TIDMFAN
RNS Number : 4980S
Volution Group plc
18 March 2016
Friday 18 March 2016
VOLUTION GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2016
Strong results in line with our expectations. Interim dividend
up 14%.
Volution Group plc ("Volution" or "the Group" or "the Company",
LSE: FAN), a leading supplier of ventilation products to the
residential and commercial construction market, today announces its
unaudited interim financial results for the 6 months ended 31
January 2016.
6 months 6 months Movement
to January to January in Constant
Highlights 2016 2015 Movement Currency
Revenue (GBP000) 70,142 64,349 9.0% 13.0%
Adjusted EBITDA
(GBP000) 16,525 15,038 9.9% 13.4%
Adjusted operating
profit (GBP000) 15,207 13,990 8.7% 12.2%
Adjusted profit
before tax (GBP000) 14,597 12,709 14.9% 18.7%
Reported profit
before tax (GBP000) 8,040 7,499 7.2% 13.7%
Basic and diluted
EPS (p) 3.64 2.94 23.8% 32.2%
Adjusted basic and
diluted EPS (p) 5.73 4.98 15.1% 19.9%
Adjusted operating
cash flow (GBP000) 11,439 11,809 (3.1%)
Interim dividend
per share (p) 1.20 1.05 14.3%
Net debt (GBP000) 38,988 31,400
The Group uses some alternative performance measures to track
and assess the underlying performance of the business. These
measures include adjusted EBITDA, adjusted operating profit,
adjusted profit before tax, adjusted basic and diluted EPS and
adjusted operating cash flow. For a definition of all adjusted and
non-GAAP measures, see the glossary of terms in note 20.
Overview
Financial highlights
-- Strong results in line with our expectations.
-- Revenue in the 6 months was GBP70.1 million, a 9.0% increase (13.0% at constant currency).
-- Organic revenue declined by 1.1% (2.1% growth at constant
currency) and revenue grew by 10.1% as a result of acquisitions
(10.9% at constant currency).
-- Ventilation Group revenue growth including acquisitions was 14.0% at constant currency.
-- UK New Build Residential revenue growth was 7.1% with growth
in order intake of more than 10%.
-- UK RMI declined by 5.0% with destocking in some major Private
RMI customers and a continuing difficult market for Public RMI.
-- Revenue growth in the Nordics was an exceptionally strong 18.3% at constant currency.
-- OEM (Torin-Sifan) results improved as revenue grew 8.0% at
constant currency, despite an un-seasonally mild winter.
-- Adjusted profit before tax increased by 14.9% to GBP14.6
million assisted by lower interest costs as a result of refinancing
our bank facilities in February 2015.
-- The Group's reported profit before tax was GBP8.0 million (H1
2015: profit of GBP7.5 million).
-- Continued strong adjusted operating cash flow.
-- Interim dividend of 1.20 pence per share, up 14.3% compared to H1 2015.
Strategic highlights
-- We saw an increase in sales of high end products such as
quiet, silent and energy efficient fans and the launch of a range
of app controlled fans in the Group.
-- Three acquisitions completed in the first half year with all
integration activity progressing as anticipated.
Ø Ventilair provides the Group with access to markets in both
Belgium and the Netherlands with the sales in the first half of the
year growing ahead of the first half of 2015, a period prior to our
ownership.
Ø Welair, a small heat recovery manufacturer in Sweden provides
the Nordic business with a wider product portfolio and greater
exposure to the New Build markets.
Ø Energy Technique Plc and subsidiaries (trading as Diffusion)
complements the Group's leading position in the UK residential
markets with a strong position in the niche market of fan coils for
both commercial and residential heating and cooling of primarily
new buildings.
-- OEM (Torin-Sifan) revenue growth was assisted by growth in
the EC sales category in both the heating and ventilation
markets.
Commenting on the Group's first half performance, Ronnie George,
Chief Executive Officer, said:
"We have delivered results in line with our expectations and the
level of our cash generation continues to support our ambition to
also grow through acquisition. The Nordic revenue growth of 18.3%
is the notable highlight of our first half and we are seeing good
traction from our new acquisitions in Belgium, the Netherlands and
most recently the UK.
New product launches in the first half of the year such as the
new applications software controlled fan are good examples of where
the Group is able to leverage product development across a number
of different geographies. This product will soon be launched in
Belgium and the Netherlands, having already been successfully
launched in the Nordics and UK."
Outlook
"We are confident of delivering against our full year
expectations because of the breadth of our activities and the
continuing successful integration of our acquisitions. Public RMI
remains weak but there are early signs of improvement in Private
RMI in the UK."
-Ends-
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Ian Dew, Chief Financial Officer +44 (0) 1293 441536
Brunswick +44 (0) 20 7404 5959
volution@brunswickgroup.com
Craig Breheny, Simone Selzer, Chris Buscombe
Note to Editors
Volution Group plc (LSE: FAN) is a leading supplier of
ventilation products to the residential and commercial construction
market in the UK and northern Europe.
The Group sold approximately 12.5 million ventilation products
and accessories in the six months ended 31 January 2016. The
Volution Group operates through two divisions: the Ventilation
Group and the OEM (Torin-Sifan) division. The Ventilation Group
consists of 9 key brands - Vent-Axia, Manrose, Diffusion, Fresh,
PAX, Welair, inVENTer, Brüggemann and Ventilair, focused primarily
on the UK, Nordic, German and Benelux ventilation markets. The
Ventilation Group principally supplies ventilation products for
residential and commercial ventilation applications. The OEM
(Torin-Sifan) division, supplies motors, fans and blowers to OEMs
of heating and ventilation products for both residential and
commercial construction applications in Europe.
For more information, please go to:
http://www.volutiongroupplc.com/
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
We continued to deliver on our growth strategies in the first
half of this financial year, despite currency headwinds. Our
results for the 6 months were in line with our expectations.
Revenue was up against H1 2015 by 9.0% (13.0% at constant currency)
at GBP70.1 million. Adjusted EBITDA grew strongly, up 9.9% (13.4%
at constant currency) to GBP16.5 million, 23.6% of revenue.
The acquisitions of Ventilair, Welair and Energy Technique were
completed in the half year and the integration of all three is
progressing to plan. Our organic growth results were mixed, with
strong growth in the Nordics and UK Residential New Build offset by
the disappointing performance in UK Residential RMI. Our exposure
to the UK New Build Commercial markets is now significantly
enhanced with the recent acquisition of Diffusion.
Ventilation Group: Revenue of GBP59.7 million (H1 2015: GBP54.4
million)
Adjusted operating profit of GBP14.3 million (H1 2015: GBP13.3
million)
Revenue Reported Constant Currency
--------------------------
2016 2016 2015 Growth
Market Sectors GBP000 GBP000 GBP000 %
-------------------------- --------- ------- ------- --------
UK Residential RMI 17,011 17,011 17,907 (5.0%)
UK Residential New Build 8,333 8,333 7,782 7.1%
UK Commercial 8,246 8,246 7,960 3.6%
UK Export(1) 2,816 2,992 3,923 (23.7%)
Nordics(2) 12,433 13,691 11,570 18.3%
Central Europe(2) 10,858 11,746 5,274 122.7%
--------------------------- --------- ------- ------- --------
Total Ventilation Group 59,697 62,019 54,416 14.0%
--------------------------- --------- ------- ------- --------
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(1) During H1 2015 sales to the Ventilair group from the UK were
included within UK Export. For the six months to 31 January 2016
Ventilair was a member of the Volution Group therefore all sales to
Ventilair have been eliminated on consolidation for H1 2016. Sales
to Ventilair in H1 2015 were GBP870,000. Like for like UK Export
revenue declined by 7.8% (2.0% decline at constant currency).
