TIDMFAN
RNS Number : 0890T
Volution Group plc
18 March 2019
Embargoed until 07:00 on:
Monday 18 March 2019
VOLUTION GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHSED 31 JANUARY 2019
Further good progress with revenue growth of 16.3% and adjusted
operating profit up 10.7%.
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 2019.
6 months 6 months
to to
31 January 31 January
Financial results 2019 2018 Movement
Revenue (GBPm) 114.8 98.7 16.3%
Adjusted operating profit (GBPm) 20.2 18.3 10.7%
Adjusted profit before tax (GBPm) 19.1 17.8 7.6%
Reported profit before tax (GBPm) 10.2 10.1 1.4%
Adjusted basic and diluted EPS (p) 7.7 7.1 8.5%
Reported basic and diluted EPS (p) 4.1 4.2 (2.4)%
Adjusted operating cash flow (GBPm) 15.5 11.8 30.8%
Interim dividend per share (p) 1.60 1.46 9.6%
Net debt (GBPm) 74.4 34.9 39.5
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 16.3% (17.8% at constant currency).
* Organic revenue growth of 1.9% (3.2% at constant
currency).
* Inorganic revenue growth of 14.4% (14.6% at constant
currency).
-- Adjusted operating profit increased by 10.7% to GBP20.2 million
(12.4% at constant currency), assisted by acquisitions.
-- Adjusted operating profit margin declined by 0.9 percentage points
resulting from:
* operational difficulties at our Reading facility
which improved significantly by the end of the
period; and
* higher material cost in OEM (Torin-Sifan) and our UK
Commercial sector.
-- Reported profit before tax of GBP10.2 million (H1 2018: GBP10.1
million), increased less than adjusted operating profit due to:
* release of GBP1.5 million contingent consideration in
the prior period;
* amortisation of acquired intangible assets increased
by GBP0.5 million; and
* offset by lower financing costs and foreign exchange
derivatives revalued in the period.
-- Adjusted operating cash inflow of GBP15.5 million (H1 2018: GBP11.8
million) as a result of higher adjusted profitability and improved
working capital management compared to the prior period.
-- Net debt of GBP74.4 million was GBP39.5 million higher than at 31
January 2018 following GBP51.0 million spent on four acquisitions
completed in H2 2018.
-- Interim dividend of 1.60 pence per share, up 9.6% (H1 2018: 1.46
pence).
Strategic and operational highlights
Acquisitions
-- The four acquisitions completed in the prior year are all integrating
and performing well. These acquisitions have both extended our geographic
and product reach, further diversifying and increasing Volution's
market access.
Organic growth
-- Organic growth highlights in the UK include a return to growth for
the UK Public RMI sector and another period of strong organic growth
for UK Residential New Build.
-- Operational difficulties at our Reading facility adversely impacted
on profitability in the period; however, we are pleased by the significant
improvement in production levels by the end of the period, which
has been sustained into the second half of FY 2019.
-- Good traction with our new Xenion range of decentralised heat recovery
ventilation in Germany with a substantial increase in gross margin.
-- The launch of the first application software controlled ventilation
extract fan, Genius, under the Manrose brand sold by our company
Simx in New Zealand, further demonstrating our capability to launch
existing Volution products in to newly accessed markets.
Post period event, acquisition of Ventair Pty Limited in Australia
-- On 1 March 2019, we acquired Ventair Pty Limited, a market leading
residential ventilation product supplier, in Australia, for an initial
cash consideration of AUS$19.2 million (approximately GBP10.4 million).
A further amount of deferred cash consideration of up to AUS$7.7
million (approximately GBP4.3 million) may be payable contingent
on Ventair achieving an EBITDA target in the financial year ending
31 July 2020.
-- The acquisition of Ventair Pty Limited has further increased our
geographic diversity, product offer and market access; including
the pro-forma effect of this acquisition, our revenue from customers
outside the UK now represents 53% of total Group revenue.
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"I am pleased to announce these results which are underpinned by
strong growth, in line with our strategy, as a result of the four
acquisitions completed in FY 2018, and our much improved run-rate
of organic growth compared to the second half of FY 2018. Organic
growth in the UK was considerably improved compared to the second
half of 2018, assisted by the return, as the period progressed, to
normal production levels at our new injection moulding and fan
assembly facility in Reading, UK. Our Residential Public RMI
revenue returned to organic growth as our new products and enhanced
specification sales teams continued to win market share. All four
acquisitions completed in FY 2018 are integrating well. In the
Australasian region we have complemented our Simx business in New
Zealand, by the post period acquisition of Ventair in Australia,
providing additional market access and product range in
Australasia."
Outlook
The second half of the financial year started well, continuing
the improving organic growth trend demonstrated in the first half.
The factory consolidation project, in Reading, UK, is now complete;
production levels had normalised by the end of the period and we
expect to benefit from these increased levels of output in the
second half of FY 2019. Notwithstanding the ongoing uncertainty
over the arrangements for the UK to leave the EU, we are now
significantly more geographically diverse, and our increasing
investment in innovation and new product introductions will provide
the support required to make good progress in line with our
strategy in the second half of the financial year. The Board
currently anticipates full year earnings to be in line with
expectations.
-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 meeting for analysts will be held at 9.30am today, Monday 18
March, at the offices of Tulchan Communications, 85 Fleet Street,
London EC4Y 1AE. Please contact volutiongroup@tulchangroup.com to
register to attend or for instructions on how to connect to the
meeting via conference facility. A copy of this announcement and
the presentation given to analysts will be available on our website
www.volutiongroupplc.com from 7.00 am on Monday 18 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 16 key brands - Vent-Axia, Manrose,
Diffusion, National Ventilation, Airtech, Breathing Buildings,
Fresh, PAX, VoltAir, Welair, Kair, Air Connection, inVENTer,
Ventilair, Simx and Ventair, 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 3.2% at
constant currency was complemented by inorganic growth of 14.6% at
constant currency from the full period effect of the acquisitions
of Simx Limited, acquired in March 2018, AirFan B.V., acquired in
May 2018, Oy Pamon Ab, acquired in July 2018 and Air Connection
ApS, acquired in July 2018. Revenue increased to GBP114.8 million,
an increase of 16.3% (17.8% at constant currency) compared to H1
2018 and adjusted operating profit grew by 10.7% (12.4% at constant
currency) to GBP20.2 million, representing a margin of 17.6% of
revenue (H1 2018: 18.5%).
Our organic growth was a result of good sales performance in the
Nordics, Central Europe, all of the UK and OEM (Torin-Sifan),
slightly offset by the anticipated organic decline in the UK Export
sector.
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.
Organic growth was good in the period and much better when
compared to the rate of growth in the second half of the prior
year. Revenue growth in Residential Public RMI was particularly
pleasing compared to the recent history of decline in this
sub-sector. Following the challenges relating to the factory
consolidation during FY 2018 there has been a significant increase
in output at our Reading, UK facility during this period that will
continue to support improving revenue for Residential Private RMI
in the UK. Residential New Build continued its strong revenue
growth trend. We will continue to innovate and bring many new
products to market in the second half of the financial year.
The four acquisitions completed in FY 2018 are all integrating
well and the integration of the recent acquisition of Ventair in
Australia has already started. The ventilation market remains
fragmented and we aspire to being one of the larger ventilation
groups in this space, leveraging our innovation, procurement and
operational improvement ambitions to enhance acquired
companies.
Sales of the new EC3 range of motorised impellers in our OEM
(Torin-Sifan) segment have developed very well in the year both
with external and internal customers. This trend is expected to
continue in the second half of the financial year.
