TIDMFAN
RNS Number : 2082P
Volution Group plc
09 October 2019
Embargoed until 07:00 on:
Wednesday 9 October 2019
VOLUTION GROUP PLC
PRELIMINARY RESULTS FOR THE YEARED 31 JULY 2019
Strong results for the year with revenue growth of 14.6% and
adjusted EPS growth of 10.3%
Volution Group plc ("Volution" or "the Group" or "the Company",
LSE: FAN), a leading supplier of ventilation products to the
residential and commercial construction markets, today announces
its audited financial results for the 12 months ended 31 July
2019.
Financial Results 2019 2018 Movement
Revenue (GBPm) 235.7 205.7 14.6%
Adjusted operating profit (GBPm) 42.1 37.1 13.3%
Adjusted profit before tax (GBPm) 39.9 35.8 11.5%
Adjusted EPS (pence) 16.0 14.5 10.3%
Reported operating profit (GBPm) 24.7 17.5 40.8%
Reported profit before tax (GBPm) 23.1 16.7 38.3%
Reported basic EPS (pence) 9.2 6.7 37.3%
Adjusted operating cash flow (GBPm) 36.9 34.4 7.3%
Net debt (GBPm) 74.6 77.2 2.6
Total dividend per share (pence) 4.90 4.44 10.4%
------------------------------------ ----- ----- --------
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 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 18. A reconciliation to reported
measures is set out in note 2.
Financial highlights
-- Revenue growth of 14.6% (15.7% at constant currency):
* organic revenue growth of 2.6% (3.5% at constant
currency); and
* inorganic revenue growth of 12.0% (12.2% at constant
currency).
Adjusted operating profit increased by 13.3% to GBP42.1 million (14.9%
-- at constant currency), assisted by acquisitions.
Adjusted operating profit margin of 17.8% (2018: 18.0%), an improving
-- trend through the year:
* H1 17.6%, impacted by Reading and Torin-Sifan
operational issues; and
* H2 18.1%, finalised commissioning of Reading
facility; strong performance in Central Europe.
-- Reported profit before tax increased by GBP6.4 million to GBP23.1
million (2018: GBP16.7 million); exceptional costs significantly reduced
to GBP1.8 million (2018: GBP6.4 million).
-- Adjusted operating cash inflow of GBP36.9 million (2018: GBP34.4 million).
-- Net debt of GBP74.6 million was GBP2.6 million lower than at 31 July
2018 after having spent GBP10.4 million on the acquisition of Ventair
Pty Limited and GBP0.6 million of contingent consideration paid relating
to Oy Pamon Ab.
-- Full year dividend of 4.90 pence per share, up 10.4% (2018: 4.44 pence).
Strategic and operational highlights
Ventilation
Organic growth
-- Highlights in the UK include a return to growth for the UK Public
RMI sector and another period of good growth for UK New Build Residential
Systems.
-- As previously reported, operational difficulties at our Reading facility
adversely impacted profitability in the first half of the financial
year; however, there was a significant improvement in production levels
and efficiency in the second half of the financial year. The Reading
facility is now fully commissioned.
-- Good sales of our new Xenion range of decentralised heat recovery
ventilation in Germany with an associated increase in gross margin
in the region.
-- The launch of the first application software controlled ventilation
extract fan in New Zealand, Genius, under the Manrose brand sold by
our company Simx, further demonstrating our capability to launch existing
Volution products in to newly accessed markets.
Acquisitions
-- On 1 March 2019, we acquired Ventair Pty Limited, a market leading
residential ventilation product supplier, in Australia, for an initial
cash consideration of AUD$19.2 million (approximately GBP10.4 million).
A further amount of deferred cash consideration of up to AUD$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. The acquisition is integrating
and performing well under the management of our Australasian team.
-- Including the pro-forma effect of the Ventair acquisition, our revenue
from customers outside the UK now represents 53.0% of total Group
revenue.
OEM (Torin-Sifan)
-- OEM (Torin-Sifan) has continued to see a good take-up of its new,
high-efficiency, Revolution 360 range of EC fans (EC3), with further
capacity investment underway to support the growth in sales.
-- Operations in OEM (Torin-Sifan) were adversely impacted during the
year by procurement issues which manifested in higher input costs.
However, we are confident these issues have now been resolved.
Progress against strategy
This strong set of results for the year maintains our consistent
track record of revenue and earnings growth in the 5 years since
listing in 2014 and continues to validate our strategy:
-- Organic revenue growth of 3.5% (at constant currency) in the year,
an average of 3.2% over the 5 years since listing in 2014;
-- Acquisition strategy delivering inorganic revenue growth of 12.2%
(at constant currency) in the year, providing access to new markets,
resulting in non-UK revenues increasing from 36.5% in 2014 to 53.0%
on a pro-forma basis;
-- Strong earnings growth; EPS increased by 82% in the 5 years since
listing in 2014 (13% CAGR);
-- Cumulative operating cash flow generation in the 5 years since listing
in 2014 of GBP165.9 million; and
-- Excellent track record of innovative product introductions; strong
development pipeline.
UK leaving the EU
In the context of the considerable uncertainty surrounding the
outcome of the Brexit process, we have analysed the potential risks
and operational challenges to our business in the event of a
no-deal exit from the European Union. We have reviewed potential
tariffs which we do not consider to represent a significant impact,
and on the supply side we have increased inventory levels of faster
moving items in certain locations. We see the principal risk and
potential impact to be that of a broader downturn in confidence and
activity levels in the UK albeit noting that the UK does now
represent just under half of Volution's revenues.
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"Our strong results this year were underpinned by improving
organic revenue growth and the excellent contribution and progress
achieved with the acquisitions made in the prior and current
financial year. Organic growth improved in the UK as we continued
to innovate and introduce new products in all of our market sectors
with 5.3% organic growth from our UK residential public
refurbishment market being particularly pleasing, underpinned by
the new products launched in the last two years. A particular
highlight was Central Europe with 9.3% (constant currency) organic
growth, again underpinned by our innovation and introduction of
new, market leading products.
We also completed our factory rationalisation project in the UK:
consolidating two older and capacity constrained facilities in to a
new, purpose built injection moulding, ducting extrusion and fan
assembly facility in Reading. This new and enlarged facility will
future proof our production capability to serve all of our
residential markets, not just in the UK but including our ambitious
growth plans in Australasia leveraging the benefits from the recent
acquisition of Ventair in March 2019."
Outlook
Whilst there is major uncertainty in the UK economy caused by
the current state of Brexit negotiations, we continue to focus on
building on our strong financial performance and in particular the
pursuit of operational excellence to further expand our operating
margins.
-Ends-
For further information:
Enquiries:
Volution Group plc
Ronnie George, Chief Executive Officer +44 (0) 1293 441501
Andy O'Brien, Chief Financial Officer +44 (0) 1293 441536
Tulchan Communications +44 (0) 207 353 4200
James Macey White
David Ison
A meeting for analysts will be held at 9.30am today, Wednesday 9
October, 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 Wednesday 9 October.
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 comprises 15 key brands - Vent-Axia, Manrose,
Diffusion, National Ventilation, Airtech, Breathing Buildings,
Fresh, PAX, VoltAir, 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
In our fifth full financial year since listing in June 2014 we
continued to make good progress with our strategy, bringing the
Group's revenue to almost double that of when we listed. We
completed the acquisition of Ventair in Australia in March 2019, as
well as successfully integrating the acquisitions we made in the
prior year. We are now well established as the market leader for
residential ventilation in the UK, with leading positions in the
ventilation markets in the Nordics, Central Europe and
Australasia.
As we have stated previously, the European and international
ventilation market remains fragmented and we continue in our
ambition to become one of the major suppliers in this market. We
have established a portfolio of leading brands and more recently
have been able to utilise some of these brands to launch in to new
markets. In the last two years we have successfully launched the
Vent-Axia brand, primarily a leading UK brand, in to the market in
the Netherlands and we are now making plans to launch this brand in
Australia through our newly acquired company, Ventair. We remain
focused on adding other leading brands and market positions to our
portfolio. As the Group has grown significantly in size and with it
a much wider product range, the opportunity when acquiring access
to a new market becomes more attractive.
The Group delivered revenue of over GBP235 million in 2019.
Whilst there is an inevitable margin dilution as we acquire
companies with a lower margin, we are also conscious that there has
been a reduction in our underlying margin over the last two years.
Our adjusted operating margin in the year was 17.8%, comprised of
17.6% in the first half of the year improving to 18.1% in the
second half. We have taken action to ensure that operating margin
improvement is the key focus for management and employees of the
business over the coming years and we have also updated our
strategy to now include a sharp focus on Operational Excellence. We
believe that the Group has the potential to increase adjusted
operating margins back to a level of 20% over the medium term.
Organic revenue growth improved in 2019 to 3.5% at constant
currency, with the first half at 3.2% and the second half
increasing to 3.8%. All of our geographies delivered organic
revenue growth for the year, with the exception of our Nordic
region where we had an organic revenue decline of 2.3% at constant
currency. We are delighted with the performance of Oy Pamon in
Finland (Pamon) though, acquired in July 2018, which delivered
growth versus the year prior to our ownership of 14.5% (not defined
as organic revenue growth by Volution until after twelve months of
ownership).
Our project to consolidate and increase manufacturing capacity
in Reading, UK was completed in the year. Our new ventilation
manufacturing facility in Reading is one of the largest of its kind
in Europe and whilst the project took longer than anticipated to
complete, it has been operating at normal service levels during the
second half of 2019. At the same time as completing this project
there has been considerable innovation in new residential
refurbishment products with the establishment of a new, more
modular, product structure which will provide the foundation for
future development of our product ranges in the years ahead. This
more modular approach provides greater flexibility and scale to
both injection moulding and fan assembly, an essential ingredient
as we continue to grow organically in all of our markets.
We expect further political uncertainty ahead, as a consequence
of the UK's scheduled departure from the European Union. However,
the Group is now a truly international business with over 50% of
our revenue being generated outside the UK which, coupled with our
value-adding business model and clear growth strategy, gives us
confidence in the long-term prospects for the Group.
UK leaving the European Union
Following the referendum outcome in June 2016 for the UK to
leave the EU, the UK Government and European Commission have been
negotiating the terms on which the UK would leave the EU and the
framework for the future relationship. At the time of writing the
continuing uncertainty in the UK parliament makes it difficult to
predict an outcome; however, it remains possible that the UK will
leave the EU without a deal on the 31 October 2019 or at some later
date. In the absence of a ratified agreement, it is unclear what
trading relationships the UK will have with the EU and other
significant trading partners after the exit date.
Our UK businesses, as well as those based in Continental Europe,
are substantially "domestic" suppliers of goods to their own
markets with relatively limited cross border sales activity. We
have reviewed the tariffs that would apply to any cross border
sales of our products between UK and Europe in the event of a
no-deal, and at an estimated tariff level of up to 3%, we do not
believe the commerciality of these transactions would be materially
impacted.
On the supply chain side, our primary non-UK supply comes from
China, and so (aside from any heightened foreign exchange rate
volatility) is not materially impacted. Border delays are
recognised as a potential source of disruption; as such we have
increased some inventories of specific faster moving products and
will continue to monitor inventory levels and orders with our key
suppliers in the run up to 31 October.
We have undertaken an analysis of the risks and operational
challenges to our business of a no-deal exit from the European
Union and consideration of these risks has been incorporated into
the Group's principal risks.
With a strong direct presence in the EU, the Board believes that
Volution is well placed to respond to changes to future trading
arrangements between the EU and the UK. Whilst it is clear that
Brexit uncertainty is impacting confidence and activity levels in
the UK, our UK based revenues account for less than 50% of the
Group's overall revenues. In the longer term, as an international
business with good logistics capabilities and an expanding
geographic presence, we consider we have greater flexibility to
withstand any UK specific challenges.
We recognise that significant uncertainty will remain until any
Brexit proposal is fully agreed and understood, and as such our
understanding of potential risks and impacts are being regularly
reviewed and assessed.
Ventilation Group
Revenue: GBP212.1 million, 90.0% of Group revenue
(2018: GBP183.1 million, 89.0% of Group revenue)
Adjusted operating profit: GBP41.5 million, 98.7% of Group adjusted operating
profit
(2018: GBP35.4 million)
Constant currency
---------------------------
2019 2019 2018 Growth
Market sector revenue GBP000 GBP000 GBP000 %
-------------------------------------- -------- -------- -------- -------
Ventilation Group
UK Residential RMI 39,355 39,355 38,166 3.1
UK New Build Residential Systems 27,795 27,795 25,604 8.6
UK Commercial 34,856 34,856 33,474 4.1
UK Export 9,924 9,985 11,189 (10.8)
Nordics 46,995 48,663 36,692 32.6
Central Europe 30,990 31,122 28,466 9.3
Australasia 22,176 22,456 8,182 174.5
-------------------------------------- -------- -------- -------- -------
Total Ventilation Group 212,091 214,232 181,773 17.9
-------------------------------------- -------- -------- -------- -------
UK export Simx and Air Connection(1) -- -- 1,321
-------------------------------------- -------- -------- -------- -------
Total Ventilation Group 212,091 214,232 183,094 17.0
-------------------------------------- -------- -------- -------- -------
(1) Sales to Simx and Air Connection in the prior year of GBP1.3
million have been separated to show a like-for-like comparison with
FY 2018 because sales to Simx and Air Connection are now eliminated
as intercompany sales.
Ventilation Group segment
The Ventilation Group's revenue grew by 15.8% (17.0% at constant
currency). Organic revenue growth was 2.3% (3.4% at constant
currency).
United Kingdom
Sales in our UK New Build Residential Systems sector were
GBP27.8 million (2018: GBP25.6 million), showing good organic
revenue growth of 8.6%, continuing an unbroken growth trend going
back to 2010. We continue to benefit from regulatory drivers aimed
at reducing the carbon emissions from all new residential
dwellings. These regulations, not just in the UK but across all of
our markets, are expected to become more supportive of our
energy-efficient ventilation solutions.
The UK Residential Public RMI market performed very well in the
year with total revenue of GBP15.6 million, up 5.3% compared to the
prior year. Our growth accelerated in the year with the first half
improving by 0.9% and the second half increasing by 9.6%. The
considerable investment in our new product range along with a more
sophisticated and improved approach to selling has helped us regain
market share. Whilst the underlying spending in this sector is
still constrained, we are optimistic that the actions we have
taken, in particular further new product ranges recently launched
or planned for launch, will help underpin further organic revenue
growth in the years ahead.
