TIDMFAN
RNS Number : 9526B
Volution Group plc
06 October 2022
Embargoed until 07:00 on:
Thursday 6 October 2022
VOLUTION GROUP PLC
Preliminary Full Year Results for the year ended 31 July
2022
Delivering strong growth, sustainably
Volution Group plc ("Volution" or "the Group" or "the Company",
LSE: FAN), a leading international designer and manufacturer of
energy efficient indoor air quality solutions, today announces its
audited financial results for the 12 months ended 31 July 2022.
RESULTS SUMMARY
2022 2021 Movement
Revenue (GBPm) 307.7 272.6 +12.9%
Adjusted operating profit (GBPm) 64.9 56.9 +13.9%
Adjusted operating margin (%) 21.1% 20.9% +0.2pp
Adjusted profit before tax (GBPm) 60.9 53.2 +14.5%
Adjusted EPS (pence) 24.0 21.0 +14.3%
Reported operating profit (GBPm) 50.8 34.2 +48.5%
Reported profit before tax (GBPm) 47.2 30.0 +57.2%
Reported basic EPS (pence) 18.1 10.5 +72.4%
Adjusted operating cash flow (GBPm) 50.4 56.9 (11.4)%
Net debt (GBPm)(1) 85.8 79.2 +6.6
Total dividend per share (pence) 7.3 6.3 +15.9%
(1) 2022 includes lease liabilities of GBP25.0 million (2021:
GBP25.4 million).
The Group uses some alternative performance measures to manage
and assess the underlying performance of the business. These
measures include adjusted operating profit, adjusted profit before
tax, adjusted EPS, adjusted operating cash flow and net debt. A
definition of all the adjusted and non-GAAP measures is set out in
the glossary of terms in note 25 to the condensed consolidated
financial statements. A reconciliation from reported profit after
tax to adjusted profit after tax, adjusted profit before tax and
adjusted operating profit, is set out in note 2 to the condensed
consolidated financial statements.
Financial highlights
* Revenue up 12.9% consisting of 6.6% organic growth at
constant currency (cc) and inorganic growth of 8.5%
at cc, offset by adverse currency impact of 2.2%
* Good organic revenue growth in all three regions, UK,
Continental Europe and Australasia, delivered through
both volume and price
* Geographic diversification strategy continues:
revenue from non-UK customers increases from 58.7% to
61.6% in the year
* Adjusted operating margin up 20bps to 21.1% (2021:
20.9%) underpinned by effective pricing actions and
supply chain management
* Adjusted EPS of 24.0 pence, up 14.3%, delivering a
compounded annual growth rate of 13.4% since IPO in
2014. Reported basic EPS up 72.4%
* Strong second half cash generation resulting in a
full year adjusted operating cash flow of GBP50.4
million (2021: GBP56.9 million), a full year cash
conversion of 76% (2021: 97%)
* Total dividend for the year increased by 15.9% to 7.3
pence per share (2021: 6.3 pence)
Operational highlights
* Investment in additional inventory and agile supply
chain management ensured good customer service levels
maintained throughout the year
* Acquisition of Energy Recovery Industries (ERI)
completed in September 2021 for an initial
consideration of EUR20 million, gives the Group a
leading position in the manufacture of energy
efficient heat exchangers, an integral component in
all heat recovery devices
* EUR2 million investment commenced in capacity
expansion and automation at ERI to support what we
anticipate to be a strong growth area, as well as an
expansion programme for our energy efficient EC3
motorised impellers in our Torin-Sifan business
* Successful first full year of operation of new
Nordics facility in Växjö
Healthy air, sustainably
* Good progress against our key sustainability targets:
* 67.2% of plastic used in own manufacturing facilities
from recycled sources (2021: 59.7%)
* 66.1% of revenue from low-carbon, energy saving
products (2021: 62.1%)
* Commencement of Group Sustainability Committee as of
September 2021, with attendance by our Senior
Independent Director at each of the three meetings to
date
* Continued investment and innovation in heat recovery
categories, now over 30% of Group revenue
* Group carbon reduction targets aligned with 2040 net
zero objective
* Signatories to both the CEO Water Mandate and UN
Global Compact in the year
Commenting on the Group's performance, Ronnie George, Chief
Executive Officer, said:
"We have again achieved a strong performance, with good organic
revenue growth across all three of our geographies and maintaining
our operating margin in the face of challenging operating
conditions. We further increased the Group's product and geographic
diversification in the year, with non-UK customers now representing
61.6% of our revenue. Our strategic investment in higher levels of
component and finished goods inventory, a decision taken over one
year ago, has helped underpin excellent service levels and we are
delighted with the progress we have made in delivering "Healthy
air, sustainably". I am proud of the results our committed
employees have delivered in the year.
"Progress with sustainability has been equally strong. Recycled
plastics content in our facilities is now up to 67.2% and low
carbon content of sales, additionally boosted by the acquisition of
Energy Recovery Industries, is now at 66.1%. The energy crisis has
focused customers' minds on the importance of heat recovery
ventilation and this category now accounts for over 30% of Group
revenue. This desire to reduce heating bills, a tightening of
regulations relating to carbon reduction in buildings, as well as
heightened awareness of the importance of air quality to health,
continues to drive demand for our innovative solutions."
Outlook
The new financial year has started well, delivering revenue and
profit ahead of the same period last year. Whilst we are mindful of
macroeconomic challenges, the regulatory, air quality and energy
efficiency agenda throughout Europe has never been more
supportive.
With our excellent levels of customer service, agile
manufacturing and supply chain capability and strong balance sheet
position, coupled with significant geographic revenue diversity, we
are well placed to make further progress in the year ahead.
-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
FTI Consulting +44 (0) 203 727 1340
Richard Mountain
Susanne Yule
A meeting for analysts will be held at 9.30am today, Thursday 6
October 2022, at the offices of Berenberg, 60 Threadneedle Street,
London EC2R 8HP. Please contact connie.gibson@fticonsulting.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 9.00 am on Thursday 6 October 2022.
Volution Group plc Legal Entity Identifier:
213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international
designer and manufacturer of energy efficient indoor air quality
solutions. Volution Group comprises 19 key brands across three
regions:
UK: Vent-Axia, Manrose, Diffusion, National Ventilation,
Airtech, Breathing Buildings, Torin-Sifan.
Continental Europe: Fresh, PAX, VoltAir, Kair, Air Connection,
inVENTer, Ventilair, ClimaRad, rtek, ERI
Australasia: Simx, Ventair, Manrose.
For more information, please go to: www.volutiongroupplc.com
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
Chairman's Statement
I am pleased to report that Volution has made further
significant progress in the year ended 31 July 2022, both in
respect of its financial performance and delivering against our ESG
targets and objectives. As demonstrated by these results, the
resilience of Volution's business model and strategy continues to
be highly effective, despite the unpredictable trading
environments, supply chain challenges, and inflationary pressures
experienced across our operations.
Performance and results
This strong set of results reflects the resilience and
responsiveness of the business and its people, through the
challenges of recent times, with the Group's revenue increasing to
GBP307.7 million (2021: GBP272.6 million). Adjusted operating
profit was up by 13.9% at GBP64.9 million (2021: GBP56.9 million),
representing margins of 21.1% (2021: 20.9%). Reported profit before
tax increased to GBP47.2 million (2021: GBP30.0 million).
Basic earnings per share for the year was 18.1 pence (2021: 10.5
pence). Our adjusted earnings per share was 24.0 pence representing
a 14.3% increase over the adjusted earnings per share for the prior
year of 21.0 pence. The compound annual growth rate of adjusted
earnings per share since IPO in 2014 was 13.4%, demonstrating
consistent delivery of double-digit earnings growth over the
period.
Adjusted operating cash flow was GBP50.4 million (2021: GBP56.9
million) and net debt at the year end was GBP85.8 million (2021:
GBP79.2 million), despite spending GBP16.5m on acquisitions during
the year.
Dividends
We aim to deliver shareholder value through organic and
inorganic revenue growth and reward shareholders through a
progressive dividend policy. We paid an interim dividend of 2.3
pence per share in May 2022 and based on our results and financial
position, the Board has recommended a final dividend of 5.0 pence
per share, giving a total dividend for the financial year of 7.3
pence per share (2021: 6.3 pence per share), an increase of 15.9%
on the previous year. As a consequence of this recommendation, the
resulting adjusted earnings dividend cover for the year was 3.3x
(2021: 3.3x). Subject to approval by shareholders at the Annual
General Meeting on 14 December 2022, the final dividend will be
paid on 20 December 2022 to shareholders on the register at 25
November 2022.
Strategy
The three strategic pillars of the Group are organic growth,
value-adding acquisitions and operational excellence. These
strategic pillars, together with our focus on sustainability,
provide the platform for the implementation of the Group's purpose,
to provide "healthy air, sustainably", and support the creation of
long-term value for all our stakeholders.
Good progress was made during the year with organic growth,
whilst the acquisition of ERI, based in North Macedonia, and Bera,
based in Germany, has further strengthened the Group's geographic
and product diversification. On behalf of the Board, I am delighted
to welcome our new colleagues at ERI and Bera to the Group.
Environmental, social and governance (ESG) objectives
Volution is committed to high standards of corporate
responsibility, sustainability and employee engagement and
continues to focus on its contribution to a more sustainable world
through its operations, culture and ventilation solutions. We aim
to give full consideration to the long-term impact of all business
operations, which means that, where feasible, our products and
services are sustainably sourced.
Board Changes
As previously announced, Tony Reading, who had been a Director
of Volution since the IPO in June 2014, retired at the conclusion
of the Annual General Meeting in December 2021. We were very
appreciative of Tony's contribution to Board discussions over his
seven-year tenure. Following Tony's stepping down, a search process
was instigated to find a successor and, on 10 March 2022, we were
pleased to welcome Dr. Margaret Amos to the Board as an Independent
Non-Executive Director, who has close to 30 years of experience at
Rolls-Royce plc, and expertise in a wide range of fields including
finance, business strategy, international M&A, and
sustainability.
In addition, we announced the appointment of Amanda Mellor to
the role of Senior Independent Director with effect from 9 December
2021. Amanda has been a Board member since March 2018 and is also
the Board representative for ESG matters, attending the Management
Sustainability Committee meetings of the Group.
Chairman Succession
At the end of June 2023, I will have been on the Volution Board
for nine years and it will be time to step down. Amanda Mellor, our
Senior Independent Director, will lead the process to find my
successor and further announcements will be made in due course. On
a personal note, it has been a pleasure to serve on the Volution
Board and enjoy a front row seat to the continued development,
progress and evolution of the Group. Long may its success
continue.
Governance
The Group continues to be committed to high levels of corporate
governance, in line with its status as a company with a premium
listing on the Main Market of the London Stock Exchange and as a
member of the FTSE 250. We are fully compliant with the 2018
edition of the UK Corporate Governance Code.
During the year, a formal performance evaluation of the Board
and Committees took place to assist in their development, assisted
by external evaluator Independent Audit. The results of the
evaluation confirmed that the Board and Committees were functioning
well in terms of effective chairing, quality of discussion, and
focus areas, and that there are no significant concerns among the
Directors about their effectiveness.
Summary
As a Board we continue to believe that Volution is in a strong
position to offer customers ventilation solutions which enhance our
indoor environments. Although many of our products already
demonstrate high levels of sustainability, we continue to work hard
to increase the sustainability of all our products and our Annual
Report sets out the strategy and actions we have set to achieve
this.
This ongoing successful performance of the business is only
possible due to the commitment, abilities, and drive of our people.
On behalf of the Board, I would like to thank all our dedicated
employees at Volution, for their continued efforts and allegiance,
especially given the difficult environment of recent years due to
the Covid-19 pandemic. I also want to thank Ronnie George and his
executive team for steering the Group so well through what have
been some very testing and turbulent times.
Whilst economic and political uncertainty prevails across the
globe, Volution's performance has demonstrated the strength and
resilience of its business model, helped by our geographic and
product diversity.
Paul Hollingworth
Chairman
5 October 2022
Chief Executive Officer's Review
Overview
Volution has delivered another strong set of results and made
excellent progress in the year. At the start of the financial year
the Covid-19 pandemic was still a significant issue in all our
local markets and there was considerable uncertainty about how the
situation would evolve. As we finished the year the pandemic has
thankfully moved very much to the background; however, the strong
rebound has created an ongoing industry-wide supply chain challenge
that we have navigated well. Our agile local leadership and the
commitment of our colleagues have enabled us to provide good levels
of customer service throughout. The plan to invest in higher than
usual levels of inventory, a decision taken at the beginning of
calendar year 2021, has underpinned good component part
availability for our assembly facilities and we have exited the
financial year 2022 in excellent operational shape.
Along with the industry at large, we have seen an unprecedented
period of significant supply chain disruption and material and
labour cost inflation. These inflationary risks were highlighted by
us early in calendar year 2021 and we have remained vigilant, both
with respect to managing these input cost risks as well as quick
and transparent actions with regard to pricing to our
customers.
At the start of the financial year, we were continuing to
experience strong demand for private residential refurbishment
applications, whilst other areas, notably public residential
refurbishment and residential new build, were experiencing slower
demand. We have now seen a rotation from what was a Covid-19
induced private refurbishment boom, into good organic growth in the
more regulatory or energy efficiency driven areas of our market. We
are confident that these trends, many of which we expect to be
long-term trends related to carbon reduction and carbon efficiency,
are firmly in place, as well as a longer lasting and more conscious
end market connected with the long-term health risks of poor indoor
air quality. The global concerns regarding energy prices, resulting
in significantly higher consumer costs for heating and powering
homes, are already driving more focus on air tightness and greater
energy efficient ventilation. We have always argued, and continue
to do so, that the most effective and cost-effective way to reduce
consumer energy bills is to insulate to avoid energy losses and
then structurally change the way a property is ventilated to
provide fresh air with heat recovery.
Regulations have also evolved in the year supported by the
accelerating focus on carbon reduction from both residential and
commercial buildings. Changes to Part F and Part L of the Building
Regulations in the UK were effective in June 2022. For the first
time Part F covers ventilation provision for existing properties
where energy efficient measures are subsequently applied in
refurbishment as well as covering new build. The new regulations
deliver a 30% reduction in carbon emissions over the previous
regulations and shall encourage the adoption of heat recovery
systems. In addition, we have seen the Social Housing
Decarbonisation Fund influence the adoption of energy efficient
ventilation systems in refurbishment.
We are seeing similar more supportive regulatory changes in all
markets with European changes in the Energy Performance of
Buildings Directive. The key changes help align to the "Fit for 55"
package which aims for a 55% reduction in emissions by 2030. The
aim of the changes is to help facilitate more targeted financing to
investments in the building sector through the Green Deal and the
EU Taxonomy supporting vulnerable consumers and fighting energy
poverty. These regulatory changes and supportive local influences
are anticipated to move more quickly in the coming years as our
local markets adopt the changes. In Australia, we are awaiting
stage 2 of the National Construction Code 2022, which covers energy
efficiency and condensation provisions and which is due soon.
Results
The Group delivered revenue of GBP307.7 million (2021: GBP272.6
million), an increase of 12.9% (15.1% at cc), with organic growth
of 4.6% (6.6% at cc) and inorganic growth from the two acquisitions
in the year, as well as the full year effect of the acquisition in
the prior year, of 8.3% (8.5% at cc). Adjusted operating margins
increased from 20.9% in the prior year to 21.1% supported by our
early and decisive actions on price rises, as well as the
significant effort in managing the supply chain and input cost
challenges. Reported profit before tax was GBP47.2 million (2021:
GBP30.0 million), an increase of 57.2%.
Sustainability
This year we have made good progress with our key sustainability
initiatives. Our teams have been working hard to source, trial and
optimise recycled plastics and this year we hit 67.2% (2021: 59.7%)
of the plastic used within our own facilities now being from a
recycled source. The second half of the year was where we made our
most significant step changes and the Group run rate accelerated in
Q4 and was significantly ahead of the previous three-quarters
giving us confidence that we are still on target for our 2025
ambition of 90%.
Revenue from our low-carbon products has increased to 66.1% in
the year and is ahead of this year's target of 63.4%. We remain on
track to deliver our target of 70% of all revenues from low-carbon
products by the end of 2025. After the acquisition of ERI, 30.1% of
our revenue is derived specifically from heat recovery systems and
components. This technology is key for avoiding carbon emissions
from heating and cooling of buildings.
This year we have become signatories to the CEO Water Mandate
and the UN Global Compact. Although early in the process, we have
started workstreams in the Direct Operations and Supply Chain and
Watershed Management commitment areas of the Water Mandate, plus we
are ensuring that we embed the ten principles of the UN Global
Compact across our organisation. We are committed to continuous
improvement in these areas and will provide greater disclosures
over time.
We support the recommendations of the Task Force on
Climate-related Financial Disclosures and have made more detailed
disclosures in this year's report including transparent carbon
reduction targets.
