Annual Report 2019 plc Annual Report Group Volution Excellence Excellence in ventilation
Volution Group plc Annual Report 2019 Our purpose Volution Group plc is a leading supplier of ventilation products to the residential and commercial construction markets in the UK, the Nordics, Central Europe and Australasia.
We aim for our products to enhance our customers’ experience of ventilation by reducing energy consumption, improving indoor air quality and design and making them easier to use.
Monsoon Silence range: Complete home ventilation: The Monsoon Silence range is our latest innovative The political and social drive to become more energy domestic ventilation solution, providing high extraction efficient has made our homes more air tight meaning rates, low energy use and exceptionally quiet running the problem of poor indoor air quality has become levels. This bathroom fan has a long-life ball bearing harder to ignore. This increases the importance motor and a silent back draft shutter. of the vital role ventilation products have to play in maintaining a healthy indoor environment.
See residential indoor air quality on page 20 Annual Report 2019
Our Recent History
Strategic Report >> AAC Capital and Management Team acquires Highlights Volution Holdings 2 2006 4 At a Glance 6 Our Investment Case 7 Our Growth Story >> Cable Management division sold 8 Chairman’s Statement 2007 >> Manrose Manufacturing acquired 10 Chief Executive Officer’s Review 14 Our Refreshed Strategy 16 Our Recent Acquisitions >> Ronnie George joins Volution Holdings as 18 Our Business Model Managing Director 20 Excellence in Ventilation 2008 22 Key Performance Indicators 26 Risk Management and Principal Risks >> TowerBrook acquires Volution Holdings 34 Sustainability 38 Operational Review 2012 >> Fresh AB acquired 43 Financial Review
>> PAX AB acquired Governance Report 2013 48 Introduction to Governance 50 Board of Directors 52 Corporate Governance >> inVENTer GmbH acquired 62 Nomination Committee Report 65 Audit Committee Report 2014 >> Volution Group plc is formed and listed on the London 72 Directors’ Remuneration Report Stock Exchange 91 Directors’ Report >> Torin-Sifan opens new Manufacturing and Technology 94 Directors’ Responsibility Statement Centre in Swindon, UK
Financial Statements >> Brüggemann Energiekonzepte GmbH acquired 95 Independent Auditor’s Report 102 Consolidated Statement of 2015 >> Ventilair Group International BVBA acquired Comprehensive Income 103 Consolidated Statement of Financial Position >> Weland AB acquired 104 Consolidated Statement of Changes in Equity >> Energy Technique plc (trading as Diffusion) acquired 105 Consolidated Statement of Cash Flows 106 Notes to the Consolidated Financial Statements 151 Parent Company Statement of Financial Position >> NVA Services Limited acquired 152 Parent Company Statement of Changes in Equity 153 Parent Company Statement of Cash Flows 2016 >> Breathing Buildings Limited acquired 154 Notes to the Parent Company Financial Statements
Additional Information >> VoltAir System AB acquired 160 Glossary of Technical Terms 2017 IBC Shareholder Information
>> Simx Limited acquired
2018 >> Oy Pamon Ab acquired
>> Air Connection ApS acquired
>> AirFan B.V. (rebranded Vent-Axia Netherlands) acquired Find out more online www.volutiongroupplc.com >> New facility in Reading, UK, opened 2019 >> Ventair Pty Limited acquired
1 Strategic Report Volution Group plc
Highlights
Strong results: revenue growth of 14.6% and adjusted EPS up 10.3%
Financial Strategic and operational >> Revenue growth of 14.6% (15.7% Ventilation at constant currency): Organic growth >> organic revenue growth of 2.6% >> Highlights in the UK include a return to growth for the UK Public (3.5% at constant currency); and RMI sector and another period of good growth for UK New Build >> inorganic revenue growth of 12.0% Residential Systems. (12.2% at constant currency). >> As previously reported, operational difficulties at our Reading >> Adjusted operating profit increased by facility adversely impacted profitability in the first half of the 13.3% to £42.1 million (14.9% at constant financial year; however, there was a significant improvement in currency), assisted by acquisitions. production levels and efficiency in the second half of the financial >> Adjusted operating profit margin of 17.8% year. The Reading facility is now fully commissioned. (2018: 18.0%), an improving trend through >> Good sales of our new Xenion range of decentralised heat recovery the year: ventilation in Germany with an associated increase in gross >> H1 17.6%, impacted by Reading and margin in the region. Torin‑Sifan operational issues; and >> The launch of the first application software controlled ventilation >> H2 18.1%, finalised commissioning of extract fan in New Zealand, Genius, under the Manrose brand sold Reading facility; strong performance by our company Simx, further demonstrating our capability in Central Europe. to launch Volution products into newly accessed markets. >> Reported profit before tax increased by Acquisitions £6.4 million to £23.1 million (2018: £16.7 million); >> On 1 March 2019, we acquired Ventair Pty Limited, a market exceptional costs significantly reduced leading residential ventilation product supplier, in Australia, for to £1.8 million (2018: £6.4 million). an initial cash consideration of AUD19.2 million (approximately >> Adjusted operating cash inflow of £10.4 million). A further amount of deferred cash consideration £36.9 million (2018: £34.4 million). of up to AUD7.7 million (approximately £4.3 million) may be payable, contingent on Ventair achieving an EBITDA target >> Net debt of £74.6 million was £2.6 million lower in the financial year ending 31 July 2020. than at 31 July 2018 after £10.4 million spent on the acquisition of Ventair Pty Limited and >> The acquisition of Ventair Pty Limited has further increased our contingent consideration paid relating to Oy geographic diversity, product offer and market access. The Pamon Ab of £0.6 million. acquisition is integrating and performing well under the management of our Australasian team. >> Full year dividend of 4.90 pence per share, up 10.4% (2018: 4.44 pence). >> Including the pro-forma effect of the Ventair acquisition, our revenue from customers outside the UK now represents 53.0% of total Group revenue.
OEM (Torin-Sifan) >> OEM (Torin-Sifan) has continued to see a good take-up of its new, high‑efficiency, Revolution 360 range of EC fans (EC3), with further capacity investment underway to support the growth in sales. >> Operations in OEM (Torin-Sifan) were adversely impacted during the year by procurement issues which manifested in higher input costs. However, we are confident these issues have now been resolved. 2 Strategic Report 3 23.1 16.0 2019 2019 16.7 14.5 2018 2018 17.9 13.6 2017 2017 18.4 12.6 2016 2016 11.0 15.5 2015 2015 8.8 (15.5) 2014 2014 Key Performance Indicators on page 22 page on Indicators Performance Key Adjusted EPS p Adjusted 16.0p measures performance uses some alternative Group The the of and assess the underlying performance track to operating include adjusted measures business. These EPS and adjusted tax, before profit adjusted profit, all of a definition For cash flow. operating adjusted please see non-GAAP measures, the adjusted and 34. A reconciliation in note terms the glossaryof 2. out in note is set measures to reported £m before tax Reported profit £23.1m 42.1 74.6 2019 2019 2019 4.90 (17.8%) 77.2 4.44 37.1 Cumulative operating cash flow generation in the five years years in the five generation cash flow operating Cumulative million; and. £165.9 of in 2014 since listing strong introductions; product innovative of record track Excellent pipeline. development 2018 2018 2018
(18.0%) > > > > the EU UK leaving the surrounding uncertainty the considerable of In the context risks the potential analysed have we process, the Brexit of outcome a no-deal of in the event our business to challenges and operational tariffs potential reviewed have Union. We the European from exit and on a significant impact, represent consider to do not which we moving faster of levels inventory increased have the supply side we risk and potential see the principal We in certain locations. items and activity in confidence downturn a broader of be that to impact just represent the UK does now that in the UK, albeit noting levels revenues. Volution’s under half of p (17.8%) 4.15 37.0 35.6 2017 2017 2017 (19.3%) 36.1 3.80 32.5 2016 2016 2016 (21.0%) £m 21.2 29.4 3.30 2015 2015 2015 (22.6%) Nil 42.9 26.5 2014 2014 2014 (22.0%) Dividend per share 4.90p debt Net £74.6m Adjusted operating profit and adjusted adjusted and operating profit Adjusted margin operating profit £42.1m £m (% of revenue) £m (% of 9.2 2019 2019 2019 36.9 235.7 6.7 34.4 2018 2018 2018 205.7 7.0 35.9 185.1 2017 2017 2017 7.8 31.1 2016 154.5 2016 2016 £m 5.9 27.6 2015 130.2 2015 2015 Organic revenue growth of 3.5% (at constant currency) in the in the currency) constant (at 3.5% of growth revenue Organic in 2014; since listing years 3.2% the five of over an average year, of growth revenue inorganic delivering strategy Acquisition new to access providing 12.2% in the year, currency) constant (at in 36.5% from increasing in non-UK revenues resulting markets, basis; on a pro-forma 53.0% to 2014 82% years by in the five EPS increased growth; earnings Strong CAGR); (13% in 2014 since listing > > > 22.8 120.7 (14.0) 2014 2014 2014 £36.9m £m cash flow operating Adjusted £235.7m Revenue Reported EPS (basic and diluted) p 9.2p Progress against strategy against Progress track consistent our maintains the year for results of set strong This since listing years in the five and earnings growth revenue of record our strategy: validate to and continues in 2014 > > > Annual Report 2019 Report Annual Strategic Report Volution Group plc
At a Glance
Leading in residential and commercial markets across two business segments We aim for our products to enhance our customers’ experience of ventilation by reducing energy consumption, improving indoor air quality and design and making them easier to use.
Ventilation Group: primarily supplies OEM (Torin-Sifan): manufactures ventilation products for residential and and supplies motors, motorised impellers, commercial construction applications fans and blowers to OEMs of heating, in the UK, the Nordics, Central Europe ventilation and air conditioning products and Australasia. for both residential and commercial construction markets worldwide. The Ventilation Group consists of 15 key brands, focused primarily on ventilation markets in the UK, Sweden, Norway, Finland, Denmark, Germany, Belgium, the Netherlands, The majority of Torin-Sifan’s products are sold into the residential Australia and New Zealand. and commercial heating and ventilation products markets.
During the year, we completed the acquisition of Ventair in Australia, enhancing and widening the Group’s reach and capability.
Ventair is a market leading residential ventilation products supplier throughout Australia for both new and refurbishment applications with channel access enabling us to place more of our existing Group products in this market.
+ % of Volution Group revenue by segment 90
Ventilation Group OEM (Torin-Sifan)
+Q 90.0% 10 10.0% (2018: 89.0%) (2018: 11.0%)
4
Strategic Report 23,606 5 53+M
2019 22,582
2018 21,976 Torin-Sifan 2017
47+ New acquisition this year acquisition New
22,273
2019 Australasia 8,182
2018 Nil Australasia
2017
30,990 Rest of the world of Rest 53.0%
2019 28,466
2018 27,460
2017 Central Europe Central Nordics 46,995
2019
% of Volution Group revenue by region on a pro-forma basis pro-forma by region on a revenue Group Volution % of Kingdom United 47.0% 36,692 2018
52+M
Nordics 30,829 2017 %
9 9,924 34. 2019
12,510
48+
2018 Central Europe Central 10,206 UK Export
2017 34,856
2019 33,474
2018 32,792 47.4%) (2018: Rest of the world of Rest 51.6% 2017 UK Commercial
UK 67,151 2019
63,770
2018 61,797 UK Residential UK Residential 2017 48.4% 52.6%) (2018: % of Volution Group revenue by region revenue Group Volution % of Kingdom United Volution Group revenue by sector £000 sector by revenue Group Volution Annual Report 2019 Report Annual Strategic Report Volution Group plc
Our Investment Case
Why invest in Volution
Operational Structural Market leadership Growing focus In many of our markets we have leading brands, 15 market leading products and sales channel access. Our business on indoor air brands in model helps develop substantial customer loyalty 10 countries and barriers to entry. quality There is increasing global focus on indoor air quality. There will be increasing demand for ventilation Growth systems which help to provide Organic revenue growth from a focused sales strategy. 14% healthy indoor environments 5-year revenue Strong track record of acquiring and integrating across our markets. CAGR value-adding businesses into the Group, leveraging our sales channels and our expertise in product development, manufacturing and supply chains. Legislative Read more about our growth strategy on page 14 tailwinds Read more about our recent acquisitions on pages 16 and 17 European directives and local building regulations continue to provide new Diversification minimums for energy efficiency We service both residential and commercial sectors, 51.6% and performance of ventilation of our revenue is in both public and private new build and refurbishment which has a positive impact on from non-UK applications in the UK, the Nordics, Central Europe the value of ventilation. Volution customers and Australasia. Group is strongly positioned to develop customer solutions Read more about our geographic spread on page 5 ahead of the legislation and has
Read more about the revenue in our product sectors a history of being first to market with new ideas. on page 38
Strong, consistent 10% development in adjusted operating profit, 5-year CAGR financial performance Consistent organic revenue growth and successful integration of acquisitions have driven growth in profitability and operating cash flows. 10% operating cash flow, 5-year CAGR Innovation 2.2% We are constantly investing in our product range to of revenue ensure our customers have the best, highly specified and invested in product cost effective solutions to meet their indoor air quality development and requirements and carbon efficiency goals. enhancement
6 Strategic Report 7 p (CAGR 13%) Organic revenue revenue Organic growth supported by regulatory drivers our Commissioning of Reading, UK, facility creating capacity for future growth 12 Completed providing acquisitions and geographic more diversity product Adjusted EPS +82% £m (CAGR 14%) Revenue Revenue +95% In the 5 years since since 5 years the In Group Volution listing, considerably grown has Annual Report 2019 Report Annual Story Growth Our Strategic Report Volution Group plc
Chairman’s Statement Peter Hill, CBE Strong performance continues to validate our strategy
The financial year delivered some challenges for the business but I am pleased to report that the Group responded well. We delivered a number of important strategic initiatives which included the acquisition of Ventair (a market leading residential ventilation products supplier in Australia), adding further geographic diversity to the business, and delivery of substantial operational improvements at our new facility based in Reading in the UK. Volution Group has continued to develop as a geographically diverse business with 51.6% of its revenue during the year coming from outside the UK, and 53.0% on a pro-forma basis if the revenues of our Ventair acquisition are annualised.
Economic and political uncertainty continued over the last year in the UK, our largest individual market, presenting further challenges in some of our market sectors and the Group continued to feel the effects of the devaluation of Sterling against the US Dollar on its input costs. Despite this backdrop, I am pleased to report that Volution Group made further progress on its growth strategy.
We expect further political uncertainty ahead, as a consequence of the UK’s scheduled departure from the European Union. However, we are an international business with 51.6% of our revenue being Summary generated outside the UK and we remain confident in the long-term prospects for the Group because of our geographic diversification, >> A set of strong results in line with our expectations value-adding business model and clear growth strategy. More detailed >> Acquisition of Ventair, enhancing our geographic analysis of how Brexit may affect Volution Group can be found in the diversity, product offering and market access Risk Management and Principal Risks section on page 27.
>> Andy O’Brien appointed as new CFO Performance and results >> Adjusted EPS increased by 10.3% This strong set of results reflects the growth achieved, both organically and through acquisitions, with the Group’s revenue >> Full year dividend increased by 10.4% increasing in the year by 14.6% to £235.7 million (2018: £205.7 million). Adjusted operating profit was £42.1 million (2018: £37.1 million), representing 17.8% of revenue and a £5.0 million improvement Dear shareholder, compared to the prior year. Reported profit before tax increased I am pleased to present our Annual Report and Accounts for the by 38.3% to £23.1 million (2018: £16.7 million), improving in part due year ended 31 July 2019. The aim of the report is to describe the to the lower exceptional operating costs this year of £1.8 million Group and its performance over the last financial year, and to give (2018: £6.4 million) mainly as a result of the new production facility an outline of its future development, providing a balanced overview in Reading, UK, having been fully commissioned, offset by an of the business as a whole. increase of £0.7 million in amortisation of acquired intangible assets to £15.4 million (2018: £14.7 million) as a result of recent acquisitions Successful businesses typically have a well-defined purpose; and higher finance costs in the period of £2.1 million (2018: £1.6 million). Volution Group’s is to innovate and produce products to enhance our customers’ experience of ventilation by reducing energy Basic and diluted earnings per share for the year was 9.2 pence consumption, improving indoor air quality and design and making (2018: 6.7 pence). Our adjusted earnings per share was 16.0 pence, them easier to use. representing a 10.3% increase over the adjusted earnings per share for the prior year of 14.5 pence. The compound annual growth rate of adjusted earnings per share since 2014 was 13%.
8 Strategic Report 9 Peter Hill, CBE Peter Chairman 2019 9 October Governance of corporate high levels to be committed to continues Group The with a premium a company as status in line with its governance, are We Exchange. Stock London of the on the Main Market listing Governance the UK Corporate of edition with the 2016 fully compliant out in the Governance Code) and compliance is set 2016 Code (the the development also acknowledge 61. We to 52 on pages Report UK Corporate the of version out in the new set standards of governance Code) which 2018 (the published in July 2018 Code Governance ending 31 July 2020. the financial year for Group Volution applies to Code the 2018 compliance against the Group’s reviewed have We be able we will that ensure some changes to implemented and have Annual Report on compliance in the next positively report to and Accounts. and the Board of evaluation performance a formal During the year, results The in their development. assist to place took Committees continue Committees and the Board that confirmed evaluations of the no significant concerns are there and that function effectively to information Further their effectiveness. about among the Directors 58. to 57 on pages Report Governance out in the is set and culture People importance which corporate the increasing is conscious of Board The success business and economic long-term in delivering plays culture Group’s The culture. and overseeing in shaping, monitoring role and its businesses and induction acquired of the integration to approach the Volution individual receives every that ensures employees of new Board The culture. the Group Conduct and understands of Code Group the business across culture an open and transparent encourages oversight enable greater to been developed have and processes this area. on further developing will remain and the focus of culture who joined us during employees new all our welcome to like I would evident It is very in Australia. Ventair of on the acquisition the year Group Volution of a major strength are our employees that to me thank all our employees to like I would the Board and on behalf of another towards and contribution work hard commitment, for their the Group. for year successful Board had our CFO, Ian Dew, that announced we On 21 January 2019, during Group from Volution retire his wish to of the Board informed was and Andy O’Brien CFO as his role from down Ian stepped 2019. for with the Group continued Ian has 2019. on 1 August appointed handover. been an orderly has there ensure period to a transitional in CFO as appointed and was in 2012 Group Ian joined Volution successful Group’s in Volution role an integral He played January 2014. a played and subsequently Exchange Stock on the London listing the Board, of On behalf acquisitions. of all in the completion role key Group Volution to his contribution Ian for to thank like I would retirement. and wish him a long and happy Group. the to Andy O’Brien welcome to delighted was Board The plc, Aggreko at nine years following Group Andy joined Volution and cooling heating power, temporary of provider 250 global a FTSE including senior finance roles numerous he held solutions, where solutions. a broad He has power director, finance recently most business environment in a global internationally working background the UK, as Dubai well as in the Nordics and worked lived and has in operated Andy has his career, Throughout and Singapore. been critical has and in his role control cost where environments $1.2 billion totalling revenues Andy also oversaw at Aggreko, Andy joins acquisitions. international on a number of and worked look and we development time in its an exciting at Group Volution our journey. continue we with him as to working forward discussed succession Committee the Nomination During the year refreshing and progressive Directors Non-Executive planning for plan succession Director a Non-Executive a result, As Board. of the was Tiney Claire that confirm I am also pleased to in place. is now a for 2019 on 3 August Director Non-Executive a as re-appointed three-year first the end of her following term second three-year on the Board. term in the Nomination can be found on the above information Further 64. to 62 on pages Report Committee Dividends and inorganic organic through value shareholder deliver aim to We an paid We policy. dividend a sustainable and growth revenue On the basis 2019. in May pence per share 1.60 dividend of interim a recommended has and financial position, the Board results of our the dividend for a total giving pence per share, 3.30 final dividend of pence per share), 4.44 (2018: pence per share 4.90 of financial year this a consequence of As year. on the previous 10.4% of an increase for cover earnings dividend adjusted the resulting recommendation, shareholders by approval Subject to 3.3x). 3.2x (2018: was the year the final dividend on 12 December 2019, Meeting the Annual General at at the register on shareholders to on 18 December 2019 will be paid 2019. 22 November Cash generation was good with adjusted operating cash flow cash flow operating adjusted good with was generation Cash was end the year at debt million). Net £34.4 million (2018: of £36.9 year, than last million lower million), £2.6 £77.2 (2018: million £74.6 incurring a net Ventair, of acquisition the completed having after million in contingent £0.6 million and paying £10.4 of cash outflow in July 2018. Ab acquired Oy Pamon of the acquisition for consideration Annual Report 2019 Report Annual Strategic Report Volution Group plc
Chief Executive Officer’s Review Ronnie George Good organic growth and increasing our focus on Operational Excellence
Summary >> Revenue of £235.7 million achieved by both organic and inorganic growth totalling 15.7% at constant currency >> Improving organic growth of 3.5% at constant currency, 3.2% in the first half of the year increasing to 3.8% in the second half >> Adjusted operating profit of £42.1 million, an increase of 13.3% over the prior year driven by good organic growth and recent acquisitions >> Successfully integrated the prior year’s acquisitions, substantially increasing our position in the Nordics, and the more recent acquisition of Ventair in Australia, establishing a leading residential position in Australasia >> Ongoing investment in new product development and the establishment of a modular product platform for fan assembly which will future-proof ongoing product innovation for the residential refurbishment markets Overview >> The final commissioning of our Reading, UK, facility In our fifth full financial year since listing in June 2014 we continued provides substantial capacity headroom for injection to make good progress with our strategy, bringing the Group’s revenue moulding, extrusion and assembly to underpin our to almost double that of when we listed. We completed the acquisition ambitious plans for growth of Ventair in Australia in March 2019, as well as successfully integrating >> Completed our third Management Development the acquisitions we made in the prior year. We are now well established Programme, developing our managers and leaders as the market leader for residential ventilation in the UK, with leading of tomorrow with a number of participants already positions in the ventilation markets in the Nordics, Central Europe moved to more senior positions within the Group and Australasia. As we have stated previously, the European and international ventilation market remains fragmented and we continue in our ambition to become one of the major suppliers in this market. We have established a portfolio of leading brands and more recently have been able to utilise some of these brands to launch into new markets. In the last two years we have successfully launched the Vent-Axia brand, primarily a leading UK brand, into the market in the Netherlands and we are now making plans to launch this brand in Australia through our newly acquired company, Ventair. We remain focused on adding other leading brands and market positions to our portfolio. As the Group has grown significantly in size and with it a much wider product range, the opportunity when acquiring access to a new market becomes more attractive.
10 Strategic Report 11 The UK Residential Public RMI market performed very well in the year in the year well very performed RMI market Public UK Residential The the prior year. to compared million, up 5.3% £15.6 of revenue with total 0.9% by half improving with the first in the year accelerated Our growth 9.6%. by and the second half increasing along with a range product in our new investment considerable The selling helped us has to approach and improved sophisticated more is in this sector the underlying spending Whilst share. market regain in taken, have we the actions that optimistic are we constrained, still launched or planned recently ranges product particular further new in the growth revenue launch, will help underpin further organic for ahead. years £23.8 million of revenue RMI market Private Residential UK The year. the previous to compared 1.7% of an increase represented increasing with growth flat broadly was the year of half The first the return both by assisted the year, in the second half of to 3.8% successful and the facility our Reading service at customer to normal ranges ventilation and “silent” value” “higher more of introduction the significant market As the financial year. the end of towards to committed remain we RMI market, the UK Private for leader quieter, the virtues of extolling experience, the customer improving products. styled aesthetically and more efficient energy more a range deliver to placed well are brands UK proprietary Our three relationships strong and, through products and best better of good, continue to placed well are we believe we with our distributors, in the future. this category growing to in the year 4.1% by grew revenue market UK Commercial in predominantly growth £33.5 million) with (2018: £34.9 million and Diffusion both of Since the acquisition the year. half of the first one-third is around revenue Buildings our commercial Breathing our Whilst build market. new and two-thirds focused refurbishment is helping products of range and hybrid the natural to improvements a marked noticed we build school market, in the new us win share coils fan energy-efficient supply of the for in activity slowdown product Our refurbishment market. construction office new into the the benefits crystallising now are and we well very performed range market. our commercial across team one sales leadership having of like: for like million (2018 £9.9 sales were UK Export market with all currency) constant at (10.8% 11.3% £11.2 million), a decline of the due mainly to the year half of the decline occurring in the first of occurred that in Japan one customer from order spares large one-off, the supply for in the Irish market lead to continue We in the prior year. our exclusive extended and recently Systems Build Residential New of these products. the supply of for partner agreement distribution establish to the project completed we the year In the second half of the injection for purpose-built and higher capacity facility a new, in facility This unitary fans. and assembly of moulding, extrusion those prior to equivalent service levels at operating is now Reading on Operational focus our reinvigorated part of and, as the move to gains in the coming years. efficiency anticipate we Excellence, Ventilation Group segment Group Ventilation (17.0% at constant 15.8% by grew revenue Group’s Ventilation The at 2.3% (3.4% was growth revenue Organic currency). constant currency). Kingdom United were sector Systems Build Residential Sales in our UK New revenue good organic showing million), £25.6 (2018: £27.8 million going back trend growth an unbroken continuing 8.6%, of growth aimed at drivers regulatory from benefit to We continue to 2010. dwellings. residential all new the carbon emissions from reducing our markets, all of in the UK but across just not These regulations, energy-efficient of our supportive become more to expected are solutions. ventilation The Group delivered revenue of over £235 million in 2019. Whilst Whilst in 2019. £235 million over of revenue delivered Group The with companies acquire we as dilution margin is an inevitable there been a reduction has there also conscious that are we margin, a lower operating Our adjusted years. two the last over in our underlying margin the half of in the first 17.6% comprised of 17.8%, was in the year margin action taken have We in the second half. 18.1% to and improving year for focus the key is improvement margin operating that ensure to years coming the the business over of and employees management include a sharp focus now to our strategy also updated have and we has the Group that believe We Excellence. on Operational a level to back margins operating adjusted increase to the potential the medium term. over of 20% constant at 3.5% to in 2019 improved growth revenue Organic 3.2% to half at and the second with the first half increasing currency, for growth revenue organic delivered our geographies All of 3.8%. an had we where the region our Nordic year of with the exception delighted are We organic currency. revenue constant at 2.3% decline of though, in Finland (Pamon) Oy Pamon of performance the with acquired in prior to July the year versus 2018, growth which delivered by growth revenue organic as defined (not 14.5% of ownership our months of ownership). after twelve until Volution capacity manufacturing and increase consolidate to Our project ventilation Our new in the year. completed UK, was in Reading, kind its of the largest of is one in Reading facility manufacturing to longer than anticipated took the project and whilst in Europe during normal service levels at been operating it has complete, this the same completing time as At 2019. the secondof half residential in new innovation been considerable has project there more a new, of with the establishment products refurbishment for the foundation which will provide structure product modular, ahead. in the years ranges our product of development future and scale flexibility greater provides modular approach This more ingredient an essential assembly, moulding and fan injection to both our markets. in all of organically grow to continue we as a consequence of further as political ahead, uncertainty expect We Union. However, the European from scheduled departure the UK’s our 50% of business with over a truly international is now the Group the UK which, coupled with our outside being generated revenue us gives strategy, business model and clear growth value-adding of An analysis the Group. for prospects in the long-term confidence the EU can the UK leaving of a result as face may Volution the risks and 28. 27 on pages be found Annual Report 2019 Report Annual Strategic Report Volution Group plc
Chief Executive Officer’s Review continued
Ventilation Group segment continued United Kingdom continued Our new facility in We have further strengthened the UK management team: John Foley joined in May 2019 having had a long established career Reading, UK, was fully with the Otis Elevator Division of United Technologies. John is busy establishing his senior leadership team and is working with it to commissioned during maximise the enlarged opportunity for growth now that we have fully commissioned our facility in Reading. the year and is one of Nordics Sales in the Nordics region were £47.0 million (2018: £36.7 million), the largest of its kind an increase of 28.1% (32.6% at constant currency) compared to the previous year with an organic revenue decline of 2.3% at constant currency. Whilst the organic revenue decline in the Nordics was a in Europe.” disappointment, the overall progress in the region was very pleasing. Since our first acquisition of Fresh AB in October 2012 we have now Whilst the market for decentralised heat recovery systems in established a leading position in the Swedish ventilation market and Germany is competitive, with a significant number of suppliers the acquisitions of Pamon in Finland and Air Connection in Denmark participating in the space, our ambition, as the founder of the have helped us establish a wider position outside of Sweden. technology in the German market, is to continuously innovate The integration of both of those acquisitions has progressed very well. and stay ahead of the competition.
During the year we finalised the development of a new product, Australasia Intellivent SKY, further enhancing our product portfolio and our Sales in Australasia were £22.2 million, growing by 171% (175% at position as the leading supplier of high-end product solutions for constant currency) driven by a full year of trading from Simx and the residential refurbishment market. We also established the first the recent acquisition of Ventair in Australia. Organic revenue grew sales in Denmark and Sweden of the heat recovery ventilation by 7.5% (8.8% at constant currency) with a particularly strong finish system products manufactured by our business, Pamon, in Finland to the year. We now have a leading market position for residential and have plans to accelerate this cross-selling development in ventilation in our Australasian market and have the opportunity to 2020. Whilst the market in Sweden remains subdued there are a continue to launch many new products in both markets. With the number of cross-selling initiatives planned for the new year utilising acquisition of Ventair it is our ambition to become one of the leading the wider product capabilities from across the Group. providers of residential ventilation to the market in Australia, During the year we further upgraded our ERP system platform complementing our position as the market leader in the residential in the Nordics and by the end of this calendar year all companies refurbishment trade supply market in New Zealand. in the Nordic region will be operating on the same ERP system. OEM (Torin-Sifan) segment Central Europe Our OEM (Torin-Sifan) segment’s revenue in the year was £23.6 million Sales in Central Europe were £31.0 million, growth of 8.9% (9.3% at (2018: £22.6 million), an increase of 4.5% (4.8% at constant currency) constant currency) compared to the previous year. Our focus on the compared to the previous year. Sales of our EC3 motor are gaining trade distribution channel in Belgium was very successful during the market share and have been increasingly included within our own year with a substantial increase in the number of outlets stocking products in our Ventilation Group segment. During the year we made our products. Coupled with the increasing coverage in the market several operational and logistics improvements to increase capacity we have successfully introduced a wider range of the Group’s products to further support the growth of our EC3 motor sales. Revenue for to Belgium under the Vent-Axia brand. In the Netherlands, using the boiler spares was weaker than anticipated with the winter weather same approach as in Belgium has increased the number of trade in the UK generally milder than in previous years. distributors which sell our products, with further new introductions The ERP system implementation that started in 2018 was completed planned for the coming year. during the year. This caused some resulting disruption to operations, In Germany we benefited from the success of the new range of and some logistical delays resulting in spot sourcing of some Xenion decentralised heat recovery products. Launched in our electronic and other components at premium prices, mainly in the financial year 2018, this improved, quieter and better performing first half of the year. Those issues were resolved in the second half range of products helped us to deliver good organic revenue of the year and the ERP system is now delivering benefits across all growth, improving in the second half of 2019. Since acquiring functional areas of the business. During the year we also completed inVENTer in 2014 we have made substantial improvements to the further enhancements to the business material planning and sourcing full product range and also the relationships with the sales agents functions. These enhancements to the ERP system, our ongoing that we primarily use as our route to market. Later in the financial drive to improve the manufacturing operations and the improved year we had the “soft launch” of our wirelessly connected range material planning function should deliver improved operational of decentralised heat recovery systems, with the products being performance in 2020. made available to the market early in our new financial year 2020.
12 Strategic Report 13 The new markets which we are entering, as well as our original core core our original as well as entering, are which we markets new The backdrop regulatory the favourable from benefit to continue markets, buildings (in particular carbon emissions from on reducing focuses that trends in local market increase is a notable and there buildings) new scope The efficiency. quality and energy indoor air improving towards improvement targeting range, product ventilation residential large our of and 21. 20 on pages is illustrated in indoor air quality, will and we highly fragmented remains market ventilation The the Group’s opportunities leveraging acquisition pursue to continue and finance. distribution procurement, capabilities in operations, dedication our re-emphasised have We Excellence: Operational the of the commissioning that Now Excellence. Operational to can been finalised attend, in the UK has we facility new Reading our operations all of of the efficiency improving to generally, more and processes. 14. on page can be found on our strategy information Further Ronnie George Ronnie Officer Executive Chief 2019 9 October Outlook caused the in the UK economy by is major uncertainty there Whilst on building focus to continue we negotiations, Brexit of state current of and in particular pursuit the financial performance on our strong margins. further our operating to excellence operational People with the acquisition the Group for growth of year been another It has integration with the continued together Ventair of and integration during the prior financial year. completed acquisitions four of the in operations people in its 1,600 over employs now Group Volution and benefits and Australasia Europe Central the UK, the Nordics, and their workforce its of nature the diverse significantly from success. the Group’s to commitment concluded Programme Development Management internal Our third on this programme value considerable place We 2018. in November and scope the effectiveness develop helping to as well which, as new of in the integration significantly assisted has people, of our part feel to made are managers our high-potential as acquisitions the overall of in the formation and assist network wider group of a culture. Group Group who joined Volution those employees welcome to like I would work, hard their collective for thank all employees and during the year success with the Group’s towards and contribution commitment growth. of year another as down who stepped personally thank Ian Dew, to also like I would and years many for together Ian and I worked 31 July 2019. CFO on on listing successful Group’s in Volution role an integral he played in role a key played and subsequently Exchange Stock the London wish Ian a very to like I would all our acquisitions. of the completion retirement. happy
Now including organic growth in Torin-Sifan in Torin-Sifan growth organic including Now a disciplined and through Growth strategy ‑adding acquisition value Excellence Operational Organic growth in all our markets growth Organic Organic growth in all our markets growth Organic a disciplined and through Growth strategy acquisition value-adding and range Torin-Sifan’s develop Further and loyalty preference build customer TS financial year. in the 2019 with the strategy good progress made We are: the highlights Some of 3.5% to in 2019 improved growth Organic growth: Organic 3.2% half at and the second with the first half currency), (constant older two rationalise in the UK to Our project 3.8%. to increasing is now in Reading purpose-built facility one new in to facilities kind in Europe its of the largest is one of facility This complete. injection moulding, extrusion for headroom capacity with substantial growth. underpin our ambitious plans for and assembly to 2019 in March acquisitions: acquisition The Value-adding in presence our existing complements in Australia of Ventair and further broadening whilst Zealand) in New (Simx Australasia diversity. and geographical reach market the Group’s strengthening fully now are year in the previous completed acquisitions four The expectations. in line with our and progressing integrated After Before Three strategic pillars pillars strategic Three Strategy Strategy industry strong and strengths build on our core to continue will We our preferred of in each share gain further market to record track and in revenue trends growth our historical and continue markets a combination through goals our achieve to intend We profitability. on and a focus acquisitions selective growth, revenue organic of three identified have this, we achieve To Excellence. Operational recently have pillars strategic These three pillars. strategic key a and as Group Volution of with the development in line evolved pillar the Torin-Sifan of completion the successful consequence of OEM (Torin-Sifan) constituted. originally it was as the strategy of following but Group the part of important a strategically remains the and range product the EC3 of development the of completion consider that now we customers its to in the offer improvements the our OEM business is clearly part of of further development strategy refreshed The our strategy. pillar of growth organic larger Excellence. on Operational focus emphasises an increased now the change in focus: shows diagram following The Annual Report 2019 Report Annual Strategic Report Volution Group plc
Our Refreshed Strategy
Operational Excellence introduced as one of our three strategic pillars
We have recently reviewed and refreshed our Group strategy. We will, of course, continue to build on our core strengths and It has evolved in line with the growth and expansion of the Volution strong industry track record to gain further market share in each Group since its listing in 2014 and as a consequence of the successful of our preferred markets and continue our historical growth trends completion of the Torin-Sifan pillar of the strategy as it was originally in revenue and profitability. We intend to achieve our goals through constituted. OEM (Torin-Sifan) remains a strategically important a combination of three strategic objectives, two of which remain part of the Group and, following the successful completion of the unchanged from our earlier strategy: organic growth and selective development of its EC3 product range and the improvements in the acquisitions. In addition we have introduced a new pillar to our strategy: offer to its customers, we now consider that further development of a focus on Operational Excellence. The following diagram summarises our OEM (Torin-Sifan) business is clearly part of the larger, organic the evolution of our Group strategy: growth pillar of our strategy. Before After Organic growth in all Organic growth in all our our markets markets Now including organic growth in Torin-Sifan Growth through a disciplined and value-adding Growth through a acquisition strategy disciplined and value‑adding acquisition strategy Further develop Torin-Sifan’s TS range and build customer Operational Excellence preference and loyalty
Organic growth in all our markets
Continue to grow through a focused sales strategy for each of our market sectors. Focus on opportunities arising from favourable regulatory environments. Continue to build public awareness of indoor air quality issues and the benefits of higher value ventilation solutions to grow our markets and increase margins. Continue to develop new products and deliver benefits from recently acquired businesses and drive cross-selling initiatives.
Actions Achievements during the year FY2020 focus >> Drive demand growth in all our markets >> Organic revenue growth of 2.6% >> Range development, maximising the benefiting from regulation and educated (3.5% at constant currency) opportunities arising from our expanding end users geographic and market sector range >> Continued growth in our value-added >> Bespoke sales and marketing strategy product lines >> Expand the range of centralised heat to address each market sector recovery systems >> Continued roll-out of the Calima platform >> Provide innovative products to address >> Development of more sophisticated >> Development of the Vent-Axia brand in evolving market demand and generate wireless control networks for the Netherlands and Germany upselling opportunities ventilation systems >> Development of the Manrose brand >> Promote sales opportunities for >> Increase emphasis on incorporating in Australasia Group products through newly Torin-Sifan products into Group acquired companies >> Fully commissioned the Reading facility ventilation products in the UK providing sufficient capacity >> Further broaden the EC3 product range headroom to continue to grow organically in Torin-Sifan >> Continued customer support for our Torin-Sifan EC3 product range 14 Strategic Report 15 Place additional emphasis on value on value emphasis additional Place lower achieve to products engineering of manufacture ease of and improve costs and savings pursue to Continue the through reduction working capital supply our Group-wide scale of benefits benefits chain and sourcing out a common ERP roll to Continue Group our UK Ventilation across platform efficiency manufacturing Increase supply chain and Optimise sourcing benefits Continue the integration of Ventair Ventair of integration the Continue Group into the new and pursue search to Continue opportunitiesacquisition through available Maximise synergies scale our growing sales intercompany grow Further categories product to widen served internationally to development product new Focus channels in acquired our offer expand > > > > > > > > > > FY2020 focus FY2020 focus > > > > > > > > > > Finalised the commissioning of the new the new Finalised the commissioning of in the UK facility Reading fans extract of a range Redesigned efficient for a common platform around reduction and inventory manufacture Enhanced the planning and materials our Torin-Sifan of aspect management ERP system in culture a lean manufacturing Initiated facilities our Torin-Sifan Inorganic revenue growth of 12.0% 12.0% of growth revenue Inorganic currency) (12.2% constant at Ventair of the acquisition Completed in Australia integration active the Continued the Group into acquisitions of recent in the prior year made acquisitions Four fully integrated now externally substitute to Continued recently our used by products sourced with internally companies acquired solutions and manufactured developed margins our gross expanding and Manrose the Vent-Axia Expanded newly through internationally brands businesses acquired > > > > > > > > > > Achievements during the year Achievements > > > > Achievements during the year Achievements > > > > > > Operational excellence Operational Growth through a disciplined and value-adding acquisition strategy value-adding a disciplined and through Growth Leverage the opportunities afforded by by the opportunities afforded Leverage UK in Reading, facility our new around practice best operational Share the Group our of the potential develop Further enhance our operations to ERP systems and processes our innovation Leverage our supply chain and from Seek benefits arrangements sourcing Make acquisitions to establish leading leading establish to acquisitions Make and expand markets positions in new markets in existing our presence synergies and cost revenue Deliver from acquisitions growth and export cross-selling Increase > > > > > > > > Actions > > > > > in the UK has facility Reading the new the commissioning of that Now Excellence. Operational to dedication our re-emphasised have We and processes. all our operations of efficiency improving to generally more can attend been finalised we Actions > > > commercial in the appropriate, and, where market businesses in the residential complementary and integrate acquire to will continue We key and, for available benefits clear synergistic are there where on opportunities will be principally in Europe Our focus market. ventilation Europe. opportunities, of outside strategic Annual Report 2019 Report Annual Strategic Report Volution Group plc
Our Recent Acquisitions
Expanding our market opportunity in Australasia
Ventair Pty commenced trading in 2006 and has developed into a leading provider of residential air movement products to electrical wholesalers and retail lighting showrooms in Australia. With facilities in Melbourne, Brisbane and Perth, Ventair supplies over 2,000 customer distribution outlets. A nationwide sales team sells and supports the product range which includes: innovative extract fans, ceiling cooling fans and integrated heat-fan-light units, ensuring that Ventair remains a trusted partner enjoying strong customer loyalty. Its continuing success is founded on excellent customer service and a product range that not only looks good Airbus fans but performs to the highest standards. The acquisition of Ventair provides Volution with its second route “We are delighted to have acquired Ventair. to market in the Australasian region. The product ranges of Simx, This acquisition is consistent with our stated strategy Ventair and Volution complement each other well. Ventair is already of making selective value-adding acquisitions and we are distributing the Manrose and Vent-Axia brands in Australia which excited about the opportunity to enlarge our presence means we have been able to quickly leverage our enlarged product in the Australasian region by introducing additional range in our enlarged market. This multi-brand, multi-channel approach will allow Ventair to widen its sales channels further Volution Group product ranges via established routes to maximise its sales opportunities. to market. The range of Ventair products, coupled with the existing Volution product range, provides us with an In addition, Simx in New Zealand has launched and started to attractive and improved portfolio for both the Australian trade with some of the premium, added value, Ventair products. These have been launched in New Zealand under the leading and New Zealand markets. So far, the integration is Manrose brand and have had a very successful start. proceeding as planned, with the first products launched, and selling, within two months of acquisition.”
Ronnie George Chief Executive Officer
Spyda ceiling fan
16 Strategic Report 17 Air Connection in Denmark Managing Director, Volution Nordics Volution Director, Managing “We are very pleased with the progress made by by made with the progress pleased very are “We have We since acquisition. and Air Connection Pamon whilst in the Finnish market our presence strengthened in other portfolio our product the same time expanded at developed using products region in the Nordic markets Pamon that ensure to working now are We Pamon. by introducing by growth period of strong its continues In addition, the Finnish market. into products Group other to platform an excellent provided Air Connection has Denmark and into products Group new introduce in line with our expectations.” grow to continues Thunholm Eva Pamon in Finland Pamon Expanding our market market our Expanding Nordics the in opportunity Annual Report 2019 Report Annual In July 2018 we completed the acquisition of both Oy Pamon Ab Ab Oy Pamon both of the acquisition completed we In July 2018 in Finland and Air Connection ApS (Air Connection) (Pamon) integrated successfully have in Denmark. we Since acquisition, the Group. businesses into both in the business remained Pamon at team management The in been successful has team, with the wider Volution and, working build To months. twelve the first over 15% by the revenue growing capacity to factory increasing are we growth further on this strong the wider Group. across range sell the product underpin our plans to (Kair) and Pamon brand our Voltair of ranges combined product The proposition our product that meant has region Nordic in the brand the scope has as significantly, grown has units recovery in heat recovery these heat sales Maximising sales channel. of of our is a further opportunity for the wider Group through products and the Voltair of nature complementary due to the growth; the is the sale of focus current the ranges, product Pamon sales channels. the Pamon through Voltair products announcement, results in our half-year reported we As with portfolio product its been expanding Air Connection has implemented and has products Group other of the introduction have we the year During the second half of ERP system. a new with Air Connection launching products momentum that continued the product of expansion The and inVENTer. Voltair Pamon, from and continues market our position in the project secures range preference. customer and build strong to develop Strategic Report Volution Group plc
Our Business Model
Creating sustainable value Volution Group plc is a leading supplier of ventilation products with primary markets in the UK, the Nordics, Central Europe and Australasia. We aim for our products to enhance our customers’ experience of ventilation by reducing energy consumption, improving indoor air quality and design and making them easier to use.
