a similar
approach to how we provide heat recovery ventilation in Germany,
with the integration into the group going well. We believe that the
only sensible way to refurbish a residential or commercial building
to attain high levels of efficiency and maximise the reduction of
carbon emissions is to equip the facility with either a central or
decentralised heat recovery system. Our Ventilair and Vent-Axia
brands also performed very well in the Netherlands and in Belgium.
In all our markets there has been a growing trend of indoor quality
awareness that has accelerated since the Covid-19 pandemic.
Australasia
31 July 31 July Growth
2021 2020 (cc)
Market sector revenue GBPm GBPm %
------------------------------------- ------- ------- ------
Total Australasia revenue 41.2 30.4 31.5
------------------------------------- ------- ------- ------
Adjusted operating profit 8.9 4.6 95.7
------------------------------------- ------- ------- ------
Adjusted operating profit margin (%) 21.7 15.2 6.5pp
------------------------------------- ------- ------- ------
Reported operating profit 4.5 3.5 28.4
------------------------------------- ------- ------- ------
Sales in our Australasia region were GBP41.2 million, with
growth of 31.5% at constant currency. Adjusted operating margins
improved to 21.7% versus 15.2% in the prior year.
Since first acquiring Simx in March 2018 and complemented by the
acquisition of Ventair in March 2019, Volution has established
itself as one of the leading providers of residential ventilation
solutions in the Australasian market.
Our New Zealand business enjoyed strong demand for refurbishment
solutions, driven both by consumer spend and savings being directed
to home improvements as people were locked down due to Covid-19 and
the continuing underpinning from the Healthy Homes Act prescribing
a minimum standard for ventilation in rental properties. The cross
selling and product portfolio enhancements in the region because of
the Ventair acquisition have also supported our revenue growth. In
Australia we launched an innovative and market leading range of
energy efficient EC ceiling fans and acquired a new, sizeable
building products distribution account that will commence rolling
out our products in the first half of 2022. The nature of our well
invested Australasian footprint and infrastructure is a scalable
business where the incremental revenue requires limited additional
indirect cost to support the growth. This helped to secure a 21.7%
adjusted operating profit margin in the year.
As with all our markets we are seeing a good progression with
the focus on regulations. In New Zealand the next step is to move
closer to whole house ventilation systems, with or without heat
recovery and we also anticipate a similar upshift in focus for
Australia.
Strategy
Organic growth
The financial year ended 31 July 2021 was a year of strong
recovery and where we delivered an organic growth of 20.5% on a
constant currency basis. This organic growth was delivered because
of strong recovery in demand from our end markets and significant
share gains from the many new product launches and other
initiatives.
Volution targets to grow ahead of its local competitors
utilising the increasing strength or our product portfolio and new
product introductions from our innovation pipeline. Completed in
2020 we finalised the development of a new range of interchangeable
parts for the preparation of a wide range of residential
refurbishment products. This more versatile range of parts has
enabled us to increase our refurbishment ventilation sales across
our different geographies, supported by the investments in our
Reading and Växjö production facilities. There are more exciting
new innovations going through the development stage, and our
cross-selling initiatives, whilst still delivering improvements in
the year 2021, would benefit hugely from greater cross border face
to face interaction, something we expect to return to in the years
ahead.
As well as the volume gains we have benefitted from in the last
year, we are facing extraordinary times with respect to material,
logistics, energy, and other cost inflation. Our leading local
brands have strong pricing power, and we are implementing price
increases commensurate with recovering our cost inflation. It is
very likely that this recent increase in frequency of price rises
will continue into the new financial year.
Every year we talk about the regulatory underpinning in all our
markets. In the last twelve months we have seen a marked increase
in global awareness of the need to reduce carbon emissions with
governments setting new, more stretching targets to deliver the
reduction. In Volution we provide solutions that improve the
quality of the air indoors, and that integrated with other
strategies for the building, such as air tightness and insulation,
can deliver very substantial reductions in carbon emissions. We
expect to see an acceleration of regulations in this regard if the
targets set by national governments are to be met.
Healthy air has always been our priority and with the ongoing
global Covid-19 pandemic, we see the air quality agenda inside
buildings receiving more attention than ever. The transmission risk
of the virus is airborne and whilst opening windows in the summer
is an eminently sensible solution there are more sophisticated,
energy efficient and elegant solutions that we sell and which can
provide better ventilation in the winter months.
Acquisitions
During the year we completed three acquisitions and signed an
agreement to complete a fourth in the financial year 2022. Growing
by acquisition is an integral part of our strategy and we have a
track record of completing several key acquisitions each year.
Acquiring 75% of ClimaRad in the Netherlands in December 2020 was
the largest transaction in the year. This was followed by acquiring
Klimatfabriken in Sweden in the second half of the year, the assets
of Rtek, a competitor of Pamon in Finland and finally the signing
of the transaction to acquire ERI Corporation in North Macedonia in
July 2021.
The ventilation markets that we operate in remain fragmented and
our strong operating cash conversion and diligent approach to cash
generation leaves us well placed to continue to acquire profitable
and growing businesses in the future. Our track record as one of
the most acquisitive companies in our industry and our culture of
successfully integrating companies into the Group, we believe makes
us an attractive home for these companies. Earn outs and similar
structures in many of our transactions offer the opportunity for
sharing of upside with the previous owners, and help ensure
retention and motivation of management teams. A good example is our
Ventair transaction signed in March 2019 where together with the
previous founder we have delivered significant revenue and profit
growth in the last two and half years, with revenues up 70.7%
compared to the pre-acquisition period.
Operational Excellence
In the year we delivered our adjusted operating profit margin
target of 20%. All three regions made substantial progress in the
year building on the progress that we had made in the first half of
2020, prior to the Covid-19 pandemic. As we said at the end of
FY20, we are confident that the many streamlining and efficiency
initiatives that we have implemented, will support the business in
delivering a long term adjusted operating profit margin of not less
than 20%. Our sustainability initiatives will also help underpin
our waste elimination and efficiency programmes and thereby will
also lead to growing profitability.
People
The year delivered a strong performance both financially and
with the focus on our sustainability initiatives. The year was
punctuated by the ongoing Covid-19 pandemic and many of our
employees are having to adapt to new ways of working. I am
immensely proud of the way in which our valued employees are
driving both our low-carbon revenue growth initiative and our focus
on utilising increased proportions of recycled plastic materials.
We held two employee engagement and communication meetings in the
year, on each occasion through video conferencing, and it is great
to see so many examples of sustainability in action across our
company.
In the year 2022 we expect to see a slow return to more "normal'
working practices, however the efficiency gains and experience
through the pandemic will help us employ more flexible working
practices for the good of both the company and our colleagues. It
has been a really strong year for the company, and I am hugely
appreciative of the great commitment and dedication of our
employees.
Outlook
The significant interruptions to the supply chain, high levels
of input cost inflation and logistics costs increases which we were
faced with throughout most of FY21, particularly in the UK, have
continued into the start of the new financial year. Despite these
challenges, as well as recent and ongoing Covid-19 related
lockdowns in our Australasian market, overall, we are providing
good levels of customer service as well as securing price rises to
mitigate the impact of cost inflation. Our service levels have been
assisted by actions taken in FY21, notably a strategy of holding
more inventory for key raw material components, which has enabled
us to mitigate many of the well-publicised and industry wide supply
challenges.
The new financial year has started well delivering organic
revenue ahead of the same period in the prior year. With our market
leading products and brands, implementation of price increases,
agile approach to product assembly and supply, and the benefit of
the four acquisitions executed in the last twelve months, we expect
to make further good progress in the year.
Ronnie George
Chief Executive Officer
6 October 2021
FINANCIAL REVIEW
Trading performance summary
Group revenue for the year ended 31 July 2021 was GBP272.6
million, an increase of GBP56.0 million (25.8%) within which GBP3.1
million (1.4%) was attributable to foreign exchange, GBP8.4 million
(3.9%) came from inorganic growth due to acquisitions in the year,
and GBP44.5 million (20.5%) resulted from organic growth across all
three regions.
Whilst the strong recovery in customer demand from the low
points of spring and early summer 2020 has helped underpin our
organic revenue performance in the year, the speed of recovery
across both our markets and the wider economy more generally has
resulted in a year where supply chain challenges have been
pronounced. This has manifested in both interruptions to material
supply (most particularly in the first half of our financial year)
and significant inflationary cost increases ranging from plastics,
motors, electronics and metal through to freight and logistics in
the second part of the year. We have responded to this with price
increases, which coupled with our continued focus on cost
optimisation through our operational excellence focus has seen us
achieve an adjusted operating margin of 20.9%, up 5.3pp in the year
and ahead of our stated target of 20% for the Group. Adjusted
operating profit increased by 68.8% in the year to GBP56.9 million
(2020: GBP33.7 million).
Reported Adjusted 1
---------------------- ----------------------
Year ended Year ended Year ended Year ended
31 July 31 July 31 July 31 July
2021 2020 Movement 2021 2020 Movement
--------------------------- ---------- ---------- -------- ---------- ---------- --------
Revenue (GBPm) 272.6 216.6 25.8% 272.6 216.6 25.8%
EBITDA (GBPm) 59.3 41.0 44.6% 65.2 41.4 57.4%
Operating profit (GBPm) 34.2 18.2 87.7% 56.9 33.7 68.8%
Net finance costs (GBPm) 2.9 3.7 (21.7)% 3.2 2.5 26.5%
Profit before tax (GBPm) 30.0 14.5 106.3% 53.2 31.2 70.2%
Basic EPS (p) 10.5 4.9 114.3% 21.0 12.1 73.6%
Total dividend per share
(p) 6.3 - - 6.3 - -
Operating cash flow (GBPm) 51.0 43.0 18.7% 56.9 43.4 31.2%
Net debt (GBPm) 79.2 74.2 5.0 79.2 74.2 5.0
Net debt (excluding lease
liabilities) (GBPm)2 53.8 51.1 2.7 53.8 51.1 2.7
--------------------------- ---------- ---------- -------- ---------- ---------- --------
Notes
1. The reconciliation of the Group's reported profit before tax
to adjusted measures of performance is summarised in the table
below and in detail in note 2 to the consolidated financial
statements. For a definition of all the adjusted measures see the
glossary of terms in note 25 to the consolidated financial
statements.
2. Pre-IFRS 16 basis, excludes lease liabilities GBP25.4 million (2020: GBP23.1million).
Reported and adjusted results
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,
adjusted profit before tax, adjusted basic EPS and adjusted
operating cash flow. These measures are deemed more appropriate to
track underlying financial performance as they exclude income and
expenditure which are not directly related to the ongoing trading
of the business. A reconciliation of these measures of performance
to the corresponding reported figure is shown below and is detailed
in note 2 to the consolidated financial statements.
Adjusted profit before tax of GBP53.2 million was 70.2% higher
than 2020 (GBP31.2 million). Reported profit before tax was GBP30.0
million (2020: GBP14.5 million) and is after charging:
-- GBP16.8 million in respect of amortisation of intangible assets (2020: GBP15.1 million)
-- GBP1.7 million relating to the amortisation of acquired
inventory fair value adjustment (2020: GBPnil)
-- GBP4.2 million (2020: GBPnil) other acquisition related costs of which:
GBP3.3 million in respect of contingent consideration (2020:
GBPnil)
GBP0.9 million relates to costs associated with business
combinations (2020: GBPnil)
-- GBP0.3 million gain due to the fair value measurement of
financial instruments (2020: loss of GBP1.2 million)
-- GBP0.8 million in respect of Re-measurement of future
consideration relating to the business combination of ClimaRad
The contingent consideration charge of GBP3.3 million relates to
our Ventair business in Australia, where the strong performance in
the year enabled the business to achieve its maximum earn out
targets.
Year ended 31 July Year ended 31 July
2021 2020
-------------------------------- -------------------------------
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Revenue 272,588 - 272,588 216,640 - 216,640
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Gross profit 131,649 1,727 133,376 99,328 - 99,328
Administration and distribution
costs excluding the costs listed
below (76,423) - (76,423) (68,995) - (68,995)
Other operating income - - - 3,404 - 3,404
Amortisation of intangible assets
acquired through business combinations (16,839) 16,839 - (15,124) 15,124 -
Contingent consideration (3,287) 3,287 - - - -
Costs of business combinations (889) 889 - - - -
Former CFO compensation - - - (386) 386 -
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Operating profit 34,211 22,742 56,953 18,227 15,510 33,737
Net gain/(loss) on financial instruments
at fair value 340 (340) - (1,219) 1,219 -
Re-measurement of future consideration
relating to the business combination
of ClimaRad (811) 811 - - - -
Other net finance costs (3,706) - (3,706) (2,451) - (2,451)
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Profit before tax 30,034 23,213 53,247 14,557 16,729 31,286
Income tax (9,198) (2,426) (11,624) (4,892) (2,504) (7,396)
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Profit after tax 20,836 20,787 41,623 9,665 14,225 23,890
----------------------------------------- --------- ----------- -------- -------- ----------- --------
Currency impacts
Aside from Sterling, the Group's key trading currencies for our
non-UK businesses are the Euro, representing approximately 18.6% of
Group revenues, Swedish Krona (approximately 12.3%), New Zealand
Dollar (approximately 8.9%) and Australian Dollar (approximately
6.3%). 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 both Euro and Swedish Krona
which offsets some of the translation risk relating to net assets.