Ventilation Group
Revenue: GBP102.8 million, 89.5% of Group revenue
(GBP104.3 million at constant currency) (H1
2018: GBP87.4 million, 88.5% of Group revenue)
Adjusted operating GBP19.6 million, 97.0% of Group adjusted
profit: operating profit
(H1 2018:GBP17.3 million, 94.7% of Group
adjusted operating profit)
Constant currency
---------------------------------------------
6 months to 6 months to 6 months to
31 January 2019 31 January 2019 31 January 2018 Growth
Market sector revenue GBPm GBPm GBPm(1) %
-------------------------------------- ----------------- ----------------- ----------------- -------
Ventilation Group
UK Residential RMI 19.7 19.7 19.7 0.3
UK Residential New Build 13.1 13.1 11.1 17.5
UK Commercial 17.3 17.3 16.0 8.2
UK Export 4.5 4.6 5.9(2) (22.3)
Nordics 25.4 26.5 19.6 34.9
Central Europe 14.6 14.6 14.3 2.5
Australasia 8.2 8.5 -
-------------------------------------- ----------------- ----------------- ----------------- -------
Total Ventilation Group 102.8 104.3 86.6 20.5
-------------------------------------- ----------------- ----------------- ----------------- -------
UK export Simx and Air Connection(2) 0.0 0.0 0.8
-------------------------------------- ----------------- ----------------- ----------------- -------
Total Ventilation Group 102.8 104.3 87.4 19.3
-------------------------------------- ----------------- ----------------- ----------------- -------
(1) During the second half of 2018 we refined our approach to
allocation of products resulting in the reallocation of sales of a
small number of products between market sectors; the H1 2018 sales
analysis has therefore been restated to reflect this reallocation.
The market sector revenue for the affected sectors, previously
disclosed in the interim results for the six months ended 31
January 2018, was UK Residential RMI GBP19.8 million and UK
Residential New Build GBP11.0 million.
(2) Sales to Simx and Air Connection in the prior period of
GBP0.8million have been separated to show a like-for-like
comparison with H1 2018 because sales to Simx and Air Connection
are now eliminated as intercompany sales.
The Ventilation Group performed well in the half year to 31
January 2019, with a 17.6% increase in revenue compared to H1 2018
(19.3% at constant currency). Sales to our recent acquisitions,
Simx and Air Connection, made in the prior period (GBP0.8 million)
have been shown separately to illustrate a like-for-like growth of
20.5%. Organic growth was 1.4% (2.8% at constant currency) due to
growth in UK Residential New Build, UK Commercial, UK Residential
RMI and Central Europe, partly offset by the declining organic
revenue in the UK Export sector and lower organic growth in the
Nordics (on a constant currency basis organic growth in the Nordics
was 0.2%).
Adjusted operating profit increased by GBP2.3 million assisted
by recent acquisitions; improved margin performance in Central
Europe and UK Residential offset by the cost of the above mentioned
operational difficulties in our Reading facility and temporarily
higher cost of materials supplied to our UK Commercial sector,
which is now resolved.
United Kingdom
Sales in our UK Residential RMI sector were GBP19.7 million (H1
2018: GBP19.7 million), an increase of 0.3%. Organic revenue in the
UK Residential Public RMI sector grew by 0.9%, whilst private
refurbishment revenue was flat on the prior period. The improvement
in the public sector has been supported by the introduction of new
products and improved products in the existing range. Our Revive
solution for the Public RMI market gained significant momentum and
in February 2019 won the award for the most innovative building
product at the EEM Building Communities Awards Event, further
confirming the market leading position that we have. UK Residential
Private RMI was flat in the first half of the year, a decline in
the first quarter and a return to growth in the second quarter
underpinned by significantly increased output levels and service
from our new Reading factory, a trend which has continued into the
second half of the year. Leveraging our three distinct Residential
Private RMI ventilation brands (Vent-Axia, Manrose and National
Ventilation) is an essential ingredient as we "up sell" the
category towards more silent, more aesthetic and more sophisticated
products. In the period we designed, manufactured and launched an
upgraded range of products under our National Ventilation brand.
This has replaced a previously outsourced range, which has improved
gross margins due to lower product costs. The new products are
driving market share gains as the innovative features of this new
range help capture additional shelf space in our distributor
customer branches.
Sales in our UK Residential New Build sector were GBP13.1
million (H1 2018: GBP11.1 million), showing strong organic growth
of 17.5% and continuing a trend of consistent organic growth since
2010. Ongoing investment in additional sales professionals, new
products and improved back office service functions were undertaken
in the period and there are a number of significant new projects
where our products have been specified due to their key features.
Growth in this sector has accelerated over the period; the order
intake and outlook is positive and we are well positioned for
future growth.
Sales in our UK Commercial sector grew organically by 8.2% in
the first six months, to GBP17.3 million (H1 2018: GBP16.0 million)
with all individual product categories performing well. The
investment in additional capacity in West Molesey in the UK has
supported the increased revenue. We have now upgraded the product
range of Breathing Buildings and are now winning more
specifications and new orders than previously. Further product
launches are planned over the coming months including upgraded
control hardware and software utilising existing platforms in the
Group.
UK Export sales were GBP4.5 million (H1 2018: GBP5.9 million
like-for-like), which has declined by 22.8% ((22.3)% at constant
currency), the decline being partly attributable to the one-off
large export contract to Japan in the prior period. Within our UK
Export sector, sales to the new build residential markets in Eire,
using our leading range of heat recovery products continue to
perform very well with several projects secured for the second half
of FY 2019.
The Nordics
Sales in the Nordics sector were GBP25.4 million (H1 2018:
GBP19.6 million), an increase of 29.0% (34.9% at constant
currency). This increase was mainly as a result of the full period
effect of the acquisitions made during FY 2018; Oy Pamon Ab and Air
Connection ApS, acquired in July 2018. Organic revenue growth was
0.2% at constant currency (declined 5.6% actual).
The recent acquisitions have integrated well with revenue
growing compared to the period prior to our ownership. In Air
Connection in Denmark we have increased the product portfolio,
implemented a new ERP system and have several additional new
products to launch in the second half of this financial year. Oy
Pamon in Finland has performed ahead of the prior year and
investments are underway to further increase the factory output to
underpin our plans to sell the product range across the wider
Volution market that the company can now access.
In the period we launched the new generation of "intelligent"
ventilation for the refurbishment market. Intellivent Sky was
launched in Sweden in October 2018 and the roll out across the
Nordics is well underway. This upgraded range of "intelligent"
ventilation includes innovative application software and also the
first odour sensing device for residential refurbishment
applications in Europe. This new product range will be launched in
all of our markets during the second half of the year.
Central Europe
Sales in the Central Europe sector were GBP14.6 million (H1
2018: GBP14.3 million), an increase of 2.2% (2.5% at constant
currency). In Germany the Xenion range of decentralised heat
recovery products now makes up the main category for our sales.
This quieter and improved range of products also delivers a
substantial gross margin improvement. In January at a building
products trade exhibition in Munich we launched the concept of a
full Bluetooth and wireless controlled range of products. This new
range was also demonstrated at an exhibition in Frankfurt in March.
With this improved functionality and wireless controls, both
developed internally, the product is far easier to install and in
our opinion provides the most contractor-friendly decentralised
heat recovery solution for the refurbishment market in Germany.
In Belgium and the Netherlands our strategy to gain share with
the distribution route to market is gaining traction. In both
markets there has been a substantial increase in the product range
and that will continue in the second half of the year.
Australasia
Sales in the Australasia sector were GBP8.2 million, as a result
of the full period effect of the acquisition of Simx, which was
completed on 19 March 2018. The residential construction market in
New Zealand has recently been less buoyant; however, we are pleased
with the progress in the period. A number of new products have been
launched with the new Genius fan the most notable success. The post
period acquisition of Ventair increases our presence in the region
and provides us with a great opportunity to sell the respective
ranges from Australia and New Zealand in to our other markets.
Volution was already an OEM supplier to a number of local brands in
Australia and we are confident that our product range and planned
developments will enable us to expand our share in the Australian
market. The acquisition of Ventair provides us with an established
brand, extensive sales team and back office support which removes
our previous barriers to entry and, coupled with our existing range
of products, makes this a compelling opportunity.