Strategy
Organic growth
The financial year ended 31 July 2022 was a year of good growth;
we delivered an organic growth of 6.6% on a constant currency basis
driven by price and volume.
Volution has a significant portion of revenue exposed to
applications which are underpinned by regulatory drivers. This
supports demand and also drives increased unit price as solutions
need to be more energy efficient and increasingly contain smarter
technology.
We can complement this opportunity and aid our organic growth
through superior customer service, given Volution is more
vertically integrated than most of its local competitors, and has a
far greater breadth of product in its portfolio and innovation
capability. Over the last five years, supported by many
acquisitions and a strong conveyor belt of new product
introductions, we believe that we now have one of the most
comprehensive product ranges in the European and Australasian
residential ventilation markets.
In this financial year we have gained share through our vertical
integration, providing continuity of supply for finished products
in our markets. This is most notable in residential refurbishment
and new build where several product lines have gained greater
traction than anticipated as we have gained share from our
competitors. We have also won a significant new account in the UK
housebuilding sector and the revenue will commence in this
financial year.
In summary, we are benefiting from accelerating regulatory
support, a portfolio of strong local brands, a comprehensive and
well serviced product portfolio and decentralised and empowered
local leadership teams motivated to gain share and grow well
organically. Providing healthy air continues to be our priority and
following on from the Covid-19 induced increased awareness of the
importance of indoor air quality, we see many new and emerging
opportunities as landlords and homeowners place greater importance
on this topic.
Acquisitions
We completed two acquisitions in the year. In September we
announced the completion of the acquisition of Energy Recovery
Industries (ERI) for an initial consideration of EUR20.0 million.
ERI designs and manufactures a range of innovative and highly
efficient aluminium heat exchanger cells for use primarily in
commercial heat recovery ventilation systems. Products are
manufactured in ERI's modern, high quality production facility in
Bitola, North Macedonia, and are supplied to heat recovery and air
handling unit manufacturers predominantly in Europe, including
existing Volution Group companies.
The ERI acquisition included an earn-out through to the end of
the financial year 2024. The team has ambitious plans for growth,
and we are making good progress with our previously advised factory
extension and capital plant investment. Once finalised, towards the
end of calendar year 2023, the available capacity to manufacture
energy efficient heat exchanger cells will be double that in place
at the time of the acquisition. Increasing automation at our plant
in Bitola, North Macedonia, is key to increasing output at the same
time as significantly increasing plant efficiency. Heat exchangers
are an integral part of all heat recovering ventilation devices
with strong structural growth drivers.
In July we completed the acquisition of Bera, a long-term
partner for our inVENTer business and an important route to market
for our business in southern Germany. This transaction was
triggered due to the retirement of the owner of Bera and was
important for us to secure access to our long-term contractor
customers.
Operational excellence
Having delivered an adjusted operating profit margin of 20.9% in
the previous financial year, in line with our long-term operating
margin target of greater than 20%, we have achieved an adjusted
operating profit margin of 21.1% in this year. We strongly believe
in a culture of efficiency, elimination of waste wherever possible
and local ownership of the many streamlining and efficiency
initiatives that we drive across the business every year. With
significant labour and material inflation, our initiatives and our
medium-term target to achieve 90% of all of our plastic injection
moulding and extrusion from recycled content, are becoming ever
more important in underpinning our market leading operating
margins.
In the year we benefited from the first full financial year
operating from our new facility in Växjö, Sweden, where the plant
commissioning was completed in the early part of calendar year
2021. In the UK we continued to bed down the consolidated finance
function with a substantial step taken towards the end of this
financial year.
People
As anticipated in last year's report we have seen a return to
more "normal" working practices. Where it makes sense, we are
applying some hybrid working arrangements and the autonomy and
implementation of these practices is the responsibility of local
teams. There have been some clear gains, such as working on
important innovation projects, where engineers partly working from
home for periods of the project have seen some efficiency gains
with this approach. We also appreciate that there is a huge
community spirit within our Company, and we have again enjoyed
being fully face to face with our colleagues this year. During the
year there have been some lunchtime gatherings where senior
management in the UK have rotated the monthly meetings to attend
different sites and hold an employee wide lunch, with everyone
getting to know each other so much more and informal Q&A
sessions providing greater engagement between colleagues.
A key appointment during the year was Michelle Dettman joining
as Group Head of HR. Initial emphasis has been on the UK area which
now runs as one senior, flatter management team across all areas of
the UK. This has improved employee engagement and we are excited
about how we can further step up our employee engagement in the
year ahead. We also hold our employee engagement and communication
meetings, attended by Claire Tiney, Non-Executive Director and
chair of the Remuneration Committee.
I am mindful that we have emerged from the Covid-19 pandemic in
excellent shape and am hugely grateful to all of our colleagues for
their dedication and commitment to providing our customers with
healthy air, sustainably.
Outlook
The new financial year has started well, delivering revenue and
profit ahead of the same period last year. Whilst we are mindful of
macroeconomic challenges, the regulatory, air quality and energy
efficiency agenda throughout Europe has never been more
supportive.
With our excellent levels of customer service, agile
manufacturing and supply chain capability and strong balance sheet
position, coupled with significant geographic revenue diversity, we
are well placed to make further progress in the year ahead.
Ronnie George
Chief Executive Officer
5 October 2022
Market by market
United Kingdom
31 July 31 July Growth
2022 2021 (cc)
Market sector revenue GBPm GBPm %
-------------------------- ------- ------- ------
UK
Residential 75.1 70.2 6.9
Commercial 31.0 31.1 (0.4)
Export 11.7 10.1 18.1
OEM 25.9 24.5 7.5
-------------------------- ------- ------- ------
Total UK revenue 143.7 135.9 6.2
-------------------------- ------- ------- ------
Adjusted operating profit 29.3 27.8 5.3
-------------------------- ------- ------- ------
Adjusted operating profit
margin (%) 20.4 20.4 -
-------------------------- ------- ------- ------
Reported operating profit 22.3 17.7 26.1
-------------------------- ------- ------- ------
In the UK our revenues increased from GBP135.9 million to
GBP143.7 million, a 5.7% increase (6.2% at cc) helped by price
increases across the brands. Adjusted operating profit increased
from GBP27.8 million to GBP29.3 million with an adjusted operating
margin remaining above the target of 20% at 20.4% (2021: 20.4%). We
continued to build on the organisational changes implemented in the
prior year by developing a more functional focused team covering
all aspects of both the UK ventilation and OEM activities where
significant logistics and supply chain experience underpinned a
normalising of good customer service and product availability
throughout the year. Having delivered a step up to the Group
adjusted operating profit margin target in the prior year we are
delighted to have maintained margins, despite the significant
inflationary pressure experienced in the year.
Sales in our Residential market sector were GBP75.1 million
(2021: GBP70.2 million), an organic growth of 6.9%, with revenue
growth accelerating in the second half of the year. Our residential
sales activities consist of both new build housing and
refurbishment. New build residential systems delivered much
stronger revenue in the second half of the year. As reported at the
interim results for FY22 we experienced site call-off delays in the
first half of the year with the order book continuing to grow. In
the second half of the year revenue for residential new build
systems, including a substantial element of mechanical ventilation
with heat recovery, experienced strong demand. In June 2022 Part F
and Part L of the Building Regulations were updated and provide
further regulatory support for energy efficient ventilation to be
specified in new homes. Reducing carbon emissions from new homes is
an ongoing objective of these Building Regulations and the most
recent changes will see a further step up in insulation and air
tightness, making the application of heat recovery more compelling
in the design process. We also won a new significant housebuilder
account although the revenue benefits will start early in the
financial year 2023. As energy costs continue to increase, we
predict that home buyers will place even greater emphasis on
airtight, well insulated and low-cost-to-run new dwellings and this
will provide further tailwinds for our market leading range of new
build residential system products.
In our residential refurbishment markets, we witnessed a
rotation in demand from private refurbishment, which continued to
grow organically but at a lower rate than in 2021, with public
housing refurbishment demand growing strongly in the second half of
the year as the backlog of work not undertaken during the Covid-19
pandemic was released. In private refurbishment a key initiative is
to increase the proportion of our revenue that provides silent,
more energy efficient solutions. Progress in the year has now
delivered almost 30% of our private refurbishment through this
premium range of products and there is further scope to increase
this in the coming years. Ventilation in refurbishment can be more
silent, less intrusive and more energy efficient and we work
closely with our distribution partners to deliver a greater
proportion of sales in this important category.
In public refurbishment we made substantial progress. Our agile
approach to the market wide shortages of electronic components has
enabled us to gain share. These share gains are expected to be
retained in the coming months and with our capability for
continuous running ventilation, positive input ventilation and
decentralised heat recovery, we have an unrivalled range of
products to support housing associations with their net zero carbon
objectives for 2030. In July 2022 we arranged for approximately 20
UK colleagues to meet with their German colleagues, the sole
objective being to establish how we could further enhance our offer
to the UK public housing market by utilising our leading technology
from Germany. These cross-selling initiatives had been more
difficult through the Covid-19 pandemic, and it has been a pleasure
and a source of considerable inspiration that these are firmly back
on the agenda. Our objective is to further develop the UK public
housing solution, tailor-made to assist with 2030 net zero carbon
targets, by providing the market with leading technology.
Our three residential product assembly facilities in Crawley,
Dudley and Reading are to be commended for their flexibility and
agility in respect of servicing our customer base in the year as
well as the way in which we successfully navigated the supply chain
challenges that have persisted throughout. Whilst material
availability continues to be a challenge the exit of the year left
us with a handful of well managed issues and we start the new
financial year in excellent shape to provide good levels of
availability and customer service.
Sales in our UK Commercial sector were GBP31.0 million (2021:
GBP31.1 million), an organic decline of 0.4%. Whilst commercial
revenue was broadly flat in the year, we made good progress with
our fan coil production facility in West Molesey. As a leading
provider of fan coil ventilation systems utilised for heating and
cooling buildings, we were awarded significant new orders at the
end of the year. One notable contract, a fan coil project for a
prestigious new commercial building in London, resulted in the most
sizeable order of the year, c.GBP2 million, with deliveries due to
start before the end of calendar year 2022. During the year we made
good progress with key new product developments, both in our range
of fan coils and in enhancements to our natural ventilation with
heat recycling (NVHR). These new developments, coupled with an
investment in new, semi-automated metal cutting capability at our
Dudley facility, put us in a strong position for this financial
year.
Sales in our UK Export sector were GBP11.7 million (2021:
GBP10.1 million), an organic growth of 18.1% at constant currency.
Our main export market in Eire performed very well. Our
distribution partnerships in Eire are long established and
collaborative and together we have a leadership position for the
specification and supply of energy efficient heat recovery
ventilation and for the supply of energy efficient fan coils. The
Irish market has embraced heat recovery technology at a faster rate
than in the UK and our mechanical extract ventilation and mechanic
ventilation with heat recovery solutions are well placed to benefit
from further changes underway.
Sales in our OEM sector were GBP25.9 million (2021: GBP24.5
million), an organic growth of 7.5% at constant currency. Our EC3
motorised impeller proposition delivered good growth in the year
both in the UK and export markets. In October 2021 we commenced an
investment plan to substantially increase our output capability for
the manufacture of low energy consuming motorised impellers. This
additional capacity came online in the fourth quarter of FY22 and
there are further initiatives underway to increase output. Some of
our competitors are struggling for component availability, we
believe our agile approach to this market and the strong structural
underpinning of EC3 motorised impeller demand due to regulatory
changes will support further good growth in the new year.
Continental Europe
31 July 31 July Growth
2022 2021 (cc)
Market sector revenue GBPm GBPm %
--------------------------------- ------- ------- -------
Nordics 53.3 51.6 8.1
Central Europe 65.1 43.9 54.5
--------------------------------- ------- ------- -------
Total Continental Europe revenue 118.4 95.5 29.4
--------------------------------- ------- ------- -------
Adjusted operating profit 29.6 25.4 16.6
--------------------------------- ------- ------- -------
Adjusted operating profit
margin (%) 25.0 26.6 (1.6)pp
--------------------------------- ------- ------- -------
Reported operating profit 23.2 18.1 28.5
--------------------------------- ------- ------- -------
Our Continental Europe activities had a very strong year and we
delivered excellent progress with sales at GBP118.4 million (2021:
GBP95.5 million), growth of 29.4% at constant currency, within
which organic growth was 5.0% on a constant currency basis. The
sector benefited from the acquisition of ERI in September 2021 and
the full year effect of the acquisitions from the prior year of
ClimaRad BV in the Netherlands in December 2020, Klimatfabriken in
Sweden in February 2021 and Rtek in Finland in May 2021. Adjusted
operating profit was up 16.6% at GBP29.6 million versus a prior
year of GBP25.4 million. Adjusted operating profit margins declined
in the year by 1.6pp to 25.0%, partly due to the dilutionary impact
of the Rtek and ERI acquisitions. Whilst ERI achieves an operating
margin in line with the Group's 20% operating margin target it is
at a lower rate than the 26.6% operating margin delivered in
Continental Europe in the prior year.
Sales in the Nordics region were GBP53.3 million (2021: GBP51.6
million), an increase of 8.1% at constant currency compared to the
previous year. Organic growth was 1.0% on a constant currency
basis, with inorganic growth from the full year effect of the
acquisitions of Klimatfabriken in Sweden in February 2021 and Rtek
in Finland in May 2021. Nordics refurbishment demand was
exceptionally strong in the prior year, and we were pleased to
deliver organic growth against this strong comparator period. In
the early part of the year in Finland we experienced some Covid-19
related delays to project orders with the situation markedly better
in the second half. Our Nordics business has established a strong
export market in South America and this area was also impacted by
Covid-19 delays in the year hampering our organic growth. The new
acquisitions of Klimatfabriken and Rtek have now been fully
integrated into our Nordics activities in line with our investment
plan during the year.
Sales in the Central Europe region were GBP65.1 million compared
to the prior year of GBP43.9 million, growth of 54.4% on a constant
currency basis. Organic revenue growth was 9.7% on a constant
currency basis, with inorganic growth coming from the acquisition
of ERI in September 2021 and the full year effect of the
acquisition of ClimaRad BV in the Netherlands in December 2020.
Germany again delivered a strong performance in the year with
our market leading range of decentralised heat recovery. Further
improvements in the specification selling process enabled us to
again nudge up our market share and with the nervousness in Germany
around spiralling energy prices and gas supply, we see a positive
outlook for our product range in the market. As homeowners seek to
improve the energy efficiency of their dwellings, we expect further
refurbishment projects to grow. The root to this is through air
tightness and often the installation of a heat pump for heating
demand. This is an ideal scenario for us, supporting the specifying
of decentralised, retrofittable heat recovery ventilation.
In the Netherlands, ClimaRad had a slow start to the year with
activity much stronger in the second half. The team in the
Netherlands has developed a new range of heat recovery products
that have a compelling argument for major refurbishments through a
total cost of ownership model (TCO). With gas boilers prohibited in
new build applications in the market we have a solution that works
well as a heat emitting device coupled to a heat pump, with heat
recovery ventilation in the same solution. A common theme in our
markets is that with increasing energy costs the payback period for
our solutions has been dramatically reduced.
In Belgium we delayed the launch of our new higher airflow heat
recovery ventilation systems, now scheduled to launch in the first
quarter of FY23. These new ranges have been in development for over
two years and will provide us with a full range of ventilation
system units for the residential new build market. We also
continued to make good progress with our Vent-Axia brand sales to
the wholesalers.
In September 2021 the acquisition of Energy Recovery Industries
("ERI"), a leading manufacturer of aluminium heat exchanger cells,
was completed. The transaction was agreed with an "earn-out"
arrangement and the leadership team is making good progress with
the investment plan to materially increase our output capacity. ERI
performed well in the year and in line with our investment plan.
The order book lengthened in the year because of strong demand for
our leading heat cell ranges and the constraint that we currently
have on our output capacity. When finally completed, towards the
end of calendar year 2023, we expect to have significant extra
capacity headroom, some of which will come online towards the
midpoint of the new financial year.
Australasia
31 July 31 July Growth
2022 2021 (cc)
Market sector revenue GBPm GBPm %
-------------------------- ------- ------- ------
Total Australasia revenue 45.6 41.2 11.4
-------------------------- ------- ------- ------
Adjusted operating profit 9.9 8.9 11.3
-------------------------- ------- ------- ------
Adjusted operating profit
margin (%) 21.8 21.7 0.1pp
-------------------------- ------- ------- ------
Reported operating profit 8.8 4.5 96.1
-------------------------- ------- ------- ------
Sales in our Australasia region were GBP45.6 million, with
strong organic growth of 11.4% at constant currency. Adjusted
operating margins improved to 21.8% versus 21.7% in the prior year.
Since first acquiring Simx in March 2018 and subsequently Ventair
in March 2019, we have established a strong presence in the
Australasian residential ventilation market.