We had Euro denominated borrowings as at 31 July 2021 of GBP57.3
million (2020: GBP40.3 million) and Swedish Krona denominated
borrowings of GBP16.0 million (2020: GBP23.3 million). The Sterling
value of these foreign currency denominated loans net of cash
decreased by GBP5.0 million as a result of exchange rate movements
(2020: increased by GBP0.3 million).
During the year Sterling weakened on average against all four of
our principal non-Sterling trading currencies, against the Euro by
0.5%, Swedish Krona by 4.5%, New Zealand Dollar by 2.2% and
Australian Dollar by 3.9%. This gave rise to a favourable revenue
impact of GBP3.1 million in the year, with operating profits being
impacted by GBP0.1 million.
Average Average
rate rate
2021 2020 Movement
------------------- ------- ------- --------
Euro 1.1343 1.1399 (0.5)%
Swedish Krona 11.5799 12.1266 (4.5)%
New Zealand Dollar 1.9419 1.9865 (2.2)%
Australian Dollar 1.8081 1.8819 (3.9)%
------------------- ------- ------- --------
Transactional foreign exchange exposures arise principally in
the form of US Dollar denominated purchases from our suppliers in
China. We aim to purchase 80-90% of our expected requirements
twelve to eighteen months forward, and as such we have purchases in
place for approximately 85% of our forecasted requirements for the
2022 financial year. Whilst our forward purchasing means that the
impacts of foreign exchange movements are smoothed out compared to
spot buying, the strengthening of sterling versus Dollar over the
past twelve months means that we will benefit from a favourable
movement in rates in the new financial year. The average rate on
our Dollar purchases in financial year 2022 is expected to be
approximately 2% better than in financial year 2021.
Finance revenue and costs
Reported net finance costs of GBP2.9 million (2020: GBP3.7
million) include GBP0.3 million net gain on the revaluation of
financial instruments (2020: net loss of GBP1.2 million). Adjusted
finance costs were GBP3.2 million (2020: GBP2.5 million), which
included GBP0.4 million in relation to the charging of unamortised
costs associated with the Group's previous GBP120 million revolving
credit facility which was replaced in December 2020.
Following the acquisition of ClimaRad our leverage increased
above 1.5x as at 31 January 2021, leading to the interest rate
margin on the RCF in the second half of financial year 2021 being
0.25pp higher. Despite investing GBP42.2 million in acquisitions
our strong operating cash generation throughout the year meant our
net debt only increased by GBP5.0 million). As at 31 July 2021 our
gross debt, comprising both bank debt and operating lease
liabilities, stood at GBP98.7 million (2020: GBP92.7 million)
offset by cash and cash equivalents of GBP19.5 million (2020:
GBP18.5 million).
Excluding IFRS 16 2021 2020
---------------------------------------------- ----- -----
Average gross debt (GBPm) 76.9 88.3
Weighted average interest rates on gross debt 2.04% 2.24%
Average cash balance (GBPm) 16.3 23.2
Weighted average interest rates on cash 0.35% 0.28%
Average net debt balance (GBPm) 60.6 65.1
Weighted average interest rates on net debt 2.49% 2.94%
---------------------------------------------- ----- -----
Tax rate reduced by 1.9pp due to geographic mix
Our effective adjusted tax rate for the year was 21.8% (2020:
23.7%). The reduction of 1.9pp in the year was substantially driven
by regional profit mix with an increased proportion of the Group's
profits for the year arising in the UK, where the current rate is
19%, as opposed to our Continental European and Australasian
businesses where rates range from 20%-30%. The current rates in our
principal countries of operation are shown below:
UK 19.0%
Sweden 20.9%
Norway 22.0%
Denmark 22.0%
Finland 20.0%
Germany 28.3%
Belgium 26.7%
Netherlands 25.0%
New Zealand 28.0%
Australia 30.0%
------------ -----
The rate of tax in the UK is currently 19%. In the Budget speech
on 4 March 2021, the Chancellor announced an increase in the main
UK corporation tax rate to 25% from 1 April 2023. The change in the
rate to 25% was substantively enacted in the Finance Bill 2021 on
24 May 2021, UK deferred tax assets and liabilities that are
expected to reverse after 1 April 2023 have been calculated at 25%
and those expected to be utilised before at 19%. We expect our
medium term underlying effective tax rate to be in the range of 22%
to 25% of the Group's adjusted profit before tax, driven by the
increased rate in the UK and a higher rate of inorganic growth
outside of the UK.
Strong cash generation, with cash conversion of 97%, and GBP42.2
million deployed to acquisitions
Our asset light business model with modest capital expenditure
requirements and our disciplined approach to working capital
management ensure that Volution consistently generates strong
operating cash inflows. Our operating cash conversion has been at
or above 90% in all bar one of the last five financial years, with
financial year 2021 cash conversion at 97% (2020: 124%).
Capital expenditure of GBP4.5 million (2019: GBP4.3 million) was
broadly flat on the prior year. Within this we continued to invest
in new product development programmes (GBP0.8 million) as we
continue to develop and expand our product offering across the
Group. Our Nordics business has performed very strongly through the
year, and we were excited to invest GBP1.1 million in a successful
move and upgrade of our principal production facility in Sweden to
a new, larger, and more efficient facility which will support our
growth ambitions in the region.
Working capital increased by GBP3.8 million (2021: reduction of
GBP6.1 million) due to the substantial growth in activity and
revenue in the year, coupled with a deliberate decision to increase
certain strategic inventories during the second half of the year in
order to mitigate the risks of supply chain interruptions. Our
working capital as a percentage of last twelve months revenue stood
at 12.7% (2020: 12.8%, 2019: 13.5%).
Volution recognises the importance of dividends to shareholders,
and as previously communicated we were pleased to resume dividends
in financial year 2021 with an interim dividend of 1.90 pence
declared and paid in the year, and a final dividend of 4.40 pence
declared which will be paid in December 2021. Dividend payments of
GBP3.8 million (2020: GBP6.5 million), represent the payment of the
interim dividend of 1.90 pence.
Tax paid of GBP8.1 million was GBP2.2 million higher than the
prior year (2020: GBP5.9 million), reflecting the reduction in
profit before tax as a result of the pandemic. Tax payments were
maintained in normal course through the pandemic, and we did not
avail of any of the deferrals permitted due to COVID.
We completed three acquisitions in the year at a net cash spend
of GBP42.2 million, the largest being 75% of the shares of ClimaRad
BV in the Netherlands for GBP37.1 million with a commitment for
Volution to acquire the remaining 25% shareholding on or before 28
February 2025. The future consideration for the purchase of the
remaining 25% shareholding is set at 25% of 13 times the EBITDA of
ClimaRad for the financial year ended 31 December 2024, plus the
non-controlling share of profits earned in the periods up to and
including 31 December 2024. In the Nordics we completed two smaller
"bolt-on" transactions in the year, adding Klimatfabriken to our
residential premium fan portfolio in Sweden, whilst Rtek in Finland
complements our existing Pamon commercial heat recovery position.
All three are fully aligned with our strategic focus on low-carbon,
high growth market opportunities.
Shortly after the year end on 2 August we also announced an
agreement to acquire ERI Corporation, a leading manufacturer and
supplier of low-carbon, energy efficient heat exchanger cells, for
an initial consideration of EUR23.4 million on a debt-free
cash-free basis, with a further contingent cash consideration of up
to EUR12.4 million based on stretching targets for the financial
results for the year ending 31 December 2023. This acquisition was
subsequently completed on 9 September 2021.
Reconciliation of adjusted operating cash flow
2021 2020
GBPm GBPm
-------------------------------------------------- ------ -----
Net cash flow generated from operating activities 52.5 41.4
-------------------------------------------------- ------ -----
Net capital expenditure (4.5) (4.3)
UK and overseas tax paid 8.3 7.6
Tax refund (0.2) (1.7)
Cash flows relating to non-exceptional items - 0.4
Cash flow relating to business combination costs 0.8 -
-------------------------------------------------- ------ -----
Adjusted operating cash flow 56.9 43.4
-------------------------------------------------- ------ -----
Movements in net debt position for the year ended 31 July
2021
2021 2020
GBPm GBPm
---------------------------------------------------- ------- ------
Opening net debt 1 August (74.2) (74.6)
---------------------------------------------------- ------- ------
Movements from normal business operations:
Adjusted EBITDA 65.2 41.4
Movement in working capital (5.8) 6.1
Share-based payments 2.0 0.2
Capital expenditure (4.5) (4.3)
---------------------------------------------------- ------- ------
Adjusted operating cash flow: 56.9 43.4
- Interest paid net of interest received (1.5) (2.1)
- Income tax paid (8.3) (7.6)
- Income tax refund 0.2 1.7
- Cash flow relating to business combination costs (0.8) -
- Non-exceptional adjustments - (0.4)
- Dividend paid (3.8) (6.5)
- Purchase of own shares (2.1) (0.8)
- FX on foreign currency loans/cash 5.0 (0.3)
- Issue costs of new borrowings (1.2) -
- IFRS 16 long term lease liabilities adjustment on
translation - (23.2)
- IFRS 16 payment of lease liabilities (3.5) (2.9)
- IFRS 16 increase in lease liabilities (2.2) -
Movements from business combinations:
- Business combination of subsidiaries, net of cash
acquired (42.2) (0.9)
- Business combination of subsidiaries, debt repaid (1.5) -
---------------------------------------------------- ------- ------
Closing net debt 31 July (79.2) (74.2)
---------------------------------------------------- ------- ------
Reconciliation of net debt
2021 2020
GBPm GBPm
-------------------------------------------------- ------- ------
Non-current Interest-bearing loans and borrowings (104.9) (89.2)
-------------------------------------------------- ------- ------
Current Interest-bearing loans and borrowings (3.4) (3.0)
ClimaRad vendor loan 10.6 -
Cost of arranging bank loans (1.0) (0.5)
Cash and short-term deposits 19.5 18.5
-------------------------------------------------- ------- ------
Net Debt (79.2) (74.2)
-------------------------------------------------- ------- ------
Funding facilities and liquidity
During the year we completed a successful refinancing of our
Group revolving credit facility, in the form of a GBP150 million
multicurrency Sustainability Linked Revolving Credit Facility,
together with an additional accordion of up to GBP30 million. The
maturity date of the facility is 2 December 2023 but with option to
extend for a further two years to 2 December 2025. As at 31 July
2021, we had GBP76.7 million of undrawn, committed bank facilities
(2020: GBP50.4 million) and GBP19.5 million of cash and cash
equivalents on the consolidated statement of financial position
(2020: GBP18.5 million).
The financial covenants under the RCF are tested twice yearly,
at 31 January and 31 July, and require us to maintain leverage
(excluding lease liabilities) of not more than three times
pro-forma LTM (last twelve months) EBITDA, and to maintain an
interest cover of not less than four times. At 31 July 2021
leverage was 0.9 times (2020: 1.3X) and interest cover continued to
be substantially ahead of the covenant requirement at 23.4
times.
Employee Benefit Trust
During the year GBP2.1 million of non-recourse loans (2020:
GBP0.8 million) were made to the Volution Employee Benefit Trust
for the purpose of purchasing shares in Volution Group plc in order
to meet the Company's obligations under its share incentive plans.
The Volution Employee Benefit Trust acquired 650,000 shares at an
average price of GBP3.24 per share in the period (2019: GBP2.00)
and 401,529 shares (2020: 276,655 shares) were released by the
trustees with a value of GBP766,920 (2020: GBP490,666). 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.
Earnings per share
Our reported basic earnings per share for the year is 10.5 pence
(2020: 4.9 pence).
Our adjusted basic earnings per share for the year is 21.0 pence
(2020: 12.1 pence).