The UK Residential Private RMI market revenue of GBP23.8 million
represented an increase of 1.7% compared to the previous year. The
first half of the year was broadly flat with growth increasing to
3.8% in the second half of the year, assisted by both the return to
normal customer service at our Reading facility and the successful
introduction of more "higher value" and "silent" ventilation ranges
towards the end of the financial year. As the significant market
leader for the UK Private RMI market, we remain committed to
improving the customer experience, extolling the virtues of
quieter, more energy efficient and more aesthetically styled
products. Our three UK proprietary brands are well placed to
deliver a range of good, better and best products and, through
strong relationships with our distributors, we believe we are well
placed to continue growing this category in the future.
UK Commercial market revenue grew by 4.1% in the year to GBP34.9
million (2018: GBP33.5 million) with growth predominantly in the
first half of the year. Since the acquisition of both Diffusion and
Breathing Buildings our commercial revenue is around one-third
refurbishment focused and two-thirds new build market. Whilst our
improvements to the natural and hybrid range of products is helping
us win share in the new build school market, we noticed a marked
slowdown in activity for the supply of energy-efficient fan coils
in to the new office construction market. Our refurbishment product
range performed very well and we are now crystallising the benefits
of having one sales leadership team across our commercial
market.
UK Export market sales were GBP9.9 million (2018 like-for-like:
GBP11.2 million), a decline of 11.3% (10.8% at constant currency)
with all of the decline occurring in the first half of the year due
mainly to the one-off, large spares order from one customer in
Japan that occurred in the prior year. We continue to lead in the
Irish market for the supply of New Build Residential Systems and
recently extended our exclusive distribution partner agreement for
the supply of these products.
In the second half of the year we completed the project to
establish a new, purpose-built and higher capacity facility for the
injection moulding, extrusion and assembly of unitary fans. This
facility in Reading is now operating at service levels equivalent
to those prior to the move and, as part of our reinvigorated focus
on Operational Excellence, we anticipate efficiency gains in the
coming years.
We have further strengthened the UK management team: John Foley
joined in May 2019 having had a long established career with the
Otis Elevator Division of United Technologies. John is busy
establishing his senior leadership team and is working with them to
maximise the enlarged opportunity for growth now that we have fully
commissioned our facility in Reading.
Nordics
Sales in the Nordics region were GBP47.0 million (2018: GBP36.7
million), an increase of 28.1% (32.6% at constant currency)
compared to the previous year with an organic revenue decline of
2.3% at constant currency. Whilst the organic revenue decline in
the Nordics was a disappointment, the overall progress in the
region was very pleasing. Since our first acquisition of Fresh AB
in October 2012 we have now established a leading position in the
Swedish ventilation market and the acquisitions of Pamon in Finland
and Air Connection in Denmark have helped us establish a wider
position outside of Sweden. The integration of both of those
acquisitions has progressed very well.
During the year we finalised the development of a new product,
Intellivent SKY, further enhancing our product portfolio and our
position as the leading supplier of high-end product solutions for
the residential refurbishment market. We also established the first
sales in Denmark and Sweden of the heat recovery ventilation system
products manufactured by our business, Pamon, in Finland and have
plans to accelerate this cross-selling development in 2020. Whilst
the market in Sweden remains subdued there are a number of
cross-selling initiatives planned for the new-year utilising the
wider product capabilities from across the Group.
During the year we further upgraded our ERP system platform in
the Nordics and by the end of this calendar year all companies in
the Nordic region will be operating on the same ERP system.
Central Europe
Sales in Central Europe were GBP31.0 million, growth of 8.9%
(9.3% at constant currency) compared to the previous year. Our
focus on the trade distribution channel in Belgium was very
successful during the year with a substantial increase in the
number of outlets stocking our products. Coupled with the
increasing coverage in the market we have successfully introduced a
wider range of the Group's products to Belgium under the Vent-Axia
brand. In the Netherlands, using the same approach as in Belgium
has increased the number of trade distributors who sell our
products, with further new introductions planned for the coming
year.
In Germany we benefited from the success of the new range of
Xenion decentralised heat recovery products. Launched in our
financial year 2018 this improved, quieter and better performing
range of products helped us to deliver good organic revenue growth,
improving in the second half of 2019. Since acquiring inVENTer in
2014 we have made substantial improvements to the full product
range and also the relationships with the sales agents that we
primarily use as our route to market. Later in the financial year
we had the 'soft launch' of our wirelessly connected range of
decentralised heat recovery systems, with the products being made
available to the market early in our new financial year 2020.
Whilst the market for decentralised heat recovery systems in
Germany is competitive, with a significant number of suppliers
participating in the space, our ambition, as the founder of the
technology in the German market, is to continuously innovate and
stay ahead of the competition.
Australasia
Sales in Australasia were GBP22.2 million, growing by 171% (175%
at constant currency) driven by a full year trading from Simx and
the recent acquisition of Ventair in Australia. Organic revenue
grew by 7.5% (8.8% at constant currency) with a particularly strong
finish to the year. We now have a leading market position for
residential ventilation in our Australasian market and have the
opportunity to continue to launch many new products in both
markets. With the acquisition of Ventair it is our ambition to
become one of the leading providers of residential ventilation to
the market in Australia, complementing our position as the market
leader in the residential refurbishment trade supply market in New
Zealand.
OEM (Torin-Sifan)
Revenue: GBP23.6 million, 10.0% of Group revenue
(2018: GBP22.6 million, 11.0% of Group revenue)
Adjusted operating profit: GBP3.2 million, 7.6% of Group adjusted operating
profit
(2018: GBP3.8 million)
Constant currency
---------------------------
2019 2019 2018 Growth
Market sector revenue GBP000 GBP000 GBP000 %
------------------------- -------- -------- -------- -------
Total OEM (Torin-Sifan) 23,606 23,657 22,582 4.8
------------------------- -------- -------- -------- -------
Our OEM (Torin-Sifan) segment's revenue in the year was GBP23.6
million (2018: GBP22.6 million), an increase of 4.5% (4.8% at
constant currency) compared to the previous year. Sales of our EC3
motor are gaining market share and have been increasingly included
within our own products in our Ventilation Group segment. During
the year we made several operational and logistics improvements to
increase capacity to further support the growth of our EC3 motor
sales. Revenue for boiler spares was weaker than anticipated with
the winter weather in the UK generally milder than in previous
years.
The ERP system implementation that started in 2018 was completed
during the year. This caused some resulting disruption to
operations, and some logistical delays resulting in spot sourcing
of some electronic and other components at premium prices, mainly
in the first half of the year. Those issues were resolved in the
second half of the year and the ERP system is now delivering
benefits across all functional areas of the business. During the
year we also completed further enhancements to the business
material planning and sourcing functions. These enhancements to the
ERP system, our ongoing drive to improve the manufacturing
operations and the improved material planning function, should
deliver improved operational performance in 2020.
Strategy
We will continue to build on our core strengths and strong
industry track record to gain further market share in each of our
preferred markets and continue our historic growth trends in
revenue and profitability. We intend to achieve our goals through a
combination of organic revenue growth, selective acquisitions and a
focus on Operational Excellence. To achieve this, we have
identified three key strategic pillars. These three strategic
pillars have recently evolved in line with the development of
Volution Group and as a consequence of the successful completion of
the Torin-Sifan pillar of the strategy as it was originally
constituted. OEM (Torin-Sifan) remains a strategically important
part of the Group but following completion of the development of
the EC3 product range and the improvements in the offer to its
customers we now consider that further development of our OEM
business is clearly part of the larger organic growth pillar of our
strategy. The refreshed strategy now emphasises an increased focus
on Operational Excellence.
We made good progress with the strategy in the 2019 financial
year. Some of the highlights are:
Organic growth: Organic growth improved in 2019 to 3.5%
(constant currency), with the first half at 3.2% and the second
half increasing to 3.8%. Our project in the UK to rationalise two
older facilities in to one new purpose-built facility in Reading is
now complete. This facility is one of the largest of its kind in
Europe with substantial capacity headroom for injection moulding,
extrusion and assembly to underpin our ambitious plans for
growth.
Value-adding acquisitions: The acquisition in March 2019 of
Ventair in Australia complements our existing presence in
Australasia (Simx in New Zealand) whilst further broadening and
strengthening the Group's market reach and geographical diversity.
The four acquisitions completed in the previous year are now fully
integrated and progressing in line with our expectations.
The new markets which we are entering, as well as our original
core markets, continue to benefit from the favourable regulatory
backdrop that focuses on reducing carbon emissions from buildings
(in particular new buildings) and there is a notable increase in
local market trends towards improving indoor air quality, and
energy efficiency.
The ventilation market remains highly fragmented and we will
continue to pursue acquisition opportunities leveraging the Group's
capabilities in operations, procurement, distribution and
finance.
Operational Excellence: We have re-emphasised our dedication to
Operational Excellence. Now that the commissioning of the new
Reading facility in the UK has been finalised we can attend, more
generally, to improving the efficiency of all of our operations and
processes.
Dividends
We aim to deliver shareholder value through organic and
inorganic growth and a sustainable dividend policy. We paid an
interim dividend of 1.60 pence per share in May 2019. On the basis
of our results and financial position, the Board has proposed a
final dividend of 3.30 pence per share, giving a total dividend for
the financial year of 4.90 pence (2018: 4.44 pence per share), an
increase of 10.4% on the previous year. As a consequence of this
recommendation, the resulting adjusted earnings dividend cover for
the year was 3.2x (2018: 3.3x). Subject to approval by shareholders
at the Annual General Meeting on 12 December 2019, the final
dividend will be paid on 18 December 2019 to shareholders who are
on the register on 22 November 2019.
People
It has been another year of growth for the Group with the
acquisition and integration of Ventair together with the continued
integration of the four acquisitions completed during the prior
financial year. Volution Group now employs over 1,600 people in its
operations in the UK, the Nordics, Central Europe and Australasia
and benefits significantly from the diverse nature of its workforce
and their commitment to the Group's success.
Our third internal Management Development Programme concluded in
November 2018. We place considerable value on this programme which,
as well as helping to develop the effectiveness and scope of our
people, has significantly assisted in the integration of new
acquisitions as our high potential managers are made to feel part
of a wider group network and assist in the formation of the overall
Group culture.
I would like to welcome those employees who joined Volution
Group during the year and thank all employees for their collective
hard work, commitment and contribution towards the Group's success
with another year of growth.
I would also like to personally thank Ian Dew who stepped down
as CFO on 31 July 2019. Ian and I worked together for many years
and he played an integral role in Volution Group's successful
listing on the London Stock Exchange and subsequently played a key
role in the completion of all our acquisitions. I would like to
wish Ian a very happy retirement.
The Board was delighted to welcome Andy O'Brien to the Group.
Andy joined Volution Group following nine years at Aggreko plc, a
FTSE 250 global business. Andy joins Volution Group at an exciting
time in its development and we look forward to working with him as
we continue our journey.
Outlook
Whilst there is major uncertainty in the UK economy caused by
the current state of Brexit negotiations, we continue to focus on
building on our strong financial performance and in particular the
pursuit of operational excellence to further expand our operating
margins.
Ronnie George
Chief Executive Officer
9 October 2019
FINANCIAL REVIEW
Trading performance summary
Reported Adjusted (1)
------------------------- -------------------------
Year ended Year ended
Year ended 31 July Year ended 31 July
31 July 2019 2018 Movement 31 July 2019 2018 Movement
------------------------- ------------- ---------- -------- ------------- ---------- ----------
Revenue (GBPm) 235.7 205.7 14.6 % 235.7 205.7 14.6 %
EBITDA (GBPm) 44.6 37.0 20.4 % 46.5 41.1 13.2 %
Operating profit (GBPm) 24.7 17.5 40.8 % 42.1 37.1 13.3 %
Finance costs (GBPm) 2.1 1.6 31.5 % 2.1 1.3 63.6 %
Profit before tax (GBPm) 23.1 16.7 38.3 % 39.9 35.8 11.5 %
Basic EPS (p) 9.2 6.7 37.3 % 16.0 14.5 10.3 %
Total dividend per share
(p) 4.90 4.44 10.4 % 4.90 4.44 10.4 %
Operating cash flow
(GBPm) 34.9 29.1 19.9 % 36.9 34.4 7.3 %
Net debt (GBPm) 74.6 77.2 2.6 74.6 77.2 2.6
------------------------- ------------- ---------- -------- ------------- ---------- ----------
Note
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 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 18. A reconciliation to reported
measures is set out in note 2.
Revenue
Group revenue for the year ended 31 July 2019 was GBP235.7
million (2018: GBP205.7 million), an increase of 14.6% (15.7% at
constant currency). Organic growth of 2.6% (3.5% at constant
currency) accelerated during the year reaching 3.1% in the second
half (3.8% at constant currency) with organic growth across all
market sectors except for UK Export and the Nordics. Full year
trading from the four acquisitions completed in the year ended 31
July 2018 (Simx Limited in New Zealand, Air Fan B.V. in the
Netherlands, Oy Pamon Ab in Finland and Air Connection ApS in
Denmark), coupled with the acquisition of Ventair Pty Limited in
Australia in March 2019, resulted in inorganic growth of 12.0%
(12.2% at constant currency).
Profitability
The Group's underlying result, as measured by adjusted operating
profit, increased by 13.3% to GBP42.1 million (2018: GBP37.1
million) at an adjusted operating margin of 17.8% (2018: 18.0%).
Adjusted operating margin during the first half was adversely
impacted by some operational inefficiencies at our new Reading
facility (now fully commissioned), coupled with increased sourcing
costs in our OEM (Torin-Sifan) segment due to spot buying of some
electronic and other components at premium prices. Resolution of
these issues meant our second half margins increased to 18.1% from
17.6% in the first half.