(2) Represents revenue generated from our legal entities located
in these geographies (see note 4 for further details).
Our Ventilation Group segment's revenue was GBP59.7 million in
the six months, a 9.7% increase on prior year (14.0% growth at
constant currency). Organic revenue declined by 1.1% (2.1% growth
at constant currency).
Our UK Residential RMI sector declined by 5.0%. The decline was
most significant in the Residential Public RMI sector where sales
were lower than we anticipated. This area of the market continues
to be the subject of public spending austerity measures and our
objective has been to restart the process of making structural
share gains, as we expect the overall market to be subdued for the
foreseeable future. New product development is a key factor in
gaining market share in this sector and our new "Revive" public
housing fan range will be launched in the UK this summer. In the
Residential Private RMI sector destocking by two major customers
explains some of the decline. We continue our efforts to transform
the UK Residential RMI private market to deliver growth by
promoting the sale of more high end products such as quiet, silent
and energy efficient fans. The "app" controlled fan, successfully
launched as Calima in the Nordics, was launched in the UK as
"Svara" in January and the sales in the first month were very
encouraging.
Our UK Residential New Build sector delivered revenue growth of
7.1% and our order intake grew by more than 10% on the prior year.
The new range of increased performance heat recovery systems has
been launched and our outlook for central systems remains
positive.
UK Export sales (excluding sales from the UK to Ventilair as it
is now part of the Group) were broadly unchanged on the prior year
at constant currency. Sales to Ventilair, which previously was a UK
Export customer, are now eliminated on consolidation. After the
exceptionally strong export sales growth in FY15 (25.2% at constant
currency) we did not anticipate continuing strong growth in FY16.
The order intake for heat recovery systems in Eire was very
pleasing in the first half.
Sales in the Nordic Sector were GBP12.4 million, an increase of
7.5% on H1 2015 (18.3% at constant currency). Growth in Sweden was
assisted by the local government initiative in Residential RMI
where we were able to capitalise on our leadership position for
ventilation supply for refurbishment. The "Calima" fan was
successfully launched in Sweden and the roll out is continuing to
the adjacent markets in Norway, Denmark and Finland. The more
recent addition of Welair to the Group will enable us to expand our
market reach to new build applications utilising our trade and
retail routes to market.
Since the acquisition of Ventilair we have formed a new market
sector, Central Europe (Germany, the Netherlands and Belgium).
Revenue in Central Europe was GBP10.9 million, more than doubling
versus the prior period principally through the acquisition of
Ventilair; revenue in Germany remained flat in local currency.
Germany continues to develop its range of products and the
"iV12-Smart" has performed very well in the first half. The
Brüggemann distribution company has also been integrated into the
Group and now only supplies our own manufactured products to the
market. As well as the development of new heat recovery products
work is underway to utilise the Group's capability in the
development of new ventilation controllers.
In Belgium and the Netherlands the integration process is
largely complete and the local teams are now focussed on launching
the Group's products utilising their routes to market mainly in the
trade/professional channel.
OEM (Torin-Sifan): Revenue of GBP10.4 million (H1 2015: GBP9.9
million)
Adjusted operating profit of GBP1.9 million (H1 2015: GBP1.5
million)
Revenue Reported Constant Currency
-------------------------
2016 2016 2015 Growth
Market Sectors GBP000 GBP000 GBP000 %
---------------- --------- ------- ------- -------
OEM 10,445 10,726 9,933 8.0%
Total OEM 10,445 10,726 9,933 8.0%
----------------- --------- ------- ------- -------
Our OEM (Torin-Sifan) segment revenue was GBP10.4 million in the
six months and has grown by 5.2% (8.0% at constant currency)
despite an unseasonably mild winter.
Sales of EC/DC motorised impellers for both heating and
ventilation products continue to grow and we focus on this
attractive market. The three phase EC/DC motor development is
nearing the final stages of extended life testing and is now
expected to contribute sales towards the end of FY16.
Three Strategic Pillars
Our strategy continues to focus on three key pillars:
-- Organic growth in our core markets;
-- Growth through a disciplined and value-adding acquisition strategy; and
-- To further develop OEM (Torin-Sifan's) range, build customer preference and loyalty.
In our core markets, we expect to continue to benefit from a
favourable regulatory backdrop that focuses on reducing carbon
emissions from buildings, the need for improving energy efficiency
and the emerging understanding of the importance of indoor air
quality in the developed world. This is especially evident in new
construction where our growth in the UK Residential New Build
market was 7.1% in the first half of the financial year. Through
the acquisition of Ventilair in Belgium we also have an increased
exposure to the new construction market for residential homes and
more recently Diffusion is benefitting from low carbon energy
efficient heating and cooling solutions primarily for new
commercial buildings. Continuing investment in internal resources
and focusing on product management and product development will
enable us to deliver product and system solutions to meet
customers' needs.
As previously advised we see the ventilation market in Europe as
highly fragmented and we continue to explore selective acquisition
opportunities to increase our international footprint. Our track
record over the last three years of making acquisitions and
successfully integrating them into our Group shows our ability to
add new competencies and to expand into new markets and this serves
us well for future acquisitions in the coming years. This area
continues to be a high priority for the Group.
Over the last three years we have made a significant investment
in OEM (Torin-Sifan) in new product development and a new
production facility to capitalise on the growth in demand for EC
(Electronically Commutated) motors used in various residential and
commercial ventilation products. The new EC production facility is
now fully commissioned and operational delivering substantially
improved customer service and quality to our customers. The product
development of the new range of high performance air movement
products is nearing completion later than anticipated as a result
of extending our accumulated life testing programme. These new
products will be launched towards the end of the second half of the
2016 financial year and we are reviewing plans for the ongoing
expansion of the range.
Board
As announced separately today, Gavin Chittick, our
non-independent Non-Executive Director, has decided to retire from
the Board and will step down with immediate effect. Mr. Chittick
joined the Group in 2012 and was appointed to the Board in May
2014, just prior to IPO, as the director representing Windmill
Holdings B.V. the Group's controlling shareholder. The Board would
like to thank Gavin for his valuable contribution to the Board and
wish him well for the future.
Ronnie George
Chief Executive Officer
18 March 2016
FINANCIAL REVIEW
Trading Performance Summary
Adjusted(1) Reported
----------------------------------------------- -------------------------------------------------
6 months to 31 6 months to 31 6 months to 31 6 months to 31
January 2016 January 2015 Movement January 2016 January 2015 Movement
----------------- ----------------- --------- ------------------ ------------------ ---------
Revenue (GBP000) 70,142 64,349 9.0% 70,142 64,349 9.0%
EBITDA (GBP000) 16,525 15,038 9.9% 15,353 14,992 2.4%
Operating profit
(GBP000) 15,207 13,990 8.7% 7,945 8,142 (2.4%)
Finance costs
(GBP000) 621 1,287 51.7% 621 1,287 51.7%
Profit/ (loss)
before tax
(GBP000) 14,597 12,709 14.9% 8,040 7,499 7.2%
Basic and diluted
EPS (p) 5.73 4.98 15.1% 3.64 2.94 23.8%
Operating cash
flow (GBP000) 11,439 11,809 (3.1%) 10,267 11,763 (12.7%)
Net Debt (GBP000) 38,988 31,400 38,988 31,400
------------------ ----------------- ----------------- --------- ------------------ ------------------ ---------
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The reconciliation of the Group's reported profit before tax to
adjusted measures of performance is explained in detail in note 7
to the consolidated financial statements.
1. Details of adjusted EBITDA, adjusted operating profit and
adjusted profit before tax can be found in note 7. For a definition
of all adjusted measures see the glossary of terms in note 20.