Andy O'Brien
Chief Financial Officer
6 October 2021
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 2021 which may be found at
www.volutiongroupplc.com and will be despatched to shareholders on
21 October 2021 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
6 October 2021 6 October 2021
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2021
2021 2020
Notes GBP000 GBP000
---------------------------------------------- ----- --------- ---------
Revenue from contracts with customers 3 272,588 216,640
Cost of sales (140,939) (117,312)
---------------------------------------------- ----- --------- ---------
Gross profit 131,649 99,328
Administrative and distribution expenses (93,399) (84,505)
Other operating income 5 137 3,404
---------------------------------------------- ----- --------- ---------
Operating profit before separately disclosed
items 38,387 18,227
Costs of business combinations (889) -
Contingent consideration payable (3,287) -
---------------------------------------------- ----- --------- ---------
Operating profit 34,211 18,227
Finance revenue 6 397 87
Re-measurement of financial liabilities 12 (491) -
Re-measurement of future consideration 12 (811) -
Finance costs 6 (3,272) (3,757)
---------------------------------------------- ----- --------- ---------
Profit before tax 30,034 14,557
Income tax 7 (9,198) (4,892)
---------------------------------------------- ----- --------- ---------
Profit for the year 20,836 9,665
---------------------------------------------- ----- --------- ---------
Other comprehensive income/(expense)
Items that may subsequently be reclassified
to profit or loss:
Exchange differences arising on translation
of foreign operations (3,199) (2,604)
Gain/(loss) on currency loans relating to the
net investment in foreign operations 5,397 (202)
---------------------------------------------- ----- --------- ---------
Other comprehensive income/(expense) for the
year 2,198 (2,806)
---------------------------------------------- ----- --------- ---------
Total comprehensive income for the year 23,034 6,859
---------------------------------------------- ----- --------- ---------
Earnings per share
Basic earnings per share 8 10.5p 4.9p
Diluted earnings per share 8 10.4p 4.9p
---------------------------------------------- ----- --------- ---------
Consolidated Statement of Financial Position
At 31 July 2021
2021 2020
Notes GBP000 GBP000
-------------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 9 23,908 21,514
Right-of-use assets 18 24,477 22,074
Intangible assets - goodwill 10 137,710 116,778
Intangible assets - others 12 85,373 79,813
-------------------------------------- ----- --------- ---------
271,468 240,179
-------------------------------------- ----- --------- ---------
Current assets
Inventories 14 44,971 31,909
Right of return assets 3 99 274
Trade and other receivables 15 47,482 35,613
Other financial assets 16 507 -
Cash and short-term deposits 19,456 18,493
-------------------------------------- ----- --------- ---------
112,515 86,289
-------------------------------------- ----- --------- ---------
Total assets 383,983 326,468
-------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 17 (47,435) (31,274)
Refund liabilities 3 (10,562) (8,636)
Income tax (4,629) (1,654)
Other financial liabilities 19 (4,608) (574)
Interest-bearing loans and borrowings 20 (3,454) (2,994)
Provisions 21 (1,869) (1,802)
-------------------------------------- ----- --------- ---------
(72,557) (46,934)
-------------------------------------- ----- --------- ---------
Non-current liabilities
Interest-bearing loans and borrowings 20 (104,863) (89,211)
Other financial liabilities 19 (6,021) (1,468)
Provisions 21 (376) (272)
Deferred tax liabilities 22 (14,876) (13,028)
-------------------------------------- ----- --------- ---------
(126,136) (103,979)
-------------------------------------- ----- --------- ---------
Total liabilities (198,693) (150,913)
-------------------------------------- ----- --------- ---------
Net assets 185,290 175,555
-------------------------------------- ----- --------- ---------
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (3,739) (2,401)
Capital reserve 93,855 93,855
Share-based payment reserve 4,090 1,410
Foreign currency translation reserve 2,899 701
Retained earnings 74,658 68,463
-------------------------------------- ----- --------- ---------
Total equity 185,290 175,555
-------------------------------------- ----- --------- ---------
The consolidated financial statements of Volution Group plc
(registered number: 09041571) were approved by the Board of
Directors and authorised for issue on 6 October 2021.
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 2021
Foreign
Share-based currency
Share Share Treasury Capital payment translation Retained Shareholders' Non-controlling Total
capital premium shares reserve reserve reserve earnings equity interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
At 31 July
2019 2,000 11,527 (2,030) 93,855 1,745 3,507 65,505 176,109 - 176,109
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Adjustment on
initial
application
of
IFRS 16 - - - - - - (316) (316) - (316)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
At 1 August
2019 2,000 11,527 (2,030) 93,855 1,745 3,507 65,189 175,793 - 175,793
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Profit for the
year - - - - - - 9,665 9,665 - 9,665
Other
comprehensive
expense - - - - - (2,806) - (2,806) - (2,806)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Total
comprehensive
income - - - - - (2,806) 9,665 6,859 - 6,859
Purchase of
own
shares - - (804) - - - - (804) - (804)
Exercise of
share
options - - 433 - (572) - 139 - - -
Share-based
payment
including tax - - - - 237 - - 237 - 237
Dividends paid
(note 23) - - - - - - (6,530) (6,530) - (6,530)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
At 1 August
2020 2,000 11,527 (2,401) 93,855 1,410 701 68,463 175,555 - 175,555
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Profit for the
year - - - - - - 20,836 20,836 - 20,836
Other
comprehensive
expense - - - - - 2,198 - 2,198 - 2,198
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Total
comprehensive
income - - - - - 2,198 20,836 23,034 - 23,034
Business
combination
(note 13) - - - - - - - - 5,603 5,603
Obligation to
acquire NCI
(note
13) - - - - - - (11,224) (11,224) (5,603) (16,827)
Purchase of
own
shares - - (2,105) - - - - (2,105) - (2,105)
Exercise of
share
options - - 767 - (1,112) - 345 - - -
Share-based
payment
including tax - - - - 3,792 - - 3,792 - 3,792
Dividends paid
(note 23) - - - - - - (3,762) (3,762) - (3,762)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
At 31 July
2021 2,000 11,527 (3,739) 93,855 4,090 2,899 74,658 185,290 - 185,290
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- --------------- --------
Treasury shares
The treasury shares reserve represents the cost of shares in
Volution Group plc purchased in the market and held by the Volution
Employee Benefit Trust to satisfy obligations under the Group's
share incentive schemes.
Capital reserve
The capital reserve is the difference in share capital and
reserves arising from the use of the pooling of interest method for
preparation of the financial statements in 2014. This is a
non-distributable reserve.
Share-based payment reserve
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to key management
personnel, as part of their remuneration.
Foreign currency translation reserve
Exchange differences arising on translation of the Group's
foreign subsidiaries into GBP are included in the foreign currency
translation reserve. The Group hedges some of its exposure to its
net investment in foreign operations; foreign exchange gains and
losses relating to the effective portion of the net investment
hedge are accounted for by entries made to other comprehensive
income. No hedge ineffectiveness has been recognised in the
statement of comprehensive income for any of the periods
presented.
Retained earnings
The parent company of the Group, Volution Group plc, had
distributable retained earnings at 31 July 2021 of GBP113,143,000
(2020: GBP94,295,000).
Consolidated Statement of Cash Flows
For the year ended 31 July 2021
2021 2020
Notes GBP000 GBP000
------------------------------------------------------- ----- -------- --------
Operating activities
Profit for the year after tax 20,836 9,665
Adjustments to reconcile profit for the year to
net cash flow from operating activities:
Income tax 9,198 4,892
Gain on disposal of property, plant and equipment (2) (21)
Costs of business combinations 889 -
Cash flows relating to business combination costs 16 (811) -
Contingent consideration payable 3,287 -
Re-measurement of financial liability relating
to business combination of ClimaRad 13 491 -
Re-measurement of future consideration relating
to business combination of ClimaRad 13 811 -
Finance revenue 6 (397) (87)
Finance costs 6 3,272 3,757
Share-based payment expense 1,974 200
Depreciation of property, plant and equipment 9 3,327 3,260
Depreciation of right-of-use assets 18 3,531 3,129
Amortisation of intangible assets 12 18,218 16,403
Working capital adjustments:
(Increase)/decrease in trade receivables and other
assets (11,537) 6,739
(Increase)/decrease in inventories (11,349) 3,336
Increase/(decrease) in trade and other payables 18,618 (4,337)
Movement in provisions 208 311
------------------------------------------------------- ----- -------- --------
Cash generated by operations 60,564 47,247
------------------------------------------------------- ----- -------- --------
UK income tax paid (2,970) (2,250)
UK income tax refund 196 1,657
Overseas income tax paid (5,328) (5,251)
------------------------------------------------------- ----- -------- --------
Net cash flow generated from operating activities 52,462 41,403
------------------------------------------------------- ----- -------- --------
Investing activities
Payments to acquire intangible assets 12 (1,068) (1,760)
Purchase of property, plant and equipment 9 (3,632) (2,790)
Proceeds from disposal of property, plant and
equipment 196 256
Business combination of subsidiaries, net of cash
acquired 13 (41,678) (856)
Business combination of subsidiaries, paid into
escrow 13 (507) -
Interest received 57 87
------------------------------------------------------- ----- -------- --------
Net cash flow used in investing activities (46,632) (5,063)
------------------------------------------------------- ----- -------- --------
Financing activities
Repayment of interest-bearing loans and borrowings (88,917) (51,285)
Repayment of debt relating to the business combination
of ClimaRad (note 13) (1,482) -
Proceeds from new borrowings 98,044 34,500
Issue costs of new borrowings (1,218) -
Interest paid (2,088) (2,316)
Payment of principal portion of lease liabilities (2,960) (2,878)
Dividends paid (3,762) (6,530)
Purchase of own shares (2,105) (804)
------------------------------------------------------- ----- -------- --------
Net cash flow used in financing activities (4,488) (29,313)
------------------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 1,342 7,027
Cash and cash equivalents at the start of the
year 18,493 11,547
Effect of exchange rates on cash and cash equivalents (379) (81)
------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at the end of the year 19,456 18,493
------------------------------------------------------- ----- -------- --------
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 2021
The preliminary results were authorised for issue by the Board
of Directors on 6 October 2021. The financial information set out
herein does not constitute the Group's statutory consolidated
financial statements for the years ended 31 July 2021 or 2020, but
is derived from those accounts. Statutory consolidated financial
statements for 2021 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
1. Basis of preparation
The financial statements are prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in the European Union. The consolidated
financial statements have been prepared under the historical cost
convention, except as disclosed in the accounting policies under
the relevant notes.
The preparation of the consolidated financial information in
conformity with IFRS requires the use of certain critical
accounting estimates and requires management to exercise judgement
in the process of applying the Group's accounting policies.
Accounting policies, including critical accounting judgements and
estimates used in the preparation of the financial statements, are
described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and
all values are rounded to the nearest thousand (GBP000), except as
otherwise indicated.
The financial information includes all subsidiaries. The results
of subsidiaries are included from the date on which effective
control is acquired up to the date control ceases to exist.
Subsidiaries are controlled by the parent (in each relevant
period) regardless of the amount of shares owned. Control exists
when the parent has the power, either directly or indirectly, to
govern the financial and operating policies of an enterprise so as
to obtain benefits from its activities.
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 Group's Strategic Report on page 49 shows the Directors'
assessment of the Group's ability to continue as a going concern.
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence in the
foreseeable future, assessed for the period up until July 31
2023.
Our financial position remains robust with committed facilities
totalling GBP150 million, and an accordion of a further GBP30
million, maturing in December 2023 with the option to extend for up
to two additional years.
The financial covenants on these facilities are for leverage
(net debt/adjusted EBITDA) of not more than three times and for
adjusted interest cover of not less than four times.
Our base case scenario has been prepared using robust forecasts
from each of our Operating Companies, with each considering the
risks and opportunities the businesses face, including those
because of the Covid-19 pandemic.
We have then applied a severe but plausible downside scenario in
order to model the potential concurrent impact of:
A general economic slowdown representing the impact of a severe
resurgence of Covid-19 and/or other macroeconomic uncertainty -
reducing revenue by 20% compared to plan;
Supply chain difficulties as a result of the pandemic, the UKs
trading relationship with the EU or global supply shortages
reducing Gross Profit margin by 10%; and
A significant business combination increasing debt but with no
positive cash flow contribution.
A reverse stress test scenario has also been modelled which
shows a revenue contraction of 33% with no mitigations would be
required to breech 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 Directors have concluded that the results of the scenario
testing combined with the significant liquidity profile available
under the revolving credit facility confirms 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'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 non-controlling interest and the liability is
adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the Group financial statements, the results and
financial position of each entity are expressed in GBP (GBP000),
which is the functional currency of the Company and the
presentational currency of the Group.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rate
of exchange prevailing at the dates of the transactions. At the end
of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rate prevailing at the end of
the reporting period.
Non-monetary items that are measured at historical cost in a
foreign currency are translated using the exchange rate at the date
of the initial transaction. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rate
at the date the fair value was determined.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are expressed in GBP using exchange rates prevailing at
the end of the reporting period. Income and expenses are translated
at the average exchange rate for the period. Exchange differences
arising are classified as other comprehensive income and are
transferred to the foreign currency translation reserve. All other
translation differences are taken to profit and loss with the
exception of differences on foreign currency borrowings to the
extent that they are used to finance or provide a hedge against
Group equity investments in foreign operations, in which case they
are taken to other comprehensive income together with the exchange
difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The significant judgements, estimates and assumptions made in
these financial statements relate to: Intangible assets - goodwill
(note 9), Impairment assessment of goodwill (note 11), Intangible
assets - other (note 12), Refund liabilities arising from
retrospective volume rebates (note 3) and the financial liabilities
relating to the business combination of ClimaRad (note 19).