Reported profit before tax increased by GBP6.4 million to
GBP23.1 million (2018: GBP16.7 million) compared to the GBP4.1
million increase in adjusted profit before tax due to:
- GBP4.6 million decrease in exceptional operating costs (principally
relating to costs of acquisitions and the costs of the UK Ventilation
re-organisation including factory relocation);
- GBP1.5 million write back of accrual for contingent consideration
in 2018 relating to the acquisition of VoltAir System, not repeated
in 2019;
- GBP0.8 million increase in amortisation costs relating to intangible
assets (2019: GBP15.4 million; 2018: GBP14.6 million); and
- GBP0.8 million increase in net finance costs as a result of the higher
average debt levels due to the acquisitions in the year ended 31 July
2018.
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 EPS and adjusted operating
cash flow. These measures are deemed more appropriate to track
underlying financial 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 2 to the consolidated financial statements.
Year ended 31 July 2019 Year ended 31 July 2018
--------------------------------- -------------------------------
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- --------- ----------- --------- -------- ----------- --------
Revenue 235,698 - 235,698 205,676 - 205,676
Gross profit 111,079 - 111,079 96,623 - 96,623
-------------------------------- --------- ----------- --------- -------- ----------- --------
Administration and distribution
costs excluding the
costs listed below (69,027) - (69,027) (59,523) - (59,523)
Amortisation of intangible
assets acquired through
business combinations (15,439) 15,439 - (14,670) 14,670 -
Exceptional operating
costs (1,801) 1,801 - (6,417) 6,417 -
CFO succession costs (150) 150
Release of contingent
consideration - - - 1,502 (1,502) -
-------------------------------- --------- ----------- --------- -------- ----------- --------
Operating profit 24,662 17,390 42,052 17,515 19,585 37,100
Net gain on financial
instruments at fair
value 605 (605) - 838 (838) -
Exceptional write off
of unamortised loan
issue costs upon refinancing - - - (320) 320 -
Other net finance costs (2,127) - (2,127) (1,296) - (1,296)
-------------------------------- --------- ----------- --------- -------- ----------- --------
Profit before tax 23,140 16,785 39,925 16,737 19,067 35,804
Income tax (4,913) (3,354) (8,267) (3,414) (3,598) (7,012)
-------------------------------- --------- ----------- --------- -------- ----------- --------
Profit after tax 18,227 13,431 31,658 13,323 15,469 28,792
-------------------------------- --------- ----------- --------- -------- ----------- --------
The following are the items excluded from adjusted measures:
-- Amortisation of acquired intangibles
On acquisition of a business, where appropriate, we value identifiable
intangible fixed assets acquired such as trademarks 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 year the amortisation charge of these intangible
assets increased to GBP15.4 million (2018: GBP14.7 million) as a consequence
of recent acquisitions. We exclude this accounting adjustment in the
calculation of our adjusted earnings because it is a cost associated
with acquisitions, not the underlying trading of the businesses.
-- Exceptional operating costs
Exceptional operating costs, by virtue of their size, incidence or
nature, are disclosed separately in order to allow a better understanding
of the underlying trading performance of the Group. During the year,
exceptional operating costs were GBP1.8 million (2018: GBP6.4 million)
which included costs relating to acquisitions of GBP0.5 million (2018:
GBP1.4 million) and the UK Ventilation re-organisation including factory
relocation of GBP1.3 million (2018: GBP5.0 million).
-- CFO succession costs
These costs relate to the search and recruitment process of the new
CFO during the year and amounted to GBP0.2 million (2018: GBPnil).
-- Reversal of contingent consideration
During the year reversal of contingent consideration was GBPnil (2018:
GBP1.5 million).
-- 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
cost. During the year, we recognised a gain of GBP0.6 million (2018:
gain of GBP0.8 million), a reduction of GBP0.2 million. We exclude
these gains or losses from our measures of adjusted earnings because
they are accounting adjustments which will reverse in future periods
and do not reflect the underlying trading of the business.
-- Exceptional write off of unamortised loan issue costs upon refinancing
During the year exceptional write off of unamortised loan issue costs
upon refinancing were GBPnil (2018: GBP0.3 million). On 15 December
2017, the Group refinanced its bank debt. As a consequence of the
re-finance, unamortised loan issue costs of GBP0.3 million relating
to the previous loans were written off in 2018.
Finance revenue and costs
Reported net finance costs were GBP1.5 million (2018: GBP0.8
million) including GBP0.6 million of net gains on the revaluation
of financial instruments (2018: net gains of GBP0.8 million) and
GBPnil related to the exceptional write off of unamortised loan
issue costs upon refinancing (2018: costs of GBP0.3 million).
Adjusted finance costs were GBP2.1 million (2018: GBP1.3 million).
Adjusted finance costs increased in line with increased levels of
debt following the four acquisitions made in the prior period and
the one acquisition made this year.
Taxation
The UK Finance (No. 2) Act 2015, which was enacted on 18
November 2015, introduced a reduction in the UK headline rate of
corporation tax to 19% and 18% from 1 April 2017 and 1 April 2020
respectively. A further reduction in the headline rate to 17% from
1 April 2020 was included in the UK Finance Act 2016, enacted on 15
September 2016.
The effective tax rate for the year was 21.2 % (2018:
20.4%).
Our underlying effective tax rate, on adjusted profit before
tax, was 20.7 % (2018: 19.6%). The increase of 1.1 percentage
points in our adjusted effective tax rate, over the prior year, was
partly as a result of tax rate changes in the prior year that did
not repeat this year as well as higher tax rates applicable to
profits in recently acquired businesses in Australasia.
The Group's medium-term adjusted effective tax rate is expected
to be approximately 20% of the Group's adjusted profit before tax,
with the UK headline tax rate dropping to 17% being partly offset
by the full year effect of profits recently acquired in countries
with higher tax rates.
Operating cash flow
The Group continued to be cash generative in the year with
adjusted operating cash inflow of GBP36.9 million (2018: GBP34.4
million). Whilst cash conversion remains strong at 85% (2018: 90%)
our working capital has increased during the year predominately due
to increased inventory levels. Some of these inventory increases
are intentional as part of our preparations to mitigate the effects
of the UK leaving the European Union, and the increase will be
reversed once it is no longer needed; however, we do recognise an
opportunity to optimise inventories across a number of our
businesses and this will be an important work stream of our new
focus on Operational Excellence. Capital expenditure of GBP5.8
million (2018: GBP6.3 million) included further investment in the
new production facility in Reading, UK, continuing new product
development and enhancements to IT systems.
See the glossary of terms in note 18 to the consolidated
financial statements for a definition of adjusted operating cash
flow and cash conversion.
Reconciliation of adjusted operating cash flow
2019 2018
GBPm GBPm
-------------------------------------------------- ------ -----
Net cash flow generated from operating activities 31.9 25.8
-------------------------------------------------- ------ -----
Net capital expenditure (5.8) (6.3)
UK and overseas tax paid 9.3 8.9
Cash flows relating to exceptional items 1.5 5.4
Exceptional items: fair value of inventories - 0.6
-------------------------------------------------- ------ -----
Adjusted operating cash flow 36.9 34.4
-------------------------------------------------- ------ -----
Employee Benefit Trust
During the year 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 (2018:
GBPnil). The Volution Employee Benefit Trust acquired 650,000
shares at an average price of GBP1.85 per share in the period
(2018: no shares acquired) and 19,981 shares (2018: 37,013) were
released by the trustees with a value of GBP36,000 (2018:
GBP65,000). 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.
Net debt
Year-end net debt was GBP74.6 million (2018: GBP77.2 million),
comprised of bank borrowings of GBP86.1 million (2018: GBP95.4
million), offset by cash and cash equivalents of GBP11.5 million
(2018: GBP18.2 million). The net debt of GBP74.6 million represents
leverage of 1.6x adjusted EBITDA.
Movements in net debt position for the year ended 31 July
2019
2019 2018
GBPm GBPm
----------------------------------------------------- ------- ------
Opening net debt at 1 August (77.2) (37.0)
----------------------------------------------------- ------- ------
Movements from normal business operations:
Adjusted EBITDA 46.5 41.1
Movement in working capital (4.7) (0.9)
Share-based payments 0.9 0.5
Capital expenditure (5.8) (6.3)
----------------------------------------------------- ------- ------
Adjusted operating cash flow: 36.9 34.4
- Interest paid net of interest received (1.9) (0.9)
- Income tax paid (9.3) (8.9)
- Exceptional items (1.5) (6.0)
- Dividend paid (9.1) (8.5)
- Purchase of own shares (1.2) -
- FX on foreign currency loans/cash (0.1) 1.6
- Issue costs of new borrowings (0.2) (0.9)
Movements from acquisitions:
- Acquisition consideration net of cash acquired and
debt repaid (11.0) (51.0)
----------------------------------------------------- ------- ------
Closing net debt at 31 July (74.6) (77.2)
----------------------------------------------------- ------- ------
Acquisition related costs
On 1 March 2019, we acquired Ventair Pty Limited, a market
leading residential ventilation product supplier, in Australia, for
an initial cash consideration of AUD$19.2 million (approximately
GBP10.4 million). A further amount of deferred cash consideration
of up to AUD$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.
Further cash consideration of GBP0.6 million was paid for Oy
Pamon Ab, acquired in July 2018. Part of the consideration was
contingent upon their earnings achieved for the year ending
November 2018. A further amount of deferred cash consideration may
be payable contingent on Oy Pamon Ab earnings for its year ending
November 2019.
Bank facilities, refinancing and liquidity
The Group has in place a GBP120 million multicurrency revolving
credit facility and in addition an accordion facility of up to
GBP30 million. In December 2018, the Group exercised the option to
extend this facility by a period of twelve months at a cost of
GBP0.2 million; the maturity date is now 15 December 2022.
As at 31 July 2019, we had GBP33.9 million of undrawn, committed
bank facilities and GBP11.5 million of cash and cash equivalents on
the consolidated statement of financial position.
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 broadly balanced by
Euro expenditure in the UK. We have little US Dollar income but
significant expenditure due to our purchases from suppliers in
China. We managed our transactional foreign exchange risk by
purchasing the majority of our forecast US Dollar requirements for
the 2019 financial year in advance, and similarly we have purchased
the majority of our forecast US Dollar requirements in advance of
the 2020 financial year.
We are also exposed to translational currency risk as the Group
consolidates foreign currency denominated assets, liabilities,
income and expenditure into Group reporting denominated in
Sterling. We hedge the translation risk of the net assets in the
Nordics with GBP24.0 million of borrowings denominated in SEK
(2018: GBP24.5 million). We have partially hedged our risk of
translation of the net assets in Belgium, the Netherlands, Germany
and Finland by having Euro-denominated bank borrowings in the
amount of GBP40.6 million as at 31 July 2019 (2018: GBP40.0
million). The acquisition of Ventair in Australia was financed
using Sterling-denominated debt to rebalance our debt with our
strong Sterling cash flow. The Sterling value of our foreign
currency denominated loans and cash increased by GBP0.1 million in
the year as a consequence of exchange rate movements. We do not
hedge the translational exchange rate risk to the results of
overseas subsidiaries.
During the year, 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 full year
performance of our business at our 2018 exchange rates, our
reported Group revenues would have been GBP2.2 million or 1.1 %
higher and adjusted operating profit would have been GBP42.3
million, GBP0.2 million higher.
At the end of the financial year the Sterling value of foreign
currency denominated working capital increased by GBP0.6 million
compared to the foreign exchange rates applying at the beginning of
the year.
Earnings per share
Our reported basic earnings per share grew by 37.3% to 9.2 pence
(2018: 6.7 pence).
Our adjusted basic earnings per share grew by 10.3% to 16.0
pence (2018: 14.5 pence).
Dividends
In May 2019 the Group paid an interim dividend of 1.60 pence per
share.
The Board has proposed a final dividend of 3.30 pence per share.
Subject to approval at our Annual General Meeting of shareholders
on 12 December 2019, the recommended final dividend will be paid on
18 December 2019 to shareholders who are on the register on 22
November 2019.
Andy O'Brien
Chief Financial Officer
9 October 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2019
2019 2018
Notes GBP000 GBP000
-------------------------------------------------- ----- --------- ---------
Revenue from contracts with customers 3 235,698 205,676
Cost of sales (124,619) (109,053)
-------------------------------------------------- ----- --------- ---------
Gross profit 111,079 96,623
Administrative and distribution expenses (84,616) (74,193)
-------------------------------------------------- ----- --------- ---------
Operating profit before exceptional items 26,463 22,430
Exceptional operating costs 5 (1,801) (6,417)
Release of contingent consideration 5 -- 1,502
-------------------------------------------------- ----- --------- ---------
Operating profit 24,662 17,515
Finance revenue 6 621 852
Finance costs 5, 6 (2,143) (1,630)
-------------------------------------------------- ----- --------- ---------
Profit before tax 23,140 16,737
Income tax 7 (4,913) (3,414)
-------------------------------------------------- ----- --------- ---------
Profit for the year 18,227 13,323
-------------------------------------------------- ----- --------- ---------
Other comprehensive income/(expense)
Items that may subsequently be reclassified
to profit or loss:
Exchange differences arising on translation
of foreign operations 2,303 (2,075)
(Loss)/gain on hedge of net investment in foreign
operations (303) 1,691
-------------------------------------------------- ----- --------- ---------
Other comprehensive income/(expense) for the
year 2,000 (384)
-------------------------------------------------- ----- --------- ---------
Total comprehensive income for the year 20,227 12,939
-------------------------------------------------- ----- --------- ---------
Earnings per share
Basic earnings per share 8 9.2p 6.7p
Diluted earnings per share 8 9.2p 6.7p
-------------------------------------------------- ----- --------- ---------
Consolidated Statement of Financial Position
At 31 July 2019
2019 2018
Notes GBP000 GBP000
-------------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 23,758 22,611
Intangible assets - goodwill 9 118,183 112,682
Intangible assets - others 10 95,126 104,124
-------------------------------------- ----- --------- ---------
237,067 239,417
-------------------------------------- ----- --------- ---------
Current assets
Inventories 35,585 30,136
Right of return assets 3 430 -
Trade and other receivables 42,199 38,873
Other financial assets 907 302
Cash and short-term deposits 11,547 18,221
-------------------------------------- ----- --------- ---------
90,668 87,532
-------------------------------------- ----- --------- ---------
Total assets 327,735 326,949
-------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables (38,807) (45,689)
Refund liabilities 3 (7,529) -
Income tax (279) (1,410)
Other financial liabilities (318) -
Provisions (1,398) (1,004)
-------------------------------------- ----- --------- ---------
(48,331) (48,103)
-------------------------------------- ----- --------- ---------
Non-current liabilities
Interest-bearing loans and borrowings 13 (85,391) (94,605)
Other financial liabilities (1,501) (1,144)
Provisions (384) (384)
Deferred tax liabilities 14 (16,019) (17,500)
-------------------------------------- ----- --------- ---------
(103,295) (113,633)
-------------------------------------- ----- --------- ---------
Total liabilities (151,626) (161,736)
-------------------------------------- ----- --------- ---------
Net assets 176,109 165,213
-------------------------------------- ----- --------- ---------
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (2,030) (1,962)
Capital reserve 93,855 93,855
Share-based payment reserve 1,745 1,836
Foreign currency translation reserve 3,507 1,507
Retained earnings 65,505 56,450
-------------------------------------- ----- --------- ---------
Total equity 176,109 165,213
-------------------------------------- ----- --------- ---------
The consolidated financial statements of Volution Group plc
(registered number: 09041571) were approved by the Board of
Directors and authorised for issue on 9 October 2019.
