TIDMFAN
RNS Number : 0620I
Volution Group plc
19 March 2018
Monday 19 March 2018
VOLUTION GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHSED 31 JANUARY 2018
Further progress with revenue growth of 11.6% and adjusted EPS
up 8.3%.
Volution Group plc ("Volution" or "the Group" or "the Company",
LSE: FAN), a leading supplier of ventilation products to the
residential and commercial construction markets, today announces
its unaudited interim financial results for the 6 months ended 31
January 2018.
6 months 6 months
to to
31 January 31 January
Financial results 2018 2017 Movement
Revenue (GBPm) 98.7 88.5 11.6%
Adjusted operating profit (GBPm) 18.3 17.1 6.7%
Adjusted profit before tax (GBPm) 17.8 16.5 7.8%
Reported profit before tax (GBPm) 10.1 8.8 14.5%
Adjusted basic and diluted EPS (p) 7.08 6.54 8.3%
Reported basic and diluted EPS (p) 4.16 3.61 15.2%
Adjusted operating cash flow (GBPm) 11.8 16.4 (27.9)%
Interim dividend per share (p) 1.46 1.35 8.1%
Net debt (GBPm) 34.9 40.6 (5.7)
The Group uses some alternative performance measures to track
and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted basic and diluted EPS and adjusted operating cash
flow. For a definition of all the adjusted and non-GAAP measures,
please see the glossary of terms in note 20. A reconciliation to
the reported measures is set out in note 4.
Financial highlights
-- Revenue growth of 11.6% (10.3% at constant currency):
-- Organic revenue growth of 6.3% (5.1% at constant
currency),
-- Inorganic revenue growth of 5.3% (5.2% at constant
currency).
-- Adjusted operating profit increased by 6.7% to GBP18.3
million (6.4% at constant currency).
-- As anticipated, adjusted operating profit margin
declined by 0.9 percentage points, partly as a consequence
of the effect of acquired businesses with lower
margins than the Group.
-- Reported profit before tax of GBP10.1 million (H1
2017: GBP8.8 million), benefiting from the release
of contingent consideration on the acquisition of
VoltAir System which will not be paid.
-- Adjusted operating cash inflow was GBP11.8 million
(H1 2017: GBP16.4 million).
-- Refinancing of banking facilities. The Group now
has in place a GBP120 million multicurrency revolving
credit facility together with an accordion of up
to GBP30 million, maturing December 2021.
-- Interim dividend of 1.46 pence per share, up 8.1%
(H1 2017: 1.35 pence).
Strategic highlights
-- The process of consolidating our existing Slough
and Reading facilities in to a single new, purpose
built injection moulding and fan assembly facility
at Suttons Business Park in Reading, has commenced.
We expect to complete the relocation by the end
of the financial year.
-- Further progress in our German business with the
launch of our new Xenion decentralised heat recovery
ventilation system, with improved air flow performance
and low noise, enhancing our position as a leading
supplier to both the new and refurbishment market
for residential homes in Germany.
-- Further extension of our public housing range of
ventilation equipment for the refurbishment market
in the UK is helping us gain new customers in spite
of the current funding cutbacks in this sector.
-- OEM (Torin-Sifan) has seen an excellent take up
of its new high-efficiency Revolution 360 range
of EC fans, more commonly known as EC3, with further
capacity investment underway to support the growth
in sales.
Post period event
-- As announced today, we have acquired Simx Limited,
the market leading residential ventilation products
supplier in New Zealand for both new and refurbishment
applications with channel access enabling us to
place many of our existing Group products in this
market.
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"Volution has again delivered a good set of results with organic
growth achieved in each of our geographic sectors. As well as the
continuing organic growth in the Nordics and Central Europe, our
growth in the UK was significantly stronger than the prior
year.
The investment in our new UK injection moulding and fan assembly
facility will be completed by the end of the financial year and
will underpin our growth ambitions for the future."
Outlook
Volution has delivered another set of good results in the first
half of this financial year. We expect to make further progress
with our strategy in the full year, notwithstanding our caution in
some of our market sectors. We are a well diversified business
across product and geography and this, coupled with the acquisition
of Simx, announced today, will help underpin further growth.
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Ian Dew, Chief Financial Officer +44 (0) 1293 441536
Tulchan Communications +44 (0) 207 353 4200
James Macey White
David Ison
A presentation will be held for analysts at 9.30 am today,
Monday 19 March, at the offices of Tulchan Communications, 85 Fleet
Street, London, EC4Y 1AE.
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 Monday 19 March.
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) 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 supplier of
ventilation products to the residential and commercial construction
markets in the UK, the Nordics, Central Europe and Australasia.
The Volution Group operates through two divisions: the
Ventilation Group and the OEM (Torin-Sifan) division. The
Ventilation Group consists of 14 key brands - Vent-Axia, Manrose,
Diffusion, National Ventilation, Airtech, Breathing Buildings,
Fresh, PAX, VoltAir, Welair, inVENTer, Brüggemann, Ventilair and
Simx focused primarily on the UK, the Nordic, Central European and
Australasian 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: 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
Volution continued to make good progress on its growth strategy
in the first half of the year. Organic revenue growth of 5.1% at
constant currency is the highest level of organic growth since
listing in June 2014. This is complemented by inorganic growth of
5.2% at constant currency from the full period effect of the
acquisition of Breathing Buildings in the UK, acquired in December
2016 and VoltAir System in the Nordics, acquired in May 2017.
Revenue increased to GBP98.7 million, an increase of 11.6% (10.3%
at constant currency) compared to H1 2017 and adjusted operating
profit grew by 6.7% (6.4% at constant currency) in the first six
months to GBP18.3 million, representing a margin of 18.5% of
revenue.
Our strong organic growth was a result of good sales performance
in the Nordics, Central Europe, most of the UK and OEM
(Torin-Sifan), slightly offset by the organic decline in the UK
Commercial sector, which experienced a weaker refurbishment
market.
Ventilation Group
Revenue: GBP87.4 million, 88.5% of Group revenue
(GBP86.4 million at constant currency)
(H1 2017: GBP77.7 million, 87.8% of Group
revenue)
Adjusted operating GBP17.3 million, 94.7% of Group adjusted
profit: operating profit
(H1 2017: GBP16.3 million, 94.9% of Group
adjusted operating profit)
Constant currency
---------------------------------------------
6 months to 6 months to 6 months to
31 January 2018 31 January 2018 31 January 2017 Growth
Market sectors GBPm GBPm GBPm %
-------------------------- ----------------- ----------------- ----------------- -------
Ventilation Group
UK Residential RMI 19.8 19.8 18.9 4.4
UK Residential New Build 11.0 11.0 10.2 7.6
UK Commercial 16.0 16.0 15.1 6.2
UK Export 6.7 6.6 4.7 40.1
Nordics 19.6 19.2 15.5 24.3
Central Europe 14.3 13.8 13.3 3.6
-------------------------- ----------------- ----------------- ----------------- -------
Total Ventilation Group 87.4 86.4 77.7 11.2
-------------------------- ----------------- ----------------- ----------------- -------
The Ventilation Group's performance was good, with a 12.4%
increase in revenue compared to H1 2017 (11.2% at constant
currency). Organic growth was 6.4% (5.2% at constant currency) due
to growth in UK Residential RMI, UK Residential New Build, UK
Export, Nordics and Central Europe, partly offset by the declining
organic revenue in the UK Commercial market.
United Kingdom
Sales in our UK Residential RMI sector were GBP19.8 million (H1
2017: GBP18.9 million), growth of 4.4%. Organic revenue in the UK
Residential Public RMI sector remained weak, down by 5.0%, whilst
private refurbishment revenue grew by 11.2%. The decline in the
public sector was at a slower rate than in the prior period, but
reflects the ongoing weak demand for ventilation refurbishment in
public housing. A number of new products, such as the Revive fan
and the recently launched Positive Input Ventilation range, are
starting to gain momentum and we are confident that share gains in
this sector in the future should help offset the overall weaker
demand. Since the acquisition of NVA Services in May 2016 we have
been integrating both the National Ventilation and Airtech brands,
strengthening them both in areas of the market where we previously
found access difficult. "In-sourcing" and new product development
has underpinned these revenue streams and is also providing
significant margin expansion with some additional benefits still to
be delivered in the next year.