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial
year are described under the relevant notes.
The Group based its assumptions and estimates on parameters
available when these financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur. The Directors have considered a range
of potential scenarios arising from the Covid-19 pandemic; how
these have impacted the significant judgements, estimates and
assumptions in these financial statements are included under the
relevant notes.
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,
significant business combination and related integration and
earn-out costs.
New standards and interpretations
The following new standards and amendments became effective as
at 1 January 2020 and have been adopted for the financial year
commencing 1 August 2020.
- Amendments to IFRS 3 Definition of a Business
- Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate
Benchmark Reform
- Amendments to IAS 1 and IAS 8 Definition of Material
- Amendments to References to the Conceptual Framework for
Financial Reporting
The following new standards and amendments became effective as
at 1 June 2020 and have been adopted for the financial year
commencing 1 August 2020.
- Amendments to IFRS 16 Covid-19-Related Rent Concessions
These have not had an impact on these financial statements.
Other new standards or interpretations in issue, but not yet
effective, are not expected to have a material impact on the
Company's net assets or results.
2. Adjusted earnings
The Board and key management personnel use some alternative
performance measures to track and assess the underlying performance
of the business. These measures include adjusted operating profit
and adjusted profit before tax. These measures are deemed more
appropriate as they remove 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.
2021 2020
GBP000 GBP000
---------------------------------------------------------- ------- -------
Profit after tax 20,836 9,665
Add back:
Contingent consideration payable 3,287 -
Costs of business combinations 889 -
Amortisation of acquired inventory fair value adjustment 1,727 -
Former CFO compensation - 386
Re-measurement of future consideration relating to the
business combination of ClimaRad (note 12) 811 -
Net gain on financial instruments at fair value (340) 1,219
Amortisation and impairment of intangible assets acquired
through business combinations 16,839 15,124
Tax effect of the above (2,426) (2,504)
---------------------------------------------------------- ------- -------
Adjusted profit after tax 41,623 23,890
Add back:
Adjusted tax charge 11,624 7,396
---------------------------------------------------------- ------- -------
Adjusted profit before tax 53,247 31,286
Add back:
Interest payable on bank loans, lease liabilities and
amortisation of financing costs 3,272 2,538
Re-measurement of financial liabilities relating to the
business combination of ClimaRad (note 12) 491 -
Finance revenue (57) (87)
---------------------------------------------------------- ------- -------
Adjusted operating profit 56,953 33,737
Add back:
Depreciation of property, plant and equipment 3,327 3,260
Depreciation of right-of-use assets 3,531 3,129
Amortisation of development costs, software and patents 1,379 1,279
---------------------------------------------------------- ------- -------
Adjusted EBITDA 65,190 41,405
---------------------------------------------------------- ------- -------
For definitions of terms referred to above see note 25, Glossary
of terms.
3. Revenue from contracts with customers
Accounting policy
Revenue from contracts with customers is recognised when the
control of goods or services is transferred to the customer at an
amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods and services. The
performance obligation is satisfied upon delivery of the equipment
and payment is generally due within 30 to 90 days from
delivery.
Sale of ventilation products
Revenue from the sale of ventilation 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 the
relative stand-alone selling prices of the equipment and the cost
plus margin approach for installation services.
The Group recognises revenue from installation services at a
point in time after the service has been performed; this is because
installation of the ventilation equipment is generally over a small
timeframe, usually around one to two days. Revenue from the sale of
the ventilation equipment is recognised at a point in time,
generally upon delivery of the equipment.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for
goods and services transferred to the customer. A contract asset is
recognised when the Group transfers goods or services to the
customer before the customer pays consideration. There is no
contract asset included within the statement of financial position
as revenue is recognised at a point in time, after installation.
Consideration is recognised immediately as a receivable and is
unconditional (only the passage of time is required before payment
of consideration is due).
Contract liabilities
There are no contract liabilities recognised in the comparative
period or in the financial year ended 31 July 2021.
Critical accounting judgements and key sources of estimation
uncertainty
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.
At the reporting date, the Directors make estimates of the
amount of rebate that will become payable by the Group under these
agreements; to estimate the variable consideration for the expected
future rebates, the Group applies the expected value method for
contracts with more than one volume threshold. Where the respective
customer has been engaged with the Group for a number of years,
historical settlement trends are also used to assist in ensuring an
appropriate estimate is recorded at the reporting date and that
appropriate internal approvals and reviews take place before
rebates are recorded.
Given that the rebate provision represents an estimate within
the financial statements, there is a risk that the Directors'
estimate of the potential liability may be incorrect.
Revenue recognised in the statement of comprehensive income is
analysed below:
2021 2020
GBP000 GBP000
-------------------------------------------- ------- -------
Sale of goods 266,580 214,000
Installation services 6,008 2,640
-------------------------------------------- ------- -------
Total revenue from contracts with customers 272,588 216,640
-------------------------------------------- ------- -------
2021 2020
Market sectors GBP000 GBP000
-------------------------------------------- ------- -------
UK
Residential RMI 44,128 33,358
New Build Residential 26,050 21,947
Commercial 31,145 27,251
Export 10,107 8,600
OEM (Torin-Sifan) 24,455 20,332
-------------------------------------------- ------- -------
Total UK 135,885 111,488
-------------------------------------------- ------- -------
Nordics(1) 51,584 41,579
Central Europe(2) 43,872 33,120
-------------------------------------------- ------- -------
Total Continental Europe 95,456 74,699
-------------------------------------------- ------- -------
Total Australasia 41,247 30,453
-------------------------------------------- ------- -------
Total revenue from contracts with customers 272,588 216,640
-------------------------------------------- ------- -------
(1) included in the Nordics Revenue is GBP1,057,000 from the
business combination of Klimatfabriken and Rtek.
(2) included in the Central Europe Revenue is GBP7,306,000 from
the business combination of ClimaRad BV.
2021 2020
Right of return assets and refund liabilities GBP000 GBP000
---------------------------------------------- ------- -------
Right of return assets 99 274
---------------------------------------------- ------- -------
Refund liabilities
---------------------------------------------- ------- -------
Arising from retrospective volume rebates 9,960 7,723
Arising from rights of return 602 913
---------------------------------------------- ------- -------
Refund liabilities 10,562 8,636
---------------------------------------------- ------- -------
4. Segmental analysis
Accounting policy
The method of identifying reporting segments is based on
internal management reporting information that is regularly
reviewed by the chief operating decision maker, which is considered
to be the Chief Executive Officer of the Group.
In identifying its operating segments, management follows the
Group's market sectors. These are Ventilation UK including OEM
(Torin-Sifan), Ventilation Europe and Ventilation Australasia.
Operating segments that provide ventilation services have been
aggregated as they have similar economic characteristics, assessed
by reference to the gross margins of the segments. In addition, the
segments are similar in relation to the nature of products,
services and production processes, type of customer, method for
distribution and regulatory environment.
The measure of revenue reported to the chief operating decision
maker to assess performance is total revenue for each operating
segment. The measure of profit reported to the chief operating
decision maker to assess performance is adjusted operating profit
(see note 21 for definition) for each operating segment. Gross
profit and the analysis below segment profit is additional
voluntary information and not "segment information" prepared in
accordance with IFRS 8.
Finance revenue and costs are not allocated to individual
operating segments as the underlying instruments are managed on a
Group basis.
Total assets and liabilities are not disclosed as this
information is not provided by operating segment to the chief
operating decision maker on a regular basis.
Transfer prices between operating segments are on an arm's
length basis on terms similar to transactions with third
parties.
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2021 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- -------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
External customers 135,885 95,456(1) 41,247 - 272,588
Inter-segment 20,580 9,885 195 (30,660) -
---------------------------------------- -------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 156,465 105,341 41,442 (30,660) 272,588
---------------------------------------- -------- ----------- ----------- ------------- ------------
Gross profit 60,502 50,839 20,418 (110) 131,649
---------------------------------------- -------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 31,453 28,120 10,116 (4,499) 65,190
Depreciation and amortisation
of development costs, software
and patents (3,667) (2,732) (1,183) (655) (8,237)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 27,786 25,388 8,933 (5,154) 56,953
Amortisation of intangible assets
acquired through business combinations (10,115) (5,566) (1,158) - (16,839)
Amortisation of acquired inventory
fair value adjustments - (1,727) - - (1,727)
Business combination related
operating costs - - (3,287) (889) (4,176)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Operating profit/(loss) 17,671 18,095 4,488 (6,043) 34,211
Unallocated expenses
Net finance cost - - - (2,875) (2,875)
Re-measurement of future consideration - - - (811) (811)
Re-measurement of financial
liability - - - (491) (491)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 17,671 18,095 4,488 (10,220) 30,034
---------------------------------------- -------- ----------- ----------- ------------- ------------
(1) included in the Continental Europe Revenue is GBP8,363,000
from the business combination of ClimaRad BV, Klimatfabriken and
Rtek.
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2020 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- -------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
External customers 111,488 74,699 30,453 - 216,640
Inter-segment 13,674 11,251 75 (25,000) -
---------------------------------------- -------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 125,162 85,950 30,528 (25,000) 216,640
---------------------------------------- -------- ----------- ----------- ------------- ------------
Gross profit 45,559 40,334 13,575 (140) 99,328
---------------------------------------- -------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 19,197 17,747 5,682 (1,221) 41,405
Depreciation and amortisation
of development costs, software
and patents (3,560) (2,404) (1,059) (645) (7,668)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 15,637 15,343 4,623 (1,866) 33,737
Amortisation of intangible assets
acquired through business combinations (10,759) (3,237) (1,128) - (15,124)
Former CFO compensation - - - (386) (386)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Operating profit/(loss) 4,878 12,106 3,495 (2,252) 18,227
Unallocated expenses
Net finance cost - - - (3,670) (3,670)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 4,878 12,106 3,495 (5,922) 14,557
---------------------------------------- -------- ----------- ----------- ------------- ------------
Geographic information
2021 2020
Revenue from external customers by customer destination GBP000 GBP000
-------------------------------------------------------- ------- -------
United Kingdom 112,661 92,796
Europe (excluding United Kingdom and Sweden) 88,711 69,537
Sweden 26,130 20,606
Australasia 41,276 30,524
Rest of the world 3,810 3,177
-------------------------------------------------------- ------- -------
Total revenue from contracts with customers 272,588 216,640
-------------------------------------------------------- ------- -------
2021 2020
Non-current assets excluding deferred tax GBP000 GBP000
---------------------------------------------- ------- -------
United Kingdom 122,148 164,182
Europe (excluding United Kingdom and Nordics) 62,709 14,119
Nordics 37,341 16,372
Australasia 49,270 45,506
---------------------------------------------- ------- -------
Total 271,468 240,179
---------------------------------------------- ------- -------
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. Other operating income
Accounting policy
Other operating income relates to government grants which are
recognised where there is reasonable assurance that the grant will
be received and all attached conditions will be complied with. When
the grant relates to an expensed item, it is recognised as income
on a systematic basis over the periods that the related costs, for
which it is intended to compensate, are expensed.
2021 2020
GBP000 GBP000
-------------------------------------------------- ------- -------
Local government coronavirus job support receipts 137 3,404
-------------------------------------------------- ------- -------
The Group has made no claims in the year ended 31 July 2021. The
balance of GBP137,000 was an adjustment relating to the claims made
in the financial year ended 31 July 2020.
In the year GBPnil (2020: GBP1,250,000) of the coronavirus job
support receipts were paid to furloughed staff working in the
Group's production facilities and therefore are included within
cost of sales.
A further GBPnil (2020: GBP109,000) of relief was received in
Sweden in the form of reduced social security contributions. This
does not meet the accounting definition of grant income and is
therefore not included above, but instead is treated as a reduction
in salary costs.
6. Finance revenue and costs
Accounting policy
Finance revenue
Finance revenue is recognised as interest accrues using the
effective interest method. The effective interest rate is the rate
that discounts estimated future cash receipts through the expected
life of the financial instrument to its net carrying amount.
Net financing costs
Net financing costs comprise interest income on funds invested,
gains/losses on the disposal of financial instruments, changes in
the fair value of financial instruments, interest expense on
borrowings and foreign exchange gains/losses. Interest income and
expense is recognised as it accrues in the statement of
comprehensive income using the effective interest method.
2021 2020
GBP000 GBP000
------------------------------------------------ ------- -------
Finance revenue
Net gain on financial instruments at fair value 340 -
Interest receivable 57 87
------------------------------------------------ ------- -------
Total finance revenue 397 87
------------------------------------------------ ------- -------
Finance costs
Interest payable on bank loans (1,566) (1,749)
Amortisation of finance costs (792) (230)
IFRS 16 related interest (522) (530)
Other interest (392) (29)
------------------------------------------------ ------- -------
Total interest expense (3,272) (2,538)
Net loss on financial instruments at fair value - (1,219)
------------------------------------------------ ------- -------
Total finance costs (3,272) (3,757)
------------------------------------------------ ------- -------
Net finance costs (2,875) (3,670)
------------------------------------------------ ------- -------
Amortisation of finance costs include GBP451,000 in relation to
the charging of unamortised costs associated with the Group's
previous GBP120 million revolving credit facility which was
replaced in December 2020.