Simx in New Zealand experienced a more difficult year. Covid-19
related lockdowns in Auckland persisted through the early part of
the year and led to reduced demand. The prior year had been
particularly strong, buoyed by the Healthy Homes Act and the
related Covid-19 induced private refurbishment boom. Further
regulatory changes have occurred in the market, the first step
towards a more European style of energy efficient ventilation, with
our Group product ranges placing us firmly in pole position as the
market develops.
In Australia we delivered strong organic growth and a further
step up in our adjusted operating profit margin. Key initiatives in
the year included the roll-out of supply to a market leading
distributor for DIY customers and the successful launch of a new
range of low energy ceiling fans. As well as launching several new
product ranges there was a substantial investment in strengthening
the team. Our objective is to become one of the significant players
in the Australian ventilation market and equipping the team with
the bandwidth, skills and capabilities to deliver this is key, with
good progress in the year.
Finance Review
Volution has delivered a strong set of financial results for the
year ended 31 July 2022, exceeding all bar one of the Group's key
financial targets and demonstrating the strength of our financial
model. Of particular note was our operating margin performance,
with a Group adjusted operating margin of 21.1% (2021: 20.9%)
delivered against a background of significant inflationary cost
pressures.
The one financial target that we missed was cash conversion
(target >90%) where a decision to increase our inventory levels
to protect against supply chain unreliability resulted in Group
working capital increasing by GBP17.7 million compared with 31 July
2021. The investment in working capital occurred during the first
half of the financial year, and good second half cash generation
meant we closed the year with a cash conversion of 76%. As at 31
July 2022 closing leverage, measured as net debt (excluding lease
liabilities) to adjusted EBITDA, stands at 0.9x (2021: 0.9x), and
our strong balance sheet position gives us flexibility and
capability to continue to invest in growth.
Revenue for the year ended 31 July 2022 was GBP307.7 million, an
increase of 12.9%, with organic growth of 6.6% at constant currency
(cc), inorganic growth of 8.5% (cc) and adverse foreign exchange
impact of 2.2%.
Adjusted operating profit increased by 13.9% in the year to
GBP64.9 million (2021: GBP56.9 million), with Group adjusted
operating margins of 21.1% (2021: 20.9%). Early price action and
disciplined cost management enabled us to offset the impacts of
significant input cost inflation and expand margins by 20bps in the
year. The increase of GBP8.0 million in adjusted operating profit
consisted of GBP4.6 million from organic growth, GBP5.0 million
from inorganic growth, with adverse currency impacts of GBP1.6
million.
Reported and adjusted results
Reported Adjusted 1
-------------------------------- --------------------------------
Year ended Year ended Year ended Year ended
31 July 31 July 31 July 31 July
2022 2021 Movement 2022 2021 Movement
--------------------------- ---------- ---------- -------- ---------- ---------- --------
Revenue (GBPm) 307.7 272.6 12.9% 307.7 272.6 12.9%
EBITDA (GBPm) 74.2 59.3 25.2% 73.9 65.2 13.3%
Operating profit (GBPm) 50.8 34.2 48.5% 64.9 56.9 13.9%
Net finance costs (GBPm) 2.0 2.9 (29.2)% 3.4 3.2 4.7%
Profit before tax (GBPm) 47.2 30.0 57.2% 60.9 53.2 14.5%
Basic EPS (p) 18.1 10.5 72.4% 24.0 21.0 14.3%
Total dividend per share
(p) 7.3 6.3 15.9% 7.3 6.3 15.9%
Operating cash flow (GBPm) 50.8 51.0 (0.4)% 50.4 56.9 (11.4)%
Net debt (GBPm) 85.8 79.2 6.6 85.8 79.2 6.6
--------------------------- ---------- ---------- -------- ---------- ---------- --------
Notes
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, adjusted operating cash flow, net debt and net
debt (excluding lease liabilities. The reconciliation of the
Group's reported profit before tax to adjusted profit measures of
performance is summarised in the table below and in detail in note
2 to the consolidated financial statements. For a definition of all
the adjusted and non-GAAP measures, see the glossary of terms in
note 25 to the consolidated financial statements.
2. Pre-IFRS 16 basis, excludes lease liabilities of GBP25.0 million (2021: GBP25.4 million).
The Board and key management use some alternative performance
measures to track and assess the underlying performance of the
business. These measures include adjusted operating profit,
adjusted profit before tax, adjusted basic EPS and adjusted
operating cash flow. These measures are deemed more appropriate to
track underlying financial performance as they exclude income and
expenditure that are not directly related to the ongoing trading of
the business. A reconciliation of these measures of performance to
the corresponding reported figure is shown below and is detailed in
note 2 to the consolidated financial statements.
Adjusted profit before tax of GBP60.9 million was 14.5% higher
than 2021 (GBP53.2 million). Reported profit before tax was GBP47.2
million (2021: GBP30.0 million) and is after charging:
-- GBP14.5 million in respect of amortisation of intangible assets (2021: GBP16.8 million);
-- Credit balance of GBP0.4 million (2021: debit of GBP4.2
million) of other costs of business combinations of which:
-- GBP0.2 million relates to costs associated with business
combinations (2021: GBP0.9 million); and
-- Credit balance of GBP0.6 million was in respect of contingent
consideration reduction in ERI due to amendment to the terms of the
contingent consideration payment (2021: GBP3.3 million);
-- GBP1.4 million gain due to the fair value measurement of
financial instruments (2021: gain of GBP0.3 million); and
-- GBP1.0 million re-measurement of future consideration
relating to the business combination of ClimaRad (2021: GBP0.8
million).
Year ended 31 July 2022 Year ended 31 July 2021
------------------------------- -------------------------------
Adjusted Adjusted
Reported Adjustments results Reported Adjustments results
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- ----------- -------- -------- ----------- --------
Revenue 307.7 - 307.7 272.6 - 272.6
---------------------------------- -------- ----------- -------- -------- ----------- --------
Gross profit 1 147.1 - 147.1 131.6 1.7 133.3
Administration and distribution
costs excluding the costs
listed below (82.2) - (82.2) (76.4) - (76.4)
Amortisation of intangible
assets acquired through
business combinations (14.5) 14.5 - (16.8) 16.8 -
Contingent consideration2 0.6 (0.6) - (3.3) 3.3 -
Costs of business combinations3 (0.2) 0.2 - (0.9) 0.9 -
---------------------------------- -------- ----------- -------- -------- ----------- --------
Operating profit 50.8 14.1 64.9 34.2 22.7 56.9
Re-measurement of financial
liability (0.6) - (0.6) - - -
Re-measurement of future
consideration4 (1.0) 1.0 - (0.8) 0.8 -
Net gain on financial instruments
at FV5 1.4 (1.4) - 0.3 (0.3) -
Other net finance costs (3.4) - (3.4) (3.7) - (3.7)
---------------------------------- -------- ----------- -------- -------- ----------- --------
Profit before tax 47.2 13.7 60.9 30.0 23.2 53.2
Income tax (11.5) (2.1)(6) (13.6) (9.2) (2.4) (11.6)
---------------------------------- -------- ----------- -------- -------- ----------- --------
Profit after tax 35.7 11.6 47.3 20.8 20.8 41.6
---------------------------------- -------- ----------- -------- -------- ----------- --------
Notes
1. GBPnil adjustments in 2022 impacting gross profit (2021:
GBP1.7 million amortisation of acquired inventory fair value
adjustments).
2. Credit balance of GBP0.6 million was in respect of contingent
consideration reduction in ERI (2021: GBP3.3 million was in respect
of contingent consideration increase related to Ventair).
3. GBP0.2 million costs of business combination relating to
professional fees (2021: GBP0.9 million).
4. GBP1.0 million revaluation relating to the re-measurement of
future consideration in ClimaRad (2021: GBP0.8 million).
5. GBP1.4 million gain due to the fair value of financial
derivatives (2021: GBP0.3 million gain).
6. GBP2.1 million tax adjustment relates to the tax on the
adjusted items above (2021: GBP2.4 million)
Currency impacts
Aside from Sterling, the Group's key trading currencies for our
non-UK businesses are the Euro, representing approximately 23.5% of
Group revenues, Swedish Krona (approximately 10.3%), New Zealand
Dollar (approximately 7.2%) and Australian Dollar (approximately
7.7%). We do not hedge the translational exchange risk arising from
the conversion of the results of overseas subsidiaries, although we
do denominate some of our borrowings in both Euro and Swedish Krona
which offsets some of the translation risk relating to net assets.
We had Euro denominated borrowings as at 31 July 2022 of GBP71.9
million (2021: GBP57.3 million) and Swedish Krona denominated
borrowings of GBP2.4 million (2021: GBP16.0 million). The Sterling
value of these foreign currency denominated loans net of cash
decreased by GBP0.9 million as a result of exchange rate movements
(2021: decreased by GBP5.0 million).
During the year Sterling strengthened on average against all
four of our principal non-Sterling revenue currencies, against the
Euro by 4.2%, Swedish Krona by 5.6%, New Zealand Dollar by 0.5% and
Australian Dollar by 1.0%. This gave rise to an unfavourable
revenue impact of GBP6.1 million in the year, with operating
profits being impacted by GBP1.7 million.
Transactional foreign exchange exposures arise principally in
the form of US Dollar denominated purchases from our suppliers in
China. We aim to purchase 80-90% of our expected requirements
approximately twelve months forward, and as such we have purchases
in place for approximately 85% of our forecasted requirements for
the 2023 financial year.
Average Average
rate rate
2022 2021 Movement
------------------- ------- ------- --------
Euro 1.1816 1.1343 -4.2%
Swedish Krona 12.2289 11.5799 -5.6%
New Zealand Dollar 1.9522 1.9419 -0.5%
Australian Dollar 1.8253 1.8081 -1.0%
US$ 1.3161 1.3567 3.0%
------------------- ------- ------- --------
Finance revenue and costs
Reported net finance costs of GBP2.0 million (2021: GBP2.9
million) include a GBP1.4 million net gain on the revaluation of
financial instruments (2021: net gain of GBP0.3 million). Adjusted
finance costs were GBP3.4 million (2021: GBP3.2 million), with the
weighted average interest rates on gross debt at 2.02% (2021:
2.04%).
Taxation
Our effective adjusted tax rate for the year was 22.4% (2021:
21.8%). The increase of 0.6pp in the year was substantially driven
by the shift in our relative profit across the Group with our
companies in our Australiasia sector performing well where the tax
rates are 28% to 30% compared to the current UK rate of 19%.
The rate of tax in the UK is currently 19%. Following the
Finance Bill 2021, the rate of tax in the UK had been expected to
increase to 25% from 1 April 2023. On 23 September 2022, the
Chancellor of the Exchequer announced that the UK corporation tax
rate will remain at 19% from 1 April 2023 - reversing a previously
enacted measure to increase the rate to 25%. The announcement of
the reversal in the tax rate from 1 April 2023 was not enacted or
substantively enacted at the balance sheet date and accordingly has
no impact on the tax balances at 31 July 2022.
If this tax rate change had been substantively enacted or
enacted at the balance sheet date, the deferred tax liability would
have decreased by approximately GBP1.1 million. We expect our
medium-term underlying effective tax rate to be in the range of 22%
to 25% of the Group's adjusted profit before tax, depending on
business mix and the profile of acquisitions.
Capital allocation
Volution aims to deliver strong financial returns and to invest
our strong cash flows in a disciplined manner so as to support
continued and sustainable future earnings growth and cash
generation. Our capital allocation policies are:
1. investment for organic growth, including through capital
expenditure and investment in research and development, new
products and innovation, and the ongoing development of our
people;
2. value-adding acquisitions in complementary businesses in
current or close adjacent market niches, expanding our market
reach; and
3. regular returns to shareholders through a progressive
approach to dividends, delivering regular cash returns to
shareholders without impacting on our ability for investment in the
growth of the business.
Investment for organic growth
The decision to increase inventory levels was a key part of our
initiative to mitigate the challenges of global supply chain
uncertainty, ensure good levels of customer service and product
availability, and allow us to capitalise on organic revenue
opportunities across our markets. As a consequence, and combined
with the increase in revenue, the Group's working capital increased
during the year by GBP17.7 million (2021: increase of GBP5.8
million). Our working capital as a percentage of the last twelve
months' revenue stood at 18.1% (2021: 12.7%). With inventory levels
in a good position across the Group by half year, the second half
of the year saw working capital levels moderate and we do not
expect a further increase as a percentage of revenue.
Capital expenditure of GBP6.9 million (2021: GBP4.5 million) was
up on last year, including continued investment in new product
development programmes (GBP1.2 million) as we continue to develop
and expand our product offering across the Group. We also commenced
our planned expansion of the manufacturing facility and capacity of
ERI in North Macedonia, with GBP0.5 million spent in 2022 and a
further GBP1.4 million anticipated during 2023.
Value-adding acquisitions
We completed one major acquisition in the year, Energy Recovery
Industries (ERI) in September 2021 for an initial consideration of
EUR20.0 million. Based in North Macedonia, ERI designs and
manufactures a range of innovative and highly efficient aluminium
heat exchanger cells for use primarily in commercial heat recovery
ventilation systems. In addition, in July 2022 we purchased the
assets of a long-term partner for our inVENTer business and an
important route to market for our business in southern Germany.
Both acquisitions are fully aligned with our strategic focus on
low-carbon, high-growth market opportunities.
Total spend on business combinations of GBP24.4 million (2021:
GBP43.7 million) related to the initial consideration for the
acquisition of ERI (see note 13) of GBP16.0 million as well as
payment of contingent consideration in respect of Air Connection
(GBP0.5 million) and Ventair (GBP4.1 million), repayment of ERI
debt acquired (GBP3.3 million) and part repayment of the ClimaRad
vendor loan (GBP0.5 million).
Returns to shareholders
Adjusted earnings per share increased by 14.3% to 24.0 pence
(2021: 21.0 pence). The Board is recommending a final dividend of
5.0 pence which, together with an interim dividend paid of 2.3
pence per share, gives a total dividend per share of 7.3 pence
(2021: 6.3 pence), up 15.9% in total. The final dividend is subject
to approval by shareholders at the AGM on 14 December 2022 and, if
approved, will be paid on 20 December 2022.
Tax paid of GBP12.2 million was GBP4.1 million higher than the
prior year (2021: GBP8.1 million).
Movements in net debt position for the year ended 31 July
2022
2022 2021
GBPm GBPm
--------------------------------------------------- ------ ------
Opening net debt 1 August (79.2) (74.2)
--------------------------------------------------- ------ ------
Movements from normal business operations:
Adjusted EBITDA 73.9 65.2
Movement in working capital (17.7) (5.8)
Share-based payments 1.1 2.0
Capital expenditure (6.9) (4.5)
--------------------------------------------------- ------ ------
Adjusted operating cash flow: 50.4 56.9
- Interest paid net of interest received (2.7) (1.5)
- Income tax paid (12.2) (8.1)
- Cash flow relating to business combination
costs (0.2) (0.8)
- Dividend paid (13.3) (3.8)
- Purchase of own shares (1.9) (2.1)
- FX on foreign currency loans/cash 0.7 5.0
- Issue costs of new borrowings (0.3) (1.2)
- IFRS 16 payment of lease liabilities (3.2) (3.5)
- IFRS 16 decrease/(increase) in lease liabilities 0.5 (2.2)
Movements from business combinations:
- Business combination of subsidiaries, net
of cash acquired (16.5) (42.2)
- Contingent consideration relating to Ventair
from operating activities (3.2) -
- Contingent consideration relating to Ventair
from investing activities (0.9) -
- Business combination of subsidiaries, debt
repaid (3.8) (1.5)
--------------------------------------------------- ------ ------
Closing net debt 31 July (85.8) (79.2)
--------------------------------------------------- ------ ------
2022 2021
GBPm GBPm
--------------------------------------------------- ------ ------
Bank debt (74.3) (73.3)
--------------------------------------------------- ------ ------
Cash 13.5 19.5
Net debt (excluding lease liabilities) (60.8) (53.8)
Lease liabilities (25.0) (25.4)
--------------------------------------------------- ------ ------
Net debt (85.8) (79.2)
--------------------------------------------------- ------ ------
Reconciliation of adjusted operating cash flow
2022 2021
GBPm GBPm
-------------------------------------------------- ----- -----
Net cash flow generated from operating activities 41.7 52.5
-------------------------------------------------- ----- -----
Net capital expenditure (6.9) (4.5)
UK and overseas tax paid 12.2 8.3
Tax refund - (0.2)
Contingent consideration relating to the
acquisition of Ventair 3.2 -
Cash flow relating to business combination
costs 0.2 0.8
-------------------------------------------------- ----- -----
Adjusted operating cash flow 50.4 56.9
-------------------------------------------------- ----- -----
Funding facilities and liquidity
In December 2021, the Group exercised the option to extend its
GBP150 million multicurrency "Sustainability Linked Revolving
Credit Facility", together with an additional accordion of up to
GBP30 million, by a period of twelve months. The maturity date of
the facility is now 2 December 2024.