On behalf of the Board
Ronnie George Andy O'Brien
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 July 2019
Foreign
Share-based currency
Share Share Treasury Capital payment translation Retained
capital premium shares reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
At 1 August 2017 2,000 11,527 (2,027) 93,855 1,289 1,891 51,598 160,133
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
Profit for the year - - - - - - 13,323 13,323
Other comprehensive expense - - - - - (384) - (384)
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
Total comprehensive income - - - - - (384) 13,323 12,939
Share-based payment including
tax - - 65 - 547 - - 612
Dividends paid - - - - - - (8,471) (8,471)
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
At 31 July 2018 2,000 11,527 (1,962) 93,855 1,836 1,507 56,450 165,213
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
Profit for the year -- -- -- -- -- -- 18,227 18,227
Other comprehensive expense -- -- -- -- -- 2,000 -- 2,000
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
Total comprehensive income -- -- -- -- -- 2,000 18,227 20,227
Purchase of own shares -- -- (1,199) -- -- -- -- (1,199)
Vesting of shares -- -- 1,131 -- (1,043) -- (88) --
Share-based payment including
tax -- -- -- -- 952 -- -- 952
Dividends paid -- -- -- -- -- -- (9,084) (9,084)
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
At 31 July 2019 2,000 11,527 (2,030) 93,855 1,745 3,507 65,505 176,109
------------------------------ -------- -------- -------- -------- ----------- ------------ --------- -------
Treasury shares
The treasury shares reserve represents the cost of shares in
Volution Group plc purchased in the market and held by the Volution
Employee Benefit Trust to satisfy obligations under the Group's
share incentive schemes.
Capital reserve
The capital reserve is the difference in share capital and
reserves arising from the use of the pooling of interest method for
preparation of the financial statements in 2014. This is a
non-distributable reserve.
Share-based payment reserve
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to key management
personnel, as part of their remuneration.
Foreign currency translation reserve
Exchange differences arising on translation of the Group's
foreign subsidiaries into GBP are included in the foreign currency
translation reserve. The Group hedges some of its exposure to its
net investment in foreign operations; foreign exchange gains and
losses relating to the effective portion of the net investment
hedge are accounted for by entries made to other comprehensive
income. No hedge ineffectiveness has been recognised in the
statement of comprehensive income for any of the periods
presented.
Retained earnings
The parent company of the Group, Volution Group plc, had
distributable retained earnings at 31 July 2019 of GBP82,335,000
(2018: GBP72,214,000).
Consolidated Statement of Cash Flows
For the year ended 31 July 2019
2019 2018
Notes GBP000 GBP000
--------------------------------------------------- ----- -------- --------
Operating activities
Profit for the year after tax 18,227 13,323
Adjustments to reconcile profit for the year
to net cash flow from operating activities:
Income tax 4,913 3,414
(Gain)/loss on disposal of property, plant
and equipment (76) 218
Exceptional items 5 1,801 6,417
Release of contingent consideration -- (1,502)
Cash flows relating to exceptional items (1,486) (5,368)
Finance revenue 6 (621) (852)
Finance costs 6 2,143 1,310
Exceptional write off of unamortised loan
issue costs upon refinancing 5, 6 -- 320
Share-based payment expense 895 475
Depreciation of property, plant and equipment 3,272 3,031
Amortisation of intangible assets 10 16,594 15,605
Working capital adjustments:
Decrease in trade receivables and other assets 10 1,104
Increase in inventories (2,756) (2,193)
Exceptional items: fair value of inventories -- (616)
(Decrease)/increase in trade and other payables (1,955) 887
Movement in provisions 221 (905)
--------------------------------------------------- ----- -------- --------
Cash generated by operations 41,182 34,668
UK income tax paid (3,900) (4,952)
Overseas income tax paid (5,422) (3,956)
--------------------------------------------------- ----- -------- --------
Net cash flow generated from operating activities 31,860 25,760
--------------------------------------------------- ----- -------- --------
Investing activities
Payments to acquire intangible assets 10 (1,836) (1,898)
Purchase of property, plant and equipment (4,180) (4,635)
Proceeds from disposal of property, plant
and equipment 218 256
Acquisition of subsidiaries, net of cash
acquired 12 (8,417) (40,985)
Interest received 16 14
--------------------------------------------------- ----- -------- --------
Net cash flow used in investing activities (14,199) (47,248)
--------------------------------------------------- ----- -------- --------
Financing activities
Repayment of interest-bearing loans and borrowings (29,609) (67,869)
Proceeds from new borrowings 17,500 103,474
Issue costs of new borrowings (180) (954)
Interest paid (1,913) (843)
Dividends paid (9,084) (8,471)
Purchase of own shares (1,199) -
--------------------------------------------------- ----- -------- --------
Net cash flow (used in)/generated from financing
activities (24,485) 25,337
--------------------------------------------------- ----- -------- --------
Net (decrease)/increase in cash and cash
equivalents (6,824) 3,849
Cash and cash equivalents at the start of
the year 18,221 14,499
Effect of exchange rates on cash and cash
equivalents 150 (127)
--------------------------------------------------- ----- -------- --------
Cash and cash equivalents at the end of the
year 11,547 18,221
--------------------------------------------------- ----- -------- --------
Volution Group plc (the Company) is a public limited company and
is incorporated and domiciled in the UK (registered number:
09041571). The share capital of the Company is listed on the London
Stock Exchange. The address of its registered office is Fleming
Way, Crawley, West Sussex RH10 9YX.
Notes to the Consolidated Financial Statements
For the year ended 31 July 2019
The preliminary results were authorised for issue by the Board
of Directors on 9 October 2019. The financial information set out
herein does not constitute the Group's statutory consolidated
financial statements for the years ended 31 July 2019 or 2018, but
is derived from those accounts. Statutory consolidated financial
statements for 2018 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
1. Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards (IFRS) adopted by the European Union and the Companies
Act 2006. The consolidated financial statements have been prepared
under the historical cost convention, except as disclosed in the
accounting policies under the relevant notes.
The preparation of the consolidated financial information in
conformity with IFRS requires the use of certain critical
accounting estimates and requires management to exercise judgement
in the process of applying the Group's accounting policies.
Accounting policies, including critical accounting judgements and
estimates used in the preparation of the financial statements, are
described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and
all values are rounded to the nearest thousand (GBP000), except as
otherwise indicated.
The financial information includes all subsidiaries. The results
of subsidiaries are included from the date on which effective
control is acquired up to the date control ceases to exist.
Subsidiaries are controlled by the parent (in each relevant
period) regardless of the amount of shares owned. Control exists
when the parent has the power, either directly or indirectly, to
govern the financial and operating policies of an enterprise so as
to obtain benefits from its activities.
The financial statements of subsidiaries are prepared for the
same reporting periods using consistent accounting policies. All
intercompany transactions and balances, including unrealised
profits arising from intra-group transactions, have been eliminated
on consolidation.
Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence in the
foreseeable future, for the period not less than twelve months from
the date of this report.
In December 2018, the Group exercised the option to extend its
multicurrency revolving credit facility by a period of twelve
months at a cost of GBP0.2 million; the maturity date is now 15
December 2022.
Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the Group financial statements, the results and
financial position of each entity are expressed in GBP (GBP000),
which is the functional currency of the Company and the
presentational currency of the Group.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rate
of exchange prevailing at the dates of the transactions. At the end
of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rate prevailing at the end of
the reporting period.
Non-monetary items that are measured at historical cost in a
foreign currency are translated using the exchange rate at the date
of the initial transaction. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rate
at the date the fair value was determined.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are expressed in GBP using exchange rates prevailing at
the end of the reporting period. Income and expenses are translated
at the average exchange rate for the period. Exchange differences
arising are classified as other comprehensive income and are
transferred to the foreign currency translation reserve. All other
translation differences are taken to profit and loss with the
exception of differences on foreign currency borrowings to the
extent that they are used to finance or provide a hedge against
Group equity investments in foreign operations, in which case they
are taken to other comprehensive income together with the exchange
difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The significant judgements, estimates and assumptions made in
these financial statements relate to: Exceptional items (note 5),
Intangible assets - goodwill (note 9), Intangible assets - other
(note 10), Impairment assessment of goodwill (note 11) and Refund
liabilities arising from retrospective volume rebates (note 3).
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial
year are described under the relevant notes.
The Group based its assumptions and estimates on parameters
available when these financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur.
New standards and interpretations
The following standards and interpretations are new or amended
and have been effective for the first time in the year ended 31
July 2019.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was issued in July 2014 and
replaces IAS 39 Financial Instruments: Recognition and
Measurement.
The Group applied IFRS 9 prospectively, with an initial
application date of 1 August 2018. The Group has not restated the
comparative information, which continues to be reported under IAS
39. Differences arising from the adoption of IFRS 9 were not
material therefore no adjustment has been made to opening retained
earnings or other components of equity.
IFRS 9 has introduced changes to the accounting for impairment
of financial assets, which has resulted in the Group moving away
from an incurred loss model to an expected credit loss (ECL) model.
The revised standard has impacted the way in which the Group
calculates the ECL, however the impact is not material.
IFRS 9 has also impacted the classification of the Group's Trade
receivables. Trade receivables classified as loans and receivables
as at 31 July 2018 are held to collect contractual cash flows and
give rise to cash flows representing solely payments of principal
and interest. These are classified and measured as debt instruments
at amortised cost beginning 1 August 2018.
The adoption of IFRS 9 has not had a material impact on the
Group's consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue
and related Interpretations and it applies, with limited
exceptions, to all revenue arising from contracts with customers.
IFRS 15 establishes a five-step model to account for revenue
arising from contracts with customers and requires that revenue be
recognised at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or
services to a customer.
IFRS 15 requires entities to exercise judgement, taking into
consideration all of the relevant facts and circumstances when
applying each step of the model to contracts with their customers.
The standard also specifies the accounting for the incremental
costs of obtaining a contract and the costs directly related to
fulfilling a contract. In addition, the standard requires extensive
disclosures.
The Group adopted IFRS 15 using the modified retrospective
method of adoption with the date of initial application of 1 August
2018. Under this method, the standard can be applied either to all
contracts at the date of initial application or only to contracts
that are not completed at this date. The Group elected to apply the
standard only to contracts that are not completed as at 1 August
2018.
The cumulative effect of initially applying IFRS 15 is
recognised at the date of initial application as an adjustment to
the opening balance of retained earnings, however as the affect was
not material no adjustment has been made. Therefore, the
comparative information was not restated and continues to be
reported under IAS 11, IAS 18 and related Interpretations.
The effect of adopting IFRS 15 as at 1 August 2018 was as
follows:
Increase/
Reference (decrease)
------------------------------ ---------- -----------
Assets
Right of return assets a) 430
Trade and other receivables a) 660
------------------------------ ---------- -----------
Total 1,090
------------------------------------------ -----------
Liabilities
Refund liabilities a) 6,854
Trade and other payables a) (5,764)
------------------------------ ---------- -----------
Total 1,090
------------------------------------------ -----------
Total adjustments on equity
Retained earnings a) --
------------------------------ ---------- -----------
Set out below are the amounts by which each financial statement
line item is affected as at and for the year ended 31 July 2019 as
a result of the adoption of IFRS 15. The adoption of IFRS 15 did
not have any impact on OCI or the Group's operating, investing and
financing cash flows. The first column shows amounts prepared under
IFRS 15 and the second column shows what the amounts would have
been had IFRS 15 not been adopted.
Amounts prepared under
------------------------
Increase/
IFRS 15 Previous IFRS (decrease)
Reference GBP000 GBP000 GBP000
-------------------------------------------- ---------- -------- -------------- ------------
Sale of goods b) 233,612 231,332 2,280
Installation services b) 2,086 4,366 (2,280)
-------------------------------------------- ---------- -------- -------------- ------------
Total revenue from contracts with customers 235,698 235,698 --
Consolidated statement of financial position as at 31 July
2019:
Amounts prepared under
------------------------
Increase/
IFRS 15 Previous IFRS (decrease)
Reference GBP000 GBP000 GBP000
---------------------------- ---------- -------- -------------- ------------
Current assets
Right of return assets a) 430 -- 430
Trade and other receivables a) 42,199 41,582 617
---------------------------- ---------- -------- -------------- ------------
Total current assets 90,668 89,621 1,047
---------------------------------------- -------- -------------- ------------
Current liabilities
Refund liabilities a) 7,529 -- 7,529
Trade and other payables a) 38,807 45,289 (6,482)
Total current liabilities 48,331 47,284 1,047
---------------------------------------- -------- -------------- ------------
Net assets 176,109 176,109 --
---------------------------------------- -------- -------------- ------------
Total equity 176,109 176,109 --
---------------------------------------- -------- -------------- ------------
(a) Sale of equipment with variable consideration
Some contracts for the sale of equipment provide customers with
a right of return and volume rebates. Before adopting IFRS 15, the
Group recognised revenue from the sale of goods measured at the
fair value of the consideration received or receivable net of
volume rebates. If revenue could not be reliably measured, the
Group deferred recognition of revenue until the uncertainty was
resolved. Under IFRS 15, rights of return and volume rebates give
rise to variable consideration.