OEM (Torin-Sifan)
Revenue: GBP12.0 million, 10.5% of Group revenue (GBP12.1
million at constant currency) (H1 2018: GBP11.3
million, 11.5% of Group revenue)
Adjusted operating GBP1.7 million, 8.4% of Group adjusted operating
profit: profit
(H1 2018: GBP2.1 million, 11.4% of Group
adjusted operating profit)
Constant currency
---------------------------------------------
6 months to 6 months to 6 months to
31 January 2019 31 January 2019 31 January 2018 Growth
Market sector revenue GBPm GBPm GBPm %
----------------------- ----------------- ----------------- ----------------- -------
Total OEM 12.0 12.1 11.3 6.3
----------------------- ----------------- ----------------- ----------------- -------
Our OEM (Torin-Sifan) segment revenue was GBP12.0 million (H1
2018: GBP11.3 million); organic growth of 6.2% (6.3% at constant
currency). Sales of our highly efficient Electronically Commutated
(EC) technology products have been very good but sales volumes of
traditional, Alternating Current (AC) technology products have been
disappointing. The unseasonably warm winter in the UK has impacted
on sales of higher margin boiler spares but this was partly offset
by the price increase implemented in the year.
Adjusted operating profit has declined by GBP0.4 million due to
higher input costs for electronic components in the period, partly
inflation related and partly because spot purchases have been at a
significant premium. Price increases have recently been
successfully implemented to recover the impact of the underlying
inflation and the benefits from our ERP implementation in H2 2018
will improve the supply chain performance in the future, therefore
reducing the need to spot buy electronic components at a
premium.
Operations - Reading factory update
As expected, the operational difficulties at our new Reading
factory have had an adverse impact on our profitability in the
period; however, production improved significantly by the end of
the period. The project is now complete, production levels have
returned to normal and we will continue to pursue further
production efficiencies. In fact during the period we have invested
in additional injection moulding equipment, rigid ducting extrusion
line and several fan assembly lines to support the ongoing organic
growth and "in-sourcing" projects that we are running across the
Group. It is often the case when we acquire a new market position
that the acquired company doesn't produce all of the products that
they sell. By internalising the manufacture of previously
outsourced products to our proprietary design and manufacture we
can deliver a substantial increase in gross margins. Several of
these projects are underway further increasing the manufacturing
demand at our Reading factory.
In the second half of the year we will continue to work hard to
optimise the new facility with the recent focus enabling us to
identify many other operational excellence opportunities which will
enhance our operating margins. Shortening our lead-times, enhancing
our customer service still further and improving our logistics are
some of the current improvement streams being worked on. The
project took six months longer and cost more than anticipated to
complete but having done so we now have the capacity headroom to
support our ambitious organic and inorganic growth plans.
Dividend
The Board has declared an interim dividend of 1.60 pence per
share, which represents growth of 9.6% compared to H1 2018
demonstrating the Board's continuing confidence in the performance
of the Group. The interim dividend will be paid on 3 May 2019 to
shareholders on the register at the close of business on 29 March
2019.
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 so far not seen any other effects on
trading that can be directly attributed to the decision to leave
the EU. The opportunities open to us to mitigate any impact of
disruption to the flow of goods at UK borders are limited but,
where possible, we are securing supply and increasing strategically
placed inventories in the UK and abroad to maintain customer
service. The main potential impact we believe will be from possible
disruption to supply chains and this is further mitigated for the
Group as a consequence of our acquisition strategy as we are now
significantly more geographically diverse with 53% of our total
Group revenue, on a pro-forma basis, from customers outside the
UK.
Board
As announced on 21 January 2019, Ian Dew, Chief Financial
Officer ("CFO"), will retire from Volution, during 2019. Ian will
continue in his role as CFO until a successor has been appointed,
and for a transitional period thereafter. As part of our overall
succession planning, we are working with Russell Reynolds
Associates, who are assisting us with the search process. Ian
joined Volution in 2012 and was appointed as CFO in January 2014.
Ian played an integral role in Volution's successful listing on the
London Stock Exchange and since then has played a key role in the
completion of all acquisitions. Ian will continue to oversee the
finance function until a permanent successor is appointed and an
update will be provided in due course.
Ronnie George
Chief Executive Officer
18 March 2019
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
2019 2018 Movement 2019 2018 Movement
---------------------- ------------ ------------ --------- ------------ ------------ ---------
Revenue (GBPm) 114.8 98.7 16.3% 114.8 98.7 16.3%
Operating profit
(GBPm) 11.3 11.5 (1.9)% 20.2 18.3 10.7%
Finance costs (GBPm) 1.1 1.4 (25.2)% 1.1 0.5 127.2%
Profit before tax
(GBPm) 10.2 10.1 1.4% 19.1 17.8 7.6%
Basic and diluted
EPS (p) 4.1 4.2 (2.4)% 7.7 7.1 8.5%
Operating cash flow
(GBPm) 14.3 12.0 19.1% 15.5 11.8 30.8%
Interim dividend
per share (p) 1.60 1.46 9.6% 1.60 1.46 9.6%
Net debt (GBPm) 74.4 34.9 39.5 74.4 34.9 39.5
---------------------- ------------ ------------ --------- ------------ ------------ ---------
(1) The Group uses some alternative performance measures to
track and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted 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 below and in note 4.
Revenue
Group revenue during the six months ended 31 January 2019 was
GBP114.8 million (H1 2018: GBP98.7 million), a 16.3% increase
(17.8% at constant currency). Growth was achieved both organically,
1.9% (3.2% at constant currency), and inorganically, 14.4% (14.6%
at constant currency) from the full period effect of the four
acquisitions made during FY 2018; Simx Limited, acquired in March
2018, AirFan B.V., acquired in May 2018, Oy Pamon Ab, acquired in
July 2018 and Air Connection ApS, acquired in July 2018.
Profitability
Our underlying result, as measured by adjusted operating profit,
was GBP20.2 million (H1 2018: GBP18.3 million), representing 17.6%
of revenue (H1 2018: 18.5%), a GBP1.9 million improvement compared
to H1 2018. At constant currency, our adjusted operating profit
grew by 12.4%. The adjusted operating profit margin of 17.6%
declined by 0.9 percentage points as a consequence of: operational
difficulties at our new Reading facility which improved
significantly by the end of the period; higher costs associated
with expedited material supply in our OEM (Torin-Sifan) and UK
Commercial sectors; offset by improved margins in our UK
Residential New Build, UK Residential Public RMI and Central Europe
sectors.
The Group's reported operating profit in the six months was
GBP11.3 million compared to GBP11.5 million in H1 2018, down 1.9%;
it shows less growth over the prior period than does the adjusted
operating result because of increasing amortisation of acquired
intangible assets (an increase of GBP0.5 million) and because the
prior period was assisted by the release, in the reported result,
of contingent consideration relating to the acquisition of VoltAir
System (GBP1.5 million). 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 January Six months ended 31 January
2019 2018
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- ------------ --------- --------- ------------ ---------
Revenue 114.8 - 114.8 98.7 - 98.7
Gross profit 53.3 - 53.3 47.4 - 47.4
------------------------ --------- ------------ --------- --------- ------------ ---------
Administrative &
distribution expenses
excluding the costs
listed below (33.1) - (33.1) (29.1) - (29.1)
Amortisation of
intangible assets
acquired through
business combinations (7.7) 7.7 - (7.2) 7.2 -
Exceptional operating
costs (1.2) 1.2 - (1.1) 1.1 -
Release of contingent
consideration - - - 1.5 (1.5) -
------------------------ --------- ------------ --------- --------- ------------ ---------
Operating profit 11.3 8.9 20.2 11.5 6.8 18.3
Net loss on financial
instruments at fair
value - - - (0.6) 0.6 -
Exceptional write
off of unamortised
loan issue costs
upon refinancing - - - (0.3) 0.3 -
Other net finance
costs (1.1) - (1.1) (0.5) - (0.5)
------------------------ --------- ------------ --------- --------- ------------ ---------
Profit before tax 10.2 8.9 19.1 10.1 7.7 17.8
Income tax (2.1) (1.8) (3.9) (1.8) (1.9) (3.7)
------------------------ --------- ------------ --------- --------- ------------ ---------
Profit after tax 8.1 7.1 15.2 8.3 5.8 14.1
------------------------ --------- ------------ --------- --------- ------------ ---------
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 GBP7.7 million (H1 2018: GBP7.2 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
GBP1.2 million (H1 2018: GBP1.1 million) which include costs
relating to acquisitions of GBP0.1 million (H1 2018: GBP0.3
million) and our UK Ventilation re-organisation including factory
relocation costs of GBP1.1 million (H1 2018: GBP0.8 million).