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.
7. Income tax
Accounting policy
Current income tax assets and liabilities are measured at the
amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted at the reporting date.
The Group's deferred tax policy can be found in note 22.
(a) Income tax charges against profit for the year
2021 2020
GBP000 GBP000
------------------------------------------------------ ------- -------
Current income tax
Current UK income tax expense 4,069 2,121
Current foreign income tax expense 7,883 5,143
Tax credit relating to the prior year (84) 155
------------------------------------------------------ ------- -------
Total current tax 11,868 7,419
------------------------------------------------------ ------- -------
Deferred tax
Origination and reversal of temporary differences (3,957) (3,353)
Effect of changes in the tax rate 1,118 909
Tax charge relating to the prior year 169 (83)
------------------------------------------------------ ------- -------
Total deferred tax (2,670) (2,527)
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 9,198 4,892
------------------------------------------------------ ------- -------
(b) Income tax recognised in equity for the year
2021 2020
GBP000 GBP000
------------------------------------------------------- ------- -------
Increase in deferred tax asset on share-based payments (1,366) (248)
------------------------------------------------------- ------- -------
Net tax credit reported in equity (1,366) (248)
------------------------------------------------------- ------- -------
(c) Reconciliation of total tax
2021 2020
GBP000 GBP000
------------------------------------------------------ ------- -------
Profit before tax 30,034 14,557
Profit before tax multiplied by the standard rate of
corporation tax in the UK of 19.00%
(2020: 19.00%) 5,706 2,767
Adjustment in respect of previous years 85 72
Expenses not deductible for tax purposes 1,573 284
Effect of changes in the tax rate (see explanation
below) 1,118 909
Non-taxable income (341) (28)
Higher overseas tax rate 1,220 997
Patent box (167) (111)
Other 4 2
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 9,198 4,892
------------------------------------------------------ ------- -------
Our reported effective tax rate for the period was 30.6% (2020:
33.6%). The higher decrease in our reported effective tax rate
compared to the decrease in our adjusted effective tax rate is due
to the re-measurement of deferred tax balances relating to the
business combinations. Our underlying effective tax rate, on
adjusted profit before tax, was 21.8% (2020: 23.6%). The decrease
of 1.8% percentage points in our adjusted effective tax rate
compared to the prior period was as a result of a change in our
relative profit mix to the UK, with a rate of 19%, from overseas
jurisdictions where our average rate for the year was 25.4%.
The rate of tax in the UK is currently 19%. In his Budget speech
on 4 March 2021, the Chancellor announced an increase in the main
UK corporation tax rate to 25% from 1 April 2023. The change in the
rate to 25% was substantively enacted in the Finance Bill 2021 on
24 May 2021, UK deferred tax assets and liabilities that are
expected to reverse after 1 April 2023 have been calculated at 25%
and those expected to be utilised before at 19%.
The higher overseas tax rates relate to the Group's profits from
subsidiaries which are subject to tax jurisdictions with a higher
rate of tax compared to the standard rate of corporation tax in the
UK (see note 31 for subsidiary locations).
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,
our underlying effective tax rate to be in the range of 22% to 25%
of the Group's adjusted profit before tax.
8. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of any dilutive
potential ordinary shares into ordinary shares. There are 3,270,467
dilutive potential ordinary shares at 31 July 2021 (2020:
672,919).
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2021 2020
Year ended 31 July GBP000 GBP000
----------------------------------------------- ------- -------
Profit attributable to ordinary equity holders 20,836 9,665
----------------------------------------------- ------- -------
Number Number
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for basic
earnings per share 197,821,482 198,063,746
Weighted average number of ordinary shares for diluted
earnings per share 200,975,673 198,736,665
------------------------------------------------------- ----------- -----------
Earnings per share
Basic 10.5p 4.9p
Diluted 10.4p 4.9p
------------------------------------------------------- ----------- -----------
2021 2020
Year ended 31 July GBP000 GBP000
-------------------------------------------------------- ------- -------
Adjusted profit attributable to ordinary equity holders 41,623 23,886
-------------------------------------------------------- ------- -------
Number Number
-------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for adjusted
basic earnings per share 197,821,482 198,063,746
Weighted average number of ordinary shares for adjusted
diluted earnings per share 200,975,673 198,736,665
-------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Basic 21.0p 12.1p
Diluted 20.7p 12.0p
-------------------------------------------------------- ----------- -----------
The weighted average number of ordinary shares has declined as a
result of treasury shares held by the Volution Employee Benefit
Trust (EBT) during the year. The shares are excluded when
calculating the reported and adjusted EPS.
Adjusted profit attributable to ordinary equity holders has been
reconciled in note 2, Adjusted earnings.
See note 25, Glossary of terms, for an explanation of the
adjusted basic and diluted earnings per share calculation.
9. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost, net of
accumulated depreciation and impairment losses, if any. Such cost
includes the cost of replacing part of the property, plant and
equipment; when significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such
parts as individual assets with specific useful lives and
depreciates them accordingly. All other repair and maintenance
costs are recognised in the statement of comprehensive income as
incurred.
Depreciation is charged so as to write off the cost or valuation
of assets, except freehold land, over their estimated useful lives
using the straight line method. The estimated useful lives,
residual values and depreciation methods are reviewed at each year
end, with the effect of any changes in estimates accounted for on a
prospective basis.
The following useful lives are used in the calculation of
depreciation:
Buildings - 30-50 years
Plant and machinery - 5-10 years
Fixtures, fittings, tools, equipment and vehicles - 4-10 years
The gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the disposal proceeds and the carrying amount of
the asset and is recognised in the statement of comprehensive
income as part of administrative expenses.
The Group's impairment policy can be found in note 11.
Fixtures,
fittings,
tools,
Land and Plant and equipment
buildings machinery and vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2020 13,852 12,110 10,938 36,900
On business combinations 2,167 197 411 2,775
Transferred to right of use assets (419) - - (419)
Additions 66 2,063 1,503 3,632
Disposals - (464) (895) (1,359)
Net foreign currency exchange differences (296) (66) (413) (775)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 15,370 13,840 11,544 40,754
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2020 4,219 5,221 5,946 15,386
Transferred to right of use assets (90) - - (90)
Charge for the year 502 1,027 1,798 3,327
Disposals - (350) (815) (1,165)
Net foreign currency exchange differences (89) (103) (420) (612)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 4,542 5,795 6,509 16,846
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2021 10,828 8,045 5,035 23,908
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
tools,
Land and Plant and equipment
buildings machinery and vehicles Total
2020 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2019 13,791 11,613 11,834 37,238
On business combinations - - 38 38
Transferred to right-of-use assets - - (2,036) (2,036)
Additions 63 640 2,005 2,708
Disposals - (154) (810) (964)
Net foreign currency exchange differences (2) 11 (93) (84)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2020 13,852 12,110 10,938 36,900
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2019 3,698 4,378 5,404 13,480
Transferred to right-of-use assets - - (617) (617)
Charge for the year 510 938 1,812 3,260
Disposals - (119) (642) (761)
Net foreign currency exchange differences 11 24 (11) 24
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2020 4,219 5,221 5,946 15,386
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2020 9,633 6,889 4,992 21,514
------------------------------------------ ---------- ---------- ------------- -------
10. Intangible assets - goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group's cash generating units
that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group
are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently
if there is an indication of impairment. Impairment of goodwill is
determined by assessing the recoverable amount of the cash
generating unit to which the goodwill relates. Where the
recoverable amount of the cash generating unit is less than the
carrying value of the cash generating unit to which goodwill has
been allocated, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
See note 11 for the Group's impairment assessment.
Goodwill GBP000
----------------------------------------------- -------
Cost and net book value
At 1 August 2019 118,183
On the business combination of Nordic Line AsP 104
Net foreign currency exchange differences (1,509)
----------------------------------------------- -------
At 31 July 2020 116,778
On the business combination of ClimaRad BV 20,258
On the business combination of Klimatfabriken 2,646
On the business combination of Energent Oy 1,096
Net foreign currency exchange differences (3,068)
----------------------------------------------- -------
At 31 July 2021 137,710
----------------------------------------------- -------
11. Impairment assessment of goodwill
Accounting policy
Intangible assets, including goodwill, that have an indefinite
useful life or intangible assets not ready to use are not subject
to amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount,
where the recoverable amount is the higher of the asset's fair
value less costs of disposal and value in use.
Goodwill acquired through business combinations has been
allocated, for impairment testing purposes, to a group of cash
generating units (CGUs). These grouped CGUs are: UK Ventilation,
Central Europe, Nordics, Australasia and OEM. This is also the
level at which management is monitoring the value of goodwill for
internal management purposes.
Critical accounting judgements and key sources of estimation
uncertainty
Impairment of goodwill
The Group's impairment test for goodwill is based on a value in
use calculation using a discounted cash flow model. The test aims
to ensure that goodwill is not carried at a value greater than the
recoverable amount, which is considered to be the higher of fair
value less costs of disposal and value in use.
The 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 the expected future cash inflows and the growth rate used for
extrapolation purposes.
The identification of the Group's cash generating units (CGUs)
used for impairment testing involves a degree of judgement.
Management has reviewed the Group's assets and cash inflows and
identified the lowest aggregation of assets that generate largely
independent cash inflows. The COVID-19 pandemic 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.
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2021 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 19,548 30,644 26,518
CGU value in use headroom1 255,944 34,959 123,224 81,609 76,074
--------------------------- ------------ -------------- ------- ------- -----------
As at 31 July 2020 calculated headroom was:
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2020 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 16,816 12,163 26,799
CGU value in use headroom1 66,947 18,692 68,362 47,689 14,959
--------------------------- ------------ -------------- ------- ------- -----------
Note
1. Headroom is calculated by comparing the value in use (VIU) of
a group of CGUs to the carrying amount of its asset, which includes
the net book value of fixed assets (tangible and intangible),
goodwill and operating working capital (current assets and
liabilities).
Impairment review
Under IAS 36 Impairment of Assets, the Group is required to
complete a full impairment review of goodwill, which has been
performed using a value in use calculation. A discounted cash flow
(DCF) model was used, taking a period of five years, which has been
established using pre-tax discount rates of 10.5% to 14.7% over
that period. In all CGUs it was concluded that the carrying amount
was in excess of the value in use and all CGUs had positive
headroom.
Key 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% (2020: 2%) for all CGUs have
been applied to the period beyond which budgets and forecasts do
not exist, based on historical macroeconomic performance and
projections for the geographies in which the CGUs operate; and
-- discount rates reflect the current market assessment of the
risks specific to each operation. The pre-tax discount rates used
for each CGU are: UK Ventilation: 10.5% (2020: 12.6%); OEM
(Torin-Sifan): 11.7% (2020: 13.7%); Nordics: 12.4% (2020: 12.9%);
Central Europe: 13.6% (2020: 14.4%); and Australasia: 14.7% (2020:
14.6%).
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 key assumptions and in all cases an adverse
movement in base year revenue of more than 60% or an increase in
discount rates of more than 15pp would be required to cause the
carrying value of the CGUs to materially exceed their recoverable
value.
12. Intangible assets - other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values
can be measured reliably. The cost of such intangible assets is
their fair value at the business combination date.
The fair value of patents, trademarks and customer base acquired
and recognised as part of a business combination is determined
using the relief-from-royalty method or multi-period excess
earnings method.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure
on an individual project is recognised as an intangible asset when
the Company can demonstrate: the technical feasibility of
completing the intangible asset so that it will be available for
use or sale; its intention to complete and its ability to use or
sell the asset; how the asset will generate future economic
benefits; the availability of resources to complete the asset; and
the ability to reliably measure the expenditure during
development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight
line basis over their estimated useful lives as follows:
Development costs - 10 years
Software costs - 5-10 years
Customer base - 5-15 years
Trademarks - 15-25 years
Patents/technology - 5-25 years
Other - 5 years
The estimated useful life and amortisation methods are reviewed
at the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
Critical accounting judgements and key sources of estimation
uncertainty
Impairment of other intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts
of its other intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss,
if any. Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount
of the cash generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash generating
units, or otherwise they are allocated to the smallest group of
cash generating units for which a reasonable and consistent
allocation basis can be identified.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. Impairment losses are immediately recognised in
the statement of comprehensive income.