Revenue
Group Revenue during the six months ended 31 January 2016 was
GBP70.1 million (H1 2015: GBP64.3 million) a 9.0% increase (13.0%
at constant currency). This comprised a 1.1% decline in organic
revenue (2.1% growth on a constant currency basis), with 10.1% the
result of three acquisitions in the period (10.9% at constant
currency).
The Group continued to enjoy strong demand for its ventilation
products, especially newer, higher value added ventilation systems
including 7.1% growth in UK Residential New Build sales and 18.3%
growth (at constant currency) in our Nordics region. UK Residential
RMI sector revenue declined by 5.0% with destocking in some of our
major Private RMI customers and continued softness in the Public
RMI market. In the UK Commercial sector, growth was 3.6% including
the benefit from one month of sales from the acquisition of
Diffusion which primarily serves that market sector. UK Exports
declined by 28.2% (23.7% at constant currency) as a consequence of
the acquisition of Ventilair in August 2015; Ventilair was a
significant export customer of our UK businesses in prior periods
and now sales to Ventilair are intra-Group and eliminated on
consolidation. On a like for like basis our UK Export business
declined slightly by 2.0% on a constant currency basis after strong
growth in our prior financial year. Sales in our OEM (Torin-Sifan)
segment showed strong growth of 5.2% (8.0% at constant currency)
despite another exceptionally warm winter.
Profitability
Our underlying result, as measured by adjusted EBITDA, was
GBP16.5 million (H1 2015: GBP15.0 million), 23.6% of revenues, a
GBP1.5 million improvement compared to H1 2015. At constant
currency our profit performance improved by GBP2.0 million,
equivalent to 13.4% growth and 24.3% of revenues. The Group
benefitted from the three acquisitions in the period and from
continuing cost reductions and synergy benefits.
On sales growth of 9.0% (13.0% at constant currency) our
adjusted profit before tax improved by 14.9%, GBP1.9 million, to
GBP14.6 million. At constant currency, adjusted profit before tax
was GBP15.1 million representing growth of 18.7% and 21.5% of
revenues. The improvement included a GBP0.7 million reduction in
finance costs mainly as a consequence of the refinancing of our
bank facilities in February 2015.
The Group's reported profit before tax in the six months was
GBP8.0 million (H1 2015: GBP7.5 million), growth of GBP0.5
million.
Acquisitions
The Group's trading benefitted in the six months from three
acquisitions which were completed in the period and financed from
our existing cash reserves and bank facilities:
-- On 5 August 2015 we completed the acquisition of Ventilair
Group International BVBA, based in Belgium with operations in
Belgium and the Netherlands. The consideration was EUR14.3 million
(approximately GBP9.7 million net of cash acquired), EUR16.3
million including settlement of target's debt at acquisition;
-- On 1 December 2015 we completed the acquisition of Weland
Luftbehandling AB, based in Sweden. The company has subsequently
changed its name to Welair AB. The consideration was SEK 7.8
million (approximately GBP0.6 million); and
-- On 21 December 2015 we completed the acquisition of Energy
Technique plc based in the UK. The business subsequently changed
its name to Energy Technique Limited following de-listing and
trades as Diffusion. The consideration was GBP9.4 million (GBP8.2
million net of cash acquired).
For further details please refer to note 14.
Exceptional items and adjusted performance measures
Exceptional items, by virtue of their size, incidence or nature,
are disclosed separately in order to allow a better understanding
of the underlying trading performance of the Group. During the
period ended 31 January 2016 exceptional items were GBP1.0 million
all related to acquisitions made in the period (H1 2015: GBP0.1
million). Details of these exceptional items can be found in note
6.
The Board believes that the performance measures; adjusted
EBITDA, adjusted operating profit and adjusted profit before tax,
stated before deduction of exceptional items, give a clearer
indication of the underlying performance of the business. A
reconciliation of these measures of performance to profit before
tax is detailed in note 7.
In addition to exceptional items, the following are also
excluded from adjusted measures, as reconciled in note 7:
-- On acquisition of a business, we obtain an independent
valuation of material identifiable acquired intangible fixed assets
such as trademarks and customer base and recognise these assets in
our consolidated statement of financial position; we then amortise
these acquired assets over their useful lives. In the six months
the amortisation charge of these intangible assets was GBP6.1
million (H1 2015: GBP5.8 million);
-- At each reporting period end date we measure the fair value
of financial derivatives and recognise any gains or losses
immediately in finance cost. In the six months we recognised a gain
of GBP0.7 million (H1 2015: gain GBP0.6 million); and
-- Other non-recurring items not meeting the definition of
exceptional, such as restructuring costs of GBP0.2 million (H1
2015: GBPnil).
Finance revenue and costs
Finance costs of GBP0.6 million in the six months (H1 2015:
GBP1.3 million) have reduced, largely as a consequence of the
refinancing of our bank facility in February 2015 leading to a
lower overall interest rate coupled with flexibility on repayments
leading to a lower average debt during the period.
Taxation
As a result of the summer Finance Bill 2015, which achieved
royal assent during the period, future UK corporation tax rates
were reduced to 19%, effective from 1 April 2017 and 18% effective
from 1 April 2020. We have large deferred tax liabilities on our
consolidated statement of financial position and the liabilities
have been recalculated as a consequence of these tax rate changes.
As a result the deferred tax liability has decreased, with a one
off credit of GBP1.1 million recognised in the income statement.
This has reduced our effective tax rate in the period to 9.4% (H1
2015: 21.6%).
Operating cash flow
The Group continued to be cash generative in the six months with
adjusted operating cash inflow of GBP11.4 million. This represents
a cash conversion, after capital expenditure of 74.6% (H1 2015:
84.1%). The Group continues to manage its working capital
efficiently with operating working capital representing 27.5% of
half year revenue (H1 2015: 29.5%). Adjusting for the acquisition
of Diffusion and Welair our like for like working capital would
have been 26.7% of our half year revenue. See glossary of terms in
note 20 for a definition of adjusted operating cash flow.
Purchase of own shares
In the period the Group loaned GBP1.0 million to the Volution
Employee Benefit Trust for the exclusive purpose of purchasing
shares in Volution Group plc in order to partly fulfil the
Company's obligations under its Long Term Incentive Plan and
Deferred Share Bonus Plan. The Employee Benefit Trust acquired
528,000 shares at an average price of GBP1.87 per share in the
period, an aggregate consideration of GBP1.0 million. The Employee
Benefit Trust has been consolidated into our interim results for
the first time and the shares purchased have been treated as
treasury shares deducted from shareholders' funds.
Net debt
Net debt as at 31 January 2016 was GBP39.0 million made up of
bank borrowings of GBP54.9 million (FY 2015: GBP32.8 million, H1
2015: GBP52.3 million) offset by cash and cash equivalents of
GBP15.9 million.
Movements in net debt position for the 6 months ending 31
January 2016
2016 2015
GBPm GBPm
------------------------------------------- ------- -------
Opening net debt 1 August (21.2) (42.9)
------------------------------------------- ------- -------
Adjusted operating cash flow
EBITDA 16.5 15.0
movement in working capital (2.5) (0.6)
capital expenditure (2.6) (2.6)
------------------------------------------- ------- -------
11.4 11.8
Other movements from normal business
operations
interest paid (0.5) (1.3)
income tax paid (2.1) (0.4)
exceptional and restructuring items
paid (0.3) (0.1)
other 0.3 0.1
foreign exchange (2.6) 1.4
Movements from investment activities
acquisition consideration (18.5) -
Movements from financing activities
dividends paid (4.5) -
purchase of own shares (1.0) -
Closing net debt 31 January (39.0) (31.4)
------------------------------------------- ------- -------
-- The movements in foreign currency arise as a result of the
revaluation of foreign currency borrowings.