-- Rights of return
When a contract provides a customer with a right to return the
goods within a specified period, the Group previously estimated
expected returns using a probability-weighted average amount
approach similar to the expected value method under IFRS 15. Before
the adoption of IFRS 15, the gross margin impact related to the
expected returns was deferred and recognised in the statement of
financial position within trade and other payables with a
corresponding adjustment to cost of sales. No adjustment was made
to inventories to account for the potential return assets. Under
IFRS 15, the consideration received from the customer is variable
because the contract allows the customer to return the products.
The Group used the expected value method to estimate the goods that
will not be returned. For goods expected to be returned, the Group
presented revenue net of the expected returns with a corresponding
adjustment to cost of sales, a refund liability and an asset for
the right to recover products from a customer separately in the
statement of financial position.
Upon adoption of IFRS 15, the Group reclassified provisions of
GBP660,000, which were previously offset against trade and other
receivables, to refund liabilities as at 1 August 2018. In
addition, the remeasurement resulted in additional refund
liabilities of GBP430,000 and right of return assets of GBP430,000
as at 1 August 2018.
As at 31 July 2019, IFRS 15 increased right of return assets,
trade and other receivables and refund liabilities by GBP430,000,
GBP617,000 and GBP1,047,000 respectively.
-- Volume rebates
Before adoption of IFRS 15, the Group estimated the expected
volume rebates using the probability-weighted average amount of
rebates approach and included an allowance for rebates in trade and
other payables.
Under IFRS 15, retrospective volume rebates give rise to
variable consideration. To estimate the variable consideration to
which it will be entitled, the Group applied the 'expected value
method' for contracts with more than one volume threshold. Upon
adoption of IFRS 15, the Group recognised refund liabilities of
GBP5,764,000 for the expected future rebates payable as at 1 August
2018 and removed the corresponding provision previously included in
trade and other payables.
As at 31 July 2019, IFRS 15 increased Refund liabilities by
GBP6,482,000 and decreased Trade and other payables by a
corresponding amount.
(b) Bundled sales of equipment and installation services
Before the adoption of IFRS 15, the Group accounted for the
equipment and installation service as non-separable deliverables
within bundled sales and disclosed the total revenue generated as
revenue from rendering of services.
Under IFRS 15, the Group assessed that there were two
performance obligations in a contract for bundled sales of
equipment and installation services and performed a re-allocation
of the transaction price based on their relative stand-alone
selling prices for the equipment and the cost plus margin approach
for the installation services, which decreased the amount allocated
to installation services.
For the year ended 31 July 2019 the adoption of IFRS 15
increased revenue from the sale of goods by GBP2,280,000 and
decreased revenue from installation services by a corresponding
amount.
The following standards and interpretations have an effective
date after the date of these financial statements.
IFRS 16 Leases
IFRS 16 Leases was issued in January 2017 to replace IAS 17
Leases. The standard is effective for accounting periods beginning
on or after 1 January 2019 and will be adopted by the Group on 1
August 2019.
IFRS 16 will result in almost all leases being recognised on the
balance sheet as the distinction between operating leases and
finance leases is removed. Under the new standard, a right-of-use
asset and a financial liability for the future lease payments are
recognised.
The Group will apply the standard from 1 August 2019 and will
apply the modified retrospective transition approach. We will
adopt some of the available practical expedients which are:
-- "grandfather" our previous assessment of which existing contracts
are, or contain, leases; and
-- not applying the new lessee accounting model to short-term or low-value
leases, for which we will continue to recognise the related lease
payments as an expense on a straight line basis over the lease.
When applying IFRS 16 using the modified retrospective approach,
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. Under the modified retrospective approach we will
recognise the right-of-use (ROU) asset and the lease liability as
follows:
-- For leases currently classified as operating leases:
* ROU asset - as if IFRS 16 had always been applied
(but using the incremental borrowing rate, applicable
to the lease, at the date of initial application).
* Lease liability - present value of remaining lease
payments using the incremental borrowing rate,
applicable to the lease, at the date of initial
application.
Impact of adoption of IFRS 16 Leases
Statement of financial position
Upon transition on 1 August 2019, the Group will recognise a
right-of-use lease asset in the range of GBP17.6 million to GBP22.9
million and lease liabilities in the range of GBP19.1 million
(non-current GBP17.2 million; current GBP1.9 million) to GBP23.7
million (non-current GBP21.2 million; current GBP2.5 million),
there is an impact on deferred tax due to the temporary difference
arising, although this is not expected to be material. A transition
adjustment in the range of GBP1.5 million to GBP0.8 million will be
recognised as a debit to retained earnings. The Group will not
capitalise low-value leases on transition, or those which expire
before 31 July 2020. The right-of-use asset principally consists of
property.
Statement of comprehensive income
Under IFRS 16 the Group will see a different pattern of expense
within the statement of comprehensive income, as the IAS 17
operating lease expense is replaced by depreciation and interest
charges. In the financial year to 31 July 2020 the Group's EBITDA
will improve by an estimated GBP2.9 million. However, the new
finance costs together with the depreciation expense have a
negative impact on the Group's profit before tax such that the
underlying earnings are in the range of GBP0.3 million to GBP0.1
million lower.
Statement of cash flows
The change in presentation as a result of the adoption of IFRS
16 will see an improvement in cash flows generated from operating
activities, offset by a corresponding decline in cash flow
generated from financing activities. There is no overall cash flow
impact from the adoption of the new standard.
Other new standards or interpretations in issue, but not yet
effective, are not expected to have a material impact on the
Group's net assets or results.
2. Adjusted earnings
The Board and key management personnel use some alternative
performance measures to track and assess the underlying performance
of the business. These measures include adjusted operating profit
and adjusted profit before tax. These measures are deemed more
appropriate as they remove income and expenditure which is not
directly related to the ongoing trading of the business. Such
alternative performance measures are not defined terms under IFRS
and may not be comparable with similar measures disclosed by other
companies. Likewise, these measures are not a substitute for IFRS
measures of profit. A reconciliation of these measures of
performance to the corresponding reported figure is shown
below.
2019 2018
GBP000 GBP000
---------------------------------------------------------- ------- -------
Profit after tax 18,227 13,323
Add back:
Exceptional operating costs (note 5) 1,801 6,417
CFO succession costs 150 --
Reversal of contingent consideration (note 5) -- (1,502)
Net (gain)/loss on financial instruments at fair value (605) (838)
Exceptional write off of unamortised loan issue costs
upon refinance (note 6) -- 320
Amortisation and impairment of intangible assets acquired
through business combinations 15,439 14,670
Tax effect of the above (3,354) (3,598)
---------------------------------------------------------- ------- -------
Adjusted profit after tax 31,658 28,792
Add back:
Adjusted tax charge 8,267 7,012
---------------------------------------------------------- ------- -------
Adjusted profit before tax 39,925 35,804
Add back:
Interest payable on bank loans and amortisation of
financing costs 2,143 1,310
Finance revenue (16) (14)
---------------------------------------------------------- ------- -------
Adjusted operating profit 42,052 37,100
Add back:
Depreciation of property, plant and equipment 3,272 3,031
Amortisation of development costs, software and patents 1,155 935
---------------------------------------------------------- ------- -------
Adjusted EBITDA 46,479 41,066
---------------------------------------------------------- ------- -------
For definitions of terms referred to above see note 18, Glossary
of terms.
3. Revenue from contracts with customers
Accounting policy
Revenue from contracts with customers is recognised when the
control of goods or services are transferred to the customer at an
amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods and services.
Sale of ventilation products
Revenue from the sale of ventilation products is recognised at
the point in time when control of the asset is transferred to the
buyer, usually on the delivery of the goods.
The Group considers whether there are other promises in the
contract that are separate performance obligations to which a
portion of the transaction price needs to be allocated (e.g.,
warranties and volume rebates). In determining the transaction
price for the sale of ventilation products, the Group considers the
effects of variable consideration (if any).
Volume rebates
The Group provides retrospective volume rebates to certain
customers once the quantity of products purchased during the period
exceeds a threshold specified in the contract. To estimate the
variable consideration for the expected future rebates, the Group
applies the expected value method for contracts with more than one
volume threshold. The Group then applies the requirements on
constraining estimates of variable consideration and recognises a
liability for the expected future rebates.
Before including any amount of variable consideration in the
transaction price, the Group considers whether the amount of
variable consideration is constrained. The Group determined that
the estimates of variable consideration are not constrained, other
than with respect to volume rebates, based on its historical
experience, business forecast and the current economic conditions.
In addition, the uncertainty on the variable consideration will be
resolved within a short time frame.
Warranty obligations
The Group typically provides warranties for general repairs of
defects that existed at the time of sale. These assurance-type
warranties are accounted for under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets
Installation services
The Group provides installation services that are bundled
together with the sale of equipment to a customer.
Contracts for bundled sales of equipment and installation
services are comprised of two performance obligations because the
promises to transfer equipment and provide installation services
are capable of being distinct and separately identifiable.
Accordingly, the Group allocates the transaction price based on the
relative stand-alone selling prices of the equipment and the cost
plus margin approach for installation services.
The Group recognises revenue from installation services at a
point in time after the service has been performed, this is because
installation of the ventilation equipment is generally over a small
timeframe. Revenue from the sale of the ventilation equipment is
recognised at a point in time, generally upon delivery of the
equipment.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for
goods and services transferred to the customer. A contract asset is
recognised when the Group transfers goods or services to the
customer before the customer pays consideration. There is no
contract asset included within the Statement of Financial Position
as revenue is recognised at a point in time, after installation.
Consideration is recognised immediately as a receivable and is
unconditional (only the passage of time is required before payment
of consideration is due).
Contract liabilities
There are no contract liabilities recognised in the comparative
period or in the financial year ending 31 July 2019.
Revenue recognised in the statement of comprehensive income is
analysed below:
2019 2018
GBP000 GBP000
-------------------------------------------- ------- -------
Sale of goods 233,612 200,665
Installation services 2,086 5,011
-------------------------------------------- ------- -------
Total revenue from contracts with customers 235,698 205,676
-------------------------------------------- ------- -------
2019 2018
Market sectors GBP000 GBP000
---------------------------------------------- ------- -------
Ventilation Group
UK Residential RMI 39,356 38,166
UK Residential New Build 27,795 25,604
UK Commercial 34,856 33,474
UK Export 9,924 12,510
Nordics 46,995 36,692
Central Europe 30,990 28,466
Australasia 22,176 8,182
---------------------------------------------- ------- -------
Total Ventilation Group 212,092 183,094
---------------------------------------------- ------- -------
Original Equipment Manufacturer (Torin-Sifan)
OEM (Torin-Sifan) 23,606 22,582
---------------------------------------------- ------- -------
Total revenue from contracts with customers 235,698 205,676
---------------------------------------------- ------- -------
2019 2018
Right of return assets and refund liabilities GBP000 GBP000
--------------------------------------------- ------- -------
Right of return assets 430 --
--------------------------------------------- ------- -------
Refund liabilities
Arising from retrospective volume rebates 6,482 --
Arising from rights of return 1,047 --
--------------------------------------------- ------- -------
7,529 --
--------------------------------------------- ------- -------
4. Segmental analysis
Accounting policy
The method of identifying reporting segments is based on
internal management reporting information that is regularly
reviewed by the chief operating decision maker, which is considered
to be the Chief Executive Officer of the Group.
In identifying its operating segments, management follows the
Group's market sectors. These are Ventilation UK, Ventilation
Nordics, Ventilation Central Europe, Ventilation Australasia and
OEM (Torin-Sifan). Operating segments that provide ventilation
services have been aggregated as they have similar economic
characteristics, assessed by reference to the gross margins of the
segments. In addition, the segments are similar in relation to the
nature of products, services and production processes, type of
customer, method for distribution and regulatory environment. The
Group is considered to have two reportable segments: Ventilation
Group and OEM (Torin-Sifan).
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 18 for definition) for each operating segment. Gross
profit and the analysis below segment profit is additional
voluntary information and not "segment information" prepared in
accordance with IFRS 8.
Finance revenue and costs are not allocated to individual
operating segments as the underlying instruments are managed on a
Group basis.
Total assets and liabilities are not disclosed as this
information is not provided by operating segment to the chief
operating decision maker on a regular basis.
Transfer prices between operating segments are on an arm's
length basis on terms similar to transactions with third
parties.
Ventilation
Group OEM Unallocated Total Eliminations Consolidated
Year ended 31 July 2019 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Revenue from contracts with
customers
External customers 212,092 23,606 -- 235,698 -- 235,698
Inter-segment 22,282 1,625 -- 23,907 (23,907) --
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Total revenue from contracts
with customers 234,374 25,231 -- 259,605 (23,907) 235,698
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Gross profit 104,991 6,088 -- 111,079 -- 111,079
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Results
Adjusted segment EBITDA 44,661 3,871 (2,053) 46,479 -- 46,479
Depreciation and amortisation
of
development costs, software
and patents (3,168) (662) (597) (4,427) -- (4,427)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Adjusted operating profit/(loss) 41,493 3,209 (2,650) 42,052 -- 42,052
Amortisation of intangible
assets acquired through business
combinations (14,081) (1,358) -- (15,439) -- (15,439)
Exceptional items (1,801) -- -- (1,801) -- (1,801)
CFO succession costs -- -- (150) (150) -- (150)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Operating profit/(loss) 25,611 1,851 (2,800) 24,662 -- 24,662
Unallocated expenses
Net finance cost -- -- (1,522) (1,522) -- (1,522)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Profit/(loss) before tax 25,611 1,851 (4,322) 23,140 -- 23,140
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Ventilation
Group OEM Unallocated Total Eliminations Consolidated
Year ended 31 July 2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Revenue
External customers 183,094 22,582 - 205,676 - 205,676
Inter-segment 19,332 1,403 - 20,735 (20,735) -
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Total revenue 202,426 23,985 - 226,411 (20,735) 205,676
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Gross profit 89,741 6,882 - 96,623 - 96,623
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Results
Adjusted segment EBITDA 38,168 4,454 (1,556) 41,066 - 41,066
Depreciation and amortisation
of
development costs, software
and patents (2,814) (607) (545) (3,966) - (3,966)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Adjusted operating profit/(loss) 35,354 3,847 (2,101) 37,100 - 37,100
Amortisation of intangible
assets acquired through business
combinations (13,312) (1,358) - (14,670) - (14,670)
Exceptional items (4,915) - - (4,915) - (4,915)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Operating profit/(loss) 17,127 2,489 (2,101) 17,515 - 17,515
Unallocated expenses
Net finance cost - - (458) (458) - (458)
Exceptional write off of
unamortised loan issue costs
upon refinancing of our bank
facility - - (320) (320) - (320)
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Profit/(loss) before tax 17,127 2,489 (2,879) 16,737 - 16,737
---------------------------------- ----------- ------- ----------- -------- ------------ ------------
Geographic information
2019 2018
Revenue from external customers by customer destination GBP000 GBP000
-------------------------------------------------------- ------- -------
United Kingdom 114,017 108,133
Europe (excluding United Kingdom and Sweden) 71,912 59,239
Sweden 22,929 26,003
Australasia 22,375 8,906
Rest of the world 4,465 3,395
-------------------------------------------------------- ------- -------
Total revenue from contracts with customers 235,698 205,676
-------------------------------------------------------- ------- -------
2019 2018
Non-current assets excluding deferred tax GBP000 GBP000
---------------------------------------------- ------- -------
United Kingdom 158,611 142,859
Europe (excluding United Kingdom and Nordics) 13,578 26,698
Nordics 26,028 33,227
Australasia 38,850 36,633
---------------------------------------------- ------- -------
Total 237,067 239,417
---------------------------------------------- ------- -------
Information about major customers
Annual revenue from no individual customer accounts for more
than 10% of Group revenue in either the current or prior year.