The assumptions and sensitivities in respect of the Group's
other intangible assets are included in note 11.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2020 6,023 9,338 132,376 46,287 3,542 1,163 198,729
Additions 788 279 - - 1 - 1,068
On business combinations - 149 17,751 5,906 - - 23,806
Disposals - (4) - - - - (4)
Net foreign currency
exchange differences (28) (64) (2,545) (746) (133) - (3,516)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2021 6,783 9,698 147,582 51,447 3,410 1,163 220,083
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2020 1,494 4,692 95,004 15,206 1,357 1,163 118,916
Charge for the
year 547 832 13,168 3,290 381 - 18,218
Disposals - (4) - - - - (4)
Net foreign currency
exchange differences (2) (17) (1,970) (369) (62) - (2,420)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2021 2,039 5,503 106,202 18,127 1,676 1.163 134,710
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2021 4,744 4,195 41,380 33,320 1,734 - 85,373
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Included in software costs are assets under construction of
GBP27,000 (2020: GBP19,000), which are not amortised. Included in
development costs are assets under construction of GBP26,000 (2020:
GBP1,559,000), which are not amortised.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2019 4,811 8,857 132,450 46,381 3,545 1,163 197,207
Additions 1,251 500 - - 9 - 1,760
On business combinations - - 521 - - - 521
Disposals (56) (1) - - (1) - (58)
Net foreign currency
exchange differences 17 (18) (595) (94) (11) - (701)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2020 6,023 9,338 132,376 46,287 3,542 1,163 198,729
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2019 1,021 3,880 82,344 12,682 991 1,163 102,081
Charge for the
year 485 827 12,304 2,435 352 - 16,403
Disposals (22) (1) - - - - (23)
Net foreign currency
exchange differences 10 (14) 356 89 14 - 455
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2020 1,494 4,692 95,004 15,206 1,357 1,163 118,916
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2020 4,529 4,646 37,372 31,081 2,185 - 79,813
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
The remaining amortisation periods for acquired intangible
assets at 31 July 2021 are as follows:
Patent/
Customer technology/
base Trademark other
---------------------------------------------- -------- --------- ------------
Volution Holdings Limited and its subsidiaries 2 years 16 years -
Fresh AB and its subsidiaries - 11 years -
PAX AB and PAX Norge AS - 12 years -
inVENTer GmbH 2 years 13 years 13 years
Ventilair Group International BVBA and its
subsidiaries 2 years 4 years -
Energy Technique Limited and its subsidiaries 3 years 15 years -
NVA Services Limited and its subsidiaries 5 years 10 years -
Breathing Buildings Limited 5 years 10 years -
VoltAir System AB 11 years 11 years 1 year
Simx Limited 12 years 22 years -
Oy Pamon Ab 7 years 17 years 7 years
Air Connection ApS 7 years - -
Nordic Line ApS - - -
Ventair Pty Limited 9 years 19 years -
ClimaRad BV 8 years 15 years 1 year
Nordiska Klimatfabriken AB 5 years 10 years -
Energent Oy 5 years 10 years -
---------------------------------------------- -------- --------- ------------
13. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition
method. The cost of the business combination is measured as the
aggregate of the consideration transferred, measured at fair value
on the date of the business combination. The business combination
costs incurred are expensed.
When the Group acquires a business it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions at the business combination
date.
Contingent consideration resulting from business combinations is
accounted for at fair value at the acquisition date as part of the
business combination. When the contingent consideration meets the
definition of a financial liability, it is subsequently re-measured
to fair value at each reporting date, with changes in fair value
recognised in profit or loss. The determination of fair value is
based on discounted cash flows. The key assumptions used in
determining the discounted cash flows take into consideration the
probability of meeting each performance target and a discount
factor.
Goodwill is initially recognised at cost, being the excess of
the aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash generating
units (CGUs) that are expected to benefit from the combination,
irrespective of whether assets or liabilities of the business
combination are assigned to those units.
Non-controlling interests are identified separately from the
Group's equity. Non-controlling interests consist of the amount of
those interests at the date of the business combination and the
non-controlling'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 non-controlling interest and the liability is
adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Business combinations in the year ended 31 July 2021
ClimaRad Holding B.V. and subsidiaries
On 1 7 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. The business
combination of ClimaRad is in line with the Group's strategy to
grow by selectively acquiring value-adding businesses in new and
existing markets and geographies, across the residential
ventilation market and, where appropriate, in the commercial
ventilation market. The integration of ClimaRad into the Volution
Group will provide an opportunity for further growth in the
Netherlands and the combination of its product portfolio with that
of Ventilair (the Netherlands and Belgium) will enable us to
enhance our offer in the European markets.
Total consideration for the purchase of 75% of the issued share
capital was EUR41,100,000 (GBP37,100,000) with a commitment to
purchase the remaining 25% on or before 28 February 2025. The
future consideration for the purchase of the remaining 25% is set
at 25% of 13 times the EBITDA of ClimaRad for the financial year
ending 31 December 2024, plus the non-controlling interest share of
profits earned in the periods up to and including 31 December 2024,
and is subject to a cap.
The non-controlling interest on the business combination was
valued at 25% of the total identifiable net assets, at
GBP5,603,000. On recognition of the financial liability to purchase
the remaining 25%, the non-controlling interest of GBP5,603,000 was
de-recognised from equity.
The expected value of the future consideration is partially in
the form of a vendor loan ('ClimaRad vendor loan') of EUR12,000,000
(GBP10,551,000) 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.
At 31 July 2021, the financial liability for the future
consideration has been re-measured to include the non-controlling
interest's share in profit of ClimaRad for the period (GBP820,000),
less interest already charged to the income statement on the
ClimaRad vendor loan (GBP329,000), a net re-measurement of
GBP491,000. At 31 July 2021, the financial liability for the future
consideration has also been re-measured to include the net
unwinding of the discounted present value of GBP811,000. As a
result, at 31 July 2021, the contingent consideration was assessed
based on the current estimate of the future performance of the
business as GBP5,514,000, discounted to present value.
Transaction costs relating to professional fees associated with
the business combination in the period ended 31 July 2021 were
GBP506,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------------------------ ---------- ------------ ----------
Intangible assets 149 21,554 21,703
Property, plant and equipment 2,783 150 2,933
Inventory 2,399 1,727 4,126
Trade and other receivables 1,035 -- 1,035
Trade and other payables (948) 24 (924)
Bank debt (1,482) -- (1,482)
Deferred tax liabilities -- (5,858) (5,858)
Cash and cash equivalents 879 -- 879
------------------------------------------------------ ---------- ------------ ----------
Total identifiable net assets 4,815 17,597 22,412
Non-controlling interest on the business combination,
subsequently derecognised (5,603)
------------------------------------------------------ ---------- ------------ ----------
Goodwill on the business combination 20,258
------------------------------------------------------ ---------- ------------ ----------
Discharged by:
Total consideration 37,067
------------------------------------------------------ ---------- ------------ ----------
Goodwill of GBP20,258,000 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 tradename
and customer base was identified and included in intangible
assets.
The gross amount of trade and other receivables is GBP1,035,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
Inventories recorded on the business combination were recognised
at fair value. The book value of the inventories is charged to
adjusted gross profit and the fair value uplift is charged to gross
profit as the inventories are sold.
ClimaRad generated revenue of GBP7,306,000 and generated a
profit after tax of GBP2,141,000 in the period from the business
combination to 31 July 2021 that is included in the consolidated
statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP4,502,000 higher and the profit after
tax from continuing operations would have been GBP1,233,000 higher
than reported.
Critical accounting judgements and key sources of estimation
uncertainty
Financial liabilities relating to the business combination of
ClimaRad
The financial liability for the non-controlling interest is
sensitive to the estimation of the expected future performance of
ClimaRad which is used to calculate the future amount payable -
based on an EBITDA multiple. If EBITDA for the financial year ended
31 December 2024 is 10% higher than expected, contingent
consideration would be GBP1,500,000 higher, discounted to present
value.
Nordiska Klimatfabriken AB
On 3 February 2021, Volution Group plc acquired the entire share
capital of Nordiska Klimatfabriken AB, a company based in Sweden.
The business combination is in line with the Group's strategy to
grow by selectively acquiring value-adding businesses in new and
existing markets and geographies, across the residential
ventilation market and, where appropriate, in the commercial
ventilation market.
Total consideration for the purchase of the entire issued share
capital was SEK40,082,000 (GBP3,489,000), including deferred
consideration of GBP251,000.
Transaction costs relating to professional fees associated with
the business combination in the year ended 31 July 2021 were
GBP74,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets 49 852 901
Property, plant and equipment 69 - 69
Inventory 55 - 55
Trade and other receivables 95 - 95
Trade and other payables (159) - (159)
Deferred tax liabilities - (188) (188)
Cash and cash equivalents 70 - 70
-------------------------------------
Total identifiable net assets 179 664 843
Goodwill on the business combination 2,646
------------------------------------- ---------- ------------ ----------
Discharged by:
Total consideration 3,489
------------------------------------- ---------- ------------ ----------
Goodwill of GBP2,646,000 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 tradename and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP95,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
Nordiska Klimatfabriken generated revenue of GBP604,000 and
generated a profit after tax of GBP252,000 in the period from the
business combination to 31 July 2021 that is included in the
consolidated statement of comprehensive income for this reporting
period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP521,000 higher and the profit after tax
from continuing operations would have been GBP100,000 higher than
reported.
Energent Oy
On 28 May 2021, Volution Group plc, through one of its wholly
owned subsidiaries, Oy Pamon, acquired the trade and assets of
Energent Oy, known in the market as Rtek. The transaction was
funded from the Group's cash reserves.
Total consideration for the transaction was cash consideration
of EUR3,000,000 (GBP2,578,000), including deferred consideration of
GBP256,000.
Transaction costs associated with the business combination in
the year ended 31 July 2021 were GBP143,000 and have been
expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets - 1,251 1,251
Property, plant and equipment 73 - 73
Inventory 429 - 429
Trade and other payables (21) - (21)
Deferred tax liabilities - (250) (250)
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 481 1,001 1,482
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 1,096
------------------------------------- ---------- ------------ ----------
Discharged by:
Total consideration 2,578
------------------------------------- ---------- ------------ ----------
Goodwill of GBP1,096,000 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 Rtek business generated revenue of GBP842,000 and generated
a profit after tax of GBP55,000 in the period from the business
combination to 31 July 2021 that is included in the consolidated
statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP4,208,000 higher and the profit after
tax from continuing operations would have been GBP275,000 higher
than reported.
Business combination in the year ended 31 July 2020
Nordic Line ApS
On 1 April 2020, Volution Group plc, through one of its wholly
owned subsidiaries, Fresh AB, acquired the trade and assets of
Nordic Line ApS. The transaction was funded from the Group's cash
reserves.
Total consideration for the transaction was cash consideration
of EUR614,000 (GBP538,000).
Transaction costs associated with the business combination in
the year ended 31 July 2020 were GBP20,000 and have been
expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets 521 - 521
Property, plant and equipment 38 - 38
Trade and other payables (21) - (21)
Deferred tax liabilities - (104) (104)
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 538 (104) 434
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 104
------------------------------------- ---------- ------------ ----------
Discharged by:
Total consideration 538
------------------------------------- ---------- ------------ ----------
Goodwill of GBP104,000 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.
Cash outflows arising from business combinations are as
follows:
2021 2020
GBP000 GBP000
-------------------------------------- ------- -------
Nordic Line ApS
Cash consideration - 538
Less: cash acquired with the business - -
Oy Pamon Ab
Cash consideration - 318
Less: cash acquired with the business - -
ClimaRad Holding B.V.
Cash consideration 37,067 -
Less: cash acquired with the business (879) -
Nordiska Klimatfabriken AB
Cash consideration 3,489 -
Less: cash acquired with the business (70) -
Energent Oy
Cash consideration 2,578 -
Less: cash acquired with the business - -
-------------------------------------- ------- -------
Total 42,185 856
-------------------------------------- ------- -------
GBP507,000 was paid into escrow as part of consideration but
deferred relating to Nordiska Klimatfabriken AB GBP251,000 and
Energent Oy GBP256,000. These amounts are included as other
financial assets in note 16.
14. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable
value. The cost of raw materials is purchase cost on a first in,
first out basis. The cost of work in progress and finished goods
includes: the cost of direct materials and labour and an
appropriate portion of fixed and variable overhead expenses based
on normal operating capacity, but excludes borrowing costs.
Net realisable value represents the estimated selling price for
inventories less all estimated costs of completion and costs to
sell.
2021 2020
GBP000 GBP000
------------------------------------ ------- -------
Raw materials and consumables 16,961 12,010
Work in progress 2,004 1,647
Finished goods and goods for resale 26,006 18,252
------------------------------------ ------- -------
44,971 31,909
------------------------------------ ------- -------
During 2021, GBP921,000 (2020: GBP715,000) was recognised as
cost of sales for inventories written off in the year.
Inventories are stated net of an allowance for excess, obsolete
or slow-moving items which totalled GBP5,165,000 (2020:
GBP5,038,000). This provision was split amongst the three
categories: GBP2,778,000 (2020: GBP1,981,000) for raw materials and
consumables; GBP201,000 (2020: GBP271,000) for work in progress;
and GBP2,186,000 (2020: GBP2,725,000) for finished goods and goods
for resale.