As at 31 July 2022, we had GBP75.7 million of undrawn, committed
bank facilities (2021: GBP50.4 million) and GBP13.5 million of cash
and cash equivalents on the consolidated statement of financial
position (2021: GBP19.5 million).
Employee Benefit Trust
During the year GBP1.9 million of non-recourse loans (2021:
GBP2.1 million) were made to the Volution Employee Benefit Trust
for the purpose of purchasing shares in Volution Group plc in order
to meet the Company's obligations under its share incentive plans.
The Volution Employee Benefit Trust acquired 463,000 shares at an
average price of GBP4.10 per share in the period (2021: GBP3.24)
and 402,407 shares (2021: 401,529 shares) were released by the
trustees with a value of GBP1,114,667 (2021: GBP766,920). The
Volution Employee Benefit Trust has been consolidated into our
results and the shares purchased have been treated as treasury
shares deducted from shareholders' funds.
Earnings per share
Our reported basic earnings per share for the year is 18.1 pence
(2021: 10.5 pence).
Our adjusted basic earnings per share for the year is 24.0 pence
(2021: 21.0 pence).
Andy O'Brien
Chief Financial Officer
5 October 2022
DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a whole;
and
-- the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they
face. We consider the annual report and financial statements, taken
as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's position
and performance, business model and strategy.
The contents of this announcement, including the responsibility
statement above, have been extracted from the annual report and
accounts for the year ended 31 July 2022 which may be found at
www.volutiongroupplc.com and will be despatched to shareholders on
or around 21 October 2022. Accordingly this responsibility
statement makes reference to the financial statements of the
Company and the group and to the relevant narrative appearing in
that annual report and accounts rather than the contents of this
announcement.
On behalf of the Board
Ronnie George Andy O'Brien
Chief Executive Officer Chief Financial Officer
5 October 2022 5 October 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2022
2022 2021
Notes GBP000 GBP000
---------------------------------------------- ----- --------- ---------
Revenue from contracts with customers 3 307,701 272,588
Cost of sales (160,603) (140,939)
---------------------------------------------- ----- --------- ---------
Gross profit 147,098 131,649
Administrative and distribution expenses (96,693) (93,399)
Other operating income 5 - 137
---------------------------------------------- ----- --------- ---------
Operating profit before separately disclosed
items 50,405 38,387
Costs of business combinations (215) (889)
Contingent consideration 598 (3,287)
---------------------------------------------- ----- --------- ---------
Operating profit 50,788 34,211
Finance revenue 6 1,333 397
Finance costs 6 (3,369) (3,272)
Re-measurement of financial liabilities (583) (491)
Re-measurement of future consideration (955) (811)
---------------------------------------------- ----- --------- ---------
Profit before tax 47,214 30,034
Income tax 7 (11,542) (9,198)
---------------------------------------------- ----- --------- ---------
Profit for the year 35,672 20,836
---------------------------------------------- ----- --------- ---------
Attributable to the shareholders 35,610 20,836
Attributable to non-controlling interest 62 -
Other comprehensive income
Items that may subsequently be reclassified
to profit or loss:
Exchange differences arising on translation
of foreign operations 1,944 (3,199)
(Loss)/gain on currency loans relating to the
net investment in foreign operations (1,744) 5,397
---------------------------------------------- ----- --------- ---------
Other comprehensive income for the year 200 2,198
---------------------------------------------- ----- --------- ---------
Total comprehensive income for the year 35,872 23,034
---------------------------------------------- ----- --------- ---------
Attributable to the shareholders 35,810 23,034
Attributable to non-controlling interest 62 -
Earnings per share
Basic earnings per share 8 18.1p 10.5p
Diluted earnings per share 8 17.8p 10.4p
---------------------------------------------- ----- --------- ---------
Consolidated Statement of Financial Position
At 31 July 2022
2022 2021
Notes GBP000 GBP000
-------------------------------------- ----- --------- ---------
Non-current assets
Property, plant and equipment 9 28,235 23,908
Right-of-use assets 18 23,567 24,477
Intangible assets - goodwill 10 142,661 137,710
Intangible assets - others 12 87,592 85,373
-------------------------------------- ----- --------- ---------
282,055 271,468
-------------------------------------- ----- --------- ---------
Current assets
Inventories 14 57,151 44,971
Right of return assets 3 - 99
Trade and other receivables 15 57,526 47,482
Other financial assets 16 1,091 507
Cash and short-term deposits 13,543 19,456
-------------------------------------- ----- --------- ---------
129,311 112,515
-------------------------------------- ----- --------- ---------
Total assets 411,366 383,983
-------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 17 (48,837) (47,435)
Refund liabilities 3 (10,268) (10,562)
Income tax (5,564) (4,629)
Other financial liabilities 19 - (4,608)
Interest-bearing loans and borrowings 20 (3,599) (3,454)
Provisions 21 (1,684) (1,869)
-------------------------------------- ----- --------- ---------
(69,952) (72,557)
-------------------------------------- ----- --------- ---------
Non-current liabilities
Interest-bearing loans and borrowings 20 (104,433) (104,863)
Other financial liabilities 19 (14,132) (6,021)
Provisions 21 (319) (376)
Deferred tax liabilities 22 (14,222) (14,876)
-------------------------------------- ----- --------- ---------
(133,106) (126,136)
-------------------------------------- ----- --------- ---------
Total liabilities (203,058) (198,693)
-------------------------------------- ----- --------- ---------
Net assets 208,308 185,290
-------------------------------------- ----- --------- ---------
Capital and reserves
Share capital 2,000 2,000
Share premium 11,527 11,527
Treasury shares (3,574) (3,739)
Capital reserve 93,855 93,855
Share-based payment reserve 5,058 4,090
Foreign currency translation reserve 3,099 2,899
Retained earnings 96,247 74,658
-------------------------------------- ----- --------- ---------
Total shareholders' equity 208,212 185,290
-------------------------------------- ----- --------- ---------
Non-controlling interest 96 -
-------------------------------------- ----- --------- ---------
Total equity 208,308 185,290
-------------------------------------- ----- --------- ---------
The consolidated financial statements of Volution Group plc
(registered number: 09041571) were approved by the Board of
Directors and authorised for issue on 5 October 2022.
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 2022
Foreign
Share-based currency Non-
Share Share Treasury Capital payment translation Retained Shareholders' controlling Total
capital premium shares reserve reserve reserve earnings equity interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 31 July
2020 2,000 11,527 (2,401) 93,855 1,410 701 68,463 175,555 - 175,555
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Profit for the
year - - - - - - 20,836 20,836 - 20,836
Other
comprehensive
income - - - - - 2,198 - 2,198 - 2,198
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Total
comprehensive
income - - - - - 2,198 20,836 23,034 - 23,034
Acquisition of
businesses - - - - - - - - 5,603 5,603
Obligation to
acquire NCI - - - - - - (11,224) (11,224) (5,603) (16,827)
Purchase of
own
shares - - (2,105) - - - - (2,105) - (2,105)
Exercise of
share
options - - 767 - (1,112) - 345 - - -
Share-based
payment
including tax - - - - 3,792 - - 3,792 - 3,792
Dividends paid
(note 23) - - - - - - (3,762) (3,762) - (3,762)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 1 August
2021 2,000 11,527 (3,739) 93,855 4,090 2,899 74,658 185,290 - 185,290
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Profit for the
year - - - - - - 35,610 35,610 62 35,672
Other
comprehensive
income - - - - - 200 - 200 - 200
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
Total
comprehensive
income - - - - - 200 35,610 35,810 62 35,872
Acquisition of
businesses - - - - - - - - 34 34
Purchase of
own
shares - - (1,900) - - - - (1,900) - (1,900)
Exercise of
share
options - - 2,065 - (1,129) - (749) 187 - 187
Share-based
payment
including tax - - - - 2,097 - - 2,097 - 2,097
Dividends paid
(note 23) - - - - - - (13,272) (13,272) - (13,272)
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
At 31 July
2022 2,000 11,527 (3,574) 93,855 5,058 3,099 96,247 208,212 96 208,308
-------------- ------- ------- -------- ------- ----------- ----------- -------- ------------- ----------- --------
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 2022 of GBP120,294,000
(2021: GBP113,143,000).
Consolidated Statement of Cash Flows
For the year ended 31 July 2022
2022 2021
Notes GBP000 GBP000
------------------------------------------------------ ----- -------- --------
Operating activities
Profit for the year after tax 35,672 20,836
Adjustments to reconcile profit for the year
to net cash flow from operating activities:
Income tax 11,542 9,198
Gain on disposal of property, plant and equipment (51) (2)
Costs of business combinations 215 889
Contingent consideration (598) 3,287
Cash flows relating to business combination
costs (215) (811)
Re-measurement of financial liability relating
to business combination of ClimaRad 583 491
Re-measurement of future consideration relating
to business combination of ClimaRad 955 811
Finance revenue 6 (1,333) (397)
Finance costs 6 3,369 3,272
Share-based payment expense 1,115 1,974
Depreciation of property, plant and equipment 9 3,816 3,327
Depreciation of right-of-use assets 18 3,612 3,531
Amortisation of intangible assets 12 16,026 18,218
Working capital adjustments:
Increase in trade receivables and other assets (6,418) (11,537)
Increase in inventories (9,805) (11,349)
(Decrease)/increase in trade and other payables (1,235) 18,618
Movement in provisions (242) 208
------------------------------------------------------ ----- -------- --------
Cash generated by operations 57,008 60,564
------------------------------------------------------ ----- -------- --------
UK income tax paid (3,000) (2,970)
UK income tax refund - 196
Overseas income tax paid (9,155) (5,328)
Contingent consideration relating to the acquisition
of Ventair 13 (3,211) -
------------------------------------------------------ ----- -------- --------
Net cash flow generated from operating activities 41,642 52,462
------------------------------------------------------ ----- -------- --------
Investing activities
Payments to acquire intangible assets 12 (2,238) (1,068)
Purchase of property, plant and equipment 9 (4,773) (3,632)
Proceeds from disposal of property, plant and
equipment 179 196
Business combination of subsidiaries, net of
cash acquired 13 (15,996) (41,678)
Contingent consideration relating to the acquisition
of Air Connection 13 (476) -
Business combination of subsidiaries, paid
into escrow 13 - (507)
Contingent consideration relating to the acquisition
of Ventair 13 (952) -
Interest received 4 57
------------------------------------------------------ ----- -------- --------
Net cash flow used in investing activities (24,252) (46,632)
------------------------------------------------------ ----- -------- --------
Financing activities
Repayment of interest-bearing loans and borrowings (33,626) (88,917)
Repayment of debt relating to the business
combination of ClimaRad - (1,482)
Repayment of ERI debt acquired (3,227) -
Repayment of ClimaRad vendor loan (504) -
Proceeds from new borrowings 36,428 98,044
Issue costs of new borrowings (330) (1,218)
Interest paid (2,662) (2,088)
Payment of principal portion of lease liabilities (3,202) (2,960)
Dividends paid (13,272) (3,762)
Purchase of own shares (1,900) (2,105)
------------------------------------------------------ ----- -------- --------
Net cash flow used in financing activities (22,295) (4,488)
------------------------------------------------------ ----- -------- --------
Net (decrease)/increase in cash and cash equivalents (4,905) 1,342
Cash and cash equivalents at the start of the
year 19,456 18,493
Effect of exchange rates on cash and cash equivalents (1,008) (379)
------------------------------------------------------ ----- -------- --------
Cash and cash equivalents at the end of the
year 13,543 19,456
------------------------------------------------------ ----- -------- --------
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 2022
The preliminary results were authorised for issue by the Board
of Directors on 5 October 2022. The financial information set out
herein does not constitute the Group's statutory consolidated
financial statements for the years ended 31 July 2022 or 2021, but
is derived from those accounts. Statutory consolidated financial
statements for 2022 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
1. Basis of preparation
The financial statements are prepared in accordance with
UK-adopted international accounting standards (IFRS). 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, assessed for the period up until 31 July
2024.
Our financial position remains robust with committed facilities
totalling GBP150 million, and an accordion of a further GBP30
million, maturing in December 2024 with the option to extend for an
additional year.
The financial covenants on these facilities are for leverage
(net debt/adjusted EBITDA) of not more than three times and for
adjusted interest cover of not less than four times.
Our base case scenario has been prepared using robust forecasts
from each of our operating companies, with each considering the
risks and opportunities the businesses face, including those
because of the Covid-19 pandemic and from macroeconomic uncertainty
that has arisen post-Covid and since the invasion of Ukraine early
in 2022,
We have then applied a severe but plausible downside scenario in
order to model the potential concurrent impact of:
-- a general economic slowdown reducing revenue by 20% compared to plan;
-- supply chain difficulties or input price increases reducing gross profit margin by 10%; and
-- a significant acquisition increasing debt but with no positive cash flow contribution.
A reverse stress test scenario has also been modelled which
shows a revenue contraction of c35% with no mitigations would be
required to breach covenants, which is considered extremely remote
in likelihood of occurring. Mitigations available within the
control of management include reducing dividends, discretionary
capex and discretionary indirect costs. Including these
mitigations, a revenue decline of c42% would be required to breach
covenants.
Over the short period of our Climate Change assessment (aligned
to our Going Concern assessment) we have concluded that there is no
material adverse impact of Climate Change and hence have not
included any impacts in either our base case or downside scenarios
of our Going Concern assessment. We have not experienced material
adverse disruption during periods of adverse or extreme weather in
recent years and we would not expect this to occur to a material
level over the period of our Going Concern assessment.
The Directors have concluded that the results of the scenario
testing combined with the significant liquidity profile available
under the revolving credit facility confirm that there is no
material uncertainty in the use of the going concern
assumption.
Non-controlling interest
Non-controlling interests are identified separately from the
Group's equity. Non-controlling interests consist of the amount of
those interests at the date of the business combination and the
non-controlling interest's share of changes in equity since that
date. Non-controlling interests are measured at the non-controlling
interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling
interest at a future date, the non-controlling interest will be
recognised on the business combination, and subsequently when the
obligation to purchase liability is recognised the amount is
reclassified from equity to a financial liability and the
non-controlling interest is derecognised. Any difference between
the carrying value of the non-controlling interest and the
liability is adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the Group financial statements, the results and
financial position of each entity are expressed in GBP (GBP000),
which is the functional currency of the Company and the
presentational currency of the Group.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rate
of exchange prevailing at the dates of the transactions. At the end
of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rate prevailing at the end of
the reporting period.
Non-monetary items that are measured at historical cost in a
foreign currency are translated using the exchange rate at the date
of the initial transaction. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rate
at the date the fair value was determined.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are expressed in GBP using exchange rates prevailing at
the end of the reporting period. Income and expenses are translated
at the average exchange rate for the period. Exchange differences
arising are classified as other comprehensive income and are
transferred to the foreign currency translation reserve. All other
translation differences are taken to profit and loss with the
exception of differences on foreign currency borrowings to the
extent that they are used to finance or provide a hedge against
Group equity investments in foreign operations, in which case they
are taken to other comprehensive income together with the exchange
difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The significant judgements, estimates and assumptions made in
these financial statements relate to: intangible assets - goodwill
(note 10), impairment assessment of goodwill (note 11), intangible
assets - other (note 12), refund liabilities arising from
retrospective volume rebates (note 3) and financial liabilities
relating to the business combination of ClimaRad and ERI (note
19).
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial
year are described under the relevant notes.
The Group based its assumptions and estimates on parameters
available when these financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur. The Directors have considered a range
of potential scenarios arising from the political and macroeconomic
uncertainty that has arisen post-covid and since the invasion of
Ukraine in early 2022 and how these have impacted the significant
judgements, estimates and assumptions in these financial statements
is included under the relevant notes.
Separately disclosed items
The Group discloses some items on the face of the consolidated
statement of comprehensive income by virtue of their nature, size
or incidence to allow a better understanding of the underlying
trading performance of the Group. These separately disclosed items
include, but are not limited to, significant restructuring costs
and significant business combination and related integration and
earn-out costs.
New standards and interpretations
The standards and interpretations listed below have become
effective since 1 July 2021 for annual periods beginning on or
after 1 January 2022.
The following amendments became effective as at 1 January
2022:
-- Reference to the Conceptual Framework - Amendments to IFRS 3
-- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
-- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
-- IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities
The standards and interpretations listed below have become
effective since 1 July 2020 for annual periods beginning on or
after 1 January 2021.
The following amendments became effective as at 1 January
2021:
-- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
-- Covid-19-Related Rent Concessions beyond 30 June 2021 Amendment to IFRS 16
These have not had an impact on these financial statements.
Other new standards or interpretations in issue, but not yet
effective, are not expected to have a material impact on the
Company's net assets or results.