Details of these exceptional operating costs can be found in note
7.
-- Reversal of contingent consideration
During the period reversal of contingent consideration was
GBPnil million (H1 2018: GBP1.5 million). 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. It has now been determined that no contingent consideration
will be paid. The previously accrued contingent consideration was
reversed in the prior period (H1 2018: GBP1.5 million) as an
exceptional gain.
-- 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 GBPnil
million (H1 2018: loss of GBP0.6 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
During the period exceptional write off of unamortised loan
issue costs upon refinancing were GBPnil million (H1 2018: GBP0.3
million). 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
GBP0.3 million relating to the previous loans were written off in
H1 2018.
Acquisitions
The Group's trading benefited in the six months from the four
acquisitions completed in the prior year, which were financed from
our existing cash reserves and bank facilities:
-- Simx Limited, based in New Zealand, acquired in March 2018 for
a consideration of NZ$53.7 million (approximately GBP28.2 million)
net of cash and bank loans repaid of NZ$19.0 million (approximately
GBP9.8 million);
-- AirFan B.V., based in the Netherlands, acquired in May 2018 for
a cash consideration of Euro 0.3 million (approximately GBP0.3
million) net of cash acquired;
-- Oy Pamon Ab, based in Finland, acquired in July 2018 for an initial
cash consideration of Euro 10.9 million (approximately GBP9.6 million)
net of cash acquired. A further amount of deferred cash consideration
of up to Euro 2.0 million (approximately GBP1.8 million) may be
payable, contingent on Oy Pamon's earnings for the two years ending
November 2018 and 2019; and
-- Air Connection ApS, based in Denmark, acquired in July 2018 for
an initial cash consideration of DKK24.1 million (approximately
GBP2.9 million) net of cash acquired. A further amount of deferred
cash consideration of up to DKK4.2 million (approximately GBP0.5
million) may be payable, contingent on Air Connection's earnings
for the year ending 31 July 2021.
Finance costs
Reported finance costs were GBP1.1 million (H1 2018: GBP1.4
million) including GBPnil million of net losses on revaluation of
financial instruments (H1 2018: net losses of GBP0.6 million) and
GBPnil million related to the exceptional write off of unamortised
loan issue costs upon refinancing (H1 2018: costs of GBP0.3
million). Adjusted finance costs were GBP1.1 million (H1 2018:
GBP0.5 million). Adjusted finance costs increased in line with
increased levels of debt following the four acquisitions made in
the prior period as discussed above.
Taxation
The reported effective tax rate for the six months was 21.1% (H1
2018: 18.0%). Our adjusted effective tax rate, on adjusted profit
before tax, was 20.5% (H1 2018: 21.0%). The increase of 3.1
percentage points in our reported effective tax rate was partly due
to the greater impact of higher rates in overseas regions. The
prior period tax rate also benefited from a deferred tax credit of
GBP188,000 relating to a reduction in the corporate tax rate in
Belgium from 33.99% to 29.58%.
The Group's medium-term adjusted effective tax rate is expected
to remain around 21% 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 GBP15.5 million (H1 2018: GBP11.8
million). This represents a cash conversion, after capital
expenditure and movement in working capital, of 74.5% (H1 2018:
63.2%). The adjusted operating cash flow in the period was GBP3.7
million higher than in the corresponding period. The Group
continues to focus on managing its working capital efficiently with
operating working capital representing 23.5% of half year revenue
(H1 2018: 24.8%). 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
2019 2018
Reconciliation of adjusted operating cash flow GBPm GBPm
------------------------------------------------------------ ------------ ------------
Reported net cash flow generated from operating activities 13.4 10.3
------------------------------------------------------------ ------------ ------------
Net capital expenditure (3.4) (2.9)
UK and overseas tax paid 4.5 3.7
Cash flows relating to exceptional items 1.0 0.7
Adjusted operating cash flow 15.5 11.8
------------------------------------------------------------ ------------ ------------
Employee Benefit Trust
During the period GBP1.2 million of loans were made to the
Volution Employee Benefit Trust for the exclusive purpose of
purchasing shares in Volution Group plc in order to partly fulfil
the Company's obligations under its share incentive plans (H1 2018:
GBPnil). The Volution Employee Benefit Trust acquired 650,000
shares at an average price of GBP1.85 per share in the period (H1
2018: no shares acquired) and 19,981 shares (H1 2018: 12,776) were
released by the trustees with a value of GBP36,000 (H1 2018:
GBP22,000). At 31 January 2019, a total of 1,759,884 shares (31
July 2018: 1,129,865) were held by the Volution Employee Benefit
Trust. The Volution Employee Benefit Trust has been consolidated
into our results and the shares purchased have been treated as
treasury shares deducted from shareholders' funds.
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. In advance of the 2019 financial
year we limited our transactional foreign exchange risk by
purchasing the majority of our forecast US dollar requirements for
the 2019 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 GBP23.7 million of borrowings
denominated in Swedish krona (31 July 2018: GBP24.5 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 GBP39.0 million as at 31 January 2019 (31 July 2018:
GBP40.0 million). The sterling value of our foreign
currency-denominated loans, net of cash, decreased by GBP1.6
million (H1 2018: decreased by GBP1.5 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 an unfavourable effect on the reported revenue and
profitability of our business. If we had translated the H1 2019
performance of the Group at our 2018 exchange rates, the reported
revenue would have been GBP116.4 million, GBP1.6 million higher,
and adjusted operating profit would have been GBP20.5 million,
GBP0.3 million higher.
At the end of the half year, the weakening of sterling increased
the value of foreign currency-denominated working capital by GBP0.2
million compared to the foreign exchange rates applying at the
beginning of the half year.
Net debt
Net debt at 31 January 2019 was GBP74.4 million (H1 2018:
GBP34.9 million); comprised of bank borrowings of GBP83.7 million
(H1 2018: bank borrowings of GBP45.9 million), offset by cash and
cash equivalents of GBP9.3 million (H1 2018: GBP11.0 million). The
net debt of GBP74.4 million represents leverage of 1.7x adjusted
EBITDA on a trailing 12 month basis (H1 2018: 0.9x adjusted EBITDA
on a trailing 12 month basis).
Movements in net debt position for the six months ended 31
January 2019
2019 2018
GBPm GBPm
Opening net debt 1 August (77.2) (37.0)
-------------------------------------------- ------- -------
Movements from normal business operations:
Adjusted EBITDA 22.4 20.2
Movement in working capital (4.0) (5.8)
Share-based payments 0.5 0.3
Net capital expenditure (3.4) (2.9)
-------------------------------------------- ------- -------
Adjusted operating cash flow 15.5 11.8
- Interest paid net of interest received (0.9) (0.3)
- Income tax paid (4.5) (3.7)
- Exceptional operating costs (1.0) (0.7)
- Dividend paid (5.9) (5.6)
- FX on foreign currency loans/cash 1.6 1.5
- Issue costs of new borrowings (0.2) (0.9)
- Purchase of own shares (1.2) -
Movements from acquisitions:
- Acquisition consideration (0.6) -
Closing net debt 31 January (74.4) (34.9)
-------------------------------------------- ------- -------
Bank facilities, refinancing and liquidity
In December 2018, the Group exercised the option to extend its
multicurrency revolving credit facility by a period of 12 months at
a cost of GBP0.2 million; the maturity date is now 15 December
2022.