UK Residential Private RMI growth in the first half of the year
has been strong. The gain of new business in the retail sector and
the continued upselling initiatives across all of our relevant UK
brands has enabled us to grow market share.
Sales in our UK Residential New Build sector were GBP11.0
million (H1 2017: GBP10.2 million), organic growth of 7.6%. As in
previous years, our order intake has grown more quickly than sales
and, with the gain of an existing account to become the sole
supplier confirmed in the first half of the year, we are well
positioned for the future.
Sales in our UK Commercial sector were more mixed. Overall the
sector grew by 6.2% in the first six months, to GBP16.0 million (H1
2017: GBP15.1 million) as a result of the full period effect of the
acquisition of Breathing Buildings. Fan coil sales have grown with
the outlook being positive, but RMI sales, as well as natural and
hybrid ventilation sales, have been weaker than anticipated. The
organic revenue in this sector declined by 6.1%.
UK Export sales were GBP6.7 million (H1 2017: GBP4.7 million),
very strong growth of 42.0% (40.1% at constant currency),
benefiting from: the previously announced, unusually large export
contract to Japan; system ventilation sales in Eire and a general
increase in a number of accounts in continental Europe.
The Nordics
Sales in the Nordics sector were GBP19.6 million (H1 2017:
GBP15.5 million), an increase of 27.0% (24.3% at constant currency)
partly as a result of the acquisition of VoltAir System in May
2017. Organic revenue growth in the Nordics was strong at 8.7%
(6.4% growth at constant currency) buoyed by both good sales in the
local Nordic market but also a key growth initiative supplying both
standard and premium range fans under our brands to ongoing
refurbishment projects in South America. The Nordic performance is
reassuring in the face of the generally perceived weakness in the
Nordic construction market. Since the acquisition of VoltAir System
we are now better placed to take advantage of the new build project
market.
Central Europe
Sales in the Central Europe sector were GBP14.3 million (H1
2017: GBP13.3 million), an increase of 7.1% (3.6% at constant
currency). The improvement of existing products and introduction of
new products in Germany with a much higher performance and improved
aesthetics have supported our organic growth. In Belgium we
continue to switch sales towards the electric wholesaler channel;
this is going very well and the outlook for further account gains
is positive. In the Netherlands our focus on growing wholesaler
business is also taking hold with expected momentum to carry in to
the second half of the 2018 financial year.
OEM (Torin-Sifan)
Revenue: GBP11.3 million, 11.5% of Group revenue
(GBP11.2 million at constant currency)
(H1 2017: GBP10.8 million, 12.2% of Group
revenue)
Adjusted operating GBP2.1 million, 11.4% of Group adjusted
profit: operating profit
(H1 2017: GBP2.1 million, 12.5% of Group
adjusted operating profit)
Constant currency
---------------------------------------------
6 months to 6 months to 6 months to
31 January 2018 31 January 2018 31 January 2017 Growth
Market sectors GBPm GBPm GBPm %
---------------- ----------------- ----------------- ----------------- -------
Total OEM 11.3 11.2 10.8 4.2
---------------- ----------------- ----------------- ----------------- -------
Our OEM (Torin-Sifan) segment revenue was GBP11.3 million (H1
2017: GBP10.8 million); organic growth of 5.5% (4.2% at constant
currency). Sales of our highly efficient Electrically Commutated
(EC) technology products have been gaining momentum but sales
volumes of traditional, Alternating Current (AC) technology
products have, as expected, reduced; however, price increases for
these AC products have partly supported revenue. The wider market
for EC motors is expected to continue to grow across Europe as
manufacturers pursue a strategy, consistent with that of the
Volution Ventilation Group, of providing innovative and lower
energy consuming ventilation devices to comply with the ever
tighter requirements of the various European regulations.
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
-- Further development of the OEM (Torin-Sifan) range, to build
customer preference and loyalty.
These pillars provide the Group with the long term growth
opportunities driven by a favourable regulatory backdrop that
focuses on reducing carbon emissions from buildings (in particular
new buildings) as well as the need to improve energy efficiency and
indoor air quality.
The ventilation market remains highly fragmented and we will
continue to pursue acquisition opportunities leveraging the Group's
capabilities in operations, procurement, distribution and
finance.
We will continue to provide clear central leadership in research
and development to facilitate the Group's growth. Investment in our
own sourcing team in China is adding value to the procurement
efforts around the enlarged Group.
The investment we have made in Torin-Sifan, both in new product
development and a new production facility, has established a base
for future revenue growth and profit improvement.
Operations - factory rationalisation
As previously announced in 2017 we are now significantly
advanced with our project to rationalise the UK fan assembly and
injection moulding from the current two facilities in Reading and
Slough, to our new, purpose built facility in Suttons Business Park
in Reading. We commenced fan assembly at the new facility at the
beginning of January 2018. Whilst the overall project will complete
on time by the end of July 2018, there have been some commissioning
issues resulting in temporary delays in product supply to the
market. The move to this new facility is intended to future proof
our growth plans, both in the UK but also to underpin future growth
across the wider Ventilation Group. Our plan is to make this
facility much leaner and considerably more efficient than was
possible within the previous two-site logistical constraints. The
operations team are working hard to improve the current product
supply situation and once fully operational and in line with our
expectations, we believe the new Suttons Business Park facility
will be the highest output fan assembly and injection moulding
facility in Western Europe.
Dividend
The Board has declared an interim dividend of 1.46 pence per
share, which represents growth of 8.1% compared to H1 2017. The
interim dividend will be paid on 3 May 2018 to shareholders on the
register at the close of business on 3 April 2018.
UK leaving the European Union
Other than the weakness of sterling following the vote to leave
the European Union we have not yet seen any directly attributable
effects on the business as a result of the decision. In the UK, the
relative strength of the US dollar is primarily felt through our US
dollar denominated purchases from Asia. The additional cost will
continue to be absorbed in 2018. We see no further impact on our
business as a result of the UK leaving the European Union as we go
through H2 2018, although we will continue to monitor
developments.
Board
As announced separately today, Amanda Mellor, currently the
Group Secretary and Head of Corporate Governance of Marks and
Spencer Group plc, has been appointed as an Independent
Non-Executive Director with immediate effect. The Board is
delighted to welcome Amanda who brings a broad range of experience
in M&A, operations, shareholder relations, strategy, and
governance, gained during a career in retail, investment banking
and as a Non-Executive Director (in construction). The Board looks
forward to working with Amanda and benefiting from her
experience.
People
I recently attended one of the workshop modules for our third
Management Development Programme and was pleased to see how well
this cohort is developing. The team are working on internal
opportunities covering the areas of innovation, procurement, wider
group product management and our culture. These work programmes
provide a further catalyst and tool to help with the integration of
our recent acquisitions. Inorganic growth is a key principle of our
strategy and the ability to utilise a wider pool of managers to
assist with future integrations not only de-risks those
transactions, but also accelerates the delivery of the synergies
and benefits.
Several projects such as the integration of new ERP systems in
both the Nordics and the UK, as well as the UK factory
rationalisation project, have placed a significant work load on our
employees. I am hugely appreciative of the hard work and dedication
of our employees, not just in the area of these special projects,
but also the wider efforts and commitment to improving our
organisation and laying down the foundations for future growth.