WE LISTEN We listen to our customers and end users to help them solve their ventilation WE INNOVATE problems and meet their regulatory obligations. We continue to innovate products to meet customer needs and regulatory obligations. WE GROW We deliver growth by developing our strong market positions for our brands and cost effective solutions for our customers.
WE MANUFACTURE We manufacture and assemble high-quality, technically WE HELP OUR sophisticated ventilation CUSTOMERS solutions at optimised cost. We have specialist sales and marketing teams supporting our customers. WE DISTRIBUTE We provide best in class customer service to thousands of customers with thousands of products across the Group.
Employees Volution Group is founded upon and underpinned by the excellence We are particularly proud of our Management Development of its people. The experience, knowledge and specialist skills of Programme having now run three over the last few years. We are also our employees are key differentiators for us. We are committed to committed to open and honest communication with our employees supporting, developing and retaining talent across the Group and and have a number of employee communication channels across it is important to us that our employees fulfil their potential. the business, including a biannual Employee Forum.
18 Strategic Report 19
WE MANUFACTURE We manufacture where we can add value can value add we where manufacture We component and outsource and flexibility, it is where experts trusted to manufacture economically Our renewed sensible. will Excellence Operational to dedication and efficiency further cost to lead in product quality. improvements : Impact on our results versus with manufacture flexibility Great cost. reduces buy optimisation 81.0% in house made products from revenue of WE DISTRIBUTEWE 21,000+ being shipped to locations We supply our products and services and services our products supply We in retail trade, multiple channels in through Our wide product contractors. to and direct that ensure and service proposition portfolio choice for be the supplier of to continue we partners. our distribution of many Impact on our results: channels and wide distribution Strong and loyalty customer creating availability quality. margin
We develop long-term relationships with suppliers with suppliers relationships long-term develop Suppliers: We Conduct, and Anti-Bribery Code of the Group’s to which adhere together. grow us to and allow ethos and innovation Policy Corruption continually aim to We Communities environment: and the energy reduce designed to our products of with many innovate buildings. Our energy-efficient more and help deliver consumption support the communities in aim to the Group businesses across and programmes volunteer employee through operate which they on the have our operations impact negative minimising any and Noise part in the annual Clean Air Day take We environment. charities in the UK. environmental by organised Week Action WE HELP OURWE CUSTOMERS WE INNOVATE 400+ the Group sales people across total of revenue spent on new product product on new spent revenue of innovation Our primary channel communication our large is through with our customers structure We teams. sales and marketing local market around specialised teams and focus. ensuring expertise requirements Impact on our results: specifications Solution selling and strong preference. customer generate We spend 2.2% of revenue each year to put put to year each spend 2.2% revenue of We developments, regulatory of ahead ourselves leading with market our brands differentiate cost and offer products defining and market value constant quality through effective engineering developments. and value analysis : Impact on our results 2.2% Market leading innovation supports market market supports innovation leading Market margins. leading
WE DELIVERWE WE GROW WE LISTEN We seek to deliver attractive returns for our our for returns attractive deliver seek to We Shareholders: and cash flow, in profit growth with sustained shareholders, and year-on-year price appreciation share driving longer-term in dividends. growth a Management through advancement career offer We Employees: within a framework training and other Programme Development are opportunities. We and international employment of sustainable the Group. across health and safety improving to committed innovative and create our customers to listen We Customers: reducing by ventilation of enhance their experience to products indoor air quality and design and improving consumption, energy use. to making them easier We create sustainable results for our stakeholders results for sustainable create We develop. continue to business model which we a sustainable creates on value creation focus Our long-term 14% CAGR revenue 5-year Our vision is to create long-term growth by by growth long-term create Our vision is to and exciting new developing continuously Our aim is our customers. for propositions in our customers to the value to increase market our strong develop propositions, through positions and engender loyalty in our brands. service and trust customer Impact on our results: Continued revenue growth and margin and margin growth revenue Continued improvement. Tightening energy efficiency regulations regulations efficiency energy Tightening quality on indoor air focus and increased demanding design increasingly to lead also strive We our customers. for criteria by the end user experience to improve aesthetics improving minimising noise, controls. and enhancing ventilation : Impact on our results and growth Continued revenue margin improvement. Annual Report 2019 Report Annual Strategic Report Volution Group plc
Excellence in Ventilation
Residential indoor air quality The political and social drive to become more energy efficient has made our homes more air tight meaning the problem of poor indoor air quality has become harder to ignore. This strengthens the vital role ventilation products have to play in creating a healthy indoor environment. Without good ventilation, air quality can deteriorate leading to condensation, mould and a build-up of toxic chemicals. Volution Group is well placed to capture growth in this market by delivering new and innovative solutions to customers, reducing their energy costs whilst preventing the build-up of airborne pollutants and delivering healthy, comfortable and fresh living spaces. This section shows the many and varied residential ventilation products Volution Group has to offer its customers (products offered to the commercial ventilation market are not shown here).
1. MVHR 5. Single room extract fans 4 MVHR (Mechanical Ventilation with Heat Recovery) Single room extract fans are installed horizontally is a centralised, whole dwelling, ventilation system through the wall or vertically into short duct runs to connected by ducting to deliver warmed, fresh and remove stale and humid air from bathrooms, kitchens filtered air to the habitable rooms whilst reducing and utility rooms. energy use and costs by recovering the heat from the stale extracted air. 6. Inline fans Inline fans are installed in a duct run, typically above 2. dMVHR the ceiling, and extract air from any space not directly 5 dMVHR (Decentralised Mechanical Ventilation adjacent to an external wall or where higher ventilation with Heat Recovery) is a decentralised ventilation rates are required which are not achievable with a 2 system installed through the walls of a dwelling traditional single room extract fan. which delivers warmed, fresh and filtered air to the habitable rooms whilst reducing energy use 7. Passive ventilation and costs by recovering the heat from the Passive ventilation products provide an opening extracted air. in the building envelope through which air is free to pass in either direction based on the relative internal 3. MEV and external air pressures. These products are used MEV (Centralised Mechanical Extract Ventilation) to provide replacement air for extraction units or is a whole dwelling ventilation system that extracts exhaust paths for a PIV unit. air continuously, at a low rate. It is a low-energy, continuously running, ventilation system designed 8. Thermal destratification with multiple extract points to simultaneously draw Thermal destratification is the process of mixing moisture-laden air out of all the wet rooms of a the internal air in a building to eliminate hot and dwelling (bathrooms and kitchen) providing a cold layers in the air column of a room and achieve quieter and more energy-efficient system temperature equalisation throughout the building. compared to separate intermittent extract fans.
9. Ducting 4. PIV Ducting is a critical component in any centralised PIV (Positive Input Ventilation) is an energy-efficient system as it connects the target rooms to the method of pushing out and replacing stale, unhealthy ventilation unit ensuring that stale air is extracted air by gently pressurising the home with fresh, from the wet rooms and fresh air is delivered to the filtered air to increase the overall circulation of air habitable spaces. Air filters and noise attenuators in the dwelling. can optionally be fitted in the ducting system to improve the indoor environment as required.
20 Strategic Report 21 1 5 8 6 9 3 7 Annual Report 2019 Report Annual Strategic Report Volution Group plc
Key Performance Indicators
How we performed over the past year We have identified a number of financial and non-financial key performance indicators (KPIs) that reflect the internal benchmarks we use to measure the success of our business and strategy. These will enable investors and other stakeholders to measure our progress. The three strategic pillars Financial performance Organic growth in all our markets £m Growth through a disciplined and value-adding Revenue acquisition strategy £235.7m Operational Excellence
235.7 205.7 185.1
154.5 We discuss the KPI performance in the 130.2 120.7 Financial Review on pages 43 to 47
Note 1. The Group uses some alternative performance measures to track and assess the underlying performance of the business. 2014 2015 2016 2017 2018 2019 These measures include adjusted operating profit, adjusted profit before tax, constant currency, adjusted EPS and adjusted operating cash flow. For a definition of all the adjusted and Strategic pillars measured by this KPI non-GAAP measures, please see the glossary of terms in note 34. A reconciliation to reported measures is set out in note 2.
Tracks our performance against our strategic aim to grow the business
Comments >> Strong revenue development in the year with growth of 14.6% (15.7% at constant currency)
>> The acquisition of Ventair Pty Limited and a full year of acquisitions completed in the prior year contributed significantly to our inorganic revenue growth of 12.0% (12.2% at constant currency)
>> Organic revenue growth of 2.6% (3.5% at constant currency)
Link to Directors’ remuneration >> Annual Bonus Plan (ABP) awards are linked directly to adjusted operating profit and adjusted basic EPS; Long Term Incentive Plan (LTIP) awards are linked directly to measures of EPS growth and TSR, all of which correlate with increasing revenue
22 Strategic Report 23
1 2019 39.9 (16.9%) 35.8 2018 (17.4%) (16.9%) 34.6 2017 (18.7%) 31.3 2016 (20.3%) 27.5 2015 (21.1%) 14.0 2014 (11.6%) Strategic pillars measured by this KPI by pillars measured Strategic Adjusted profit before tax and before profit Adjusted profit before adjusted tax margin £39.9m £m (% of revenue) £m (% of 42.1 2019 (17.8%) 37.1 £m (% of revenue) £m (% of ABP awards are linked directly to adjusted operating profit profit operating adjusted to directly linked are ABP awards to EPS directly linked are awards EPS; LTIP basic and adjusted EBITDA, with adjusted which correlate all of and TSR, growth tax before profit and adjusted profit operating adjusted 2018
(18.0%) 1 > Link to Directors’ remuneration Link Directors’ to > (17.8%) 35.6 2017 (19.3%) 32.5 2016 (21.0%) 29.4 2015 (22.6%) 26.5 2014 (22.0%) Strategic pillars measured by this KPI by pillars measured Strategic £42.1m £42.1m Adjusted operating profit and adjusted and adjusted operating profit Adjusted margin operating profit 2019 46.5 (19.7%) 41.1 2018 (20.0%) (19.7%) 39.2 2017 (21.2%) £m (% of revenue) £m (% of
1 35.4 2016 (22.9%) 32.1 2015 (24.7%) Lower margin business acquired in FY2019 business acquired margin Lower during efficiency manufacturing reduced Temporarily facility Reading new commissioning of the supply chain and temporary costs Higher procurement business in our Torin-Sifan difficulties materials on imported pressure inflationary Currency > > > > Good growth in underlying profitability Good growth capital intensive the business is not as charges depreciation Low in the year: reduced Margins > > > > > > > 28.5 2014 (23.6%) > > > These adjusted measures track the underlying financial performance of the Group the Group of the underlying financial performance track measures These adjusted Comments Strategic pillars measured by this KPI by pillars measured Strategic Adjusted EBITDA and adjusted adjusted EBITDA and Adjusted margin EBITDA £46.5m Annual Report 2019 Report Annual Strategic Report Volution Group plc
Key Performance Indicators continued
Financial performance continued
Adjusted operating cash flow1 £m Adjusted operating cash flow Adjusted earnings per share1 p conversion1 % £36.9m 85% 16.0p 35.9 36.9 99 16.0 93 95 34.4 90 14.5 31.1 86 85 13.6 12.6 27.6 11.0 22.8 8.8
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Strategic pillars measured by this KPI Strategic pillars measured by this KPI Strategic pillars measured by this KPI
Monitors cash generation at the operational Tracks the efficiency of cash generation To provide a measure level (important for our acquisition strategy at the operational level (important for our of shareholder value and servicing debt), after movements in acquisition strategy), after movements in working capital and capital expenditure working capital and after capital expenditure Comments >> Improved EPS resulting from Comments Comments improved adjusted operating profit >> Adjusted operating cash flow in >> Reduced cash conversion due to and new, profitable acquisitions 2019 remained good after capital increased working capital investment of £5.8 million (2018: Link to Directors’ remuneration £6.3 million) and an increase Link to Directors’ remuneration >> ABP and LTIP awards are linked in working capital of £4.7 million >> ABP awards are linked directly to directly to measures of earnings working capital management in order per share >> Working capital increased but to maintain good adjusted operating remained under control at 13.6% cash flow conversion of revenues (2018: 11.3%)
>> Some limited inventory increases took place for short-term mitigation of potential disruption to cross-border shipments as a consequence of the UK leaving the European Union
Link to Directors’ remuneration >> ABP awards are linked directly to working capital management in order to maintain good adjusted operating cash flow
24 Strategic Report 25 53 2019 54 2018 52 2017 49 2016 48 2015 Sales of low-carbon products generally generally products low-carbon Sales of a higher selling price and better attract and revenue thus improving margins linked are ABP awards profitability. and profit operating adjusted to directly EPS to directly linked are awards LTIP correlate all of which and TSR, growth products higher sales of low-carbon to Reduced percentage of low-carbon low-carbon of percentage Reduced Simx of acquisitions sales due to Pty Limited Ventair and Limited an opportunity in the Highlights market Australasian carbon low sales of Organically, in the year 54% by grew products 43 > > > > 2014 Sales of low-carbon products % low-carbon Sales of 53% Strategic pillars measured by this KPI by pillars measured Strategic Comments remuneration Link Directors’ to > > > > Tracks our success at upselling and the upselling and the our success at Tracks more on sales of regulations of effect products low-carbon energy-efficient sales product low-carbon of (value sales) total of a percentage as expressed 87.4 2019 89.7 2018 % 88.5 2017 90.4 2016 89.0 2015 The high level of staff retention retention staff of high level The 2019 in continued directly linked are ABP awards which profit operating to adjusted with high is associated we believe engagement employee of levels correlates which and satisfaction with staff retention > > 93.5 2014 Non-financial performance Non-financial retention Employee 87.4% Strategic pillars measured by this KPI by pillars measured Strategic Comments remuneration Link Directors’ to To ensure we continue to retain retain to continue we ensure To the number monitor we employees, our from resignations of voluntary the percentage businessescalculate and average total of as a function retention employees full-time equivalent > > 74.6 2019 77.2 2018 37.0 2017 36.1 2016 £m
1 21.2 2015 ABP awards are linked directly to to directly linked are ABP awards in order capital management working cash flow good operating maintain to debt minimise net and therefore Good cash generation from operations operations from Good cash generation million £2.6 of debt in net Decrease costing Ventair of Acquisition £10.4 million for paid consideration Contingent Ab Oy Pamon of the acquisition million of £0.6 net of a ratio as (expressed Leverage 1.6x was EBITDA) adjusted to debt 1.9x) (2018: > > > > > > 42.9 2014 To ensure we have an efficient capital capital an efficient have we ensure To support to with headroom structure growth revenue inorganic and organic Link to Directors’ remuneration Link Directors’ to > Comments > > > > > Strategic pillars measured by this KPI by pillars measured Strategic £74.6m Net debt Net Annual Report 2019 Report Annual Strategic Report Volution Group plc
Risk Management and Principal Risks
Effective risk management is integral to our objective of delivering sustainable long-term value
The Board is committed to protecting and enhancing the Group’s The Group’s risk management systems are monitored by the Audit reputation and assets in the interests of shareholders as a whole, Committee, under delegation from the Board. The Audit Committee while having due regard to the interests of other stakeholders. It has is responsible for overseeing the effectiveness of the internal control overall responsibility for the Group’s system of risk management environment of the Group. and internal control. BDO LLP (BDO) continued to act in the capacity of internal auditor The Group’s businesses are affected by a number of risks and and provide independent assurance that the Group’s risk management, uncertainties. These may be impacted by internal and external governance and internal control processes are operating effectively. factors, some of which we cannot control. Many of the risks are similar BDO continued to act in this capacity throughout the financial year to those found by other companies of similar scale and operations. ended 31 July 2019.
The risks and uncertainties facing the Group have also been considered in the context of the UK leaving the EU. Whilst negotiations Board continue between the UK and the EU and there is continuing uncertainty Overall responsibility for risk management in the UK economy, our increasing market and geographical diversity provide some level of risk mitigation and the Board considers the Reviews principal risks and uncertainties, along with actions taken, nature of the principal risks to be broadly unchanged. More detail of where possible, to mitigate them the specific risk associated with the UK leaving the European Union can be found on pages 27 and 28. A specific assessment of the potential risks and our approach to management of these risks can be found on pages 26 and 27.
Our approach Audit Committee Risk management and maintenance of appropriate systems of Assurance oversight of the internal controls control to manage risk are the responsibilities of the Board and are and risk management process integral to the ability of the Group to deliver on its strategic priorities. The Board has developed a framework of risk management which is used to establish the culture of effective risk management throughout the business by identifying and monitoring the material risks, setting risk appetite and determining the overall risk tolerance of the Group. To enhance risk awareness, embed risk management Executive Management and gain greater participation in managing risk across the Group, Day-to-day management of risk a programme of employee communication continues with all new Design and implementation of the necessary employees receiving a brochure on joining Volution Group. systems of internal control
26 Strategic Report 27 Our UK businesses, as well as those based in Continental Europe, Europe, in Continental those based as well Our UK businesses, as markets their own goods to of suppliers “domestic” substantially are reviewed have We sales activity. border cross limited with relatively our products sales of border cross any to apply would that the tariffs an estimated a no-deal, and at of in the event UK and Europe between these of the commerciality believe do not we 3%, up to of level tariff impacted. be materially would transactions our primary comes from non-UK supply On the supply chain side, rate exchange foreign heightened any China, from and so (aside recognised are delays Border impacted. materially is not volatility) some increased have such we as disruption; of source a potential as to and will continue products moving specific faster of inventories in the run suppliers with our key and orders levels inventory monitor 2019. 31 October up to and operational the risks of an analysis undertaken have We the European from a no-deal exit our business of challenges to into been incorporated has these risks of Union and consideration appropriate. as risks principal the Group’s that believes the Board in the EU, presence direct With a strong trading future changes to to respond to placed is well Volution it is clear that the EU and the UK. Whilst between arrangements in the levels and activity confidence is impacting uncertainty Brexit the less than 50% of for account UK, revenues our UK based an international as In the longer term, revenues. overall Group’s capabilities an expanding business with good logistics and to flexibility greater have consider we we presence, geographic UK specific challenges. any withstand any until will remain significant uncertainty that recognise We such our and as and understood, is fully agreed Brexit proposal being regularly are and impacts risks potential of understanding and assessed. reviewed Following the referendum outcome in June 2016 for the UK to leave leave the UK to for in June 2016 outcome the referendum Following been Commission have and European the UK Government the EU, the EU and the leave on which the UK would the terms negotiating writing the the time of At relationship. the future for framework to it difficult makes the UK parliament in uncertainty continuing the UK will possible that it remains however, an outcome; predict some later or at 2019 the EU without a deal on the 31 October leave it is unclear what agreement, a ratified In the absence of date. with the EU and other the UK will have relationships trading date. the exit after partners significant trading UK leaving the European Union the European UK leaving Our principal risks and uncertainties Our principal risks Code) states 2016 Code (the Governance UK Corporate 2016 The and extent the nature determining for is responsible the Board that strategic its in achieving take it is willing to risks the principal of and sound risk management it should maintain and that objectives the of C.2.1 with provision In accordance systems. control internal carried out a robust have they that confirm the Directors Code, 2016 including those the Group, facing risks the principal of assessment performance, the business model, future threaten which would or liquidity. solvency the principal are Report the Strategic out in this section of Set and which have the Group which could affect uncertainties risks and risk evaluation on the robust based the Board, by been determined the greatest have to the potential have to described above, process those similar to are risks These viability. future Group’s on the impact on the direction although with some movement year, last reported the of is a description risk there each risk. For the perceived of together should it occur, the Group, the risk to of possible impact and control consequences and the mitigation with strategic change to is likely the risk. manage list This to in place processes or smaller significance. on larger take risks different time as over Identifying and monitoring material risks Identifyingmaterial and monitoring through identified are risks) emerging (including risks Material (bottom-up and procedures individual processes of an analysis and operating the strategy of and a consideration approach) approach). (top-down the Group of environment businesses in the operating begins process evaluation risk The identify to management by undertaken with a biannual exercise financial and operational, the significant strategic, and document ensures process the businesses. This facing risks accounting controls and management and monitored identified risks are operations. in the businesses’ are embedded businesses operating the of each from assessments risk The the which evaluates management, Group by considered are then strategy the Group’s to with reference the Group of risks principal the Board. by review for environment and operating Annual Report 2019 Report Annual Strategic Report Volution Group plc
Risk Management and Principal Risks continued
Risks associated with the UK leaving the EU
Potential Potential risk Likelihood1 impact1 Mitigation
Increases in tariffs and The Group has considered the potential cost impact of World Trade duty on goods and raw Organization tariffs coming into force for exports from the UK and imports materials imported into into the UK, and the resultant cost of these potential tariffs is not expected to be material to the Group as a whole. We are also confident in our ability the UK from the EU and to largely pass through any associated cost increases, given our track exported to the EU record of inflation management with our customers, and the heightened attention on continuity of supply during the transition period.
Regulatory risks relating to In the short to medium term we do not expect UK or EU approvals for our potential changes to UK products to change. and EU-based law and regulation including product approvals
Exchange rate volatility The Group’s financial results have already been impacted by the ongoing and reduction in the value depreciation in Sterling. This has led to increased inflation in supplier costs of Sterling along with the for the Group’s UK-based businesses and this is being managed robustly to maintain gross margins. Group net assets have benefited from translating associated increase in the results of the Group’s overseas businesses into Sterling. To hedge the costs of goods against transactional foreign exchange risk we maintain a rolling twelve from overseas months of cover for around 80% of our expected US Dollar purchases. We will maintain our existing hedging strategy to mitigate any further devaluation in Sterling. Our global trading mix and product sourcing arrangements mean that historically we have had a natural gross margin hedge against a depreciation in Sterling versus the Euro at a Group level.
Queues and delays at UK Inventory holdings of certain components and finished goods have been and EU ports as a result of increased above standard levels and located within the EU to mitigate the increased customs checks risk of delays in customs and border clearances. A prolonged period of disruption at the UK’s borders has the potential to impact the supply chain of the Group’s UK businesses; however, our businesses maintain a strong depth of inventories and have begun to build inventory levels of their faster moving product lines which would mitigate the impact on their activities from a significant disruption in cross-border trade between the UK and Continental Europe.
Increased uncertainty We believe we are already seeing delays and deferment of UK investment leading to a slowdown programmes and construction-related activity and spend, particularly in in the UK residential the London commercial sector. The diversity and flexibility within the Group have meant we are able to manage this downturn without significant impact and commercial on our Group results. Once the uncertainty around the UK leaving the EU construction industry has ceased, we expect this market to return to previous levels, with some potential upside as there will be a period of “catch-up”.
Labour force impacts, We note the increased pressure on the availability of lower skilled labour particularly the mobility of in recent years, and the reduction in migration from EU countries since the the workforce and Brexit referendum. While we anticipate that these trends will continue, the UK Government has stated that EU citizens would be allowed to remain in availability of talent the UK until at least the end of 2020 even in the absence of a withdrawal agreement. We are not critically reliant on our workforce having to travel extensively between the EU and the UK, or the need to source EU workers on UK contracts – any such requirements that do arise will raise a manageable administrative workload only.
Note 1. An explanation of likelihood and impact can be found on page 30.
28 Strategic Report 29 None of the individual sensitivities applied impact the Directors’ the Directors’ the individual sensitivities applied impact None of diversification and sector geographical The viability. of assessment serious business helps minimise the risk of operations the Group’s of our Furthermore, reputation. our to damage or catastrophic interruption on one reliant not is Group the so that business model is structured flex our ability to In addition, or sector. customers of particular group economic adverse of in the face our viability protects base our cost uncertainties. political or regulatory other conditions and/or Going concern and cash its flows the Group, position of financial The section. out in the Financial Statements set liquidity position are financial the consolidated to 141 on page 28 note Furthermore, and policies for objectives includes the Group’s statements objectives, capital, financial risk management its its managing credit to exposure and its financial instruments its of details and liquidity risk. financial position is in a strong the Group believe Directors The and that cash generation and strong operations profitable its due to the for in operation continue to resources adequate has the Group the going adopt to continue they this reason, For future. foreseeable the financial statements. in preparing concern basis Viability statement UK Corporate the 2016 of C.2.2 with provision In accordance assessed the viability have the Directors Code, Governance account into period, taking three-year next the over of the Group the principal of impact position and the potential current the Group’s and the Annual Report 33 of 30 to on pages documented risks that confirm the Directors Based on this assessment, Accounts. able will be the Company that expectation a reasonable have they due over fall they liabilities as its and meet in operation continue to 31 July 2022. the period to period to a three-year that determined have Directors The their provide which to period over is an appropriate 31 July 2022 and as the sector of the dynamic nature given viability statement it is in line with our business planning cycle. the believe we the Group, of viability the longer term to With respect and regulatory The highly relevant. business model will remain homes more and existing making our new towards consumer drive the meaning that will continue, airtight and therefore efficient indoor air quality will only of the problems solve opportunities to a in creating play to has ventilation role the vital strengthening grow, of in terms requirements Customer environment. indoor healthy products of and aesthetics efficiency energy enhanced functionality, be sustained. to also expect which we trend a favourable are assessment carried out a robust the Board In making this statement, would including those that the Group, facing risks the principal of or liquidity. solvency performance, business model, future its threaten process our risk management through identified are risks Principal Risk in a Group recorded are 33. They 30 to out on pages set and are twice least at the Board and discussed by which is reviewed Register a year. and uncertainties risks in the principal identified risks potential The been the EU have the UK leaving from 27) resulting page section (see model a general sensitivities, which already existing into aggregated the “worst-case” represents scenario that downturn market prolonged the EU. the UK leaving from impact plan. strategic a three-year annually, considers, Board The and headroom debt central perform this plan is used to of The output principal key sensitivity to of includes a review which analysis, profile finance and raise to the Group ability of It also the considers risks. capital. deploy identified risks all the principal considered has the review Whilst enhanced stress on for focused were the following Group, by the gross and supply chain risk affecting economic slowdown testing: the UK of in the context been considered both which have margins and combinations acquisitions from debt increased the EU, leaving scenarios. the above of significant sensitivities than applied use more tests stress The financial crisis in 2008/9. global recent those seen during the most Annual Report 2019 Report Annual Strategic Report Volution Group plc
Risk Management and Principal Risks continued
Likelihood of risk occurring Potential impact Assessment of risk direction The Board’s assessment of whether there has been a change in the level of risk due Unlikely Low Reducing to either a change in likelihood or a change in potential impact. Possible Medium No change
Likely High Increasing
Strategic consequence
Organic growth Growth through a disciplined and Operational Excellence in all our markets value-adding acquisition strategy
Potential Risk Impact Strategic consequence Likelihood impact Risk direction Mitigation Economic risk Demand for our products serving the residential Geographic spread from our international acquisition strategy and commercial construction markets would helps to mitigate the impact of local fluctuations in economic activity. A decline in general economic decline. This would result in a reduction in revenue Our ability to achieve our ambition for continuing Trading patterns during the year have remained New product development, the breadth of our product portfolio activity and/or a specific decline in and profitability. organic growth would be adversely affected. stable including any which may be attributed and the strength and specialisation of our sales forces should activity in the construction industry, to the decision to leave the EU. Whilst we do allow us to outperform against a general decline. including, but not exclusively, an not currently foresee a decline in economic We have a strong presence in the RMI market, which is more economic decline caused by the activity from the UK leaving the EU, the increased resilient to the effects of general economic decline affecting UK leaving the EU. uncertainty and lack of clarity of what the the construction industry. This remains true even under economic landscape will look like leads us to current circumstances. believe the level of risk has increased during the year. Our business is not capital intensive and our operational flexibility allows us to react quickly to the impact of a decline in volume.
Revenue and profitability would not grow The ventilation industry in Europe remains fragmented with many Acquisitions in line with management’s ambitions and opportunities to court acquisition targets. We may fail to identify suitable investor expectations. Our strategic ambition to grow by acquisition We continue to implement our strategy, Senior management has a clear understanding of potential targets acquisition targets at an acceptable may be compromised. Failure to properly integrate a business may completing one acquisition during the year. in the industry and a track record of twelve acquisitions since IPO price or we may fail to complete or distract senior management from other priorities in June 2014. properly integrate the acquisition. and adversely affect revenue and profitability. Management is experienced in integrating new businesses into Financial performance could be impacted by the Group. failure to integrate acquisitions and to secure Our policy of rigorous due diligence prior to acquisition and a possible synergies. structured integration process post-acquisition has been maintained.
The commerciality of transactions denominated Significant transactional risks are hedged by using forward Foreign in currencies other than the functional currency currency contracts to fix exchange rates for the ensuing exchange risk of our businesses and/or the perceived Our ambition to grow internationally through financial year. Our policy on foreign currency risk has performance of foreign subsidiaries in our acquisition exposes us to increasing levels of The exchange rates between remained unchanged. Revaluation of foreign currency denominated assets and liabilities Sterling-denominated consolidated financial translational foreign exchange risk. currencies that we use may is partially hedged by corresponding foreign currency bank debt. statements may be adversely affected by We do, however, believe that the increased move adversely. changes in exchange rates. economic uncertainty in the context of Brexit and US-China trade tensions makes it likely that in the near term exchange rates may see heightened levels of volatility.
Failure of our IT and communication systems Disaster recovery and data backup processes are in place, IT systems could affect any or all of our business processes operated diligently and tested regularly. including cyber and have significant impact on our ability to trade, We could temporarily lose sales and market share We believe there is an increasing risk as the A significant Enterprise Resource Planning system has been collect cash and make payments. and could potentially damage our reputation for frequency and sophistication of cyberattacks implemented for several key sites. A disaster failover site has breach customer service. on businesses generally. been implemented. We may be adversely affected by a We have a three-layered system of network security protection breakdown in our IT systems or a against cyberattack or breaches of security. This infrastructure failure to properly implement any is maintained to withstand increasingly sophisticated worldwide new systems. cyber threats. We also undertake regular cyber security testing and training of our employees.
30 Strategic Report 31 Likelihood 3 1 2 8 5 6 9 4 7
The ventilation industry in Europe remains fragmented with many with many fragmented remains in Europe industry ventilation The court targets. opportunities acquisition to targets potential of a clear understanding has Senior management since IPO acquisitions twelve of record track and a in the industry in June 2014. businesses into new in integrating is experienced Management the Group. and a acquisition due diligence prior to rigorous Our policy of been maintained. has post-acquisition process integration structured using forward hedged by are risks Significant transactional the ensuing for rates fix exchange to contracts currency financial year. and liabilities assets denominated currency foreign of Revaluation debt. bank currency foreign corresponding is partially hedged by in place, are processes backup and data recovery Disaster regularly. and tested diligently operated been has Planning system Resource A significant Enterprise has site failover A disaster sites. key several for implemented been implemented. security protection network of system a three-layered have We infrastructure This security. of or breaches cyberattack against worldwide sophisticated increasingly withstand to is maintained cyber security testing regular also undertake We cyber threats. our employees. of and training Geographic spread from our international acquisition strategy strategy acquisition our international from spread Geographic activity. in economic local fluctuations of impact mitigate the helps to portfolio our product of the breadth development, product New should our sales forces of and specialisation and the strength decline. a general against outperform us to allow which is more in the RMI market, presence a strong have We economic decline affecting general of the effects to resilient under true even This remains industry. the construction current circumstances. flexibility and our operational capital intensive Our business is not a decline in volume. of the impact quickly to us to react allows Mitigation Potential impact Potential We believe there is an increasing risk as the the risk as is an increasing there believe We cyberattacks of and sophistication frequency on businesses generally. We continue to implement our strategy, our strategy, implement to continue We during the year. one acquisition completing risk has currency Our policy on foreign remained unchanged. the increased that believe however, do, We Brexit of in the context economic uncertainty it likely makes tensions and US-China trade see may rates exchange the near term that in volatility. of levels heightened Trading patterns during the year have remained remained have during the year patterns Trading be attributed which may including any stable do we Whilst the EU. leave decision to to the economic a decline in foresee not currently the increased the EU, the UK leaving from activity the what clarity of of and lack uncertainty us to leads economic landscape will look like during the year. increased risk has of the level believe Risk direction Potential Potential impact Foreign exchange risk exchange Foreign including cyber breach IT systems environment and regulatory Legal Supply chain and raw materials Likelihood Annual Report 2019 Report Annual Riskheatmap 1. Economic risk 2. Acquisitions 3. 4. 5. Customers 6. 7. 8. Innovation People 9.
Strategic consequence Strategic We could temporarily lose sales and market share share lose sales and market could temporarily We for our reputation damage and could potentially service. customer Our strategic ambition to grow by acquisition acquisition by grow to ambition Our strategic may be compromised. through internationally grow Our ambition to of levels increasing us to exposes acquisition risk. exchange foreign translational Our ability to achieve our ambition for continuing continuing our ambition for achieve Our ability to affected. be adversely would growth organic Impact The commerciality of transactions denominated denominated transactions of commerciality The than the functional currency other in currencies the perceived businesses and/or of our subsidiaries in our foreign of performance financial consolidated Sterling-denominated by affected be adversely may statements rates. changes in exchange systems our IT and communication of Failure our business processes or all of any could affect trade, on our ability to significant impact and have payments. collect cash and make Demand for our products serving the residential serving the residential our products Demand for would markets construction and commercial in revenue in a reduction result would This decline. and profitability. grow not would and profitability Revenue ambitions and in line with management’s investor expectations. a business may integrate properly to Failure priorities other from senior management distract and profitability. revenue affect and adversely by could be impacted Financial performance secure and to acquisitions integrate to failure possible synergies. Foreign Foreign exchange risk between rates exchange The use may we that currencies move adversely. IT systems including cyber breach a by affected be adversely may We or a in our IT systems breakdown any implement properly to failure systems. new Risk risk Economic economic A decline in general a specific decline in and/or activity industry, in the construction activity an exclusively, including, but not economic decline caused the by the EU. UK leaving Acquisitions identify suitable to fail may We an acceptable at targets acquisition or complete to fail may price or we the acquisition. integrate properly Strategic Report Volution Group plc
Risk Management and Principal Risks continued
Potential Risk Impact Strategic consequence Likelihood impact Risk direction Mitigation Customers Any deterioration in our relationship We have strong brands, recognised and valued by our end users, with a significant customer could have and this gives us continued traction through our distribution A significant amount of our an adverse significant effect on our revenue Our organic growth ambitions and Operational channels and with consultants and specifiers. Our underlying risk of losing the revenue of any revenue is derived from a small from that customer. Excellence would be adversely affected. one customer continues unchanged; however, We have a very wide range of ventilation and ancillary products number of customers and from our recent acquisitions have further served to that enhance our brand proposition and make us a convenient our relationships with heating and diversify our customer base. “one-stop-shop” supplier. ventilation consultants. We may fail We continue to develop new and existing products to support our to maintain these relationships. product portfolio and brand reputation. We focus on providing excellent customer service.
The shift towards higher value-added We participate in trade bodies that help to influence the regulatory Legal and and more energy-efficient products may environment in which we operate and as a consequence we are regulatory not develop as anticipated resulting in lower Our organic growth ambitions may be also well placed to understand future trends in our industry. There has been no significant new legislation sales and profit growth. adversely affected. environment or regulation, or changes to current legislation We are active in new product development and have the resource We may need to review our acquisition criteria If our products are not compliant and we fail or regulation, which has had a material impact to react to and anticipate necessary changes in the specification Laws or regulation relating to to reflect the dynamics of a new regulatory to develop new products in a timely manner on the business. of our products. the carbon efficiency of buildings, we may lose revenue and market share to environment. We employ internal specialist expertise, supported where the efficiency of electrical products, The UK Data Protection Act which became law our competitors. We may have to redirect our new product needed by suitably qualified and experienced external providers. competition or compliance in May 2018 has added some risk as fines for Failure to manage certain compliance risks development activity. Local operational compliance audits are undertaken. may change. breach are potentially high. Enforcement action adequately could lead to death or serious injury by the Information Commissioner’s Office has We have training and awareness programmes in place such of an employee or third party, and/or penalties for been taking place amongst companies in the UK. as health and safety, anti-bribery and data protection. We have non-compliance in health and safety, anti-bribery, As a result, although Volution does not process a whistleblowing hotline managed by an independent third party data protection or competition law. much personal data, the risk has increased. providing employees with a process to raise non-compliance issues.
Supply chain Sales and profitability may be reduced We establish long-term relationships with key suppliers to during the period of constraint. promote continuity of supply and where possible we have and raw materials Organic growth may be reduced. alternative sources identified. Prices for input materials may increase Our pattern of purchasing and relationships with Raw materials or components and our costs may increase. Our product development efforts may our long-term supplier base remains unchanged. We will continue to monitor stock levels and order patterns may become difficult to source be redirected to find alternative materials Our policy of ensuring a resilient supply base in the run up to the UK leaving the EU and where deemed because of material scarcity or and components. remains a priority. necessary will adjust inventory levels to help mitigate any disruptions in supply. disruption of supply, including Operational Excellence may be adversely affected. We recognise that the risk of queues and delays as a consequence of the UK at ports would be increased in the near term in leaving the EU. the event of the UK leaving the EU without a deal.
Innovation Scarce development resource may be Our product innovation is driven by a deep understanding of misdirected and costs incurred unnecessarily. the ventilation market and its economic and regulatory drivers. We may fail to innovate Our organic growth ambitions depend in part upon The Group starts with a clear marketing brief before embarking Failure to innovate may result in an ageing We continue to demonstrate innovation with new commercially or technically viable our ability to innovate new and improved products on product development. product portfolio which falls behind that of product launches. products to maintain and develop our competition. to meet and create market needs. In the medium our product leadership position. term, failure to innovate may result in a decline in sales and profitability. Operational Excellence may be adversely affected.
People Skilled and experienced employees may decide Regular employee appraisals allow two-way feedback on to leave the Group, potentially moving to a performance and ambition. Our continuing success depends competitor. Any aspect of the business could be Our competitiveness and growth potential, both There have been no significant changes to the A Management Development Programme was initiated in 2013 on retaining key personnel and impacted with resultant reduction in prospects, organic and inorganic, could be adversely affected. supply and retention of quality employees (with the latest concluded in November 2018) to provide key attracting skilled individuals. sales and profitability. Operational Excellence may be adversely affected. across the wider workforce. employees with the skills needed to grow within the business and to enhance their contribution to the business. However, some members of the UK Ventilation business Senior Management Team left the business during the year and a search process is currently progressing.
32 Strategic Report 33 We establish long-term relationships with key suppliers to to suppliers with key relationships long-term establish We have possible we supply and where of continuity promote identified. sources alternative patterns and order levels stock monitor to will continue We deemed the EU and where the UK leaving in the run up to any help mitigate to levels inventory necessary will adjust in supply. disruptions of a deep understanding by is driven innovation Our product drivers. economic and regulatory and its market the ventilation embarking before brief with a clear marketing starts Group The development. on product on feedback two-way allow appraisals employee Regular and ambition. performance in 2013 initiated was Programme Development A Management key provide to 2018) concluded in November the latest (with within the business grow with the skills needed to employees the business. to their contribution and to enhance We have strong brands, recognised and valued by our end users, end users, our by and valued recognised brands, strong have We distribution our through traction us continued and this gives and specifiers. channels and with consultants and ancillary products ventilation of wide range a very have We us a convenient and make proposition enhance our brand that supplier. “one-stop-shop” support our to products existing and new develop to continue We reputation. and brand portfolio product service. customer excellent on providing focus We the regulatory influence help to bodies that in trade participate We are a consequence and as we operate in which we environment in our industry. trends future understand to placed also well the resource and have development product in new active are We necessary changes in the specification and anticipate to react to our products. of where supported expertise, specialist internal employ We providers. external qualified and experienced suitably needed by undertaken. are compliance audits operational Local such in place programmes and awareness training have We have We protection. and data anti-bribery and safety, as health party third an independent by managed hotline a whistleblowing non-compliance issues. raise to with a process employees providing Mitigation We continue to demonstrate innovation with new with new innovation demonstrate to continue We launches. product the been no significant changes to have There quality employees of supply and retention the wider workforce. across the UK Ventilation some of members However, the left Team business Senior Management process and a search business during the year progressing. is currently Our pattern of purchasing and relationships with with and relationships purchasing of Our pattern unchanged. remains supplier base our long-term supply base ensuring a resilient Our policy of a priority. remains queues and delays the risk of that recognise We in in the near term be increased ports would at the EU without a deal. the UK leaving of the event There has been no significant new legislation legislation been no significant new has There legislation current or changes to or regulation, impact a material had which has or regulation, on the business. which became law Act Protection UK Data The some fines for added risk as has 2018 in May action high. Enforcement potentially are breach has Office Commissioner’s the Information by in the UK. companies amongst place been taking process does not although Volution a result, As increased. the risk has much personal data, Our underlying risk of losing the revenue of any any of revenue losing the Our underlying risk of however, unchanged; continues one customer to further served have acquisitions our recent base. our customer diversify Risk direction Potential Potential impact Likelihood Annual Report 2019 Report Annual
Strategic consequence Strategic Our organic growth ambitions depend in part upon ambitions depend in part upon growth Our organic products and improved new innovate our ability to needs. In the medium market and create meet to in a decline in result may innovate to failure term, may Excellence Operational sales and profitability. affected. be adversely both potential, and growth Our competitiveness could be adversely affected. and inorganic, organic affected. be adversely may Excellence Operational Organic growth may be reduced. may growth Organic may efforts development Our product materials find alternative to be redirected and components. affected. be adversely may Excellence Operational Our organic growth ambitions may be be ambitions may growth Our organic adversely affected. criteria our acquisition review need to may We regulatory a new the dynamics of to reflect environment. product our new redirect to have may We activity. development Our organic growth ambitions and Operational ambitions and Operational growth Our organic affected. be adversely would Excellence Impact Scarce development resource may be be may resource development Scarce unnecessarily. incurred and costs misdirected in an ageing result may innovate to Failure of behind that falls which portfolio product our competition. decide may employees Skilled and experienced a to moving potentially the Group, leave to the business could be of aspect Any competitor. in prospects, reduction with resultant impacted sales and profitability. Any deterioration in our relationship in our relationship deterioration Any could have with a significant customer on our revenue effect an adverse significant customer. from that higher value-added towards shift The may products and more energy-efficient in lower resulting anticipated not develop as growth. sales and profit fail and we compliant not are If our products in a timely manner products new to develop to share and market lose revenue we may our competitors. certain compliance risks manage to Failure or serious injury death to could lead adequately penalties for and/or party, or third employee of an anti-bribery, non-compliance in health and safety, law. or competition protection data be reduced may Sales and profitability constraint. during the period of increase may input materials Prices for increase. may and our costs Innovation innovate to fail may We or technically viable commercially and develop maintain to products position. leadership our product People success depends Our continuing personnel and key on retaining skilled individuals. attracting Risk Customers our of A significant amount a small from derived revenue is and from customers number of and with heating our relationships fail may We consultants. ventilation these relationships. maintain to and Legal regulatory environment to relating or regulation Laws of buildings, the carbon efficiency electrical products, of the efficiency or compliance competition may change. Supply chain and raw materials or components materials Raw source to difficult may become or scarcity because material of including supply, of disruption the UK as a consequence of EU. leaving the Strategic Report Volution Group plc
Sustainability Key to creating value for stakeholders
People We are committed to operating in a manner that protects human rights, provides real opportunities for our employees, protects the Business and ethics environment and makes a positive contribution to the community. Our core values and principles, and the standards of behaviour to We embrace a culture of continual improvement in all aspects which every employee and agent across the Group is expected to of our business. We aim to understand and respond to the needs work, are set out in the Volution Group Code of Conduct. These values of employees, customers, suppliers, shareholders, the communities and principles are applied to dealings with our customers, suppliers in which we work and wider society. and other stakeholders.
As part of our commitment to sustainability we aim to align our We have a zero-tolerance approach to all forms of bribery business values, purpose and strategy with the needs of our and corruption. Our Anti-Bribery and Corruption Policy has been stakeholders, whilst embedding such responsible and ethical approved by the Board and rolled out across the Group. It applies principles into everything we do. to all businesses, Directors, employees and agents within the Group to ensure compliance with all laws and regulations governing bribery As an international organisation with an international supply chain, we and corruption in the countries in which the Group operates. take seriously the impact we have in the places where we do business. The Group has a “Speak Up” facility operated by an independent external company, where employees can report any incidents or inappropriate behaviours in their own language by telephone or online. The confidentiality of the information reported is protected. In addition, web-based anti-bribery and corruption training is carried People out by employees in areas of the business where risk is deemed to be highest.
Health and safety Human rights We are committed to achieving and maintaining the highest standards in health and safety practice. An open culture towards health and safety engages our employees and helps maintain our Community excellent safety record. Each business invests in specialist roles and training to support this process. Each employee and contractor is given information, instruction and the training necessary to enable safe working. Our employees and contractors recognise that it is Environment their legal duty to take reasonable care for their own safety and the safety of others in their work area with working safely being a condition of employment.