As at 31 January 2019, the Group had GBP36.3 million of undrawn,
committed bank facilities and GBP9.3 million of cash and cash
equivalents on the consolidated statement of financial
position.
Earnings per share
Our adjusted basic and diluted earnings per share grew by 8.5%
to 7.7 pence (H1 2018: 7.1 pence).
Our reported basic and diluted earnings per share for the six
months ended 31 January 2019 was 4.1 pence (H1 2018: 4.2 pence)
down 2.4% on prior year mainly as a consequence of increasing
amortisation of acquired intangible assets and transactions in H1
2018 which did not repeat in the current period; the reversal of
contingent consideration, the net loss on financial instruments at
fair value and the exceptional write off of finance costs, as
described in the reconciliation above and in note 4.
Ian Dew
Chief Financial Officer
18 March 2019
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 nature of principal risks
and uncertainties have changed since the publication of the Annual
Report for the year ended 31 July 2018. 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 2018 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 a significant adverse 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 2018 that could do
so.
The Directors of Volution Group plc are listed in the Company's
Annual Report for the year ended 31 July 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
18 March 2019 18 March 2019
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 2019 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 explanatory 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 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 2019 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
18 March 2019
Interim Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 31 January 2019
2019 2018
Unaudited Unaudited
Notes GBP000 GBP000
------------------------------------------------------------------- ------ ----------- -----------
Revenue 5 114,847 98,736
Cost of sales (61,507) (51,341)
------------------------------------------------------------------- ------ ----------- -----------
Gross profit 53,340 47,395
Administrative and distribution expenses (40,838) (36,341)
------------------------------------------------------------------- ------ ----------- -----------
Operating profit before exceptional items 12,502 11,054
Exceptional operating costs 7 (1,216) (1,097)
Release of contingent consideration 7 - 1,553
------------------------------------------------------------------- ------ ----------- -----------
Operating profit 11,286 11,510
Finance revenue 8 7
Finance costs 7,8 (1,066) (1,426)
Profit before tax 10,228 10,091
Income tax 9 (2,155) (1,820)
------------------------------------------------------------------- ------ ----------- -----------
Profit for the period 8,073 8,271
------------------------------------------------------------------- ------ ----------- -----------
Other comprehensive income:
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations (1,021) (1,337)
Gain on hedge of net investment in foreign operation 1,640 1,015
------------------------------------------------------------------- ------ ----------- -----------
Other comprehensive income/(expense) for the period 619 (322)
------------------------------------------------------------------- ------ ----------- -----------
Total comprehensive income for the period 8,692 7,949
------------------------------------------------------------------- ------ ----------- -----------
Earnings per share
Basic earnings per share 10 4.1 4.2
Diluted earnings per share 10 4.1 4.2
------------------------------------------------------------------- ------ ----------- -----------
Interim Condensed Consolidated Statement of Financial
Position
At 31 January 2019
31 January 2019 31 July 2018
Unaudited Audited
Notes GBP000 GBP000
----------------------------------------- ------ ---------------- -------------
Non-current assets
Property, plant and equipment 11 23,078 22,611
Intangible assets - goodwill 12 112,335 112,682
Intangible assets - other 13 96,607 104,124
232,020 239,417
----------------------------------------- ------ ---------------- -------------
Current assets
Inventories 30,040 30,136
Trade and other receivables 38,900 38,873
Other current financial assets 14 298 302
Cash and short term deposits 9,304 18,221
----------------------------------------- ------ ---------------- -------------
78,542 87,532
----------------------------------------- ------ ---------------- -------------
Total assets 310,562 326,949
----------------------------------------- ------ ---------------- -------------
Current liabilities
Trade and other payables (41,960) (45,689)
Income tax (473) (1,410)
Provisions (1,263) (1,004)
(43,696) (48,103)
----------------------------------------- ------ ---------------- -------------
Non-current liabilities
Interest bearing loans and borrowings 15 (82,837) (94,605)
Other non-current financial liabilities (500) (1,144)
Provisions (383) (384)
Deferred tax liabilities (15,893) (17,500)
----------------------------------------- ------ ---------------- -------------
(99,613) (113,633)
----------------------------------------- ------ ---------------- -------------
Total liabilities (143,309) (161,736)
----------------------------------------- ------ ---------------- -------------
Net assets 167,253 165,213
----------------------------------------- ------ ---------------- -------------
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 (2,030) (1,962)
Share-based payment reserve 1,252 1,836
Foreign currency translation reserve 2,126 1,507
Retained earnings 58,523 56,450
----------------------------------------- ------ ---------------- -------------
Total equity 167,253 165,213
----------------------------------------- ------ ---------------- -------------
Interim Condensed Consolidated Statement of Changes in
Equity
For the six months ended 31 January 2019
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 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
expense - - - - - (322) - (322)
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
Total
comprehensive
income/(expense) - - - - - (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
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
Profit for the
period - - - - - - 5,052 5,052
Other
comprehensive
expense - - - - - (62) - (62)
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
Total
comprehensive
income/(expense) - - - - - (62) 5,052 4,990
Share-based
payment - - - 43 277 - - 320
Dividends paid - - - - - - (2,903) (2,903)
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
At 31 July 2018
(Audited) 2,000 11,527 93,855 (1,962) 1,836 1,507 56,450 165,213
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
Profit for the
period - - - - - - 8,073 8,073
Other
comprehensive
income - - - - - 619 - 619
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
Total
comprehensive
income - - - - - 619 8,073 8,692
Purchase of own
shares - - - (1,199) - - - (1,199)
Vesting of shares - - - 1,131 (1,043) - (88) -
Share-based
payment - - - - 459 - - 459
Dividends paid - - - - - - (5,912) (5,912)
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
At 31 January
2019 (Unaudited) 2,000 11,527 93,855 (2,030) 1,252 2,126 58,523 167,253
------------------ ----------- ----------- ---------- ---------- ------------ ------------ ---------- --------
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 2019 of
GBP77,584,000.
Interim Condensed Consolidated Statement of Cash Flows
For the six months ended 31 January 2019
2019 2018
Unaudited Unaudited
Notes GBP'000 GBP'000
------------------------------------------------------------------------------------ ------ ----------- -----------
Operating activities
Profit for the period after tax 8,073 8,271
Adjustments to reconcile profit for the period to net cash flow from operating
activities:
Income tax 2,155 1,820
Gain on disposal of property, plant and equipment (20) (17)
Exceptional operating costs 7 1,216 1,097
Release of contingent consideration 7 - (1,553)
Cash flows relating to exceptional items (1,003) (666)
Finance revenue (8) (7)
Finance costs 8 1,066 1,106
Exceptional write off of unamortised loan issue costs upon refinancing 8 - 320
Share based payment expense 459 265
Depreciation of property, plant and equipment 1,615 1,480
Amortisation of intangible assets 8,300 7,671
Working capital adjustments:
(Increase)/decrease in trade and other receivables (298) 2,997
Increase in inventories (60) (4,922)
Decrease in trade payables and other payables (3,885) (3,893)
Increase in provisions 253 43
------------------------------------------------------------------------------------ ------ ----------- -----------
Cash generated by operations 17,863 14,012
------------------------------------------------------------------------------------ ------ ----------- -----------
UK income tax paid (2,050) (2,164)
Overseas income tax paid (2,410) (1,508)
------------------------------------------------------------------------------------ ------ ----------- -----------
Net cash flow from operating activities 13,403 10,340
------------------------------------------------------------------------------------ ------ ----------- -----------
Investing activities
Payments to acquire intangible assets (886) (524)
Purchase of property, plant and equipment (2,593) (2,480)
Proceeds from disposal of property, plant and equipment 102 169
Acquisition of subsidiaries (586) -
Interest received 8 7
------------------------------------------------------------------------------------ ------ ----------- -----------
Net cash flow used in investing activities (3,955) (2,828)
------------------------------------------------------------------------------------ ------ ----------- -----------
Financing activities
Repayment of interest bearing loans and borrowings (13,067) (55,862)
Proceeds from new borrowings 3,000 51,862
Issue costs of new borrowings (180) (941)
Interest paid (942) (350)
Dividends paid (5,912) (5,568)
Purchase of own shares (1,199) -
Net cash flow used in financing activities (18,300) (10,859)
------------------------------------------------------------------------------------ ------ ----------- -----------
Net decrease in cash and cash equivalents (8,852) (3,347)
Cash and cash equivalents at the start of the period 18,221 14,499
Effect of exchange rates on cash and cash equivalents (65) (143)
------------------------------------------------------------------------------------ ------ ----------- -----------
Cash and cash equivalents at the end of the period 9,304 11,009
------------------------------------------------------------------------------------ ------ ----------- -----------
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 18 March 2019. 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 2018. The financial information for the half years
ended 31 January 2019 and 31 January 2018 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 2018
included within this report does not constitute the full statutory
accounts for that period. The Annual Report 2018 has been filed
with the Registrar of Companies. The Independent Auditors' Report
on the Annual Report 2018 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 except for the adoption of new standards
effective as of 1 January 2018.