Ronnie George
Chief Executive Officer
19 March 2018
FINANCIAL REVIEW
Trading Performance Summary
Reported Adjusted (1)
-------------------------- --------------------------
6 months 6 months 6 months 6 months
to to to to
31 January 31 January 31 January 31 January
2018 2017 Movement 2018 2017 Movement
------------------- ------------ ------------ --------- ------------ ------------ ---------
Revenue (GBPm) 98.7 88.5 11.6% 98.7 88.5 11.6%
Operating profit
(GBPm) 11.5 9.6 19.5% 18.3 17.1 6.7%
Finance costs
(GBPm) 1.4 0.8 72.0% 0.5 0.6 (23.3)%
Profit before
tax (GBPm) 10.1 8.8 14.5% 17.8 16.5 7.8%
Basic and diluted
EPS (p) 4.16 3.61 15.2% 7.08 6.54 8.3%
Operating cash
flow (GBPm) 12.0 15.7 (23.5)% 11.8 16.4 (27.9)%
Interim dividend
per share (p) 1.46 1.35 8.1% 1.46 1.35 8.1%
Net debt (GBPm) 34.9 40.6 (5.7) 34.9 40.6 (5.7)
------------------- ------------ ------------ --------- ------------ ------------ ---------
(1) The Group's reported profit before tax and adjusted measures
of performance are reconciled in the table below and note 4. 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 2018 was
GBP98.7 million (H1 2017: GBP88.5 million), an 11.6% increase
(10.3% at constant currency). Growth was achieved both organically,
6.3% (5.1% at constant currency), and inorganically, 5.3% (5.2% at
constant currency) from the full period effect of the two
acquisitions made during FY 2017; Breathing Buildings in December
2016 and VoltAir System in May 2017.
Profitability
Our underlying result, as measured by adjusted operating profit,
was GBP18.3 million (H1 2017: GBP17.1 million), representing 18.5%
of revenue (H1 2017: 19.4%), a GBP1.2 million improvement compared
to H1 2017. At constant currency, our adjusted operating profit
grew by 6.4% to GBP18.2 million, a margin of 18.5%. At constant
currency the adjusted operating profit margin of 18.5% represents a
0.9 percentage point decline in the period as a consequence of; the
full year effect of acquired businesses with lower margins than the
Group average, a decline in the UK Residential Public RMI sector,
currency inflation on imported materials and the investment in
indirect costs for future growth.
The Group's reported operating profit in the six months was
GBP11.5 million compared to GBP9.6 million in H1 2017, growth of
GBP1.9 million, 19.5%. The growth in reported operating profit is
analysed below and was assisted by the release, in the reported
result, of contingent consideration relating to the acquisition of
VoltAir System (GBP1.5 million), which is no longer required. The
reconciliation between reported and adjusted operating profit can
be found below and in note 4.
Reconciliation of statutory measures to adjusted performance
measures
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,
adjusted profit before tax, adjusted basic and diluted EPS and
adjusted operating cash flow. These measures are deemed more
appropriate for monitoring trading performance as they exclude
income and expenditure which is not directly related to the ongoing
trading of the business. A reconciliation of these measures of
performance to the corresponding reported figure is shown below and
is detailed in note 4.
Six months ended 31 Six months ended 31
January 2018 January 2017
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------- ------------ --------- --------- ------------ ---------
Revenue 98.7 - 98.7 88.5 - 88.5
Gross profit 47.4 - 47.4 43.6 - 43.6
------------------------- --------- ------------ --------- --------- ------------ ---------
Administrative
& distribution
expenses excluding
the costs listed
below (29.1) - (29.1) (26.5) - (26.5)
Amortisation
of intangible
assets acquired
through business
combinations (7.2) 7.2 - (6.7) 6.7 -
Exceptional
operating costs (1.1) 1.1 - (0.8) 0.8 -
Release of contingent
consideration 1.5 (1.5) - - - -
------------------------- --------- ------------ --------- --------- ------------ ---------
Operating profit 11.5 6.8 18.3 9.6 7.5 17.1
Net loss on
financial instruments
at fair value (0.6) 0.6 - (0.2) 0.2 -
Exceptional
write off of
unamortised
loan issue costs
upon refinancing (0.3) 0.3 - - - -
Other net finance
costs (0.5) - (0.5) (0.6) - (0.6)
Profit before
tax 10.1 7.7 17.8 8.8 7.7 16.5
Income tax (1.8) (1.9) (3.7) (1.6) (1.9) (3.5)
------------------------- --------- ------------ --------- --------- ------------ ---------
Profit after
tax 8.3 5.8 14.1 7.2 5.8 13.0
------------------------- --------- ------------ --------- --------- ------------ ---------
The following are the items excluded from adjusted measures:
-- Amortisation of acquired intangibles
On acquisition of a business, where appropriate,
we value the identifiable intangible fixed assets
acquired, such as trademarks, patents and customer
base, and recognise these assets in our consolidated
statement of financial position. We then amortise
these acquired intangible assets over their useful
lives. In the period the amortisation charge of
these intangible assets increased to GBP7.2 million
(H1 2017: GBP6.7 million) as a consequence of recent
acquisitions. We exclude this accounting adjustment
in the calculation of our adjusted earnings because
it is a cost associated with acquisitions, not the
underlying trading of the businesses.
-- Exceptional operating costs
Exceptional operating costs, 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 business.
During the period, exceptional operating costs were
GBP1.1 million (H1 2017: GBP0.8 million) which include
costs relating to acquisitions GBP0.3 million (H1
2017: GBP0.6 million) and our UK factory rationalisation
project of GBP0.8 million (H1 2017: GBP0.2 million).
Details of these exceptional operating costs can
be found in note 7.
-- Reversal of contingent consideration
On 29 May 2017, Volution Group plc, through one
of its wholly owned subsidiaries, Volution Holdings
Sweden AB, acquired the entire issued share capital
of VoltAir System AB. Part of the consideration
was contingent upon the level of EBITDA achieved
during the twelve months to 31 December 2017. There
was a minimum level of EBITDA which had to be achieved
before any contingent consideration was payable.
The contingent consideration, recognised in the
31 July 2017 financial statements, 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, financial
results for the twelve months indicate that the
minimum level of EBITDA has not been achieved and
the contingent consideration will not be paid. It
has therefore been reversed in the period as an
exceptional gain GBP1.5 million (H1 2017: GBPnil).
-- Fair value adjustments
At the end of each reporting period we measure the
fair value of financial derivatives and recognise
any gains or losses immediately in finance costs.
During the period, we recognised a loss of GBP0.6
million (H1 2017: loss of GBP0.2 million). We exclude
these gains or losses from our measures of adjusted
earnings because they are accounting adjustments
which will reverse in future periods and do not
reflect the underlying trading of the business.
-- Exceptional write off of unamortised loan issue
costs upon refinancing
On 15 December 2017, the Group refinanced its bank
debt (see bank facilities, refinancing and liquidity
below). As a consequence of the re-finance, unamortised
loan issue costs of GBP320,000 relating to the previous
loans were written off in the period.
Acquisitions
The Group's trading benefited in the six months from the
acquisitions completed in the prior year, which were financed from
our existing cash reserves and bank facilities:
-- On 29 May 2017 we completed the acquisition of VoltAir
System AB, based in Sweden. Total consideration
was cash consideration of SEK 79.7 million (approximately
GBP7.1 million) and contingent consideration with
a fair value of SEK 16.9 million (approximately
GBP1.5 million).
-- On 16 December 2016 we completed the acquisition
of Breathing Buildings Limited, based in the UK.
The consideration was GBP11.9 million (GBP11.6 million
net of cash acquired).
Finance costs
Reported finance costs were GBP1.4 million (H1 2017: GBP0.8
million) including GBP0.6 million of net losses on revaluation of
financial instruments (H1 2017: GBP0.2 million) and GBP0.3 million
related to the exceptional write off of unamortised loan issue
costs upon refinancing (H1 2017: GBPnil). Adjusted finance costs
were GBP0.5 million (H1 2017: GBP0.6 million) after adjusting for
net losses on revaluation of financial instruments and the
exceptional write off of unamortised loan issue costs upon
refinancing.