5. Exceptional items
Accounting policy
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 include, but
are not limited to, significant restructuring costs, acquisition
and related integration and earn-out costs, fair value adjustments
as a result of acquisitions and material gains or losses on
disposal of property, plant and equipment.
Critical accounting judgements and key sources of estimation
uncertainty
The Group identifies an item of expense or income as exceptional
when, in management's judgement, the underlying event giving rise
to the exceptional item is deemed to be non-recurring in its
nature, size or incidence such that Group results would be
distorted without specific reference to the event in question. To
enable the full impact of an exceptional item to be understood, the
tax impact is disclosed and it is presented separately in the
statement of cash flows.
2019 2018
Exceptional items GBP000 GBP000
------------------------------------------------- ------- -------
Acquisition-related costs, including inventory
fair value adjustments 546 1,451
UK Ventilation re-organisation including factory
relocation costs 1,255 4,966
-------------------------------------------------- ------- -------
Exceptional operating costs 1,801 6,417
Reversal of contingent consideration -- (1,502)
-------------------------------------------------- ------- -------
1,801 4,915
Total tax relating to exceptional items for
the year (375) (832)
-------------------------------------------------- ------- -------
1,426 4,083
------------------------------------------------- ------- -------
Acquisition-related costs, including inventory fair value
adjustments
Professional fees incurred in respect of acquisitions totalled
GBP230,000 and GBP316,000 contingent consideration for the
acquisition of Oy Pamon Ab. Professional fees incurred in respect
of acquisitions in the prior year totalled GBP835,000, other fees
incurred in respect of acquisitions in the prior year totalled
GBP616,000.
UK Ventilation re-organisation including factory relocation
costs
We have previously reported the cost of a factory relocation
project, which related to rationalising of some of our
manufacturing capacity in the UK and commenced in 2017, as
exceptional. The affected UK manufacturing locations are Reading,
Slough and Lasham. During FY2018 we extended the factory relocation
project to be a wider re-organisation and management
rationalisation of our UK Ventilation business.
A breakdown of the costs is as follows:
2019 2018
GBP000 GBP000
---------------------------- ------- -------
Legal and professional fees 301 359
Project manager 45 153
Redundancy-related costs -- 121
Stock write off -- 76
Fixed asset write off -- 85
Site clearance and closure -- 627
Dual running costs 89 1,015
Start-up costs 820 2,530
---------------------------- ------- -------
Total 1,255 4,966
---------------------------- ------- -------
Start-up costs include costs and 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.
Legal and professional fees include fees paid to consultants to
minimise disruption during the transition period and fees payable
for professional advice in relation to the wider re-organisation
and management rationalisation.
Dual running costs include the duplicate costs as a result of
operating three factories and a temporary warehousing facility
whilst machinery, inventories and people were moving from the two
existing facilities to the single new factory.
Reversal of contingent consideration
During the year reversal of contingent consideration was GBPnil
(2018: GBP1.5 million).
It was deemed that the items allowable for or chargeable to tax
were approximately GBP1,729,000 (2018: GBP4,378,000), with a tax
benefit of GBP375,000 (2018: GBP832,000).
6. Finance revenue and costs
Accounting policy
Finance revenue
Finance revenue is recognised as interest accrues using the
effective interest method. The effective interest rate is the rate
that discounts estimated future cash receipts through the expected
life of the financial instrument to its net carrying amount.
Net financing costs
Net financing costs comprise interest income on funds invested,
gains/losses on the disposal of financial instruments, changes in
the fair value of financial instruments, interest expense on
borrowings and foreign exchange gains/losses. Interest income and
expense is recognised as it accrues in the statement of
comprehensive income using the effective interest method.
2019 2018
GBP000 GBP000
------------------------------------------------------ ------- -------
Finance revenue
Net gain on financial instruments at fair value 605 838
Interest receivable 16 14
------------------------------------------------------ ------- -------
Total finance revenue 621 852
------------------------------------------------------ ------- -------
Finance costs
Interest payable on bank loans (1,875) (1,017)
Amortisation of finance costs (230) (236)
Exceptional write off of unamortised loan issue costs
upon refinancing of our bank facility -- (320)
Other interest (38) (57)
------------------------------------------------------ ------- -------
Total interest expense (2,143) (1,630)
Total finance costs (2,143) (1,630)
Net finance costs (1,522) (778)
------------------------------------------------------ ------- -------
The net loss or gain on financial instruments at each year-end
date relates to the measurement of fair value of the financial
derivatives and the Group recognises any finance losses or gains
immediately within net finance costs.
7. Income tax
Accounting policy
Current income tax assets and liabilities are measured at the
amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted at the reporting date.
The Group's deferred tax policy can be found in note 14.
(a) Income tax charges against profit for the year
2019 2018
GBP000 GBP000
------------------------------------------------------ ------- -------
Current income tax
Current UK income tax expense 3,286 2,948
Current foreign income tax expense 4,605 3,605
Tax credit relating to the prior year (153) (26)
------------------------------------------------------ ------- -------
Total current tax 7,738 6,527
------------------------------------------------------ ------- -------
Deferred tax
Origination and reversal of temporary differences (2,770) (3,031)
Effect of changes in the tax rate (115) (108)
Tax charge relating to the prior year 60 26
------------------------------------------------------ ------- -------
Total deferred tax (2,825) (3,113)
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 4,913 3,414
------------------------------------------------------ ------- -------
(b) Income tax recognised in equity for the year
2019 2018
GBP000 GBP000
------------------------------------------------------- ------- -------
Increase in deferred tax asset on share-based payments (57) (162)
------------------------------------------------------- ------- -------
Net tax credit reported in equity (57) (162)
------------------------------------------------------- ------- -------
(c) Reconciliation of total tax
2019 2018
GBP000 GBP000
------------------------------------------------------ ------- -------
Profit before tax 23,140 16,737
------------------------------------------------------ ------- -------
Profit before tax multiplied by the standard rate of
corporation tax in the UK
of 19.00% (2018: 19.00%) 4,396 3,180
Adjustment in respect of previous years (93) 1
Expenses not deductible for tax purposes 309 380
Effect of changes in the tax rate (see explanation
below) (115) (108)
Non-taxable income (244) (357)
Higher overseas tax rate 892 588
Patent box (230) (205)
Other (2) (65)
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 4,913 3,414
------------------------------------------------------ ------- -------
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2015 (on 26 October 2015) and
Finance Bill 2016 (on 7 September 2016). These include reductions
to the main rate to reduce the rate to 19% from 1 April 2017 and to
17% from 1 April 2020. Deferred taxes in respect of UK taxes at the
balance sheet date have been measured using these enacted tax rates
and reflected in these financial statements.
The higher overseas tax rates relate to the Group's profits from
subsidiaries which are subject to tax jurisdictions with a higher
rate of tax compared to the standard rate of corporation tax in the
UK.
8. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of any dilutive
potential ordinary shares into ordinary shares. There are 551,467
dilutive potential ordinary shares at 31 July 2019 (2018:
413,555).
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2019 2018
Year ended 31 July GBP000 GBP000
------------------------------------------------------- ----------- -----------
Profit attributable to ordinary equity holders 18,227 13,323
------------------------------------------------------- ----------- -----------
Number Number
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for basic
earnings per share 198,386,893 198,847,087
Weighted average number of ordinary shares for diluted
earnings per share 198,938,360 199,144,705
------------------------------------------------------- ----------- -----------
Earnings per share
Basic 9.2p 6.7p
Diluted 9.2p 6.7p
------------------------------------------------------- ----------- -----------
2019 2018
Year ended 31 July GBP000 GBP000
-------------------------------------------------------- ----------- -----------
Adjusted profit attributable to ordinary equity holders 31,658 28,792
-------------------------------------------------------- ----------- -----------
Number Number
-------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for adjusted
basic earnings per share 198,386,893 198,847,087
Weighted average number of ordinary shares for adjusted
diluted earnings per share 198,938,360 199,144,705
-------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Basic 16.0p 14.5p
Diluted 15.9p 14.5p
-------------------------------------------------------- ----------- -----------
The weighted average number of ordinary shares has declined as a
result of treasury shares held by the Volution Employee Benefit
Trust (EBT) during the year. The shares are excluded when
calculating the reported and adjusted EPS. Adjusted profit
attributable to ordinary equity holders has been reconciled in note
2, Adjusted earnings.
See note 18, Glossary of terms, for an explanation of the
adjusted basic and diluted earnings per share calculation.
9. Intangible assets - goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group's cash generating units
that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group
are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently
if there is an indication of impairment. Impairment of goodwill is
determined by assessing the recoverable amount of the cash
generating unit to which the goodwill relates. Where the
recoverable amount of the cash generating unit is less than the
carrying value of the cash generating unit to which goodwill has
been allocated, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
Goodwill GBP000
------------------------------------------ -------
Cost and net book value
At 1 August 2017 81,584
On acquisition of Simx Limited 23,457
On acquisition of AirFan B.V. 289
On acquisition of Oy Pamon Ab 6,418
On acquisition of Air Connection ApS 1,956
Net foreign currency exchange differences (1,022)
------------------------------------------ -------
At 31 July 2018 112,682
------------------------------------------ -------
On acquisition of Ventair Pty Limited 4,230
Net foreign currency exchange differences 1,271
------------------------------------------ -------
At 31 July 2019 118,183
------------------------------------------ -------
10. Intangible assets - other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values
can be measured reliably. The cost of such intangible assets is
their fair value at the acquisition date.
The fair value of patents, trademarks and customer base acquired
and recognised as part of a business combination is determined
using the relief-from-royalty method or multi-period excess
earnings method.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure
on an individual project is recognised as an intangible asset when
the Company can demonstrate: the technical feasibility of
completing the intangible asset so that it will be available for
use or sale; its intention to complete and its ability to use or
sell the asset; how the asset will generate future economic
benefits; the availability of resources to complete the asset; and
the ability to reliably measure the expenditure during
development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight
line basis over their estimated useful lives as follows:
Development costs - 10 years
Software costs - 5-10 years
Customer base - 5-15 years
Trademarks - 15-25 years
Patents/technology - 5-25 years
Other - 5 years
The estimated useful life and amortisation methods are reviewed
at the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
Critical accounting judgements and key sources of estimation
uncertainty
Impairment of tangible and intangible assets excluding
goodwill
At each reporting date, the Group reviews the carrying amounts
of its tangible and intangible assets with finite lives to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss, if any. Where it is not possible
to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash generating unit
to which the asset belongs. Where a reasonable and consistent basis
of allocation can be identified, corporate assets are also
allocated to individual cash generating units, or otherwise they
are allocated to the smallest group of cash generating units for
which a reasonable and consistent allocation basis can be
identified.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. Impairment losses are immediately recognised in
the statement of comprehensive income.
Impairment of other intangible assets
The Group's accounting policy for impairment of other intangible
assets is set out above. The Group records all assets and
liabilities acquired in business combinations 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.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2019 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2018 3,472 7,729 128,932 44,238 3,520 1,118 189,009
Additions 1,189 630 -- -- 17 -- 1,836
On acquisitions -- 80 2,872 2,032 -- -- 4,984
Disposals -- -- -- -- -- -- --
Transfer from
tangible assets 180 337 -- -- -- -- 517
Net foreign currency
exchange differences (30) 81 646 111 8 45 861
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2019 4,811 8,857 132,450 46,381 3,545 1,163 197,207
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2018 630 2,820 69,286 10,615 627 907 84,885
Charge for the
year 381 772 12,789 2,048 356 248 16,594
Disposals -- -- -- -- -- -- --
Transfer from
tangible assets 9 205 -- -- -- -- 214
Net foreign currency
exchange differences 1 83 269 19 8 8 388
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2019 1,021 3,880 82,344 12,682 991 1,163 102,081
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2019 3,790 4,977 50,106 33,699 2,554 -- 95,126
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Computer software assets and developments costs in relation to
computer software have been transferred from tangible fixed assets
and are now included within intangible fixed assets.