2. Adjusted earnings
The Board and key management personnel use some alternative
performance measures to track and assess the underlying performance
of the business. These measures include adjusted operating profit
and adjusted profit before tax. These measures are deemed more
appropriate as they remove items that do not reflect the day-to-day
trading operations of the business and therefore their exclusion is
relevant to an assessment of the day-to-day trading operations, as
opposed to overall annual business performance. Such alternative
performance measures are not defined terms under IFRS and may not
be comparable with similar measures disclosed by other companies.
Likewise, these measures are not a substitute for IFRS measures of
profit. A reconciliation of these measures of performance to the
corresponding reported figure is shown below.
2022 2021
GBP000 GBP000
---------------------------------------------------------- ------- -------
Profit after tax 35,672 20,836
Add back:
Contingent consideration (598) 3,287
Cost of business combinations 215 889
Amortisation of acquired inventory fair value adjustment - 1,727
Re-measurement of future consideration relating to
the business combination of ClimaRad 955 811
Net gain on financial instruments at fair value (1,329) (340)
Amortisation and impairment of intangible assets acquired
through business combinations 14,485 16,839
Tax effect of the above (2,085) (2,426)
---------------------------------------------------------- ------- -------
Adjusted profit after tax 47,315 41,623
Add back:
Adjusted tax charge 13,627 11,624
---------------------------------------------------------- ------- -------
Adjusted profit before tax 60,942 53,247
Add back:
Interest payable on bank loans, lease liabilities and
amortisation of financing costs 3,369 3,272
Re-measurement of financial liabilities relating to
the business combination of ClimaRad 583 491
Finance revenue (4) (57)
---------------------------------------------------------- ------- -------
Adjusted operating profit 64,890 56,953
Add back:
Depreciation of property, plant and equipment 3,816 3,327
Depreciation of right-of-use assets 3,612 3,531
Amortisation of development costs, software and patents 1,541 1,379
---------------------------------------------------------- ------- -------
Adjusted EBITDA 73,859 65,190
---------------------------------------------------------- ------- -------
For definitions of terms referred to above see note 25, Glossary
of terms.
3. Revenue from contracts with customers
Accounting policy
Revenue from contracts with customers is recognised when the
control of goods or services is transferred to the customer at an
amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods and services. The
performance obligation is satisfied upon delivery of the equipment
and payment is generally due within 30 to 90 days from
delivery.
Sale of ventilation products
Revenue from the sale of ventilation products is recognised at
the point in time when control of the asset is transferred to the
buyer, usually on the delivery of the goods.
The Group considers whether there are other promises in the
contract that are separate performance obligations to which a
portion of the transaction price needs to be allocated (e.g.
warranties and volume rebates). In determining the transaction
price for the sale of ventilation products, the Group considers the
effects of variable consideration (if any).
Volume rebates
The Group provides retrospective volume rebates to certain
customers once the quantity of products purchased during the period
exceeds a threshold specified in the contract. To estimate the
variable consideration for the expected future rebates, the Group
applies the expected value method for contracts with more than one
volume threshold. The Group then applies the requirements on
constraining estimates of variable consideration and recognises a
liability for the expected future rebates.
Before including any amount of variable consideration in the
transaction price, the Group considers whether the amount of
variable consideration is constrained. The Group determined that
the estimates of variable consideration are not constrained, other
than with respect to volume rebates, based on its historical
experience, business forecasts and the current economic conditions.
In addition, the uncertainty on the variable consideration will be
resolved within a short timeframe.
Warranty obligations
The Group typically provides warranties for general repairs of
defects that existed at the time of sale. These assurance-type
warranties are accounted for under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Refer to the accounting policy
on warranty provisions in note 21, Provisions.
Installation services
The Group provides installation services that are bundled
together with the sale of equipment to a customer.
Contracts for bundled sales of equipment and installation
services are comprised of two performance obligations because the
promises to transfer equipment and provide installation services
are capable of being distinct and separately identifiable.
Accordingly, the Group allocates the transaction price based on the
relative stand-alone selling prices of the equipment and the cost
plus margin approach for installation services.
The Group recognises revenue from installation services at a
point in time after the service has been performed; this is because
installation of the ventilation equipment is generally over a small
timeframe, usually around one to two days. Revenue from the sale of
the ventilation equipment is recognised at a point in time,
generally upon delivery of the equipment.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for
goods and services transferred to the customer. A contract asset is
recognised when the Group transfers goods or services to the
customer before the customer pays consideration. There is no
contract asset included within the statement of financial position
as revenue is recognised at a point in time, after installation.
Consideration is recognised immediately as a receivable and is
unconditional (only the passage of time is required before payment
of consideration is due). The Group's accounting policy on trade
receivables is detailed in note 15.
Contract liabilities
There are no contract liabilities recognised in the comparative
period or in the financial year ended 31 July 2022.
Critical accounting judgements and key sources of estimation
uncertainty
Liabilities arising from retrospective volume rebates
The Group has a number of customer rebate agreements that are
recognised as a reduction from sales (collectively referred to as
rebates). Rebates are based on an agreed percentage of revenue,
which increases with the level of revenue achieved. These
agreements typically are not coterminous with the Group's year end
and some of the amounts payable are subject to confirmation after
the reporting date.
At the reporting date, the Directors make estimates of the
amount of rebate that will become payable by the Group under these
agreements; to estimate the variable consideration for the expected
future rebates, the Group applies the expected value method for
contracts with more than one volume threshold. Where the respective
customer has been engaged with the Group for a number of years,
historical settlement trends are also used to assist in ensuring an
appropriate estimate is recorded at the reporting date and that
appropriate internal approvals and reviews take place before
rebates are recorded.
Given that the rebate provision represents an estimate within
the financial statements, there is a risk that the Directors'
estimate of the potential liability may be incorrect.
Revenue recognised in the statement of comprehensive income is
analysed below:
2022 2021
GBP000 GBP000
-------------------------------------------- ------- -------
Sale of goods 301,097 266,580
Installation services 6,604 6,008
-------------------------------------------- ------- -------
Total revenue from contracts with customers 307,701 272,588
-------------------------------------------- ------- -------
2022 2021
Market sectors GBP000 GBP000
-------------------------------------------- ------- -------
UK
Residential 75,040 70,178
Commercial 31,031 31,145
Export 11,670 10,107
OEM (Torin-Sifan) 25,908 24,455
-------------------------------------------- ------- -------
Total UK 143,649 135,885
-------------------------------------------- ------- -------
Nordics1 53,303 51,584
Central Europe2 65,128 43,872
-------------------------------------------- ------- -------
Total Continental Europe 118,431 95,456
-------------------------------------------- ------- -------
Total Australasia 45,621 41,247
-------------------------------------------- ------- -------
Total revenue from contracts with customers 307,701 272,588
-------------------------------------------- ------- -------
2022 2021
Right of return assets and refund liabilities GBP000 GBP000
---------------------------------------------- ------- -------
Right of return assets - 99
---------------------------------------------- ------- -------
Refund liabilities
Arising from retrospective volume rebates 9,427 9,960
Arising from rights of return 841 602
---------------------------------------------- ------- -------
Refund liabilities 10,268 10,562
---------------------------------------------- ------- -------
Notes
1. Included in the Nordics revenue is GBP3,514,000 of inorganic
revenue from the business combination of Klimatfabriken and Rtek.
(2021: GBP1,057,000 of inorganic revenue from the business
combination of Klimatfabriken and Rtek).
2. Included in the Central Europe revenue is GBP18,950,000 of
inorganic revenue from the business combination of ClimaRad BV and
ERI. (2021: GBP7,306,000 of inorganic revenue from the business
combination of ClimaRad BV).
4. Segmental analysis
Accounting policy
The method of identifying reporting segments is based on
internal management reporting information that is regularly
reviewed by the chief operating decision maker, which is considered
to be the Chief Executive Officer of the Group.
In identifying its operating segments, management follows the
Group's market sectors. These are Ventilation UK including OEM
(Torin-Sifan), Ventilation Europe and Ventilation Australasia.
Operating segments that provide ventilation services have been
aggregated as they have similar economic characteristics, assessed
by reference to the gross margins of the segments. In addition, the
segments are similar in relation to the nature of products,
services and production processes, type of customer, method for
distribution and regulatory environment.
The measure of revenue reported to the chief operating decision
maker to assess performance is total revenue for each operating
segment. The measure of profit reported to the chief operating
decision maker to assess performance is adjusted operating profit
(see note 25 for definition) for each operating segment. Gross
profit and the analysis below segment profit is additional
voluntary information and not "segment information" prepared in
accordance with IFRS 8.
Finance revenue and costs are not allocated to individual
operating segments as the underlying instruments are managed on a
Group basis.
Total assets and liabilities are not disclosed as this
information is not provided by operating segment to the chief
operating decision maker on a regular basis.
Transfer prices between operating segments are on an arm's
length basis on terms similar to transactions with third
parties.
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2022 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- ------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
External customers 143,649 118,431(1) 45,621 - 307,701
Inter-segment 20,318 30,038 179 (50,535) -
---------------------------------------- ------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 163,967 148,469 45,800 (50,535) 307,701
---------------------------------------- ------- ----------- ----------- ------------- ------------
Gross profit 62,397 61,984 22,456 - 146,837
---------------------------------------- ------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 33,052 32,810 11,236 (3,239) 73,859
Depreciation and amortisation
of development costs, software
and patents (3,799) (3,201) (1,292) (677) (8,969)
---------------------------------------- ------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 29,253 29,609 9,944 (3,916) 64,890
Amortisation of intangible assets
acquired through business combinations (6,978) (6,365) (1,142) - (14,485)
Business combination-related
operating costs - - - 383 383
---------------------------------------- ------- ----------- ----------- ------------- ------------
Operating profit/(loss) 22,275 23,244 8,802 (3,533) 50,788
Unallocated expenses
Net finance cost - - 99 (2,135) (2,036)
Re-measurement of future consideration - - - (955) (955)
Re-measurement of financial
liability - - - (583) (583)
---------------------------------------- ------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 22,275 23,244 8,901 (7,206) 47,214
---------------------------------------- ------- ----------- ----------- ------------- ------------
Continental Central/
UK Europe Australasia eliminations Consolidated
Year ended 31 July 2021 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- -------- ----------- ----------- ------------- ------------
Revenue from contracts with
customers
External customers 135,885 95,456(1) 41,247 - 272,588
Inter-segment 20,580 9,885 195 (30,660) -
---------------------------------------- -------- ----------- ----------- ------------- ------------
Total revenue from contracts
with customers 156,465 105,341 41,442 (30,660) 272,588
---------------------------------------- -------- ----------- ----------- ------------- ------------
Gross profit 60,502 50,839 20,418 (110) 131,649
---------------------------------------- -------- ----------- ----------- ------------- ------------
Results
Adjusted segment EBITDA 31,453 28,120 10,116 (4,499) 65,190
Depreciation and amortisation
of development costs, software
and patents (3,667) (2,732) (1,183) (655) (8,237)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Adjusted operating profit/(loss) 27,786 25,388 8,933 (5,154) 56,953
Amortisation of intangible assets
acquired through business combinations (10,115) (5,566) (1,158) - (16,839)
Amortisation of acquired inventory
fair value adjustments - (1,727) - - (1,727)
Business combination-related
operating costs - - (3,287) (889) (4,176)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Operating profit/(loss) 17,671 18,095 4,488 (6,043) 34,211
Unallocated expenses
Net finance cost - - - (2,875) (2,875)
Re-measurement of future consideration - - - (811) (811)
Re-measurement of financial
liability - - - (491) (491)
---------------------------------------- -------- ----------- ----------- ------------- ------------
Profit/(loss) before tax 17,671 18,095 4,488 (10,220) 30,034
---------------------------------------- -------- ----------- ----------- ------------- ------------
Note
1. Included in the Continental Europe revenue is GBP22,464,000
of inorganic revenue from the business combination of ClimaRad BV,
Klimatfabriken, Rtek and ERI. (2021: GBP8,363,000 of inorganic
revenue from the business combination of ClimaRad BV,
Klimatfabriken, and Rtek).
2. The movement of GBP1.2 million in central costs /
eliminations is due to a combination of bonus and long term
incentive costs as well as allocations
Geographic information
2022 2021
Revenue from external customers by customer destination GBP000 GBP000
-------------------------------------------------------- ------- -------
United Kingdom 119,371 112,661
Europe (excluding United Kingdom and Sweden) 112,886 88,711
Sweden 24,431 26,130
Australasia 45,780 41,276
Rest of the world 5,233 3,810
-------------------------------------------------------- ------- -------
Total revenue from contracts with customers 307,701 272,588
-------------------------------------------------------- ------- -------
2022 2021
Non-current assets excluding deferred tax GBP000 GBP000
---------------------------------------------- ------- -------
United Kingdom 117,704 122,148
Europe (excluding United Kingdom and Nordics) 79,408 62,709
Nordics 35,930 37,341
Australasia 49,013 49,270
---------------------------------------------- ------- -------
Total 282,055 271,468
---------------------------------------------- ------- -------
Information about major customers
Annual revenue from no individual customer accounts for more
than 10% of Group revenue in either the current or prior year.
5. Other operating income
Accounting policy
Other operating income relates to government grants which are
recognised where there is reasonable assurance that the grant will
be received and all attached conditions will be complied with. When
the grant relates to an expensed item, it is recognised as income
on a systematic basis over the periods that the related costs, for
which it is intended to compensate, are expensed.
2022 2021
GBP000 GBP000
-------------------------- ------- -------
Local government receipts - 137
-------------------------- ------- -------
The Group has made no claims in the year ended 31 July 2022. The
balance of GBP137,000 in the prior year was an adjustment relating
to the claims made in the financial year ended 31 July 2020.
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.
2022 2021
GBP000 GBP000
------------------------------------------------ ------- -------
Finance revenue
Net gain on financial instruments at fair value 1,329 340
Interest receivable 4 57
------------------------------------------------ ------- -------
Total finance revenue 1,333 397
------------------------------------------------ ------- -------
Finance costs
Interest payable on bank loans (1,828) (1,566)
Amortisation of finance costs (442) (792)
IFRS 16-related interest (520) (522)
Other interest (579) (392)
------------------------------------------------ ------- -------
Total finance costs (3,369) (3,272)
------------------------------------------------ ------- -------
Net finance costs (2,036) (2,875)
------------------------------------------------ ------- -------
In the prior year amortisation of finance costs includes
GBP451,000 in relation to the charging of unamortised costs
associated with the Group's previous GBP120 million revolving
credit facility which was replaced in December 2020.
The net loss or gain on financial instruments at each year-end
date relates to the measurement of fair value of the financial
derivatives and the Group recognises any finance losses or gains
immediately within net finance costs. The fair value of the Group's
financial derivatives can be found in note 16.
7. Income tax
Accounting policy
Current income tax assets and liabilities are measured at the
amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted at the reporting date.
The Group's deferred tax policy can be found in note 22.
(a) Income tax charges against profit for the year
2022 2021
GBP000 GBP000
------------------------------------------------------ ------- -------
Current income tax
Current UK income tax expense 4,897 4,069
Current foreign income tax expense 9,075 7,883
Tax credit relating to the prior year (673) (84)
------------------------------------------------------ ------- -------
Total current tax 13,299 11,868
------------------------------------------------------ ------- -------
Deferred tax
Origination and reversal of temporary differences (2,851) (3,957)
Effect of changes in the tax rate 200 1,118
Tax charge relating to the prior year 894 169
------------------------------------------------------ ------- -------
Total deferred tax (1,757) (2,670)
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 11,542 9,198
------------------------------------------------------ ------- -------
(b) Income tax recognised in equity for the year
2022 2021
GBP000 GBP000
------------------------------------------------------- ------- -------
Increase in deferred tax asset on share-based payments (685) (1,366)
------------------------------------------------------- ------- -------
Net tax credit reported in equity (685) (1,366)
------------------------------------------------------- ------- -------
(c) Reconciliation of total tax
2022 2021
GBP000 GBP000
------------------------------------------------------ ------- -------
Profit before tax 47,214 30,034
Profit before tax multiplied by the standard rate of
corporation tax in the UK of 19.00% (2021: 19.00%) 8,971 5,706
Adjustment in respect of previous years 221 85
Expenses not deductible for tax purposes 1,161 1,573
Effect of changes in the tax rate (see explanation
below) 200 1,118
Non-taxable income (391) (341)
Higher overseas tax rate 1,602 1,220
Patent box (330) (167)
Other 108 4
------------------------------------------------------ ------- -------
Net tax charge reported in the consolidated statement
of comprehensive income 11,542 9,198
------------------------------------------------------ ------- -------
Our reported effective tax rate for the period was 24.4% (2021:
30.6%). Our underlying effective tax rate, on adjusted profit
before tax, was 22.4% (2021: 21.8%).