Taxation
The reported effective tax rate for the 6 months was 18.0% (H1
2017: 18.5%). Our adjusted effective tax rate, on adjusted profit
before tax, was 21.0% (H1 2017: 21.3%). The reduction of 0.3
percentage points was partly due to the reduction in the UK
corporation tax rate from 20% to 19% which came into effect on 1
April 2017.
On 22 December 2017, the Belgian parliament enacted legislation
in which the corporate tax rate is incrementally reduced from
33.99% to 29.58% in 2018 and to 25% in 2020. As a result, we have
recognised a deferred tax credit of GBP188,000 which has reduced
the reported effective tax rate in the period.
The Group's medium-term adjusted effective tax rate is expected
to remain around 21.0% of the Group's adjusted profit before
tax.
Operating cash flow
The Group continued to be cash generative in the period, with
adjusted operating cash inflow of GBP11.8 million (H1 2017: GBP16.4
million). This represents a cash conversion, after capital
expenditure and movement in working capital, of 63.2% (H1 2017:
94.0%). The adjusted operating cash flow in the period was lower
than in the corresponding period because of very low levels of
working capital at the end of the previous financial year and a
temporary increase in inventory levels in the UK organisation to
support customer service. The Group continues to focus on managing
its working capital efficiently with operating working capital
representing 24.8% of half year revenue (H1 2017: 22.3%). See the
glossary of terms in note 20 for a definition of adjusted operating
cash flow and cash conversion. A reconciliation of reported net
cash flow from operating activities to adjusted operating cash flow
is provided below.
Six months Six months
to to
31 January 31 January
2018 2017
Reconciliation of adjusted operating
cash flow GBPm GBPm
---------------------------------------------- ------------ ------------
Reported net cash flow generated from
operating activities 10.3 15.6
---------------------------------------------- ------------ ------------
Net capital expenditure (2.9) (1.9)
UK and overseas tax paid 3.7 2.3
Cash flows relating to exceptional items 0.7 0.3
Exceptional items: fair value of inventories - 0.1
---------------------------------------------- ------------ ------------
Adjusted operating cash flow 11.8 16.4
---------------------------------------------- ------------ ------------
Employee Benefit Trust
The Trustees of the Volution Employee Benefit Trust released
12,776 shares (H1 2017: no shares) from the Trust at GBP22,000 (H1
2017: GBPnil) to satisfy the Company's obligations under its Long
Term Incentive Plan. As at 31 January 2018 the Employee Benefit
Trust held 1,154,102 shares (31 July 2017: 1,166,878). The Employee
Benefit Trust has been consolidated into our results and the shares
purchased have been treated as treasury shares deducted from
shareholders' funds.
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 mostly balanced by
euro expenditure in the UK. We have little US dollar income but
significant US dollar expenditure. We have limited our
transactional foreign exchange risk by purchasing the majority of
our forecast US dollar requirements for, and in advance of, the
2018 financial year.
We are also exposed to translational currency risk as the Group
consolidates foreign currency-denominated assets, liabilities,
income and expenditure into sterling, the Group's reporting
currency. We hedge the translation risk of the net assets
denominated in Swedish krona with GBP22.1 million of borrowings
denominated in Swedish krona (31 July 2017: GBP23.2 million). We
have partially hedged our risk of translation of the net assets
denominated in euros by having euro-denominated bank borrowings in
the amount of GBP22.8 million as at 31 January 2018 (31 July 2017:
GBP23.3 million). The sterling value of our foreign
currency-denominated loans, net of cash, decreased by GBP1.5
million (H1 2017: increased by GBP0.8 million) as a consequence of
exchange rate movements. We do not hedge the translational exchange
rate risk relating to the results of overseas subsidiaries.
During the six months, movements in foreign currency exchange
rates have had a favourable effect on the reported revenue and
profitability of our business. If we had translated the H1 2018
performance of the Group at our 2017 exchange rates, the reported
revenue would have been GBP97.6 million, GBP1.1 million lower, and
adjusted operating profit would have been GBP18.2 million, GBP0.1
million lower.
At the end of the half year, the weakening of sterling increased
the value of foreign currency-denominated working capital by GBP0.3
million compared to the foreign exchange rates applying at the
beginning of the half year.
Net debt
Net debt at 31 January 2018 was GBP34.9 million (H1 2017:
GBP40.6 million); comprised of bank borrowings of GBP45.9 million
(H1 2017: bank borrowings of GBP54.3 million), offset by cash and
cash equivalents of GBP11.0 million (H1 2017: GBP13.7 million). The
net debt of GBP34.9 million represents leverage of 0.9x adjusted
EBITDA on a trailing 12 month basis.
Movements in net debt position for the six months ended 31
January 2018
2018 2017
GBPm GBPm
Opening net debt 1 August (37.0) (36.1)
-------------------------------------------------- ------- -------
Movements from normal business operations:
Adjusted EBITDA 20.2 18.9
Movement in working capital (5.8) (0.9)
Share-based payments 0.3 0.3
Capital expenditure (2.9) (1.9)
-------------------------------------------------- ------- -------
Adjusted operating cash flow 11.8 16.4
- Interest paid net of interest received (0.3) (0.6)
- Income tax paid (3.7) (2.3)
- Exceptional operating costs (0.7) (0.4)
- Dividend paid (5.6) (5.2)
- FX on foreign currency loans/cash 1.5 (0.8)
- Issue costs of new borrowings (0.9) -
Movements from acquisitions:
- Acquisition consideration net of cash acquired - (11.6)
-------------------------------------------------- ------- -------
Closing net debt 31 January (34.9) (40.6)
-------------------------------------------------- ------- -------
Bank facilities, refinancing and liquidity
On 15 December 2017, the Group refinanced its bank debt. The
Group now has in place a GBP120 million multicurrency revolving
credit facility together with an accordion of up to GBP30 million,
maturing in December 2021, with the option to extend the
termination of the facility by a period of 12 months. This new
facility is provided under standard Loan Market Association terms
and replaces the Group's previous facilities. The new facility is
provided at a slightly lower interest rate than the facility
refinanced.
As at 31 January 2018, the Group had GBP74.1 million of undrawn,
committed bank facilities and GBP11.0 million of cash and cash
equivalents on the consolidated statement of financial
position.
UK leaving the European Union
Since the UK referendum on EU membership the weakness of
sterling against foreign currencies has persisted. The positive and
negative effects of this weakness in sterling on our trading are
described elsewhere in this report. Other than these currency
effects, the business has seen no other effects on trading that can
be directly attributed to the decision to leave the EU. We continue
to monitor our business closely for any such effects but believe
that the decision to leave the EU will not have any material
near-term impact on demand for our products.
Earnings per share
Our adjusted basic and diluted EPS grew by 8.3% to 7.08 pence
(H1 2017: 6.54 pence).
The basic and diluted earnings per share for the six months
ended 31 January 2018 was 4.16 pence (H1 2017: 3.61 pence) an
increase of 15.2%. A reconciliation of reported profit after tax to
adjusted profit after tax is set out in note 4.
Ian Dew
Chief Financial Officer
19 March 2018
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 2017. These risks are summarised
below, and how the Group seeks to mitigate these risks is set out
on pages 32 to 37 of the Annual Report 2017 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 including the UK exit from the EU
A decline in general economic activity and/or a specific decline
in activity in the construction industry, including, but not
exclusively, an economic decline caused by the UK leaving the
European Union, would result in a decline in demand for our
products serving the residential and commercial construction
markets. 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 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 complete 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 including cyber breach
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. Failure to manage certain
compliance risks adequately could lead to death or serious injury
of an employee or third party, and/or penalties for non-compliance
in health and safety, anti-bribery, data protection or competition
law.
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.
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 Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or the performance of
the Group during that period; and any changes in the related party
transactions described in the Annual Report 2017 that could do
so.