The accounting standards and interpretations that have become
effective in the current reporting period are listed below:
International Financial Reporting Standards (IFRSs) Effective date
IFRS 9 Financial Instruments 1 August 2018
IFRS 15 Revenue from Contracts with Customers 1 August 2018
IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and
derecognition of financial assets and liabilities, introduces new
rules for hedge accounting and a new impairment model for financial
assets.
The Group has applied IFRS 9 prospectively, with the initial
application date of 1 August 2018. There has been no impact on the
comparatives for the period beginning 1 August 2017.
Cash and cash equivalents, and trade and other receivables: the
new rules do not affect the classification and measurement of these
financial assets which continue to be recognised at amortised
cost.
Financial liabilities: there are no changes to the
classification or measurement of financial liabilities under IFRS
9.
The new impairment model requires the recognition of impairment
provisions based on forward-looking expected credit losses (ECL)
rather than backward-looking incurred losses previously applied
under IAS 39. This applies to financial assets classified at
amortised cost, namely cash and cash equivalents and trade and
other receivables. The only class of financial asset that is
currently impaired under IFRS 9 is trade receivables. The
simplified approach has been used to calculate the ECLs on trade
receivables. As a large proportion of trade receivables are covered
by credit insurance and are typically short term, the adoption of
the ECL requirements of IFRS 9 has resulted in an immaterial change
in impairment provisions and therefore no adjustment to opening
reserves has been made.
Other financial assets: there are no changes to the
classification or measurement of any other financial assets under
IFRS 9
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 which covers contracts for goods and
services. IFRS 15 provides a single, principles-based, five-step
model to be applied to all sales contracts, based on the transfer
of control of goods and services to customers.
The Group has adopted the standard using the modified
retrospective approach applied to all contracts that were not
considered completed at 1 August 2018. Due to the Group's revenue
being primarily earned from the sale of goods, where the
performance obligation in the contracts with customers is satisfied
on delivery of goods; there has not been a significant impact on
the timing of recognition of revenue under IFRS 15. The Group has a
number of supplier rebate agreements; under IFRS 15 these rebates
are considered variable consideration. The significant majority of
these rebates are provided on contracts for which the revenue is
recognised at point in time. When the revenue is recognised an
estimate is made of the amount of rebate that will be payable,
using the most likely outcome method, and deducted from the revenue
recognised. Revenue is only recognised to the extent that it is
highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. The adoption of the
new method is not significantly different from that used under IAS
18 and therefore there has been no impact on the amount or timing
of revenue recognised as a result of the adoption of IFRS 15.
The adoption of IFRS 15 has had no impact on the way the Group
accounts for warranty liabilities. Volution only offer
assurance-type warranties, therefore these do not give rise to a
separate performance obligation under IFRS 15. We have continued to
create an appropriate provision for expected warranty liabilities
in-line with the requirements of IAS 37.
The following listing of standards and interpretations issued
are those that the Group reasonably expect to have an impact on
disclosures, financial position or performance; but which have an
effective date after the date of this condensed set of consolidated
financial statements. The Group has not early adopted them and
plans to adopt them from the effective dates adopted by the
European Union.
International Financial Reporting Standards (IFRSs) Effective date
IFRS 16 Leases 1 August 2019
IFRS 16 Leases
Under IFRS 16 the present distinction between operating and
finance leases will be removed for lessees, resulting in all leases
being recognised on the balance sheet (except short-term leases and
leases of low-value assets) and termed right-of-use assets. At
inception, a right-of-use asset will be recognised together with an
equivalent liability reflecting the discounted lease payments over
the estimated term of the lease. While the overall cost of using
the asset over the lease term should be the same, it is likely that
the weighting of the charge between periods may differ. Adoption of
this standard is likely to result in an increase in gross assets
and gross liabilities in the balance sheet, and operating lease
costs being reclassified in the income statement to depreciation
and / or interest expense.
As permitted by IFRS 16 we anticipate implementing the standard
using the modified retrospective approach and we will not restate
comparative information. Instead we will recognise the cumulative
effect of initially applying the standard as an adjustment to
equity at the date of initial application, 1 August 2019. The Group
is continuing to work on the effect of IFRS 16 on its consolidated
financial statements and based on the above implementation method
the estimated impact has not changed from the assessment documented
within the consolidated financial statements for year ended 31 July
2018.
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), Deferred Share Bonus Plan and Sharesave 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 2019, a total of 1,137,473 (31 July 2018:
1,129,865) ordinary shares in the Company were held by the Volution
EBT, all of which were under option to employees. During the period
650,000 ordinary shares in the Company were purchased by the
trustees (H1 2018: no ordinary shares), and 642,392 shares (H1
2018: 12,776 shares) were vested. The market value of the shares at
31 January 2019 was GBP1,797,207 (31 July 2018: GBP2,293,626).
The Volution EBT has agreed to waive its rights to
dividends.
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.
3. Critical accounting judgements and key sources of estimation uncertainty
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 current or
comparative 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 2019 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 GBP2,785,000, of which GBP658,000 was capitalised
(H1 2018: 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 2018.
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 2019 is GBP6,813,000 (31
July 2018: GBP5,764,000). The total supplier rebate due is an
immaterial balance at both 31 January 2019 and 31 July 2018.
Provisions for warranties 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 inventory obsolescence are made with reference to
the ageing of inventory balances and the view of management as to
whether amounts are recoverable. Warranty provisions will be
determined with consideration to recent customer trading and
management experience, and provision for inventory obsolescence to
sales and usage history and to latest sales forecasts.
The total warranty provision at 31 January 2019 is GBP1,264,000
(31 July 2018: GBP1,004,000). The total provision for inventory
obsolescence at 31 January 2019 is GBP4,105,000 (31 July 2018:
GBP4,083,000).