The rate of tax in the UK is currently 19%. Following the
Finance Bill 2021, the rate of tax in the UK had been expected to
increase to 25% from 1 April 2023. On 23 September 2022, the
Chancellor of the Exchequer announced that the UK corporation tax
rate will remain at 19% from 1 April 2023 - reversing a previously
enacted measure to increase the rate to 25%. The announcement of
the reversal in the tax rate from 1 April 2023 was not enacted or
substantively enacted at the balance sheet date and accordingly has
no impact on the tax balances at 31 July 2022. If this tax rate
change had been substantively enacted or enacted at the balance
sheet date, the deferred tax liability would have decreased by
approximately GBP1.1 million. We expect our medium-term underlying
effective tax rate to be in the range of 22% to 25% of the Group's
adjusted profit before tax, depending on business mix and the
profile of acquisitions.
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.
We expect our medium-term reported effective tax rate to be in
the range of 29% to 35% of the Group's reported profit before tax
and our underlying effective tax rate to be in the range of 22% to
25% of the Group's adjusted profit before tax.
8. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of any dilutive
potential ordinary shares into ordinary shares. There are 2,966,484
dilutive potential ordinary shares at 31 July 2022 (2021:
3,270,467).
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2022 2021
Year ended 31 July GBP000 GBP000
----------------------------------------------- ------- -------
Profit attributable to ordinary equity holders 35,672 20,836
----------------------------------------------- ------- -------
Number Number
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for basic
earnings per share 197,522,143 197,821,482
Weighted average number of ordinary shares for diluted
earnings per share 200,047,856 200,975,673
------------------------------------------------------- ----------- -----------
Earnings per share
Basic 18.1p 10.5p
Diluted 17.8p 10.4p
------------------------------------------------------- ----------- -----------
2022 2021
Year ended 31 July GBP000 GBP000
-------------------------------------------------------- ------- -------
Adjusted profit attributable to ordinary equity holders 47,315 41,623
-------------------------------------------------------- ------- -------
Number Number
-------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for adjusted
basic earnings per share 197,522,143 197,821,482
Weighted average number of ordinary shares for adjusted
diluted earnings per share 200,047,856 200,975,673
-------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Basic 24.0p 21.0p
Diluted 23.7p 20.7p
-------------------------------------------------------- ----------- -----------
The weighted average number of ordinary shares has declined as a
result of treasury shares held by the Volution Employee Benefit
Trust (EBT) during the year. The shares are excluded when
calculating the reported and adjusted EPS.
Adjusted profit attributable to ordinary equity holders has been
reconciled in note 2, Adjusted earnings.
See note 25, Glossary of terms, for an explanation of the
adjusted basic and diluted earnings per share calculation.
9. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost, net of
accumulated depreciation and impairment losses, if any. Such cost
includes the cost of replacing part of the property, plant and
equipment; when significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such
parts as individual assets with specific useful lives and
depreciates them accordingly. All other repair and maintenance
costs are recognised in the statement of comprehensive income as
incurred.
Depreciation is charged so as to write off the cost or valuation
of assets, except freehold land, over their estimated useful lives
using the straight line method. The estimated useful lives,
residual values and depreciation methods are reviewed at each year
end, with the effect of any changes in estimates accounted for on a
prospective basis.
The following useful lives are used in the calculation of
depreciation:
Buildings - 30-50 years
Plant and machinery - 5-10 years
Fixtures, fittings, tools, equipment and vehicles - 4-10 years
The gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the disposal proceeds and the carrying amount of
the asset and is recognised in the statement of comprehensive
income as part of administrative expenses.
The Group's impairment policy can be found in note 11.
Fixtures,
fittings,
tools,
Land and Plant and equipment
buildings machinery and vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2021 15,370 13,840 11,544 40,754
On business combinations 2,046 1,739 92 3,877
Additions 341 2,237 2,195 4,773
Disposals - (531) (812) (1,343)
Net foreign currency exchange differences (277) (263) (96) (636)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 17,480 17,022 12,923 47,425
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2021 4,542 5,795 6,509 16,846
Charge for the year 517 1,339 1,960 3,816
Disposals - (523) (709) (1,232)
Net foreign currency exchange differences (48) (118) (74) (240)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 5,011 6,493 7,686 19,190
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2022 12,469 10,529 5,237 28,235
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
tools,
Land and Plant and equipment
buildings machinery and vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2020 13,852 12,110 10,938 36,900
On business combinations 2,167 197 411 2,775
Transferred to right-of-use assets (419) - - (419)
Additions 66 2,063 1,503 3,632
Disposals - (464) (895) (1,359)
Net foreign currency exchange differences (296) (66) (413) (775)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 15,370 13,840 11,544 40,754
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2020 4,219 5,221 5,946 15,386
Transferred to right-of-use assets (90) - - (90)
Charge for the year 502 1,027 1,798 3,327
Disposals - (350) (815) (1,165)
Net foreign currency exchange differences (89) (103) (420) (612)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 4,542 5,795 6,509 16,846
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2021 10,828 8,045 5,035 23,908
------------------------------------------ ---------- ---------- ------------- -------
10. Intangible assets - goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group's cash generating units
that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group
are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently
if there is an indication of impairment. Impairment of goodwill is
determined by assessing the recoverable amount of the cash
generating unit to which the goodwill relates. Where the
recoverable amount of the cash generating unit is less than the
carrying value of the cash generating unit to which goodwill has
been allocated, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
See note 11 for the Group's impairment assessment.
Goodwill GBP000
---------------------------------------------- -------
Cost and net book value
At 1 August 2020 116,778
On the business combination of ClimaRad BV 20,258
On the business combination of Klimatfabriken 2,646
On the business combination of Rtek 1,096
Net foreign currency exchange differences (3,068)
---------------------------------------------- -------
At 31 July 2021 137,710
On the business combination of ERI 5,134
Net foreign currency exchange differences (183)
---------------------------------------------- -------
At 31 July 2022 142,661
---------------------------------------------- -------
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 flows and the growth rate used for
extrapolation purposes.
The identification of the Group's cash generating units (CGUs)
used for impairment testing involves a degree of judgement.
Management has reviewed the Group's assets and cash inflows and
identified the lowest aggregation of assets that generate largely
independent cash inflows. The current economic and political
uncertainty has increased the level of estimation uncertainty as
the impact on countries and markets continues to be uncertain;
however, the Group has modelled a range of scenarios to consider
the impact on the carrying value of its assets as described in the
going concern statement in the risk management and principal risks
section.
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2022 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 19,022 35,165 27,474
CGU value in use headroom1 152,066 21,821 71,987 61,517 32,446
--------------------------- ------------ -------------- ------- ------- -----------
As at 31 July 2021 calculated headroom was:
UK OEM Central
Ventilation (Torin-Sifan) Nordics Europe Australasia
31 July 2021 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------ -------------- ------- ------- -----------
Carrying value of goodwill 55,899 5,101 19,548 30,644 26,518
CGU value in use headroom1 255,944 34,959 123,224 81,609 76,074
--------------------------- ------------ -------------- ------- ------- -----------
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 15.7% (2021:
10.5% to 14.7%) over that period. In all CGUs it was concluded that
the carrying amount was in excess of the value in use and all CGUs
had positive headroom.
When assessing for impairment of goodwill, we have considered
the impact of climate change, particularly in the context of the
risks and opportunities identified in the TCFD disclosure in the
Annual Report. We have not identified any material short and medium
term impacts from climate change that would impact the carrying
value of Goodwill. Over the long term, the risks and opportunities
are more uncertain and we will continue to assess these risks at
each reporting period.
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% (2021: 2%) for all CGUs have
been applied to the period beyond which budgets and forecasts do
not exist, based on historical macroeconomic performance and
projections for the geographies in which the CGUs operate; and
-- discount rates reflect the current market assessment of the
risks specific to each operation. The pre-tax discount rates used
for each CGU are: UK Ventilation: 13.0% (2021: 10.5%); OEM
(Torin-Sifan): 14.0% (2021: 11.7%); Nordics: 12.1% (2021: 12.4%);
Central Europe: 12.2% (2021: 13.6%); and Australasia: 15.7% (2021:
14.7%).
The value in use headroom for each CGU has been set out above.
We have tested the sensitivity of our headroom calculations in
relation to the above key assumptions and the Group does not
consider that changes in the key assumptions that could cause the
carrying value of the CGUs to materially exceed their recoverable
value are reasonably possible.
12. Intangible assets - other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values
can be measured reliably. The cost of such intangible assets is
their fair value at the business combination date.
The fair value of patents, trademarks and customer base acquired
and recognised as part of business combination is determined using
the relief-from-royalty method or multi-period excess earnings
method.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure
on an individual project is recognised as an intangible asset when
the Company can demonstrate: the technical feasibility of
completing the intangible asset so that it will be available for
use or sale; its intention to complete and its ability to use or
sell the asset; how the asset will generate future economic
benefits; the availability of resources to complete the asset; and
the ability to reliably measure the expenditure during
development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight
line basis over their estimated useful lives as follows:
Development costs - 10 years
Software costs - 5-10 years
Customer base - 5-15 years
Trademarks - 15-25 years
Patents/technology - 5-25 years
Other - 5 years
The estimated useful life and amortisation methods are reviewed
at the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
Critical accounting judgements and key sources of estimation
uncertainty
Impairment of other intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts
of its other intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss,
if any. Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount
of the cash generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash generating
units, or otherwise they are allocated to the smallest group of
cash generating units for which a reasonable and consistent
allocation basis can be identified.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. Impairment losses are immediately recognised in
the statement of comprehensive income.
The assumptions and sensitivities in respect of the Group's
other intangible assets are included in note 11.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2021 6,783 9,698 147,582 51,447 3,410 1,163 220,083
Additions 1,245 238 755 - - - 2,238
On business combinations 6 39 12,957 2,933 19 - 15,954
Disposals (25) (122) - - - - (147)
Net foreign currency
exchange differences (53) (18) (1,280) (275) (65) - (1,691)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2022 7,956 9,835 160,014 54,105 3,364 1,163 236,437
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2021 2,039 5,503 106,202 18,127 1,676 1,163 134,710
Charge for the
year 620 932 9,207 4,868 399 - 16,026
Disposals (8) (122) - - - - (130)
Net foreign currency
exchange differences (50) (31) (1,289) (317) (74) - (1,761)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2022 2,601 6,282 114,120 22,678 2,001 1,163 148,845
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2022 5,355 3,553 45,894 31,427 1,363 - 87,592
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Included in software costs are assets under construction of
GBP48,000 (2021: GBP27,000), which are not amortised. Included in
development costs are assets under construction of GBP1,501,000
(2021: GBP26,000), which are not amortised.
Development Software Customer Patents/
costs costs base Trademarks technology Other Total
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Cost
At 1 August 2020 6,023 9,338 132,376 46,287 3,542 1,163 198,729
Additions 788 279 - - 1 - 1,068
On business combinations - 149 17,751 5,906 - - 23,806
Disposals - (4) - - - - (4)
Net foreign currency
exchange differences (28) (64) (2,545) (746) (133) - (3,516)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2021 6,783 9,698 147,582 51,447 3,410 1,163 220,083
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Amortisation
At 1 August 2020 1,494 4,692 95,004 15,206 1,357 1,163 118,916
Charge for the
year 547 832 13,168 3,290 381 - 18,218
Disposals - (4) - - - - (4)
Net foreign currency
exchange differences (2) (17) (1,970) (369) (62) - (2,420)
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
At 31 July 2021 2,039 5,503 106,202 18,127 1,676 1,163 134,710
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
Net book value
At 31 July 2021 4,744 4,195 41,380 33,320 1,734 - 85,373
------------------------- ----------- -------- -------- ---------- ----------- ------- -------
The remaining amortisation periods for acquired intangible
assets at 31 July 2022 are as follows:
Patent/
Customer technology/
base Trademark other
---------------------------------------------- -------- --------- ------------
Volution Holdings Limited and its subsidiaries 1 year 15 years -
Fresh AB and its subsidiaries - 10 years -
PAX AB and PAX Norge AS - 11 years -
inVENTer GmbH 1 year 12 years 12 years
Ventilair Group International BVBA and its
subsidiaries 1 year 3 years -
Energy Technique Limited and its subsidiaries 2 years 14 years -
NVA Services Limited and its subsidiaries 4 years 9 years -
Breathing Buildings Limited 4 years 9 years -
VoltAir System AB 10 years 10 years -
Simx Limited 11 years 21 years -
Oy Pamon Ab 6 years 16 years 6 years
Air Connection ApS 6 years - -
Nordic Line ApS - - -
Ventair Pty Limited 8 years 18 years -
ClimaRad BV 7 years 14 years -
Nordiska Klimatfabriken AB 4 years 9 years -
Energent Oy 4 years 9 years -
ERI 9 years 19 years -
---------------------------------------------- -------- --------- ------------
13. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition
method. The cost of the business combination is measured as the
aggregate of the consideration transferred, measured at fair value
on the date of the business combination. The business combination
costs incurred are expensed.
When the Group acquires a business it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions at the business combination
date.
Contingent consideration resulting from business combinations is
accounted for at fair value at the acquisition date as part of the
business combination. When the contingent consideration meets the
definition of a financial liability, it is subsequently re-measured
to fair value at each reporting date, with changes in fair value
recognised in profit or loss. The determination of fair value is
based on discounted cash flows. The key assumptions used in
determining the discounted cash flows take into consideration the
probability of meeting each performance target and a discount
factor.
Goodwill is initially recognised at cost, being the excess of
the aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash generating
units (CGUs) that are expected to benefit from the combination,
irrespective of whether assets or liabilities of the business
combination are assigned to those units.
Non-controlling interests are identified separately from the
Group's equity. Non-controlling interests consist of the amount of
those interests at the date of the business combination and the
non-controlling interest's share of changes in equity since that
date. Non-controlling interests are measured at the non-controlling
interest's share of the fair value of the identifiable net
assets.
Where there is an obligation to purchase the non-controlling
interest at a future date, the non-controlling interest will be
recognised on the business combination, and subsequently when the
obligation to purchase liability is recognised the amount is
reclassified from equity to a financial liability and the
non-controlling interest is derecognised. Any difference between
the carrying value of the non-controlling interest and the
liability is adjusted against retained earnings.
The financial liability for the non-controlling interest is
subsequently accounted for under IFRS 9, with all changes in the
carrying amount, including the non-controlling interest share of
profit, recognised as a re-measurement in the income statement.
When the obligation or "put liability" is exercised, the carrying
amount of the financial liability at that date is extinguished by
the payment of the exercise price.
Business combinations in the year ended 31 July 2022
ERI
On 9 September 2021, Volution Group acquired ERI Corporation, a
leading manufacturer and supplier of low-carbon, energy efficient
heat exchanger cells, for an initial consideration of EUR20.0
million with a further contingent cash consideration of up to
EUR12.4 million based on stretching targets for the financial
results for the year ending 31 December 2024. The acquisition of
ERI Corporation is in line with the Group's strategy to grow by
selectively acquiring value-adding businesses in new and existing
markets and geographies.
ERI designs and manufactures a range of innovative and highly
efficient aluminium heat exchanger cells for use primarily in
commercial heat recovery ventilation systems. Products are
manufactured in ERI's modern, high quality production facility in
Bitola, North Macedonia, and are supplied to heat recovery and air
handling unit manufacturers predominantly in Europe, including
existing Volution Group companies. The business combination
encompasses 100% of the issued share capital of ERI Corporation DOO
Bitola (North Macedonia), ERI Corporation S.R.L. (Italy) and Energy
Recovery Industries Trading SLU (Spain) and 51% of the issued share
capital of Energy Recovery Industries Corporation Ltd (UK). For the
financial year ended 31 December 2020, ERI generated revenue of
EUR11.3 million and profit before tax of EUR2.0 million.
The fair value of the net assets acquired were as follows:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
-------------------------------------------- ---------- ------------ ----------
Intangible assets 418 15,536 15,954
Property, plant and equipment 3,130 747 3,877
Inventory 2,276 - 2,276
Trade and other receivables 3,626 - 3,626
Trade and other payables (2,343) - (2,343)
Deferred tax liabilities - (1,589) (1,589)
Bank debt (3,227) - (3,227)
Cash and cash equivalents 896 - 896
-------------------------------------------- ---------- ------------ ----------
Total identifiable net assets 4,776 14,694 19,470
-------------------------------------------- ---------- ------------ ----------
Non-controlling interest in ERI UK (34)
-------------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 5,134
-------------------------------------------- ---------- ------------ ----------
Discharged by:
Cash consideration (including deferred cash
consideration) 16,892
Contingent consideration 7,678
-------------------------------------------- ---------- ------------ ----------
Goodwill of GBP5,134,000 reflects certain intangibles that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the business combination and the experience and skill of the
acquired workforce. The fair value of the acquired trademark and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP3,626,000.