-- Acquisition consideration is net of cash acquired.
-- Of the GBP2.5 million increase in working capital in the
period, GBP0.6 million was the result of movements in foreign
currency exchange rates.
Bank facilities, refinancing and liquidity
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The Group's bank facilities, at the period end 31 January 2016,
consisted of a GBP90 million revolving credit facility, maturing
April 2019. The current debt balance is GBP54.9 million leaving an
unutilised facility of GBP35.1 million and cash reserves of GBP15.9
million.
Foreign exchange
The Group is exposed to the impact of changes in the foreign
currency exchange rates on transactions denominated in currencies
other than the functional currency of our operating businesses. We
have significant Euro income in the UK which is partly balanced by
Euro expenditure. For US Dollars we have little income but
significant expenditure. Our policy is to limit our transactional
foreign exchange risk by purchasing the majority of our forecast US
Dollar requirements for, and in advance of, the ensuing twelve
month period.
We are also exposed to translational currency risk as the Group
consolidates foreign currency denominated assets, liabilities,
income and expenditure into Group reporting denominated in
sterling. We hedge the translation risk of the net assets in Fresh
and PAX with GBP14.8 million borrowings denominated in SEK (H1
2015: GBP17.8 million). We have partially hedged our risk of
translation of the net assets of inVENTer and Ventilair by having
Euro denominated bank borrowings in the amount of GBP19.9 million
as at 31 January 2016 (H1 2015: GBP9.5 million). We do not hedge
the results of overseas subsidiaries.
During the six months, movements in foreign currency exchange
rates have had an adverse effect on the reported revenue and
profitability of our business. If we had translated the H1 2016
performance of our business at our 2015 exchange rates our reported
Group revenues would have been GBP72.7 million, GBP2.5 million
(4.0%) higher and operating profit would have been GBP8.4 million,
GBP0.5 million (6.3%) higher.
Earnings per share
The basic and diluted earnings per share for the 6 months ended
31 January 2016 was 3.64 pence (H1 2015: 2.94 pence). Our adjusted
basic and diluted earnings per share was 5.73 pence (H1 2015: 4.98
pence).
Interim dividend
The Board has declared an interim dividend of 1.20 pence per
share, which represents growth of 14.3% compared to H1 2015. This
dividend will be paid on 5 May 2016 to shareholders on the register
at the close of business on 1 April 2016.
Ian Dew
Chief Financial Officer
18 March 2016
PRINCIPAL RISKS AND UNCERTANTIES
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected and historical results.
The directors do not consider that the principal risks and
uncertainties have changed since the publication of the Annual
Report for the year ended 31 July 2015. These risks are summarised
below, and how the Group seeks to mitigate these risks is set out
on pages 24 and 27 of the Annual Report 2015 which can be found at
www.volutiongroupplc.com.
A summary of the nature of the risks currently faced by the
Group is as follows:
Economic Risk
A decline in general economic activity and/or a specific decline
in activity in the construction industry would result in a decline
in demand for our products serving the residential and commercial
RMI and new build markets would decline. This would result in a
reduction in revenue and profitability.
Foreign Exchange Risk
The exchange rates between currencies that we use may move
adversely. The commerciality of transactions denominated in
currencies other than the functional currency of our businesses
and/or the perceived performance of foreign subsidiaries in our
sterling denominated Group consolidated financial statements may be
adversely affected by changes in exchange rates.
Acquisitions
We may fail to identify suitable acquisition targets at an
acceptable price or we may fail to consummate or properly integrate
the acquisition. The impact could include: revenue and
profitability which may not grow in line with management's
ambitions and investor expectations; a failure to properly
integrate a business may distract senior management from other
priorities and adversely affect revenue and profitability;
financial performance by failure to integrate acquisitions and
therefore not secure possible synergies.
Innovation
We may fail to innovate commercially or technically viable
products to maintain and develop our product leadership position.
Scarce development resource may be misdirected and costs incurred
unnecessarily. Failure to innovate may result in an ageing product
portfolio which falls behind that of our competition.
Supply chain and raw materials
Raw materials or components may become difficult to source
because of material scarcity or disruption of supply. Sales and
profitability may be reduced during the period of constraint.
Prices for the input material may increase and our costs may
increase.
IT systems
We may be adversely affected by a breakdown in our IT systems or
a failure to properly implement any new systems. Failure of our IT
and communication systems could affect any or all of our business
processes and have significant impact on our ability to trade,
collect cash and make payments.
Customers
A significant amount of our revenue is derived from a small
number of customers and from our relationships with heating and
ventilation consultants. We may fail to maintain these
relationships. Any deterioration in our relationship with a
significant customer could have an adverse significant effect on
our revenue from that customer.
Legal and regulatory environment
Changes in laws or regulation relating to the carbon efficiency
of buildings or the efficiency of electrical products may change.
The shift towards higher value-added and more energy-efficient
products may not develop as anticipated resulting in lower sales
and profit growth. If our products are not compliant and we fail to
develop new products in a timely manner we may lose revenue and
market share to our competitors.
People
Our continuing success depends on retaining key personnel and
attracting skilled individuals. Skilled and experienced employees
may decide to leave the Group, potentially moving to a competitor.
Any aspect of the business could be impacted with resultant
reduction in prospects, sales and profitability.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate
Governance Code 2014 (which applies to the Group for the financial
year ended 31 July 2016), the Board will assess the prospects of
the Group over a longer period than the twelve months required by
the Going Concern provision. The Board will determine the period of
time which is relevant to the Group and its prospects over that
period, and make a disclosure together with the reasons why the
period was chosen, in the Annual Report and Accounts 2016.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
The condensed consolidated set of financial statements has been
prepared in accordance with International Accounting Standard 34
'Interim Financial Reporting' as adopted by the European Union and
that the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or the performance of the Group
during that period; and any changes in the related party
transactions described in the Annual Report 2015 that could do
so.
The directors of Volution Group plc are as listed in the
Company's Annual Report for the year ended 31 July 2015.
By order of the Board
Ronnie George Ian Dew
Chief Executive Officer Chief Financial Officer
18 March 2016 18 March 2016
INDEPENDENT REVIEW REPORT TO VOLUTION GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 January 2016 which comprises the interim
condensed consolidated statement of comprehensive income, interim
condensed consolidated statement of financial position, interim
condensed consolidated statement of changes in equity, interim
condensed consolidated statement of cash flows and the related
notes 1 to 20. We have read the other information contained in the
half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
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As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with the International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
January 2016 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
18 March 2016
(Notes:)
(1. The maintenance and integrity of the Volution Group plc web
site is the responsibility of the directors; the work carried out
by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial information since
it was initially presented on the web site.)
(2. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.)