15. Trade and other receivables
Accounting policy
Trade and other receivables are recognised when it is probable
that a future economic benefit will flow to the Group. Trade and
other receivables are carried at original invoice or contract
amount less any provisions for discounts and expected credit
losses. Provisions are made where there is evidence of a risk of
non-payment taking into account ageing, previous experience and
general economic conditions.
Allowance for expected credit losses
Allowance for expected credit losses is measured at an amount
equal to lifetime expected credit losses (ECL). 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.
2021 2020
GBP000 GBP000
----------------------------------- ------- -------
Trade receivables 43,755 33,099
Allowance for expected credit loss (553) (574)
----------------------------------- ------- -------
43,202 32,435
Other debtors 919 769
Prepayments 3,361 2,409
----------------------------------- ------- -------
Total 47,482 35,613
----------------------------------- ------- -------
Movement in the allowance for expected credit losses is set out
below:
2021 2020
GBP000 GBP000
---------------------------- ------- -------
At the start of the year (574) (606)
Charge for the year (111) (141)
Amounts utilised 122 169
Foreign currency adjustment 10 4
---------------------------- ------- -------
At the end of the year (553) (574)
---------------------------- ------- -------
Gross trade receivables are denominated in the following
currencies:
2021 2020
GBP000 GBP000
------------------- ------- -------
Sterling 24,241 17,629
US Dollar 945 526
Euro 6,807 4,138
Swedish Krona 3,366 3,124
New Zealand Dollar 3,749 3,213
Australian Dollar 3,016 2,745
Other 1,631 1,634
------------------- ------- -------
Total 43,755 33,009
------------------- ------- -------
Net trade receivables are aged as follows:
2021 2020
GBP000 GBP000
------------------------------ ------- -------
Neither past due nor impaired 35,999 27,146
Past due but not impaired
Overdue 0-30 days 4,534 3,477
Overdue 31-60 days 228 462
Overdue 61-90 days 1,011 453
Overdue more than 90 days 1,430 897
------------------------------ ------- -------
Total 43,202 32,435
------------------------------ ------- -------
The credit quality of trade receivables that are neither past
due nor impaired is assessed by reference to external credit
ratings where available; otherwise, historical information relating
to counterparty default rates is used. The Group continually
assesses the recoverability of trade receivables and the level of
provisioning required.
16. Other financial assets
2021 2020
Current Current
GBP000 GBP000
---------------------------------------------------------- -------- --------
Financial assets
Funds held in escrow relating to the business combination
in the year (note 13) 507 -
---------------------------------------------------------- -------- --------
Total 507 -
---------------------------------------------------------- -------- --------
17. Trade and other payables
2021 2020
GBP000 GBP000
---------------------------------------- ------- -------
Trade payables 26,703 14,057
Social security and staff welfare costs 1,712 1,669
Accrued expenses 19,020 15,548
---------------------------------------- ------- -------
Total 47,435 31,274
---------------------------------------- ------- -------
18. Leases
Group as a lessee
Accounting policy
The Group leases a range of assets including property, plant and
equipment and vehicles. Leases of property generally have lease
terms of up to 20 years, plant and machinery between three and six
years, while motor vehicles and other equipment generally have
lease terms 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.
Set out below are the carrying amounts of right-of-use assets
recognised and movements during the year:
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2020 23,069 201 2,513 25,783
Transferred from property, plant &
equipment 419 - - 419
Additions 4,938 - 557 5,495
Disposals - - (244) (244)
Expiration of leases (508) - - (508)
Net foreign currency exchange differences 155 2 (7) 150
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 28,073 203 2,819 31,095
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2020 2,759 70 880 3,709
Transferred from property, plant &
equipment 90 - - 90
Charge for the period 2,964 71 496 3,531
Disposals - - (167) (167)
Expiration of leases (508) - - (508)
Net foreign currency exchange differences (7) (2) (28) (37)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 5,298 139 1,181 6,618
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2021 22,775 64 1,638 24,477
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2020 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
IFRS 16 leases at transition 23,408 193 229 23,830
Transferred from property, plant and
equipment -- -- 2,036 2,036
Additions 144 10 330 484
Disposals -- -- (81) (81)
Net foreign currency exchange differences (483) (2) (1) (486)
At 31 July 2020 23,069 201 2,513 25,783
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
Charge for the period 2,740 69 320 3,129
Transferred from property, plant and
equipment -- -- 617 617
Disposals -- -- (49) (49)
Net foreign currency exchange differences 19 1 (8) 12
At 31 July 2020 2,759 70 880 3,709
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2020 20,310 131 1,633 22,074
------------------------------------------ ---------- ---------- ------------- -------
Set out below are the carrying amounts of lease liabilities
(included under interest-bearing loans and borrowings) and the
movements during the year:
Fixtures,
fittings,
tools,
equipment
Land and Plant and and
Lease liabilities buildings machinery vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------- -------------- ---------- ------------- -------
At 1 August 2020 22,113 144 916 23,173
Additions to lease liabilities 4,938 - 557 5,495
Early termination - - (244) (244)
Interest expense 486 9 27 522
Lease payments (3,191) (76) (215) (3,482)
Foreign exchange movements (65) (2) 32 (35)
------------------------------- -------------- ---------- ------------- -------
At 31 July 2021 24,281 75 1,073 25,429
------------------------------- -------------- ---------- ------------- -------
Analysis
Current 2,878 50 526 3,454
Non-current 21,403 25 547 21,975
------------------------------- -------------- ---------- ------------- -------
At 31 July 2021 24,281 75 1,073 25,429
------------------------------- -------------- ---------- ------------- -------
Fixtures,
fittings,
Plant tools,
Land and equipment
Lease liabilities and buildings machinery and vehicles Total
2020 GBP000 GBP000 GBP000 GBP000
------------------------------- -------------- ---------- ------------- ---------
At 1 August 2019 25,228 208 852 26,288
Additions to lease liabilities 144 10 330 484
Early termination - - (81) (81)
Interest expense 500 14 16 530
Lease payments (3,181) (84) (195) (3,460)
Foreign exchange movements (578) (4) (6) (588)
------------------------------- -------------- ---------- ------------- ---------
At 31 July 2020 22,113 144 916 23,173
------------------------------- -------------- ---------- ------------- ---------
Analysis
Current 2,511 67 416 2,994
Non-current 19,602 77 500 20,179
At 31 July 2020 22,113 144 916 23,173
------------------------------- -------------- ---------- ------------- ---------
The following are amounts recognised in the statement of
comprehensive income:
2021 2020
GBP000 GBP000
------------------------------------------------------------ ------- -------
Depreciation expense of right-of-use assets (cost of
sales) 1,983 1,918
Depreciation expense of right-of-use assets (administrative
expenses) 1,369 1,211
Interest expense 503 530
------------------------------------------------------------ ------- -------
19. Other financial liabilities
Ventair Nordiska
Air Connection Pty ClimaRad Klimatfabriken Energent
ApS Limited BV AB Ab Total
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------------- -------- -------- --------------- -------- -------
Contingent consideration
At 1 August 2020 508 960 - - - 1,468
Contractual liability
to purchase remaining
non-controlling interest
(note 13) - - 5,514 - - 5,514
Further consideration
recognised - 3,287 - 261 258 3,806
Foreign exchange (25) (177) - (10) (2) (214)
-------------------------- -------------- -------- -------- --------------- -------- -------
At 31 July 2021 483 4,070 5,514 251 256 10,574
-------------------------- -------------- -------- -------- --------------- -------- -------
Analysis
Current 483 4,070 - - - 4,553
Non-current - - 5,514 251 256 6,021
-------------------------- -------------- -------- -------- --------------- -------- -------
Total 483 4,070 5,514 251 256 10,574
-------------------------- -------------- -------- -------- --------------- -------- -------
Ventair
Oy Pamon Air Connection Pty
Ab ApS Limited Total
2020 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- -------------- -------- -------
Contingent consideration
At 1 August 2019 318 512 989 1,819
Consideration paid during the year (318) - - (318)
Further consideration recognised - - - -
Foreign exchange - (4) (29) (33)
----------------------------------- -------- -------------- -------- -------
At 31 July 2020 - 508 960 1,468
----------------------------------- -------- -------------- -------- -------
Analysis
Current - - - -
Non-current - 508 960 1,468
----------------------------------- -------- -------------- -------- -------
Total - 508 960 1,468
----------------------------------- -------- -------------- -------- -------
Current
On 1 March 2019, Volution Group plc, through one of its wholly
owned subsidiaries, Woomera Pty Limited, acquired the entire issued
share capital of Ventair Pty Limited, a company based in Australia.
Total consideration for the transaction was AUD17,895,000
(GBP9,713,000), comprised of cash consideration of AUD16,138,000
(GBP8,761,000) and contingent consideration with a fair value of
AUD1,757,000 (GBP952,000). The contingent consideration is based on
the level of EBITDA achieved during the twelve months to 31 July
2021. There is a minimum level of EBITDA which must be achieved
otherwise no contingent consideration is payable; the maximum
amount of contingent consideration payable is AUD7,700,000. The
contingent consideration was recognised in line with management's
best estimate of the level of EBITDA expected to be achieved during
the earn-out period. Whilst the level of contingent consideration
payable has yet to be agreed with the sellers, for the twelve
months to 31 July 2021 the EBITDA of Ventair was substantially
ahead of budget, therefore, a further AUD5,943,000 (GBP3,287,000)
consideration has been recognised in the year. At 31 July 2021, the
liability assessed as GBP4,070,000 relates to the contingent
consideration payable to Ventair Pty Limited based on its EBITDA
performance achieved during the twelve months to 31 July 2021.
The remainder of the current contingent consideration of
GBP483,000 is payable in relation to Air Connection ApS which is
based on its EBITDA performance achieved during the twelve months
to 31 July 2021.
Non-current
On 17 December 2021, Volution Group plc, acquired 75% of the
issued share capital of ClimaRad Holding B.V. and subsidiaries
(ClimaRad), a company based in the Netherlands. Total consideration
for the purchase of 75% of the issued share capital was
EUR41,100,000 (GBP37,100,000) with a commitment to purchase the
remaining 25% on or before 28 February 2025. The future
consideration for the purchase of the remaining 25% is set at 25%
of 13 times the EBITDA of ClimaRad for the financial year ended 31
December 2024, plus the non-controlling interest share of profits
earned in the periods up to and including 31 December 2024, and is
subject to a cap. The expected value of the future consideration is
partially in the form of a vendor loan of EUR12,000,000
(GBP10,686,000) payable to certain individuals including the
co-founder and management team of ClimaRad on completion of the
purchase of the remaining 25% on or before 28 February 2025, and an
additional element of contingent consideration. The contingent
consideration was assessed based on the current estimate of the
future performance of the business as GBP5,514,000, discounted to
present value.
19. Other financial liabilities (continued)
On 3 February 2021, Volution Group plc acquired the entire share
capital of Nordiska Klimatfabriken AB, a company based in Sweden.
Total consideration for the purchase of the entire issued share
capital was SEK40,082,000 (GBP3,489,000) including deferred
consideration of GBP251,000.
On 28 May 2021, Volution Group plc, through one of its wholly
owned subsidiaries, Oy Pamon, acquired the trade and assets of
Energent Oy, known in the market as Rtek. Total consideration for
the transaction was cash consideration of EUR3,000,000
(GBP2,578,000), including deferred consideration of GBP256,000.
2021 2020
GBP000 GBP000
----------------------------------- ------- -------
Financial liabilities
Foreign exchange forward contracts 55 574
----------------------------------- ------- -------
Total 55 574
----------------------------------- ------- -------
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.
20. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are
initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently
measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or, where
appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
2021 2020
-------------------------------------- -------------------- --------------------
Current Non-current Current Non-current
GBP000 GBP000 GBP000 GBP000
-------------------------------------- ------- ----------- ------- -----------
Unsecured - at amortised cost
Borrowings under the revolving credit
facility (maturing 2023) - 73,293 - 69,563
Cost of arranging bank loan - (956) - (531)
-------------------------------------- ------- ----------- ------- -----------
- 72,337 - 69,032
-------------------------------------- ------- ----------- ------- -----------
IFRS 16 lease liabilities (note 14) 3,454 21,975 2,994 20,179
-------------------------------------- ------- ----------- ------- -----------
ClimaRad vendor loan (note 13) - 10,551 - -
-------------------------------------- ------- ----------- ------- -----------
Total 3,454 104,863 2,994 89,211
-------------------------------------- ------- ----------- ------- -----------
On 2 December 2020, the Group refinanced its bank debt. The
Group now has in place a GBP150 million multicurrency
"Sustainability Linked Revolving Credit Facility", together with an
accordion of up to GBP30 million. The facility matures in December
2023, with the option to extend for up to two additional years. The
old facility was repaid in full early, on 8 December 2020, and a
new multicurrency "Sustainability Linked Revolving Credit Facility"
was entered into. Interest-bearing loans at 31 July 2021 comprise
this multicurrency "Sustainability Linked Revolving Credit
Facility", together with an accordion, from Danske Bank A/S, HSBC,
the Royal Bank of Scotland and the Bank of Ireland, with HSBC
acting as agent, and are governed by a facilities agreement. No
security is provided under the facility.