All of the trade receivables are expected to be collected in full.
Transaction costs relating to professional fees associated with the
business combination in the period ended 31 January 2022 were
GBP126,000 and have been expensed.
ERI generated revenue of GBP15,215,000 and profit after tax of
GBP2,642,000 in the period from acquisition to 31 July 2022 that
are included in the consolidated statement of comprehensive income
for this reporting period. If the combination had taken place at 1
August 2021, the Group's revenue would have been GBP309,231,000 and
the profit before tax from continuing operations would have been
GBP47,559,000.
Business combinations in the year ended 31 July 2021
ClimaRad Holding B.V. and subsidiaries
On 17 December 2020 Volution Group plc acquired 75% of the
issued share capital of ClimaRad Holding B.V. and subsidiaries
(ClimaRad), a company based in the Netherlands. The business
combination of ClimaRad is in line with the Group's strategy to
grow by selectively acquiring value-adding businesses in new and
existing markets and geographies, across the residential
ventilation market and, where appropriate, in the commercial
ventilation market. The integration of ClimaRad into the Volution
Group will provide an opportunity for further growth in the
Netherlands and the combination of its product portfolio with that
of Ventilair (the Netherlands and Belgium) will enable us to
enhance our offer in the European markets.
Total consideration for the purchase of 75% of the issued share
capital was EUR41,100,000 (GBP37,100,000) with a commitment to
purchase the remaining 25% on or before 28 February 2025. The
future consideration for the purchase of the remaining 25% is set
at 25% of 13 times the EBITDA of ClimaRad for the financial year
ending 31 December 2024, plus the non-controlling interest share of
profits earned in the periods up to and including 31 December 2024,
and is subject to a cap.
The non-controlling interest on the business combination was
valued at 25% of the total identifiable net assets, at
GBP5,603,000. On recognition of the financial liability to purchase
the remaining 25%, the non-controlling interest of GBP5,603,000 was
derecognised from equity.
The expected value of the future consideration is partially in
the form of a vendor loan (ClimaRad vendor loan) of EUR12,000,000
(GBP10,551,000) payable to certain individuals including the
co-founder and management team of ClimaRad on completion of the
purchase of the remaining 25% on or before 28 February 2025, and an
additional element of contingent consideration.
At 31 July 2021, the financial liability for the future
consideration has been re-measured to include the non-controlling
interest's share in profit of ClimaRad for the period (GBP820,000),
less interest already charged to the income statement on the
ClimaRad vendor loan (GBP329,000), a net re-measurement of
GBP491,000. At 31 July 2021, the financial liability for the future
consideration has also been re-measured to include the net
unwinding of the discounted present value of GBP811,000. As a
result, at 31 July 2021, the contingent consideration was assessed
based on the current estimate of the future performance of the
business as GBP5,514,000, discounted to present value.
Transaction costs relating to professional fees associated with
the business combination in the period ended 31 July 2021 were
GBP506,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------------------------ ---------- ------------ ----------
Intangible assets 149 21,554 21,703
Property, plant and equipment 2,783 150 2,933
Inventory 2,399 1,727 4,126
Trade and other receivables 1,035 - 1,035
Trade and other payables (948) 24 (924)
Bank debt (1,482) - (1,482)
Deferred tax liabilities - (5,858) (5,858)
Cash and cash equivalents 879 - 879
------------------------------------------------------ ---------- ------------ ----------
Total identifiable net assets 4,815 17,597 22,412
------------------------------------------------------ ---------- ------------ ----------
Non-controlling interest on the business combination,
subsequently derecognised (5,603)
------------------------------------------------------ ---------- ------------ ----------
Goodwill on the business combination 20,258
------------------------------------------------------ ---------- ------------ ----------
Discharged by:
Total consideration 37,067
------------------------------------------------------ ---------- ------------ ----------
Goodwill of GBP20,258,000 reflects certain intangible assets
that cannot be individually separated and reliably measured due to
their nature. These items include the value of expected synergies
arising from the business combination and the experience and skill
of the acquired workforce. The fair value of the acquired tradename
and customer base was identified and included in intangible
assets.
The gross amount of trade and other receivables is GBP1,035,000.
The amount for trade and other receivables not expected to be
collected is GBPnil.
Inventories recorded on the business combination were recognised
at fair value. The book value of the inventories is charged to
adjusted gross profit and the fair value uplift is charged to gross
profit as the inventories are sold.
ClimaRad generated revenue of GBP7,306,000 and profit after tax
of GBP2,141,000 in the period from the business combination to 31
July 2021 that are included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP4,502,000 higher and the profit after
tax from continuing operations would have been GBP1,233,000 higher
than reported.
Critical accounting judgements and key sources of estimation
uncertainty
Financial liabilities relating to the business combination of
ClimaRad
The financial liability for the non-controlling interest is
sensitive to the estimation of the expected future performance of
ClimaRad which is used to calculate the future amount payable -
based on an EBITDA multiple. If EBITDA for the financial year ended
31 December 2024 is 10% higher than expected, contingent
consideration would be GBP1,500,000 higher, discounted to present
value.
Business combination in the year ended 31 July 2021
Nordiska Klimatfabriken AB
On 3 February 2021, Volution Group plc acquired the entire share
capital of Nordiska Klimatfabriken AB, a company based in Sweden.
The business combination is in line with the Group's strategy to
grow by selectively acquiring value-adding businesses in new and
existing markets and geographies, across the residential
ventilation market and, where appropriate, in the commercial
ventilation market.
Total consideration for the purchase of the entire issued share
capital was SEK40,082,000 (GBP3,489,000), including deferred
consideration of GBP251,000.
Transaction costs relating to professional fees associated with
the business combination in the year ended 31 July 2021 were
GBP74,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets 49 852 901
Property, plant and equipment 69 - 69
Inventory 55 - 55
Trade and other receivables 95 - 95
Trade and other payables (159) - (159)
Deferred tax liabilities - (188) (188)
Cash and cash equivalents 70 - 70
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 179 664 843
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 2,646
------------------------------------- ---------- ------------ ----------
Discharged by:
Total consideration 3,489
------------------------------------- ---------- ------------ ----------
Goodwill of GBP2,646,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the business combination and the experience and skill of the
acquired workforce. The fair value of the acquired tradename and
customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is GBP95,000.
The amounts for trade and other receivables not expected to be
collected are GBPnil.
Nordiska Klimatfabriken generated revenue of GBP604,000 and
profit after tax of GBP252,000 in the period from the business
combination to 31 July 2021 that are included in the consolidated
statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP521,000 higher and the profit after tax
from continuing operations would have been GBP100,000 higher than
reported.
Rtek
On 28 May 2021, Volution Group plc, through one of its wholly
owned subsidiaries, Oy Pamon, acquired the trade and assets of
Energent Oy, known in the market as Rtek. The transaction was
funded from the Group's cash reserves.
Total consideration for the transaction was cash consideration
of EUR3,000,000 (GBP2,578,000), including deferred consideration of
GBP256,000.
Transaction costs associated with the business combination in
the year ended 31 July 2021 were GBP143,000 and have been
expensed.
The fair value of the net assets acquired is set out below:
Fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Intangible assets - 1,251 1,251
Property, plant and equipment 73 - 73
Inventory 429 - 429
Trade and other payables (21) - (21)
Deferred tax liabilities - (250) (250)
------------------------------------- ---------- ------------ ----------
Total identifiable net assets 481 1,001 1,482
------------------------------------- ---------- ------------ ----------
Goodwill on the business combination 1,096
------------------------------------- ---------- ------------ ----------
Discharged by:
Total consideration 2,578
------------------------------------- ---------- ------------ ----------
Goodwill of GBP1,096,000 reflects certain intangible assets that
cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising
from the business combination and the experience and skill of the
acquired workforce.
The Rtek business generated revenue of GBP842,000 and profit
after tax of GBP55,000 in the period from the business combination
to 31 July 2021 that are included in the consolidated statement of
comprehensive income for this reporting period.
If the combination had taken place at 1 August 2020, the Group's
revenue would have been GBP4,208,000 higher and the profit after
tax from continuing operations would have been GBP275,000 higher
than reported.
Cash outflows arising from business combinations are as
follows:
2022 2021
GBP000 GBP000
-------------------------------------- ------- -------
ERI
Cash consideration 16,892 -
Less: cash acquired with the business (896) -
Ventair
Deferred cash consideration paid 4,163 -
Air Connection
Deferred cash consideration paid 476 -
ClimaRad Holding B.V.
Cash consideration - 37,067
Less: cash acquired with the business - (879)
Nordiska Klimatfabriken AB
Cash consideration - 3,489
Less: cash acquired with the business - (70)
Rtek
Cash consideration - 2,578
Less: cash acquired with the business - -
-------------------------------------- ------- -------
Total 20,635 42,185
-------------------------------------- ------- -------
In the prior year GBP507,000 was paid into escrow as part of
consideration but deferred relating to Nordiska Klimatfabriken AB
GBP251,000 and Rtek GBP256,000. These amounts are included as other
financial assets in note 16 and have been settled in the current
period.
14. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable
value. The cost of raw materials is purchase cost on a first in,
first out basis. The cost of work in progress and finished goods
includes the cost of direct materials and labour and an appropriate
portion of fixed and variable overhead expenses based on normal
operating capacity, but excludes borrowing costs.
Net realisable value represents the estimated selling price for
inventories less all estimated costs of completion and costs to
sell.
2022 2021
GBP000 GBP000
------------------------------------ ------- -------
Raw materials and consumables 24,247 16,961
Work in progress 3,523 2,004
Finished goods and goods for resale 29,381 26,006
------------------------------------ ------- -------
57,151 44,971
------------------------------------ ------- -------
During 2022, GBP865,000 (2021: GBP921,000) was recognised as
cost of sales for inventories written off in the year.
Inventories are stated net of an allowance for excess, obsolete
or slow-moving items which totalled GBP5,473,000 (2021:
GBP5,165,000). This provision was split amongst the three
categories: GBP2,926,000 (2021: GBP2,778,000) for raw materials and
consumables; GBP146,000 (2021: GBP201,000) for work in progress;
and GBP2,401,000 (2021: GBP2,186,000) for finished goods and goods
for resale.
15. Trade and other receivables
Accounting policy
Trade and other receivables are recognised when it is probable
that a future economic benefit will flow to the Group. Trade and
other receivables are carried at original invoice or contract
amount less any provisions for discounts and expected credit
losses. Provisions are made where there is evidence of a risk of
non-payment taking into account ageing, previous experience and
general economic conditions.
Allowance for expected credit losses
Allowance for expected credit losses is measured at an amount
equal to lifetime expected credit losses (ECLs). For trade
receivables the Group applies a simplified approach in calculating
ECLs. Trade receivables have been grouped based on historical
credit risk characteristics and the number of days from date of
invoice. The expected loss rates are calculated using the provision
matrix approach.
Trade receivables are categorised by common risk characteristics
that are representative of the customers' abilities to pay all
amounts due in accordance with the contractual terms. The provision
matrix is determined based on historical observed default rates
over the expected life of the trade receivables and is adjusted for
forward-looking estimates.
Rebates receivable
The Group has a number of supplier rebate agreements that are
recognised as a reduction of cost of sales (collectively referred
to as rebates). Rebates are based on an agreed percentage of
purchases, which will increase with the level of purchases made.
These agreements typically are not coterminous with the Group's
year end and some of the amounts payable are subject to
confirmation after the reporting date.
2022 2021
GBP000 GBP000
----------------------------------- ------- -------
Trade receivables 53,431 43,755
Allowance for expected credit loss (772) (553)
----------------------------------- ------- -------
52,659 43,202
Other debtors 2,069 919
Prepayments 2,798 3,361
----------------------------------- ------- -------
Total 57,526 47,482
----------------------------------- ------- -------
Movement in the allowance for expected credit losses is set out
below:
2022 2021
GBP000 GBP000
---------------------------- ------- -------
At the start of the year (553) (574)
Charge for the year (231) (111)
Amounts utilised 19 122
Foreign currency adjustment (7) 10
---------------------------- ------- -------
At the end of the year (772) (553)
---------------------------- ------- -------
Gross trade receivables are denominated in the following
currencies:
2022 2021
GBP000 GBP000
------------------- ------- -------
Sterling 30,639 24,241
US Dollar 677 945
Euro 9,665 6,807
Swedish Krona 3,216 3,366
New Zealand Dollar 3,073 3,749
Australian Dollar 4,262 3,016
Other 1,899 1,631
------------------- ------- -------
Total 53,431 43,755
------------------- ------- -------
Net trade receivables are aged as follows:
2022 2021
GBP000 GBP000
------------------------------ ------- -------
Neither past due nor impaired 41,297 35,999
Past due but not impaired
Overdue 0-30 days 5,273 4,534
Overdue 31-60 days 2,283 228
Overdue 61-90 days 932 1,011
Overdue more than 90 days 2,874 1,430
------------------------------ ------- -------
Total 52,659 43,202
------------------------------ ------- -------
The credit quality of trade receivables that are neither past
due nor impaired is assessed by reference to external credit
ratings where available; otherwise, historical information relating
to counterparty default rates is used. The Group continually
assesses the recoverability of trade receivables and the level of
provisioning required.
16. Other financial assets
2022 2021
Current Current
GBP000 GBP000
---------------------------------------------------------- -------- --------
Financial assets
Funds held in escrow relating to the business combination
in the year - 507
Foreign exchange forward contracts 1,091 -
---------------------------------------------------------- -------- --------
Total 1,091 507
---------------------------------------------------------- -------- --------
17. Trade and other payables
2022 2021
GBP000 GBP000
---------------------------------------- ------- -------
Trade payables 27,715 26,703
Social security and staff welfare costs 1,737 1,712
Accrued expenses 19,385 19,020
---------------------------------------- ------- -------
Total 48,837 47,435
---------------------------------------- ------- -------
18. Leases
Group as a lessee
Accounting policy
The Group leases a range of assets including property, plant and
equipment and vehicles. Leases of property generally have lease
terms of up to 20 years, plant and machinery between three and six
years and motor vehicles and other equipment between two and five
years.
Right-of-use assets are initially measured at cost, and
subsequently at cost less any accumulated depreciation and
impairment losses and adjusted for certain re-measurements of the
lease liability. The cost of right-of-use assets includes the
amount of lease liabilities recognised, initial direct costs
incurred, restoration costs and lease payments made at or before
the commencement date less any lease incentives received. The
right-of-use assets are depreciated on a straight line basis over
the shorter of their estimated useful life and the lease term.
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is re-measured if there is a
modification, a change in the lease term, a change in the lease
payments (e.g. changes to future payments resulting from a change
in an index or rate used to determine such lease payments) or a
change in the assessment of an option to purchase the underlying
asset. The Group's lease liabilities are included in
interest-bearing loans and borrowings.
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e. those leases
that have a lease term of twelve months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets
are recognised as expense on a straight line basis over the lease
term.