Interim condensed consolidated statement of comprehensive
income
For the six months ended 31 January
31 January 31 January
2016 2015
Unaudited Unaudited
Notes GBP000 GBP000
Revenue 4 70,142 64,349
Cost of sales (35,521) (32,996)
---------- ----------
Gross profit 34,621 31,353
Distribution costs (9,679) (9,832)
Administrative expenses (16,021) (13,333)
---------- ----------
Operating profit before exceptional items 8,921 8,188
Exceptional items 6 (976) (46)
---------- ----------
Operating profit 7,945 8,142
Finance revenue 716 644
Finance costs 8 (621) (1,287)
---------- ----------
Profit before tax 8,040 7,499
Income tax 9 (769) (1,621)
---------- ----------
Profit for the period 7,271 5,878
Other comprehensive expense:
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations 1,708 (343)
Loss on hedge of net investment in foreign operation (832) (49)
---------- ----------
Other comprehensive income/(expense) for the period 876 (392)
---------- ----------
Total comprehensive income for the period 8,147 5,486
========== ==========
Earnings per share
Basic and diluted, pence per share 10 3.64 2.94
Interim condensed consolidated statement of financial
position
31 January 2016 31 July 2015
Unaudited Audited
Notes GBP000 GBP000
Non-current assets
Property, plant and equipment 11 17,998 16,047
Intangible assets - goodwill 12 62,344 51,725
Intangible assets - other 13 106,763 100,951
Deferred tax assets 394 394
--------------- ------------
187,499 169,117
--------------- ------------
Current assets
Inventories 18,178 15,019
Trade and other receivables 29,935 26,271
Other current financial assets 16 479 -
Cash and short term deposits 15,948 11,565
--------------- ------------
64,540 52,855
--------------- ------------
Total assets 252,039 221,972
=============== ============
Current liabilities
Trade and other payables (28,849) (25,295)
Other current financial liabilities 16 - (225)
Income tax (2,332) (1,411)
Provisions (1,024) (855)
--------------- ------------
(32,205) (27,786)
--------------- ------------
Non-current liabilities
Interest bearing loans and borrowings 15 (54,187) (31,867)
Provisions (669) (600)
Deferred tax liabilities (19,687) (19,273)
--------------- ------------
(74,543) (51,740)
--------------- ------------
Total liabilities (106,748) (79,526)
=============== ============
Net assets 145,291 142,446
=============== ============
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares at cost (987) -
Capital reserve 92,325 92,325
Share-based payment reserve 366 181
Foreign currency translation reserve 413 (463)
Retained earnings 39,647 36,876
------- -------
Total equity 145,291 142,446
======= =======
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Interim condensed consolidated statement of changes in
equity
Foreign
Treasury Share-based currency
Share Share Capital shares at payment translation Retained
capital premium reserve cost reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 August
2014 (Audited) 2,000 11,527 92,325 - - 257 27,141 133,250
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
Profit for the
period - - - - - - 5,878 5,878
Other
comprehensive
expense - - - - - (392) - (392)
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
Total
comprehensive
income - - - - - (392) 5,878 5,486
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
At 31 January
2015
(Unaudited) 2,000 11,527 92,325 - - (135) 33,019 138,736
============ ============ =========== =========== =========== =========== ============ =======
Profit for the
period - - - - - - 5,957 5,957
Other
comprehensive
expense - - - - - (328) - (328)
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
Total
comprehensive
expense/income - - - - - (328) 5,957 5,629
Share-based
payment - - - - 181 - - 181
Dividends paid - - - - - - (2,100) (2,100)
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
At 31 July 2015
(Audited) 2,000 11,527 92,325 - 181 (463) 36,876 142,446
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
Profit for the
period - - - - - - 7,271 7,271
Other
comprehensive
expense - - - - - 876 - 876
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
Total
comprehensive
income - - - - - 876 7,271 8,147
Purchase of own
shares - - - (987) - - - (987)
Share-based
payment - - - - 185 - - 185
Dividends paid - - - - - - (4,500) (4,500)
------------ ------------ ----------- ----------- ----------- ----------- ------------ -------
At 31 January
2016
(Unaudited) 2,000 11,527 92,325 (987) 366 413 39,647 145,291
============ ============ =========== =========== =========== =========== ============ =======
Capital reserve
The capital reserve is the difference in share capital and
reserves arising at the time of the IPO from the use of the pooling
of interest method for preparation of the 2014 financial statements
following a group re-organisation. This is a non-distributable
reserve.
Treasury shares at cost
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 option schemes.
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 directly to the foreign
currency translation reserve. No ineffectiveness has been
recognised in the statement of comprehensive income for any of the
periods presented.
These two items are the only items in other comprehensive
income.
Interim condensed consolidated statement of cash flows
For the six months ended 31 January
31 January 2016 31 January 2015
Unaudited Unaudited
Notes GBP'000 GBP'000
Operating activities
Profit for the period after tax 7,271 5,878
Adjustments to reconcile profit for the period to net cash flow from
operating activities:
Income tax 769 1,621
Gain on disposal of property, plant and equipment (6) (28)
Exceptional items 6 976 46
Cash flows relating to exceptional items (92) (46)
Finance revenue (716) (644)
Finance costs 8 621 1,287
Share based payment expense 185 -
Depreciation of property, plant and equipment 1,199 990
Amortisation of intangible assets 6,209 5,860
Working capital adjustments:
Decrease in trade receivables and other assets 153 1,065
(Increase)/decrease in inventories (1,038) 180
Exceptional costs: fair value of inventories (333) -
Decrease in trade payables and other payables (1,321) (1,952)
increase in provisions 29 85
UK income tax paid (1,400) (373)
Overseas income tax paid (653) (27)
---------------- ----------------
Net cash flow from operating activities 11,853 13,942
================ ================
Investing activities
Payments to acquire intangible assets (891) (700)
Purchase of property, plant and equipment (1,750) (2,062)
Proceeds from disposal of property, plant and equipment 71 183
Acquisition of subsidiaries, net of cash acquired 14 (18,513) -
Interest received 11 6
---------------- ----------------
Net cash flow used in investing activities (21,072) (2,573)
================ ================
31 January 2016 31 January 2015
Unaudited Unaudited
GBP'000 GBP'000
Financing activities
Repayment of interest bearing loans and borrowings (1,436) -
Proceeds from new borrowings 20,622 -
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Interest paid (463) (1,287)
Dividends paid (4,500) -
Purchase of own shares (987) -
---------------- ----------------
Net cash flow from financing activities 13,236 (1,287)
================ ================
Net increase in cash and cash equivalents 4,017 10,082
Cash and cash equivalents at the start of the period 11,565 10,987
Effect of exchange rates on cash and cash equivalents 366 (183)
---------------- ----------------
Cash and cash equivalents at the end of the period 15,948 20,886
================ ================
1. Corporate Information
The Company is a public limited company and is incorporated and
domiciled in the UK (registered number: 09041571). The share
capital of the Company is listed on the London Stock Exchange. The
address of its registered office is Fleming Way, Crawley, West
Sussex RH10 9YX.
The interim results were authorised for issue by the Board of
Directors on 18 March 2016. The financial information set out
herein does not constitute the statutory accounts and is
unaudited.
2. Accounting policies
Basis of preparation
These condensed consolidated financial statements have been
prepared in accordance with IAS 34, 'Interim Financial Reporting',
as adopted by the European Union. They do not include all
disclosures that would otherwise be required in a complete set of
financial statements and should be read in conjunction with the
2015 annual report. The financial information for the half years
ended 31 January 2016 and 31 January 2015 do not constitute
statutory within the meaning of Section 434(3) of the Companies Act
2006 and are unaudited.
The annual financial statements of Volution Group plc are
prepared in accordance with IFRS as adopted by the European Union.
The comparative financial information for the year ended 31 July
2015 included within this report does not constitute the full
statutory accounts for that period. The statutory Annual Report and
Financial statements for 2015 have been filed with the Registrar of
Companies. The Independent Auditors' Report on the Annual Report
and Financial Statements for 2015 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a
statement under 498(2) and 498(3) of the Companies Act 2006.
After making enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the half-yearly condensed consolidated financial
statements.
The same accounting policies, presentation and methods of
computation are followed in these condensed consolidated financial
statements as were applied in the Group's latest annual audited
financial statements. No new accounting standards and amendments
have been adopted during the period. The Group has not early
adopted any standard, interpretation or amendment that has been
issued but is not yet effective.
The Company has established an Employee Benefit Trust (EBT)
which is used in connection with the operation of the Company's
Long Term Incentive Plan (LTIP) and Deferred Share Bonus Plan. The
Company's own shares held by the Volution EBT are treated as
treasury shares and deducted from shareholders' funds until they
vest unconditionally with employees.