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 2019 31 January 2018
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Profit after tax 8,073 8,271
Add back:
Exceptional operating costs (note 7) 1,216 1,097
Reversal of contingent consideration (note 7) - (1,553)
Net loss on financial instruments at fair value (note 8) 5 639
Exceptional write off of unamortised loan issue costs upon
refinancing (note 8) - 320
Amortisation of intangible assets acquired through business
combinations 7,732 7,224
Tax effect of the above (1,777) (1,922)
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted profit after tax 15,249 14,076
Add back:
Adjusted tax charge 3,932 3,742
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted profit before tax 19,181 17,818
Add back:
Interest payable on bank overdraft and bank loans 1,061 467
Finance income (8) (7)
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted operating profit 20,234 18,278
Add back:
Depreciation of property, plant and equipment 1,615 1,480
Amortisation of development costs, software and patents 568 447
---------------------------------------------------------------- ------------------------- -------------------------
Adjusted EBITDA 22,417 20,205
---------------------------------------------------------------- ------------------------- -------------------------
5. Revenue
Revenue recognised in the statement of comprehensive income is
analysed below:
For the six months ended For the six months ended(4)
31 January 2019 31 January 2018
GBP000 GBP000
----------------------------------------------------- ------------------------- ----------------------------
Sale of goods 111,087 94,740
Rendering of services 3,760 3,996
----------------------------------------------------- ------------------------- ----------------------------
Total revenue 114,847 98,736
----------------------------------------------------- ------------------------- ----------------------------
For the six months ended For the six months ended
31 January 2019 31 January 2018
Market Sectors GBP000 GBP000
----------------------------------------------------- ------------------------- ----------------------------
Ventilation Group
UK Residential RMI 19,691 19,634
UK Residential New Build 13,088 11,136
UK Commercial 17,285 15,980
UK Export 4,546 6,699
Nordics(1) 25,357 19,659
Central Europe(2) 14,599 14,278
Australasia(3) 8,232 -
----------------------------------------------------- ------------------------- ----------------------------
Total Ventilation Group 102,798 87,386
----------------------------------------------------- ------------------------- ----------------------------
Original Equipment Manufacturer (OEM (Torin Sifan))
OEM (Torin-Sifan) 12,049 11,350
----------------------------------------------------- ------------------------- ----------------------------
Total revenue 114,847 98,736
----------------------------------------------------- ------------------------- ----------------------------
Notes
1. Represents revenue of Volution Holdings Sweden AB and its subsidiaries.
2. Represents revenue of inVENTer GmbH, Ventilair Group International BVBA and its subsidiaries.
3. Represents revenue of Simx Limited.
4. During the second half of 2018 we refined our approach to
allocation of products resulting in the reallocation of sales of a
small number of products between market sectors; the H1 2018 sales
analysis has therefore been restated to reflect this reallocation.
The market sector revenue for the affected sectors, previously
disclosed in the Interim results for the six months ended 31
January 2018, was UK Residential RMI GBP19,768,000 and UK
Residential New Build GBP11,002,000.
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 are 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 2019 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Revenue
External customers 102,798 12,049 - 114,847 - 114,847
Inter-segment 10,697 613 - 11,310 (11,310) -
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Total revenue 113,495 12,662 - 126,157 (11,310) 114,847
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Gross profit 50,100 3,241 - 53,341 - 53,341
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted segment EBITDA 21,197 2,019 (799) 22,417 - 22,417
Depreciation and amortisation of
development costs, software and
patents (1,548) (324) (311) (2,183) - (2,183)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Adjusted operating profit/(loss) 19,649 1,695 (1,110) 20,234 - 20,234
Amortisation of assets acquired
through business combinations (7,053) (679) - (7,732) - (7,732)
Exceptional operating costs - - (1,216) (1,216) - (1,216)
Operating profit/(loss) 12,596 1,016 (2,326) 11,286 - 11,286
Unallocated expenses:
Net finance cost - - (1,058) (1,058) - (1,058)
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
Profit/(loss) before tax 12,596 1,016 (3,384) 10,228 - 10,228
---------------------------------- ------------------ -------- ------------ -------- ------------- -------------
A portion of Group overhead costs, GBP799,000 (H1 2018:
GBP864,000), are not allocable to individual operating segments.
Likewise, exceptional items attributable to the holding companies
have not been allocated to individual operating segments.
Six months ended 31 January Ventilation Group OEM Unallocated Total Eliminations Consolidated
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 items - - (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
-------------------------------- ------------------ -------- ------------ ---------- ------------- -------------
Geographic information
For the six months ended For the six months ended
31 January 2019 31 January 2018
Revenue from external customers (by destination): GBP000 GBP000
--------------------------------------------------- ------------------------- -------------------------
United Kingdom 56,550 52,303
Europe (excluding United Kingdom and Sweden) 35,230 25,853
Sweden 13,063 17,793
Rest of the world 10,004 2,787
--------------------------------------------------- ------------------------- -------------------------
Total revenue 114,847 98,736
--------------------------------------------------- ------------------------- -------------------------
31 January 2019 31 July 2018
Non-current assets excluding deferred tax GBP000 GBP000
--------------------------------------------- ---------------- -------------
United Kingdom 138,007 142,859
Europe (excluding United Kingdom & Nordics) 25,961 26,698
Nordics 31,042 33,227
Australasia 37,010 36,633
--------------------------------------------- ---------------- -------------
Total 232,020 239,417
--------------------------------------------- ---------------- -------------
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 2019 31 January 2018
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Acquisition related costs, including inventory fair value
adjustments 149 347
UK Ventilation re-organisation including factory relocation
costs 1,067 750
Exceptional operating costs 1,216 1,097
Reversal of contingent consideration - (1,553)
---------------------------------------------------------------- ------------------------- -------------------------
1,216 (456)
Total tax credit relating to the items above (199) (197)
---------------------------------------------------------------- ------------------------- -------------------------
1,017 (653)
---------------------------------------------------------------- ------------------------- -------------------------
Acquisition related costs, including inventory fair value
adjustments
The acquisition related costs in the period are GBP149,000 (H1
2018: GBP347,000).
UK Ventilation re-organisation including factory relocation
costs
The costs for the factory relocation relate to a project to
combine manufacturing locations. A breakdown of the cost is as
follows:
For the six months ended For the six months ended
31 January 2019 31 January 2018
GBP000 GBP000
---------------------------- ------------------------- -------------------------
Consultancy fees 290 83
Project manager 43 64
Redundancy related costs - 54
Stock write off - 57
Site clearance and closure - 12
Dual running costs of site 89 343
Start-up costs 645 137
---------------------------- ------------------------- -------------------------
1,067 750
---------------------------- ------------------------- -------------------------
The project to relocate the factories to the new facility is now
complete. All costs associated with the project have been treated
as exceptional.
The costs associated with this project have been deemed as
exceptional given their size in aggregate and the unusual (one-off)
nature of the project.
Start-up costs in the period include exceptional costs
associated with material handling, despatch and freight. In the
prior period start-up costs also included the cost of production
variances incurred as a result of the disruption during the
transition period when machinery, inventory and people were in the
process of relocating to the new factory and were therefore not
operating efficiently.
Reversal of contingent consideration
During the period reversal of contingent consideration was
GBPnil million (H1 2018: GBP1.5 million). 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. In the financial statements to 31 July 2017,
management recognised GBP1.5 million contingent consideration. It
was subsequently determined that no contingent consideration will
be paid resulting in its reversal in H1 2018.
Write off of unamortised loan issue costs upon refinancing
In addition to the exceptional operating costs disclosed in the
table above, in the prior period we 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 2019 31 January 2018
GBP000 GBP000
---------------------------------------------------------------- ------------------------- -------------------------
Interest payable on bank loans 1,037 426
Revaluation of financial instruments 5 639
Exceptional write off of unamortised loan issue costs upon
refinancing - 320
Other interest 24 41
1,066 1,426
---------------------------------------------------------------- ------------------------- -------------------------
During the period, the Group exercised the option to extend the
termination of the facility by a period of 12 months (new maturity
date of 15 December 2022).
In the prior period, on 15 December 2017, the Group refinanced
its bank debt. The Group now has in place a GBP120 million
multicurrency revolving credit facility (now due to mature in
December 2021) together with an accordion of up to GBP30 million.