34 Strategic Report 3535 Employee communications Employee channels across communication employee a number of have We employee which has Forum the business, including an Employee businesses the UK and European across from representatives senior Group Volution between communication two-way and allows who in turn brief representatives and the employee management also unit. business We in each representing are they the employees for a framework which provide newsletters local internal have giving them a communication, in two-way participate to colleagues decision making help shape and influence which to from platform the Group Scheme across a Sharesave have We within the Group. who in our success. Employees share to employees which allows the opportunity and then have years three for save participated price which can then a discounted at shares Group Volution to buy in the business. becoming a shareholder the employee into translate this created engagement with the employee pleased very were We in the initial launch participating eligible employees with 26% of in July 2018. of Sharesave development Employee development employee encourage actively we an organisation As fulfil their potential. our employees us that to it is important as on our enrolled the Group across from Eighteen participants which successfully Programme Development third Management further enhance the plan to We 2018. concluded in November with all colleagues to our support available of quality and quantity the business, one across capability levels increasing of the objective in the UK. levy fully utilise the apprenticeship which is to of example All accidents, dangerous incidents and near-miss situations are are situations and near-miss incidents dangerous All accidents, the as well as such incidents of details The investigated. promptly assessed closely are taken measures and preventative remedial repetition. the risk of and reducing awareness in raising to assist meeting. every at health and safety reviews The Board were audits safety health and a number of During the year sufficient placed local management ensure to undertaken and safety. focus on health Diversity as targets no specific gender and diversity has Although the Group strongly on merit, should be based we appointments that believe we a diverse employ We the workforce. throughout support diversity equal opportunities for on providing and pride ourselves workforce their our people for on rewarding is placed all. High value and their service. their integrity commitment, directly against, is discriminated no employee that ensure aim to We origins, national or ethnic race, colour, of grounds on the or indirectly, or belief, religion disability, status, marital or gender, orientation sexual business decisions can better that believe We or being part time. age and cultural genders different from representation having by be made which experience and knowledge, skill sets, with differing backgrounds in our markets. and the wider population base our customer reflects a higher than attracts traditionally industry building materials The in the Group’s is reflected This male employees. of proportion average 36. on page shown as employees male and female split between Annual Report 2019 Report Annual Strategic Report Volution Group plc
Sustainability continued
inVENTer team in Germany celebrate 20th anniversary
Human rights Community Breaches of human rights are not considered to be a material risk Each company within the Group understands the importance for the business as our activities are substantially carried out in of being a contributing member of society and its impact on developed countries that have strong legislation governing human the long-term development and sustainability of the business. rights. We adhere to policies which support human rights principles. Each business takes responsibility for managing its relationship with its local community. Modern Slavery Act We are opposed to slavery, servitude, forced labour and human Volution Group, together with many of its employees, supported trafficking. We take a zero-tolerance approach to modern slavery a range of national and local charities during the year. This year in the supply chain and businesses under our control. The Board has the UK teams supported the Salvation Army Christmas Gift Appeal approved a statement setting out the steps that have been taken to donating gifts to children at Christmas. This charity appeal takes combat modern slavery. This statement can be found on the Group’s place across the UK and ensures thousands of less privileged website at www.volutiongroupplc.com. Group employees, agents and suppliers are requested to confirm that they do and will continue children wake up to presents on Christmas Day. to comply with our policy which is set out in our Code of Conduct.
Board Directors Senior managers1 All other employees 71+29+G 80+20+G 67+33+G 5 – 71% 8 – 80% 1,102 – 67% Male Male Male 2 – 29% 2 – 20% 554 – 33% Female Female Female
Note 1. Legislation requires that we define “senior managers” as the directors of our subsidiary companies. However, the Board believes this information does not provide a meaningful analysis of how the Group operates so the data shown reflects the proportion of senior managers by our own internal grading system. The number also excludes Board Directors.
36 Strategic Report 25 37 2018 27.91 4,431 1,284 5,740 e tonnes e 2 CO 31 2019 3,412 20.81 1,464 4,907 CO₂e tonnes
data collected is in respect of the years ended 31 July 2018 and and 31 July 2018 ended the years of is in respect collected data those published used are factors conversion The 31 July 2019. DEFRA; and by been used have techniques or estimation some extrapolation the specifically regarding footprint, the Group to calculate cooling units. emissions from of calculation > > Total footprintTotal Sustainability been have business, we a sustainable as Group Volution assist To UK. in Crawley, our site at ISO 14001 accredited fully UK was in the facility Reading new our During the year cells on the roof photovoltaic has facility commissioned. This our electricity which reduces system management and a battery in the UK in Slough and Reading sites closed two Having usage. goods moving site, this one new into production and consolidated also been eliminated. has sites these two between possible and where waste recycle consistently we that ensure We constantly are We fleet. our motor the emissions from lower seek to which fleet, our motor of the efficiency improve to ways looking for have We emissions produced. of the amount can in turn reduce which includes programme fleet motor launched our new recently vehicles. hybrid a choice of Greenhouse gas emissions and indirect our direct and report measure to required are We Act the Companies to (GHG) emissions pursuant gas greenhouse 2013. Regulations Report) and Directors’ Report 2006 (Strategic the scope 1 of the disclosure is for requirement mandatory The heating, emissions such as direct These are and 2 emissions only. electricity. purchased example emissions, for fuel and indirect vehicle reporting mandatory in line with DEFRA’s GHG footprint Our total below. table in the is shown requirement 31 July 2019 ended the year Emissions for data Electricity, gas and other fuels Emissions from Emissions The new Reading facility in the UK is the main contributing factor to to factor in the UK is the main contributing facility Reading new The the photovoltaic emissions due to gas in greenhouse the reduction closing of The system. management and a battery cells on the roof impacted also has positively and Reading in Slough old sites the two fuels. and other gas electricity, emissions from the Group’s that: Note > > Petrol and diesel vehicle fuels vehicle diesel and Petrol Greenhouse gas emissions intensity intensity emissions gas Greenhouse tonnes CO₂e ratio: per £m revenue of Refrigerants Environment We recognise the impact that our businesses may have on the on the have our businesses may that the impact recognise We comply with current we a minimum standard, and, as environment operate. we in which in the countries applicable legislation within on the environment limit the impact to endeavour We all we that the environment and also protect operate which we will continue, initiatives energy-reducing the Group, Across share. waste recycling in manufacturing, plastics including using recycled reduce to with our customers and working and cardboard paper to will continue products of range Our Lo-Carbon on site. waste innovative demonstrate to projects environmental to be donated techniques. reduction energy reduce is helping social housing providers brand Our Vent-Axia as (such designing modular products by impact their environmental ABS plastic) with recyclable which is made fan Revive the Lo-Carbon its considering the design of carefully By waste. plastic to reduce easier even are fans energy-efficient latest Vent-Axia’s products, and helping make carbon footprint reducing and recycle, to repair social housing providers. for effective cost more even ventilation on focus to continues programme development Our product power which reduces using technology initiatives, low-carbon would that energy and reuses recycles and recovers, consumption products produce aims to all times the Group At be wasted. otherwise to research possible and will continue as efficient energy as are that the marketplace. solutions for energy-efficient and develop Clean Air Day co-ordinated Clean Air Day, supported we years, in previous As is this day of aim Plan. The Action charity Global by environmental the simple things air pollution and of the risks of awareness to raise air indoor air quality and health. Poor their can improve to do everyone the health, increasing everyone’s impact negatively to quality is proven respiratory conditions, like serious illnesses and making existing risk of the of understanding increases event annual This worse. disorders, and air pollution reduce to on how education and provides risks (IAQ). indoor air quality improve ventilation how of sharing knowledge to is committed Group Volution on suggestions provides Clean Air Day public health. can help protect home and lifestyle changes to positive make to ways quick and easy should be that step key the first that acknowledging IAQ, improve to protect To help indoor environments. ventilate effectively is to taken ventilation provide to hard working been have we health in the home, on households and further information for IAQ improve solutions to 20 and 21. on pages can be found IAQ Annual Report 2019 Report Annual Strategic Report Volution Group plc
Operational Review
Ventilation Group segment The Ventilation Group has sector leading positions in the UK, the Nordics, Central Europe and Australasia.
During the year, we completed the acquisition of Ventair in Australia, enhancing and widening the Group’s capability. Ventair is a market leading residential ventilation products supplier in Australia for both new and refurbishment applications with channel access enabling us to place many of our existing Group products in this market. In addition we made good progress with the integration of the four acquisitions we made in the second half of our financial year ended 31 July 2018.
Highlights Adjusted operating profit Revenue >> £41.5 million, 98.7% of Group adjusted operating profit >> £212.1 million, 90.0% of Group revenue (2018: £183.1 million, (2018: £35.4 million) 89.0% of Group revenue) Average number of employees >> 1,413 (2018: 1,382)
Revenue Revenue within the Ventilation Group grew by 15.8% (17.0% at constant currency), of which 2.3% (3.4% at constant currency) was organic and 13.5% (13.6% at constant currency) the result of acquisitions. Group sales (£1.3 million) made to our recent acquisitions, Simx and Air Connection, completed in the prior year, have been shown separately to illustrate like-for-like growth of 17.9% because in the post-acquisition period these sales were eliminated. Constant currency 2019 2019 2018 Growth Market sectors £000 £000 £000 % Ventilation Group UK Residential RMI 39,356 39,356 38,166 3.1 UK New Build Residential Systems 27,795 27,795 25,604 8.6 UK Commercial 34,856 34,856 33,474 4.1 UK Export 9,924 9,985 11,189 (10.8) Nordics 46,995 48,663 36,692 32.6 Central Europe 30,990 31,122 28,466 9.3 Australasia 22,176 22,456 8,182 174.5
Total Ventilation Group 212,092 214,233 181,773 17.9 UK Export – Simx and Air Connection1 — — 1,321 Total Ventilation Group 212,092 214,233 183,094 17.0
Note 1. Sales to Simx and Air Connection in the prior year of £1.3 million have been separated to show a like-for-like comparison with FY2018 because sales to Simx and Air Connection are now eliminated as intercompany sales.
Volution Ventilation UK We are pleased to confirm that our facility rationalisation project at Reading in the UK is now fully completed and that we are again providing our normal level of customer service. The facility rationalisation project was an exciting development for Volution, positioning us well for future growth and further operational optimisation.
During the financial year, Volution Ventilation UK grew in each of its three domestic sectors, UK Residential RMI, UK New Build Residential Systems and UK Commercial. We are pleased to report our return to good levels of growth in UK Public RMI, following several years of decline of that market. Over the past 24 months, we have invested heavily in: sales training; the development of new products specifically for the Public RMI sector; and the development of new digital tools that help our customers connect with our solutions in more intuitive ways (e.g. our Airtech brand’s new interactive website).
Reading facility (UK)
38 Strategic Report 39 UK Export was the only sector in the UK where revenue declined, declined, revenue in the UK where the only sector UK Export was in a customer from order spares one-off the large, mainly due to sales in the Irish market grow to continue We in the prior year. Japan systems. build residential new of the supply for Laser metal-cutting machine Laser metal-cutting Nordics Group, Volution continuing despite strongly, grew in the Nordics Revenue the full year due to market, construction the Swedish difficulties in in Finland (Pamon in the prior year made the acquisitions of effect completed were acquisitions and Air Connection in Denmark). Both during organisation the Nordic into integrated and were in July 2018, included the process the integration A significant part of the year. Planning Resource Enterprise shared region’s the Nordic to transition Air Connection and in for in the year completed which was system Pamon. for 2019 September Finnish market, in its post-acquisition, well, grow to continued Pamon until organic as growth this revenue recognise do not although we have now we region Within the Nordic acquisition. of the anniversary from to us solutions available ventilation recovery heat of a wide range on cross-selling focus our increased have and we Group the around seeing anticipate We region. widely in the Nordic more these products in the coming years. these initiatives of the benefit injection moulding facility in our plastic investment increased We of capacity and efficiency increase to in Gemla, located Sweden, the region. for manufacture parts plastic Vent-Axia PureAir fan PureAir Vent-Axia We recorded another year of growth in revenue for our UK New UK New our for in revenue growth of year another recorded We recovery heat our Kinetic where sector, Systems Build Residential meet to performance leading market offer to continue products framework regulatory a strong by driven demanding specifications, in the stronger was Growth performance. home energy new around a major supply and a consequence partly as of the year half of first seasonalpattern. its demand shifting customer install the European the UK leaving caused the uncertainty by Despite converted We well. performed products our commercial Union, sales of and products branded our Vent-Axia for on price adjustments well Breathing solutions at ventilation our hybrid develop to continued controls. casings and advanced metal Buildings, introducing with the revenue assisted these products of The development in regaining and will assist Buildings brand our Breathing of growth with sector in the education and technical leadership commercial requirements. ventilation its unique the of nearing completion are we Molesey, in West our facility At consolidate us to allowing floor, mezzanine our new of construction annex two from sector our UK Commercial coils for fan of production will reduce This utilising since 2018. been had buildings which we the same At efficiency. operational and improve cost production was machine laser metal-cutting our new the commissioning of site, and opens up intra-group growth will support This future completed. Commercial cutting. metal of outsourcing eliminate opportunities to in the slowed in the year but grew brand our Diffusion for revenue Brexit uncertainty. second a consequence half possibly as of During the financial year we progressed our product platform platform our product progressed we year During the financial some for a common architecture establish to project rationalisation our supply chain and optimising aim of with the fans, our plastic of value creating the same time, at whilst, performance operational our products solutions. Users of ventilation of variety and additional and performance, enhanced features choice of more will have range, RMI product our Private end of the premium particularly at continued we the year, during In addition, Fan. Silent our new such as in elsewhere from RMI market the UK to products new introduce to odour sensing, Vent-Axia innovative, including the new, the Group, in the UK. fan PureAir Annual Report 2019 Report Annual Strategic Report Volution Group plc
Operational Review continued
Volution Group, Nordics continued
Xenion fan
Intellivent SKY fan Volution Group, Central Europe We continued to invest in new innovative products in order to Germany maintain our technical and commercial leadership position in The new, quieter, more efficient, Xenion decentralised heat the Nordics. Intellivent SKY, the first bathroom fan equipped with recovery ventilation system was launched in 2018, ensuring that odour-sensing technology, was launched by Fresh in December inVENTer grew its revenue in the year ended July 2019 and had 2018. It is an exceptionally quiet fan and has a number of additional a very successful year. Nearly all ventilation products under the features including superior pressure performance and an on-board brand were successfully migrated to this new technology, which touchscreen with fine tuning via an app and has self-adjusting humidity contributed to margin improvement. control. Intellivent SKY won the prestigious Red Dot Award for product During the year, new software-driven processes were introduced to design. In addition, we launched at the end of the year, under the Pax give improved customer service, more visibility over the sales order brand, a new, advanced, towel warmer timer: Momento II. The timer pipeline and more efficiency in our sales processes. has a unique memory function which makes it possible to save up to 75% of the energy consumption without any loss of functionality. Netherlands We trade in the Netherlands under the Ventilair and Vent-Axia Netherlands brands which both grew well in the year.
The Netherlands is heavily regulated with regard to energy efficiency and the Government is placing pressure on residential landlords to improve efficiency of their properties by 2020. In the year, Ventilair Group in the Netherlands benefited from becoming part of the BENG association (Bijna Energie Neutraal Gebouw) which offers total renovation solutions to enable landlords to comply with the required energy efficiency regulations.
Belgium The revenue in Belgium grew well in the year, especially through the electrical wholesaler route to market on which we have more recently been concentrating. Good sales growth of bathroom fans, including newly introduced, technically advanced, products sourced from within the Group, along with a strong position in the market for our semi-rigid ducting system, Uniflex+, has contributed significantly Momento II towel warmer timer to our growth. We continue to offer a full range of ventilation products to maintain and build our reputation as the partner of choice in Belgium.
40 Strategic Report 41 Spyda ceiling fan Spyda Australia we With Ventair 2019. in March in Australia Ventair acquired We throughout party sales outlets third 2,000 over to access now have distributing is now Ventair brand, own its to and, in addition Australia, new which will bring a number of brands and Vent-Axia the Manrose market. the Australian to the Group across from products value-added Volution Group, Australasia Group, Volution Zealand New on seen has a focus ownership under Volution full year first Simx’s encourage to Zealand New into products Group launching Volution In addition, our customers. by propositions higher value of the take-up Simx gained in Australia, Ventair of in the year the acquisition following already which have some of products, premium additional to access a result As Zealand. in New brand been launched under the Manrose a consequence and as organically both Zealand in New grew we post-acquisition. effect full year of the Manrose Genius fan Manrose Annual Report 2019 Report Annual Strategic Report Volution Group plc
Operational Review continued
OEM (Torin-Sifan) segment Torin-Sifan designs and manufactures highly efficient alternating current (AC) and electronically commutated (EC) motors, motorised impellers, fans and blowers for the heating, ventilation and air conditioning (HVAC) industry and is a leading supplier to the residential and commercial HVAC manufacturing markets worldwide.
Highlights Revenue Average number of employees >> £23.6 million, 10.0% of Group revenue (2018: £22.6 million, >> 249 (2018: 235) 11.0% of Group revenue)
Adjusted operating profit >> £3.2 million, 7.6% of Group adjusted operating profit (2018: £3.8 million)
Revenue Revenue within the OEM (Torin-Sifan) segment grew by 4.5% (4.8% at constant currency).
Constant currency
2019 2019 2018 Growth Market sectors £000 £000 £000 % Total OEM (Torin-Sifan) 23,606 23,657 22,582 4.8
Torin-Sifan continued to enjoy strong demand with sales growth Residential heating sales also grew well in the year. Our production of 4.8%. The sales of EC3 motorised impellers continued to gain fan demand in this market was particularly strong, assisted in part by momentum in the second half of the financial year. Brexit stock building by customers. This offset the decline in demand for boiler spares which suffered from a stock readjustment by a Our operations in Torin-Sifan were adversely impacted during the key customer. first half of the year by procurement issues which manifested in higher input costs for electronic components. However, we are confident Our Commercial market business remained stable in the year and these issues have now been resolved. Furthermore, investment has we expect this channel to also benefit in the future from our higher been made in several product and supply chain improvements that powered 170 Watt EC3 motor platform developments. will further enhance production output, efficiency, costs and quality Our original Greenbridge manufacturing site in Swindon, UK, has in future periods. benefited from investment in modern lean manufacturing techniques, Residential ventilation sales grew well in the year. The EC3 bringing it in line with our nearby Westmead production facility. This Revolution 360 range of motorised impellers and blowers was will further enhance efficiency and quality levels in future periods. particularly influential in this performance as the range continues to grow its share of the market. Additional manufacturing investment has been made in a second production line for EC3 products, to allow us to meet the increased demand. During the year further investment was made in expanding the EC3 product range. These additions to the range should further increase future sales opportunities.
Torin-Sifan EC3 motorised impeller
42 Strategic Report 43 £1.5 million write back of accrual for contingent consideration in 2018 in 2018 consideration contingent for accrual of back £1.5 million write in 2019; repeated not System, VoltAir of the acquisition to relating intangible to relating costs in amortisation million increase £0.7 million); and £14.7 million; 2018: £15.4 (2019: assets the of a result as finance costs in net million increase £0.8 in the year the acquisitions due to levels debt higher average ended 31 July 2018. £4.6 million decrease in exceptional operating costs (principally (principally costs operating in exceptional million decrease £4.6 the UK of and the costs acquisitions of costs to relating relocation; including factory re-organisation Ventilation > > > > > > > Profitability operating adjusted by measured as underlying result, Group’s The an million) at £37.1 million (2018: £42.1 to 13.3% by increased profit, operating Adjusted 18.0%). (2018: 17.8% of margin operating adjusted by some operational impacted adversely was half the first during margin fully commissioned), (now facility Reading our new at inefficiencies in our OEM (Torin-Sifan) costs sourcing coupled with increased components and other some electronic buying of spot due to segment our second these meant issues of prices. Resolution premium at half. in the first 17.6% from 18.1% to increased half margins million £23.1 million to £6.4 by increased tax before profit Reported in adjusted million increase the £4.1 to million) compared £16.7 (2018: due to: tax before profit > Revenue million £235.7 was ended 31 July 2019 year the for revenue Group constant at (15.7% 14.6% of million), an increase £205.7 (2018: currency) constant at (3.5% 2.6% of growth Organic currency). in the second half (3.8% 3.1% reaching during the year accelerated sectors all market across growth with organic currency) constant at the four from trading year Full except UK Export and the Nordics. for Limited (Simx ended 31 July 2018 in the year completed acquisitions Ab in Oy Pamon in the Netherlands, B.V. Fan Air Zealand, New in coupled with the Finland and Air Connection ApS in Denmark), resulted 2019, in March Pty in Australia Limited Ventair of acquisition currency). (12.2% constant 12.0% at of growth in inorganic
Closing debt leverage of 1.6xClosing 1.9x) of (2018: debt leverage Net debtNet reduced £2.6 by £74.6 million million to Ventair Pty acquired Limited on 1 MarchVentair 2019, cashfor an initial consideration AUD19.2 of million (£10.4 million) Adjusted operating cash inflow of £36.9 million cash operating of Adjusted inflow (2018: £34.4 million) Exceptional operating costs of £1.8 million relating to £1.8Exceptional of costs operating to million relating UK Ventilation the of re-organisation and acquisitions business £6.4 million) (2018: Reported operating profit growth of 40.8%, of growth Reported profit up operating by million £24.7 to £7.1 million Adjusted operating profit growth of 13.3%, of growth profit operating Adjusted up by million, an operating adjusted with £5.0 million £42.1 to 17.6% in year: the trend improving (an 17.8% margin of in H2) and 18.1% in H1 Revenue growth of 14.6% (15.7% at constant currency), constant currency), at 14.6% (15.7% of growth Revenue organic from 2.6% constant (3.5%with currency) at from and constant 12.0% (12.2%growth currency) at inorganic growth > > > > > > > > > > > > > > > Summary > of 13.3% of 13.3% operating profit growth growth profit operating growth of 14.6% and adjusted adjusted and 14.6% growth of Strong results: revenue revenue results: Strong Annual Report 2019 Report Annual Review Financial Andy 0’Brien Strategic Report Volution Group plc
Financial Review continued
Trading performance summary Reported Adjusted 1 Year ended Year ended Year ended Year ended 31 July 2019 31 July 2018 Movement 31 July 2019 31 July 2018 Movement Revenue (£m) 235.7 205.7 14.6% 235.7 205.7 14.6% EBITDA (£m) 44.6 37.0 20.4% 46.5 41.1 13.2% Operating profit (£m) 24.7 17.5 40.8% 42.1 37.1 13.3% Finance costs (£m) 2.1 1.6 31.5% 2.1 1.3 63.6% Profit before tax (£m) 23.1 16.7 38.3% 39.9 35.8 11.5% Basic EPS (p) 9.2 6.7 37.3% 16.0 14.5 10.3% Total dividend per share (p) 4.90 4.44 10.4% 4.90 4.44 10.4% Operating cash flow (£m) 34.9 29.1 19.9% 36.9 34.4 7.3% Net debt (£m) 74.6 77.2 2.6 74.6 77.2 2.6
Note 1. The reconciliation of the Group’s reported profit before tax to adjusted 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 adjusted measures see the glossary of terms in note 34 to the consolidated financial statements.
Reconciliation of statutory measures to adjusted performance measures The Board and key management personnel use some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating profit, adjusted profit before tax, adjusted EPS and adjusted operating cash flow. These measures are deemed more appropriate to track underlying financial performance as they exclude income and expenditure which is not directly related to the ongoing trading of the business. A reconciliation of these measures of performance to the corresponding reported figure is shown below and is detailed in note 2 to the consolidated financial statements.
Year ended 31 July 2019 Year ended 31 July 2018 Adjusted Adjusted Reported Adjustments results Reported Adjustments results £000 £000 £000 £000 £000 £000 Revenue 235,698 — 235,698 205,676 — 205,676 Gross profit 111,079 — 111,079 96,623 — 96,623 Administration and distribution costs excluding the costs listed below (69,027) — (69,027) (59,523) — (59,523) Amortisation of intangible assets acquired through business combinations (15,439) 15,439 — (14,670) 14,670 — Exceptional operating costs (1,801) 1,801 — (6,417) 6,417 — CFO succession costs (150) 150 — — — — Release of contingent consideration — — — 1,502 (1,502) —
Operating profit 24,662 17,390 42,052 17,515 19,585 37,100 Net gain on financial instruments at fair value 605 (605) — 838 (838) — Exceptional write off of unamortised loan issue costs upon refinancing — — — (320) 320 — Other net finance costs (2,127) — (2,127) (1,296) — (1,296)
Profit before tax 23,140 16,785 39,925 16,737 19,067 35,804 Income tax (4,913) (3,354) (8,267) (3,414) (3,598) (7,012)
Profit after tax 18,227 13,431 31,658 13,323 15,469 28,792
The following are the items excluded from adjusted measures:
>> Amortisation of acquired intangibles charge of these intangible assets increased to £15.4 million On acquisition of a business, where appropriate, we value (2018: £14.7 million) as a consequence of recent acquisitions. identifiable intangible fixed assets acquired such as trademarks We exclude this accounting adjustment in the calculation and customer base and recognise these assets in our consolidated of our adjusted earnings because it is a cost associated with statement of financial position; we then amortise these acquired acquisitions, not the underlying trading of the businesses. intangible assets over their useful lives. In the year the amortisation
44 Strategic Report £m 45 5.4 8.9 0.6 (6.3) 2018 25.8 34.4 — £m 1.5 9.3 2019 31.9 (5.8) 36.9 Adjusted operating cash flow Our underlying effective tax rate, on adjusted profit before tax, was was tax, before profit adjusted on rate, tax effective Our underlying in our points percentage 1.1 of increase The 19.6%). (2018: 20.7% a result partly as was the prior year, over rate, tax effective adjusted as this year repeat did not that the prior year changes in rate tax of acquired in recently applicable profits to rates higher tax as well businesses in Australasia. to is expected rate tax effective adjusted medium-term Group’s The with tax, before profit adjusted the Group’s 20% of be approximately the by 17% being partly offset to dropping rate tax the UK headline with higher in countries acquired recently profits of effect full year rates. tax Cash flows relating to exceptional items exceptional to relating flows Cash Exceptional items: fair value inventories of Reconciliation of adjusted operating cash flow operating adjusted of Reconciliation Net cash flow generated from activities operating Benefit Trust Employee the Volution to made were loans £1.2 million of During the year purchasing purpose of the exclusive for Trust Benefit Employee partly fulfil the Company’s to plc in order Group in Volution shares Volution £nil). The plans (2018: incentive share under its obligations price average at an shares 650,000 acquired Trust Benefit Employee and 19,981 acquired) no shares in the period (2018: £1.85 per share of of with a value trustees the by released were 37,013) (2018: shares has Trust Benefit Employee Volution The £65,000). (2018: £36,000 have purchased and the shares our results into been consolidated funds. shareholders’ from deducted shares treasury as been treated Operating cash flow Operating with adjusted in the year be cashgenerative to continued Group The cash million). Whilst £34.4 million (2018: of £36.9 cash inflow operating capital has 90%) our working (2018: 85% at strong remains conversion Some levels. inventory due to predominantly during the year increased our preparations part of as intentional are increases these inventory of once will be reversed Union, and the increase the European leave to optimise an opportunity to do recognise we is concluded; however, that our businesses and this will be an of a number across inventories focus. Excellence Operational our new of stream important million) included £6.3 million (2018: £5.8 of expenditure Capital UK, in Reading, facility production in the new further investment IT systems. to and enhancements development new product financial the consolidated 34 to in note terms See the glossary of and cash flow operating adjusted of a definition for statements cash conversion. UK and overseas tax paid Net capital expenditure
During the year exceptional write off of unamortised loan unamortised loan of off write exceptional During the year million). £0.3 £nil (2018: were upon refinancing issue costs a As debt. bank its refinanced the Group On 15 December 2017, of unamortised issue costs loan the refinance, consequence of in 2018. off written were loans the previous to million relating £0.3 Exceptional operating costs operating Exceptional successioncosts CFO consideration contingent of Reversal £nil was consideration contingent of reversal During the year £1.5 million). (2018: adjustments value Fair the fair measure period we reporting each the end of At gains or losses any and recognise derivatives value of financial recognised we During the year, in finance cost. immediately a reduction million), £0.8 gain of million (2018: £0.6 a gain of our these losses gains or from exclude million. We of £0.2 accounting earnings because are they adjusted of measures not periods and do in future which will reverse adjustments business. the of the underlying trading reflect unamortised of loan issue costs off write Exceptional upon refinancing Exceptional operating costs, by virtue of their size, incidence incidence their size, virtue of by costs, operating Exceptional a better allow to in order disclosed separately are or nature, the of performance trading the underlying of understanding were costs operating exceptional During the year, Group. relating million) which included costs £6.4 £1.8 million (2018: million) and the UK £1.4 (2018: million £0.5 of to acquisitions of relocation factory including re-organisation Ventilation all these exceptional of Details million). £5.0 £1.3 million (2018: the consolidated 5 to in note can be found costs operating financial statements. process and recruitment the search to relate These costs million £0.2 to and amounted during the year CFO of the new (2018: £nil). > > > > > Taxation on 18 November enacted which was 2015, 2) Act UK Finance (No. The of corporation rate in the UK headline reduction a introduced 2015, respectively. and 1 April 2020 1 April 2017 from 19% and 18% to tax was 1 April 2020 17% to from rate headline in the A further reduction 2016. on 15 September enacted 2016, included in the UK Finance Act 21.2% 20.4%). was (2018: the year for rate tax effective The Finance revenue and costs Finance revenue million) £0.8 £1.5 million (2018: were finance costs net Reported financial of revaluation gains on the net million of including £0.6 to million) and £nil related £0.8 gains of net (2018: instruments upon unamortised issue costs loan of off write the exceptional finance costs million). Adjusted £0.3 of costs (2018: refinancing finance costs £1.3 million). Adjusted million (2018: £2.1 were the four following debt of levels in line with increased increased in the prior period and the one acquisition made acquisitions year. made this > > > > > Annual Report 2019 Report Annual Strategic Report Volution Group plc
Financial Review continued
Net debt Bank facilities, refinancing and liquidity Year-end net debt was £74.6 million (2018: £77.2 million), comprised The Group has in place a £120 million multicurrency revolving credit of bank borrowings of £86.1 million (2018: £95.4 million), offset by cash facility and in addition an accordion facility of up to £30 million. and cash equivalents of £11.5 million (2018: £18.2 million). The net debt In December 2018, the Group exercised the option to extend this of £74.6 million represents leverage of 1.6x adjusted EBITDA. facility by a period of twelve months at a cost of £0.2 million; the Movements in net debt position for the year ended 31 July 2019 maturity date is now 15 December 2022. 2019 2018 £m £m As at 31 July 2019, we had £33.9 million of undrawn, committed bank facilities and £11.5 million of cash and cash equivalents on Opening net debt at 1 August (77.2) (37.0) the consolidated statement of financial position. Movements from normal business operations: Foreign exchange Adjusted EBITDA 46.5 41.1 The Group is exposed to the impact of changes in the foreign currency Movement in working capital (4.7) (0.9) exchange rates on transactions denominated in currencies other Share-based payments 0.9 0.5 than the functional currency of our operating businesses. We have significant Euro income in the UK which is broadly balanced by Euro Capital expenditure (5.8) (6.3) expenditure in the UK. We have little US Dollar income but significant Adjusted operating cash flow: 36.9 34.4 expenditure due to our purchases from suppliers in China. We managed – Interest paid net of interest received (1.9) (0.9) our transactional foreign exchange risk by purchasing the majority – Income tax paid (9.3) (8.9) of our forecast US Dollar requirements for the 2019 financial year in advance, and similarly we have purchased the majority of our forecast – Exceptional items (1.5) (6.0) US Dollar requirements in advance of the 2020 financial year. – Dividend paid (9.1) (8.5) – Purchase of own shares (1.2) — We are also exposed to translational currency risk as the Group consolidates foreign currency denominated assets, liabilities, income – FX on foreign currency loans/cash (0.1) 1.6 and expenditure into Group reporting denominated in Sterling. – Issue costs of new borrowings (0.9) (0.2) We hedge the translation risk of the net assets in the Nordics with Movements from acquisitions: £24.0 million of borrowings denominated in SEK (2018: £24.5 million). – Acquisition consideration net We have partially hedged our risk of translation of the net assets of cash acquired and debt repaid (11.0) (51.0) in Belgium, the Netherlands, Germany and Finland by having Euro-denominated bank borrowings in the amount of £40.6 million Closing net debt at 31 July (74.6) (77.2) as at 31 July 2019 (2018: £40.0 million). The acquisition of Ventair in Australia was financed using Sterling-denominated debt to rebalance Acquisition-related costs our debt with our strong Sterling cash flow. The Sterling value of On 1 March 2019, we acquired Ventair Pty Limited, a market leading our foreign currency denominated loans and cash increased by residential ventilation product supplier in Australia, for an initial cash £0.1 million in the year as a consequence of exchange rate movements. consideration of AUD19.2 million (approximately £10.4 million). A further We do not hedge the translational exchange rate risk to the results amount of deferred cash consideration of up to AUD7.7 million of overseas subsidiaries. (approximately £4.3 million) may be payable, contingent on Ventair achieving an EBITDA target in the financial year ending 31 July 2020.
Further cash consideration of £0.6 million was paid for Oy Pamon Ab, acquired in July 2018. Part of the consideration was contingent upon its earnings achieved for the year ending November 2018. A further amount of deferred cash consideration may be payable contingent on Oy Pamon Ab earnings for its year ending November 2019.
46 Strategic Report 47 Ronnie George George Ronnie Officer Executive Chief The Strategic Report was approved by the Board and signed on its behalf by Ronnie George, Chief Executive Officer, on on Officer, Chief Executive George, Ronnie behalf by signed on its and the Board by approved was Report Strategic The 9 October 2019. 9 October 2019 9 October Andy O’Brien Financial Officer Chief Dividends pence 1.60 dividend of an interim paid the Group 2019 In May per share. 3.30 pence per share. a final dividend of proposed has Board The shareholders of Meeting our Annual General at approval Subject to final dividend will be paid the recommended on 12 December 2019, on on the register who are shareholders to on 18 December 2019 2019. 22 November Earnings per share pence to 9.2 37.3% by grew earnings per share basic Our reported pence). 6.7 (2018: pence 16.0 to 10.3% by grew earnings per share basic Our adjusted pence). 14.5 (2018: During the year, movements in foreign currency exchange exchange currency in foreign movements During the year, revenue the reported on effect an unfavourable had rates have the full year translated had our business. If we of and profitability our rates, exchange our 2018 our business at of performance been £2.2 million or have would revenues Group reported been have would profit operating and adjusted 1.1% higher million higher. or £0.5 £42.6 million currency foreign of value the Sterling the financial year the end of At to million compared £0.6 by capital increased working denominated the year. of the beginning applying at rates exchange the foreign Annual Report 2019 Report Annual Governance Report Volution Group plc
Introduction to Governance Peter Hill, CBE Committed to the highest standards of corporate governance
The Board is committed to high standards of corporate governance to underpin the business through a period of sustained growth. Decisions are made based on what the Board believes is likely to be for the benefit of all stakeholders by promoting and maintaining the long-term success of the Company and its reputation. The ways in which we listen and engage with our key stakeholders is set out on pages 59 and 60.
Compliance with the 2016 UK Corporate Governance Code Our approach to governance is based on the concept that good corporate governance enhances longer-term shareholder value and sets the culture, ethics and values for the Group. Consistent with our belief in the importance of corporate governance, I am pleased to report that the Company has complied in full with the principles and provisions of the 2016 UK Corporate Governance Code (the 2016 Code). A copy of the 2016 Code can be found at www.frc.gov.uk.
2018 UK Corporate Governance Code The Board acknowledges the development of governance standards set out in the new version of the UK Corporate Governance Code Dear shareholder, published in July 2018 (the 2018 Code) which applies to Volution Group for the financial year ending 31 July 2020. We have reviewed On behalf of the Board, I am pleased the Group’s compliance against the 2018 Code and have implemented some changes to ensure that we will be able to report positively on to introduce you to the Governance compliance in the next Annual Report and Accounts.
Report. This review and the reports Board composition of the Nomination, Audit and On 21 January 2019, we announced that Ian Dew, our CFO, had informed the Board of his wish to retire from Volution Group during 2019. Ian Remuneration Committees that stepped down from his role as CFO and Andy O’Brien was appointed on 1 August 2019. Ian has continued with the Group for a transitional follow summarise the Board’s period to ensure there has been an orderly handover. Ian joined activities during the year. Volution Group in 2012 and was appointed as CFO in January 2014. Ian played an integral role in Volution Group’s successful listing on the London Stock Exchange and subsequently played a key role in the completion of all acquisitions. On behalf of the Board, I would like to thank Ian for his contribution to Volution Group and wish him a long and happy retirement.
The Board was delighted to welcome Andy O’Brien to the Group. Andy joined Volution Group following nine years at Aggreko plc, a FTSE 250 global provider of temporary power, heating and cooling solutions, where he held numerous senior finance roles including
48 Governance Report 49 they all continue to be effective and committed to their roles and have and have their roles to and committed effective to be all continue they as their duties. Accordingly, perform to time available sufficient be will all Directors Committee, the Nomination by recommended the Company’s at election or re-election for themselves offering in be held on 12 December 2019, to Meeting Annual General on the Directors information Further Code. with the 2016 accordance 50 and 51. on pages biographies in the Directors’ can be found Annual General Meeting Annual General which Meeting Annual General this year’s will attend All Directors hear more to all shareholders an opportunity for provide will again the of questions ask and to during the year about our performance who can join us shareholders any meeting to I look forward Board. and extend 2019 on 12 December Meeting our Annual General at look forward support we as continued your all for you to thanks my ahead. year to the Hill, CBE Peter Chairman 2019 9 October Remuneration Policy Policy Remuneration Policy Remuneration Group’s Volution of the review Following years three for operate designed to was Policy a new in 2017, Meeting the Annual General at shareholders by and was approved will shareholders from approval Accordingly, in December 2017. in December 2020. Meeting the Annual General at sought next be Report, Remuneration in the Directors’ provided are details Further 90. to 72 on pages which can be found Election and re-election of Directors of Election and re-election and following Code Provisions with the 2016 In accordance election for standing those Directors of evaluation performance I can that confirm Meeting, the Annual General at and re-election Each year, the Board undertakes a formal evaluation of its its of evaluation a formal undertakes the Board year, Each facilitated carried externally out an we year This effectiveness. results The the Board. of in the development assist to evaluation to continues the Board that confirmed evaluation Board of the no significant concerns are there and that function effectively members Board The effectiveness. about its among the Directors culture while the Board’s and committed seen engaged as were A number of actions and constructive. open, respectful remains effectiveness, further enhance the Board’s to identified were in the identified on the actions made with the progress together 57 out on pages is set information Further evaluation. Board 2018 and 58. Evaluating the Board’s effectiveness the Board’s Evaluating Succession and diversity planning pipeline talent the Group’s review to continued have we year This planning. Although the Group succession and senior management that believe we as targets no specific gender and diversity has support diversity strongly on merit, should be based we appointments business decisions better that believe We the workforce. throughout and genders from different representation having can by be made experience and knowledge, skill sets, with differing backgrounds cultural in our and the wider population base our customer which reflects and inclusion diversity on the Group’s information Further markets. 37. 34 to on pages is provided most recently finance director, power solutions. Andy joins Volution solutions. Andy joins Volution power finance director, recently most to look forward and we development time in its an exciting at Group journey. our continue we with him as working discussed succession Committee the Nomination During the year refreshing and progressive Directors Non-Executive planning for succession plan Director a Non-Executive a result, As Board. of the was Tiney Claire that confirm I am also pleased to in place. is now a for 2019 on 3 August Director a Non-Executive as re-appointed three-year her first the end of following term second three-year on the Board. term in the Nomination can be found on the above information Further 64. to 62 on pages Report Committee Annual Report 2019 Report Annual Governance Report Volution Group plc
Board of Directors
Peter Hill, CBE Ronnie George Andy O’Brien Anthony Reading, MBE Non-Executive Chairman Chief Executive Officer Chief Financial Officer Senior Independent Non‑Executive Director
N R A N R
Appointed 23 June 2014 Appointed 15 May 2014 Appointed 1 August 2019 Appointed 23 June 2014
Re-appointed 23 June 2017 Re-appointed N/A Re-appointed N/A Re-appointed 23 June 2017
Term of office Peter joined the Term of office Ronnie joined Term of office Andy joined Term of office Tony joined Board on listing as Non-Executive in 2008 as Managing Director as Chief Financial Officer in the Board on listing as Senior Chairman and chairman of the of Vent-Axia Division (now the August 2019. Independent Non-Executive Nomination Committee. Ventilation Group) and a director Director and chairman of the Key strengths Financial and of the holding company, Remuneration Committee. Key strengths Wide ranging accounting expertise both in the Volution Holdings Limited, public company experience and UK and internationally. Key strengths Extensive public and was appointed CEO and extensive international business company experience and wide a director of our then holding Experience Andy joined experience gained in both executive ranging international business company, Windmill Topco, Volution following nine years at and non-executive roles. experience gained in both in February 2012. Aggreko plc, a FTSE 250 global executive and non-executive roles. Experience Peter has extensive provider of temporary power, Key strengths Significant experience of this role and is heating and cooling solutions, Experience Tony has extensive strategic and operational expertise currently Non-executive where he held numerous senior board experience, having been together with extensive merger Chairman of Keller Group plc. finance roles including most a non-executive director of and acquisition experience, both He was previously Non-executive recently Finance director, Taylor Wimpey plc, Laird PLC, in the UK and internationally, Chairman of Imagination power solutions. He has a e2v technologies plc, Spectris plc and in-depth knowledge of the Technologies Group plc broad background working and George Wimpey plc. He was ventilation industry. and Alent plc. He has been internationally in a global business previously an executive director Non-executive Director on the Experience Ronnie has over environment and has lived and of Tomkins plc and chairman Boards of Cookson Group plc, 30 years’ experience in industry worked in the Nordics as well as and chief executive of Tomkins Meggitt PLC, Oxford Instruments and, prior to joining us, served the UK, Dubai and Singapore. Corp. USA. plc and Essentra plc, and was a as the managing director of Throughout his career, Andy has External appointments None. Non-executive Board member Draka UK, a £200 million turnover operated in environments where of UK Trade and Investment and business with c.450 employees cost control has been critical and a Non-executive Director on the focusing on electric cable in his role at Aggreko, Andy also board of the Royal Air Force. production for construction, oversaw revenues totalling He also has substantial experience where he had full financial and $1.2 billion and worked on a number in executive roles, having been operational responsibility for the of international acquisitions. Chief Executive of Laird PLC from UK business. Latterly, he also External appointments None. 2002 until late 2011, an Executive served as the president of Draka’s Director of Costain Group plc global marine, oil and gas division. and a senior executive at BTR plc External appointments None. (subsequently Invensys plc).
External appointments Peter is currently Non-executive Chairman of Keller Group plc.