Bank loans at 31 July 2020 comprised a revolving credit facility
from Danske Bank A/S, HSBC and the Royal Bank of Scotland, with
HSBC acting as agent, and are governed by a facilities agreement.
The outstanding loans are set out in the table below. No security
was provided under the facility.
Revolving credit facility - at 31 July 2021
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
2 December
GBP - 2023 One payment Libor + margin%
57,304 2 December
Euro 2023 One payment Euribor + margin%
2 December
Swedish Krona 15,989 2023 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 73,293
-------------- ------------ ----------- ----------- -----------------
Revolving credit facility - at 31 July 2020
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
15 December
GBP 6,000 2022 One payment Libor + margin%
15 December
Euro 40,285 2022 One payment Euribor + margin%
15 December
Swedish Krona 23,278 2022 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 69,563
-------------- ------------ ----------- ----------- -----------------
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 2021, Group leverage was below 1.0:1 and
therefore the margin will reduce to 1.25%.
At 31 July 2021, the Group had GBP76,707,000 (2020:
GBP50,437,000) of its multicurrency revolving credit facility
unutilised.
Changes in liabilities arising from financing activities
Changes
Foreign due to
1 August exchange business 31 July
2020 Cash flows movement New leases combination Other 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease liabilities) 69,563 9,127 (5,397) - - - 73,293
Debt related to the
business combination
of ClimaRad (note 13) - (1,482) - - 1,482 - -
Lease liabilities 23,173 (2,960) (35) 5,495 - (244) 25,429
ClimaRad vendor loan
(note 13) - - (135) - - 10,686 10,551
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
Total liabilities from
financing activities 92,736 4,685 (5,567) 5,495 1,482 10,442 109,273
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
Foreign
1 August exchange 31 July
2019 Cash flows movement New leases Other 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- ---------- --------- ---------- ------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease liabilities) 86,146 (16,785) 202 - - 69,563
Lease liabilities 26,288 (2,878) (588) 484 (133) 23,173
------------------------------- -------- ---------- --------- ---------- ------- -------
Total liabilities from
financing activities 112,434 (19,663) (386) 484 (133) 92,736
------------------------------- -------- ---------- --------- ---------- ------- -------
21. Provisions
Accounting policy
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions for the expected costs of maintenance guarantees are
charged against profits when products have been invoiced.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation taking into
account the risks and uncertainties surrounding the obligation. The
timings of cash outflows are by their nature uncertain and are
therefore best estimates. Provisions are not discounted as the time
value of money is not considered material.
Provisions for warranties and property dilapidations
Provisions for warranties are made with reference to recent
trading history and historical warranty claim information, and the
view of management as to whether warranty claims are expected.
Warranty provisions are determined with consideration given to
recent customer trading and management experience.
Dilapidation provisions relate to dilapidation charges relating
to leasehold properties. The timing of cash flows associated with
the dilapidation provision is dependent on the timing of the lease
agreement termination.
Product Property
warranties dilapidations Total
2021 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2020 1,629 445 2,074
Arising during the year 1,367 61 1,428
Utilised (1,343) (107) (1,450)
Foreign currency adjustment 134 59 193
---------------------------- ----------- -------------- -------
At 31 July 2021 1,787 458 2,245
---------------------------- ----------- -------------- -------
Analysis
Current 1,453 416 1,869
Non-current 334 42 376
---------------------------- ----------- -------------- -------
Total 1,787 458 2,245
---------------------------- ----------- -------------- -------
Product Property
warranties dilapidations Total
2020 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2019 1,398 384 1,782
Arising during the year 973 69 1,042
Utilised (722) (8) (730)
Foreign currency adjustment (20) - (20)
---------------------------- ----------- -------------- -------
At 31 July 2020 1,629 445 2,074
---------------------------- ----------- -------------- -------
Analysis
Current 1,629 173 1,802
Non-current - 272 272
---------------------------- ----------- -------------- -------
Total 1,629 445 2,074
---------------------------- ----------- -------------- -------
Product warranties
A provision is recognised for warranty costs expected to be
incurred in the following twelve months on products sold during the
year and in prior years. Product warranties are typically one to
two years; however, based on management's knowledge of the
products, claims in relation to warranties after more than twelve
months are rare and highly immaterial.
Property dilapidations
A provision has been recognised for dilapidations relating to
obligations under leases for leasehold buildings and will be
payable at the end of the lease term.
22. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following
exceptions:
-- where the temporary differences arise from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised only to the extent that the
Directors consider it is probable that there will be taxable
profits from which the deductible temporary differences, carried
forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an
undiscounted basis at tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax
rates enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
The carrying amount of deferred tax assets is reviewed at each
reporting date. Deferred tax assets and liabilities are offset only
if a legally enforceable right exists to set off current tax assets
against current tax liabilities, the deferred taxes relate to the
same taxation authority and that authority permits the Group to
make a single net payment.
Deferred tax is charged or credited to other comprehensive
income if it relates to items that are charged or credited to other
comprehensive income. Similarly, deferred tax is charged or
credited directly to equity if it relates to items that are
credited or charged directly to equity.
Management judgement is required to determine the amount of
deferred tax assets that can be recognised, based on the likely
timing and level of future taxable profits together with an
assessment of the effect of future tax planning strategies.
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international
business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and
expense already recorded.
At 31 July 2021, the Group had not recognised a deferred tax
asset in respect of gross tax losses of GBP5,195,000 (2020:
GBP5,195,000) relating to management expenses, capital losses of
GBP3,975.000 (2020: GBP3,975,000) arising in UK subsidiaries and
gross tax losses of GBP153,000 (2020: GBP645,000) 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 2021, the Group had no deferred tax liability (2020:
GBPnil) to recognise for taxes that would be payable on the
remittance of certain of the Group's overseas subsidiaries'
unremitted earnings. Deferred tax liabilities have not been
recognised as the Group has determined that there are no
undistributed profits in overseas subsidiaries where an additional
tax charge would arise on distribution.
The movement in deferred tax assets and liabilities during the
year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
(Charged)/ On
1 August credited Credited Translation business 31 July
2020 to income to equity difference combinations 2021
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- -------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation
in advance of
capital allowances (1,028) (655) - (4) (34) (1,721)
Fair value movements
of derivative
financial instruments (9) 20 - - - 11
Customer base,
trademark and
patent (14,409) 2,520 - 439 (5,824) (17,274)
Losses 318 89 - - - 407
Untaxed reserves 1,480 230 - (26) (438) 1,246
Other temporary
differences 620 469 1,366 - - 2,455
----------------------- -------- ---------- ---------- ----------- ------------- --------
Deferred tax
liability (13,028) 2,673 1,366 409 (6,296) (14,876)
----------------------- -------- ---------- ---------- ----------- ------------- --------
Opening (Charged)/ On
1 August IFRS credited Credited Translation business 31 July
2019 16 adjustments to income to equity difference combinations 2020
2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- -------- --------------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation
in advance of
capital allowances (1,043) 360 (347) - 2 - (1,028)
Fair value movements
of derivative
financial instruments (115) - 106 - - - (9)
Customer base,
trademark and
patents (16,669) - 2,120 - 244 (104) (14,409)
Losses 285 - 33 - - - 318
Untaxed reserves 768 - 757 - (45) - 1,480
Other temporary
differences 755 - (142) 7 - - 620
----------------------- -------- --------------- ---------- ---------- ----------- ------------- --------
Deferred tax
liability (16,019) 360 2,527 7 201 (104) (13,028)
----------------------- -------- --------------- ---------- ---------- ----------- ------------- --------
23. Dividends paid and proposed
Accounting policy
Dividends are recognised when they meet the criteria for
recognition as a liability. In relation to final dividends, this is
when the dividend is approved by the Directors in the general
meeting, and in relation to interim dividends, when paid.
2021 2020
GBP000 GBP000
------------------------------------------------------- ------- -------
Cash dividends on ordinary shares declared and paid
Interim dividend for 2021: 1.90 pence per share (2020:
GBPnil pence) 3,762 -
------------------------------------------------------- ------- -------
Proposed dividends on ordinary shares
Final dividend for 2021: 4.40 pence per share (2020:
GBPnil pence) 8,707 -
------------------------------------------------------- ------- -------
An interim dividend payment of GBP3,762,000 is included in the
consolidated statement of cash flows (2020: GBPnil; the interim
dividend of 1.71 pence per share was cancelled as a result of the
COVID-19 crisis).
A final dividend payment of GBPnil is included in the
consolidated statement of cash flows relating to 2020 (2020:
GBP6,530,000; related to the final dividend of 2019).
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 2021.
24. 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 2021 or 31
July 2020.
There were no material transactions or balances between the
Company and its key management personnel or members of their close
family other than the compensation shown below. At the end of the
period, key management personnel did not owe the Company any
amounts.
The Companies Act 2006 and the Directors' Remuneration Report
Regulations 2013 require certain disclosures of Directors'
remuneration.
Compensation of key management personnel
2021 2020
GBP000 GBP000
----------------------------- ------- -------
Short-term employee benefits 4,139 2,749
Share-based payment charge 1,605 58
----------------------------- ------- -------
Total 5,744 2,807
----------------------------- ------- -------
Key management personnel is defined as the CEO, the CFO and the
eleven (2020: eleven) individuals who report directly to the
CEO.
25. Events after the reporting period
On 9(h) September 2021, Volution Group acquired ERI Corporation,
a leading manufacturer and supplier of low-carbon, energy efficient
heat exchanger cells, for an initial consideration of EUR23.4
million with a further contingent cash consideration of up to
EUR12.4 million based on stretching targets for the financial
results for the year ending 31 December 2023.
ERI designs and manufactures a range of innovative and highly
efficient aluminium heat exchanger cells for use primarily in
commercial heat recovery ventilation systems. Products are
manufactured in ERI's modern, high quality production facility in
Bitola, North Macedonia, and are supplied to heat recovery and air
handling unit manufacturers predominantly in Europe, including
existing Volution Group companies. The business combination
encompasses 100% of the issued share capital of ERI Corporation DOO
Bitola (North Macedonia), ERI Corporation S.R.L. (Italy) and Energy
Recovery Industries Trading SLU (Spain) and 51% of the issued share
capital of Energy Recovery Industries Corporation Ltd (UK). For the
financial year ended 31 December 2020, ERI generated revenue of
EUR11.3 million and profit before tax of EUR2.0 million.
The provisional fair value of the net assets acquired were as
follows:
Fair value
GBP000
----------------------------------------------------------- ----------
Intangible assets 65
Property, plant and equipment 3,575
Inventory 2,322
Trade and other receivables 9,962
Trade and other payables (8,472)
Bank debt (3,103)
Cash and cash equivalents 561
-----------------------------------------------------------
Total identifiable net assets 4,910
Goodwill on the business combination 23,310
----------------------------------------------------------- ----------
Discharged by:
Cash consideration (including deferred cash consideration) 20,000
----------------------------------------------------------- ----------
Contingent consideration 8,220
----------------------------------------------------------- ----------
The fair values on the business combination are provisional due
to the timing of the business combination and will be finalised
within twelve months of the business combination date
Included in the GBP23,310,000 of Goodwill are intangible assets
related to the tradename, customer base, skilled workforce and
other intangible assets that are separable and can be reliably
measured, and are not yet separately disclosed. The value of these
separable intangible assets will be finalised within twelve months
of the business combination date. Also included in the Goodwill
recognised above are certain intangible assets that cannot be
individually separated and reliably measured due to their nature
such as the expected synergies arising from the business
combination.
All of the trade receivables are expected to be collected in
full. Transaction costs relating to professional fees associated
with the business combination in the year ended 31 July 2021 were
GBP0.1 million and have been expensed.
26. Glossary of terms
Adjusted basic and diluted EPS: calculated by dividing the
adjusted profit/(loss) for the period attributable to ordinary
equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing
the adjusted net profit/(loss) attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the period plus the weighted average
number of ordinary shares that would be issued on conversion of any
dilutive potential ordinary shares into ordinary shares. There are
3,270,467 dilutive potential ordinary shares at 31 July 2021 (2020:
791,195).
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: is calculated by dividing adjusted operating
cash flow by adjusted EBITA.
Constant currency: to determine values expressed as being at
constant currency we have converted the income statement of our
foreign operating companies for the year ended 31 July 2021 at the
average exchange rate for the year ended 31 July 2020. In addition,
we have converted the UK operating companies' sale and purchase
transactions in the year ended 31 July 2021, which were denominated
in foreign currencies, at the average exchange rates for the year
ended 31 July 2020.
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.
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