Included in software costs are assets under construction of
GBP105,000 (2018: GBPnil), which are not amortised. Included in
development costs are assets under construction of GBP1,235,000
(2018: GBP420,000), which are not amortised.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2017 2,626 6,985 116,117 42,168 2,291 896 171,083
Additions 925 949 - 3 21 - 1,898
On acquisitions - 59 13,525 2,422 1,222 249 17,477
Disposals - (281) - - - - (281)
Net foreign currency
exchange differences (79) 17 (710) (355) (14) (27) (1,168)
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2018 3,472 7,729 128,932 44,238 3,520 1,118 189,009
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2017 379 2,424 57,697 8,806 258 513 70,077
Charge for the
year 264 647 12,021 1,897 371 405 15,605
Disposal - (281) - - - - (281)
Net foreign currency
exchange differences (13) 30 (432) (88) (2) (11) (516)
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2018 630 2,820 69,286 10,615 627 907 84,885
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2018 2,842 4,909 59,646 33,623 2,893 211 104,124
---------------------- ----------- -------- -------- ---------- ----------- ------- -------
The remaining amortisation periods for acquired intangible
assets at 31 July 2019 are as follows:
Customer Patent/
base Trademark technology
---------------------------------------------- -------- --------- -----------
Volution Holdings Limited and its subsidiaries 3 years 18 years -
Fresh AB and its subsidiaries - 13 years -
PAX AB and PAX Norge AS 2 years 14 years -
inVENTer GmbH 4 years 15 years 15 years
Brüggemann Energiekonzepte GmbH 1 year - -
Ventilair Group International BVBA and its
subsidiaries 4 years 6 years -
Energy Technique Limited and its subsidiaries 5 years 17 years -
Weland Luftbehandling AB 1 year - -
NVA Services Limited and its subsidiaries 7 years 12 years -
Breathing Buildings Limited 7 years 12 years 2 years
VoltAir System AB 13 years 13 years 3 years
Simx Limited 14 years 24 years -
Oy Pamon Ab 9 years 19 years 9 years
Air Connection ApS 9 years - -
Ventair Pty Limited 10 years 20 years -
---------------------------------------------- -------- --------- -----------
11. Impairment assessment of goodwill
Accounting policy
Intangible assets, including goodwill, that have an indefinite
useful life or intangible assets not ready to use are not subject
to amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount,
where the recoverable amount is the higher of the asset's fair
value less costs of disposal and value in use.
Goodwill acquired through business combinations has been
allocated, for impairment testing purposes, to a group of cash
generating units (CGUs). These grouped CGUs are: UK Ventilation,
Central Europe, Nordics, Australasia and OEM. This is also the
level at which management is monitoring the value of goodwill for
internal management purposes.
Critical accounting judgements and key sources of estimation
uncertainty
Impairment of goodwill
The Group's impairment test for goodwill is based on a value in
use calculation using a discounted cash flow model. The test aims
to ensure that goodwill is not carried at a value greater than the
recoverable amount, which is considered to be the higher of fair
value less costs of disposal and value in use.
The cash flows are derived from the business plan for the
following three years. The recoverable amount is very sensitive to
the discount rate used for the discounted cash flow model as well
as the expected future cash inflows and the growth rate used for
extrapolation purposes.
The identification of the Group's cash generating units (CGUs)
used for impairment testing involves a degree of judgement.
Management has reviewed the Group's assets and cash inflows and
identified the lowest aggregation of assets that generate largely
independent cash inflows.
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2019 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 16,586 12,273 28,324
CGU value in use headroom1 126,585 20,937 70,070 31,000 13,199
--------------------------- ------------ -------------- ------- ------- -----------
As at 31 July 2018 calculated headroom was:
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2018 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 16,577 12,041 23,064
CGU value in use headroom1 135,759 32,165 66,844 25,529 3,649
--------------------------- ------------ -------------- ------- ------- -----------
Note
1. Headroom is calculated by comparing the value in use (VIU) of
a group of CGUs to the carrying amount of its asset, which includes
the net book value of fixed assets (tangible and intangible),
goodwill and operating working capital (current assets and
liabilities).
Impairment review
Under IAS 36 Impairment of Assets, the Group is required to
complete a full impairment review of goodwill, which has been
performed using a value in use calculation. A discounted cash flow
(DCF) model was used, taking a period of five years, which has been
established using pre-tax discount rates of 12.1% to 13.5% over
that period. In all CGUs it was concluded that the carrying amount
was in excess of the value in use and all CGUs had positive
headroom.
Key assumptions in the value in use calculation
The calculation of value in use for all CGUs is most sensitive
to the following assumptions:
-- Specific growth rates have been used for each of the CGUs for the
five-year forecast period based on historical growth rates and market
expectations;
-- Long-term growth rates of 2% (2018: 2%) for all CGU's has been applied
to the period beyond which budgets and forecasts do not exist, based
on historical macroeconomic performance and projections for the geographies
in which the CGU's operate, and
-- Discount rates reflect the current market assessment of the risks
specific to each operation. The pre-tax discount rates used for each
CGU are: UK Ventilation: 12.1% (2018: 11.4%), OEM (Torin-Sifan): 13.2%
(2018:12.3%), Nordics: 12.5% (2018: 12.5%), Central Europe: 14.0%
(2018: 13.1%) and Australasia: 13.5% (2018:13.5%).
The value in use headroom, for each cash generating unit, has
been set out above. We have tested the sensitivity of our headroom
calculations in relation to the above key assumptions and in all
cases an adverse movement of more than 10% would be required to
cause the carrying value of the cash generating units to materially
exceed their recoverable value.
12. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at fair value on the date
of acquisition. There have been no non-controlling interests in the
business combinations to date. Acquisition costs incurred are
expensed and included in exceptional items.
When the Group acquires a business it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions at the acquisition date.
Contingent consideration resulting from business combinations is
accounted for at fair value at the acquisition date as part of the
business combination. When the contingent consideration meets the
definition of a financial liability, it is subsequently re-measured
to fair value at each reporting date, with changes in fair value
recognised either in profit or loss or as a change in other
comprehensive income (OCI). The determination of fair value is
based on discounted cash flows. The key assumptions used in
determining the discounted cash flows take into consideration the
probability of meeting each performance target and a discount
factor.
Goodwill is initially recognised at cost, being the excess of
the aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash generating
units (CGUs) that are expected to benefit from the combination,
irrespective of whether assets or liabilities of the acquisition
are assigned to those units.
Acquisitions in the year ended 31 July 2019
Ventair Pty Limited
On 1 March 2019, Volution Group plc, through one of its wholly
owned subsidiaries, Woomera Pty Limited, acquired the entire issued
share capital of Ventair Pty Limited, a company based in Australia.
The acquisition was on a debt free basis, funded from the Group's
existing cash and banking facilities. The acquisition of Ventair is
in line with the Group's strategy to grow by selectively acquiring
value-adding businesses in new and existing markets and
geographies, across the residential ventilation market and, where
appropriate, in the commercial ventilation market. The integration
of Ventair into the Volution Group will provide an opportunity for
further growth in the Australasian region and the combination of
its product portfolio with that of Simx (New Zealand) will enable
us to enhance our offer in both the Australian and New Zealand
markets.
Total consideration for the transaction was AUD17,895,000
(GBP9,713,000), comprised of cash consideration of AUD16,138,000
(GBP8,760,000) and contingent consideration with a fair value of
AUD1,757,000 (GBP952,000),The contingent consideration is based on
the level of EBITDA achieved during the twelve months to 31 July
2020. There is a minimum level of EBITDA which must be achieved
otherwise no contingent consideration is payable; the maximum
amount of contingent consideration payable is AUD7,700,000. The
contingent consideration has been recognised in line with
management's best estimate of the level of EBITDA expected to be
achieved during the earn-out period. Whilst the level of EBITDA to
be achieved is as yet unobservable, management's estimate has been
based on the 2020 budget. The contingent consideration has not been
discounted as the impact is considered to be immaterial.
Transaction costs associated with the acquisition on the year
ended 31 July 2019 were GBP173,000 and have been expensed.
The provisional fair value of the net assets acquired is set out
below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------- ---------- ------------ ----------
Intangible assets 161 4,823 4,984
Deferred tax asset -- 218 218
Property, plant and equipment 543 -- 543
Inventory 3,077 (250) 2,827
Trade and other receivables 2,649 -- 2,649
Trade and other payables (2,355) (324) (2,679)
Bank debt (2,542) -- (2,542)
Deferred tax liabilities -- (1,447) (1,447)
Cash and cash equivalents 930 -- 930
-------------------------------- ---------- ------------ ----------
Total identifiable net assets 2,463 3,020 5,483
-------------------------------- ---------- ------------ ----------
Goodwill on acquisition 4,230
-------------------------------- ---------- ------------ ----------
9,713
-------------------------------- ---------- ------------ ----------
Discharged by:
Consideration satisfied in cash 8,761
Contingent consideration 952
-------------------------------- ---------- ------------ ----------
Goodwill of GBP4,230,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the acquisition and the experience and skill of the acquired
workforce. The fair value of the acquired tradename and customer
base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP2,770,000.
The amounts for trade and other receivables not expected to be
collected are GBP121,000.
Ventair Pty Limited generated revenue of GBP4,043,000 and
generated a profit after tax of GBP170,000 in the period from
acquisition to 31 July 2019 that is included in the consolidated
statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2018, the Group's
revenue would have been GBP243,483,000 and the profit before tax
from continuing operations would have been GBP23,891,000.
Acquisitions in the year ended 31 July 2018
Simx Limited
On 19 March 2018, Volution Group plc, through one of its wholly
owned subsidiaries, Chinook Limited, acquired the entire issued
share capital of Simx Limited, a company based in New Zealand. The
transaction was funded from the Group's existing revolving credit
facility. The acquisition of Simx is in line with the Group's
strategy to grow by selectively acquiring value-adding businesses
in new and existing markets and geographies across the residential
ventilation market and, where appropriate, in the commercial
ventilation market.
Total consideration for the transaction was cash consideration
of NZD54,508,000 (GBP28,651,000).
Transaction costs associated with the acquisition in the year
ended 31 July 2018 were GBP332,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------- ---------- ------------ ----------
Intangible assets 3,849 8,246 12,095
Deferred tax asset 111 377 488
Property, plant and equipment 1,777 (63) 1,714
Inventory 4,136 (282) 3,854
Trade and other receivables 2,702 - 2,702
Trade and other payables (2,443) (456) (2,899)
Bank debt (9,806) - (9,806)
Deferred tax liabilities - (3,370) (3,370)
Cash and cash equivalents 416 - 416
-------------------------------- ---------- ------------ ----------
Total identifiable net assets 742 4,452 5,194
-------------------------------- ---------- ------------ ----------
Goodwill on acquisition 23,457
-------------------------------- ---------- ------------ ----------
28,651
-------------------------------- ---------- ------------ ----------
Discharged by:
Consideration satisfied in cash 28,651
-------------------------------- ---------- ------------ ----------
Goodwill of GBP23,457,000 reflects certain intangible assets
that cannot be individually separated and reliably measured due to
their nature. These items include the value of expected synergies
arising from the acquisition and the experience and skill of the
acquired workforce. The fair value of the acquired tradename and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP2,702,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
Simx Limited generated revenue of GBP8,182,000 and generated a
profit after tax of GBP1,384,000 in the period from acquisition to
31 July 2018 that is included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2017, the Group's
revenue would have been GBP216,339,000 and the profit before tax
from continuing operations would have been GBP18,161,000.
AirFan B.V.
On 1 May 2018, Volution Group plc, through one of its wholly
owned subsidiaries, Ventilair Group Netherlands B.V., acquired the
entire issued share capital of AirFan B.V. The transaction was
funded from the Group's cash reserves.
Total consideration for the transaction was cash consideration
of EUR300,000 (GBP264,000).
Transaction costs associated with the acquisition in the year
ended 31 July 2018 were GBP29,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------- ---------- ------------ ----------
Property, plant and equipment 16 - 16
Inventory 124 (22) 102
Trade and other receivables 162 - 162
Trade and other payables (305) - (305)
-------------------------------- ---------- ------------ ----------
Total identifiable net assets (3) (22) (25)
-------------------------------- ---------- ------------ ----------
Goodwill on acquisition 289
-------------------------------- ---------- ------------ ----------
264
-------------------------------- ---------- ------------ ----------
Discharged by:
Consideration satisfied in cash 264
-------------------------------- ---------- ------------ ----------
Goodwill of GBP289,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the acquisition and the experience and skill of the acquired
workforce.
The gross amount of trade and other receivables is GBP162,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
Oy Pamon Ab
On 5 July 2018, Volution Group plc, through one of its wholly
owned subsidiaries, Volution Holdings Sweden AB, acquired the
entire issued share capital of Oy Pamon Ab. The transaction was
funded from the Group's existing revolving credit facility. The
acquisition of Oy Pamon Ab is in line with the Group's strategy to
grow by selectively acquiring value-adding businesses in new and
existing markets and geographies across the residential ventilation
market and, where appropriate, in the commercial ventilation
market.
Total consideration for the transaction was EUR12,908,000
(GBP11,429,000), comprised of cash consideration of EUR12,258,000
(GBP10,854,000) and contingent consideration with a fair value of
EUR650,000 (GBP575,000). The contingent consideration is based on
the level of EBITDA achieved during the two years to 30 November
2018 and 2019. There is a minimum level of EBITDA which must be
achieved otherwise no contingent consideration is payable; the
maximum amount of contingent consideration payable is EUR2,000,000.
The contingent consideration has been recognised in line with
management's best estimate of the level of EBITDA expected to be
achieved during the earn-out period. Whilst the level of EBITDA to
be achieved is as yet unobservable, management's estimate has been
based on the 2018 budget and 2019 forecast. The contingent
consideration has not been discounted as the impact is considered
to be immaterial. Contingent consideration relating to the year
ended 30 November 2018 was finalised and paid during FY2019 with
further consideration yet to be determined relating to the year
ended 30 November 2019.
Transaction costs associated with the acquisition in the year
ended 31 July 2018 were GBP290,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------- ---------- ------------ ----------
Intangible assets 64 4,514 4,578
Deferred tax asset - 91 91
Property, plant and equipment 130 - 130
Inventory 935 (307) 628
Trade and other receivables 604 (107) 497
Trade and other payables (1,209) (44) (1,253)
Deferred tax liabilities - (903) (903)
Cash and cash equivalents 1,243 - 1,243
-------------------------------- ---------- ------------ ----------
Total identifiable net assets 1,767 3,244 5,011
-------------------------------- ---------- ------------ ----------
Goodwill on acquisition 6,418
-------------------------------- ---------- ------------ ----------
11,429
-------------------------------- ---------- ------------ ----------
Discharged by:
Consideration satisfied in cash 10,854
Contingent consideration 575
-------------------------------- ---------- ------------ ----------
Total consideration 11,429
-------------------------------- ---------- ------------ ----------
Goodwill of GBP6,418,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the acquisition and the experience and skill of the acquired
workforce. The fair value of the acquired tradename, customer base,
technology and order book was identified and included in intangible
assets.
The gross amount of trade and other receivables is GBP604,000.
The amounts for trade and other receivables not expected to be
collected are GBP107,000.