Committee membership: A Audit Committee N Nomination Committee R Remuneration Committee X Chairman of Committee
50 Governance Report 1 2 2 5 4 51 N/A
1 Director 4 Directors 80+M +14+57M +29+M 6 male/1 female 6 male/1 5 male/2 female 5 male/2 Non-Executive Non-Executive Director tenure Board composition Board balance 2018/19 Male Female 2017/18 2016/17 <1 year Directors Executive Non‑Executive Independent 1–3 years 4–6 years Non-Executive Chairman Non-Executive Directors 71 0+20+ 29
R N A Claire Tiney Claire Independent Director Non-Executive 3 August 2016 3 August Appointed 2019 3 August Re-appointed joined office Claire of Term an as 2016 in August the Board Director. Non-Executive independent Extensive strengths Key with key experience board-level and in business strategy strengths development strategic turnaround, and change management. over has Experience Claire in large experience 30 years’ her half of spent has and PLCs in director an executive as career businesses WHSmith including and plc plc, Mothercare Group the developer Ltd, McArthurGlen designer outlet of and owner She Europe. throughout villages consultancy runs her own now with executive business working and facilitator. a coach as teams appointments External the senior is currently Claire and chair director independent at committee remuneration of the Plc and non-executive Tiles Topps the and chair of director of committee remuneration plc. Group Bowl Hollywood
R N A Paul Hollingworth Paul Independent 23 June 2014 Appointed 23 June 2017 Re-appointed joined the office Paul of Term an independent as on listing Board and Director Non-Executive Committee. the Audit chairman of Financial and strengths Key together expertise accounting public company with extensive and wide ranging experience business experience, international particularly in manufacturing environments. previously Experience Paul the finance function and headed a number of on the boards served public companies, UK listed of plc, Group Cook including Thomas La plc, BPB plc, De Mondi Group Rue plc and Ransomes plc. a non-executive as He retired the audit and chairman of director Electrocomponents of committee on nine years served plc, having in July 2017. board its None. appointments External Non-Executive Director Director Non-Executive
19 March 2018 2018 19 March R Disciplinary Ethics Applied ‑Disciplinary Applied Ethics N A Appointed Appointed N/ARe-appointed office Amanda joined of Term an as 2018 in March the Board Director. Non-Executive independent Experience strengths Key M&A, retail, in international strategy relations, shareholder and governance. in March Experience Appointed the Amanda is currently 2018. Standard of secretary group previously having PLC Chartered group as nine years spent corporate of and head secretary and Spencer Marks at governance also she was plc where Group the member of an executive that, Prior to committee. operating corporate of director Amanda was Arcadia at relations and investor in working plc. Prior to Group Amanda relations, investor at banking in investment worked Fleming. James Capel and Robert a non-executive as Amanda served plc from Kier Group at director a as served and has 2016 to 2011 the council and the member of Leeds of committee remuneration she is also a where University, the of visiting professor Inter the of Amanda is a fellow Centre. Secretaries. Chartered of Institute appointments External Amanda is currently group group Amanda is currently Standard of secretary Chartered PLC. Amanda Mellor Independent Director Non-Executive Annual Report 2019 Report Annual Governance Report Volution Group plc
Corporate Governance
Overview The Board fully supports the principles laid down in the UK Corporate Governance Code as issued by the Financial Reporting Council in April 2016 (the 2016 Code), which applies to the financial year ended 31 July 2019 and is available at www.frc.org.uk.
This report sets out the Company’s governance structure and how it complies with the 2016 Code and also includes items required by the Disclosure Guidance and Transparency Rules (DTRs). The disclosures in this report relate to our responsibilities for preparing the Annual Report and Accounts, including compliance with the Code to the extent required, our report on the effectiveness of the Group’s risk management and internal control systems, and the functioning of our Committees.
Compliance with the 2016 UK Corporate Governance Code The Board considers that it and the Company have, throughout the year, complied with the provisions of the 2016 UK Corporate Governance Code, which is the version of the Code which applies to the Company for its financial year ended 31 July 2019.
The role of the Board and its Committees
Board The Board is collectively responsible for promoting the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The Board sets the Group’s purpose, strategy and values, and satisfies itself that these are aligned with the overall culture of the Group. The Board sets the Group’s risk appetite and satisfies itself that financial controls and risk management systems are robust, while ensuring the Group is adequately resourced. It also ensures there is appropriate dialogue with shareholders on strategy and remuneration. The Board’s main responsibilities are included in a schedule of matters reserved for the Board, as set out on page 54.
The Board has delegated certain responsibilities to three Committees to assist it with discharging its duties. The Committees play an essential role in supporting the Board to implement its strategy and provide focused oversight of key aspects of the business. Set out below is the governance framework giving a summary of the membership and responsibilities of each Committee. The full terms of reference for each Committee are available on the Company’s website, www.volutiongroupplc.com.
Members: Non-Executive Chairman Four independent Non-Executive Directors Two Executive Directors
Nomination Committee Audit Committee Remuneration Committee Responsibility for Board Responsibility for oversight Responsibility for Remuneration composition, succession planning and governance of the Group’s Policy and setting individual and Director selection financial reporting, internal remuneration levels for Executive Members: controls, risk management and Directors and senior management relationship with external auditor Non-Executive Chairman Members: Four independent Members: Non-Executive Chairman Non-Executive Directors Four independent Four independent Non-Executive Directors Non-Executive Directors The Committee Report can be found on pages 62 to 64 The Committee Report can be The Committee Report can be found on pages 65 to 71 found on pages 72 to 90
52 Governance Report 53 An independent Non-Executive Director Non-Executive An independent the Chairman for a sounding board Provides when necessary Directors the other for an intermediary as Serves the the normal channel of through concerns when contact have if they shareholders to Is available is inappropriate which such contact them, or for resolve to failed has Officer Executive Chief Team the Executive challenge to constructive Provide input on strategy Provide and objectives goals agreed in meeting performance Scrutinise management’s reports performance Monitor and risk management controls and that financial information of on the integrity themselves Satisfy and defensible robust are systems and removing appointing Directors, Executive for remuneration of levels appropriate Determine and succession planning Directors, Executive Ensures the Group has adequate financial resources to meet business requirements meet to financial resources adequate has the Group Ensures the Board to reporting financial as well as financial planning and record-keeping, for Responsible and shareholders developments, regulatory increasing ever to and responds compliance and control effective Ensures and capital requirements including financial reporting the Group of the financial risks of Management Responsible for the day-to-day management of the Group of management the day-to-day for Responsible once it has the strategy, executing for is responsible Team, the Senior Management with Together the Board by been agreed strategic agreed the Group’s deliver to allocation resource optimises that a framework Creates timeframes varying over objectives business objectives, key the financial business plan and other against delivery the successful Ensures accordingly decision making and responsibilities allocating business opportunities new and executes identifies Team, the Senior Management with Together or disposals acquisitions and potential risk appetite the Board’s of in the context risk profile its to with reference the Group Manages Manages and provides leadership to the Board of Directors of the Board to leadership and provides Manages the through the Company, of and the management the Board liaison between a direct as Acts Officer Chief Executive enable to is provided information sufficient and that informed properly are the Directors that Ensures judgements appropriate form to the Directors the and sets develops Secretary, and the Company Officer Executive In concert with the Chief the Board of meetings for agendas Board of time and location the date, including work an annual schedule of Recommends meetings and Committee stakeholders and other with shareholders communications effective Ensures > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > Main responsibilities Main > > > > > > > > > > > > Independent Independent Directors Non‑Executive Hollingworth Paul Amanda Mellor Tiney Claire Senior Independent Senior Independent Director MBE Reading, Tony Chief Financial Officer Chief Andy O’Brien Chief Executive Officer Executive Chief George Ronnie Role Board the Chairman of Hill, CBE Peter Board responsibilities Annual Report 2019 Report Annual Governance Report Volution Group plc
Corporate Governance continued
Board responsibilities continued
Role Main responsibilities
Company Secretary >> Plays a leading role in the good governance of the Company by supporting the Chairman and helping Michael Anscombe the Board and its Committees to function efficiently, ensuring governance processes remain fit for purpose and considering any improvements as appropriate >> Ensures compliance with the rules and regulations required by a premium Main Market listing on the London Stock Exchange including the UK Corporate Governance Code >> All Directors have access to the services of the Company Secretary, who may facilitate independent professional advice at the Company’s expense at their request to fulfil their duties >> Ensures good information flows within the Board and its Committees and between the Senior Management Team and the Non-Executive Directors, as well as facilitating induction and assisting with professional development as required >> Acts as secretary to the Board and each of its Committees >> The appointment or removal of the Company Secretary is a matter for the Board as a whole
The matters reserved for the Board include: >> agreeing the Group’s strategy and objectives >> approving acquisitions and disposals >> changing the structure and capital of the Group >> approving the Annual Report and Accounts and Half-year Report >> approving the Group’s dividend policy and declaration of dividends >> reviewing the effectiveness of risk identification and management and internal controls >> approving significant expenditure and material transactions and contracts >> ensuring a satisfactory dialogue with the Group’s shareholders >> appointing and removing Directors >> determining the Remuneration Policy for the Executive and Non-Executive Directors >> reviewing the Company’s overall corporate governance arrangements >> approving the Group’s Treasury Policy >> reviewing the effectiveness of the Board >> delegating authority to the Chief Executive Officer >> each year, meeting to set an annual budget for the business in line with the current Group strategy. The Board monitors the achievement of the budget through Board reports which include updates from the Chief Executive Officer, the Chief Financial Officer and other functions >> a rolling agenda of items that regularly need to be considered by the Board. This agenda is updated to include any topical matters that arise.
54 Governance Report 55 Review and approval of Group strategy strategy Group of and approval Review Pty Limited Ventair of acquisition of and approval Review the year for documentation and associated Notice AGM and Accounts, Annual Report of and approval Review ended 31 July 2018 ended 31 January 2019 the six months for financial statements interim of and approval Review 2018 in August Update Trading of and approval Review final dividend of dividend and recommendation interim of and declaration Review ended 31 July 2020 the year for budget of and approval Review Simx Limited of review Post-acquisition Committee) (in conjunction with the Audit and risk appetite significant risks risk framework, of Consideration Viability Statement of and approval Review term of – extension agreement Bank facility matters Property perception and market profile shareholder on the Company’s presentation Broker roadshows investor full and half-year following brokers corporate joint from feedback Independent voting shareholder of and review results proxy 2018 AGM Financial Officer Chief as Andy O’Brien of the appointment of Approval Tiney Claire of composition and the re-appointment Board in the UK facility Reading the new visit to Board programme development product new Group’s on the Presentation Lintstock by prepared results evaluation performance Board Code Governance UK Corporate in particular the 2018 updates, and regulatory legislation Governance, on governance and secondary legislation Forum Employee the Volution at her attendance following the Board to report Tiney’s Claire Statement Act Slavery Modern the Group’s of and approval Review appropriate chairmen as Committee Board from Updates > > > > > > > > > > > > > > > > > > > > > > > > Agenda items Agenda > > > > > > > > > > > > > > > > > > > > > > > > Management accounts including current trading and financial performance against budget and forecast budget against and financial performance trading including current accounts Management updates development product and new Operations opportunities and acquisition Merger updates and environmental Health and safety, marketing and Customers updates and sector including market relations Investor update People implementation system Planning Resource IT and Enterprise updates Regulatory planning governance policies and future Company meetings previous from actions and Minutes > > > > > > > > > > > Other matters considered during the year the during considered matters Other Area Strategy reporting Financial Budget Operations Shareholder engagement Governance Matters considered at regular Board meetings > > > > > > > > > > > Board activities and priorities during the year ended 31 July 2019 ended 31 during the year and priorities Board activities time which arise from also and special items meeting each at considered items and standard regular of a mix of consist meetings Board discussed the year: items during agenda the key shows below table The work. project-related key of part either annually or as to time, Annual Report 2019 Report Annual Governance Report Volution Group plc
Corporate Governance continued
Board meetings and attendance Appointment and tenure The table below sets out the number of Board meetings held during The appointment dates of Directors are shown in their biographies the year and attendance by each Director. The Board normally on pages 50 and 51. meets seven times during the year and supplementary meetings The Board believes that all Directors are effective and committed to of the Board are held when necessary. their roles and have sufficient time available to perform their duties. Number of Accordingly, all members of the Board will be offering themselves Director meetings held Attendance for election or re-election at the Company’s Annual General Meeting Chairman to be held on 12 December 2019.
Peter Hill 8 8 All of the Directors have service agreements or letters of Executive Directors appointment and the details of their terms are set out in the Ronnie George 8 8 Directors’ Remuneration Report on pages 72 to 90. The service agreements and letters of appointment are available for inspection Ian Dew1 8 8 at the Company’s registered office during normal business hours. Non-Executive Directors No other contract with the Company or any subsidiary undertaking Paul Hollingworth 8 8 of the Company in which any Director was materially interested Amanda Mellor 8 8 subsisted during or at the end of the financial year. Tony Reading 8 8 Non-Executive Directors and independence Claire Tiney 8 8 The independence of each Non-Executive Director is considered
Note each year immediately prior to the signing of the Annual Report 1. Ian Dew retired as Chief Financial Officer and an Executive Director on and Accounts. The Company’s Non-Executive Directors provide 31 July 2019. Andy O’Brien was appointed as Chief Financial Officer and a broad range of skills and experience to the Board which assists an Executive Director on 1 August 2019 and hence was not a Director during the financial year ended 31 July 2019. both in their roles in formulating the Company’s strategy and in providing constructive challenge to the Executive Directors. Agendas for the Board meetings are set out at the beginning All of the Non-Executive Directors are regarded by the Company of the year and new items are added to this as and when appropriate. as independent Non-Executive Directors within the meaning All Directors receive papers in advance of Board meetings. These defined in the Code and free from any business or other relationship include a business and market update report with updates from the which could materially interfere with the exercise of their Chief Executive Officer and the Chief Financial Officer. Members independent judgement. of the Group’s Senior Management Team may also be invited to present at Board meetings as appropriate so that Non-Executive During the year, in accordance with the Code, the Chairman held Directors keep abreast of developments in the Group. All Directors a meeting with the Non-Executive Directors without the Executive attended the Annual General Meeting in 2018. Directors being present.
Board balance and independence The 2016 Code recommends that at least half the board of directors of a UK listed company, excluding the chairman, should comprise non-executive directors determined by the board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the Directors’ judgement. The Company’s board consists of a Non-Executive Chairman, four independent Non-Executive Directors and two Executive Directors. A list of the Directors is provided on pages 50 and 51. The composition of the Board has remained in compliance with the 2016 Code throughout the financial year ended 31 July 2019.
56 Governance Report 57 The process of evaluating the performance to identify areas for for identify areas to the performance evaluating of process The under Limited, Lintstock by undertaken was further development specialist is an independent the Chairman. Lintstock of the direction evaluation Board which provides consultancy governance corporate connection with the Company. services no other and has with the engaging Lintstock involved process evaluation The discuss and agree to Secretary Chairman and the Company tailored questionnaires a series of develop the scope and to the Company. of circumstances to the specific questionnaires web-based of the form took evaluation The and its the Board of the composition and performance addressing were the Chairman. Directors of and the performance Committees, and Committees’ the Board’s of certain aspects score to required which included focus, of on the areas comment and to performance, culture, and risk, Board strategy and accountability, leadership anonymity The and responsibilities. composition and roles Board in order the process throughout ensured was respondents of all views. of exchange the open and frank to promote Committees and its the Board of the evaluation to responses The by and then reviewed Lintstock by and analysed collated were being prior to Secretary them with the Chairman and Company the Chairman also The appraised the full Board. by considered from feedback following individual Directors of performance the questionnaires. through Lintstock Progress against the recommendations the against Progress The Board held an away-day which included presentations from the Company’s external advisers and review to discuss the Group’s strategy. year. the discussed throughout was capability Organisational The governance standards set out in the new version the of UK Corporate Governance Code published in July 2018 (which applied Volution Groupto from 1 August 2019) the reviewed were by Board. compliance ensure to place in put been have processes Appropriate during the financial year ending 31 July 2020. Progress was made with discussions on the talent pipeline and started O’Brien succession Andy planning. management senior as the new Chief Financial Officer on 1 August 2019. The Board and succession planning Director Non-Executive also discussed approved a plan. Claire Tiney was re-appointed as an independent Non-Executive Director on 3 August 2019. The Board was updated on new product development and the Group’s product portfolio, markets and competition during the year. The visit site the new to Reading facility enhanced Non-Executive Directors’ knowledge and understanding certain of products and processes. manufacturing their Action plans prepared Reports discussed at the Board meeting Reports discussed at the Board the Chairman and each Committee chair discussed actions identified from last year’s last year’s discussed actions identified from Company Secretary, Chairman and Lintstock Chairman and Lintstock Company Secretary, developed by Lintstock, the Company Secretary, developed by Lintstock, the Company Secretary, evaluation and areas of focus for the 2019 review evaluation and areas Reports produced by Lintstock and reviewed and and by Lintstock and reviewed Reports produced All Directors completed a web-based questionnaire completed a web-based questionnaire All Directors discussed with the Chairman and each Committee chair Process for the 2019 Board and Committee evaluation for the 2019 Board Process Board performance evaluation 2018 – recommendations – 2018 evaluation performance Board The development the of next stage the of Group’s strategy capability. and organisational The development processes of enable to the Board have to particular in engagement, stakeholder of oversight appropriate on employee culture and customers, ensure to the Board will be able comply to with the provisions set out in the new secondary legislation and new UK Corporate Governance Code. Succession planning, talent management and focus on the talent pipeline. Continuing meet to members the of Senior Management succession planning. with assist to Team knowledge Directors’ Non-Executive enhance to Continuing and understanding the of Group’s product portfolios, markets and competition. Board performance evaluations and effectiveness and evaluations Board performance out and can be seen set table in the were evaluations the performance from resulting the recommendations 2018, Report In the Annual the recommendations. out opposite is set year the last over made progress The below. Annual Report 2019 Report Annual of evaluation performance facilitated an externally During the year The place. took Chairman and Directors Committees, the Board, of in the development assist to was facilitation the external aim of company. a listed as it matured as culture and its the Board Governance Report Volution Group plc
Corporate Governance continued
Board performance evaluations and effectiveness continued The results of the evaluation demonstrated that the composition and performance of the Board and its Committees (and the performance of the Chairman) were rated highly and continue to operate effectively. Whilst there are no significant concerns among the Directors about the Board’s effectiveness, some detailed observations and recommendations were made which were considered by the Board. The key areas of recommendation set out in the report resulting in actions agreed by the Directors are set out below and will be monitored by the Board over the next year.
As a separate exercise the Senior Independent Director, together with the Non-Executive Directors, conducted the Chairman’s performance evaluation. It was agreed that Peter Hill gave appropriate time and commitment to his role as Chairman of the Company and was effective in that role throughout the year. The Senior Independent Director then discussed the results with the Chairman.
Board performance evaluation: 2019 recommendations >> Continue the development of the Group’s strategy >> Review in greater depth competition and the markets in which Volution operates, innovation and product development and stakeholder engagement, in particular engagement with customers and employees >> Implement the Non-Executive Director succession plan, Senior Management Team succession planning, talent management and focus on the talent pipeline. Continue to meet members of the Senior Management Team to assist with succession planning
Director induction External directorships A formal induction programme has been developed in line with The Board allows Executive Directors to accept one external the Code, to ensure that any new Director receives an appropriate commercial non-executive director appointment provided the induction to the Group with the support of the Company Secretary. commitment is compatible with their duties as an Executive The programme covers, amongst other things, the operation and Director. The Executive Director concerned may retain fees paid activities of the Group (including site visits and meeting members for these services which will be subject to approval by the Board. of the Senior Management Team); the Group’s principal risks and Currently, neither of the Executive Directors holds an external uncertainties; the role of the Board and the decision-making matters directorship. Details of all Directors’ significant directorships reserved to it; the responsibilities of the Board Committees; the can be found in their biographies on pages 50 and 51. strategic challenges and opportunities facing the Group; and the Where Non-Executive Directors have external directorships, opportunity to meet the Company’s main advisers. Following the the Board is comfortable that these do not impact on the time appointment to the Board of Andy O’Brien on 1 August 2019, a that any Director devotes to the Company and we believe that personalised formal induction programme was developed tailored this experience only enhances the capability of the Board. to his experience and background and to his own requirements. Any newly appointed Non-Executive Director would also have Information and support available to Directors a personalised formal induction programme created for them. All Board Directors have access to the Company Secretary, Directors’ conflicts of interest who advises them on governance matters. The Chairman and the Company Secretary work together to ensure that Board Directors have a statutory duty to avoid situations in which they papers are clear, accurate, delivered in a timely manner to Directors, have or may have interests that conflict with those of the Company, and of sufficient quality to enable the Board to discharge its duties. unless that conflict is first authorised by the Board. This includes Specific business-related presentations are given by senior potential conflicts that may arise when a Director takes up a position management when appropriate. As well as the support of the with another company. The Company’s Articles of Association allow Company Secretary, there is a procedure in place for any Director the Board to authorise such potential conflicts, and there is in place to take independent professional advice at the Company’s expense a procedure to deal with any actual or potential conflict of interest. in the furtherance of their duties, where considered necessary. The Board deals with each appointment on its individual merit and Deloitte LLP advises on remuneration matters, Ernst & Young LLP takes into consideration all the circumstances. All potential conflicts on external audit matters and BDO LLP on internal audit matters. approved by the Board are recorded in a conflicts of interest register, which is to be reviewed by the Board on a regular basis to ensure that the procedure is working effectively.
58 Governance Report 59 Management of ongoing customer relationships ongoing customer of Management launches and product events Customer and events forums in industry Participation social and media websites Brand and Accounts Annual Report Business Council our China–Britain Through in Hangzhou office sourcing and inspections Supplier audits meetings Ongoing supplier relationship sustainable Responsible, and ethical procurement Conduct and on our Code of Engagement and anti-bribery of policies on the prevention and modern slavery corruption Employee Representative Forum attended attended Forum Representative Employee Director Non-Executive by an independent Programme Development Management and development Training reviews Individual performance and reward Recognition Apprenticeships newsletters such as communications Regular and Accounts Annual Report > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > How does Volution engage? Volution does How Whistleblowing Whistleblowing to available is facility whistleblowing independent An external need to feel they concerns which any report to enable employees possible any concerning management of the attention to be brought the of appropriateness and the financial or otherwise, impropriety, that believes Group The Committee. the Audit by is reviewed facility in openness and accountability of culture a have to it is important when them address occurring or to such situations prevent to order do occur. they engagement Stakeholder detailed as varied are groups engagement Our stakeholder the long-term to key is good engagement that believe we below and the part of do form considerations Stakeholder success of Volution. in invested have decision making. We to discussions leading Board’s we as groups our stakeholder of and involvement the development and the stakeholder the Group of interests it is in the long-term believe 18 and 19 outlines Our business model on pages themselves. groups the business and the value with stakeholders our engagement them. of for each creates Understanding our customers’ needs and needs and our customers’ Understanding products relevant deliver us to allows behaviours new and attract customers and services, retain It also performance. product ones and improve growth and innovation opportunities for highlights be met. and challenges to our to contribution a vital make Our suppliers with our supply chain Engaging performance. supply security of can ensure we means that selected Carefully market. and speed to deliver our brands ensure high‑quality suppliers meeting products innovative market leading and requirements. expectations our customer Employee engagement is critical to our long-term our long-term is critical to engagement Employee our employees between success. Interaction the main ways is also one of and customers create to work We our brands. of experiencing where workplace and inclusive a diverse their full potential. can reach every employee the and develop can retain we This ensures best talent. Why it is important engage to Suppliers Customers Stakeholder group Stakeholder Employees Internal control and risk management and risk control Internal determining for responsibility its acknowledges Board The take it is willing to the significant risks of and extent the nature system the Group’s and for objectives, strategic its in achieving out set are Group the facing risks principal The control. of internal which 33, being those risks 26 to on pages Report in the Strategic solvency performance, our business model, future could threaten risk. each against detailed are measures or liquidity and mitigation carried out a review the Board, on behalf of Committee, Audit The and system risk management the Group’s of effectiveness of the the risks of assessment a robust with together control of internal 70. on page can be found Details the Group. facing 71 describes the 65 to on pages Report Committee Audit The and monitored. it is managed and how control internal of system is designed to such a system that acknowledges Board The business achieve to failure the risk of than eliminate, rather manage, absolute and not reasonable and can only provide objectives or loss. misstatement material against assurance Annual Report 2019 Report Annual Governance Report Volution Group plc
Corporate Governance continued
Stakeholder engagement continued
Stakeholder group Why it is important to engage How does Volution engage?
Shareholders Continued access to capital is vital to the >> Annual Report and Accounts long‑term success of our business. We work to >> Annual General Meeting ensure that our investors and investment analysts >> Corporate website including dedicated have a strong understanding of our strategy, investor section performance and ambition. As a company with shares listed on the Main Market of the London >> Results presentations and post-results Stock Exchange, we must provide fair, balanced engagement with major shareholders and understandable information about the >> Investor roadshows, site visits, face-to-face business to enable informed investment decisions meetings and addressing regular investor to be made. and analyst enquiries >> Regulatory announcements Further detail is set out on page 61.
Community We aim to contribute positively to the communities >> Community investment initiatives and environment in which we operate. We focus >> Sponsorship and employee volunteering on supporting communities and groups local to >> Contributing to national initiatives in society our operations. such as Clean Air Day and Noise Action Week
Government/industry National governments set the regulatory >> We continually innovate to ensure our products bodies framework within which we operate. We engage become more energy efficient to ensure we can help in shaping new policies, >> Participation in industry bodies regulations and standards, and ensure compliance and working groups with existing legislation. >> Engagement with tax authorities >> Meetings and letters with local MPs >> Attending All-Party Parliamentary Groups and Plenary sessions >> Responding to industry and government consultations >> Conferences and speaking opportunities
Media The media is a vital channel for getting >> Press releases, product launches our message across to a wide variety of key and conferences stakeholders. Communication of brands, >> Brand websites and social media accounts innovation and current national and international >> Press visits to our facilities debates and thought leadership (e.g. indoor air quality) take place via this channel. >> One-to-one meetings and briefings >> Addressing regular press enquiries
60 Governance Report 61 a verification process dealing with the factual content of the the of content dealing with the factual process a verification sections; the various across consistency ensure to and reports senior by and Accounts the Annual Report of a review and balance; and overall consistency ensure to management and Accounts the Annual Report reviewed Committee the Audit they concluded that compliance with the requirements, and its as the Board by approval its and recommended been met had and understandable. balanced fair, > > > Fair, balanced and understandable Fair, the Annual Report that ensure duty to its recognises Board The and understandable balanced is fair, a whole, as taken and Accounts, assess to shareholders necessary for the information and provides the Company. business model of and strategy the performance, this opinion: form to following on the reliance placed has Board The > > > Meeting Annual General will take the Company of (AGM) Meeting Annual General The the offices at 12 December 2019 noon on Thursday 12.00 place at London Riverside, London 3 More LLP, Fulbright Rose of Norton the opportunity have All shareholders Kingdom. United SE1 2AQ, Notice The the AGM. at proxy, person or by in and vote, to attend the same at which is being posted in a circular can be found of AGM sets AGM of Notice The and Accounts. this Annual Report time as on all notes and explanatory the meeting out the business of each of in respect proposed are resolutions Separate resolutions. will be present and all Directors Chairman The issue. substantive questions. shareholders’ answer to and will be available AGM at the The Company’s investor website is also regularly updated with with updated is also regularly website investor Company’s The and Accounts, Annual Report including this and information news with our together and performance strategy out our which sets growth. future plans for Full Year Results Announcement Announcement Results Year Full presentation and analyst sales desk briefings broker Institutional roadshow UK shareholder and Notice and Accounts Annual Report and shareholders to posted AGM of on website placed Meeting Annual General Announcement Results Half-year presentation and analyst sales desk briefings broker Institutional roadshow UK shareholder Trading Update Trading with major on remuneration Consultation investor and principal shareholders advisory groups > > > > > > > > > > > > > > > > > > > > face-to-face meetings and telephone briefings for analysts analysts for briefings and telephone meetings face-to-face and and investors; to and major shareholders analysts by periodic visits we how of understanding a better give to the business sites principally are and meetings our business. These visits manage Financial the Chief Officer, Executive Chief the by undertaken Team. the Senior Management of members and other Officer > > March 2019 March December 2018 October 2018 2018 October August 2018 August Responsibility for shareholder relations rests with the Chairman, with the Chairman, rests relations shareholder for Responsibility Officer. Financial the Chief and Officer Executive the Chief with shareholders communication is effective there that They ensure responsible are and and strategy, governance such as on matters major of the views understands the Board ensuring that for and clear a balanced present aims to Board The shareholders. and with shareholders in communications the Group view of see the we in describing how being transparent that believes important. the business is extremely for the prospects market and shareholders and potential with existing communicated have We follows: as during the year ways different in a number of Annual Report 2019 Report Annual > > to it is also uploaded is presented, material new where In situations all shareholders. to so it is available website the Company’s shareholders its of the views on updates regular receives Board The is a This brokers. and Company Officer Executive the Chief from the Senior In addition, meetings. all Board for item agenda standing wish if they shareholders meet to is available Director Independent described as above. the arrangements from issues separately raise to In addition to the above, we communicate with existing and potential and potential with existing communicate we the above, to In addition such as: ways, other in a number of shareholders Governance Report Volution Group plc
Nomination Committee Report
I would like to thank Ian Dew for his contribution to the growth of Volution since his appointment in 2012 and on behalf of the Board wish him a very happy, healthy and long retirement. The Board also extends a warm welcome to Andy O’Brien as our new CFO.”
Peter Hill, CBE Chairman of the Nomination Committee
Role and responsibilities The key responsibilities of the Committee are:
Nomination Committee members >> assessing whether the structure, size and composition >> Peter Hill (chairman) (including the skills, knowledge, independence, experience >> Paul Hollingworth and diversity) of the Board continue to meet the Group’s business and strategic needs; >> Amanda Mellor >> considering succession planning and talent development >> Tony Reading for the Executive Directors and the Senior Management Team and, in particular, for the key roles of Chairman of the Board >> Claire Tiney and Chief Executive Officer, taking into account the challenges and opportunities facing the Group and the future skills and expertise needed on the Board; and Dear shareholder, >> identifying and nominating, for approval by the Board, candidates to fill Board vacancies as and when they arise As chairman of the Nomination together with leading the process for such appointments. The full terms of reference of the Committee are available on the Committee, I present our report Company’s website at www.volutiongroupplc.com. detailing the role and responsibilities of the Committee and its activities during the year.
62 Governance Report 3 3 3 3 3 63 Attendance 3 3 3 3 3 Number of meetings held meetings Member since Member 23 June 2014 23 June 2014 18 March 2018 23 June 2014 3 August 2016 The Company Secretary acts as the secretary to the Committee Committee the to the secretary as acts Secretary The Company to provided are meeting Committee each of and minutes Board members. with attendance during the year times three met Committee The disclosed below. look and we development its time in exciting an at Group Volution our journey. continue we him as with working to forward Group joined Volution Ian, who to thanks my extend to like I would Ian played in January 2014. CFO as appointed and was in 2012 on the listing successful Group’s in Volution role an integral role a key played and subsequently Exchange London Stock all acquisitions. of in the completion Succession planning Succession planning pipeline talent the Group’s review to continued have we year This the succession planning. During the year and senior management also discussed succession planning for Committee Nomination of refreshing progressive ensure to Directors the Non-Executive succession plan Director a Non-Executive a result, As the Board. was Tiney Claire that confirm I am also pleased to in place. is now for 2019 on 3 August Director Non-Executive a as re-appointed three-year her first the end of following term a second three-year on the Board. term Member (chairman) Hill Peter HollingworthPaul Amanda Mellor Reading Tony Tiney Claire evaluated the size and composition of the Board including the balance of skills, knowledge, independence, experience and diversity experience independence, skills, knowledge, of including the balance the Board and composition of the size evaluated his appointment and recommended Andy O’Brien, Financial Officer, Chief find a new to commenced and concluded a process Board to the Director a Non-Executive as Tiney Claire of the re-appointment the Board to and recommended considered Team and the Senior Management the Board for development succession planning and talent reviewed the Board of refreshing progressive ensure to Directors Non-Executive a succession plan for and approved considered Directors of the election and re-election for shareholders to be made to the recommendations and approved reviewed Meeting General at the Annual evaluation. performance the Committee of the results reviewed > > > > > > > Committee activities during the year held during the year: meetings the Committee at considered were matters following The > > > > > > > when discussing the effectiveness evaluations the performance of the outcome considered end, the Committee the year After 2019. Meeting the Annual General at seeking election and re-election Directors of the Non-Executive On 21 January 2019, we announced that Ian Dew, our CFO, had had our CFO, Ian Dew, that announced we On 21 January 2019, during Group Volution from retire his wish to of the Board informed Officer Financial a Chief for a search initiated Committee The 2019. Reynolds firm, Russell search external an independent by engaging candidates. in identifying potential assist to Limited, Associates connection to no other has Limited Associates Russell Reynolds outlining profile a role given firm was search The Group. Volution produce to and asked sought and experience the skills, attributes and backgrounds various from candidates potential of a longlist candidates potential of longlist The consideration. for industries the Chief by then interviewed and a number were was reviewed then was candidates potential of A shortlist Officer. Executive and the chairman Officer Executive the Chief by and met agreed and selected were candidates Preferred Committee. Audit of the candidate. each interviewed Directors Board all the remaining discussed were candidates the potential the interviews, Following the preferred of in a recommendation resulting the Committee by of the appointment On 10 April 2019 the Board. to candidate as appointed announced and he was was Andy O’Brien 2019. 1 August on Officer Chief Financial the Group. to Andy O’Brien welcome to delighted was Board The a plc, Aggreko at nine years following Group Andy joined Volution and cooling heating power, temporary of provider 250 global FTSE including senior finance roles numerous he held solutions, where solutions. Andy joined power director, finance recently most Board composition Membership and attendance Membership Code) 2016 Code (the Governance UK Corporate 2016 The nomination a of the members of a majority that recommends can As directors. non-executive be independent should committee complies the Committee members, of list the above be seen from and all I am the chairman as recommendation, Code with this 2016 Biographies Directors. Non-Executive independent are members other 50 and 51. on pages can members be found Committee of all be attended may the Committee of the meetings invitation, By The Financial Officer. and the Chief Officer Executive Chief by the it where except the Committee chairs normally the Board Chairman of Company The or replacement. re-appointment is dealing with his own of minutes and the Committee to the secretary as acts Secretary members. Board to provided are meeting Committee each Annual Report 2019 Report Annual Governance Report Volution Group plc
Nomination Committee Report continued
Diversity Committee performance evaluation The Committee, the Board of Directors and Volution Group During the year, the Board appointed an independent specialist as a whole continue to pay full regard to the benefits of diversity, corporate governance consultancy, Lintstock, to conduct a formal including gender diversity, both when searching for candidates externally facilitated evaluation of the performance of the Board, its for Board appointments and other appointments. We believe that Committees, the Directors and the Chairman. Further details can be better business decisions can be made by having representation found in the Governance Report on pages 57 and 58. I am pleased from different genders and cultural backgrounds with differing skill to confirm that this process concluded that the Committee had sets, experience and knowledge, which reflects our customer base fulfilled its role effectively and did not identify any significant and the wider population in our markets. development points requiring action.
Diversity of Board members is important to provide the necessary Committee priorities for 2019/20 range of background, experience, values and diversity of thinking During the 2019/20 year the Committee will continue to evaluate and perspectives to optimise the decision-making process. Gender the size and composition of the Board including the balance of skills, and ethnicity are important aspects of diversity which the Chairman knowledge, independence, experience and diversity. There will also and the Committee will consider when deciding upon the most be continued focus on the talent pipeline and succession planning appropriate composition of the Board including Executive Director at Board and Senior Management level. succession planning. I look forward to meeting with shareholders at the Annual General Appointments to the Board are always made on merit against objective Meeting in December to answer any questions on the work of criteria, having regard to the benefits of all forms of diversity and the the Committee. current and future needs of the business. The Board has not set any specific gender or diversity targets. When identifying candidates for appointment to the Board, any search firm engaged will be instructed to include gender diversity, ethnicity and a range of diverse backgrounds and capabilities in formulating a longlist of candidates. Peter Hill, CBE Election and re-election of Directors Chairman of the Nomination Committee On the recommendation of the Committee and in line with the 2016 Code and the Company’s Articles of Association, all of the Company’s 9 October 2019 Directors will stand for election or re-election at the Annual General Meeting 2019. The biographical details of the Directors can be found on pages 50 and 51. The Committee considers that the performance of each of the Directors standing for election or re-election at the Annual General Meeting continues to be effective and each demonstrates commitment to their role.
64 Governance Report 65 The Committee members have been been have members Committee The selected to provide the wide range of of wide range the provide to selected expertise financial and commercial duties fulfil the Committee’s necessary to and responsibilities.” Paul Hollingworth Paul Committee the Audit Chairman of audit function on internal the perform to continued BDO has audit internal with an agreed in accordance the Group behalf of with a means Committee the provide to plan continues plan. This Group. the across of controls and effectiveness the level of assessing a biannual internal of the results reviews the Committee In addition, across management carried out by controls internal of assessment the ending 31 July 2020, all businesses. the financial year During business the Group’s at look in detail to will continue Committee place take planned to audits internal with a number of operations, and compliance control internal during the period. These will cover functions in the businesses in the across and be undertaken areas audit is normally scheduled An internal and Australasia. UK, Europe acquisition. an of the completion of months within twelve place take to a new of in the selection and recruitment involved I was During the year in January 2019 the announcement following Officer Financial Chief been appointed once his successor had retire to was Ian Dew that welcome pleased to I was completed. handover and an orderly Financial Officer Chief as appointed when he was Andy O’Brien the of leader he will be an excellent and I am sure 2019 on 1 August further with him to working to finance function and I look forward environment. control enhance the internal the audit for substantially increased was audit fee Group’s Volution to and is likely £560,000, 20% to by ended 31 July 2019, the year of ending 31 July 2020 the financial year the audit of further for increase Committee The regime. the changing regulatory to EY responds as to discussions and will continue in these audit fee been involved has the scale the of try and mitigate and EY to with management work going forward. increase audit fee potential audit work, of the standards monitoring for process its part of As Council the Financial Reporting of team Quality Review the Audit the year for accounts the Group audit of EY’s reviewed (FRC) 2019. in August received report with the FRC ended 31 July 2018, related for improvement recommendations findings and principal The reviewing in directing, audit team the Group by taken the approach to in particular audit teams, the component of and supervising the work and 2018, in March acquired which Volution Zealand, Simx in New the audit. EY of in specific areas taken the approach evidencing the year for approach amended its it has that has confirmed findings. these review FRC address to ended 31 July 2019 Claire Tiney Claire Tony Reading Tony Amanda Mellor Paul HollingworthPaul (chairman) > > > > The Committee members have been selected to provide the wide the wide provide to been selected have members Committee The necessary fulfil the to expertise financial and commercial of range considers and the Board duties and responsibilities Committee’s the for and relevant be recent to financial experience the members’ 2016 Code (the Governance UK Corporate the 2016 purposes of has the Board Code, with the 2016 in accordance Code). Further, as Committee the composition of the current that determined in which the the sector to relevant competence a whole has Group operates. > in the UK, uncertainty due continued of been a year has year last The focus to continued the Committee this background, Against Brexit. to of our system financial reporting, the Group’s of on the fundamentals auditors. and external the internal of and the performance controls internal > > Dear shareholder, Committee, the Audit chairman of As the Committee present I am pleased to the detailing shareholders to Report during the financial year activities ended 31 July 2019. Audit Committee members > Annual Report 2019 Report Annual Report Committee Audit Governance Report Volution Group plc
Audit Committee Report continued
On behalf of the Committee, I would like to thank everyone for their Membership and attendance hard work over the past year, especially the finance teams across The 2016 Code recommends that all members of an audit the businesses and in particular Ian Dew, who I worked with both committee be non-executive directors, independent in character prior to and following Volution’s listing on the London Stock Exchange and judgement and free from any relationship or circumstance in June 2014. I greatly appreciated Ian’s hard work on behalf of the which may, could or would be likely to, or appear to, affect their Company and would like to wish him a long and active retirement. judgement and that one such member has recent and relevant I look forward to meeting with shareholders at the Annual General financial experience. Meeting to answer any questions on the work of the Committee. Accordingly, the Committee comprises four members who are independent Non-Executive Directors, Paul Hollingworth as Committee chairman, considered by the Board to have recent and relevant financial and accounting experience, Tony Reading, Amanda Mellor and Claire Tiney. All members have a sufficiently wide range of business experience and expertise such that the Paul Hollingworth Committee can fulfil its responsibilities. Biographies of all Committee Chairman of the Audit Committee members can be found on pages 50 and 51. As such, the Committee 9 October 2019 complies with the 2016 Code recommendations.
Regular Committee meetings are also normally attended by the Role and responsibilities Chairman, the Chief Executive Officer, the Chief Financial Officer, the The primary function of the Committee is to assist the Board in external auditor, the internal auditor and the Company Secretary, who fulfilling its responsibilities with regard to the integrity of financial acts as secretary to the Committee. Other members of management reporting, audit, risk management and internal controls. are invited to attend depending on the matters under discussion. This comprises: The Committee meets regularly with the external auditor with no >> monitoring and reviewing the Group’s accounting policies, members of management present. Meetings are scheduled in practices and significant accounting judgements accordance with the financial and reporting cycles of the Company >> reviewing the annual and half-yearly financial statements and and generally take place prior to Board meetings to ensure any public financial announcements and advising the Board effectiveness of the collaboration with the Board. Minutes of on whether the Annual Report and Accounts is fair, balanced each Committee meeting are provided to Board members. and understandable The Committee has independent access to BDO, the internal auditor, >> reviewing the Board’s approach to assessing the Group’s and to EY, the external auditor. BDO and EY have direct access to long-term viability the chairman of the Committee outside formal Committee meetings. >> approving the appointment and recommending the re-appointment The Committee met four times during the year with attendance of the external auditor and its terms of engagement and fees disclosed below.
>> considering the scope of work to be undertaken by the external Number of auditor and reviewing the results of that work Member Member since meetings held Attendance >> reviewing and monitoring the independence of the external Paul Hollingworth auditor and approving its provision of non-audit services (chairman) 23 June 2014 4 4 >> monitoring and reviewing the effectiveness of the external auditor Amanda Mellor1 18 March 2018 4 3 >> monitoring and reviewing the effectiveness of the Group’s Tony Reading 23 June 2014 4 4 internal audit function, and resolution of its material findings, in the context of the Group’s overall risk management systems Claire Tiney 3 August 2016 4 4 >> overseeing the Group’s procedures for its employees to raise Note concerns through its Whistleblowing Policy as set out 1. Amanda Mellor was not able to attend the Audit Committee in October 2018 in the Code of Conduct due to a prior commitment notified to the Board prior to her appointment. Amanda received a full set of papers for the meeting and had the opportunity to >> monitoring and reviewing the adequacy and effectiveness of discuss issues arising directly with the Committee chairman prior to the meeting. the risk management systems and processes >> assessing and advising the Board on the internal financial, operational and compliance controls.
66 Governance Report 67 Reviewed the Preliminary Results Announcement, the Annual Report and Accounts and the Half-year Results Announcement, Announcement, Results and the Half-year and Accounts Annual Report the Announcement, Results the Preliminary Reviewed Update the Trading and reviewed on the above, auditor external the from reports received and Accounts Report in the Annual made and disclosures controls internal the Group’s of the effectiveness Reviewed and significant criteria and understandable balanced fair, going concern reviews, letters, representation management Reviewed and judgements estimates accounting of areas policies and practice accounting of on the appropriateness the Board to Reported testing stress associated and the Viability Statement Reviewed acquisitions to relating consideration contingent Reviewed Code for with the 2016 compliance ensure to processes control and internal the risk management and reviewed Monitored and Accounts in the Annual Report disclosure risks the principal reviewed and risks, of out mitigation and sets evaluates which identifies, Risk Register, the Group Considered disclosed and Accounts and uncertainties in the Annual Report audit plan internal strategic its and reviewed auditor internal Group BDO as from reports Reviewed audit reports internal BDO’s from resulting recommendations any address to and actions responses management Reviewed issued during the year any of in confidence, the receipt, which allows Policy, and Corruption Conduct and Anti-Bribery Code of the Group’s Monitored matters auditing issues and non-financial-related controls, risk issues, internal or on accounting whistleblowing Authority and Markets the EU and the Competition from provisions and rotation tendering the Noted basis and, on the objectivity and effectiveness independence, including its auditor with the external the relationship Reviewed Meeting the Annual General at re-appointment its the Board to recommended of that review, auditor the external by be undertaken to the audit work of the scope and methodology and agreed considered Reviewed, auditor the external to be paid to and fees engagement of the terms Agreed audit and discussed the findings the 31 July 2018 of the review arising from Report Quality Review Audit the FRC’s Reviewed and EY with the FRC actions and required non-audit fees any policy on non-audit services and reviewed the Group and approved Reviewed being present management without executive auditor with the external Met evaluation performance the Committee Reviewed > > > > > > > > > > > > > > > > > > > Committee activities during the year activities during Committee matters: dealt with the following Committee the During the year, and reports Financial statements > > > > > > Risk management > > audit Internal > > > and non-audit work auditor External > > > > > > Compliance > > Annual Report 2019 Report Annual Governance Report Volution Group plc
Audit Committee Report continued
Significant accounting matters In reviewing the financial statements with management and the external auditor, the Committee discussed and debated the critical accounting judgements and key sources of estimation uncertainty. As a result of its review, the Committee identified the following issues that required particular judgement or had significant impact on interpretation of this Annual Report and Accounts 2019:
Area of focus Why was this significant? How did the Committee address this area?