At 31 January 2016, a total of 528,000 (31 January 2015: nil)
ordinary shares in the Company were held by the Volution EBT, all
of which were under option to employees for nil consideration.
During the period 528,000 ordinary shares in the Company were
purchased by the trustees (31 January 2015: nil), and nil (31
January 2015: nil) were disposed of by the trustees. The market
value of the shares at 31 January 2016 was GBP886,000 (31 January
2015: GBPnil).
The Volution EBT has agreed to waive its rights to
dividends.
3. 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 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.
Judgements
The following are the critical Judgements (apart from those
involving estimations), that management has made in the process of
applying the entity's accounting policies and that have the most
significant effect on the amounts recognised in financial
statements:
Exceptional items
The Group discloses exceptional items by virtue of their nature,
size or incidence to allow a better understanding of the underlying
trading performance of the Group. The Group identifies an item or
expense of income as exceptional, when in management's judgment,
the underlying event giving rise to the exceptional item is deemed
to be non-recurring in its nature, size or incidence such that
Group results would be distorted without specific reference to the
event in question. To enable the full impact of an exceptional item
to be understood, the tax impact is disclosed and they are
presented separately in the statement of cash flows.
Development costs
Development costs that are directly attributable to the
development of a product are capitalised using management's
assessment of the likelihood of a successful outcome for each
product being released to market, this is based on management's
judgement that the product is technologically, commercially and
economically feasible in accordance with IAS 38 'Intangible
assets'.
Estimates and assumptions
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 below. 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.
Fair value of assets acquired during business combinations
Judgements and estimates are required in assessment of fair
value of the consideration and net assets acquired, including the
identification and valuation of intangible assets. In valuing
certain intangible assets management has made assumptions about the
retention rate of customers and cash flow forecasts used to
determine the fair value of the assets at the date of
acquisition.
Impairment of goodwill and other intangible assets
The Group's impairment test for goodwill is based on a value in
use calculation using a discounted cash flow model. The cash flows
are derived from the budget for the following five years. The
recoverable amount is most 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 Group records all assets and liabilities acquired in
business acquisitions, at fair value. Intangible assets are
reviewed for impairment annually if events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
Rebates payable and receivable
The Group has a number of customer and supplier rebate
agreements that are recognised as a reduction from sales or a
reduction of cost of sales as appropriate (collectively referred to
as rebates). Rebates are based on an agreed percentage of revenue
or purchases, which will increase with the level of revenue
achieved or purchases made. These agreements typically run to a
different reporting period to that of the Group with some of the
amounts payable and receivable being subject to confirmation after
the reporting date. At the reporting date, the Directors make
estimates of the amount of rebate that will become both payable and
due to the Group under these agreements based upon their best
estimates of volumes and product mix that will be bought or sold
over each individual rebate agreement period. Where the respective
customer or supplier has been engaged with the Group for a number
of years, historical settlement trends are also used to assist in
ensuring an appropriate estimate is recorded at the reporting date
and that appropriate internal approvals and reviews take place
before rebates are recorded. The total customer rebate provision,
included in trade and other payables, at 31 January 2016 is
GBP5,255,000 (31 July 2015: 5,017,000), the total supplier rebate
due is an immaterial balance at both 31 January 2015 and 31 July
2016.
Provisions for warranties, bad debts and inventory
obsolescence
Provisions for warranties are made with reference to recent
trading history and historic warranty claim information, and the
view of management as to whether warranty claims are expected.
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Provisions for bad debts and inventory obsolescence are made
with reference to the ageing of receivables and inventory balances
and the view of management as to whether amounts are recoverable.
Bad debt and warranty provisions will be determined with
consideration to recent customer trading and management experience,
and provision for inventory obsolescence to sales history and to
latest sales forecasts.
4. Revenue
Revenue recognised in the statement of comprehensive income is
analysed below:
For the six months ended 31 January 2016 For the six months ended 31 January 2015
GBP000 GBP000
Sale of goods 68,831 63,215
Rendering of services 1,311 1,134
---------------------------------------- ----------------------------------------
Total revenue 70,142 64,349
======================================== ========================================
For the six months ended 31 January 2016 For the six months ended 31 January 2015
GBP000 GBP000
Market Sectors
UK Ventilation
UK Residential RMI 17,011 17,907
UK Residential New Build 8,333 7,782
UK Commercial 8,246 7,960
UK Export 2,816 3,923
Total UK Ventilation 36,406 37,572
---------------------------------------- ----------------------------------------
Nordic Ventilation(1) 12,433 11,570
Central Europe Ventilation(2) 10,858 5,274
OEM (Torin-Sifan) 10,445 9,933
---------------------------------------- ----------------------------------------
Total revenue 70,142 64,349
======================================== ========================================
Notes
1. Represents revenue of Fresh AB and its subsidiaries, PAX AB,
Volution Norge AS and PAX Norge AS.
2. Represents revenue of inVENTer GmbH, Brüggemann
Energiekonzepte GmbH, Ventilair Group International and its
subsidiaries.
5. Segmental analysis
In identifying its operating segments, management follows the
Group's product markets. The Group is considered to have two
reportable segments: Ventilation Group and OEM (Torin-Sifan). Each
reportable segment is managed separately as they require different
marketing approaches.
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, 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 EBITDA (see note
20 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.
OEM
Ventilation (Torin Sifan) Unallocated Total segments Eliminations Consolidated
Six months ended 31 January 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
External customers 59,697 10,445 - 70,142 - 70,142
Inter-segment 7,648 436 - 8,084 (8,084) -
----------- -------------- ----------- -------------- ------------ ------------
Total revenue 67,345 10,881 - 78,226 (8,084) 70,142
=========== ============== =========== ============== ============ ============
Gross profit 31,265 3,356 - 34,621 - 34,621
=========== ============== =========== ============== ============ ============
Adjusted segment EBITDA 15,319 2,203 (997) 16,525 - 16,525
=========== ============== =========== ============== ============ ============
Depreciation and amortisation of
development costs, software and
patents (1,023) (267) (28) (1,318) - (1,318)
----------- -------------- ----------- -------------- ------------ ------------
Adjusted operating profit/(loss) 14,296 1,936 (1,025) 15,207 - 15,207
----------- -------------- ----------- -------------- ------------ ------------
Amortisation of assets acquired
through business combinations (5,411) (679) - (6,090) - (6,090)
Exceptional items - - (976) (976) - (976)
Other non-recurring items not
meeting the definition of
exceptional - - (196) (196) - (196)
----------- -------------- ----------- -------------- ------------ ------------
Operating profit/(loss) 8,885 1,257 (2,197) 7,945 - 7,945
Unallocated expenses:
Net finance income - - 95 95 - 95
----------- -------------- ----------- -------------- ------------ ------------
Profit/(loss) before tax 8,885 1,257 (2,102) 8,040 - 8,040
=========== ============== =========== ============== ============ ============
A portion of Group overhead costs (GBP997,000) are not allocable
to individual operating segments. Likewise, exceptional costs
incurred by the holding companies have not been allocated to
individual operating segments.