The Directors of Volution Group plc are listed in the Company's
Annual Report for the year ended 31 July 2017, with the exception
of Adrian Barden who retired as a Director on 13 December 2017 and
Amanda Mellor who was appointed as a Director on 19 March 2018. The
full list of current Directors can be found on the Company's
website at www.volutiongroupplc.com.
By order of the Board
Ronnie George Ian Dew
Chief Executive Officer Chief Financial Officer
19 March 2018 19 March 2018
INDEPENT 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 2018 which comprises the interim
condensed consolidated statement of comprehensive income, the
interim condensed consolidated statement of financial position, the
interim condensed consolidated statement of changes in equity, the
interim condensed consolidated statement of cash flows and the
related 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 Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
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 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 2018 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
19 March 2018
Interim Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 31 January 2018
2018 2017
Unaudited Unaudited
Notes GBP000 GBP000
------------------------------------------------------------------- ------ ----------- -----------
Revenue 5 98,736 88,478
Cost of sales (51,341) (44,885)
------------------------------------------------------------------- ------ ----------- -----------
Gross profit 47,395 43,593
Administrative and distribution expenses (36,341) (33,201)
------------------------------------------------------------------- ------ ----------- -----------
Operating profit before exceptional items 11,054 10,392
Exceptional operating costs 7 (1,097) (758)
Release of contingent consideration 7 1,553 -
------------------------------------------------------------------- ------ ----------- -----------
Operating profit 11,510 9,634
Finance revenue 7 10
Finance costs 7,8 (1,426) (829)
Profit before tax 10,091 8,815
Income tax 9 (1,820) (1,629)
------------------------------------------------------------------- ------ ----------- -----------
Profit for the period 8,271 7,186
------------------------------------------------------------------- ------ ----------- -----------
Other comprehensive income:
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations (1,337) 661
Gain/(loss) on hedge of net investment in foreign operation 1,015 (493)
------------------------------------------------------------------- ------ ----------- -----------
Other comprehensive income for the period (322) 168
------------------------------------------------------------------- ------ ----------- -----------
Total comprehensive income for the period 7,949 7,354
------------------------------------------------------------------- ------ ----------- -----------
Earnings per share
Basic and diluted, pence per share 10 4.16 3.61
------------------------------------------------------------------- ------ ----------- -----------
Interim Condensed Consolidated Statement of Financial
Position
At 31 January 2018
2018 31 July 2017
Unaudited Audited
Notes GBP000 GBP000
--------------------------------------- ------ ----------- -------------
Non-current assets
Property, plant and equipment 11 20,226 19,590
Intangible assets - goodwill 12 80,936 81,584
Intangible assets - other 13 93,179 101,006
Deferred tax assets 810 810
--------------------------------------- ------ ----------- -------------
195,151 202,990
--------------------------------------- ------ ----------- -------------
Current assets
Inventories 27,418 22,737
Trade and other receivables 33,902 37,231
Other current financial assets 14 15 16
Cash and short term deposits 11,009 14,499
--------------------------------------- ------ ----------- -------------
72,344 74,483
--------------------------------------- ------ ----------- -------------
Total assets 267,495 277,473
--------------------------------------- ------ ----------- -------------
Current liabilities
Trade and other payables (36,867) (40,629)
Other current financial liabilities 14 (1,233) (2,124)
Income tax (3,417) (3,768)
Provisions (1,873) (1,841)
(43,390) (48,362)
--------------------------------------- ------ ----------- -------------
Non-current liabilities
Interest bearing loans and borrowings 15 (45,045) (51,088)
Provisions (133) (134)
Deferred tax liabilities (16,121) (17,756)
--------------------------------------- ------ ----------- -------------
(61,299) (68,978)
--------------------------------------- ------ ----------- -------------
Total liabilities (104,689) (117,340)
--------------------------------------- ------ ----------- -------------
Net assets 162,806 160,133
--------------------------------------- ------ ----------- -------------
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Capital reserve 93,855 93,855
Treasury shares at cost (2,005) (2,027)
Share-based payment reserve 1,559 1,289
Foreign currency translation reserve 1,569 1,891
Retained earnings 54,301 51,598
--------------------------------------- ------ ----------- -------------
Total equity 162,806 160,133
--------------------------------------- ------ ----------- -------------
Interim Condensed Consolidated Statement of Changes in
Equity
For the six months ended 31 January 2018
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 31 July
2016
(Audited) 2,000 11,527 93,855 (1,533) 649 1,462 45,585 153,545
Profit for the
period - - - - - - 7,186 7,186
Other
comprehensive
income - - - - - 168 - 168
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
Total
comprehensive
income - - - - - 168 7,186 7,354
Share-based
payment - - - - 314 - - 314
Dividends paid - - - - - - (5,176) (5,176)
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
At 31 January
2017
(Unaudited) 2,000 11,527 93,855 (1,533) 963 1,630 47,595 156,037
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
Profit for the
period - - - - - - 6,691 6,691
Other
comprehensive
income - - - - - 261 - 261
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
Total
comprehensive
income - - - - - 261 6,691 6,952
Purchase of
own shares - - - (494) - - - (494)
Share-based
payment - - - - 326 - - 326
Dividends paid - - - - - - (2,688) (2,688)
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
At 31 July
2017
(Audited) 2,000 11,527 93,855 (2,027) 1,289 1,891 51,598 160,133
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
Profit for the
period - - - - - - 8,271 8,271
Other
comprehensive
income - - - - - (322) - (322)
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
Total
comprehensive
income - - - - - (322) 8,271 7,949
Share-based
payment - - - 22 270 - - 292
Dividends paid - - - - - - (5,568) (5,568)
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
At 31 January
2018
(Unaudited) 2,000 11,527 93,855 (2,005) 1,559 1,569 54,301 162,806
--------------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- --------
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.
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 incentive plans.
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.
Retained earnings
The parent company of the Volution Group, Volution Group plc,
had distributable retained earnings at 31 January 2018 of
GBP75,500,000.
Interim Condensed Consolidated Statement of Cash Flows
For the six months ended 31 January 2018
2018 2017
Unaudited Unaudited
Notes GBP'000 GBP'000
------------------------------------------------------------------------------------ ------ ----------- -----------
Operating activities
Profit for the period after tax 8,271 7,186
Adjustments to reconcile profit for the period to net cash flow from operating
activities:
Income tax 1,820 1,629
Gain on disposal of property, plant and equipment (17) (53)
Exceptional operating costs 7 1,097 758
Release of contingent consideration 7 (1,553) -
Cash flows relating to exceptional items (666) (414)
Finance revenue (7) (10)
Finance costs 8 1,106 829
Exceptional write off of unamortised loan issue costs upon refinancing 8 320 -
Share based payment expense 265 314
Depreciation of property, plant and equipment 1,480 1,464
Amortisation of intangible assets 7,671 7,075
Working capital adjustments:
Decrease in trade and other receivables 2,997 2,487
Increase in inventories (4,922) (750)
Exceptional costs: fair value of inventories - (81)
Decrease in trade payables and other payables (3,893) (2,532)
Increase/(decrease) in provisions 43 (54)
UK income tax paid (2,164) (1,284)
Overseas income tax paid (1,508) (1,025)
------------------------------------------------------------------------------------ ------ ----------- -----------
Net cash flow from operating activities 10,340 15,539
------------------------------------------------------------------------------------ ------ ----------- -----------
Investing activities
Payments to acquire intangible assets (524) (832)
Purchase of property, plant and equipment (2,480) (1,097)
Proceeds from disposal of property, plant and equipment 169 83
Acquisition of subsidiaries, net of cash acquired - (11,631)
Interest received 7 10
------------------------------------------------------------------------------------ ------ ----------- -----------
Net cash flow used in investing activities (2,828) (13,467)
------------------------------------------------------------------------------------ ------ ----------- -----------
Financing activities
Repayment of interest bearing loans and borrowings (55,862) (10,000)
Proceeds from new borrowings 51,862 11,540
Issue costs of new borrowings (941) -
Interest paid (350) (609)
Dividends paid (5,568) (5,176)
Net cash flow used in financing activities (10,859) (4,245)
------------------------------------------------------------------------------------ ------ ----------- -----------
Net decrease in cash and cash equivalents (3,347) (2,173)
Cash and cash equivalents at the start of the period 14,499 15,744
Effect of exchange rates on cash and cash equivalents (143) 101
------------------------------------------------------------------------------------ ------ ----------- -----------
Cash and cash equivalents at the end of the period 11,009 13,672
------------------------------------------------------------------------------------ ------ ----------- -----------
Notes to the Interim Condensed Consolidated Financial
Statements
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 19 March 2018. 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
Annual Report 2017. The financial information for the half years
ended 31 January 2018 and 31 January 2017 do not constitute
statutory within the meaning of Section 434(3) of the Companies Act
2006 and is unaudited.