Impairment of The Group’s policies on accounting for separately acquired intangible The Committee has reviewed the key assumptions goodwill and assets and goodwill on acquired businesses is set out in notes 13 and 14 behind these valuations and impairment reviews, other intangible to the consolidated financial statements. The Group concluded one notably the expected development of future cash assets acquisition during the year which generated goodwill of £4.2 million and flows and the discount rates used, as well as considering other intangible assets of £5.0 million. At 31 July 2019 intangible assets reasonable sensitivities to these estimates and relating to goodwill and other intangible assets amounted to £213.3 million. concluded that these support the carrying values set Goodwill on acquisitions and acquired intangible assets, which are judged out in note 15 to the consolidated financial statements to have indefinite lives, are initially recorded at fair value, and are subject to and no impairment provision is required. testing for impairment at each balance sheet date. For intangible assets The Committee has also reviewed the allocation of amortised over finite lives the Group is required to determine whether goodwill and other intangible assets to the indicators of impairment exist and, if so, perform a full impairment review. appropriate cash generating units (CGUs) and the As is customary, such testing involves estimation of the future cash flows level of CGUs at which the impairment testing is attributable to the asset, or cash generating unit of which it is part, and completed and considers it reasonable. discounting these future cash flows to today’s value.
Liabilities The Group has a number of customer rebate agreements that are The Committee received a paper from management arising from considered to be variable consideration and are recognised as a reduction setting out the process for estimating the amount retrospective from sales. Rebates are based on an agreed percentage of revenue, which of rebates to be recognised and considered the volume rebates will increase with the level of revenue achieved. These agreements may operating effectiveness of controls surrounding run to a different reporting period to that of the Group with some of the revenue recognition and management’s subjective amounts payable being subject to confirmation after the reporting date. assessment and recognition of rebates at the interim At the reporting date, management makes estimates of the amount of and year end. The Committee reviewed management’s rebate that will become payable by the Group under these agreements methodology and judgement in assessing the using a probability weighted average to arrive at an expected amount. The recognition of rebates. The Committee concurred liability arising from retrospective volume rebates at 31 July 2019 included with its approach. within trade and other payables is £6.5 million (2018: £5.8 million).
Exceptional items Exceptional items on a pre-tax basis of £1.8 million (2018: £4.9 million) The Committee reviewed the inclusion of costs represent a material item in the profit and loss account. Full details are set shown as re-organisation and acquisition costs by out in note 5 to the consolidated financial statements. Included in this virtue of their size, nature or occurrence, and received year’s results is a charge of £0.5 million relating to the costs associated updates on the level and nature of these costs. with acquisitions (2018: £1.4 million) and UK re-organisation costs In particular, exceptional costs relating to the including the Reading factory relocation of £1.3 million (2018: £5.0 million). re-organisation of the UK Ventilation business, During FY2018, an amount of contingent consideration that was not paid including the consolidation of two UK production was reversed and disclosed as an exceptional gain of £1.5 million. There facilities in Reading and Slough into one new site in were no exceptional gains in the year ended 31 July 2019. Reading, were reviewed. The Committee believes that the treatment of re-organisation costs and costs associated with acquisitions has been applied appropriately, and that separate disclosure enables the reader to more clearly understand the headline financial and operating performance of the Group.
Implementation IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with The Committee received a paper from management of new accounting Customers were effective for the first time during the year ended 31 July setting out the Groups chosen method of standards - IFRS 9 2019, having been adopted by the Group on 1 August 2018. Judgement is implementation for the new standards and the Financial required in deciding how to implement these new standards and when resulting impact on the financial statements. assessing the resulting impact on the financial statements, including the Instruments and The Committee reviewed managements judgement additional disclosures required. IFRS 15 Revenue and assumptions used when implementing the new from Contracts with standards and concurred with its approach Customers and disclosure.
In addition, the Committee reviewed policy and provisions with respect to warranty, doubtful debts and inventory and weighted average cost of capital rates.
68 Governance Report 69 an appropriate organisational structure with clear lines lines with clear structure organisational an appropriate of responsibility function which regularly and qualified finance an experienced facing the risks of assesses financial impact the possible the Group annual business planning process a comprehensive review and strategy authorities which and delegated procedures control of systems capital for limits guidelines, and approval within defined operate business transactions key and other expenditure and operating and decisions system, and forecasting budgeting financial control, a robust key analysis, variance monitoring, which includes regular and risk and opportunity reviews indicator performance level Board at assessments are statements financial which the consolidated by procedures the use of through maintained and monitored which are prepared, reporting risks financial key addressing frameworks control internal standards changes in the business or accounting arising from out expected setting policies and procedures established which reinforce standards and ethical integrity of standards all legal and to adhere to all employees the need for regulatory requirements compliance checklist controls an annual internal auditor. the internal as BDO acting > > > > > > > > > It is the Company’s practice that for any new non-audit services non-audit services new any for that practice It is the Company’s EY, from firms, and, if appropriate, other from it will seek quotes are Contracts is awarded. on non-audit projects work before on individual merit. based our suppliers to awarded audit-related of levels the overall that is satisfied Committee The the the income of to relative material not are and non-audit fees therefore a whole and audit or EY as EY conducting the of office was auditor the external of the objectivity and independence not compromised. Internal control and risk management control Internal the Group’s of effectiveness the for is responsible Board The been designed and implemented which has control, internal system of to the risks and the Group of particular requirements the meet to on the Group’s below can be found Details which it is exposed. and the risk is managed how environment, control internal management the risk of the effectiveness of review Committee’s systems. control and internal environment control Internal environment control comprise the internal elements key following The rather and manage, evaluate identify, been designed to which has achieve in seeking to the Group by faced the risks than eliminate, and timely reporting accurate and ensure objectives its business and the Group: the Company for data of financial > > > > > > > > > Non-audit services Non-audit services specialist also provide be used to may auditor external Group’s The to placed it is best auditor, position as its of a result as where, advice paid the fees agrees Committee The in question. the work perform policy and a formal services auditor its as for auditor the external to the non-audit services by of the provision to in relation is in place its of protection is adequate there that ensure to auditor external policy is in line with the EU Audit The independence and objectivity. fees non-audit the total that which states and Regulation Directive the of the average of 70% exceed should not financial year any for financial years. three the last over audit fee external £26,000) (2018: £45,000 the Group EY charged During the year, which review, the half-year to services relating for non-audit audit the external of the average of 6.6%) (2018: 6.8% represents the 70% significantly below financial years, three the last over fee A breakdown and Regulation. Directive the EU Audit cap by set the 9 to out in note is set EY during the year to paid fees of the financial statements. consolidated External audit External year the financial for auditor external as appointed EY was tendering a competitive following 2012 commencing 1 August the restricting obligations no contractual are There process. auditor. external choice of Committee’s ended 31 July 2019 year partner during the financial lead The auditing spent his second financial year was Smyth. This was Andy with the Group involvement no previous and he had the Group appointment. capacity prior to in any EY and the external of assessed the effectiveness Committee The senior issued to and questionnaire using a checklist audit process been involved who had Group the across financial management for prepared the findings was A summary of in the audit process. meeting. 2019 October its at the Committee by consideration Report Quality Review Audit the FRC also noted The Committee the for financial statements the Group’s the EY audit of to relating ended 31 July 2018. year provisions and rotation the tendering noted has Committee The Act and the Companies and Regulation Directive in the EU Audit ten every should be a public tender there that state which 2006, 20 years. every least at auditor external and a change of years audit services 2024 until for tender obliged to is not The Company with the evaluation together These provisions, listing). from years (ten to led the Committee have audit process, EY and the external of the external placing of intention is no current there conclude that the regulatory changes to other any to subject tender, audit out to which the auditor, of the effectiveness with satisfaction and regime recommended the Committee Accordingly, annually. is evaluated to EY be proposed re-appoint to a resolution that Board to the in December 2019 Meeting the Annual General at shareholders and endorsed this recommendation. accepted and the Board the of compliance with the provisions confirms Committee The Investigation Market Companies Large Services for Audit Statutory and Audit Processes Tender Competitive Use of (Mandatory the Committee In addition, 2014. Order Responsibilities) Committee audit it will put the external time, the appropriate at that, confirms under this Order. the requirements meet to tender out to EY without executive meets routinely Committee The management present. Annual Report 2019 Report Annual Governance Report Volution Group plc
Audit Committee Report continued
Internal control environment continued Code of Conduct, anti-bribery and whistleblowing Following initial appointment during the financial year ended The Group is committed to providing a safe and confidential 31 July 2015, BDO has continued to act in the capacity of internal avenue for all employees across the Group to raise concerns about auditor. The Committee agreed the BDO internal audit plan prior to serious wrongdoings. The Group also acknowledges the requirements the commencement of the last financial year. The plan was approved of the Code in this area, which states that the Committee should to ensure that there was appropriate coverage of the internal control review arrangements by which employees across the Group may, in environment, strategic priorities and key risks identified by the Board. confidence, raise concerns about possible improprieties in matters At each Committee meeting, BDO gives an update on the progress of financial reporting or other matters and ensuring that these of the internal audit plan, which is reviewed to ensure that it is in line concerns are investigated and escalated as appropriate. with the Committee’s expectations. The Company has a Group-wide Code of Conduct and Anti-Bribery During the year, the internal audit plan was amended so that additional and Corruption Policy. These policies set out clearly the Group’s values areas were added to the plan based on the changes that gave rise and the importance that is placed on honest, ethical and lawful conduct to increased levels of risk. These changes to the agreed audit plan in all business dealings. The Code of Conduct also sets out the Group’s were approved by the Committee. Given the acquisition of Ventair policy on anti-slavery and human trafficking, in accordance with the completed during the year and the four acquisitions completed Modern Slavery Act 2015. Group employees, agents and suppliers during the previous financial year together with the growth of the are asked, where relevant, to confirm that they do and will continue Group, the Committee spent time ensuring that an appropriate to comply with these policies. A gifts and hospitality register is level of coverage was in place, including reviewing the control operated by each business unit to ensure transparency where items environment in recently acquired companies. are over a certain monetary threshold. In addition, all employees who are considered the most likely to be exposed to bribery and How we manage risk corruption are given web-based anti-bribery and corruption training. As outlined on page 26, the Group has a risk management process During the year, the Committee reviewed the arrangements by which that follows a sequence of risk identification, assessment of probability employees are able to raise, in confidence, any concerns they may and impact, and assigns an owner to manage mitigation activities have about possible wrongdoing or dishonest or unethical behaviour, at the operational level. Each business unit operates a process to such as bribery, corruption, fraud, dishonesty and illegal practices. ensure that key risks are identified, evaluated, managed and reviewed An external independent whistleblowing provider provides a confidential appropriately. This process is also applied at Board level to major web-based and telephone facility which has been communicated business decisions such as acquisitions. The business unit risk registers across the Group, branded as “Speak Up”, to ensure awareness. form the basis for the Group Risk Register, which is maintained for The Code of Conduct protects anyone who comes forward to make all corporate risks and is monitored by senior management and a disclosure under the Whistleblowing Policy. When a disclosure is reviewed by the Committee. Throughout the year, the Group Risk made, the Company Secretary initiates an investigation to include Register and the methodology applied were the subject of review all necessary parties to ensure the matter is appropriately resolved. by senior management and updated to reflect new and developing A report on any investigations is submitted to the Committee to ensure areas which might impact business strategy. The Committee it is satisfied that such matters have been resolved satisfactorily. reviews the Group Risk Register at least twice a year and assesses The Committee also has the power to conduct further enquiries the actions being taken by senior management to monitor and itself or any other additional actions it sees fit. mitigate the risks.
The Group’s principal risks and uncertainties, the areas which they Committee performance evaluation impact and how they are mitigated are described on pages 26 to 33. During the year, the Board appointed an independent specialist corporate governance consultancy, Lintstock, to conduct a formal Review of effectiveness externally facilitated evaluation of the performance of the Board, its Provision C.2.3 of the 2016 Code states that the Board should monitor Committees, the Directors and the Chairman. Further details can be the Company’s risk management and internal control systems and, found in the Governance Report on pages 57 and 58. I am pleased at least annually, carry out a review of their effectiveness. to confirm that this process concluded that the Committee had fulfilled its role effectively and did not identify any significant The Committee receives biannual reports on the performance development points requiring action. of the system of internal control, and on its effectiveness in managing principal risks and in identifying control failings or weaknesses. In accordance with the requirements of the 2016 Code, the Financial Reporting Council (FRC) Guidance on Audit Committees, and the recommendations of the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, the Committee reviews the Group’s risk management process at least annually. This process was in place throughout the year and post year end up to the date of approval of this Annual Report and Accounts.
70 Governance Report 71 reviewed all material matters, as reported elsewhere in this in this elsewhere reported as matters, all material reviewed and Accounts Annual Report in the performance the Group’s reflected it fairly that ensured year reporting model and strategy business the Group’s it reflected that ensured message throughout a consistent it presented that ensured in a clear the information it presented whether considered facilitate KPIs, to appropriate by illustrated and concise manner, information. relevant to access shareholders’ > > > > > Paul Hollingworth Hollingworth Paul Committee the Audit Chairman of 2019 9 October Fair, balanced and understandable balanced Fair, the preparing for under the Code responsibility has Board The a it presents ensuring that and Accounts, Annual Report Company’s the Group’s of assessment (FBU) and understandable balanced fair, necessary the information it provides and that position and prospects business performance, assess the Group’s to shareholders for model and strategy. a of the form took Accounts and the Annual Report of review The which process, drafting the collaborative of assessment detailed Group Team, the Senior Management members, the Board involves with guidance Marketing, Group and Secretary the Company Finance, a clear and is there that It ensured advisers. external and input from Group’s and the Accounts Report and this Annual unified link between the main sections of the three and between reporting, external other the Governance Report; – the Strategic and Accounts Annual Report the Committee In addition, and the Financial Statements. Report; for areas highlighting Accountant the Chief from a report receives the of approval compliance before ensure to FBU consideration and Accounts. Annual Report the Committee: In particular, > > > > > findings, the Committee’s and of the process, A summary of 2019. in October meeting its at the Board by was considered confirmed the Committee that was review that of The outcome met 2019 and Accounts the Annual Report that Board to the statement formal the Code and the Board’s of the requirements 52. out on page is set effect to that Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Remuneration Report
The Committee is pleased to report that Volution is already compliant in a number of areas with the remuneration provisions of the new UK Corporate Governance Code, applicable to Volution from 1 August 2019.”
Anthony Reading, MBE Chairman of the Remuneration Committee
Remuneration framework At the Annual General Meeting in December 2018 (2018 AGM), the Annual Report on Remuneration received strong support from shareholders with just under 95% of the votes cast being in favour of the resolution.
Our Remuneration Policy was approved by shareholders at the Annual General Meeting in 2017 (2017 AGM) and we continued to operate under this during the year under review. The Committee Remuneration Committee members considers that the Policy continues to appropriately support our >> Tony Reading (chairman) remuneration principles, which are to: >> Peter Hill >> attract and retain the best talent >> Paul Hollingworth >> drive behaviours that support the Group’s strategy and business objectives which are developed in the long-term interests of >> Amanda Mellor the Company and its shareholders >> Claire Tiney >> reward senior management appropriately for its personal and collective achievements >> provide incentives that help to maintain commitment over the longer term and align the interests of senior management Dear shareholder, with those of shareholders >> ensure that a significant percentage of the overall package of On behalf of the Remuneration the Executive Directors and senior management remains at risk, Committee, I am pleased to present dependent on performance, and that their pay and benefits adequately take account of reward versus risk. the Directors’ Remuneration Report In line with the required three-year cycle, we will be seeking approval for the year ended 31 July 2019. to renew the Remuneration Policy at the Annual General Meeting in 2020 (2020 AGM). When developing this new Remuneration Policy the Committee will be mindful of recent developments in the market, including the publication of the new UK Corporate Governance Code. The Committee, however, is pleased to report that Volution is already compliant with the provisions of the new Code in a number of areas, including;
>> the incorporation of an additional two-year holding period into the long-term incentive awards for Executive Directors extending the total time horizon to five years >> the introduction of new processes during the year to ensure the Committee has oversight of and considers remuneration arrangements for the wider workforce when setting executive pay >> upon appointment, our new Chief Financial Officer received a pension contribution, in line with the contribution rate offered to the wider workforce.
72 Governance Report 73 The performance measures applicable to the ABP will remain the ABP will remain applicable to measures performance The setting policy of its continues and the Committee unchanged a number account into which take annual bonus targets stretching factors. and external of internal unchanged, remain the LTIP for measures While the performance remained targets the performance whether reviewed the Committee a result As expectations. growth the Company’s of in light appropriate the maximum that determined has the Committee this review, of per annum. 12% to 15% growth from should be revised EPS target per annum. 6% growth unchanged at remains target threshold The target stretching a very this is still that considers Committee The and both the Company of nature the growing account into taking can be found details Further expectations. and external internal 82. on page an open and transparent maintaining to committed are We such and as pay on executive dialogue with our shareholders the remuneration shareholders our major to have communicated out above. set as 2019/20 decisions for Anthony Reading, MBE MBE Reading, Anthony Committee the Remuneration Chairman of 2019 9 October Annual General Meeting 2019 Meeting Annual General their for thank shareholders to like I would the Board On behalf of will support the resolution you support and do hope that continued this at on Remuneration the Annual Report of approval requesting on 12 December 2019. Meeting Annual General year’s Other remuneration decisions for 2019/20 decisions for Other remuneration Director the Executive reviewed the Committee During the year the remuneration considered the review salaries part of base and as the that determined It was the wider workforce. of arrangements in base an increase should be awarded Officer Executive Chief was increase This in line with the wider workforce. 2.5%, salary of 2019. 1 August from effective package the remuneration to being proposed changes are No other out on page set which are of details 2019/20, for George Ronnie of the same at will remain opportunity levels incentive 82. Variable in 2018/19. set levels CFO succession CFO an and as Financial Officer Chief as down stepped Ian Dew succeeded and was July 2019 31 from with effect Director Executive Ian of in respect arrangements Remuneration Andy O’Brien. by and best Policy in line with our Remuneration were departure Dew’s 79. on page can be found details Further practice. the remuneration to consideration careful gave Committee The a salary he received Upon appointment, Andy O’Brien. for package 5.5% of a pension contribution above, noted and, as £293,000 of the wider workforce. for rate in line with the contribution of salary ending the financial year opportunities for Maximum incentive Ian to awarded will be in line with those31 July 2020 previously the annual bonus and long-term both salary for of 125% Dew, being partially to awards additional will also receive Andy O’Brien incentive. employer. his previous at forgone remuneration him for compensate 80. on page can be found details Further Performance in 2018/19 and remuneration outcomes and remuneration in 2018/19 Performance under the year during good progress made Group Volution capital working EPS and adjusted profit, operating review. Adjusted to the Committee used by measures the key were management strategic the Group’s achieving towards performance measure measures the performance were and, accordingly, objectives these against used in the Annual Bonus Plan (ABP). Performance an annual bonus awarding in the Committee resulted measures salary Ian Dew. to of and 55.9% George salary Ronnie to of of 55.9% the ABP targets of disclosure full retrospective provided have We them. In accordance against performance the actual as as well will be annual bonus payment the total of one-third with the Policy, which will vest shares the Company’s over awards into deferred 76. on page can be found details Further years. three after period ending a performance had awards LTIP 2016 The holding period. a two-year subject to and are on 31 July 2019 the period over performance return shareholder Although total due to peer group, the direct to end compared the lower was at to relative performance return shareholder and total EPS growth 40.5% at will vest awards LTIP 2016 the a similar size, of companies details Further and Ian Dew. George Ronnie both maximum for of on page 76. can be found also the Committee outcomes, pay variable When determining and the shareholder performance wider Company of took account remuneration that considered the Committee Overall, experience. no that such determined and as appropriate were outcomes be applied. would discretion Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Remuneration Report continued
Annual Report on Remuneration Meeting attendance This section provides details of how the Remuneration Policy The Committee met four times during the year and has had two (the Policy) was implemented during the year and how the meetings to date in 2019/20. Committee member attendance can Remuneration Committee (the Committee) intends to apply be found in the table below. the Policy, approved by shareholders at the 2017 AGM, during the Number of financial year ending 31 July 2020. Certain sections of this report Member Member since meetings held Attendance are audited and indicated as such where applicable. The Annual Tony Reading Report on Remuneration will be subject to an advisory shareholder (chairman) 23 June 2014 4 4 vote at the 2019 AGM. Peter Hill 23 June 2014 4 4 Role of the Committee Paul Hollingworth 23 June 2014 4 4 The role of the Committee is to recommend to the Board a strategy Amanda Mellor 18 March 2018 4 4 and framework for remuneration for Executive Directors and the Senior Management Team in order to attract and retain leaders Claire Tiney 3 August 2016 4 4 who are focused and incentivised to deliver the Company’s strategic business priorities, within a remuneration framework which is aligned Committee activity and key decisions during the year with the interests of our shareholders and thus designed to promote ended 31 July 2019 the long-term success of the Company. Matters considered and decisions reached by the Committee The Committee has clearly defined terms of reference which are during the year included: available on the Company’s website, www.volutiongroupplc.com. >> implemented the Policy approved by shareholders at the 2017 AGM The Committee’s main responsibilities are to: >> considered and approved the Directors’ Remuneration Report >> establish and maintain formal and transparent procedures for 2017/18 developing policy on executive remuneration and for fixing the >> considered and approved the remuneration package for the new remuneration packages of individual Directors, and to monitor Chief Financial Officer, Andy O’Brien and report on them >> reviewed outcomes and approved payments for Executive >> determine the remuneration, including pension arrangements, Director and Senior Management Team bonuses for 2017/18 of the Executive Directors, taking into account pay and policies across the wider workforce >> reviewed performance measurement outcomes and vesting of LTIP awards granted in 2015 >> monitor and make recommendations in respect of remuneration for the tier of senior management one level below that of >> reviewed and approved the parameters of the ABP, including the Board performance measures and targets for 2018/19 for the Executive Directors and Senior Management Team >> approve annual and long-term incentive arrangements together with their targets and levels of awards >> considered and approved the LTIP awards to the Executive Directors and Senior Management Team for 2018/19 >> determine the level of fees for the Chairman of the Board >> reviewed and approved the remuneration terms for the >> select and appoint the external advisers to the Committee. departure of the retiring Chief Financial Officer, Ian Dew Membership >> reviewed market trends and developments in executive The Committee currently comprises four independent Non-Executive remuneration in advance of considering Executive Director and Directors, Tony Reading, Paul Hollingworth, Claire Tiney and Senior Management Team remuneration proposals for 2019/20 Amanda Mellor, and the Chairman of the Board, Peter Hill. >> reviewed and approved the Executive Director and Senior Tony Reading is the Committee chairman and he has chaired the Management Team salaries for 2019/20 Committee from his appointment to the Board on 23 June 2014. >> reviewed and approved the parameters of the ABP, including The Chairman of the Board is a member of the Committee because performance measures for 2019/20 for the Executive Directors the Board considers it essential that the Chairman is involved in setting and Senior Management Team remuneration policy (although he is not party to any discussion directly >> reviewed and approved the performance measures and targets relating to his own remuneration). to be used for any LTIP awards made during 2019/20 During the year the Committee also consulted with the Chief Executive >> evaluated the performance of the Committee. Officer, the Chief Financial Officer and the Company Secretary, but not on matters relating to their own remuneration. Committee performance evaluation During the year, the Board appointed an independent specialist corporate governance consultancy, Lintstock, to conduct a formal externally facilitated evaluation of the performance of the Board, its Committees, the Directors and the Chairman. Further details can be found in the Governance Report on pages 57 and 58. I am pleased to confirm that this process concluded that the Committee had fulfilled its role effectively and did not identify any significant development points requiring action.
74 Governance Report 75 15 61 56 46 139 630 909 2018 £000 Total 58 63 48 48 2019 143 £000 607 885 — — — — — — — 2018 £000 Other — — — — — — — 2019 £000 — — — — — 4 218 156 2018 £000 — — — — — 117 172 Long-term incentives 2019 £000 3 — — — — — 150 220 2018 £000 — — — — — 156 228 2019 £000 Annual bonus Annual — — — — — 52 36 2 2018 £000 — — — — — 37 54 Pension 2019 £000 — — — — — 18 22 1 2018 £000 — — — — — 18 22 Benefits 2019 £000 15 61 56 46 270 139 397 2018 £000 58 63 48 48 143 279 2019 409 £000 Salary and fees 5 Benefits: this includes an annual car allowance, life assurance equivalent to four times annual salary and private medical insurance. times annual salary and private four to equivalent assurance life this includes an annual carBenefits: allowance, Directors. the Executive of each to paid was salary, base of 15% to equivalent pension contribution, employer’s in lieu of a cash payment Pension: out is set this amount of calculation The financial year. that in performance for payments annual incentive to relates 2018/19 Annual bonus: the annual bonus for and Ian Dew £76,158 to equivalent shares will be awarded George Ronnie years. three for shares into annual bonus is deferred the 2018/19 of One-third 76. on page £51,921. to equivalent shares will be awarded incentive long-term third The under review. period ends in the year whose performance awards long-term of the value to this column relates incentives: Long-term on vest is due to award This above. been included in the table and this has ended on 31 July 2019, period that a performance had post-listing granted awards to months the three over £1.73 price of share using the average value an estimated represents above included in the table the value and therefore 2019 17 October price (£1.76) share the actual reflect to been restated have amounts incentive long-term the 2018 requirements, reporting In line with the remuneration 31 July 2019. 2018. on 19 November vesting of on the date an Executive and as Financial Officer Chief as appointed was Andy O’Brien on 31 July 2019. Director an Executive and as Financial Officer Chief as retired Ian Dew in this table. been made have Andy O’Brien to relating no disclosures regulations, reporting remuneration In line with the directors’ 2019. on 1 August Director Amanda Mellor Amanda Claire Tiney Notes 1. 2. 3. 4. 5. The audited table below sets out the total remuneration for the Directors in the years ended 31 July 2019 and 31 July 2018. and 31 July 2018. 31 July 2019 ended in the years the Directors for remuneration out the total sets below table audited The Chairman Hill Peter Single total figure of remuneration (audited) remuneration of figure Single total Advice to the Committee to Advice external from advice it seeks and remuneration in the field of practice and best on developments informed itself fully keeps Committee The when appropriate. advisers Deloitte role. that LLP to Deloitte appointed listing the time of and at advisers remuneration independent own its appoints Committee The during the Committee to provided advice for fees Total year. the and throughout since listing Committee the adviser to as served LLP has the advice. in providing involved staff the seniority and of spent on the time based charged and were £17,500 LLP were Deloitte by the year during the year. advice with IFRS 2 valuation the Company LLP also provided Deloitte in relation conduct under the code of operates such voluntarily and as Group Consultants the Remuneration a member of LLP is Deloitte periodically during meetings attend LLP to Deloitte requests Committee The Kingdom. the United consulting in remuneration to executive the year. Annual Report 2019 Report Annual Executive Directors Executive George Ronnie Directors Non-Executive HollingworthPaul Ian Dew Ian Tony Reading Tony Governance Report Volution Group plc
Directors’ Remuneration Report continued
Annual Report on Remuneration continued Annual Bonus Plan (ABP) (audited) The operation of the ABP during the year ended 31 July 2019 was consistent with the framework set out in the Policy. The maximum annual bonus potential for the Executive Directors during the year was 125% of base salary, and bonus for on-target performance was 60% of the maximum opportunity. In line with last year’s report, we have provided full retrospective disclosure of the targets and performance against those targets which are set out in the table below.
The performance measures and weightings for the year ended 31 July 2019 were the same as for the year ended 31 July 2018 as set out in the table below.
Payment Payment Actual (% of (% of Measure Strategic objective Weighting Threshold Target Maximum performance maximum) base salary) Adjusted operating profit1 To increase profit 35% £40.0m £42.6m £44.0m £41.8m 52.7% 18.4% Adjusted EPS1 Creation of shareholder 50% 15.2p 16.0p 16.6p 16.0p 75.0% 37.5% value Working capital Delivering efficiency of working management capital and cash generation 15% £29.8m £28.8m £ 27.8 m £30.2m 0% 0% Total 55.9%
Note 1. Adjusted operating profit up to target level is purely organic. Between target and maximum, unbudgeted acquisitions will be taken into account. Adjusted EPS includes unbudgeted acquisitions.
Long Term Incentive Plan vesting of 2016 awards The LTIP values included in the single total figure of remuneration table for 2019 relate to the 2016 LTIP award. Awards with a face value of 100% of salary were granted to the Executive Directors on 17 October 2016 and, following a three-year performance period ending on 31 July 2019, are due to vest on 17 October 2019. However, in accordance with the Remuneration Policy, the 2016 LTIP award to Executive Directors is subject to an additional two-year holding period following vesting. Therefore this award will not be available to exercise until 17 October 2021. Performance against the performance targets is set out below:
Weighting Below Actual Vesting (% of total threshold Threshold Maximum performance (% of award) (0% vesting) (25% vesting) 1 (100% vesting) 1 outcome maximum) TSR vs Direct Peer Group index2 25% Below index Equal to Index Outperformed 29.6% index + 8% p.a. index
TSR vs FTSE companies 25% Less than Median Upper Ranked 42.6% of a similar size3 median quartile between 19 and 20 out of 43 companies
Below 6% EPS growth 50% p.a. 6% p.a. 15% p.a. 8.40% p.a. 45.0% Total vesting (% of maximum) 40.5%
Notes 1. Awards vest on a straight line basis between these points. 2. Direct Peer Group index is an index comprised of Polypipe, Tyman, Topps Tiles, Marshalls, Safestyle, Epwin Group and Norcros. 3. The companies of a similar size represent the group of 50 companies above and below the Company in terms of market capitalisation (excluding financial services and oil and gas companies). Since the start of the performance period, seven companies originally included in the peer group have delisted and subsequently been excluded from the group.
76 Governance Report 1
77 2028 2028 15% p.a. Maximum Expiry date Release date Release (100% vesting) (100% 2020/21 EPS 2020/21 EPS (equivalent to to (equivalent Upper quartile Upper of 22.02of pence) 18 October 18 18 October 18 17 October 2021 17 October 2021 17
1 1 2 2023 2023 6% p.a. Median £73,199 Threshold Threshold £49,906 Face value Face (25% vesting) Release date Release 2020/21 EPS 2020/21 EPS (equivalent to to (equivalent of 17.25 pence) 17.25 of 17 October 17 17 October 17
£1.865 £1.865 Base price Base salary 125% 150% (0% vesting) (0% % of base Face value Face 2020/21 EPS 2020/21 EPS Below threshold threshold Below (equivalent to to (equivalent Below 6% p.a. Below median Below of 17.25 pence) 17.25 of 1 26,759 39,248 612,750 £ 75% Face value Face 25% £348,125 Weighting Number of shares of Number (% of total(% award) £1.865 £1.865 Base price Base Number Number of shares 186,662 328,552 2 The price used to calculate the number of DSBP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive consecutive on the three plc share Group a Volution closing price of the mid-market of the average was DSBP awards the number of calculate price usedThe to grant. of the date preceding immediately business days The price used to calculate the number of LTIP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive consecutive on the three plc share Group a Volution closing price of the mid-market of the average was awards LTIP the number of calculate price usedThe to grant. of the date preceding immediately business days holding period. two-year period and an additional performance with a three-year granted were awards LTIP The Awards will vest on a straight line basis between these points. these points. between line basis on a straight will vest Awards 16 companies. comprised of index is an unweighted index Group Peer Direct Ronnie George Ronnie Executive Director Executive Dew Ian Note 1. Deferred Share Bonus Plan (DSBP) Bonus Share Plan (DSBP) Deferred awards 2018/19 of one-third awarded, annual bonus was under which the 2017/18 in 2017, shareholders by approved Policy out in the Remuneration set As shares. the Company’s over awards into will be deferred Directors the Executive earned by bonus payment any the 2017/18 to Bonus Plan relating Share under the Deferred shares of an award received Directors the Executive 2018, On 17 October follows: annual bonus, as Ronnie George Ronnie Notes 1. 2. In addition to the stretching performance conditions set out above, for awards to vest, the Committee must be satisfied with the overall the overall with be satisfied must the Committee vest, to awards for out above, conditions set performance the stretching to In addition period. the performance over the Company of financial performance follows: as were 2018 on 17 October made awards LTIP The Director Executive Notes 1. 2. Performance measure Performance EPS growth Share awards granted during the year (audited) year during the granted awards Share (LTIP) Plan Incentive Term Long awards 2018/19 in the form made were awards LTIP The with the Policy. in accordance under the LTIP awards made Committee the During the year measured conditions, which performance to the extent of determination the Committee’s following which will vest options of nil-cost holding period. a two-year subject to are Directors the Executive to Awards been met. have 31 July 2021, to financial years over three shareholder total of and used a single measure (75%) EPS growth to emphasis give awards the LTIP used for measures performance The below. out in the table set as (25%), Group Peer Direct vs TSR return, Annual Report 2019 Report Annual Ian Dew Ian TSR vs Direct Peer Group Governance Report Volution Group plc
Directors’ Remuneration Report continued
Annual Report on Remuneration continued Equity incentives (audited) Details of the awards granted, outstanding and vested during the year to the Executive Directors under the LTIP and DSBP are as follows:
Number of Number of share Shares Shares Shares share Face value awards awarded lapsed vested awards at date Date of at 1 August during the during the during the at 31 July of grant Vesting Expiry Name/Plan award 2018 year year year 2019 £ 1 date 2 date Ronnie George LTIP 2015/163 19/11/2015 188,533 — 72,171 123,808 — — Vested 20/11/2025 LTIP 2016/17 17/10/2016 228,735 — — — 228,735 388,850 17/10/2019 18/10/2026 LTIP 2017/18 23/03/2018 295,970 — — — 295,970 594,900 23/03/2021 24/03/2028 LTIP 2018/19 17/10/2018 — 328,552 — — 328,552 612,750 17/10/2021 18/10/2028 DSBP 2015/164 19/11/2015 4,666 — — 4,964 — — Vested N/A DSBP 2016/17 17/10/2016 4,106 — — — 4,106 6,981 17/10/2019 N/A DSBP 2017/18 23/03/2018 26,880 — — — 26,880 54,030 23/03/2021 N/A DSBP 2018/19 17/10/2018 — 39,248 — — 39,248 73,199 17/10/2021 N/A
Ian Dew LTIP 2015/163 19/11/2015 134,666 — 51,551 88,434 — — Vested 20/11/2025 LTIP 2016/17 17/10/2016 155,955 — — — 155,955 265,125 17/10/2019 18/10/2026 LTIP 2017/18 23/03/2018 168,159 — — — 168,159 338,000 23/03/2021 24/03/2028 LTIP 2018/19 17/10/2018 — 186,662 — — 186,662 348,125 17/10/2021 18/10/2028 DSBP 2015/164 19/11/2015 3,333 — — 3,546 — — Vested N/A DSBP 2016/17 17/10/2016 2,933 — — — 2,933 4,987 17/10/2019 N/A DSBP 2017/18 23/03/2018 18,327 — — — 18,327 36,839 23/03/2021 N/A DSBP 2018/19 17/10/2018 — 26,759 — — 26,759 49,906 17/10/2021 N/A
Notes 1. The price used to calculate the number of LTIP and DSBP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive business days immediately preceding the date of grant, being £1.875 for the LTIP 2015/16 and DSBP 2015/16, £1.70 for the LTIP 2016/17 and DSBP 2016/17, £2.01 for the LTIP 2017/18 and DSBP 2017/18 and £1.865 for the LTIP 2018/19 and DSBP 2018/19. 2. LTIP awards granted from 2016/17 were granted with a three-year performance period and an additional two-year holding period. 3. LTIP 2015/16 awards had a performance period ending on 31 July 2018. 61.7% of the award vested in November 2018. Following performance testing, 72,171 awards lapsed for Ronnie George and 51,551 for Ian Dew. In accordance with the rules of the LTIP, 7,446 dividend equivalent shares were added to the vested awards for Ronnie George and 5,319 for Ian Dew. 4. DSBP 2015/16 awards vested in November 2018 and the shares were immediately transferred to each Executive Director, becoming part of their beneficial shareholdings. In accordance with the rues of the DSBP, 298 dividend equivalent shares were added to the vested awards for Ronnie George and 213 for Ian Dew.
Employee Benefit Trust The Volution Employee Benefit Trust (EBT) currently holds 1,750,256 shares in the Company. It is the Company’s intention to use shares currently held in the EBT to satisfy all awards made so far under the Long Term Incentive Plan, Deferred Share Bonus Plan and Sharesave Plan. Dividends arising on the shares held in the EBT are waived on the recommendation of the Company.
Funding of future awards under the share incentive plans It is the Company’s current intention to satisfy any future requirements of its share incentive plans in a method best suited to the interests of the Company, either by acquiring shares in the market, utilising shares held as treasury shares or issuing new shares. Where the awards are satisfied by newly issued shares or treasury shares, the Company will comply with Investment Association guidelines on shareholder dilution.
78 Governance Report
— — — — — 79 awards, 48,019 70,234 (unvested (unvested not subject to subject not performance) DSBP awards DSBP
— — — — — 220,174 308,244 vested but vested LTIP awards not exercised not 3
— — — — — awards 510,776 subject to subject (unvested (unvested 853,257 LTIP awards performance) 2
Yes Yes N/A N/A N/A N/A N/A Target achieved? shareholding
N/A N/A N/A N/A N/A 561% 2,514% Beneficial (% of salary) shareholding shareholding at 31at July 2019 1
— 2,869 30,916 35,333 90,000 858,873 Shares held Shares 31 July 2019 5,642,797 beneficially at beneficially 1
— 2,869 19,333 35,333 70,000 855,327 Shares held Shares 5,622,833 beneficially at beneficially 1 August 2018
4 Includes any shares held by Persons Closely Associated. Persons held by shares Includes any pence per share. 182 of date price on that using the share 31 July 2019 at as held beneficially on shares based been calculated has achieved shareholding target The performance subject to are All awards options. nil-cost as structured which are this report of the date at as granted all awards of in this column consist awards LTIP financial years. three over measured conditions, with performance an Executive and as Financial Officer Chief as appointed was Andy O’Brien 31 July 2019. on Director an Executive and as Financial Officer Chief as retired Ian Dew in this table. been made have Andy O’Brien to relating no disclosures regulations, reporting remuneration with the directors’ In line 2019. on 1 August Director during Ian Dew’s remaining nine months’ notice period to 31 July 2020, he will receive his normal remuneration payments in respect in respect payments his normal remuneration he will receive 31 July 2020, period to notice nine months’ remaining during Ian Dew’s £12,925), (totalling benefits his normal contractual to be entitled to and continue £236,408) (totalling and pension contributions of salary with his service agreement; in accordance and ending 31 July 2020; under the ABP during the year payment any be eligible for he will not Non-Executive Non-Executive Directors Peter Hill George Ronnie Executive Directors Directors Executive Paul HollingworthPaul Tony Reading Tony Amanda Mellor Tiney Claire Ian Dew Chairman Statement of Directors’ shareholdings and share interests (audited) interests and share shareholdings Directors’ of Statement with closely possible as as aligned are they that ensure to in the Company shareholdings have should Directors Executive that believe We Directors Executive that which stated guidelines in place ownership share had the Company during the year such, As interests. shareholder shown as It should be noted, salary. base their 200% of equal to shares the Company’s a holding of and retain achieve to expected were Chairman and the Non-Executive The salary. base 200% of of in excess well shareholdings had Directors the Executive both that below, interests Directors’ shareholders. with those of align their interests to in order in the Company shares hold to also encouraged are Directors out below. set with them) are Closely Associated Persons held by with the interests (together 31 July 2019 at held as shares in ordinary this report. of and the date 2019 31 July between shareholdings in the Directors’ no changes were There Annual Report 2019 Report Annual CFO succession CFO with effect Director an Executive and as Financial Officer Chief as down stepped in this Annual Report, Ian Dew elsewhere noted As to 2019 31 October until with the Group in employment will remain Ian Dew Andy O’Brien. succeeded by and was 2019, from 31 July handover. effect an orderly follows: as These are practice. and best Policy in line with our Remuneration were departure Ian Dew’s of in respect arrangements Remuneration (i) (ii) Post-employment shareholding policy shareholding Post-employment requires 2019, 1 August from Group applicable Volution Code, to Governance UK Corporate 2018 the new is mindful that Committee The if an Executive Policy, Remuneration Under the current be developed. to requirements shareholding post-employment policy for a formal will normally awards LTIP outstanding as post-employment in shares an interest will retain they status leaver” “good is awarded Director which will Policy, Remuneration new the part of as this area will review however, Committee, The horizons. their original time to continue in December 2020. Meeting Annual General year’s next at approval shareholder be subject to Notes 1. 2. 3. 4. Governance Report Volution Group plc
Directors’ Remuneration Report continued
Annual Report on Remuneration continued CFO succession continued (iii) the Committee determined that Ian Dew was a “good leaver” for the purpose of awards or allocations made to him under the DSBP and LTIP. Vested share awards will be treated according to the rules of the relevant plan. In respect of unvested share awards, the following will apply:
>> unvested DSBP awards will vest in accordance with their normal vesting schedule which is three years from grant; and >> unvested LTIP awards will remain subject to achievement of the original performance conditions and will vest on their normal vesting date, but will be reduced on a pro-rata basis to reflect Ian Dew’s length of service up to 31 October 2019. Dividend accrual will be calculated on the final vesting amount. All unvested LTIP awards will remain subject to a two-year holding period following vesting. No share awards will be granted to Ian Dew under the LTIP for the financial year ending 31 July 2020. The Committee gave careful consideration to the remuneration package for Andy O’Brien, taking into account his broad financial experience as well as recent changes in the corporate governance environment in the UK. Details of his ongoing package for the financial year ending 31 July 2020 can be found in the implementation section of this Directors’ Remuneration Report on pages 82.
The Committee also determined that additional awards be granted to Andy O’Brien upon his appointment to partially compensate him for remuneration forgone at his previous employer. These awards consist of a one-off cash payment of £15,000 as well as an award of shares under the LTIP with a face value of £120,000. These shares will vest in two equal tranches on the first and second anniversary of appointment, and are not subject to any performance conditions. When determining these awards, the Committee took into account the form and time horizon of forfeited compensation. Full details of the awards will be provided in next year’s Directors’ Remuneration Report.
Payments to past Directors There were no payments to past Directors in the year.
Payments for loss of office There were no payments for loss of office in the year.
Performance graph and Chief Executive Officer remuneration table (audited) The chart below compares the total shareholder return performance of the Company against the performance of the FTSE SmallCap Index since listing on 23 June 2014. This index has been chosen because it is a recognised equity market index of which the Company is a member. The base point in the chart for the Company equates to the listing offer price of 150 pence per share.
160 Volution Group plc 150 FTSE SmallCap Index 140
130
120
110
100
90
Total shareholder return (rebased) 80 g d d d d tin 4) 4) 5) 16) 7) 8) 9) Lis /1 /1 ear end/1 ear en/ ear end/1 ear en/1 ear en/1 06 07 07 07 07 07 07 14 year en 15 y 16 y 17 y 18 y 19 y (31/ (31/ (31/ (31/ (31/ (31/ (23/ 20 20 20 20 20 20
80 Governance Report 1
% All 81 428 N/A 2013 1.5% 7.2% 2.9% 3.3% 12.5% 13.5% change 54.8% employees N/A 2014 1,061 £m 8.5 100% 0% 37.1 2018 54.4 3.6% 3.0% Officer Chief Executive Chief N/A 2015 643 65% £m 9.1 42.1 2019 61.2 N/A 638 2016 64% 2017 1,191 72.1% 87.8% 2018 2018 909 61.7% 44.3% 885 2019 44.7% 40.5% 1
2 The increase in employee remuneration costs is mainly due to the increased employee population resulting from the acquisition made during the year. during made the acquisition from resulting population employee the increased is mainly due to costs remuneration in employee increase The Also including Chief Executive Officer’s remuneration. Officer’s Executive Also Chief including assurance. and life health cover car pension contributions, allowance, include employer Benefits Total annual bonus annual Total Adjusted operating profit Distributions to shareholders to Distributions Annual bonus payout (as a % % a (as payout bonus Annual of maximum opportunity) % change % Percentage change in remuneration of the Chief Executive Officer (audited) Officer Executive the Chief of in remuneration change Percentage and prior years the current between Officer Executive the Chief and bonus for benefits in salary, the movement shows below table The employees. all Group for remuneration the average to compared The table below summarises the Chief Executive Officer’s single figure for total remuneration, annual bonus payments and LTIP vesting vesting and LTIP annual bonus payments remuneration, total for figure single Officer’s Executive summarises the Chief below table The maximum opportunity. of percentage a as levels Chief Executive Officer’s single total (£000) remuneration of figure Annual Report 2019 Report Annual Note 1. Employee remuneration costs Notes 1. 2. (audited) importance the spend on pay of Relative by shareholders to distributions to compared employees the Company’s all of for on pay expenditure the total shows table following The is also shown. profit operating adjusted these figures, for context provide to buyback. In order dividend and share of way Base salary Benefits LTIP vesting (as a % vesting a % (as LTIP of maximum opportunity) Governance Report Volution Group plc
Directors’ Remuneration Report continued
Statement of implementation of Remuneration Policy for the financial year ending 31 July 2020 Executive Director base salaries Ronnie George was awarded an increase in base salary of 2.5%, in line with the wider workforce. The increase took effect from 1 August 2019 increasing his base salary to £418,700. The base salary for Andy O’Brien as Chief Financial Officer was set on appointment on 1 August 2019 at £293,000 per annum.