OEM Total
UK Ventilation (Torin Sifan) Unallocated segments Eliminations Consolidated
Six months ended 31 January 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
External customers 54,416 9,933 - 64,349 - 64,349
Inter-segment 6,546 620 - 7,166 (7,166) -
-------------- -------------- ----------- --------- ------------ ------------
Total revenue 60,962 10,553 - 71,515 (7,166) 64,349
============== ============== =========== ========= ============ ============
Gross profit 28,294 3,059 - 31,353 - 31,535
============== ============== =========== ========= ============ ============
Adjusted segment EBITDA 14,077 1,717 (756) 15,038 - 15,038
============== ============== =========== ========= ============ ============
Depreciation and amortisation of
development costs, software and
patents (780) (268) - (1,048) - (1,048)
-------------- -------------- ----------- --------- ------------ ------------
Adjusted operating profit/(loss) 13,297 1,449 (756) 13,990 - 13,990
-------------- -------------- ----------- --------- ------------ ------------
Amortisation of assets acquired
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through business combinations (5,156) (646) - (5,802) - (5,802)
Exceptional items - - (46) (46) - (46)
-------------- -------------- ----------- --------- ------------ ------------
Operating profit/(loss) 8,141 803 (802) 8,142 - 8,142
Unallocated expenses:
Net finance cost - - (643) (643) - (643)
-------------- -------------- ----------- --------- ------------ ------------
Profit/(loss) before tax 8,141 803 (1,445) 7,499 - 7,499
============== ============== =========== ========= ============ ============
For the six months ended 31 January For the six months ended 31 January
Geographic information 2016 2015
GBP000 GBP000
Revenue from external customers (by
destination):
United Kingdom 39,279 39,025
Europe (excluding United Kingdom and
Sweden) 19,997 15,546
Sweden 9,724 8,467
Rest of the world 1,142 1,311
-------------------------------------- --------------------------------------
Total revenue 70,142 64,349
====================================== ======================================
31 January 2016 31 July 2015
GBP000 GBP000
Non-current assets:
United Kingdom 148,027 142,957
Europe (excluding United Kingdom & Nordics) 26,055 13,787
Nordics 13,023 11,979
--------------- ------------
Total 187,105 168,723
=============== ============
Non-current assets exclude deferred tax.
6. Exceptional items
The Group discloses exceptional items by virtue of their nature,
size or incidence to allow a better understanding of the underlying
trading performance of the Group. Exceptional costs are summarised
below:
For the six months ended 31 January For the six months ended 31 January
2016 2015
GBP000 GBP000
Inventory fair value adjustment arising
on business combinations 333 -
Acquisition costs 643 -
Costs associated with the stock market
listing of the Group - 46
976 46
Total tax credit relating to the items
above - -
-------------------------------------- -----------------------------------
976 46
====================================== ===================================
The acquisition costs relate to the acquisitions of Energy
Technique plc (GBP552,000), Ventilair Group International
(GBP58,000) and Weland Luftbehandling AB (GBP33,000) completed
during the period.
7. Adjusted earnings
For the six months ended 31 January For the six months ended 31 January
2016 2015
GBP000 GBP000
Profit before tax 8,040 7,499
Add back:
Exceptional items 976 46
Other non-recurring items not meeting
the definition of exceptional 196 -
Net gain on financial instruments at
fair value (705) (638)
Amortisation and impairment of other
intangible assets (customer base and
trademarks) 6,090 5,802
-------------------------------------- --------------------------------------
Adjusted profit before tax 14,597 12,709
Add back:
Interest payable on bank overdraft
and bank loans 621 1,287
Finance income (11) (6)
-------------------------------------- --------------------------------------
Adjusted operating profit 15,207 13,990
Add back:
Depreciation of property, plant and
equipment 1,199 990
Amortisation of development costs,
software and patents 119 58
-------------------------------------- --------------------------------------
Adjusted EBITDA 16,525 15,038
====================================== ======================================
For an explanation of the adjusted terms used above please see
the glossary of terms at note 20.
8. Finance costs
As a result of the Group re-financing, which took place in
February 2015, the interest rate paid has reduced resulting in
finance costs for the period of GBP621,000 (2015: GBP1,287,000).
There has been a lower level of borrowings, on average, for the
period to 31 January 2016 compared with the period to 31 January
2015.
9. Income taxes
The estimated average annual adjusted tax rate for the period
ended 31 January 2016 is approximately 9.4% (H1 2015: 21.6%). As a
result of the Summer Finance Bill 2015 which achieved royal assent
during the period, future UK corporation tax rates were reduced to
19%, effective from 1 April 2017 and 18% effective from 1 April
2020. We have large deferred tax liabilities on our consolidated
statement of financial position and the liabilities have been
recalculated as a consequence of these tax rate changes. As a
result the deferred tax liability has decreased, with a one off
credit of GBP1.1 million recognised in the income statement. This
has reduced our effective tax rate in the period to 9.4% (H1 2015:
21.6%).
10. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
for the period attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the period.
Diluted earnings per share amounts are calculated by dividing
the profit attributable to ordinary equity holders of the parent by
the weighted average number of ordinary shares outstanding during
the period plus the weighted average number of ordinary shares that
would be issued on conversion of any dilutive potential ordinary
shares into ordinary shares. There are no dilutive potential
ordinary shares for the periods ended 31 January 2016 and 2015.
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The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Six months ended 31 January
2016 2015
GBP000 GBP000
Profit attributable to ordinary equity holders 7,271 5,878
No. No.
Weighted average number of ordinary shares for basic earnings per share and diluted
earnings
per share 199,736,000 200,000,000
Earnings per share:
Basic and diluted 3.64p 2.94p
Six months ended 31 January
2016 2015
GBP000 GBP000
Adjusted profit attributable to ordinary equity holders 11,450 9,962
No. No.
Weighted average number of ordinary shares for adjusted basic earnings per share and
diluted
earnings per share 200,000,000 200,000,000
Adjusted earnings per share:
Basic and diluted 5.73p 4.98p
See note 20, glossary of terms for an explanation of the
adjusted basic and diluted earnings per share calculation.
11. Property, plant and equipment
Total
GBP000
Cost
At 31 July 2015 21,749
Additions 1,750
Disposals (384)
On acquisition 1,019
Net foreign currency exchange differences 934
As 31 January 2016 25,068
-------
Depreciation
At 31 July 2015 5,702
Depreciation expense 1,199
Disposals (320)
Net foreign currency exchange differences 489
As 31 January 2016 7,070
-------
Net book value
-------
At 31 January 2016 17,998
=======
At 31 July 2015 16,047
=======
12. Intangible assets - goodwill
Total
GBP000
Cost and net book value:
At 31 July 2015 51,725
On acquisition of Ventilair Group International BVBA and its subsidiaries 5,547
On acquisition of Weland Luftbehandling AB 93
On acquisition of Energy Technique plc and its subsidiaries 3,931
Net foreign currency exchange differences 1,048
As 31 January 2016 62,344
=======
13. Intangible assets - other
Total
GBP000
Cost
At 31 July 2015 141,553
Additions 891
On acquisition 9,374
Net foreign currency exchange differences 2,326
As 31 January 2016 154,144
-------
Amortisation
At 31 July 2015 40,602
Amortisation expense 6,209
Net foreign currency exchange differences 570
As 31 January 2016 47,381
-------
Net book value
-------
At 31 January 2016 106,763
=======
At 31 July 2015 100,951
=======
14. Business combinations
Acquisitions in the six months ended 31 January 2016
Ventilair Group International BVBA
On 5 August 2015, Volution Ventilation Group Limited acquired
the entire issued share capital of Ventilair Group International
BVBA. The transaction was funded from the Group's existing
revolving credit facility. The Group acquired Ventilair Group
International as it offers a channel to sell existing ventilation
products in a new region.
Total consideration for the transaction was cash consideration
of EUR14,276,000 (GBP9,940,000) and contingent consideration with a
fair value of EUR48,000 (GBP34,000).
Transaction costs associated with the acquisition in the period
ended 31 January 2016 were GBP58,000 and have been expensed.