The annual financial statements of Volution Group plc are
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The
comparative financial information for the year ended 31 July 2017
included within this report does not constitute the full statutory
accounts for that period. The Annual Report 2017 has been filed
with the Registrar of Companies. The Independent Auditors' Report
on the Annual Report 2017 was unqualified, did not draw attention
to any matters by way of emphasis, and did not contain a statement
under section 498(2) and 498(3) of the Companies Act 2006.
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 interim 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.
Employee Benefit Trust
The Company has an Employee Benefit Trust (EBT) which is used in
connection with the operation of the Company's Long Term Incentive
Plan (LTIP) 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 2018, a total of 1,154,102 (31 July 2017:
1,166,878) 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 no ordinary shares in the Company
were purchased by the trustees (H1 2017: no ordinary shares), and
12,776 shares (H1 2017: no shares) were disposed of by the
trustees. The market value of the shares at 31 January 2018 was
GBP2,527,000 (31 July 2017: GBP2,220,000).
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 the 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 of
expense or 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, materiality or incidence such
that the 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. The
following categories are deemed to be exceptional in the period:
acquisition costs; restructuring and factory consolidation, release
of contingent consideration and write off of unamortised loan issue
costs upon refinancing. See note 7 for details of the amounts
included in the above categories.
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'.
We have technical departments which are involved in activities
such as operational support, marketing support, research and new
product development. Management exercise judgement to determine
whether the expenditure during the development phase of an internal
project satisfies the recognition criteria set out in IAS 38.
During H1 2018 there were a number of projects of sufficient
size and importance to the business which, in management's
judgement, satisfied the recognition criteria set out in IAS 38 to
be capitalised. The total cost of the Group's technical departments
in the period was was GBP2,100,000, of which GBP121,000 was
capitalised.
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 has 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.
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.
Details of the impairment review process are described more
fully in the Annual Report 2017.
See notes 12 and 13 for details of the carrying values of
goodwill and other intangible assets.
Rebates payable and receivable
The Group has a number of customer and supplier rebate
agreements (collectively referred to as rebates) that are
recognised as a reduction from sales or a reduction from cost of
sales, as appropriate. 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 2018 is GBP5,092,000 (31
July 2017: GBP5,061,000). The total supplier rebate due is an
immaterial balance at both 31 January 2018 and 31 July 2017.
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.
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.
The total warranty provision at 31 January 2018 is GBP1,323,000
(31 July 2017: GBP1,291,000). The total provision for bad debts at
31 January 2018 is GBP956,000 (31 July 2017: GBP967,000). The total
provision for inventory obsolescence at 31 January 2018 is
GBP2,637,000 (31 July 2017: GBP2,829,000).
4. 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,
adjusted profit before tax, adjusted basic and diluted EPS and
adjusted operating cash flow. These measures are deemed more
appropriate as they remove income and expenditure which is not
directly related to the ongoing trading of the business. For a
definition of all the adjusted and non-GAAP measures, please see
the glossary of terms in note 20.
For the six months ended For the six months ended
31 January 2018 31 January 2017
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Profit after tax 8,271 7,186
Add back:
Exceptional operating costs (note 7) 1,097 758
Reversal of contingent consideration (note 7) (1,553) -
Net loss on financial instruments at fair value (note 8) 639 220
Exceptional write off of unamortised loan issue costs upon
refinancing (note 8) 320 -
Amortisation of intangible assets acquired through business
combinations 7,224 6,742
Tax effect of the above (1,922) (1,895)
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted profit after tax 14,076 13,011
Add back:
Adjusted tax charge 3,742 3,524
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted profit before tax 17,818 16,535
Add back:
Interest payable on bank overdraft and bank loans 467 609
Finance income (7) (10)
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted operating profit 18,278 17,134
Add back:
Depreciation of property, plant and equipment 1,480 1,464
Amortisation of development costs, software and patents 447 333
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted EBITDA 20,205 18,931
---------------------------------------------------------------- ------------------------- -------------------------
5. Revenue
Revenue recognised in the statement of comprehensive income is
analysed below:
For the six months ended
For the six months ended 31 January 2018 31 January 2017
GBP000 GBP000
------------------------------------------------ ----------------------------------------- -------------------------
Sale of goods 94,740 87,332
Rendering of services 3,996 1,146
------------------------------------------------ ----------------------------------------- -------------------------
Total revenue 98,736 88,478
------------------------------------------------ ----------------------------------------- -------------------------
For the six months ended
For the six months ended 31 January 2018 31 January 2017
Market Sectors GBP000 GBP000
------------------------------------------------ ----------------------------------------- -------------------------
Ventilation Group
UK Residential RMI 19,768 18,929
UK Residential New Build 11,002 10,222
UK Commercial 15,980 15,044
UK Export 6,699 4,717
Nordics(1) 19,659 15,478
Central Europe(2) 14,278 13,328
------------------------------------------------ ----------------------------------------- -------------------------
Total Ventilation Group 87,386 77,718
------------------------------------------------ ----------------------------------------- -------------------------
Original Equipment Manufacturer (OEM (Torin
Sifan))
OEM (Torin-Sifan) 11,350 10,760
------------------------------------------------ ----------------------------------------- -------------------------
Total revenue 98,736 88,478
------------------------------------------------ ----------------------------------------- -------------------------
Notes
1. Represents revenue of Fresh AB and its subsidiaries, PAX AB,
Volution Norge AS, Welair AB and VoltAir System AB.
2. Represents revenue of inVENTer GmbH, Brüggemann
Energiekonzepte GmbH, Ventilair Group International BVBA and its
subsidiaries.
6. 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 operating profit
(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.
Ventilation Group OEM Unallocated Total Eliminations Consolidated
Six months ended 31 January 2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Revenue
External customers 87,386 11,350 - 98,736 - 98,736
Inter-segment 10,251 559 - 10,810 (10,810) -
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Total revenue 97,637 11,909 - 109,546 (10,810) 98,736
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Gross profit 43,834 3,561 - 47,395 - 47,395
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted segment EBITDA 18,681 2,388 (864) 20,205 - 20,205
Depreciation and amortisation of
development costs, software and
patents (1,365) (304) (258) (1,927) - (1,927)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted operating profit/(loss) 17,316 2,084 (1,122) 18,278 - 18,278
Amortisation of assets acquired
through business combinations (6,545) (679) - (7,224) - (7,224)
Exceptional operating costs - - (1,097) (1,097) - (1,097)
Release of contingent
consideration - - 1,553 1,553 - 1,553
Operating profit/(loss) 10,771 1,405 (666) 11,510 - 11,510
Unallocated expenses:
Net finance cost - - (1,419) (1,419) - (1,419)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Profit/(loss) before tax 10,771 1,405 (2,085) 10,091 - 10,091
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
A portion of Group overhead costs, GBP864,000 (H1 2017:
GBP1,065,000), are not allocable to individual operating segments.
Likewise, exceptional items attributable to the holding companies
have not been allocated to individual operating segments.