Pension and other benefits Ronnie George will continue to receive a cash payment in lieu of an employer’s pension contribution, equivalent to 15% of base salary. Andy O’Brien will receive a cash payment in lieu of an employer’s pension contribution equivalent to 5.5% of base salary, in line with the contribution rate for the wider workforce.
Other benefits received comprise an annual car allowance paid in cash of £20,910 per annum for the Chief Executive Officer and £15,300 per annum for the Chief Financial Officer, life assurance equivalent to four times annual salary and private medical insurance.
Annual Bonus Plan (ABP) The maximum annual bonus opportunity for both the Chief Executive Officer and Chief Financial Officer will be 125% of salary, unchanged from the level set in 2018/19. One-third of the total bonus payable will be deferred into shares for three years.
Performance measures and weightings for the financial year ending 31 July 2020 will be the same as those for the year ended 31 July 2019. These are adjusted operating profit (35%), adjusted EPS (50%) and working capital management (15%). These measures reflect feedback received from shareholders during the consultation undertaken when the new Policy was being drafted, following which the ABP performance measures were simplified in order to further align the interests of the Executive Directors with shareholders. The targets set for the year ending 31 July 2020 will be disclosed in the next Annual Report on Remuneration, unless they remain commercially sensitive.
Long Term Incentive Plan (LTIP) During 2019/20, the Committee intends to grant LTIP awards with a maximum opportunity of 150% of salary and 125% of salary for the Chief Executive Officer and Chief Financial Officer, respectively. These levels are unchanged from 2018/19.
Performance measures to be used for the LTIP awards in 2019/20 will remain the same as for the year ended 31 July 2019, being EPS growth (75%) and TSR vs Direct Peer Group (25%).
During the year, the Committee reviewed the specific performance targets under the LTIP and determined that the maximum EPS target should be revised downwards for the 2019/20 awards to more appropriately reflect the long-term budgeted performance of the Company. The threshold EPS target will remain unchanged. The Committee believes that this new target range, of 6% to 12% growth per annum, is still a very stretching target taking into account the Company’s growing nature and both internal and external expectations. The annual EPS growth was strong over the past five years as the Company expanded its business not only through organic growth, but also with acquisitions. However, the Committee considered that the maximum target of 15% growth per annum was no longer a realistic objective, and therefore could become a negative aspect of the LTIP and encourage excessive risk taking, and considered that a maximum target of 12% growth per annum was more appropriate. In coming to this decision, the Committee considered a range of factors, including the Group’s business plan and potential for future growth as well as external reference points such as consensus forecasts and market practice. A maximum target of 12% growth per annum remains stretching when compared to analyst forecasts over the three-year period. In terms of market practice, we are aware of other companies in our sector that have either reduced their EPS growth range in recent years or have less stretch built into the targets. The Committee decided that the threshold target should remain unchanged at 6% growth per annum (i.e. that no value should be delivered to participants for EPS growth less than this). However, taking into account all of the above, the Committee was of the view that the maximum level should be realistic and, although a stretch target, should be attainable and therefore motivation for Executive Directors to grow the business strongly and sustainably. This change to the maximum target has no impact on the Group’s ongoing ambition or strategy to continue to grow organically and by acquisition.
The performance targets for the TSR measure remain unchanged from prior year.
A two-year holding period will apply following the end of the three-year vesting period.
82 Governance Report
0 0 83 Votes withheld £5,000 £47,740 £10,000 £10,000 £143,220 % of 1.50 5.26 votes cast Votes 9,166,492 2,567,636 cast against % of 94.74 98.50 votes cast Votes castVotes for 165,154,273 168,196,529 – Audit Committee chairman Committee Audit – – Senior Independent Director Independent Senior – Remuneration Policy (2017 AGM) (2017 Policy Remuneration Supplementary Non-Executive fees to Directors covering additional Board duties: Non-Executive Directorbasic fee – Remuneration Committee chairman Committee Remuneration – Chairman covering fee all Board duties Non-Executive Director fees Director Non-Executive by determined are fees the Chairman (whose of fees The absence. in their the Board by determined are Directors Non-Executive of Fees is due in July 2020. review next and the in July 2018 reviewed last were Directors in his absence) and the Non-Executive the Committee ended 31 July 2020. the year for unchanged will remain they Accordingly, below: summarised in the table are 2019 1 August from with effect fees The Annual Report 2019 Report Annual Resolution AGM) (2018 Report Remuneration Statement on shareholder voting on shareholder Statement of the approval of in respect outcomes in voting interest an active takes dialogue and ongoing shareholder to is committed Company The Directors’ to relation in a resolution against vote a substantial of the event In and the Policy. Report Remuneration the Directors’ and Annual Report out in the following set and would such vote any for the reasons understand seek to would the Company remuneration, it. to in response actions any Accounts on our Annual Report of in respect in December 2018 Meeting the Annual General at shareholders by out the voting sets table following The Policy. our Remuneration of in respect in December 2017 Meeting the Annual General and at Remuneration Governance Report Volution Group plc
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report This section of the Directors’ Remuneration Report sets out the Remuneration Policy (the Policy) for Executive and Non-Executive Directors, which shareholders approved at the 2017 Annual General Meeting and became effective on 13 December 2017. In practice the Policy has been applied since the beginning of the financial year on 1 August 2017.
Remuneration Policy table Operation Maximum opportunity Performance metrics
Base salary
Purpose and link to strategy: Core element of remuneration set at a level to attract, retain and reward Executive Directors of the required calibre to successfully deliver Company strategy.
Fixed annual sum, normally reviewed annually. The current salaries for the Executive Directors Company and individual performance are are set out in the Annual Report on Remuneration. factors considered when reviewing salaries. In determining base salaries, the Committee considers: While the Committee does not consider it appropriate to set a maximum salary, annual >> Company performance and external increases will generally be in line with those of market conditions; the wider workforce. Increases beyond those >> pay and conditions elsewhere in the Group; awarded to the wider workforce (in percentage >> role, experience and personal of salary terms) may be awarded in certain performance; and circumstances such as progression in the role, >> salary levels at companies of a similar size where there is a change in responsibility or and complexity. experience, or a significant increase in the scale of the role and/or size, value and/or There is no automatic entitlement to an complexity of the Group. increase each year.
Pension
Purpose and link to strategy: The Company aims to provide competitive retirement benefits for the role to attract, retain and reward Executive Directors of the required calibre to successfully deliver Company strategy.
Executive Directors may receive an employer’s 15% of base salary. N/A pension contribution to a personal or Group pension scheme and/or any other arrangement the Committee considers has the same economic benefit (including a cash allowance).
84 Governance Report 85
Performance metrics Performance Performance measures are determined determined are measures Performance with the reference Company’s to key year. the for objectives business strategic No less than 50% the of bonus will measures financial on be dependent and the remainder will be based on aligned are that measures non-financial the strategicto priorities the of business. thresholdAt performance of 25% up to the maximum out. pays Below this level performance,of no bonus out. pays On-target bonus is 60% set at the of maximum opportunity. The Committee retains the discretion to vary the level bonus of paid from away the formulaic outcome reflect overall to performance. individual and Company Awards vest based on challenging financial, based vest Awards price targets. or share operational on financial 50% will be based least At measures. price-based share and/or threshold at vests than 25% No more at vesting awards with 100% of maximum performance. N/A
Maximum opportunity 150% base of salary (subject a combined to Long and opportunity Plan Bonus Annual Incentive Plan capTerm award of 275% of salary in respect any financial of year). 175% of base salary as permitted by the plan the plan by salary base permitted as of 175% a combined Annual Bonus to rules (subject Incentive Term Plan opportunity and Long salary in respect of 275% cap of Plan award financial year). of any Although the Committee does not consider it it consider not does Committee the Although appropriate set a maximum to benefits level, anthey set are at appropriate level the for specific the nature of role and the individual’s circumstances. personal Operation Annual Bonus Plan (ABP) Purpose and link incentivise strategy: to Executive To Directors achieveto specific, pre-determined goals during a one-year period. Rewards achievement objectives of linked the Company’s to strategy. the by determined is payment bonus Annual Committee after the financial year end, based on annual performance against targets set at the start the of year. bonus annual any of one-third Normally, Directors Executive the by earned payment will be deferred the awards over into Company’s the under shares Company’s Deferred Share Bonus Plan (DSBP) which normally vest after least at two years. Long Term Incentive Plan (LTIP) Plan Incentive Term Long Purpose and link incentivise strategy: to the To delivery strategic objectives key of the over longer term and align the interests of Executive Directors with those our of shareholders. on the is dependent the awards of Vesting by set targets performance of achievement at a period of over measured the Committee, will then normally be Shares years. three least holding two-year an additional subject to period. During this holding period, no further will apply. measures performance Other benefits benefits Other Purpose and link provide a market-competitive strategy: to To package benefits of consistent with the attract, role to retain and Executivereward Directors the of required calibre successfully to deliver Company strategy. Various cash/non-cash benefits provided are Executiveto Directors which may include (but a company notare limited to) car cash (or equivalent), life assurance, expatriate benefits, medical private insurance the (for immediate their and Director Executive family) and relocation benefits. Executive Directors also are eligible to participate in any all-employee share plans on the same basis as other eligible employees. Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report continued Remuneration Policy table continued
Operation Maximum opportunity Performance metrics
Share ownership guidelines
Purpose and link to strategy: To provide close alignment between the longer-term interests of Executive Directors and shareholders.
Executive Directors are expected to achieve 200% of base salary. N/A and retain a holding of the Company’s shares worth 200% of their base salary.
It is expected that Executive Directors will retain at least 50% of any shares delivered under the DSBP and LTIP, after the deduction of applicable taxes, until the guideline is met.
Chairman and Non-Executive Director fees
Purpose and link to strategy: To enable the Company to attract and retain Non-Executive Directors of the required calibre by offering market-competitive fees.
Fees are determined by the Board. Fees are set within the aggregate limits set out N/A in the Company’s Articles of Association. The Chairman is paid an all-inclusive fee for all Board responsibilities. Non-Executive Directors are eligible for fee increases during the three-year period that the Non-Executive Directors receive a basic Policy operates to ensure they continue to Board fee. appropriately recognise the time commitment Neither the Chairman nor Non-Executive of the role and fee levels in companies of a Directors are eligible to participate in any similar size and complexity. of the Company’s incentive arrangements or receive any pension provision.
Additional fees may be payable for additional Board responsibilities such as chairmanship or membership of a committee or performing the Senior Independent Director role or for an increased time commitment.
The Committee reviews the fees paid to the Chairman and the Board reviews the fees paid to the Non-Executive Directors, periodically, with reference to the time commitment of the role and market levels in companies of comparable size and complexity.
Non-Executive Directors shall be entitled to have reimbursed all expenses (such as their travel to Board meetings), and any associated tax, that they reasonably incur in the performance of their duties.
Choice of performance measures and approach to setting The performance metrics and targets that will be set for the Executive Directors for the ABP and LTIP will be carefully selected to align closely with the Company’s strategic plan and key performance indicators.
Awards under the ABP will be determined by a combination of financial and strategic objectives appropriate to an individual’s role.
The long-term performance metrics relating to the LTIP awards will be set at the time of each grant but will normally include at least 50% based on financial and/or share price performance in line with the Company’s key strategic objectives.
86 Governance Report 87 be granted as conditional share awards or nil-cost options or in such other form that the Committee determines has the same economic effect the same has economic effect determines the Committee that form or in such other options nil-cost or awards conditional share as be granted which causes occurs the if an event the Committee by them amended or substituted conditions applicable to performance any have less difficult materially and not appropriate be more condition would performance an amended or substituted determine to Committee satisfy to on been paid have dividends which would of the value equal to (in cash shares) or additional an amount receive to the right incorporate amount This a holding period, release). is subject to the award where (or vesting the time of up to vests that under an award the shares basis on a cumulative shares in the Company’s been reinvested the dividends have that assuming be calculated may discretion the Committee’s in cash at be settled that event special dividend or other delisting, demerger, capital or any share the Company’s of variation any of in the event be adjusted price. share the Company’s affect may before the 2014 AGM (the date the Company’s first shareholder-approved Directors’ Remuneration Policy came into effect); came into Policy Remuneration Directors’ shareholder-approved first the Company’s date (the AGM 2014 the before with the shareholder-approved consistent were payment the of the terms that provided effect, came into out above set Policy the before or agreed; were the time they at in force Policy Remuneration Directors’ in not was the payment the Committee, and, in the opinion of the Company of a Director not individual was a time when the relevant at the Company. of the individual becoming a Director for consideration > > > > > Takeover or other corporate event corporate or other Takeover the event. of the date after soon practicable as in full as will normally vest DSBP awards outstanding control, a change of of In the event the event. of them will end on the date period and holding period applicable to the performance generally awards, LTIP outstanding For conditions which performance to the extent account into taking awards unvested of vesting of the level will determine The Committee on a time pro-rata vest will generally awards unvested otherwise, determines Unless the Committee this point. at achieved have been period. the vesting of a proportion as event and the relevant grant time between the period of account into basis taking in a different shares to which relate awards equivalent for his awards exchange to permit a participant may the Committee Alternatively, will be required so decides, participants or if the Committee the Group, of re-organisation is an internal control the change of If company. vesting). than awards (rather their awards to exchange which, in the event special dividend or other delisting, demerger, the Company, a winding-up of such as occur, events corporate If other will awards that determine may the Committee shares, Company’s the of value or future the current affect may the Committee, opinion of a takeover. for out above set as on the same basis vest Malus and clawback under granted awards any of in respect the Committee of the discretion at be operated may relevant) (as provisions Malus and clawback a financial results, the Company’s of misstatement a material to, limited including, but not in certain circumstances DSBP and LTIP the ABP, member any to damage reputational business unit, material or a relevant the Group member of any by risk management of failure material the Committee of the discretion be applied at may dismissed. is summarily Clawback business unit, or if the participant or relevant the Group of satisfying of anniversary and the third grant of anniversary the sixth the cash bonus, and the earlier of of payment of anniversary the third up to: awards. DSBP and LTIP for awards Common award terms Common award Rules and the Listing above out set rules, the Policy with the respective and DSBP in accordance the LTIP will operate Committee The may: and DSBP under the LTIP Awards relevant. where > > > > > the be appropriate, as and may, on Remuneration in the Annual Report be explained relevant, where would, discretions the above use of Any major shareholders. with the Company’s consultation subject of Challenging targets for both plans will be set each year based on a number of internal and external reference points. points. reference and external internal on a number of based year each will be set plans both for targets Challenging grant each prior to targets the performance of and the appropriateness measures performance the choice of will review Committee The change. proposed significant any of event in the and will consult with major shareholders under the LTIP arrangements Legacy any discretions exercising (including office loss of for payments and/or payments remuneration any make to the right reserves Committee The the terms where out above set with the Policy in line not are they that notwithstanding it in connection with such payments) to available agreed: were payment of the (i) (ii) (iii) shares, over an award to and, in relation remuneration variable of awards satisfying includes the Committee these purposes “payments” For is granted. the time the award at “agreed” are the payment of the terms Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report continued Minor changes The Committee may make minor amendments to the Policy set out in this report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for the amendment.
Illustrations of the application of the Remuneration Policy The Company’s remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of stretching short-term and long-term performance targets.
The charts below provide illustrative values of the remuneration package for Executive Directors under three assumed performance scenarios. The charts are for illustrative purposes only and actual outcomes may differ from that shown.
£1,800,000 £1,654,930 Long-term variable remuneration £1,600,000 38% Annual variable remuneration Fixed remuneration £1,400,000
£1,200,000 £1,059,615 £974,543 £1,000,000 32% 34.5% 16% £800,000 32% £638,428 £600,000 £503,505 14% 34.5% 35% £400,000 100% 52% 30% £327,115 £200,000 100% 51% 31%
£0 Minimum In line with Maximum Minimum In line with Maximum performance expectations performance performance expectations performance
Chief Executive Officer Chief Financial Officer The assumptions used for these charts are as follows:
Levels of performance Assumptions Fixed pay All scenarios >> Total fixed pay comprises base salary, benefits and pension >> Base salary – effective as at 1 August 2019 >> Benefits – as set out in the single figure table for the 2018/19 year >> 15% and 5.5% of base salary pension contributions for CEO and CFO respectively
Variable pay Below threshold performance >> No payout under the ABP >> No vesting under the LTIP
In line with expectations >> 60% of the maximum potential payout under the ABP >> 25% vesting under the LTIP, assuming awards equivalent to 150% and 125% of base salary are granted to the CEO and the CFO, respectively
Maximum performance >> 100% of the maximum potential payout under the ABP (i.e. 125% of base salary) >> 100% vesting under the LTIP, assuming awards equivalent to 150% and 125% of base salary are granted to the CEO and the CFO, respectively
Note LTIP awards have been shown at face value with no share price growth, dividends or discount rate assumptions.
External appointments of Executive Directors The Board allows Executive Directors to accept one external commercial non-executive director appointment provided the commitment is compatible with their duties as an Executive Director. The Executive Director concerned may retain fees paid for these services which will be subject to approval by the Board. Currently, neither of the Executive Directors holds an external directorship.
Approach to recruitment The Committee will aim to set a new Executive Director’s remuneration package in line with the Policy approved by shareholders.
In arriving at a total package and in considering value for each element of the package, the Committee will take into account the skills and experience of a candidate and the market rate for a candidate of that experience, as well as the importance of securing the preferred candidate.
88 Governance Report 89 materially breached a term of their letter of appointment of their letter of a term breached materially the Company his duties to of breach a serious or repeated committed or certain criminal offences dishonesty fraud, guilty of been found the Company to adverse or which is materially disrepute into bring the Company to likely in a way acted or bankrupt been declared a Director. as acting been disqualified from an interim appointment is made to fill an Executive Director role on a short-term basis on a short-term role Director fill an Executive to is made appointment an interim basis. function on a short-term on an executive takes Director the Chairman or a Non-Executive that require circumstances exceptional > > > > > > > > Policy on Directors leaving the Group leaving on Directors Policy on the contractual is dependent This Director. with the Executive agreed obligations contractual any satisfy must Committee The out in this report. set with the Policy being in contradiction not obligations may, the Company the Director, by service agreement of a breach the absence in of is terminated, employment Director’s If an Executive salary base and benefits equal to an amount of payment by immediately employment Director’s the terminate obliged to, although it is not will be paid notice in lieu of period. Payments the notice of part the whole or the remaining in lieu of (including pension scheme contribution) is taken employment alternative in the event mitigation subject to are period. Payments the notice the length of over instalments in monthly period. up during the notice > > > > > > the Company’s inspection at for available are appointment of letters Directors’ and Non-Executive service agreements Directors’ Executive The AGM. the 2019 at and will be available office registered Service agreements and letters of appointment of Service and letters agreements Director or the Executive the Company by be terminated and may term a rolling is for service agreements Directors’ Executive the of Each and Chief Officer Executive the Chief for notice prior written and nine months’ notice prior written months’ less than twelve giving not by respectively. Financial Officer a letter has these Directors of Each service contracts. have do not the Company of Directors the Non-Executive of Chairman and each The notice. written one month’s or the individual on the Company by is terminable and which is renewable term a three-year which has appointment of AGM. the 2019 at shareholders the Company’s their election by subject to positions are Directors’ the Non-Executive of terms The become due on termination. would payments No contractual pension qualify their service and for does not arrangements incentive in cash or share participate eligible to not are Directors Non-Executive related. is performance their fee of No element benefits. or other has: if such Director effect with immediate be terminated may appointment Director’s A Non-Executive The maximum level of variable remuneration (excluding any buy-outs) in respect of an appointment will be in line with the maximum Policy maximum Policy will be in line with the an appointment of in respect buy-outs) any (excluding remuneration variable of maximum level The and the annual bonus and LTIP the of the balance flex to discretion retains Committee The salary). base of 275% (i.e. out above set assess performance. used to measures so demand to and if the circumstances it deems appropriate as awards share-based cash additional and/or make may Committee The the relevant include the use of may This employer. a previous on leaving Director an Executive by forfeited arrangements remuneration replace approval. without shareholder be made to awards exceptional for Rules allowing Listing Authority’s in the Financial Conduct provisions mechanism delivery of in terms forfeited awards with the be consistent possible, where would, remuneration forfeited replace to Awards conditions. performance subject to were they or not and whether value expected attributed time horizons, shares), or (cash and support appropriate. as expenses relocation to in relation be made may Other payments to according continue to be allowed would the prior role of in respect remuneration of element any appointment, an internal In the case of the appointment. account into take to if appropriate adjusted or terms, its original length The Policy. with the approved in accordance be set would the fee Director, Chairman or Non-Executive a new of the appointment For governance corporate practice, market account into taking the Committee of the discretion at periods will be set service and notice of time. that at and the particular candidate considerations the individual circumstances meet to the Policy outside decisions remuneration appropriate make to discretion retains Committee The when: of recruitment > > Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report continued Policy on Directors leaving the Group continued Discretionary bonus payments will not form part of any payments made in lieu of notice. Annual bonus may be payable, at the Committee’s discretion, with respect to the period of the financial year served although it would be normally paid in cash, pro-rated for time and paid at the normal payment date.
Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules.
The default treatment under the LTIP is that any outstanding awards lapse when the individual leaves the Group. However, in certain prescribed circumstances, such as death, ill health, injury or disability, transfer of the employing entity outside of the Group or in other circumstances at the discretion of the Committee (except where the Director is summarily dismissed), “good leaver” status may be applied.
For good leavers, LTIP awards will normally continue until the normal vesting date, or when awards are subject to a holding period, to the end of the holding period, although the Committee may allow awards to vest (and be released from any holding periods) as soon as reasonably practicable after leaving in the case of death or such other circumstances the Committee considers appropriate. When a good leaver leaves holding unvested LTIP awards, the award will vest taking into account the extent to which the performance condition has been satisfied and, unless the Committee determines otherwise, the period of time that has elapsed between grant and the date of leaving as a proportion of the vesting period.
If a participant of the DSBP leaves the Group for any reason, the award will usually vest in full at the date of cessation, unless the Committee determines otherwise.
In the event that a buy-out award is made on recruitment, the leaver provisions would be determined at the time of the award.
Differences in Policy for Executive Directors compared to other employees The Committee has regard to pay structures across the wider Group when setting the Policy for Executive Directors. The Committee considers the general basic salary increase for the broader workforce when determining the annual salary review for the Executive Directors.
Overall, the Policy for the Executive Directors is more heavily weighted towards performance-related pay than for other employees.
The level of performance-related pay varies within the Group by grade of employee and is calculated by reference to the specific responsibilities of each role as appropriate.
Statement of consideration of employment conditions elsewhere in the Group Although pay and employment conditions elsewhere in the Group are taken into account to ensure the relationship between the pay of Executive Directors and employees remains appropriate, the Committee does not consult with employees when formulating the Policy.
Consideration of shareholder views We take an active interest in shareholder views on our executive remuneration policy. The Committee is also committed to maintaining an ongoing dialogue with major shareholders and shareholder representative bodies whenever material changes are under consideration. The Committee consulted with shareholders and proxy voting agencies when formulating this Policy.
Approval This Directors’ Remuneration Report was approved by the Board of Directors on 9 October 2019 and signed on its behalf by the Remuneration Committee chairman.
Anthony Reading, MBE Chairman of the Remuneration Committee 9 October 2019
90 Governance Report 91 the Strategic Report on pages 2 to 47 2 to on pages Report the Strategic 94 48 to on pages Report the Governance financial statements the consolidated 23 to out in note set as instruments, financial to relating information financial statements. the consolidated 29 to out in note set as party transactions related > > > > The Company has only one class of share and the rights attached to each share are identical. Details of the rights and obligations attaching attaching and obligations the rights of identical. Details are share each to attached and the rights share of only one class has Company The may Company The Secretary. the Company from available are which Association Articles of out in the Company’s set are the shares to one vote member has every the Company, of meeting a general At share. a fully paid which is not share any of transfer any register to refuse voting exercising for including deadlines procedure, the voting of held. Details share each for vote hands and on a poll one of on a show 2019. Meeting Annual General of out in the Notice set are rights, capital the share of Details 1 pence each. of shares ordinary 200,000,000 was the Company capital of the issued share 31 July 2019 at As financial statements. the consolidated 25 to in note shown are 31 July 2019 at as the Directors of Powers the shareholders authority from the required obtaining subject to including, the Company of all the powers exercise may Directors The the in 2018, the AGM At shares. the Company’s of and the purchase shares new authorise the issue of to the power meeting, in general ended During the financial year shares. own its of 19,887,014 a maximum of up to purchase to members authorised by was Company in the Company. shares issue or purchase to the powers of any exercise did not the Directors 31 July 2019, rights and voting on transfer Restrictions are that certain restrictions to than in relation other in the Company shares ordinary of transfer on the restrictions no general are There Directors Abuse Regulation, the Market to Pursuant laws). insider trading example (for and regulations laws time by time to imposed from the Company. of shares in the ordinary deal to the Company of the approval require the Group of and employees and certain officers carrying relating special rights holds shares shareholder No equally in all respects. ranks the Company in the capital of share ordinary Each the Company. of the control to Long under the Company’s Awards 79. to 76 on pages can be found plans and details incentive certain share in place has Company The in the Directors’ can be found and details on an annual basis normally made Bonus Plan are Share Plan and Deferred Incentive Term Scheme in 2018. Sharesave all-employee under its invitation first launched its Company The 90. to 72 on pages Report Remuneration plans. incentive under the share awards satisfy to shares hold ordinary in which to (EBT) Trust Benefit Employee also an has Company The trustee The held in the EBT. shares ordinary 1,750,256 were there this report, of the date at and as end on 31 July 2019 the financial year at As in the EBT subject to shares the ordinary to, in relation act and to to, incidental and powers the rights exercise to power the has the EBT of fit. thinks discretion absolute in its the trustee such manner as other 1 pence, of a nominal amount for held, except shares ordinary dividends on any receive to the right waived has the EBT of trustee The on the further details For or shareholder. an employee of property the beneficial which are held in the EBT shares those ordinary than for for except held in the EBT, shares ordinary vote does not trustee The financial statements. the consolidated 25 to please see note EBT with the in accordance will vote which the trustee or shareholder, an employee of property the beneficial which are shares those ordinary owner. the beneficial from received instructions The Group’s results for the year are shown in the statement of comprehensive income on page 102. page income on comprehensive of in the statement shown are the year for results Group’s The a final dividend in recommending are and the Directors 2019 on 3 May shareholders to paid was pence per share 1.60 dividend of An interim to 18 December 2019 on the final dividend will be paid If approved, 3.30 pence per share. of ended 31 July 2019 the financial year of respect pence per share. 4.90 to amounts the year for and proposed paid dividend total The 2019. on 22 November on the register shareholders matters capitalShare and related Corporate structure Corporate on the premium traded are shares and its in England and Wales, incorporated shares, by limited company plc is a public Group Volution FAN). (LSE: Exchange Stock the London of the Main Market of segment Results and dividend Introduction 31 July 2019. ended the year for the Company of financial statements the audited and their Annual Report present Directors The the Disclosure, the Code, 2006, disclosed be Act to under the Companies required information includes additional Report Directors’ This the Financial Conduct Authority. of Rules and the Listing (DTRs) Rules Guidance and Transparency which is follows, as this Annual Report sections of in other is included Report be included in the Directors’ to required Certain information Report: Directors’ this into reference by incorporated > > > > compliance with the DTRs. the purpose of for Report the Management also Report represents Directors’ This Annual Report 2019 Report Annual Report Directors’ Governance Report Volution Group plc
Directors’ Report continued
Substantial shareholdings As at the date of this report, the Company had been notified, in accordance with the DTRs, of the following interests representing 3% or more of the voting rights in the issued share capital of the Company:
Total holding % of total Name of holder of shares voting rights PrimeStone Capital LLP 26,130,940 13.18% Standard Life Aberdeen plc 13,496,183 6.81% FMR LLC 12,731,662 6.42% Baillie Gifford & Co 11,343,105 5.72% Artemis Investment Management LLP 10,087,413 5.09% UBS Global Asset Management 6,413,511 3.24%
Directors The Directors of the Company and their biographies are set out on pages 50 and 51. Their interests in the ordinary shares of the Company are shown in the Directors’ Remuneration Report on page 79. Ian Dew retired as Chief Financial Officer and an Executive Director on 31 July 2019. Andy O’Brien was appointed as Chief Financial Officer and as an Executive Director on 1 August 2019 and his biography is set out on page 50.
Appointment and removal of Directors Directors may be appointed by ordinary resolution of the Company or by the Board.
All Directors will stand for election or re-election on an annual basis, in line with the recommendations of the Code.
In addition to any powers of removal conferred by the Companies Act 2006, the Company may by special resolution remove any Director before the expiration of his period of office.
Directors’ indemnities and insurance The Articles of Association of the Company permit it to indemnify the Directors of the Company against liabilities arising from or in connection with the execution of their duties or powers to the extent permitted by law.
The Company has directors’ and officers’ indemnity insurance in place in respect of each of the Directors. The Company has entered into a qualifying third party indemnity (the terms of which are in accordance with the Companies Act 2006) with each of the Directors. Neither the indemnity nor insurance provide cover in the event that a Director or officer is proved to have acted fraudulently.
Transactions with related parties Details of the transactions entered into by the Company with parties who are related to it are set out in note 29 to the consolidated financial statements.
Change of control There is one significant agreement to which the Company is a party that is affected by a change of control as follows:
>> the Facilities Agreement dated 15 December 2017 contains provisions to enter into negotiations with the lenders to continue with the facilities set out in the agreement upon notification that there will be a change of control. Further details of the Group’s banking facilities are shown in note 23 to the consolidated financial statements. The provisions of the Company’s share incentive plans may cause options and awards granted to employees under such plans to vest on takeover.
The Company does not have agreements with any Director that would provide compensation for loss of office or employment resulting from a change of control.
Amendments to the Company’s Articles of Association The Company may alter its Articles of Association by special resolution passed at a general meeting of shareholders.
Political donations The Group has not made in the past, nor does it intend to make in the future, any political donations.
Post-balance sheet events There are no post-balance sheet events.
Going concern The Company’s statement on going concern can be found on page 29.
92 Governance Report 93 so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware auditor which the Company’s of audit information is no relevant there is aware, the Director as so far relevant any of aware himself/herself make to in order a Director as taken have to ought he/she that all the steps taken has the Director information. that of is aware auditor the Company’s that establish and to audit information > > Michael Anscombe Secretary Company 2019 9 October plc Group Volution RH10 9YX Sussex West Crawley, Fleming Way, office: Registered 09041571 number: Company > > & Young Ernst re-appoint to A resolution the Company. of auditor as be re-appointed willingness to its expressed LLP has & Young Ernst Meeting. Annual General the forthcoming at will be proposed auditor independent the Company’s LLP as the Board of order By Auditor and disclosure of information to auditor to information of and disclosure Auditor that: confirms approved was and Accounts Report when this Annual the date at in office the Directors of Each Viability Statement a over the Group of assessed the prospects the Board C.2.2), (provision Code 2016 Governance Corporate with the UK In accordance 29. on page out is set and the statement the going concern provision by required months twelve longer period than the Meeting Annual General 3 More LLP, Fulbright Rose Norton of the offices at 12 December 2019 noon on Thursday 12.00 will be held at Meeting General Annual The set business are non-routine of the items of and an explanation Meeting Annual General of Notice The SE1 2AQ. London Riverside, London and Accounts. Report this Annual accompanies that circular out in the explanatory Annual Report 2019 Report Annual Governance Report Volution Group plc
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRS as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with IFRS as adopted by the EU.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:
>> select suitable accounting policies and then apply them consistently >> make judgements and estimates that are reasonable and prudent >> state whether the Group and parent company financial statements have been prepared in accordance with IFRS as adopted by the EU >> prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, a directors’ report, a directors’ remuneration report and a corporate governance statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of Directors in respect of the Annual Report and 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 Group and the undertakings included in the consolidation taken as a whole >> the Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face >> the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. By order of the Board
Ronnie George Chief Executive Officer 9 October 2019
Andy O’Brien Chief Financial Officer 9 October 2019
94 Financial Statements 95 Statement financial of position as 31 July at 2019 Statement changes of in equity the for year then ended Statement cash of flows the for year then ended theRelated financial to 14 notes 1 to statements including a policies accounting significant summary of Parent company Parent The risk of improper revenue recognition through inappropriate manual journal entries and/or customer rebates customer and/or manual journal entries inappropriate through recognition revenue improper risk of The of and disclosure presentation identification inappropriate from resulting override management risk of The manual journal entries unauthorised non-standard and/or items exceptional We performed an audit of the complete financial information of five components and audit procedures on specific on specific and audit procedures components five of financial information the complete an audit of performed We components a further fourteen for balances tax before Profit of 94% for accounted full or specific audit procedures performed we where components The Assets Total of and 98% Revenue of 93% items, and exceptional items and exceptional tax before profit Group of 5% which represents £1,247k of materiality Group Overall > > > > > > > > > > the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or appropriate; is not the financial statements of in the preparation accounting of the going concern basis use of the Directors’ about the significant doubt cast may that uncertainties material identified any disclosedin the financial statements not have the Directors months twelve least at a period of for accounting of the going concern basis adopt to continue ability to company’s or the parent Group’s issue. authorised for are the financial statements when the date from Volution Group plc’s Group financial statements and parent company financial statements (the financial statements) give a true and fair a true and fair give financial statements) (the financial statements company and parent financial statements Group plc’s Group Volution then ended; the year for profit the Group’s and of 31 July 2019 at as affairs company’s the parent and of the Group’s of the state of view Union; the European by adopted with IFRSs as in accordance prepared been properly have financial statements the Group Union the European by adopted with IFRSs as in accordance prepared been properly have financial statements company the parent 2006; and Act the Companies of with the provisions in accordance as applied the regards and, as 2006, Act the Companies of with the requirements in accordance been prepared have the financial statements Regulation. the IAS Article 4 of financial statements, Group > > > > > > Consolidated statement financial of position as 31 July at 2019 Group Consolidated statement of comprehensive income for the year year the for income comprehensive of statement Consolidated then ended Consolidated statement changes of in equity the for year then ended Consolidated statement cash of flows the for year then ended Related 34 the notes 1 to financial to statements, including policies accounting significant of a summary The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Financial Reporting and International is applicable law been applied in their preparation has that framework financial reporting The applied in accordance as financial statements, company the parent regards Union and, as the European by adopted as (IFRSs) Standards 2006. Act the Companies of with the provisions Key audit matters > > our audit approach of Overview scope Audit Conclusions relating to going concern to Conclusions relating where: you to report us to (UK) require which the ISAs to in relation matters the following of in respect report to nothing have We Basis for opinion opinion Basis for Our responsibilities (UK)) and applicable law. (UK) (ISAs on Auditing Standards with International our audit in accordance conducted We our report section of the financial statements the audit of for responsibilities further described in the Auditor’s are under those standards our audit of to relevant are that requirements with the ethical in accordance company and parent the Group of independent are We below. fulfilled our have and we entities, public interest listed applied to as Standard Ethical in the UK, the FRC’s including the financial statements with these requirements. in accordance responsibilities ethical other our opinion. for a basis provide to and appropriate is sufficient obtained have we the audit evidence that believe We Materiality In our opinion: > > > > plc which comprise: Group Volution of the financial statements audited have We Annual Report 2019 Report Annual Report Auditor’s Independent plc Group Volution the members of To Opinion Financial Statements Volution Group plc
Independent Auditor’s Report continued To the members of Volution Group plc
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Improper revenue recognition through inappropriate Our judgement on the risk profile of the Group: manual journal entries and/or customer rebates The risk profile has remained stable. During the year the Group recognised revenue of £235.7 million (FY2018: £205.7 million).
We determined that there is risk of material misstatement associated with revenue recognition as revenue is the most significant item in the consolidated statement of comprehensive income and impacts the majority of the key performance indicators of the Group.
Key observations communicated Risk Our response to the risk to the Audit Committee The risk of inappropriate We tested the appropriate application of revenue recognition through We concluded that: revenue recognition arises substantively testing a sample of revenue transactions during, from the following: before and after the period end to identify that revenue was >> revenue has been recognised appropriately. recognised in accordance >> inappropriate recognition with IFRS; of sales due to inappropriate For all entities except Simx, Ventair and Oy Pamon we used data analytics, >> the occurrence of revenue manual journal entries; and to identify recorded transactions that did not align with our expectation of the transaction flow. This involved performing three-way was found to be appropriate; >> judgemental customer correlations between revenue, debtors and cash. >> the customer rebate rebate provisions. liabilities recognised by the We tested customer rebate liabilities through obtaining direct Group were appropriate; and confirmation of the sales rebate terms from certain customers and reviewing formal agreements with customers where such >> appropriate disclosure of the confirmations were not received. We recalculated the expected sales nature of customer rebates rebates for customers and compared these to actual amounts is included in the financial recorded by management. We also evaluated whether a consistent statements. methodology was applied with the prior year.
We also performed the following:
>> obtained an understanding of the significant classes of transactions impacting revenue and performed walkthroughs to confirm our understanding of these transactions and controls in place;
>> evaluated the adequacy of the design of the controls on the significant classes of transactions impacting revenue;
>> performed analytical procedures, including a comparison of actual revenue against budget and prior year;
>> tested the application of cutoff by obtaining the incoterms, supporting sales orders, proof of dispatch and proof of payment for a sample of sales transactions across all trading companies in scope; and
>> performed journal entry testing using selected risk-based criteria for entries made to revenue. Instructions to perform the above procedures were issued to all full and specific scope locations, which covered 93% of consolidated revenue. Supporting references in the Annual Report and Accounts: The Audit Committee Report (page 65). Accounting policies (pages 106 to 109 and page 111); and note 3 and note 21 to the consolidated financial statements (pages 111 and 112 and page 135).
96 Financial Statements 97
Key observations communicated communicated observations Key Committee Audit the to We concluded that that concluded We the presentation the of reported items as exceptional is supportable. whether considered We the nature and amount of the costs were disclosed transparently allow to the reader understand to the business of the performance the that concluded and sufficient. were disclosures Our testing non-standard of journal entries raised at levels subsidiary Group and evidence provide did not of any unauthorised or entries. journal inappropriate (pages 115 and 116). and note 5 to theand consolidated 5 to note statements financial Accounting policies (page 106); 106); (page policies Accounting Our judgement on the risk profile of the Group of risk profile on the Our judgement stable. remained has profile risk The We obtained and reviewed management’s paper which included included which paper management’s and reviewed obtained We items of classification used for and judgements the assumptions as exceptional. in inherent and estimates judgements the key identified We presented the items whether determine to analysis management’s as “material” by management defined the criteria meet exceptional as with the Group’s consistent are they and whether and “non-recurring” management’s to particular focus paid We policy. accounting relocation. the factory to in relation incurred costs of quantification is items exceptional of the disclosure whether determined We review thematic the FRC’s by suggested with the tone consistent 2017. concluded in November was which items on exceptional the exceptional of and amounts the nature whether considered We to the reader allow to disclosed transparently were costs operating the business. of the performance understand fraud of the risks regarding management enquiries of made We override. management address to put in place and the controls our testing exceeded that unusual journal entries identified We audit of The their appropriateness. and validated thresholds performed was exceptional as in classifying made items judgements for procedures the above perform to Instructions the UK team. by all full issued to were journal entries unauthorised non-standard and specific scope locations. > > > > > > Exceptional items: Exceptional > > > > journal entries: Unauthorised non-standard > > Our response to the risk the presentation of items as as items of the presentation when in practice exceptional relate may in question the items activities trading underlying to period to from recur and/or period; and unauthorised of the posting journal entries non-standard (including manual journal entries). > > Management override arising from inappropriate inappropriate from arising override Management unauthorised and/or items exceptional of presentation entries journal non-standard £1.8 million of costs operating exceptional reported Group The million). £6.4 (2018: We determined that exceptional items contain a risk of material misstatement as adjusted performance measures are regularly referred to to referred regularly are measures performance adjusted as misstatement material a risk of contain items exceptional that determined We areas principal The Directors. Executive to bonuses payable of the basis and form performance in describing the Group’s management by costs. operating exceptional of and disclosure the identification to relates judgement of > > Risk override management of risk The follows: as arises Annual Report 2019 Report Annual continued audit matters Key Supporting references in the Annual Report and Accounts: The Audit Committee Report (page 65). have we year, In the current acquisitions. for accounting to in relation audit matter included a key Report our Auditor’s In the prior year, of an initial cash consideration for in Australia Pty (“Ventair”) Limited Ventair acquired the Group 2019, this risk. On 1 March reassessed million £4.0 to income amounted comprehensive of statement included in the consolidated Ventair of million; revenue £8.7 approximately in the prior the Group by made acquisitions the four to significant compared considered is not This revenue. Group total of which is 1.7% the to related audit matter key a separate present do not we year, in the current activity the smaller scale the acquisition Due to of year. acquisitions. for accounting Financial Statements Volution Group plc
Independent Auditor’s Report continued To the members of Volution Group plc
An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 26 reporting components of the Group, we selected 19 components covering entities in New Zealand, Australia, Germany, Belgium, Sweden, Finland and the UK, which represent the principal business units within the Group.
Of the 19 components selected, we performed an audit of the complete financial information of five components (full scope components) which were selected based on their size or risk characteristics. For the remaining 14 components (specific scope components), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
We set out below details relating to the coverage of our audit procedures. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.
% of Group profit before tax and exceptional items % of Group revenue % of Group total assets
2019 2018 2019 2018 2019 2018 Reporting components where we performed audit procedures 94% 93% 93% 94% 98% 94% Full scope 57% 57% 51% 53% 81% 57% Specific scope or specified procedures 37% 36% 42% 41% 17% 36%
Of the remaining seven components that together represent 6% of Group’s Profit Before Tax and exceptional items, none are individually greater than 2% of this adjusted Profit Before Tax measure. For these components (“review scope” components), we performed other procedures including analytical review, testing of consolidation journals and intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
% contribution to profit before tax % contribution to revenue % contribution to total assets and exceptional items 12%
29% 32% 5% 2%
57% 51% 81%
8% 10% 6% 57+6+8+29+M 51+7% 7+10+32+M 81+2+512M Full Review Specified Specific
Changes from the prior year The Group acquired Ventair Pty Limited in the current financial year. We have performed specific scope audit procedures on this entity for the purposes of our Group audit.
The only other change to the scope adopted in the previous year is for Oy Pamon Ab, where in the current financial year we are performing specified procedures, whereas the scope for the previous year was review scope.