Oy Pamon Ab generated revenue of GBP703,000 and generated a
profit after tax of GBP160,000 in the period from acquisition to 31
July 2018 that is included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2017, the Group's
revenue would have been GBP213,607,000 and the profit before tax
from continuing operations would have been GBP17,613,000.
Air Connection ApS
On 16 July 2018, Volution Group plc, through one of its wholly
owned subsidiaries, Volution Holdings Sweden AB, acquired the
entire issued share capital of Air Connection ApS. The transaction
was funded from the Group's existing revolving credit facility. The
Group's acquisition of Air Connection ApS is in line with the
Group's strategy to grow by selectively acquiring value-adding
businesses in new and existing markets and geographies across the
residential ventilation market and, where appropriate, in the
commercial ventilation market.
Total consideration for the transaction was DKK30,000,000
(GBP3,572,000), comprised of cash consideration of DKK25,800,000
(GBP3,072,000) and contingent consideration with a fair value of
DKK4,200,000 (GBP500,000). The contingent consideration is based on
the level of EBITDA achieved during the twelve months to 31 July
2021. There is a minimum level of EBITDA which must be achieved
otherwise no contingent consideration is payable; the maximum
amount of contingent consideration payable is DKK4,200,000. The
contingent consideration has been recognised in line with
management's best estimate of the level of EBITDA expected to be
achieved during the earn-out period. Whilst the level of EBITDA to
be achieved is as yet unobservable, management's estimate has been
based on the forecast for the year to 31 July 2021. The contingent
consideration has not been discounted as the impact is considered
to be immaterial. The contingent consideration is expected to be
finalised and paid during FY2022.
Transaction costs associated with the acquisition in the year
ended 31 July 2018 were GBP41,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------- ---------- ------------ ----------
Intangible assets - 804 804
Property, plant and equipment 197 - 197
Inventory 833 - 833
Trade and other receivables 648 - 648
Trade and other payables (868) - (868)
Deferred tax liabilities (18) (177) (195)
Cash and cash equivalents 197 - 197
-------------------------------- ---------- ------------ ----------
Total identifiable net assets 989 627 1,616
-------------------------------- ---------- ------------ ----------
Goodwill on acquisition 1,956
-------------------------------- ---------- ------------ ----------
3,572
-------------------------------- ---------- ------------ ----------
Discharged by:
Consideration satisfied in cash 3,072
Contingent consideration 500
-------------------------------- ---------- ------------ ----------
Total consideration 3,572
-------------------------------- ---------- ------------ ----------
Goodwill of GBP1,956,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the acquisition and the experience and skill of the acquired
workforce. The fair value of the acquired customer base was
identified and included in intangible assets.
The gross amount of trade and other receivables is
GBP648,000.
Air Connection ApS generated revenue of GBP94,000 and generated
a profit after tax of GBP20,000 in the period from acquisition to
31 July 2018 that is included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2017, the Group's
revenue would have been GBP209,819,000 and the profit before tax
from continuing operations would have been GBP17,040,000.
Cash outflows arising from business combinations are as
follows:
2019 2018
GBP000 GBP000
-------------------------------------- ------- -------
Ventair Pty Limited
Cash consideration 8,761 -
Less: cash acquired with the business (930) -
Simx Limited
Cash consideration - 28,651
Less: cash acquired with the business - (416)
AirFan B.V.
Cash consideration - 264
Less: cash acquired with the business - -
Oy Pamon Ab
Cash consideration 586 10,854
Less: cash acquired with the business - (1,243)
Air Connection ApS
Cash consideration - 3,072
Less: cash acquired with the business - (197)
-------------------------------------- ------- -------
8,417 40,985
-------------------------------------- ------- -------
13. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are
initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently
measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or, where
appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
2019 2018
-------------------- --------------------
Current Non-current Current Non-current
GBP000 GBP000 GBP000 GBP000
-------------------------------------- ------- ----------- ------- -----------
Unsecured - at amortised cost
Borrowings under the revolving credit
facility (maturing 2022) - 86,146 - 95,410
Cost of arranging bank loan - (755) - (805)
- 85,391 - 94,605
-------------------------------------- ------- ----------- ------- -----------
In December 2018, the Group exercised the option to extend its
multicurrency revolving credit facility by a period of twelve
months at a cost of GBP0.2 million; the maturity date is now 15
December 2022.
Bank loans at 31 July 2019 comprised a revolving credit facility
from Danske Bank A/S, HSBC and the Royal Bank of Scotland with HSBC
acting as agent and are governed by a facilities agreement. The
outstanding loans are set out in the table below. No security was
provided under the facility.
Revolving credit facility - at 31 July 2019
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
15 December
GBP 21,500 2022 One payment Libor + margin%
15 December
Euro 40,640 2022 One payment Euribor + margin%
15 December
Swedish Krona 24,006 2022 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 86,146
-------------- ------------ ----------- ----------- -----------------
Revolving credit facility - at 31 July 2018
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
15 December
GBP 31,000 2021 One payment Libor + margin%
15 December
Euro 39,943 2021 One payment Euribor + margin%
15 December
Swedish Krona 24,467 2021 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 95,410
-------------- ------------ ----------- ----------- -----------------
The consolidated leverage level fell below 1.0:1 for the year
ended 31 July 2017 and therefore the margin for the first half of
the year ended 31 July 2018 was 1.00%. On refinancing in December
2017, the margin was reduced to 0.9%, the consolidated leverage
continued to be below 1.0:1 and therefore the margin continued to
be 0.9% under the new facility. For the second half of the year
ended 31 July 2018 the margin increased to 1.40% due to the
acquisition of Simx Limited which increased leverage to 1.7:1; this
rate has continued throughout the year ended 31 July 2019.
At 31 July 2019, the Group had GBP33,854,000 (2018:
GBP24,590,000) of its multicurrency revolving credit facility
unutilised.
Reconciliation of movement of financial liabilities
2019 2018
GBP000 GBP000
------------------------------ -------- --------
At 1 August 95,410 51,490
Additional loans 17,500 103,474
Loans acquired on acquisition 2,542 10,007
Repayment of loans (29,609) (67,869)
Interest charge 1,913 1,017
Interest paid (1,913) (1,017)
Foreign exchange 303 (1,692)
------------------------------ -------- --------
At 31 July 86,146 95,410
------------------------------ -------- --------
14. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following
exceptions:
-- where the temporary differences arise from the initial recognition
of goodwill or of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
-- in respect of taxable temporary differences associated with investments
in subsidiaries where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that the
Directors consider it is probable that there will be taxable
profits from which the deductible temporary differences, carried
forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an
undiscounted basis at tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax
rates enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
The carrying amount of deferred tax assets is reviewed at each
reporting date. Deferred tax assets and liabilities are offset only
if a legally enforceable right exists to set off current tax assets
against current tax liabilities, the deferred taxes relate to the
same taxation authority and that authority permits the Group to
make a single net payment.
Deferred tax is charged or credited to other comprehensive
income if it relates to items that are charged or credited to other
comprehensive income. Similarly, deferred tax is charged or
credited directly to equity if it relates to items that are
credited or charged directly to equity.
Management judgement is required to determine the amount of
deferred tax assets that can be recognised, based on the likely
timing and level of future taxable profits together with an
assessment of the effect of future tax planning strategies.
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international
business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and
expense already recorded.
At 31 July 2019, the Group had not recognised a deferred tax
asset in respect of gross tax losses of GBP5,195,000 (2018:
GBP5,195,000) relating to management expenses, capital losses of
GBP3,975,000 (2018: GBP3,975,000) arising in UK subsidiaries and
gross tax losses of GBP407,000 (2018: GBP407,000) arising in
overseas entities as there is insufficient evidence that the losses
will be utilised. These losses are available to be carried
indefinitely.
At 31 July 2019, the Group had no deferred tax liability (2018:
GBPnil) to recognise for taxes that would be payable on the
remittance of certain of the Group's overseas subsidiaries'
unremitted earnings. Deferred tax liabilities have not been
recognised as the Group has determined that there are no
undistributed profits in overseas subsidiaries where an additional
tax charge would arise on distribution.
The movement in deferred tax assets and liabilities during the
year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
Credited/
1 August (charged) Credited Translation On 31 July
2018 to income to equity difference acquisition 2019
2019 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- ---------- ---------- ----------- ------------ --------
Temporary differences
Depreciation in advance
of capital allowances (798) (245) - - - (1,043)
Fair value movements
of derivative
financial instruments (3) (112) - - - (115)
Customer base, trademark
and patent (18,089) 3,094 - (227) (1,447) (16,669)
Losses 285 - - - - 285
Untaxed reserves 507 (13) - 56 218 768
Other temporary differences 598 101 57 (1) - 755
---------------------------- -------- ---------- ---------- ----------- ------------ --------
Deferred tax liability (17,500) 2,825 57 (172) (1,229) (16,019)
---------------------------- -------- ---------- ---------- ----------- ------------ --------
Credited/
1 August (charged) Credited Translation On 31 July
2017 to income to equity difference acquisition 2018
2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- ---------- ---------- ----------- ------------ --------
Temporary differences
Depreciation in advance
of capital allowances (745) (53) - - - (798)
Fair value movements
of derivative
financial instruments 146 (149) - - - (3)
Customer base, trademark
and patent (16,673) 2,915 - 137 (4,468) (18,089)
Losses 298 (12) - (1) - 285
Untaxed reserves (447) 447 - 32 475 507
Other temporary differences 475 (37) 160 - - 598
---------------------------- -------- ---------- ---------- ----------- ------------ --------
(16,946) 3,111 160 168 (3,993) (17,500)
---------------------------- -------- ---------- ---------- ----------- ------------ --------
Deferred tax asset 810 (810) - - - -
Deferred tax liability (17,756) 3,921 160 168 (3,993) (17,500)
---------------------------- -------- ---------- ---------- ----------- ------------ --------
(16,946) 3,111 160 168 (3,993) (17,500)
---------------------------- -------- ---------- ---------- ----------- ------------ --------
15. Dividends paid and proposed
Accounting policy
Dividends are recognised when they meet the criteria for
recognition as a liability. In relation to final dividends, this is
when the dividend is approved by the Directors in the general
meeting, and in relation to interim dividends, when paid.
2019 2018
GBP000 GBP000
------------------------------------------------------- ------- -------
Cash dividends on ordinary shares declared and paid
Interim dividend for 2019: 1.60 pence per share (2018:
1.46 pence) 3,172 2,903
------------------------------------------------------- ------- -------
Proposed dividends on ordinary shares
Final dividend for 2019: 3.30 pence per share (2018:
2.98 pence) 6,541 5,926
------------------------------------------------------- ------- -------
The interim dividend payment of GBP3,172,000 is included in the
consolidated statement of cash flows.
The proposed final dividend on ordinary shares is subject to
approval at the Annual General Meeting and is not recognised as a
liability at 31 July 2019.
16. Related party transactions
Transactions between Volution Group plc and its subsidiaries,
and transactions between subsidiaries, are eliminated on
consolidation and are not disclosed in this note. A breakdown of
transactions between the Group and its related parties is disclosed
below.
No related party loan note balances exist at 31 July 2019 or 31
July 2018.
There were no material transactions or balances between the
Company and its key management personnel or members of their close
family. At the end of the period, key management personnel did not
owe the Company any amounts.
The Companies Act 2006 and the Directors' Remuneration Report
Regulations 2013 require certain disclosures of Directors'
remuneration. The details of the Directors' total remuneration are
provided in the Directors' Remuneration Report.
Compensation of key management personnel
2019 2018
GBP000 GBP000
----------------------------- ------- -------
Short-term employee benefits 2,816 2,806
Share-based payment change 834 461
----------------------------- ------- -------
Total 3,650 3,267
----------------------------- ------- -------
Key management personnel is defined as the CEO, the CFO and the
ten (2018: ten) individuals who report directly to the CEO.
17. Events after the reporting period
There have been no material events between 31 July 2019 and the
date of authorisation of the consolidated financial statements that
would require adjustments of the consolidated financial statements
or disclosure.
18. Glossary of terms
Adjusted basic and diluted EPS: calculated by dividing the
adjusted profit/(loss) for the period attributable to ordinary
equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing
the adjusted net profit/(loss) attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the period plus the weighted average
number of ordinary shares that would be issued on conversion of any
dilutive potential ordinary shares into ordinary shares. There are
551,467 dilutive potential ordinary shares at 31 July 2019 (2018:
413,555).
Adjusted EBITDA: adjusted operating profit before depreciation
and amortisation.
Adjusted finance costs: finance costs before net gains or losses
on financial instruments at fair value and the exceptional write
off of unamortised loan issue costs upon refinancing.
Adjusted operating cash flow: adjusted EBITDA plus or minus
movements in operating working capital, less net investments in
property, plant and equipment and intangible assets.
Adjusted operating profit: operating profit before exceptional
operating costs, release of contingent consideration and
amortisation of assets acquired through business combinations.
Adjusted profit after tax: profit after tax before exceptional
operating costs, release of contingent consideration, exceptional
write off of unamortised loan issue costs upon refinancing, net
gains or losses on financial instruments at fair value,
amortisation of assets acquired through business combinations and
the tax effect on these items.
Adjusted profit before tax: profit before tax before exceptional
operating costs, release of contingent consideration, exceptional
write off of unamortised loan issue costs upon refinancing, net
gains or losses on financial instruments at fair value and
amortisation of assets acquired through business combinations.
Adjusted tax charge: the reported tax charge less the tax effect
on the adjusted items.
CAGR: compound annual growth rate.
Cash conversion: is calculated by dividing adjusted operating
cash flow by adjusted EBITA.
Constant currency: to determine values expressed as being at
constant currency we have converted the income statement of our
foreign operating companies for the year ended 31 July 2019 at the
average exchange rate for the period ended 31 July 2018. In
addition, we have converted the UK operating companies' sale and
purchase transactions in the year ended 31 July 2019, which were
denominated in foreign currencies, at the average exchange rates
for the year ended 31 July 2018.
EBITDA: profit before net finance costs, tax, depreciation and
amortisation.
Net debt: bank borrowings less cash and cash equivalents.
Operating cash flow: EBITDA plus or minus movements in operating
working capital, less share-based payment expense, less net
investments 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
FR VVLFBKBFEFBZ
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