Ventilation Group OEM Unallocated Total Eliminations Consolidated
Six months ended 31 January 2017 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Revenue
External customers 77,718 10,760 - 88,478 - 88,478
Inter-segment 8,002 465 - 8,467 (8,467) -
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Total revenue 85,720 11,225 - 96,945 (8,467) 88,478
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Gross profit 39,987 3,606 - 43,593 - 43,593
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted segment EBITDA 17,560 2,436 (1,065) 18,931 - 18,931
Depreciation and amortisation of
development costs, software and
patents (1,304) (287) (206) (1,797) - (1,797)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted operating profit/(loss) 16,256 2,149 (1,271) 17,134 - 17,134
Amortisation of assets acquired
through business combinations (6,063) (679) - (6,742) - (6,742)
Exceptional items - - (758) (758) - (758)
Operating profit/(loss) 10,193 1,470 (2,029) 9,634 - 9,634
Unallocated expenses:
Net finance cost - - (819) (819) - (819)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Profit/(loss) before tax 10,193 1,470 (2,848) 8,815 - 8,815
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Geographic information
For the six months ended For the six months ended
31 January 2018 31 January 2017
Revenue from external customers (by destination): GBP000 GBP000
--------------------------------------------------- ------------------------- -------------------------
United Kingdom 52,303 49,754
Europe (excluding United Kingdom and Sweden) 25,853 26,627
Sweden 17,793 10,411
Rest of the world 2,787 1,686
--------------------------------------------------- ------------------------- -------------------------
Total revenue 98,736 88,478
--------------------------------------------------- ------------------------- -------------------------
31 January 2018 31 July 2017
Non-current assets excluding deferred tax GBP000 GBP000
--------------------------------------------------- ------------------------- -------------------------
United Kingdom 147,168 151,732
Europe (excluding United Kingdom & Nordics) 26,842 28,226
Nordics 20,331 22,222
--------------------------------------------------- ------------------------- -------------------------
Total 194,341 202,180
--------------------------------------------------- ------------------------- -------------------------
7. 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 items are summarised
below:
For the six months ended For the six months ended
31 January 2018 31 January 2017
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Acquisition related costs, including inventory fair value
adjustments 347 563
Factory relocation 750 195
Exceptional operating costs 1,097 758
Reversal of contingent consideration (1,553) -
---------------------------------------------------------------- ------------------------- -------------------------
(456) 758
Total tax credit relating to the items above (197) (92)
---------------------------------------------------------------- ------------------------- -------------------------
(653) 666
---------------------------------------------------------------- ------------------------- -------------------------
Acquisition related costs, including inventory fair value
adjustments
The acquisition related costs in the period are GBP347,000 (H1
2017: GBP563,000).
Factory relocation
The costs for the factory relocation relate to a project to
combine manufacturing locations.
With the assistance of Colliers International (commercial estate
agents) an extensive year long search has produced a suitable site
- the business has now set-up a relocation project team and has
recruited the expertise of a professional project manager with
experience in managing industrial relocations. A breakdown of the
cost is as follows:
For the six months ended For the six months ended
31 January 2018 31 January 2017
GBP000 GBP000
---------------------------- ------------------------- -------------------------
Colliers - finders fee - 75
Legal fees - 49
Consultancy fees 83 22
Project manager 64 49
Redundancy related costs 54 -
Stock write off 57 -
Site clearance and closure 12 -
Dual running costs of site 343 -
Start-up costs 137 -
---------------------------- ------------------------- -------------------------
750 195
---------------------------- ------------------------- -------------------------
The project to relocate the factories to the new facility will
last until mid-2018 when we expect to finalise the production move.
It is our intention that all costs associated with the project will
similarly be treated as exceptional. Total costs spent to date are
GBP1.3 million, with a further c. GBP1.4 million to spend.
The costs associated with this project have been, and will
continue to be, deemed as exceptional given their size in aggregate
and the unusual (one-off) nature of the project.
Reversal of contingent consideration
On 29 May 2017, Volution Group plc, through one of its wholly
owned subsidiaries, Volution Holdings Sweden AB, acquired the
entire issued share capital of VoltAir System AB. Total
consideration for the transaction was cash consideration of SEK
79,711,000 (GBP7,091,000) and contingent consideration with a fair
value of SEK 16,930,000 (GBP1,506,000), giving total consideration
of SEK 96,641,000 (GBP8,597,000). The contingent consideration was
based on the level of EBITDA achieved during the twelve months to
31 December 2017. There was a minimum level of EBITDA which must be
achieved otherwise no contingent consideration is payable. The
contingent consideration, recognised in the 31 July 2017 financial
statement, 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, financial results for the twelve
months indicate that the minimum level of EBITDA has not been
achieved and the contingent consideration will not be paid and
therefore has been reversed in the period as an exceptional
item.
Write off of unamortised loan issue costs upon refinancing
In addition to the exceptional operating costs disclosed in the
table above, we have incurred exceptional finance costs relating to
the write off of unamortised loan issue costs upon refinancing as
disclosed in note 8.
8. Finance costs
For the six months ended For the six months ended
31 January 2018 31 January 2017
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Interest payable on bank loans 426 551
Revaluation of financial instruments 639 220
Exceptional write off of unamortised loan issue costs upon
refinancing 320 -
Other interest 41 58
1,426 829
---------------------------------------------------------------- ------------------------- -------------------------
On 15 December 2017, the Group refinanced its bank debt. The
Group now has in place a GBP120 million multicurrency revolving
credit facility (maturing in December 2021) together with an
accordion of up to GBP30 million, with the option to extend the
termination of the facility by a period of 12 months. The old
facility was repaid in full when the new multicurrency revolving
credit facility was entered into. As a consequence of the
re-finance, the unamortised finance costs of GBP320,000 relating to
the previous loans were written off on 15 December 2017.
9. Income taxes
The reported effective tax rate for the 6 months was 18.0% (H1
2017: 18.5%). Our adjusted effective tax rate, on adjusted profit
before tax, was 21.0% (H1 2017: 21.3%). The reduction of 0.3
percentage points was partly due to the reduction in the UK
corporation tax rate from 20% to 19% which came into effect on 1
April 2017.
On 22 December 2017, the Belgian parliament enacted legislation
in which the corporate tax rate is incrementally reduced from
33.99% to 29.58% in 2018 and to 25% in 2020. As a result, we have
recognised a deferred tax credit of GBP188,000 which has reduced
the reported effective tax rate in the period.
The Group's medium-term adjusted effective tax rate is expected
to remain around 21.0% of the Group's adjusted profit before
tax.