98 Financial Statements 99 Pre-tax earnings of £23,140k earnings of Pre-tax £1,801k of costs exceptional back Add £24,941k Totals basis) materiality of (5% £1,247k of Materiality > > > > > > > >
basis Starting Materiality Adjustments During the course of our audit, we reassessed initial materiality and made changes to the above calculation to align with the Group’s actual actual align with the Group’s to calculation the above changes to and made initial materiality reassessed our audit, we During the course of results. reported materiality Performance the level low an appropriately to reduce to an amount at It is set level. or balance the individual account at materiality of application The materiality. exceeds misstatements and undetected uncorrected of the aggregate that probability that was our judgement environment, control overall the Group’s of with our assessment together our risk assessments, of On the basis materiality performance set have We £812k). namely £935k (2018: our planning materiality, of 75%) (2018: 75% was materiality performance reports auditor’s in the internal raised comments address to and procedures controls of implementation the active due to this percentage at experience. on recent based differences audit of expectation our low to consideration also gave We observations. control and our internal Our application of materiality materiality Our application of on the audit misstatements identified of the effect the audit, in evaluating in planning and performing materiality of apply the concept We our audit opinion. and in forming Materiality the economic influence to be expected could reasonably individually or in the aggregate, that, an omission or misstatement of magnitude The our audit procedures. of and extent the nature determining for a basis provides Materiality statements. the financial the users of decisions of items. and exceptional Tax Before Profit of 5%) (2018: which is 5% £1,083k), (2018: £1,247k be to the Group for materiality determined We materiality The assets. total of 0.5%) (2018: which is 0.5% £1,471k), (2018: be £1,475k to company the parent for materiality determined We basis on a different it is determined as materiality the Group exceeds financial statements company parent the standalone for determined including those on our procedures, statements, financial the Group the audit of the purposes of For the operations. of the nature given out in this report. set materiality and performance materiality the Group to with reference undertaken are company, in the parent balances materiality: Group In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the the of each at be undertaken to needed that work the type of determined audit, we the Group to approach our overall In establishing under firms operating network EY global other from auditors component or by team, the primary us, as audit engagement by components the primary audit team by these directly of on four performed were audit procedures full scope components, five Of the our instruction. we auditors, component by performed was the work where specific scope the 14 components, For team. audit the component and one by for a basis as been obtained had audit evidence sufficient that determine enable us to to involvement of level the appropriate determined a whole. as our opinion on the Group all UK For components. all in scope overseas UK and for in the closing meetings partner participated engagement audit Group The with the component discussing the audit approach involved visits The site. the client also visited the team a senior member of components, key and reviewing in person closing meetings with the local attending management, meeting their work, issues arising from and any team with the regularly interacted the primary team visited, physically not which were entities overseas For in risk areas. papers audit working the scope for responsible were and papers working key the audit, reviewed of stages during various appropriate where teams component for evidence us appropriate gave level, Group at performed procedures with the additional together This, the audit process. of and direction financial statements. our opinion on the Group Annual Report 2019 Report Annual teams with component Involvement Financial Statements Volution Group plc
Independent Auditor’s Report continued To the members of Volution Group plc
Our application of materiality continued Performance materiality continued Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £160k to £588k (2018: £256k to £470k).
Reporting threshold An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £62k (2018: £54k), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information The other information comprises the information included in the Annual Report and Accounts other than the financial statements and our Auditor’s Report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
>> the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
>> the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception >> In the light of the knowledge and understanding of the Group and the parent company and its environment obtained during the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
>> adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
>> the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
>> certain disclosures of Directors’ remuneration specified by law are not made; or
>> we have not received all the information and explanations we require for our audit.
Responsibilities of Directors As explained more fully in the Directors’ Responsibilities Statement set out on page 94, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
100 Financial Statements 101 Our procedures were communicated to and performed by our our by performed and to communicated were Our procedures teams. component The maintenance and integrity of the Volution Group plc website is the is the plc website Group the Volution of integrity and maintenance The does not the auditor carried out by the work the Directors; of responsibility accepts the auditor and, accordingly, these matters of consideration involve the financial to occurred have may that changes any for no responsibility on the website. initially presented were since they statements and dissemination the preparation Kingdom governing in the United Legislation jurisdictions. in other legislation from differ may financial statements of Following the recommendation of the Audit Committee, we we Committee, the Audit of the recommendation Following and signed Directors of the Board by auditor as were appointed appointed were We 2019. on 3 September letter an engagement audit the to on 12 December 2018 the AGM at the company by and 31 July 2019 ended the year for financial statements financial periods. subsequent including previous engagement uninterrupted total period of The the years covering is six years, and re-appointments renewals 31 July 2019. to ending 31 July 2014 Standard Ethical the FRC’s by non-audit servicesThe prohibited and we company or the parent the Group to provided not were in company and the parent the Group of independent remain conducting the audit. the to report with the additional audit opinion is consistent The Committee. Audit
> > > > > > the the audit of for our responsibilities of A further description Council’s on the Financial Reporting is located financial statements https://www.frc.org.uk/auditorsresponsibilities. at website our Auditor’s Report. of part forms This description Use of our report Use of a body, as members, the Company’s solely is made to report This 2006. Act the Companies 16 of Part 3 of with Chapter in accordance the to state might we so that been undertaken has Our audit work them to state to required are we those matters members Company’s extent the fullest To purpose. no other and for report in an auditor’s anyone to responsibility or assume accept do not we law, by permitted a body, as members and the Company’s than the Company other formed. have the opinions we or for this report, for work, our audit for Andy Smyth auditor) (Senior statutory Auditor Statutory LLP, & Young Ernst and on behalf of for London 2019 9 October Notes: 1. 2. Other matters we are required to address to required are we Other matters > > > > We assessed the susceptibility of the Group’s financial statements statements financial the Group’s of assessed the susceptibility We occur by might fraud including how misstatement, material to it considered where understand to with management meeting on efforts influence to and their propensity targets performance the considered earnings. We manage to management by made established has which the Group the controls and programmes and deter prevent, otherwise or that identified risks address to these monitors senior management and how fraud detect controls. and programmes designed our audit procedures we Based on this understanding and regulations. identify non-compliance with such laws to which is recognition, on revenue focused were Our procedures testing. and journal entry audit matters, discussed in our key We obtained an understanding of the legal and regulatory the legal and regulatory of an understanding obtained We and determined the Group applicable to are that frameworks the reporting to relate those that significant are the most that 2006 and UK Corporate Act the Companies (IFRS, framework compliance regulations tax Code) and the relevant Governance no are There operates. in the jurisdictions in which the Group we that or regulations specific laws significant industry our approach. in determining considered those plc is complying with Group Volution how understood We audit, internal making enquiries with management, by frameworks and the legal and compliance procedures for those responsible our enquiries through corroborated We Secretary. Company the Audit to provided and papers minutes Board of our review the top from included the tone Our assessment Committee. behaviour. and ethical honest of on a culture and the emphasis > > > > > > The objectives of our audit, in respect to fraud, are: to identify and identify and to are: fraud, to our audit, in respect of objectives The the financial statements of misstatement material of assess the risks regarding audit evidence appropriate sufficient obtain to fraud; due to through fraud, to due misstatement material of the assessed risks respond to and responses; appropriate designing and implementing the audit. during identified fraud or suspected fraud to appropriately and detection the prevention for the primary responsibility However, the entity of with governance those charged with both rests fraud of and management. follows: as was Our approach > > Explanation as to what extent the audit was was the audit extent what as to Explanation irregularities, capable detecting considered of including fraud Our objectives are to obtain reasonable assurance about whether about whether assurance reasonable obtain to are Our objectives misstatement, material from free as a whole are statements the financial that report an auditor’s issue and to or error, fraud due to whether assurance of level is a high assurance includes our opinion. Reasonable with in accordance an audit conducted that a guarantee but is not when it exists. misstatement a material detect (UK) will always ISAs considered and are or error fraud can arise from Misstatements be could reasonably they or in the aggregate, individually if, material on the users taken economic decisions of the influence to expected these financial statements. of basis Annual Report 2019 Report Annual the of the audit for responsibilities Auditor’s financial statements Financial Statements Volution Group plc
Consolidated Statement of Comprehensive Income For the year ended 31 July 2019
2019 2018 Notes £000 £000 Revenue from contracts with customers 3 235,698 205,676 Cost of sales (124,619) (109,053)
Gross profit 111,079 96,623 Administrative and distribution expenses (84,616) (74,193)
Operating profit before exceptional items 26,463 22,430 Exceptional operating costs 5 (1,801) (6,417) Release of contingent consideration 5 — 1,502
Operating profit 24,662 17,515 Finance revenue 6 621 852 Finance costs 6 (2,143) (1,630)
Profit before tax 23,140 16,737 Income tax 10 (4,913) (3,414)
Profit for the year 18,227 13,323 Other comprehensive income/(expense) Items that may subsequently be reclassified to profit or loss: Exchange differences arising on translation of foreign operations 2,303 (2,075) (Loss)/gain on hedge of net investment in foreign operations (303) 1,691
Other comprehensive income/(expense) for the year 2,000 (384) Total comprehensive income for the year 20,227 12,939 Earnings per share Basic earnings per share 11 9.2p 6.7p Diluted earnings per share 11 9.2p 6.7p
102 Financial Statements
— — — 103 302 2018 £000 (384) 1,507 1,836 (1,144) (1,410) 11,527 22,611 (1,962) 2,000 18,221 (1,004) 30,136 87,532 38,873 93,855 56,450 (17,500) 112,682 104,124 (48,103) 165,213 165,213 239,417 (45,689) (94,605) (161,736) (113,633) 326,949
907 430 2019 (318) (279) £000 (384) 1,745 3,507 (1,501) 2,000 11,527 11,547 (1,398) (7,529) 95,126 42,199 (2,030) 23,758 118,183 (16,019) 35,585 93,855 65,505 90,668 (48,331) 176,109 176,109 (85,391) 327,735 (38,807) 237,067 (151,626) (103,295)
3 3 17 12 14 21 13 19 18 24 24 25 25 22 22 23 26 20 Notes Andy O’Brien Financial Officer Chief Intangible assets – others Treasury shares Treasury Property, plant and equipment and plant Property, Inventories Trade and other payablesTrade Share capital Share Trade and other receivables other and Trade Interest-bearing loans and borrowings and loans Interest-bearing Income tax Income Provisions Capital and reserves Non-current liabilities Non-current The consolidated financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors Directors of the Board by approved were 09041571) number: plc (registered Group Volution of financial statements consolidated The 2019. 9 October issue on and authorised for the Board On behalf of
Current assets Refund liabilitiesRefund Share premium Share Retained earnings Retained Provisions Non-current assets Annual Report 2019 Report Annual Position Financial of Statement Consolidated 2019 31 July At George Ronnie Officer Executive Chief
Total equity Capital reserve Capital Current liabilities Current Other financial assets Net assets
Cash and short-term deposits short-term and Cash Share-based payment reserve Share-based payment Intangible assets – goodwill liabilities Total Foreign currency translation reserve translation currency Foreign Other financial liabilities financial Other Deferred tax liabilities Right assets return of Total assets Total Other financial liabilities financial Other Financial Statements Volution Group plc
Consolidated Statement of Changes in Equity For the year ended 31 July 2019
Foreign Share-based currency Share Share Treasury Capital payment translation Retained capital premium shares reserve reserve reserve earnings Total £000 £000 £000 £000 £000 £000 £000 £000 At 1 August 2017 2,000 11,527 (2,027) 93,855 1,289 1,891 51,598 160,133 Profit for the year — — — — — — 13,323 13,323 Other comprehensive expense — — — — — (384) — (384) Total comprehensive income — — — — — (384) 13,323 12,939 Share-based payment including tax — — 65 — 547 — — 612 Dividends paid — — — — — — (8,471) (8,471)
At 31 July 2018 2,000 11,527 (1,962) 93,855 1,836 1,507 56,450 165,213 Profit for the year — — — — — — 18,227 18,227 Other comprehensive expense — — — — — 2,000 — 2,000 Total comprehensive income — — — — — 2,000 18,227 20,227 Purchase of own shares — — (1,199) — — — — (1,199) Vesting of shares — — 1,131 — (1,043) — (88) — Share-based payment including tax — — — — 952 — — 952 Dividends paid — — — — — — (9,084) (9,084)
At 31 July 2019 2,000 11,527 (2,030) 93,855 1,745 3,507 65,505 176,109
Treasury shares The treasury shares reserve represents the cost of shares in Volution Group plc purchased in the market and held by the Volution Employee Benefit Trust to satisfy obligations under the Group’s share incentive schemes.
Capital reserve The capital reserve is the difference in share capital and reserves arising from the use of the pooling of interest method for preparation of the financial statements in 2014. This is a non-distributable reserve.
Share-based payment reserve The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key management personnel, as part of their remuneration. Refer to note 32 for further detail of these plans.
Foreign currency translation reserve Exchange differences arising on translation of the Group’s foreign subsidiaries into GBP are included in the foreign currency translation reserve. The Group hedges some of its exposure to its net investment in foreign operations; foreign exchange gains and losses relating to the effective portion of the net investment hedge are accounted for by entries made to other comprehensive income. No hedge ineffectiveness has been recognised in the statement of comprehensive income for any of the periods presented.
Retained earnings The parent company of the Group, Volution Group plc, had distributable retained earnings at 31 July 2019 of £82,335,000 (2018: £72,214,000).
104 Financial Statements
14 — 218 105 475 256 887 320 (127) 2018 2018 (616) (852) (954) £000 (843) (905) 1,104 1,310 6,417 3,414 3,031 (8,471) 3,849 (2,193) (1,502) (1,898) 18,221 (4,952) (4,635) (3,956) (5,368) 13,323 14,499 15,605 25,337 25,760 34,668 (47,248) (67,869) 103,474 (40,985)
— — — 16 10 (76) 221 218 150 895 2019 (621) (180) £000 1,801 2,143 4,913 3,272 (1,199) (1,913) (8,417) 41,182 11,547 (4,180) (1,955) (1,836) (1,486) 18,221 (2,756) (5,422) 18,227 (6,824) 17,500 (9,084) (3,900) 16,594 31,860 (14,199) (24,485) (29,609)
5 6 6 6 12 12 14 14 16 20 Notes Cash and cash equivalents at the end the of year Net (decrease)/increase in cash and cash equivalents cash and in (decrease)/increase Net Overseas income tax paid tax income Overseas Purchase of property, plant and equipment and plant property, of Purchase Exceptional write off unamortised of loan issue costs upon refinancing Amortisation intangible of assets Acquisition of subsidiaries, net of cash acquired cash of net subsidiaries, of Acquisition Depreciation of property, plant and equipment and plant property, of Depreciation UK income tax paid Interest received Interest Profit for the for Profit year after tax tax Income Interest paid Interest Repayment of interest-bearing loans and borrowings and loans interest-bearing of Repayment Decrease in trade receivables and other assets Payments acquire to intangible assets Net cash flow (used in)/generated from financing activities financing from in)/generated (used flow cash Net Effect of exchangeEffect of on cash rates and cash equivalents activities Operating Annual Report 2019 Report Annual Flows Cash of Statement Consolidated 2019 ended 31 July the year For Proceeds from new borrowings borrowings new from Proceeds Net cash flow generated from operating activities Exceptional items: fair value inventories of (Decrease)/increase in trade and other payables Working capital adjustments: capital Working inventories in Increase Purchase own shares of Cash and cash equivalents the at start the of year Financing activities Financing Release of contingent consideration contingent of Release revenue Finance Finance costs Finance expense Share-based payment Issue costs new of borrowings Cash flows relating to exceptional items exceptional to relating flows Cash Proceeds from disposal of property, plant and equipment and plant property, of disposal from Proceeds Exceptional items Exceptional Cash generated by operations by generated Cash Movement in provisions in Movement Adjustments reconcile to profit for the year net to cash flow from operating activities: Volution Group plc (the Company) is a public limited company and is incorporated and domiciled in the UK (registered number: 09041571). 09041571). number: and domiciled in the UK (registered and is incorporated company is a public limited Company) plc (the Group Volution Crawley, is Fleming Way, office registered its of address The Exchange. Stock on the London is listed the Company capital of share The RH10 9YX. Sussex West Investing activities Investing Dividends paid Dividends Net cash flow used in investing activities (Gain)/loss on disposal property, of plant and equipment Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements For the year ended 31 July 2019
1. Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies under the relevant notes.
The preparation of the consolidated financial information in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise judgement in the process of applying the Group’s accounting policies. Accounting policies, including critical accounting judgements and estimates used in the preparation of the financial statements, are described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and all values are rounded to the nearest thousand (£000), 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 Group’s Strategic Report on page 29 shows the Directors’ assessment of the Group’s ability to continue as a going concern. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence in the foreseeable future, for the period not less than twelve months from the date of this report.
In December 2018, the Group exercised the option to extend its multicurrency revolving credit facility by a period of twelve months at a cost of £0.2 million; the maturity date is now 15 December 2022.
Foreign currencies The individual financial statements of each subsidiary are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the Group financial statements, the results and financial position of each entity are expressed in GBP (£000), which is the functional currency of the Company and the presentational currency of the Group.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rate of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rate prevailing at the end of the reporting period.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date the fair value was determined.
For the purpose of presenting consolidated financial information, the assets and liabilities of the Group’s foreign operations are expressed in GBP using exchange rates prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rate for the period. Exchange differences arising are classified as other comprehensive income and are transferred to the foreign currency translation reserve. All other translation differences are taken to profit and loss with the exception of differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against Group equity investments in foreign operations, in which case they are taken to other comprehensive income together with the exchange difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The significant judgements, estimates and assumptions made in these financial statements relate to: Exceptional items (note 5), Intangible assets – goodwill (note 13), Intangible assets – other (note 14), Impairment assessment of goodwill (note 15) and Refund liabilities arising from retrospective volume rebates (note 3).
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are described under the relevant notes.
The Group based its assumptions and estimates on parameters available when these financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
106 Financial Statements
— 107 430 660 1,090 1,090 6,854 (5,764) Increase/ (decrease)
a) a) a) a) a) Reference Right assets return of receivables other and Trade Trade and other payablesTrade Total Refund liabilitiesRefund Retained earnings Retained Set out below are the amounts by which each financial statement line item is affected as at and for the year ended 31 July 2019 as a result a result as ended 31 July 2019 the year and for at as is affected line item financial statement which each by the amounts are out below Set and financing cash investing operating, on OCI or the Group’s impact any have IFRS 15 did not of adoption IFRS 15. The of adoption of the been had have would the amounts what under IFRS 15 and the second column shows prepared amounts shows column first The flows. been adopted. IFRS 15 not Assets New standards and interpretations and interpretations standards New ended 31 July 2019. in the year time the first for been effective and have or amended new are and interpretations standards following The IFRS 9 Financial Instruments and Measurement. Recognition Instruments: 39 Financial IAS and replaces 2014 issued in July was IFRS 9 Financial Instruments the comparative restated not has Group The 2018. 1 August of date with an initial application IFRS 9 prospectively, applied Group The no therefore material not IFRS 9 were of the adoption arising from Differences 39. under IAS be reported to which continues information, equity. of components earnings or other retained opening to been made has adjustment an from away moving in the Group resulted has which financial assets, of impairment for the accounting to changes introduced IFRS 9 has the calculates in which the Group the way impacted has standard revised model. The loss (ECL) credit an expected loss model to incurred receivables. and other 18, Trade in note can be found information detailed material, is not the impact however ECL, at as and receivables loans as classified receivables Trade receivables. Trade the Group’s of the classification alsoIFRS 9 has impacted and interest. principal of solely payments representing cash rise flows to and give cash flows collect contractual held to are 31 July 2018 2018. beginning 1 August amortised cost at instruments debt as and measured classified These are financial statements. consolidated Group’s on the impact material a had not IFRS 9 has of adoption The with Customers Contracts from IFRS 15 Revenue to exceptions, and it applies, with limited Interpretations and related 18 Revenue IAS Contracts, Construction 11 IFRS 15 supersedes IAS with contracts arising from revenue for account model to a five-step IFRS 15 establishes with customers. contracts arising from all revenue in be entitled to expects which an entity to the consideration reflects that an amount at be recognised revenue that and requires customers goods or services a customer. to transferring for exchange each when applying and circumstances facts the relevant all of consideration into taking judgement, exercise to entities IFRS 15 requires a obtaining of costs the incremental for also specifies the accounting standard The with their customers. contracts the model to of step disclosures. extensive requires the standard In addition, a contract. fulfilling to related directly and the costs contract 2018. 1 August of initial application of with the date adoption of method the modified retrospective IFRS 15 using adopted Group The not are that contracts or only to initial application of the date at can all contracts be applied either to the standard Under this method, 2018. 1 August at as completed not are that contracts only to apply the standard to elected Group The this date. at completed the opening balance to an adjustment as initial application of the date at initially applying IFRS 15 is recognised of effect cumulative The not was information the comparative Therefore, been made. has no adjustment material not was the effect as earnings, however of retained Interpretations. 18 and related IAS 11, under IAS be reported to and continues restated follows: as was 2018 1 August at IFRS 15 as adopting of effect The Annual Report 2019 Report Annual continued preparation 1. Basis of Total Liabilities Total adjustments on equity on adjustments Total Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
1. Basis of preparation continued New standards and interpretations continued IFRS 15 Revenue from Contracts with Customers continued Amounts prepared under Increase/ IFRS 15 Previous IFRS (decrease) Reference £000 £000 £000 Sale of goods b) 233,612 231,332 2,280 Installation services b) 2,086 4,366 (2,280)
Total revenue from contracts with customers 235,698 235,698 —
Consolidated statement of financial position as at 31 July 2019: Amounts prepared under Increase/ IFRS 15 Previous IFRS (decrease) Reference £000 £000 £000 Current assets Right of return assets a) 430 — 430 Trade and other receivables a) 42,199 41,582 617
Total current assets 90,668 89,621 1,047 Current liabilities Refund liabilities a) 7,529 — 7,529 Trade and other payables a) 38,807 45,289 (6,482)
Total current liabilities 48,331 47,284 1,047 Net assets 176,109 176,109 — Total equity 176,109 176,109 —
(a) Sale of equipment with variable consideration Some contracts for the sale of equipment provide customers with a right of return and volume rebates. Before adopting IFRS 15, the Group recognised revenue from the sale of goods measured at the fair value of the consideration received or receivable net of volume rebates. If revenue could not be reliably measured, the Group deferred recognition of revenue until the uncertainty was resolved. Under IFRS 15, rights of return and volume rebates give rise to variable consideration.
Rights of return When a contract provides a customer with a right to return the goods within a specified period, the Group previously estimated expected returns using a probability-weighted average amount approach similar to the expected value method under IFRS 15. Before the adoption of IFRS 15, the gross margin impact related to the expected returns was deferred and recognised in the statement of financial position within trade and other payables with a corresponding adjustment to cost of sales. No adjustment was made to inventories to account for the potential return assets. Under IFRS 15, the consideration received from the customer is variable because the contract allows the customer to return the products. The Group used the expected value method to estimate the goods that will not be returned. For goods expected to be returned, the Group presented revenue net of the expected returns with a corresponding adjustment to cost of sales, a refund liability and an asset for the right to recover products from a customer separately in the statement of financial position.
Upon adoption of IFRS 15, the Group reclassified provisions of £660,000, which were previously offset against trade and other receivables to refund liabilities as at 1 August 2018. In addition, the remeasurement resulted in additional refund liabilities of £430,000 and right of return assets of £430,000 as at 1 August 2019.
As at 31 July 2019, IFRS 15 increased right of return assets, trade and other receivables and refund liabilities by £430,000, £617,000 and £1,047,000 respectively.
Volume rebates Before adoption of IFRS 15, the Group estimated the expected volume rebates using the probability-weighted average amount of rebates approach and included an allowance for rebates in trade and other payables.
Under IFRS 15, retrospective volume rebates give rise to variable consideration. To estimate the variable consideration to which it will be entitled, the Group applied the “expected value method” for contracts with more than one volume threshold. Upon adoption of IFRS 15, the Group recognised refund liabilities of £5,764,000 for the expected future rebates payable as at 1 August 2018 and removed the corresponding provision previously included in trade and other payables.
As at 31 July 2019, IFRS 15 increased refund liabilities by £6,482,000 and decreased trade and other payables by a corresponding amount.
108 Financial Statements 109 ROU asset – as if IFRS 16 had always been applied (but using the incremental borrowing rate, applicable to the lease, at the date the date at applicable the lease, to rate, borrowing been applied (but using the incremental always if IFRS 16 had – as asset ROU of initial application). the date at the lease, applicable to rate, borrowing using the incremental lease payments remaining of value – present liability Lease initial application. of > > “grandfather”, our previous assessment of which existing contracts are, or contain, leases; and or contain, are, contracts which existing of assessment our previous “grandfather”, the related recognise to will continue which we leases, for or low-value short-term model to lessee accounting applying the new not the lease. over line basis on a straight an expense as lease payments leases: operating as classified leases currently For > > > > > continued and interpretations standards New continued with Customers Contracts from IFRS 15 Revenue services and installation equipment Bundled sales of (b) within deliverables service non-separable as and installation the equipment for accounted IFRS 15, the Group of the adoption Before services. of rendering from revenue as generated revenue bundled sales and disclosed the total and installation equipment bundled sales of for in a contract obligations performance two were there assessed that Under IFRS 15, the Group and the the equipment selling prices for stand-alone on their relative price based the transaction of a re-allocation services performed and services. installation to allocated the amount services, which decreased the installation for approach plus margin cost revenue and decreased £2,280,000 goods by the sale of from revenue 15 increased IFRS of the adoption ended 31 July 2019 the year For amount. a corresponding services by installation from these financial statements. of the date after date an effective have and interpretations standards following The IFRS 16 Leases periods beginning on or after accounting for is effective standard The 17 Leases. IAS replace to issued in January 2017 was IFRS 16 Leases 2019. on 1 August the Group by and will be adopted 1 January 2019 leases and finance leases operating between the distinction as sheet on the balance all leases being recognised in almost IFRS 16 will result recognised. are lease payments the future a financial liability for and asset a right-of-use standard, Under the new is removed. the some of will adopt We approach. transition and will apply the modified retrospective 2019 1 August from will apply the standard Group The which are: expedients practical available > > will recognise we Instead, information. comparative restate not will we approach, When applying IFRS 16 using the modified retrospective Under the 2019. 1 August initial application, of the date equity at to an adjustment as initially applying the standard of effect the cumulative follows: liability as and the lease asset (ROU) the right-of-use will recognise we approach modified retrospective > IFRS 16 Leases of adoption Impact of financial position of Statement million and lease £22.9 million to £17.6 of in the range lease asset a right-of-use will recognise the Group 2019, on 1 August Upon transition £2.5 £21.2 million; current million (non-current £23.7 million) to £1.9 million; current £17.2 (non-current million £19.1 of liabilities in the range A transition be material. to expected arising, although this is not difference the temporary due to tax on deferred is an impact million), there capitalise low-value will not Group earnings. The retained a debit to as million will be recognised £0.8 £1.5 million to of in the range adjustment property. of consists principally asset right-of-use The 31 July 2020. before or those which expire leases on transition, income comprehensive of Statement lease 17 operating the IAS as income, comprehensive of within the statement expense of pattern will see a different Under IFRS 16 the Group an estimated by will improve EBITDA the Group’s 31 July 2020 to In the financial year charges. and interest depreciation by is replaced expense tax before profit on the Group’s impact a negative have expense with the depreciation together finance costs the new million. However, £2.9 million lower. £0.1 million to £0.3 of in the range earnings are the underlying such that cash of flows Statement activities, operating from generated in cash flows IFRS 16 will see an improvement of the adoption of a result as change in presentation The of the adoption from impact cash flow is no overall There financing activities. from generated decline in cash flow a corresponding by offset standard. the new assets net on the Group’s impact a material have to expected not are effective, yet but not in issue, or interpretations standards Other new or results. Annual Report 2019 Report Annual continued preparation 1. Basis of Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
2. Adjusted earnings The Board and key management personnel use some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating profit and adjusted profit before tax. These measures are deemed more appropriate as they remove income and expenditure which is not directly related to the ongoing trading of the business. Such alternative performance measures are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies. Likewise, these measures are not a substitute for IFRS measures of profit. A reconciliation of these measures of performance to the corresponding reported figure is shown below.
2019 2018 £000 £000 Profit after tax 18,227 13,323 Add back: Exceptional operating costs (note 5) 1,801 6,417 CFO succession costs 150 — Reversal of contingent consideration (note 5) — (1,502) Net gain on financial instruments at fair value (605) (838) Exceptional write off of unamortised loan issue costs upon refinance (note 6) — 320 Amortisation and impairment of intangible assets acquired through business combinations 15,439 14,670 Tax effect of the above (3,354) (3,598)
Adjusted profit after tax 31,658 28,792 Add back: Adjusted tax charge 8,267 7,012
Adjusted profit before tax 39,925 35,804 Add back: Interest payable on bank loans and amortisation of financing costs 2,143 1,310 Finance revenue (16) (14)
Adjusted operating profit 42,052 37,100 Add back: Depreciation of property, plant and equipment 3,272 3,031 Amortisation of development costs, software and patents 1,155 935
Adjusted EBITDA 46,479 41,066
For definitions of terms referred to above see note 34, Glossary of terms.
110 Financial Statements 111 Accounting policy Accounting an at customer the to goods or services is transferred of when the control recognised is with customers contracts from Revenue those goods and services. for in exchange be entitled to expects which the Group to the consideration reflects that amount products ventilation Sale of the buyer, to is transferred the asset of in time when control the point at is recognised products ventilation the sale of from Revenue the goods. of usually on the delivery which a portion to obligations performance separate are that in the contract promises other are there whether considers Group The the sale price for the transaction In determining rebates). and volume warranties (e.g. be allocated to price needs transaction of the (if any). consideration variable of the effects considers the Group products, of ventilation rebates Volume the period during purchased products of once the quantity certain customers to rebates volume retrospective provides Group The applies the Group rebates, future the expected for consideration the variable estimate To in the contract. specified a threshold exceeds on constraining then applies the requirements Group The threshold. than one volume with more contracts for method value the expected rebates. future the expected a liability for and recognises consideration variable of estimates variable of the amount whether considers the Group price, in the transaction consideration variable of amount including any Before than with other constrained, not are consideration variable of the estimates that determined Group The is constrained. consideration the economic conditions. In addition, and the current business forecast experience, historical on its based rebates, volume to respect within a short timeframe. will be resolved consideration the variable on uncertainty obligations Warranty warranties assurance-type These sale. of the time at existed that defects of repairs general for warranties typically provides Group The policy on warranty the accounting to Refer Assets. Liabilities and Contingent Contingent Provisions, 37 under IAS for accounted are Provisions. 24, in note provisions services Installation a customer. to equipment with the sale of bundled together are services that installation provides Group The because obligations the promises performance two comprised of services are and installation equipment bundled sales of for Contracts the Group Accordingly, identifiable. and separately being distinct capable of services are installation and provide equipment transfer to for approach plus margin and the cost the equipment selling prices of stand-alone on the relative price based the transaction allocates services. installation this is because installation the service been performed; has in time after a point services at installation from revenue recognises Group The a at is recognised equipment the ventilation the sale of from Revenue a small timeframe. over is generally equipment the ventilation of the equipment. of upon delivery generally in time, point balances Contract assets Contract is asset A contract the customer. to goods and services transferred for in exchange consideration to is the right asset A contract is no contract There consideration. pays the customer before the customer goods or services to transfers when the Group recognised is Consideration installation. after in time, a point at is recognised revenue position as financial of included within the statement asset is consideration of payment before time is required of the passage and is unconditional (only a receivable as immediately recognised 18. in note is detailed receivables policy on trade accounting Group’s due). The liabilities Contract ending 31 July 2019. period or in the financial year in the comparative liabilities recognised no contract are There Annual Report 2019 Report Annual customers with contracts from 3. Revenue Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
3. Revenue from contracts with customers continued Revenue recognised in the statement of comprehensive income is analysed below:
2019 2018 £000 £000 Sale of goods 233,612 200,665 Installation services 2,086 5,011
Total revenue from contracts with customers 235,698 205,676
2019 2018 Market sectors £000 £000 Ventilation Group UK Residential RMI 39,356 38,166 UK New Build Residential Systems 27,795 25,604 UK Commercial 34,856 33,474 UK Export 9,924 12,510 Nordics 46,995 36,692 Central Europe 30,990 28,466 Australasia 22,176 8,182
Total Ventilation Group 212,092 183,094
Original Equipment Manufacturer (Torin-Sifan) OEM (Torin-Sifan) 23,606 22,582
Total revenue from contracts with customers 235,698 205,676
2019 2018 Right of return assets and refund liabilities £000 £000 Right of return assets 430 — Refund liabilities Arising from retrospective volume rebates 6,482 — Arising from rights of return 1,047 —
7,529 —
112 Financial Statements
— 113 (150) £000 (1,801) (1,522) (4,427) 23,140 46,479 111,079 24,662 42,052 (15,439) 235,698 235,698 Consolidated
— — — — — — — — — — — £000 (23,907) (23,907) Eliminations
Total (150) £000 (1,801) (1,522) (4,427) 23,140 23,907 46,479 111,079 24,662 42,052 (15,439) 235,698 259,605
— — — — — — (150) (597) £000 (1,522) (4,322) (2,053) (2,650) (2,800) Unallocated
— — — OEM £000 (662) 1,851 1,851 3,871 1,625 3,209 6,088 (1,358) 25,231 23,606
— — £000 Group (1,801) (3,168) 25,611 25,611 41,493 44,661 22,282 (14,081) 104,991 212,092 234,374 Ventilation
Accounting policy Accounting the by reviewed is regularly that information reporting management on internal is based segments identifying reporting of method The the Group. of Officer Executive Chief be the to is considered which decision maker, operating chief Nordics, UK, Ventilation Ventilation These are sectors. market the Group’s follows management segments, operating In identifying its services have ventilation provide that segments Operating and OEM (Torin-Sifan). Australasia Ventilation Europe, Central Ventilation In addition, the segments. of margins the gross to reference assessed by similar economic characteristics, have they as been aggregated distribution for method customer, type of processes, services and production products, of nature the to similar in relation are the segments and OEM (Torin-Sifan). Group Ventilation segments: reportable two have to is considered Group The environment. and regulatory operating each for revenue is total performance assess to decision maker operating the chief to reported revenue of measure The profit operating is adjusted assess performance to maker decision operating the chief to reported profit of measure segment. The voluntary is additional profit segment below and the analysis profit segment. Gross operating each for definition) 34 for (see note with IFRS 8. in accordance prepared information” “segment and not information on a managed are the underlying instruments as segments individual operating to allocated not are and costs Finance revenue Group basis. decision operating the chief to segment operating by provided is not disclosed this information as not and liabilities are assets Total basis. on a regular maker parties. with third transactions similar to on terms length basis on an arm’s are segments operating prices between Transfer Net finance cost finance Net Total revenue from contractsTotal with customers External customers External Adjusted segment EBITDA Results Unallocated expenses Unallocated Depreciation and amortisation of of amortisation and Depreciation development costs, software and patents Adjusted operating profit/(loss) Amortisation intangible of assets acquired combinations business through Year endedYear 31 July 2019 contracts from Revenue with customers Annual Report 2019 Report Annual 4. Segmental analysis Profit/(loss) before tax Exceptional items Exceptional CFO succession costs CFO Operating profit/(loss) Inter-segment Gross profit Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
4. Segmental analysis continued Ventilation Group OEM Unallocated Total Eliminations Consolidated Year ended 31 July 2018 £000 £000 £000 £000 £000 £000 Revenue External customers 183,094 22,582 — 205,676 — 205,676 Inter-segment 19,332 1,403 — 20,735 (20,735) —
Total revenue 202,426 23,985 — 226,411 (20,735) 205,676 Gross profit 89,741 6,882 — 96,623 — 96,623 Results Adjusted segment EBITDA 38,168 4,454 (1,556) 41,066 — 41,066 Depreciation and amortisation of development costs, software and patents (2,814) (607) (545) (3,966) — (3,966)
Adjusted operating profit/(loss) 35,354 3,847 (2,101) 37,100 — 37,100 Amortisation of intangible assets acquired through business combinations (13,312) (1,358) — (14,670) — (14,670) Exceptional items (4,915) — — (4,915) — (4,915)
Operating profit/(loss) 17,127 2,489 (2,101) 17,515 — 17,515 Unallocated expenses Net finance cost — — (458) (458) — (458) Exceptional write off of unamortised loan issue costs upon refinancing of our bank facility — — (320) (320) — (320)
Profit/(loss) before tax 17,127 2,489 (2,879) 16,737 — 16,737
Geographic information 2019 2018 Revenue from external customers by customer destination £000 £000 United Kingdom 114,017 108,133 Europe (excluding United Kingdom and Sweden) 71,912 59,239 Sweden 22,929 26,003 Australasia 22,375 8,906 Rest of the world 4,465 3,395
Total revenue from contracts with customers 235,698 205,676
2019 2018 Non-current assets excluding deferred tax £000 £000 United Kingdom 158,611 142,859 Europe (excluding United Kingdom and Nordics) 13,578 26,698 Nordics 26,028 33,227 Australasia 38,850 36,633
Total 237,067 239,417
Information about major customers Annual revenue from no individual customer accounts for more than 10% of Group revenue in either the current or prior year.
114 Financial Statements 76 85 121 115 153 627 359 2018 2018 2018 2018 (832) 1,451 £000 £000 1,015 6,417 4,915 2,530 4,966 4,966 4,083 (1,502) — — — — — 89 45 301 820 546 2019 2019 (375) £000 £000 1,801 1,801 1,426 1,255 1,255 Accounting policy Accounting the underlying of understanding a better allow or incidence to size their nature, virtue of by items discloses exceptional Group The and acquisition costs, significant restructuring to, limited not but are include, items Exceptional the Group. of performance trading gains or losses on disposal and material acquisitions of a result as adjustments value fair and earn-out costs, integration related and equipment. plant of property, uncertainty estimation of sources judgements and key Critical accounting rise giving the underlying event judgement, when, in management’s exceptional as or income expense of an item identifies Group The without be distorted would results Group or incidence such that size nature, in its be non-recurring is deemed to item the exceptional to is disclosed impact tax the be understood, to item an exceptional of enable the full impact To in question. the event to specific reference cash flows. of in the statement separately and it is presented Stock write off Total tax relating exceptional to itemsTotal the for year Project manager Project Start-up costs include costs and production variances incurred as a result of the disruption during the transition period when machinery, period when machinery, during the transition the disruption of a result as incurred variances and production include costs costs Start-up efficiently. operating not therefore and were factory the new to relocating of in the process and people were inventory for payable period and fees transition during the minimise disruption to consultants to paid fees include fees and professional Legal rationalisation. and management re-organisation the wider to in relation advice professional machinery, whilst facility warehousing and a temporary factories three operating of a result as costs include the duplicate Dual running costs factory. the single new to facilities existing the two from moving and people were inventories Dual running costs Acquisition-related costs, including inventory fair value adjustments value fair costs, including inventory Acquisition-related of the acquisition for consideration contingent and £316,000 £230,000 totalled acquisitions of in respect incurred fees Professional of in respect incurred fees other £835,000; totalled in the prior year acquisitions of in respect incurred fees Professional Ab. Oy Pamon £616,000. totalled in the prior year acquisitions costs relocation including factory re-organisation UK Ventilation our manufacturing some of of the rationalising to which related project, relocation a factory of the cost reported previously have We Slough and Lasham. Reading, are locations UK manufacturing affected The exceptional. as capacity in the UK and commenced in 2017, our of rationalisation and management be a wider re-organisation to project relocation the factory extended we During FY2018 business. UK Ventilation follows: is as the costs of A breakdown
Total Reversal of contingent consideration consideration contingent of Reversal Fixed asset write off closure and clearance Site
fees professional and Legal Exceptional items Exceptional adjustments value fair inventory including costs, Acquisition-related Annual Report 2019 Report Annual items 5. Exceptional UK Ventilation re-organisation including factory relocation costs relocation factory including re-organisation UK Ventilation Start-up costs Redundancy-related costs Redundancy-related Exceptional operating costs operating Exceptional Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
5. Exceptional items continued Reversal of contingent consideration During the year reversal of contingent consideration was £nil (2018: £1.5 million).
It was deemed that the items allowable for or chargeable to tax were approximately £1,729,000 (2018: £4,378,000), with a tax benefit of £375,000 (2018: £832,000).
6. Finance revenue and costs
Accounting policy Finance revenue Finance revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that discounts estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
Net financing costs Net financing costs comprise interest income on funds invested, gains/losses on the disposal of financial instruments, changes in the fair value of financial instruments, interest expense on borrowings and foreign exchange gains/losses. Interest income and expense is recognised as it accrues in the statement of comprehensive income using the effective interest method.
2019 2018 £000 £000 Finance revenue Net gain on financial instruments at fair value 605 838 Interest receivable 16 14
Total finance revenue 621 852 Finance costs Interest payable on bank loans (1,875) (1,017) Amortisation of finance costs (230) (236) Exceptional write off of unamortised loan issue costs upon refinancing of our bank facility — (320) Other interest (38) (57)
Total interest expense (2,143) (1,630) Total finance costs (2,143) (1,630) Net finance costs (1,522) (778)
The net loss or gain on financial instruments at each year-end date relates to the measurement of fair value of the financial derivatives and the Group recognises any finance losses or gains immediately within net finance costs. The fair value of the Group’s financial derivatives can be found in note 19.
116 Financial Statements
87 52 117 475 754 845 863 2018 2018 2018 2018 2018 1,617 £000 £000 1,810 1,423 5,846 54,391 Number 46,260
91 54 793 895 939 886 2019 2019 2019 £000 £000 1,561 1,679 2,302 5,820 52,191 Number 61,208 Accounting policy Accounting Pensions become income in the period they comprehensive of in the statement recognised schemes are contribution defined to Contributions the represents employees pensions for retirement providing income of comprehensive of the statement to charged cost The payable. period. in the financial the Group by pension schemes operated contribution defined various to the Group by paid amounts Sales and administration and Sales The number of Directors accruing benefits under Group money purchase pension arrangements was nil (2018: nil). nil (2018: was pension arrangements purchase money under Group benefits accruing Directors number of The Claire Hollingworth, Paul Reading, Hill, Tony Peter of in respect £336,000) (2018: £359,000 of and expenses fees also incurred Group The Directors. their services Non-Executive as for and Amanda Mellor Tiney Social security costs security Social Directors’ remuneration Directors’
Aggregate Directors’ remuneration Directors’ Aggregate remuneration Director’s Aggregate Amounts paid in respect qualifying of services Production Other pension costs relate to the Group’s contribution to defined contribution pension plans. Total contributions payable in the next financial financial in the next payable contributions pension plans. Total contribution defined to contribution the Group’s to relate Other pension costs in 2019/20. salary on actual levels based but those in 2018/19 similar to broadly rates be at to expected are year in the year employees number of monthly Average Staff costs Staff salaries and Wages Annual Report 2019 Report Annual costs Staff 7. Share-based payment charge (see note 32) note (see charge Share-based payment In respect the of highest paid Director Aggregate Directors’ pension scheme contributions scheme pension Directors’ Aggregate Other pension costs pension Other contributions scheme pension Director’s Aggregate Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
8. Other operating expenses
Accounting policy The Group’s research and development concentrates on the development of new products. Research and development costs that are not eligible for capitalisation have been expensed in the period incurred and are disclosed in the table below.
Cost of sales, distribution costs and administrative expenses include the following:
2019 2018 £000 £000 Cost of sales Costs of inventories recognised as expenses 121,050 106,449 Operating lease expense 2,094 1,371 Depreciation of property, plant and equipment 1,475 1,233
Administrative and distribution expenses Research and development costs 3,904 3,404 Depreciation of property, plant and equipment 1,797 1,798 Amortisation and impairment of intangible assets 16,594 15,605 Operating lease expense 1,909 1,786 Net foreign exchange differences (107) (102) (Gain)/loss on disposal of property, plant and equipment (76) 218
9. Auditor’s remuneration The Group paid the following amounts to its auditor, Ernst & Young LLP, and its member firms in respect of the audit of the financial statements and for other services provided to the Group:
2019 2018 £000 £000 Audit services Fees for the audit of the parent and Group financial statements 196 162 Fees for local statutory audits of subsidiaries 319 300 Non-audit services Fees payable for interim review 45 26
560 488
118 Financial Statements 1
26 119 (65) (26) 588 2018 2018 2018 2018 2018 380 (162) (162) (108) (108) (357) £000 £000 £000 (205) 3,414 3,414 3,180 (3,113) 6,527 2,948 3,605 (3,031) 16,737
(2) 60 (57) (57) (93) (115) (115) 892 309 2019 2019 2019 (153) £000 £000 £000 (244) (230) 7,738 4,913 4,913 3,286 4,396 4,605 (2,770) (2,825) 23,140
Accounting policy Accounting authorities. taxation the to, or payable from, be recovered to expected the amount at measured and liabilities are assets income tax Current date. reporting the at enacted are those that are the amount compute used to laws and tax rates tax The 26. in note can policy tax be found deferred Group’s The Current foreign income tax expense income foreign Current Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and the Finance Bill and the Finance Bill 2015) 26 October (on the Finance Bill 2015 part of as enacted substantively were rates tax the UK corporation Changes to 1 April 2020. 17% and to from 1 April 2017 19% from to the rate reduce to the main rate to These include reductions 2016). 7 September (on 2016 in these and reflected rates tax using these enacted been measured have date sheet the balance at UK taxes of in respect taxes Deferred financial statements. tax of jurisdictions tax with a higher rate subject to subsidiaries which are from profits the Group’s to relate rates tax higher overseas The subsidiary locations). 30 for note in the UK (see tax corporation of rate the standard to compared (a) Income tax charges against profit for the year for profit tax against Income (a) charges Adjustment in respect previous of years Other Higher overseas tax rate Total current tax current Total Current UK income tax expense Origination and reversal temporary of differences Expenses not deductible tax for purposes Profit before tax Increase in deferred tax asset on share-based payments Net tax credit reported in equity tax total of Reconciliation (c)
tax income Current Annual Report 2019 Report Annual tax Income 10. Effect of changesEffect of in the tax (see explanation rate below) Total deferred tax deferred Total Deferred tax Deferred Tax charge relating theTax prior to year Net tax charge reported in the consolidated statement of comprehensive income comprehensive of statement consolidated the in reported charge tax Net Profit before tax before Profit multiplied the by standard corporation of rate tax in the UK 19.00%of (2018: 19.00%) Non-taxable income income Non-taxable Patent box Tax credit relating the prior to Tax year Effect of changesEffect of in the tax rate (b) Income tax Income in equity the year (b) recognised for Net tax charge reported in the consolidated statement of comprehensive income comprehensive of statement consolidated the in reported charge tax Net Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
11. Earnings per share (EPS) Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are 551,467 dilutive potential ordinary shares at 31 July 2019 (2018: 413,555).