Set out below are the carrying amounts of right-of-use assets
recognised and movements during the year:
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2021 28,073 203 2,819 31,095
Additions 2,657 30 639 3,326
Disposals - (19) (149) (168)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences (27) 191 164 328
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 29,069 327 3,289 32,685
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2021 5,298 139 1,181 6,618
Charge for the period 2,967 99 546 3,612
Disposals - (15) (51) (66)
Expiration of leases (1,634) (78) (184) (1,896)
Net foreign currency exchange differences 689 126 35 850
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2022 7,320 271 1,527 9,118
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2022 21,749 56 1,762 23,567
------------------------------------------ ---------- ---------- ------------- -------
Fixtures,
fittings,
tools,
Land and Plant and equipment
Right-of-use assets buildings machinery and vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- -------
Cost
At 1 August 2020 23,069 201 2,513 25,783
Transferred from property, plant and
equipment 419 - - 419
Additions 4,938 - 557 5,495
Disposals - - (244) (244)
Expiration of leases (508) - - (508)
Net foreign currency exchange differences 155 2 (7) 150
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 28,073 203 2,819 31,095
------------------------------------------ ---------- ---------- ------------- -------
Depreciation
At 1 August 2020 2,759 70 880 3,709
Transferred from property, plant and
equipment 90 - - 90
Charge for the period 2,964 71 496 3,531
Disposals - - (167) (167)
Expiration of leases (508) - - (508)
Net foreign currency exchange differences (7) (2) (28) (37)
------------------------------------------ ---------- ---------- ------------- -------
At 31 July 2021 5,298 139 1,181 6,618
------------------------------------------ ---------- ---------- ------------- -------
Net book value
At 31 July 2021 22,775 64 1,638 24,477
------------------------------------------ ---------- ---------- ------------- -------
Set out below are the carrying amounts of lease liabilities
(included under interest-bearing loans and borrowings) and the
movements during the year:
Fixtures,
fittings,
tools,
equipment
Land and Plant and and
Lease liabilities buildings machinery vehicles Total
2022 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ---------- -------
At 1 August 2021 24,281 75 1,073 25,429
Additions to lease liabilities 2,657 30 639 3,326
Early termination - (19) (149) (168)
Interest expense 470 6 44 520
Lease payments (3,362) (61) (300) (3,722)
Foreign exchange movements (271) 5 (151) (418)
------------------------------- ---------- ---------- ---------- -------
At 31 July 2022 23,775 36 1,156 24,967
------------------------------- ---------- ---------- ---------- -------
Analysis
Current 3,116 28 455 3,599
Non-current 20,659 8 701 21,368
------------------------------- ---------- ---------- ---------- -------
At 31 July 2022 23,775 36 1,156 24,967
------------------------------- ---------- ---------- ---------- -------
Fixtures,
fittings,
tools,
equipment
Land and Plant and and
Lease liabilities buildings machinery vehicles Total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ---------- -------
At 1 August 2020 22,113 144 916 23,173
Additions to lease liabilities 4,938 - 557 5,495
Early termination - - (244) (244)
Interest expense 486 9 27 522
Lease payments (3,191) (76) (215) (3,482)
Foreign exchange movements (65) (2) 32 (35)
------------------------------- ---------- ---------- ---------- -------
At 31 July 2021 24,281 75 1,073 25,429
------------------------------- ---------- ---------- ---------- -------
Analysis
Current 2,878 50 526 3,454
Non-current 21,403 25 547 21,975
------------------------------- ---------- ---------- ---------- -------
At 31 July 2021 24,281 75 1,073 25,429
------------------------------- ---------- ---------- ---------- -------
The following are amounts recognised in the statement of
comprehensive income:
2022 2021
GBP000 GBP000
------------------------------------------------------------ ------- -------
Depreciation expense of right-of-use assets (cost of
sales) 2,081 1,983
Depreciation expense of right-of-use assets (administrative
expenses) 1,531 1,369
Interest expense 520 503
------------------------------------------------------------ ------- -------
19. Other financial liabilities
Ventair Nordiska
Air Connection Pty ClimaRad Klimatfabriken Energent
ApS Limited BV AB Ab ERI Total
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Contingent consideration
At 1 August 2021 483 4,070 5,514 251 256 - 10,574
Re-measurement of
contractual liability
to purchase remaining
non-controlling interest - - 1,538 - - - 1,538
Further consideration
recognised - - - - - 7,080 7,080
Consideration paid (476) (4,163) - (240) (256) - (5,135)
Foreign exchange (7) 93 - (11) - - 75
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
At 31 July 2022 - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Analysis
Current - - - - - - -
Non-current - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Total - - 7,052 - - 7,080 14,132
-------------------------- -------------- -------- -------- --------------- -------- -------- -------
Ventair Nordiska
Air Connection Pty ClimaRad Klimatfabriken Energent
ApS Limited BV AB Ab Total
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------------- -------- -------- --------------- -------- -------
Contingent consideration
At 1 August 2020 508 960 - - - 1,468
Contractual liability
to purchase remaining
non-controlling interest
(note 16) - - 5,514 - - 5,514
Further consideration
recognised - 3,287 - 261 258 3,806
Foreign exchange (25) (177) - (10) (2) (214)
-------------------------- -------------- -------- -------- --------------- -------- -------
At 31 July 2021 483 4,070 5,514 251 256 10,574
-------------------------- -------------- -------- -------- --------------- -------- -------
Analysis
Current 483 4,070 - - - 4,553
Non-current - - 5,514 251 256 6,021
-------------------------- -------------- -------- -------- --------------- -------- -------
Total 483 4,070 5,514 251 256 10,574
-------------------------- -------------- -------- -------- --------------- -------- -------
Non-current
On 17 December 2020, Volution Group plc acquired 75% of the
issued share capital of ClimaRad Holding B.V. and subsidiaries
(ClimaRad), a company based in the Netherlands. Total consideration
for the purchase of 75% of the issued share capital was
EUR41,100,000 (GBP37,100,000) with a commitment to purchase the
remaining 25% on or before 28 February 2025. The future
consideration for the purchase of the remaining 25% is set at 25%
of 13 times the EBITDA of ClimaRad for the financial year ended 31
December 2024, plus the non-controlling interest share of profits
earned in the periods up to and including 31 December 2024, and is
subject to a cap. The expected value of the future consideration is
partially in the form of a vendor loan of EUR12,000,000
(GBP10,686,000) payable to certain individuals including the
co-founder and management team of ClimaRad on completion of the
purchase of the remaining 25% on or before 28 February 2025, and an
additional element of contingent consideration. The contingent
consideration was assessed based on the current estimate of the
future performance of the business as GBP7,052,000, discounted to
present value (2021: GBP5,514,000).
On 9 September 2021, Volution Group plc acquired 100% of the
issued share capital of ERI Corporation DOO Bitola (North
Macedonia), ERI Corporation S.R.L. (Italy) and Energy Recovery
Industries Trading SLU (Spain) and 51% of the issued share capital
of Energy Recovery Industries Corporation Ltd (UK). The contingent
consideration was assessed based on the current estimate of the
future performance of the business as GBP7,080,000.
2022 2021
GBP000 GBP000
----------------------------------- ------- -------
Financial liabilities
Foreign exchange forward contracts - 55
----------------------------------- ------- -------
Total - 55
----------------------------------- ------- -------
The foreign exchange forward contracts are carried at their fair
value with the gain or loss being recognised in the Group's
consolidated statement of comprehensive income.
20. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are
initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently
measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or, where
appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
2022 2021
------- ----------- ------- -----------
Current Non-current Current Non-current
GBP000 GBP000 GBP000 GBP000
-------------------------------------- ------- ----------- ------- -----------
Unsecured - at amortised cost
Borrowings under the revolving credit
facility (maturing 2024) - 74,351 - 73,293
Cost of arranging bank loan - (843) - (956)
-------------------------------------- ------- ----------- ------- -----------
- 73,508 - 72,337
-------------------------------------- ------- ----------- ------- -----------
IFRS 16 lease liabilities (note 18) 3,599 21,368 3,454 21,975
ClimaRad vendor loan - 9,557 - 10,551
-------------------------------------- ------- ----------- ------- -----------
Total 3,599 104,433 3,454 104,863
-------------------------------------- ------- ----------- ------- -----------
In December 2021, the Group took the option to extend its
multicurrency "Sustainability Linked Revolving Credit Facility",
together with an accordion of up to GBP30 million, by a period of
twelve months; the maturity date is now December 2024.
Revolving credit facility - at 31 July 2022
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
2 December
GBP - 2024 One payment Sonia + margin%
2 December
Euro 71,932 2024 One payment Euribor + margin%
2 December
Swedish Krona 2,419 2024 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 74,351
-------------- ------------ ----------- ----------- -----------------
During the year the rate of interest used by the bank on our GBP
loans has transitioned from the London Interbank Offered Rate
(LIBOR) to Sterling Overnight Indexed Average (SONIA).
Revolving credit facility - at 31 July 2021
Amount
outstanding Termination Repayment
Currency GBP000 date frequency Rate %
-------------- ------------ ----------- ----------- -----------------
2 December
GBP - 2023 One payment Libor + margin%
2 December
Euro 57,304 2023 One payment Euribor + margin%
2 December
Swedish Krona 15,989 2023 One payment Stibor + margin%
-------------- ------------ ----------- ----------- -----------------
Total 73,293
-------------- ------------ ----------- ----------- -----------------
The interest rate on borrowings includes a margin that is
dependent on the consolidated leverage level of the Group in
respect of the most recently completed reporting period. For the
year ended 31 July 2022, Group leverage was below 1.0:1 and
therefore the margin will reduce to 1.25%.
At 31 July 2022, the Group had GBP75,649,000 (2021:
GBP76,707,000) of its multicurrency revolving credit facility
unutilised.
Changes in liabilities arising from financing activities
Changes
Foreign due
1 August exchange to business 31 July
2021 Cash flows movement New leases combination Other 2022
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- ---------- --------- ---------- ------------- ------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease liabilities) 73,293 2,802 (1,744) - - - 74,351
Debt related to the
business combination
of ERI (see note 13) - (3,227) - - 3,227 - -
Lease liabilities 25,429 (3,202) (418) 3,326 - (168) 24,967
ClimaRad vendor loan 10,551 (504) (490) - - - 9,557
------------------------------- -------- ---------- --------- ---------- ------------- ------- -------
Total liabilities from
financing activities 109,273 (4,131) (2,652) 3,326 3,227 (168) 108,875
------------------------------- -------- ---------- --------- ---------- ------------- ------- -------
Changes
Foreign due
1 August exchange to business 31 July
2020 Cash flows movement New leases combination Other 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
Non-current interest-bearing
loans and borrowings
(excluding lease liabilities) 69,563 9,127 (5,397) - - - 73,293
Debt related to the
business combination
of ClimaRad - (1,482) - - 1,482 - -
Lease liabilities 23,173 (2,960) (35) 5,495 - (244) 25,429
ClimaRad vendor loan - - (135) - - 10,686 10,551
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
Total liabilities from
financing activities 92,736 4,685 (5,567) 5,495 1,482 10,442 109,273
------------------------------- -------- ---------- --------- ---------- ------------ ------- -------
21. Provisions
Accounting policy
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions for the expected costs of maintenance guarantees are
charged against profits when products have been invoiced.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation taking into
account the risks and uncertainties surrounding the obligation. The
timings of cash outflows are by their nature uncertain and are
therefore best estimates. Provisions are not discounted as the time
value of money is not considered material.
Provisions for warranties and property dilapidations
Provisions for warranties are made with reference to recent
trading history and historical warranty claim information, and the
view of management as to whether warranty claims are expected.
Warranty provisions are determined with consideration given to
recent customer trading and management experience.
Dilapidation provisions relate to dilapidation charges relating
to leasehold properties. The timing of cash flows associated with
the dilapidation provision is dependent on the timing of the lease
agreement termination.
Product Property
warranties dilapidations Total
2022 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2021 1,787 458 2,245
Arising during the year 921 9 930
Utilised (1,142) - (1,142)
Foreign currency adjustment (26) (4) (30)
---------------------------- ----------- -------------- -------
At 31 July 2022 1,540 463 2,003
---------------------------- ----------- -------------- -------
Analysis
Current 1,279 405 1,684
Non-current 261 58 319
---------------------------- ----------- -------------- -------
Total 1,540 463 2,003
---------------------------- ----------- -------------- -------
Product Property
warranties dilapidations Total
2021 GBP000 GBP000 GBP000
---------------------------- ----------- -------------- -------
At 1 August 2020 1,629 445 2,074
Arising during the year 1,367 61 1,428
Utilised (1,343) (107) (1,450)
Foreign currency adjustment 134 59 193
---------------------------- ----------- -------------- -------
At 31 July 2021 1,787 458 2,245
---------------------------- ----------- -------------- -------
Analysis
Current 1,453 416 1,869
Non-current 334 42 376
---------------------------- ----------- -------------- -------
Total 1,787 458 2,245
---------------------------- ----------- -------------- -------
Product warranties
A provision is recognised for warranty costs expected to be
incurred in the following twelve months on products sold during the
year and in prior years. Product warranties are typically one to
two years; however, based on management's knowledge of the
products, claims in relation to warranties after more than twelve
months are rare and highly immaterial.
Property dilapidations
A provision has been recognised for dilapidations relating to
obligations under leases for leasehold buildings and will be
payable at the end of the lease term.
22. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following
exceptions:
-- where the temporary differences arise from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised only to the extent that the
Directors consider it is probable that there will be taxable
profits from which the deductible temporary differences, carried
forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an
undiscounted basis at tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax
rates enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
The carrying amount of deferred tax assets is reviewed at each
reporting date. Deferred tax assets and liabilities are offset only
if a legally enforceable right exists to set off current tax assets
against current tax liabilities, the deferred taxes relate to the
same taxation authority and that authority permits the Group to
make a single net payment.
Deferred tax is charged or credited to other comprehensive
income if it relates to items that are charged or credited to other
comprehensive income. Similarly, deferred tax is charged or
credited directly to equity if it relates to items that are
credited or charged directly to equity.
Management judgement is required to determine the amount of
deferred tax assets that can be recognised, based on the likely
timing and level of future taxable profits together with an
assessment of the effect of future tax planning strategies.
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international
business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and
expense already recorded.
At 31 July 2022, the Group had not recognised a deferred tax
asset in respect of gross tax losses of GBP5,195,000 (2021:
GBP5,195,000) relating to management expenses, capital losses of
GBP3,975,000 (2021: GBP3,975,000) arising in UK subsidiaries and
gross tax losses of GBPnil (2021: GBP153,000) 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 2022, the Group had no deferred tax liability (2021:
GBPnil) to recognise for taxes that would be payable on the
remittance of certain of the Group's overseas subsidiaries'
unremitted earnings. Deferred tax liabilities have not been
recognised as the Group has determined that there are no
undistributed profits in overseas subsidiaries where an additional
tax charge would arise on distribution.
The movement in deferred tax assets and liabilities during the
year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
(Charged)/ On
1 August credited Credited Translation business 31 July
2021 to income to equity difference combinations 2022
2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation in advance
of capital allowances (1,721) 11 - (4) - (1,714)
Fair value movements of
derivative financial instruments 11 (193) - - - (182)
Customer base, trademark
and patent (17,274) 2,409 - (10) (1,589) (16,464)
Losses 407 (344) - - - 63
Other temporary differences 1,246 (176) - 55 - 1,125
Share based payments 2,455 50 445 - - 2,950
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
Deferred tax liability (14,876) 1,757 445 41 (1,589) (14,222)
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
(Charged)/ On
1 August credited Credited Translation business 31 July
2020 to income to equity difference combinations 2021
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
Temporary differences
Depreciation in advance
of capital allowances (1,028) (655) - (4) (34) (1,721)
Fair value movements of
derivative financial instruments (9) 20 - - - 11
Customer base, trademark
and patent (14,409) 2,520 - 439 (5,824) (17,274)
Losses 318 89 - - - 407
Other temporary differences 1,480 230 - (26) (438) 1,246
Share based payments 620 469 1,366 - - 2,455
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
Deferred tax liability (13,028) 2,673 1,366 409 (6,296) (14,876)
---------------------------------- -------- ---------- ---------- ----------- ------------- --------
23. Dividends paid and proposed
Accounting policy
Dividends are recognised when they meet the criteria for
recognition as a liability. In relation to final dividends, this is
when the dividend is approved by the Directors in the general
meeting and, in relation to interim dividends, when paid.
2022 2021
GBP000 GBP000
------------------------------------------------------- ------- -------
Cash dividends on ordinary shares declared and paid
Interim dividend for 2022: 2.30 pence per share (2021:
1.90 pence) 4,553 3,762
------------------------------------------------------- ------- -------
Proposed dividends on ordinary shares
Final dividend for 2022: 5.00 pence per share (2021:
4.40 pence) 9,891 8,719
------------------------------------------------------- ------- -------
An interim dividend payment of GBP4,553,000 is included in the
consolidated statement of cash flows (2021: GBP3,762,000).
A final dividend payment of GBP8,719,000 is included in the
consolidated statement of cash flows relating to 2021 (2021:
GBPnil).
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 2022.
24. Related party transactions
Transactions between Volution Group plc and its subsidiaries,
and transactions between subsidiaries, are eliminated on
consolidation and are not disclosed in this note. A breakdown of
transactions between the Group and its related parties is disclosed
below.
No related party loan note balances exist at 31 July 2022 or 31
July 2021.
There were no material transactions or balances between the
Company and its key management personnel or members of their close
family other than the compensation shown below. At the end of the
period, key management personnel did not owe the Company any
amounts.
The Companies Act 2006 and the Directors' Remuneration Report
Regulations 2013 require certain disclosures of Directors'
remuneration.
Compensation of key management personnel
2022 2021
GBP000 GBP000
----------------------------- ------- -------
Short-term employee benefits 3,517 4,139
Share-based payment charge 1,049 1,605
----------------------------- ------- -------
Total 4,566 5,744
----------------------------- ------- -------
Key management personnel is defined as the CEO, the CFO and the
thirteen (2021: eleven) individuals who report directly to the
CEO.
25. 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
2,966,484 dilutive potential ordinary shares at 31 July 2022 (2021:
3,270,467).
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 2022 at the
average exchange rate for the year ended 31 July 2021. In addition,
we have converted the UK operating companies' sale and purchase
transactions in the year ended 31 July 2022, which were denominated
in foreign currencies, at the average exchange rates for the year
ended 31 July 2021.
EBITDA: profit before net finance costs, tax, depreciation and
amortisation.
Net debt: bank borrowings and lease liabilities less cash and
cash equivalents.
Operating cash flow: EBITDA plus or minus movements in operating
working capital, less share-based payment expense, less net
investments in property, plant and equipment and intangible
assets.
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END
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