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 2018 and 31
January 2017.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
For the six months ended
For the six months ended 31 January 2018 31 January 2017
GBP000 GBP000
------------------------------------------------ ----------------------------------------- -------------------------
Profit attributable to ordinary equity holders 8,271 7,186
------------------------------------------------ ----------------------------------------- -------------------------
Number Number
------------------------------------------------ ----------------------------------------- -------------------------
Weighted average number of ordinary shares for
basic earnings per share and diluted earnings
per share 198,838,009 199,083,122
------------------------------------------------ ----------------------------------------- -------------------------
Earnings per share
Basic and diluted 4.16p 3.61p
------------------------------------------------ ----------------------------------------- -------------------------
For the six months ended For the six months ended
31 January 2018 31 January 2017
GBP000 GBP000
------------------------------------------------ ----------------------------------------- -------------------------
Adjusted profit attributable to ordinary equity
holders 14,076 13,011
------------------------------------------------ ----------------------------------------- -------------------------
Number Number
------------------------------------------------ ----------------------------------------- -------------------------
Weighted average number of ordinary shares for
adjusted basic earnings per share and diluted
earnings per share 198,838,009 199,083,122
------------------------------------------------ ----------------------------------------- -------------------------
Adjusted earnings per share
Basic and diluted 7.08p 6.54p
------------------------------------------------ ----------------------------------------- -------------------------
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 2017 29,720
Additions 2,480
Disposals (599)
Net foreign currency exchange differences (407)
------------------------------------------- --------
As 31 January 2018 31,194
------------------------------------------- --------
Depreciation
At 31 July 2017 10,130
Depreciation expense 1,480
Disposals (447)
Net foreign currency exchange differences (195)
------------------------------------------- --------
As 31 January 2018 10,968
------------------------------------------- --------
Net book value
At 31 January 2018 20,226
------------------------------------------- --------
At 31 July 2017 19,590
------------------------------------------- --------
12. Intangible assets - goodwill
Total
GBP000
------------------------------------------- --------
Cost and net book value:
At 31 July 2017 81,584
Net foreign currency exchange differences (648)
------------------------------------------- --------
As 31 January 2018 80,936
------------------------------------------- --------
13. Intangible assets - other
Total
GBP000
------------------------------------------- --------
Cost
At 31 July 2017 171,083
Additions 524
Disposals (1)
Net foreign currency exchange differences (1,159)
------------------------------------------- --------
As 31 January 2018 170,447
------------------------------------------- --------
Amortisation
At 31 July 2017 70,077
Amortisation expense 7,671
Disposals (1)
Net foreign currency exchange differences (479)
------------------------------------------- --------
As 31 January 2018 77,268
------------------------------------------- --------
Net book value
At 31 January 2018 93,179
------------------------------------------- --------
At 31 July 2017 101,006
------------------------------------------- --------
14. Other financial assets and liabilities
Current Current
31 January 2018 31 July 2017
GBP000 GBP000
-------------------------- ----------------- --------------
Financial assets
Cash held in escrow 15 16
-------------------------- ----------------- --------------
Financial liabilities
FX forward contracts 1,233 536
Contingent consideration - 1,588
-------------------------- ----------------- --------------
1,233 2,124
-------------------------- ----------------- --------------
15. Interest bearing loans and borrowings
Non-current Non-current
31 January 2018 31 July 2017
GBP000 GBP000
---------------------------------------------------------------- ----------------- --------------
Unsecured at amortised cost
Borrowings under the revolving credit facility (maturing 2021) 45,956 -
Unamortised finance costs (911) -
Unsecured at amortised cost
Borrowings under the revolving credit facility (maturing 2019) - 51,490
Unamortised finance costs - (402)
---------------------------------------------------------------- ----------------- --------------
45,045 51,088
---------------------------------------------------------------- ----------------- --------------
On 15 December 2017, the Group refinanced its bank debt. The
Group now has in place a GBP120 million multicurrency revolving
credit facility, together with an accordion of up to GBP30 million.
The facility matures in December 2021, with the option to extend
the termination of the facility by a period of 12 months. The old
facility was repaid in full early, on 15 December 2017, and a new
multicurrency revolving credit facility was entered into. Interest
bearing loans at 31 January 2018 comprise this multicurrency
revolving credit facility, together with an accordion, 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.
Bank loans at 31 July 2017 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 is
provided under the new facility.
During the period, other than the repayment of the old loan
(GBP49,862,000) and the drawdown of the new loan (GBP51,862,000),
GBP6,000,000 was repaid from cash flows generated through operating
activities.
Revolving credit facility - at 31 January 2018
Amount
outstanding Termination Repayment
Currency GBP000 date Frequency Rate %
--------------- ------------ ----------- ----------- --------
Libor +
GBP 1,000 15 Dec 2021 One payment 0.90%
Euribor
Euro 22,841 15 Dec 2021 One payment + 0.90%
Stibor +
Swedish Krona 22,115 15 Dec 2021 One payment 0.90%
--------------- ------------ ----------- ----------- --------
Total 45,956
--------------- ------------ ----------- ----------- --------
Revolving credit facility - at 31 July 2017
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
--------------- ------------ ----------- ----------- --------
30 April Libor +
GBP 5,000 2019 One payment 1.00%
30 April Euribor
Euro 23,320 2019 One payment + 1.00%
30 April Stibor +
Swedish Krona 23,170 2019 One payment 1.00%
--------------- ------------ ----------- ----------- --------
Total 51,490
--------------- ------------ ----------- ----------- --------
The interest rate on borrowings includes a margin that is
dependent on the consolidated leverage level of the Group in
respect of the most recently completed reporting period. For the
period ended 31 January 2018, Group leverage was below 1.0:1 and
therefore the margin will remain at 0.9%.
At 31 January 2018, the Group had GBP74,045,000 (31 July 2017:
GBP37,010,000) of its multi-currency revolving credit facility
unutilised.
16. Fair values of financial assets and financial liabilities
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1 - quoted (unadjusted) prices in active markets for
identical assets or liabilities;
-- Level 2 - other techniques for which all inputs that have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3 - techniques which use inputs which have a
significant effect on the recorded fair value that are not based on
observable market data.
Financial instruments carried at fair value comprise the
derivative financial instruments in note 14 and the contingent
consideration in note 7. For hierarchy purposes, derivative
financial instruments are deemed to be Level 2 as external valuers
are involved in the valuation of these contracts. Their fair value
is measured using valuation techniques, including a DCF model.
Inputs to this calculation include the expected cash flows in
relation to these derivative contracts and relevant discount rates.
Contingent consideration is deemed to be Level 3.
17. Related party transactions
Transactions between Volution Group plc and its subsidiaries,
along with transactions between subsidiaries, are eliminated on
consolidation and are not included within these financial
statements.
There have been no related party transactions in the period to
31 January 2018 apart from compensation of key management
personnel.
18. Dividends
The Group paid a final dividend of 2.80 pence per ordinary share
during the period in respect of the year ended 31 July 2017. The
Board has declared an interim dividend of 1.46 pence per ordinary
share in respect of the half year ended 31 January 2018 (6 months
to 31 January 2017: 1.35 pence per ordinary share) which will be
paid on 3 May 2018 to shareholders on the register at the close of
business on 3 April 2018. 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.
19. Events after the reporting period
On 19 March 2018 Volution Group plc, through one of its wholly
owned subsidiaries, Chinook Limited, purchased the entire issued
share capital of Simx Limited in New Zealand. Simx Limited is the
market leading residential ventilation products supplier in New
Zealand. As a result of the acquisition, the Group will gain access
to new markets.
The consideration for the acquisition was NZ$72.0 million
(approximately GBP37.8 million), on a debt-free, cash-free basis,
funded from the Group's existing cash and banking facilities. The
Group is in the process of finalising the acquisition accounting
and can therefore not provide any further disclosure in line with
IFRS 3, 'Business Combinations' at this stage.
There have been no other material events between 31 January 2018
and the date of authorisation of the condensed consolidated
financial statements that would require adjustments to the
condensed consolidated financial statements or disclosure.
20. Glossary of terms
Adjusted basic and diluted EPS - is 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
no dilutive potential ordinary shares for the periods ended 31
January 2018 and 31 January 2017.
Adjusted EBITDA - adjusted operating profit before depreciation
and amortisation.
Adjusted finance costs - finance costs removing 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 removing
exceptional operating costs, release of contingent consideration
and amortisation of assets acquired through business
combinations.
Adjusted profit after tax - profit after tax removing
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 removing
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.
Cash conversion - is calculated by dividing adjusted operating
cash flow by adjusted EBITDA less depreciation.
Constant currency - to determine values expressed as being at
constant currency we have converted the income statement of our
foreign operating companies for the period ended 31 January 2018 at
the average exchange rate for the period ended 31 January 2017. In
addition we have converted the UK operating companies' sale and
purchase transactions in the period ended 31 January 2018, which
were denominated in foreign currencies, at the average exchange
rates for the period ended 31 January 2017.
EBITDA - profit before net finance costs, tax, depreciation and
amortisation.
Net debt - bank borrowings less cash and cash equivalents.
Operating cash flow - EBITDA plus or minus movements in
operating working capital, less net investment in property, plant
and equipment and intangible assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFFDVTIDLIT
(END) Dow Jones Newswires
March 19, 2018 03:02 ET (07:02 GMT)
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