The old facility was repaid in full when the new multicurrency
revolving credit facility was entered in to. 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 six months was 21.1% (H1
2018: 18.0%). Our adjusted effective tax rate, on adjusted profit
before tax, was 20.5% (H1 2018: 21.0%). The increase of 3.1
percentage points in our reported effective tax rate was partly due
to the greater impact of higher rates in overseas regions. The
prior period tax rate also benefited from a deferred tax credit of
GBP188,000 relating to a reduction in the corporate tax rate in
Belgium from 33.99% to 29.58%.
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 257,340 dilutive potential
ordinary shares for the periods ended 31 January 2019 (31 January
2018: Nil).
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
For the six months ended 31 January For the six months ended 31 January
2019 2018
GBP000 GBP000
--------------------------------------- --------------------------------------- ------------------------------------
Profit attributable to ordinary equity
holders 8,073 8,271
--------------------------------------- --------------------------------------- ------------------------------------
Number Number
Weighted average number of ordinary
shares for basic earnings per share 198,699,637 198,838,009
Weighted average number of ordinary
shares for diluted earnings per share 199,133,077 198,838,009
--------------------------------------- --------------------------------------- ------------------------------------
Earnings per share:
Basic 4.1p 4.2p
Diluted 4.1p 4.2p
--------------------------------------- --------------------------------------- ------------------------------------
Adjusted profit attributable to
ordinary equity holders 15,249 14,076
--------------------------------------- --------------------------------------- ------------------------------------
Number Number
Weighted average number of ordinary
shares for adjusted basic earnings
per share 198,699,637 198,838,009
Weighted average number of ordinary
shares for adjusted diluted earnings
per share 199,133,077 198,838,009
--------------------------------------- --------------------------------------- ------------------------------------
Adjusted earnings per share:
Basic 7.7p 7.1p
Diluted 7.7p 7.1p
--------------------------------------- --------------------------------------- ------------------------------------
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 2018 33,433
Additions 2,593
Disposals (409)
Transfer to intangible assets (517)
Net foreign currency exchange differences (351)
------------------------------------------- --------
At 31 January 2019 34,749
------------------------------------------- --------
Depreciation
At 31 July 2018 10,822
Depreciation expense 1,615
Disposals (334)
Transfer to intangible assets (214)
Net foreign currency exchange differences (218)
------------------------------------------- --------
At 31 January 2019 11,671
------------------------------------------- --------
Net book value
At 31 January 2019 23,078
------------------------------------------- --------
At 31 July 2018 22,611
------------------------------------------- --------
12. Intangible assets - goodwill
Total
GBP000
------------------------------------------- --------
Cost and net book value:
At 31 July 2018 112,682
Net foreign currency exchange differences (347)
------------------------------------------- --------
At 31 January 2019 112,335
------------------------------------------- --------
13. Intangible assets - other
Total
GBP000
------------------------------------------- --------
Cost
At 31 July 2018 189,009
Additions 886
Transfer from tangible assets 517
Net foreign currency exchange differences (864)
------------------------------------------- --------
At 31 January 2019 189,548
------------------------------------------- --------
Amortisation
At 31 July 2018 84,885
Amortisation expense 8,300
Transfer from tangible assets 214
Net foreign currency exchange differences (458)
------------------------------------------- --------
At 31 January 2019 92,941
------------------------------------------- --------
Net book value
At 31 January 2019 96,607
------------------------------------------- --------
At 31 July 2018 104,124
------------------------------------------- --------
14. Other financial assets and liabilities
Current Non-current Current Non-current
31 January 2019 31 January 2019 31 July 2018 31 July 2018
GBP000 GBP000 GBP000 GBP000
-------------------------- ----------------- ----------------- -------------- --------------
Financial assets
FX forward contracts 298 - 302 -
-------------------------- ----------------- ----------------- -------------- --------------
Financial liabilities
Contingent consideration - 500 - 1,144
-------------------------- ----------------- ----------------- -------------- --------------
In December 2018, the contingent consideration relating to Oy
Pamon of EUR650,000 (approximately GBP585,000) was paid out as the
EBITDA target for the year ended 30 November 2018 was achieved. The
remaining GBP500,000 relates to the contingent consideration
payable in relation to Air Connection ApS which is based on its
EBITDA performance achieved during the twelve months to 31 July
2021.
15. Interest bearing loans and borrowings
Non-current Non-current
31 January 2019 31 July 2018
GBP000 GBP000
---------------------------------------------------------------- ----------------- --------------
Unsecured at amortised cost
Borrowings under the revolving credit facility (maturing 2022) 83,703 95,410
Unamortised finance costs (866) (805)
82,837 94,605
---------------------------------------------------------------- ----------------- --------------
In December 2018, the Group took the option to extend its
multicurrency revolving credit facility by a period of 12 months;
the maturity date is now 15 December 2022.
Revolving credit facility - at 31 January 2019
Amount
outstanding Termination Repayment
Currency GBP000 date Frequency Rate %
--------------- ------------ ----------- ----------- ----------------
GBP 21,000 15 Dec 2022 One payment Libor + margin%
Euribor +
Euro 39,005 15 Dec 2022 One payment margin%
Swedish Krona 23,698 15 Dec 2022 One payment Stibor + margin%
--------------- ------------ ----------- ----------- ----------------
Total 83,703
--------------- ------------ ----------- ----------- ----------------
Revolving credit facility - at 31 July 2018
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
--------------- ------------ ----------- ----------- ----------------
GBP 31,000 15 Dec 2021 One payment Libor + margin%
Euribor +
Euro 39,943 15 Dec 2021 One payment margin%
Swedish Krona 24,467 15 Dec 2021 One payment Stibor + margin%
--------------- ------------ ----------- ----------- ----------------
Total 95,410
--------------- ------------ ----------- ----------- ----------------
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 2019, Group leverage was 1.7:1 (31 July
2018: 1.7:1) and therefore the margin was 1.40% (31 July 2018:
1.40%). At 31 January 2019, the Group had GBP36,300,000 (31 July
2018: GBP24,590,000) 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 and the contingent consideration
in note 14. 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 2019 apart from compensation of key management
personnel.
18. Dividends
The Group paid a final dividend of 2.98 pence per ordinary share
during the period in respect of the year ended 31 July 2018. The
Board has declared an interim dividend of 1.60 pence per ordinary
share in respect of the half year ended 31 January 2019 (6 months
to 31 January 2018: 1.46 pence per ordinary share) which will be
paid on 3 May 2019 to shareholders on the register at the close of
business on 29 March 2019. 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 1 March 2019 Volution Group plc, through one of its wholly
owned subsidiaries, Woomera Ventilation Pty Limited, purchased the
entire issued share capital of Ventair Pty Limited in Australia.
Ventair Pty Limited is a leading specialist supplier of high
quality, air movement products to the Australian residential
ventilation markets. The integration of Ventair in to the Volution
Group will provide an opportunity for further growth in the
Australasian region.
The acquisition was on a debt free, cash free basis for an
initial cash consideration of AUS$19.2 million (approximately
GBP10.4 million), funded from Volution's existing cash and banking
facilities. A further amount of deferred cash consideration of up
to AUS$7.7 million (approximately GBP4.3 million) may be payable,
contingent on Ventair's earnings before interest, tax, depreciation
and amortisation in the financial year ending 31 July 2020. The
Group is still working on 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 2019
and the date of authorisation of the interim condensed consolidated
financial statements that would require adjustments to the interim
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
257,340 dilutive potential ordinary shares for the periods ended 31
January 2019 (31 January 2018: Nil).
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 2019 at
the average exchange rate for the period ended 31 January 2018. In
addition we have converted the UK operating companies' sale and
purchase transactions in the period ended 31 January 2019, which
were denominated in foreign currencies, at the average exchange
rates for the period ended 31 January 2018.
EBITDA - profit before net finance costs, tax, depreciation and
amortisation.
Like-for-like - like-for-like is the performance of the Group
excluding revenue which was third party in the comparative period
and is now intercompany revenue due to the acquisition of the third
party.
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFEDVVIELIA
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March 18, 2019 03:00 ET (07:00 GMT)
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