The provisional fair value of the net assets acquired is set out
below:
Book value Fair value adjustments Provisional fair value
GBP000 GBP000 GBP000
Intangible assets 114 4,874 4,988
Deferred tax - (1,475) (1,475)
Property, plant and equipment 339 (9) 330
Inventory 1,407 225 1,632
Trade and other receivables 2,574 (282) 2,292
Trade and other payables (3,583) (27) (3,610)
Cash and cash equivalents 270 - 270
---------- ---------------------- ----------------------
Total identifiable net assets 1,121 3,306 4,427
---------- ---------------------- ----------------------
Goodwill on acquisition 5,547
Consideration payable 9,974
======================
Discharged by:
Consideration satisfied in cash 9,940
Contingent consideration 34
Goodwill of GBP5,547,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies and the
experience and skill of the workforce arising from the acquisition.
The fair value of the acquired tradename and customer base was
identified and included in intangible assets including the deferred
tax therein.
The gross amount of trade and other receivables is GBP2,574,000.
The amounts for trade and other receivables not expected to be
collected are GBP282,000.
Ventilair Group International and its subsidiaries generated
revenue of GBP6,707,000 and generated a profit after tax of
GBP399,000 in the period from acquisition to 31 January 2016 that
is included in the consolidated statement of comprehensive income
for this reporting period.
Weland Luftbehandling AB
On 1 December 2015, Volution Holdings Sweden AB acquired the
entire issued share capital of Weland Luftbehandling AB. The
transaction was funded from the Group's existing revolving credit
facility. The Group acquired Weland Luftbehandling AB because it
provided additional manufacturing capabilities to the current
Nordics group. The company changed its name on 29 December 2015 to
Welair AB.
Total consideration for the transaction was cash consideration
of SEK 7,808,000 (GBP597,000).
Transaction costs associated with the acquisition in the period
ended 31 January 2016 were GBP33,000 and have been expensed.
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The provisional fair value of the net assets acquired is set out
below:
Provisional
Fair value fair
Book value adjustments value
GBP000 GBP000 GBP000
Intangible assets - 156 156
Deferred tax - (34) (34)
Property, plant and equipment 168 - 168
Inventory 412 (149) 263
Trade and other receivables 235 (1) 234
Trade and other payables (227) (65) (292)
Cash and cash equivalents 9 - 9
---------- ------------ -----------
Total identifiable net assets 597 (93) 504
---------- ------------ -----------
Goodwill on acquisition 93
Consideration payable 597
===========
Discharged by:
Consideration satisfied in
cash 597
The fair value of the acquired customer base was identified and
included in intangible assets including the deferred tax
therein.
Goodwill of GBP93,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies and the
experience and skill of the workforce arising from the
acquisition.
Welair AB generated revenue of GBP188,000 and generated a loss
after tax of GBP26,000 in the period from acquisition to 31 January
2016 that is included in the consolidated statement of
comprehensive income for this reporting period.
Energy Technique plc
On 21 December 2015, Volution Group plc acquired the entire
issued share capital of Energy Technique plc ("ET"). The
transaction was funded from the Group's existing revolving credit
facility. The Group acquired ET because there is a strong
commercial and cultural fit between ET and the existing group in
terms of their strategies, products and service offerings. The
acquisition is in line with the strategy to continue to acquire and
integrate businesses with well-established brands in the HVAC and
ventilation market, operating in markets underpinned by favourable
structural dynamics and with an emphasis on heat recovery
systems.
Total consideration for the transaction was GBP9,396,000.
Transaction costs associated with the acquisition in the period
ended 31 January 2016 were GBP552,000 and have been expensed.
The provisional fair value of the net assets acquired is set out
below:
Fair Provisional
Book value fair
value adjustments value
GBP000 GBP000 GBP000
Intangible assets 9 4,221 4,230
Deferred tax (23) (846) (869)
Property, plant and equipment 409 112 521
Inventory 816 (49) 767
Trade and other receivables 1,880 - 1,880
Trade and other payables (2,154) (120) (2,274)
Cash and cash equivalents 1,210 - 1,210
------- ------------ -----------
Total identifiable net assets 2,147 3,318 5,465
------- ------------ -----------
Goodwill on acquisition 3,931
Consideration payable 9,396
===========
Discharged by:
Consideration satisfied in cash 9,396
The fair value of the acquired customer base, trademark,
favourable contract agreements and committed order book were
identified and included in intangible assets including the deferred
tax therein.
Goodwill of GBP3,931,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies and the
experience and skill of the workforce arising from the
acquisition.
The gross amount of trade receivables is GBP1,729,000. It is
expected that the full contractual amounts for trade and other
receivables can be collected.
ET generated revenue of GBP856,000 and generated a profit before
tax of GBP81,000 in the period from acquisition to 31 January 2016
that is included in the consolidated statement of comprehensive
income for this reporting period.
15. Interest bearing loans and borrowings
Current Non-current Current Non-current
31 July 31 July
31 January 2016 31 January 2016 2015 2015
GBP000 GBP000 GBP000 GBP000
Secured - at amortised cost
Borrowings under the revolving credit facility - 54,936 - 32,733
Unamortised finance costs (749) (866)
- 54,187 - 31,867
=============== =============== ======= ===========
Interest bearing borrowings comprise 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. No
security is provided under the facility.
During the period an additional GBP20,600,000 was drawn down
from the revolving credit facility to fund the acquisitions in the
period. GBP1,400,000 was subsequently repaid from cash flows
generated through operating activities.
16. Other financial assets and liabilities
Current Non-current Current Non-current
31 July 31 July
31 January 2016 31 January 2016 2015 2015
GBP000 GBP000 GBP000 GBP000
Financial assets
--------------- --------------- ------- -----------
FX forward contracts 479 - - -
=============== =============== ======= ===========
Financial liabilities
Interest rate swap - - (73) -
FX forward contracts - - (152) -
--------------- --------------- ------- -----------
- - (225) -
=============== =============== ======= ===========
17. Fair values of financial assets and financial liabilities
Derivative financial instruments are deemed to be level 2 in the
fair value hierarchy as they are valued using techniques for which
all inputs that have a significant effect on the recorded fair
value are observable, either directly or indirectly. Their fair
value is measured using valuation techniques including the
discounted cash flow model. Inputs to this calculation include
expected cash flows in relation to these derivative contracts and
relevant discount rates.
18. 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.
There were no material transactions or balances between the
Company and its key management personnel or members of their close
family. At the end of the period, key management personnel did not
owe the Company any amounts.
Non-executive director Paul Hollingworth is also a non-executive
director of Electrocomponents plc. During the 6 months to 31
January 2016, the Group sold goods to Electrocomponents plc
amounting to GBP98,000 (6 months to 31 January 2015: GBP136,000).
At 31 January 2016, amounts owing by Electrocomponents plc were
GBP25,000 (31 July 2015: GBP27,000). During the 6 months to 31
January 2016 the Group purchased goods from Electrocomponents plc
amounting to GBP41,000 (6 months to 31 January 2015: GBP48,000). At
31 January 2016, amounts owed to Electrocomponents plc were
GBP11,000 (31 July 2015: GBP15,000). All transactions with
Electrocomponents plc were conducted at an arm's length basis.
19. Dividends
The Group paid a final dividend of 2.25 pence per ordinary share
during the period in respect of the year ended 31 July 2015. The
Board has declared an interim dividend of 1.20 pence per ordinary
share in respect of the half year ended 31 January 2016 (6 months
to 31 January 2015: 1.05 pence per ordinary share) which will be
paid on 5 May 2016 to shareholders on the register at the close of
business on 1 April 2016. The total dividend payable has not been
recognised as a liability in these accounts. The Volution EBT has
agreed to waive its rights to all dividends.
20. Glossary of terms
Net debt - bank borrowings less cash and cash equivalents
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 (including cash
held in escrow).
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