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2019 2018 Year ended 31 July £000 £000 Profit attributable to ordinary equity holders 18,227 13,323
Number Number Weighted average number of ordinary shares for basic earnings per share 198,386,893 198,847,087 Weighted average number of ordinary shares for diluted earnings per share 198,938,360 199,144,705
Earnings per share Basic 9.2p 6.7p Diluted 9.2p 6.7p
2019 2018 Year ended 31 July £000 £000 Adjusted profit attributable to ordinary equity holders 31,658 28,792
Number Number Weighted average number of ordinary shares for adjusted basic earnings per share 198,386,893 198,847,087 Weighted average number of ordinary shares for adjusted diluted earnings per share 198,938,360 199,144,705
Adjusted earnings per share Basic 16.0p 14.5p Diluted 15.9p 14.5p
The weighted average number of ordinary shares has declined as a result of treasury shares held by the Volution Employee Benefit Trust (EBT) during the year (see note 25 for details). 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 34, Glossary of terms, for an explanation of the adjusted basic and diluted earnings per share calculation.
120 Financial Statements
121 637 543 496 (517) Total (214) £000 (896) 4,180 3,272 (1,038) 10,822 37,238 23,758 13,480 33,433
421 418 520 (517) (214) (755) £000 (894) 4,131 1,824 2,501 9,803 5,404 6,430 11,834 Fixtures, equipment equipment and vehicles and fittings, tools, tools, fittings,
— — 73 122 164 (141) 968 (144) £000 1,481 7,235 3,478 4,378 11,613 9,990 Plant and and Plant machinery
5 — — — — — (47) 198 480 £000 3,213 3,698 13,791 13,640 10,093 Land and Land buildings 30–50 years 30–50 5–10 years 5–10 4–10 years 4–10 – – and machinery Plant Accounting policy Accounting includes the Such cost losses, if any. and impairment depreciation accumulated of net cost, at is stated and equipment plant Property, be to required are and equipment plant property, of when significant parts and equipment; plant the property, part of replacing of cost them accordingly. and depreciates lives with specific useful individual assets as parts such recognises the Group intervals, at replaced incurred. income as comprehensive of in the statement recognised are costs and maintenance repair All other using lives useful estimated their land, over freehold except assets, of or valuation the cost off write so to as is charged Depreciation end, with the year each at reviewed are methods and depreciation values residual lives, useful estimated The line method. the straight basis. on a prospective for accounted in estimates changes any of effect depreciation: of used in the calculation are lives useful following The – Buildings and vehicles equipment tools, fittings, Fixtures, The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between between the difference as is determined and equipment plant property, of an item of gain or loss arising on the disposalThe or retirement part income as comprehensive of in the statement and is recognised the asset and the carrying of amount the disposal proceeds 5. out in note set as items, deemed significant within exceptional is or if the amount expenses, of administrative 15. in note policy can be found impairment Group’s The Transfer to intangible assets intangible to Transfer Net foreign currency exchange differences exchange currency foreign Net At 1 AugustAt 2018 At 1 AugustAt 2018 At 31 July 31 At 2019 Additions Net foreign currency exchange differences exchange currency foreign Net Disposals Transfer to intangible assets intangible to Transfer Cost 2019 Annual Report 2019 Report Annual equipment and plant 12. Property, Disposals On acquisition On Charge the for year Net book value At 31 July 31 At 2019 Depreciation At 31 July 31 At 2019 Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2018
12. Property, plant and equipment continued Fixtures, fittings, tools, Land and Plant and equipment buildings machinery and vehicles Total 2018 £000 £000 £000 £000 Cost At 1 August 2017 13,764 8,377 7,579 29,720 On acquisition — 513 1,579 2,092 Additions 560 1,533 2,542 4,635 Disposals (561) (212) (1,589) (2,362) Net foreign currency exchange differences (123) (221) (308) (652) At 31 July 2018 13,640 9,990 9,803 33,433
Depreciation At 1 August 2017 3,156 3,067 3,907 10,130 Charge for the year 503 784 1,744 3,031 Disposals (399) (193) (1,296) (1,888) Net foreign currency exchange differences (47) (180) (224) (451)
At 31 July 2018 3,213 3,478 4,131 10,822
Net book value At 31 July 2018 10,427 6,512 5,672 22,611
13. Intangible assets – goodwill
Accounting policy Goodwill Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently if there is an indication of impairment. Impairment of goodwill is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying value of the cash generating unit to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Goodwill £000 Cost and net book value At 1 August 2017 81,584 On acquisition of Simx Limited 23,457 On acquisition of AirFan B.V. 289 On acquisition of Oy Pamon Ab 6,418 On acquisition of Air Connection ApS 1,956 Net foreign currency exchange differences (1,022) At 31 July 2018 112,682 On acquisition of Ventair Pty Limited 4,230 Net foreign currency exchange differences 1,271
At 31 July 2019 118,183
122 Financial Statements 123 10 years 5–10 years 5–10 5–15 years 5–15 15–25 years 15–25 5 years years 5–25 5 – – – – – Accounting policy Accounting in a business combination assets acquired Intangible satisfy they where goodwill from separately and recognised identified are combination in a business acquired assets Intangible value is their fair assets such intangible of cost The reliably. can be measured values and their fair asset an intangible of the definition date. acquisition at the is determined combination a business part of as and recognised acquired base customer and trademarks patents, of value fair The method. earnings excess or multi-period method using the relief-from-royalty less accumulated cost at reported are in a business combination acquired assets intangible recognition, initial to Subsequent losses. impairment and accumulated amortisation and development Research when asset an intangible as is recognised on an individual project expenditure Development incurred. as expensed are costs Research use or sale; its for available it will be so that asset the intangible completing of the technical feasibility can demonstrate: the Company resources of availability the economic benefits; future will generate the asset how use or sell the asset; ability to and its complete to intention development. during the expenditure measure reliably and the ability to the asset; complete to assets intangible of Subsequent measurement follows: as lives useful their estimated over line basis amortised on a straight are life with a finite assets Intangible costs Development costs Software base Customer Trademarks Patents/technology – Other changes any of effect period, with the reporting each the end of at reviewed are methods amortisation and life useful estimated The basis. on a prospective for being accounted in estimate uncertainty estimation of sources Critical judgements and key accounting goodwill assets excluding tangible and intangible of Impairment whether determine to lives finite with assets intangible and tangible its the carrying of amounts reviews the Group date, reporting each At the of amount the recoverable exists, such indication loss. If any an impairment suffered have those assets that indication is any there the recoverable estimate possible to it is not Where loss, if any. the impairment of the extent determine to in order is estimated asset belongs. which the asset unit to the cash generating of amount the recoverable estimates the Group an individual asset, of amount to individual generating cash also allocated are assets can corporate allocation be identified, of basis and consistent a reasonable Where allocation and consistent which a reasonable for units cash generating of group the smallest to allocated are they or otherwise units, canbasis be identified. cash future the estimated in use, In assessing value in use. sell and value to less costs value fair is the higher of amount recoverable The of money value of the time assessments market current reflects that rate discount value using a pre-tax to their present discounted are flows been adjusted. not have cash flows future of which the estimates for the asset specific to and the risks the carrying be less than its the carrying to amount, of amount is estimated unit) cash generating (or an asset of amount If the recoverable in the statement recognised immediately losses are Impairment amount. recoverable its to is reduced unit) cash generating (or asset income. of comprehensive assets intangible other of Impairment and liabilities all assets records Group The out above. is set assets intangible other of impairment policy for accounting Group’s The or changes in annually if events impairment for reviewed are assets Intangible value. fair at in business combinations acquired be recoverable. not the carrying may that amount indicate circumstances Annual Report 2019 Report Annual assets14. Intangible – other Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
14. Intangible assets – other continued Development Software Customer Patents/ costs costs base Trademarks technology Other Total 2019 £000 £000 £000 £000 £000 £000 £000 Cost At 1 August 2018 3,472 7,729 128,932 44,238 3,520 1,118 189,009 Additions 1,189 630 — — 17 — 1,836 On acquisitions — 80 2,872 2,032 — — 4,984 Disposals — — — — — — — Transfer from tangible assets 180 337 — — — — 517 Net foreign currency exchange differences (30) 81 646 111 8 45 861 At 31 July 2019 4,811 8,857 132,450 46,381 3,545 1,163 197,207 Amortisation At 1 August 2018 630 2,820 69,286 10,615 627 907 84,885 Charge for the year 381 772 12,789 2,048 356 248 16,594 Disposals — — — — — — — Transfer from tangible assets 9 205 — — — — 214 Net foreign currency exchange differences 1 83 269 19 8 8 388 At 31 July 2019 1,021 3,880 82,344 12,682 991 1,163 102,081 Net book value At 31 July 2019 3,790 4,977 50,106 33,699 2,554 — 95,126
Computer software assets and developments costs in relation to computer software have been transferred from tangible fixed assets and are now included within intangible fixed assets.
Included in software costs are assets under construction of £105,000 (2018: £nil), which are not amortised. Included in development costs are assets under construction of £1,235,000 (2018: £420,000), which are not amortised.
Development Software Customer Patents/ costs costs base Trademarks technology Other Total 2018 £000 £000 £000 £000 £000 £000 £000 Cost At 1 August 2017 2,626 6,985 116,117 42,168 2,291 896 171,083 Additions 925 949 — 3 21 — 1,898 On acquisitions — 59 13,525 2,422 1,222 249 17,477 Disposals — (281) — — — — (281) Net foreign currency exchange differences (79) 17 (710) (355) (14) (27) (1,168) At 31 July 2018 3,472 7,729 128,932 44,238 3,520 1,118 189,009
Amortisation At 1 August 2017 379 2,424 57,697 8,806 258 513 70,077 Charge for the year 264 647 12,021 1,897 371 405 15,605 Disposal — (281) — — — — (281) Net foreign currency exchange differences (13) 30 (432) (88) (2) (11) (516) At 31 July 2018 630 2,820 69,286 10,615 627 907 84,885
Net book value At 31 July 2018 2,842 4,909 59,646 33,623 2,893 211 104,124
124 Financial Statements — — — — — — — — — — — 125 Patent/ 2 years 3 years 9 years 15 years technology — — — 6 years 17 years 12 years 12 years 15 years 14 years 13 years 13 years 19 years 18 years 24 years 20 years Trademark — 1 year 1 year 7 years 7 years 5 years 2 years 3 years 4 years 4 years 9 years 9 years 14 years 13 years 10 years Customer base Customer Accounting policy Accounting subject to not use are to ready not assets or intangible life useful an indefinite have including goodwill, that assets, Intangible whenever impairment for reviewed are amortisation subject to are that Assets impairment. annually for tested and are amortisation the amount for loss is recognised An impairment be recoverable. not the carrying may that amount indicate or circumstances events fair the asset’s is the higher of amount the recoverable where amount, recoverable its carrying exceeds amount which the asset’s by in use. disposal and value of less costs value cash generating of a group purposes, to testing impairment for been allocated, has business combinations through Goodwill acquired which at is also and OEM. This the level Australasia Nordics, Europe, Central UK Ventilation, CGUs are: These grouped (CGUs). units purposes. management internal goodwill for of the value is monitoring management uncertainty estimation of sources Critical judgements and key accounting goodwill of Impairment aims to test model. The cash flow in use using a discounted calculation on a value goodwill is based for test impairment Group’s The less value fair be the higher of to which is considered amount, than the recoverable greater a value carried at goodwill is not that ensure in use. disposal and value of costs the to sensitive is very amount recoverable The years. three the following for the business plan from derived are cashThe flows used for rate and the growth cash inflows future expected the as well model as cash flow the discounted used for rate discount purposes. extrapolation judgement. of degree a involves testing impairment used for (CGUs) units cash generating the Group’s of identification The largely generate that assets of aggregation the lowest and identified and cash inflows assets the Group’s reviewed has Management cash inflows. independent VoltAir System AB Simx Limited Simx ApS Connection Air Fresh ABFresh and its subsidiaries ABPAX and Norge PAX AS GmbH inVENTer Ventilair Group International BVBA and its subsidiaries its and BVBA International Group Ventilair Energy Technique Limited and its subsidiaries AB Luftbehandling Weland subsidiaries its and Limited Services NVA Limited Buildings Breathing Oy Pamon Ab PtyVentair Limited 15. Impairment assessment of goodwill assessment of 15. Impairment The remaining amortisation periods for acquired intangible assets at 31 July 2019 are as follows: as are 2019 31 July at assets intangible acquired for periods amortisation remaining The subsidiaries its and Limited Holdings Volution Annual Report 2019 Report Annual continued assets14. Intangible – other Brüggemann Energiekonzepte GmbH Energiekonzepte Brüggemann Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
15. Impairment assessment of goodwill continued UK OEM Ventilation (Torin-Sifan) Nordics Central Europe Australasia 31 July 2019 £000 £000 £000 £000 £000 Carrying value of goodwill 55,899 5,101 16,586 12,273 28,324 CGU value in use headroom1 126,585 20,937 70,070 31,000 13,199
As at 31 July 2018 calculated headroom was:
UK OEM Ventilation (Torin-Sifan) Nordics Central Europe Australasia 31 July 2018 £000 £000 £000 £000 £000 Carrying value of goodwill 55,899 5,101 16,577 12,041 23,064 CGU value in use headroom1 135,759 32,165 66,844 25,529 3,649
Note 1. Headroom is calculated by comparing the value in use (VIU) of a group of CGUs to the carrying amount of its asset, which includes the net book value of fixed assets (tangible and intangible), goodwill and operating working capital (current assets and liabilities). Impairment review Under IAS 36 Impairment of Assets, the Group is required to complete a full impairment review of goodwill, which has been performed using a value in use calculation. A discounted cash flow (DCF) model was used, taking a period of five years, which has been established using pre-tax discount rates of 12.1% to 14.0% over that period. In all CGUs it was concluded that the carrying amount was in excess of the value in use and all CGUs had positive headroom.
Key assumptions in the value in use calculation The calculation of value in use for all CGUs is most sensitive to the following assumptions:
>> specific growth rates have been used for each of the CGUs for the five-year forecast period based on historical growth rates and market expectations;
>> long-term growth rates of 2% (2018: 2%) for all 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: 12.1% (2018: 11.4%); OEM (Torin-Sifan): 13.2% (2018: 12.3%); Nordics: 12.5% (2018: 12.5%); Central Europe: 14.0% (2018: 13.1%); and Australasia: 13.5% (2018: 13.5%).
The value in use headroom for each CGU has been set out above. We have tested the sensitivity of our headroom calculations in relation to the above key assumptions and in all cases an adverse movement of more than 10% would be required to cause the carrying value of the CGUs to materially exceed their recoverable value.
16. Business combinations
Accounting policy Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value on the date of acquisition. There have been no non-controlling interests in the business combinations to date. Acquisition costs incurred are expensed and included in exceptional items.
When the Group acquires a business it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date.
Contingent consideration resulting from business combinations is accounted for at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date, with changes in fair value recognised either in profit or loss or as a change in other comprehensive income (OCI). The determination of fair value is based on discounted cash flows. The key assumptions used in determining the discounted cash flows take into consideration the probability of meeting each performance target and a discount factor.
Goodwill is initially recognised at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units (CGUs) that are expected to benefit from the combination, irrespective of whether assets or liabilities of the acquisition are assigned to those units.
126 Financial Statements
127 218 952 543 930 £000 9,713 9,713 8,761 2,827 2,649 5,483 4,984 4,230 (1,447) (2,679) (2,542) Fair value
— — — — 218 (324) £000 (250) 4,823 (1,447) 3,020 Fair value adjustments
— — 161 543 930 £000 3,077 2,463 2,649 (2,542) (2,355) Book value Consideration satisfied in cash in satisfied Consideration Deferred tax liabilities Bank debt Bank Discharged by: Discharged their nature. due to measured and reliably be individually separated cannot that assets certain intangible reflects £4,230,000 Goodwill of workforce. the acquired and skill of and the experience the acquisition arising from synergies expected of include the value These items assets. and included in intangible identified was base and customer tradename the acquired of value fair The be collected to expected not receivables and other trade for amounts The is £2,770,000. receivables and other trade of amount gross The £121,000. are to 31 July 2019 acquisition in the period from of £170,000 tax after a profit and generated £4,043,000 of revenue generated Pty Limited Ventair period. this reporting income for comprehensive of statement is included in the consolidated that from tax before and the profit been £243,483,000 have would revenue the Group’s 2018, 1 August at place taken had If the combination been £23,891,000. have would operations continuing Deferred tax asset
Goodwill on acquisition acquisition on Goodwill Inventory Total consideration Total Intangible assets assets Intangible Acquisitions in the year ended 31 July 2019 year in the Acquisitions Pty Limited Ventair issued share the entire Pty acquired Limited, subsidiaries, Woomera wholly owned its one of plc, through Group Volution 2019, On 1 March cash existing the Group’s funded from basis, on a debt-free was acquisition The Australia. in based Pty a company Limited, Ventair capital of businesses value-adding acquiring selectively by grow to strategy is in line with the Group’s Ventair of acquisition The facilities. and banking ventilation in the commercial appropriate, and, where market ventilation the residential across and geographies, markets and existing in new and the region in the Australasian further growth an opportunity for will provide Group the Volution into Ventair of integration The market. and the Australian in both enhance our offer enable us to will Zealand) Simx (New of that with portfolio product its of combination markets. New Zealand (£8,761,000) AUD16,138,000 of cash consideration comprised of (£9,713,000), AUD17,895,000 was the transaction for consideration Total EBITDA of on the level is based consideration contingent The (£952,000). AUD1,757,000 of value a fair with consideration and contingent no contingent otherwise be achieved which must EBITDA of is a minimum level There 31 July 2020. to months during the twelve achieved has consideration contingent The is AUD7,700,000. payable consideration contingent of the maximum amount is payable; consideration during the earn-out period. be achieved to expected EBITDA of the level of estimate best in line with management’s been recognised budget. on the 2020 been based has estimate management’s unobservable, yet is as be achieved to EBITDA of level Whilst the be immaterial. to is considered the impact as been discounted not has consideration The contingent been expensed. and have £173,000 were ended 31 July 2019 on the year with the acquisition associated costs Transaction out below: is set acquired assets the net of value fair provisional The Annual Report 2019 Report Annual continued Business combinations 16. Cash and cash equivalents Trade and other payables Trade Property, plant and equipment equipment and plant Property, Trade and other receivables other and Trade Contingent consideration Contingent Total identifiable net assets net identifiable Total Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
16. Business combinations continued Acquisitions in the year ended 31 July 2018 Simx Limited On 19 March 2018, Volution Group plc, through one of its wholly owned subsidiaries, Chinook Limited, acquired the entire issued share capital of Simx Limited, a company based in New Zealand. The transaction was funded from the Group’s existing revolving credit facility. The acquisition of Simx is in line with the Group’s strategy to grow by selectively acquiring value-adding businesses in new and existing markets and geographies across the residential ventilation market and, where appropriate, in the commercial ventilation market.
Total consideration for the transaction was cash consideration of NZD54,508,000 (£28,651,000).
Transaction costs associated with the acquisition in the year ended 31 July 2018 were £332,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value Book value adjustments Fair value £000 £000 £000 Intangible assets 3,849 8,246 12,095 Deferred tax asset 111 377 488 Property, plant and equipment 1,777 (63) 1,714 Inventory 4,136 (282) 3,854 Trade and other receivables 2,702 — 2,702 Trade and other payables (2,443) (456) (2,899) Bank debt (9,806) — (9,806) Deferred tax liabilities — (3,370) (3,370) Cash and cash equivalents 416 — 416
Total identifiable net assets 742 4,452 5,194 Goodwill on acquisition 23,457 28,651
Discharged by: Consideration satisfied in cash 28,651
Goodwill of £23,457,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the value of expected synergies arising from the acquisition and the experience and skill of the acquired workforce. The fair value of the acquired tradename and customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is £2,702,000. The amounts for trade and other receivables not expected to be collected are £nil.
Simx Limited generated revenue of £8,182,000 and generated a profit after tax of £1,384,000 in the period from acquisition to 31 July 2018 that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2017, the Group’s revenue would have been £216,339,000 and the profit before tax from continuing operations would have been £18,161,000.
128 Financial Statements
16 (25) 162 102 129 289 264 264 £000 (305) Fair value
— — — (22) (22) £000 Fair value adjustments
(3) 16 124 162 £000 (305) Book value
Goodwill on acquisition on Goodwill by: Discharged their nature. due to measured and reliably be individually separated cannot that assets certain intangible reflects £289,000 Goodwill of workforce. the acquired and skill of and the experience the acquisition arising from synergies expected of include the value These items collected be to expected not receivables and other trade for amounts The is £162,000. receivables and other trade of amount gross The are £nil. Trade and other receivables other and Trade and other payables Trade Consideration satisfied in cash in satisfied Consideration equipment and plant Property, continued ended 31 July 2018 year in the Acquisitions Annual Report 2019 Report Annual continued Business combinations 16. AirFan B.V. B.V. AirFan issued the entire acquired B.V., Netherlands Group subsidiaries, Ventilair owned wholly its one of plc, through Group Volution 2018, On 1 May cash reserves. the Group’s funded from was transaction The B.V. AirFan capital of share (£264,000). €300,000 of cash consideration was the transaction for consideration Total been expensed. and have £29,000 were ended 31 July 2018 in the year with the acquisition associated costs Transaction out below: is set acquired assets the net of value fair The Inventory Total identifiable net assets net identifiable Total
Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
16. Business combinations continued Acquisitions in the year ended 31 July 2018 continued Oy Pamon Ab On 5 July 2018, Volution Group plc, through one of its wholly owned subsidiaries, Volution Holdings Sweden AB, acquired the entire issued share capital of Oy Pamon Ab. The transaction was funded from the Group’s existing revolving credit facility. The acquisition of Oy Pamon Ab is in line with the Group’s strategy to grow by selectively acquiring value-adding businesses in new and existing markets and geographies across the residential ventilation market and, where appropriate, in the commercial ventilation market.
Total consideration for the transaction was €12,908,000 (£11,429,000), comprised of consideration of €12,258,000 (£10,854,000) and contingent consideration with a fair value of €650,000 (£575,000). The contingent consideration is based on the level of EBITDA achieved during the two years to 30 November 2018 and 2019. There is a minimum level of EBITDA which must be achieved otherwise no contingent consideration is payable; the maximum amount of contingent consideration payable is €2,000,000. The contingent consideration has been recognised in line with management’s best estimate of the level of EBITDA expected to be achieved during the earn-out period. Whilst the level of EBITDA to be achieved is as yet unobservable, management’s estimate has been based on the 2018 budget and 2019 forecast. The contingent consideration has not been discounted as the impact is considered to be immaterial. Contingent consideration relating to the year ended 30 November 2018 was finalised and paid during FY2019 with further consideration yet to be determined relating to the year ended 30 November 2019.
Transaction costs associated with the acquisition in the year ended 31 July 2018 were £290,000 and have been expensed.
The fair value of the net assets acquired is set out below:
Fair value Book value adjustments Fair value £000 £000 £000 Intangible assets 64 4,514 4,578 Deferred tax asset — 91 91 Property, plant and equipment 130 — 130 Inventory 935 (307) 628 Trade and other receivables 604 (107) 497 Trade and other payables (1,209) (44) (1,253) Deferred tax liabilities — (903) (903) Cash and cash equivalents 1,243 — 1,243
Total identifiable net assets 1,767 3,244 5,011 Goodwill on acquisition 6,418 11,429
Discharged by: Consideration satisfied in cash 10,854 Contingent consideration 575 Total consideration 11,429
Goodwill of £6,418,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the value of expected synergies arising from the acquisition and the experience and skill of the acquired workforce. The fair value of the acquired tradename, customer base, technology and order book was identified and included in intangible assets.
The gross amount of trade and other receivables is £604,000. The amounts for trade and other receivables not expected to be collected are £107,000.
Oy Pamon Ab generated revenue of £703,000 and generated a profit after tax of £160,000 in the period from acquisition to 31 July 2018 that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2017, the Group’s revenue would have been £213,607,000 and the profit before tax from continuing operations would have been £17,613,000.
130 Financial Statements
131 197 197 833 648 804 500 (195) £000 (868) 1,616 1,956 3,572 3,572 3,072 Fair value
— — — — — 627 (177) 804 £000 Fair value adjustments
— (18) 197 197 833 989 648 £000 (868) Book value Goodwill of £1,956,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature. their nature. due to measured and reliably be individually separated cannot that assets certain intangible reflects £1,956,000 Goodwill of workforce. the acquired and skill of and the experience the acquisition arising from synergies expected of include the value These items assets. and included in intangible identified was base customer the acquired of value fair The is £648,000. receivables and other trade of amount gross The 31 July 2018 to acquisition in the period from £20,000 of tax after a profit and generated £94,000 of revenue Air Connection ApS generated period. this reporting income for comprehensive of statement is included in the consolidated that from tax before and the profit been £209,819,000 have would revenue the Group’s 2017, 1 August at place taken had If the combination been £17,040,000. have would operations continuing Discharged by: Discharged Goodwill on acquisition acquisition on Goodwill Total consideration Total Trade and other payables Trade
Trade and other receivables other and Trade Deferred tax liabilities Consideration satisfied in cash in satisfied Consideration Cash and cash equivalents assets Intangible continued ended 31 July 2018 year in the Acquisitions Air Connection ApS issued the entire AB, acquired Holdings Sweden Volution subsidiaries, wholly owned its one of plc, through Group Volution On 16 July 2018, acquisition Group’s The facility. credit revolving existing Group’s the from funded was transaction The Air Connection ApS. capital of share markets and existing businesses in new value-adding acquiring selectively by grow to strategy is in line with the Group’s Air Connection ApS of market. ventilation commercial in the appropriate, and, where market ventilation the residential across and geographies (£3,072,000) DKK25,800,000 of cash consideration comprised of (£3,572,000), DKK30,000,000 was the transaction for consideration Total EBITDA of on the level is based consideration contingent The (£500,000). DKK4,200,000 of value with a fair consideration and contingent no contingent otherwise be achieved which must EBITDA of is a minimum level There 31 July 2021. to months during the twelve achieved has consideration contingent The is DKK4,200,000. payable consideration contingent of the maximum amount is payable; consideration during the earn-out period. be achieved to expected EBITDA of the level of estimate best in line with management’s been recognised the year for on the forecast been based has estimate management’s unobservable, yet is as be achieved to EBITDA of level Whilst the contingent The be immaterial. to is considered the impact as been discounted not has consideration contingent The 2021. to 31 July be finalised during FY2022. and paid to is expected consideration been expensed. and have £41,000 were ended 31 July 2018 in the year with the acquisition associated costs Transaction out below: is set acquired assets the net of value fair The Annual Report 2019 Report Annual continued Business combinations 16. Total identifiable net assets net identifiable Total Inventory Contingent consideration Contingent Property, plant and equipment equipment and plant Property, Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
16. Business combinations continued Acquisitions in the year ended 31 July 2018 continued Air Connection ApS continued Cash outflows arising from business combinations are as follows:
2019 2018 £000 £000 Ventair Pty Limited Cash consideration 8,761 — Less: cash acquired with the business (930) — Simx Limited Cash consideration — 28,651 Less: cash acquired with the business — (416) AirFan B.V. Cash consideration — 264 Less: cash acquired with the business — — Oy Pamon Ab Cash consideration 586 10,854 Less: cash acquired with the business — (1,243) Air Connection ApS Cash consideration — 3,072 Less: cash acquired with the business — (197)
8,417 40,985
17. 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: 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.
2019 2018 £000 £000 Raw materials and consumables 13,524 13,860 Work in progress 1,784 1,371 Finished goods and goods for resale 20,277 14,905
35,585 30,136
During 2019, £638,000 (2018: £833,000) 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 £4,200,000 (2018: £4,083,000). This provision was split amongst the three categories: £1,650,000 (2018: £1,679,000) for raw materials and consumables; £178,000 (2018: £238,000) for work in progress; and £2,372,000 (2018: £2,166,000) for finished goods and goods for resale.
132 Financial Statements (64) 133 225 2018 2018 (967) £000 £000 (398) 1,490 2,623 (1,204) (1,204) 38,873 34,760 35,964 (3) 296 2019 2019 £000 £000 (355) (544) (606) (606) 1,275 2,575 42,199 38,955 38,349 Accounting policy Accounting and other Trade the Group. to will flow economic benefit a future that it is probable when recognised are receivables and other Trade made are Provisions debts. doubtful and discounts for provisions less any amount or contract invoice original carried at are receivables economic conditions. and general experience previous ageing, account into taking non-payment a risk of of is evidence there where losses credit expected for Provisions and Recognition Instruments: 39 Financial (IAS) Standard Accounting in International guidance existing IFRS 9 replaces receivables trade of impairment assessing for loss model loss model with the expected the incurred It replaces Measurement. assets. financial and other receivables trade For losses (ECL). credit expected lifetime equal to an amount at measured losses are credit expected for Provisions risk credit on historical based been grouped have receivables Trade ECLs. in calculating applies a simplified approach the Group approach. matrix using the provision calculated are loss rates expected The invoice. of date from days and the number of characteristics all amounts pay to abilities customers’ the of representative are that common risk characteristics by categorised are receivables Trade the over rates default observed on historical based is determined matrix provision The terms. with the contractual due in accordance estimates. forward-looking for and is adjusted receivables the trade of life expected receivable Rebates referred sales (collectively of cost of a reduction as recognised are that agreements supplier rebate a number of has Group The made. purchases of with the level which will increase purchases, of percentage on an agreed based are Rebates to as rebates). subject to are payable the amounts end and some of year with the Group’s coterminous not typically are These agreements date. the reporting after confirmation At theAt end the of year Amounts utilised As a result of the adoption of IFRS 15 at 1 August 2018 the allowance for credit notes previously included within the allowance for doubtful doubtful for included within the allowance previously notes credit for the allowance 2018 1 August IFRS 15 at of the adoption of a result As details). 1 for note liabilities (see included within refund is now debts Movement in the allowance for expected credit losses is set out below: losses is set credit expected for in the allowance Movement Allowance for doubtful debts
Prepayments Prepayments the startAt the of year receivables Trade Annual Report 2019 Report Annual receivables and other 18. Trade Charge the for year Foreign currency adjustment currency Foreign Other debtors debtors Other Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
18. Trade and other receivables continued Gross trade receivables are denominated in the following currencies:
2019 2018 £000 £000 Sterling 23,332 23,336 US Dollar 351 49 Euro 5,864 4,881 Swedish Krona 2,693 3,242 New Zealand Dollar 3,152 3,086 Australian Dollar 2,162 — Other 1,401 1,370
38,955 35,964
Net trade receivables are aged as follows:
2019 2018 £000 £000 Neither past due nor impaired 32,231 28,897 Past due but not impaired Overdue 0–30 days 4,643 4,353 Overdue 31–60 days 921 1,179 Overdue 61–90 days 251 217 Overdue more than 90 days 303 114
38,349 34,760
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.
19. Other financial assets 2019 2018 Current Current £000 £000 Financial assets Foreign exchange forward contracts 907 302
907 302
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. Refer to note 28 for the fair value hierarchy the Group uses to determine the fair value of financial instruments.
134 Financial Statements — 135 783 435 2018 2018 2018 £000 £000 £000 1,456 1,533 5,374 2,084 8,089 18,221 18,221 21,973 22,183 45,689 667 253 652 2019 2019 2019 604 £000 £000 £000 1,367 4,371 1,544 3,633 11,547 11,547 15,165 38,807 22,098 Accounting policy Accounting months three of maturity with an original deposits and in hand and short-term banks comprise cash deposits at short-term and Cash or less. and Cash equivalents cash include banks. on hand and in cash and cash equivalents cash cash flows, of the statement the purposes of For follows: position as financial of in the statement that is equal to cash flows of in the statement shown as Critical accounting judgements and key sources of estimation uncertainty estimation of sources Critical judgements and key accounting rebates volume retrospective Liabilities arising from rebates). as to referred sales (collectively from a reduction as recognised are that agreements rebate customer a number of has Group The typically These agreements achieved. revenue of with the level which increases revenue, of percentage on an agreed based are Rebates date. the reporting after confirmation subject to are payable the amounts end and some of year with the Group’s coterminous not are under these agreements, the Group by will become payable that rebate of the amount of estimates make the Directors date, the reporting At been engaged has customer respective the Where amount. an expected at arrive to approach average weighted using a probability is estimate in ensuring an appropriate also assist used to are trends settlement historical years, a number of for with the Group recorded. are rebates before place take and reviews approvals internal appropriate and that date the reporting at recorded the of estimate the Directors’ is a risk that there within the financial statements, an estimate represents provision the rebate that Given be incorrect. liability may potential Euro Swedish Krona Swedish Australian Dollar
US Dollar US Accrued expenses Accrued New Zealand Dollar Zealand New Other Other payables Trade 21. Trade and other payables and other 21. Trade Sterling deposits short-term and Cash Annual Report 2019 Report Annual and cash Cash equivalents 20.
Cash and cash equivalents are denominated in the following currencies: in the following denominated are cash and Cash equivalents As a result of the adoption of IFRS 15 at 1 August 2018 liabilities arising from retrospective volume rebates are now shown within refund within refund shown now are rebates volume retrospective from liabilities arising 2018 1 August IFRS 15 at of the adoption of a result As further details). 1 for note (see payables within trade liabilities previously Social security and staff welfare costs Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
22. Other financial liabilities Air Connection Ventair Pty Oy Pamon Ab ApS Limited Total £000 £000 £000 £000 Contingent consideration At 1 August 2018 580 564 — 1,144 Consideration paid during the year (586) — — (586) Further consideration recognised 318 — — 318 Consideration recognised on acquisition — — 989 989 Foreign exchange 6 (52) — (46) At 31 July 2019 318 512 989 1,819 Analysis Current 318 — — 318 Non-current — 512 989 1,501 318 512 989 1,819
Foreign exchange forward VoltAir Air Connection contracts System AB Oy Pamon Ab ApS Total £000 £000 £000 £000 £000 Contingent consideration At 1 August 2017 536 1,588 — — 2,124 Consideration released — (1,502) — — (1,502) Exchange contracts utilised (536) — — — (536) Consideration recognised on acquisition — — 580 564 1,144 Foreign exchange — (86) — — (86) At 31 July 2018 — — 580 564 1,144
Analysis Current — — — — — Non-current — — 580 564 1,144 — — 580 564 1,144
The contingent consideration payable in relation to Oy Pamon Ab is based on its anticipated EBITDA performance during the year to 30 November 2019. Additional contingent consideration relating to Oy Pamon Ab has been recognised in the year as its performance for the year ending 30 November 2019 is now expected to exceed the previous estimate.
The contingent consideration payable in relation to Air Connection ApS is based on its expected EBITDA performance achieved during the twelve months ending on 31 July 2021. See note 16 for further details.
Fair value changes of the contingent consideration are recognised either when future estimates of performance are changed or when consideration is paid. The increase in contingent consideration in the year of £318,000, payable to Oy Pamon Ab, has been recognised within exceptional costs in the year.
Changes to the value of contingent consideration resulting from movements in exchange rates are taken to other comprehensive income.
136 Financial Statements
137 £000 (805) Rate % Rate % 95,410 94,605 Non-current Libor + margin% Libor + margin%
2018 Stibor + margin% Stibor + margin% — — — Euribor + margin% Euribor + margin% £000 Current
frequency frequency
Repayment Repayment (755) £000 One payment One One payment One One payment One One payment One One payment One One payment One 86,146 85,391 Non-current
2019 — — — date date £000 Current Termination Termination 15 December 2021 15 December 2021 15 December 2021 15 December 2022 15 15 December 2022 15 15 December 2022 15 £000 £000 Amount Amount 21,500 24,467 31,000 39,943 24,006 40,640 86,146 95,410 outstanding outstanding Accounting policy Accounting costs. transaction of net value, fair at initially measured are including loans, financial liabilities, and other Borrowings method. interest effective using the amortised cost at measured subsequently are financial liabilities and other Borrowings over expense interest allocating and of a financial liability of the amortised calculating cost of is a method method interest effective The the expected through cash payments future estimated discounts exactly that is the rate rate interest effective period. The the relevant period. a shorter appropriate, where the financial liability or, of life funds. of the borrowing in connection with incurs an entity that costs and other interest of consist costs Borrowing The consolidated leverage level fell below 1.0:1 for the year ended 31 July 2017 and therefore the margin for the first half of the year ended ended the year half of first the for the margin and therefore ended 31 July 2017 the year for 1.0:1 below fell level leverage consolidated The be to continued leverage the consolidated 0.9%, to reduced was the margin in December 2017, On refinancing 1.00%. was 31 July 2018 the ended 31 July 2018 the year the second half of For facility. under the new be 0.9% to continued the margin and therefore 1.0:1 below throughout continued has this rate 1.7:1; to leverage which increased Simx Limited of acquisition due to the 1.40% to increased margin ended 31 July 2019. the year unutilised. facility credit revolving multicurrency its of £24,590,000) (2018: £33,854,000 had the Group 31 July 2019, At Revolving credit facility – at 31 July 2018 facility – at credit Revolving Borrowings under the revolving credit facility (maturing 2022) Swedish Krona Swedish Swedish Krona Swedish GBP Currency Currency GBP Unsecured – at amortised cost Annual Report 2019 Report Annual loans and borrowings 23. Interest-bearing In December 2018, the Group exercised the option to extend its multicurrency revolving credit facility by a period of twelve months at a cost a cost at months twelve a period of by facility credit revolving multicurrency its extend to the option exercised the Group In December 2018, 15 December 2022. is now date million; the maturity £0.2 of with HSBC Scotland Bank of HSBC and the Royal Bank A/S, Danske from facility credit comprised a revolving 31 July 2019 at Bank loans provided No security was below. out in the table set are loans outstanding The agreement. a facilities by governed and are agent as acting under the facility. 31 July 2019 facility – at credit Revolving Cost of arranging bank loan bank arranging of Cost
Euro Total Euro Total Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
23. Interest-bearing loans and borrowings continued Reconciliation of movement in financial liabilities 2019 2018 £000 £000 At 1 August 95,410 51,490 Additional loans 17,500 103,474 Loans acquired on acquisition 2,542 10,007 Repayment of loans (29,609) (67,869) Interest charge 1,913 1,017 Interest paid (1,913) (1,017) Foreign exchange 303 (1,692)
At 31 July 86,146 95,410
24. 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 2019 £000 £000 £000 At 1 August 2018 1,004 384 1,388 Arising during the year 1,304 — 1,304 Utilised (922) — (922) Foreign currency adjustment 12 — 12 At 31 July 2019 1,398 384 1,782 Analysis Current 1,398 — 1,398 Non-current — 384 384 1,398 384 1,782
138 Financial Statements
11 139 384 Total 1,153 £000 1,975 (1,751) £000 1,388 1,388 1,004 Share 11,527 premium
— — 250 384 384 384 684 £000 (550) £000 shares 2,000 Property Ordinary dilapidations dilapidations
11 — 903 £000 1,291 1,004 1,004 1,004 (1,201) Product Product warranties Number of of Number ordinary shares shares ordinary 200,000,000 Accounting policy Accounting shares Treasury gain or loss is No equity. from and deducted cost at recognised are shares) (treasury reacquired are that equity instruments Own between difference Any equity instruments. own the Group’s of issue or cancellation sale, purchase, or loss on the in profit recognised during the period are exercised options Share premium. in share is recognised if reissued, the carrying and the consideration, amount shares. with treasury satisfied Foreign currency adjustment currency Foreign Current Arising during the year Utilised
July 31 At 2018 and July 31 2019 25. Authorised and issued share capitaland issued share and reserves 25. Authorised 2018 1 AugustAt 2017 Annual Report 2019 Report Annual continued Provisions 24. At 31 JulyAt 2018 Analysis warranties Product and in sold during the year products on months twelve in the following be incurred to expected costs warranty for is recognised A provision claims in relation the products, of knowledge on management’s based however, years; two typically one to are warranties Product prior years. and highly immaterial. rare are months than twelve more after warranties to Property dilapidations the end at leasehold buildings and will be payable under leases for obligations to relating dilapidations for been recognised has A provision the lease term. of Non-current At 31 July 2019, a total of 1,759,884 (2018: 1,129,865) ordinary shares in the Company were held by the Volution EBT, all of which were unallocated unallocated which were all of EBT, the Volution held by were in the Company shares ordinary 1,129,865) (2018: 1,759,884 of a total 31 July 2019, At During the Plan on exercise. Bonus Plan and Sharesave Share Plan, Deferred Incentive Term the Long of participants to transfer for and available the by released were 37,013) (2018: nil), and 19,981 (2018: the trustees by purchased were in the Company shares ordinary 650,000 year £2,293,626). (2018: £3,202,989 was 31 July 2019 at the shares of value market The £65,000). (2018: £36,000 at trustees dividends. to rights its waive to agreed has EBT Volution The Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
26. Deferred tax
Accounting policy Deferred tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:
>> where the temporary differences arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
>> in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that the Directors consider it is probable that there will be taxable profits from which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities and there is an intention to settle the balances on a net basis.
The carrying amount of deferred tax assets is reviewed at each reporting date. Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred taxes relate to the same taxation authority and that authority permits the Group to make a single net payment.
Deferred tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, deferred tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity.
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded.
At 31 July 2019, the Group had not recognised a deferred tax asset in respect of gross tax losses of £5,195,000 (2018: £5,195,000) relating to management expenses, capital losses of £3,975,000 (2018: £3,975,000) arising in UK subsidiaries and gross tax losses of £407,000 (2018: £407,000) arising in overseas entities as there is insufficient evidence that the losses will be utilised. These losses are available to be carried indefinitely.
At 31 July 2019, the Group had no deferred tax liability (2018: £nil) 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)/ 1 August credited Credited Translation On 31 July 2018 to income to equity difference acquisition 2019 2019 £000 £000 £000 £000 £000 £000 Temporary differences Depreciation in advance of capital allowances (798) (245) — — — (1,043) Fair value movements of derivative financial instruments (3) (112) — — — (115) Customer base, trademark and patent (18,089) 3,094 — (227) (1,447) (16,669) Losses 285 — — — — 285 Untaxed reserves 507 (13) — 56 218 768 Other temporary differences 598 101 57 (1) — 755 Deferred tax liability (17,500) 2,825 57 (172) (1,229) (16,019)
140 Financial Statements
(3) — 141 507 285 598 2018 2018 (798) £000 £000 31 July 5,926 2,903 (17,500) (17,500) (17,500) (18,089)
— — — — — On 475 2019 £000 £000 £000 3,172 6,541 (4,468) (3,993) (3,993) (3,993) acquisition
(1) — — — — 32 137 168 168 168 £000 difference Translation
— — — — — — 160 160 160 160 £000 to equity to Credited
(12) (37) (53) 447 3,111 3,111 (149) (810) £000 2,915 3,921 credited to income to (Charged)/
146 810 475 2017 298 (745) (447) £000 (17,756) 1 August 1 (16,673) (16,946) (16,946) Accounting policy policy Accounting financial instruments Derivative used are risk. Instruments rate exchange foreign to exposure its manage to financial instruments derivative into enters Group The 19. included in note are financial instruments derivative of details Further contracts. forward exchange foreign principally to re-measured subsequently and are into is entered contract a derivative the date at value fair at initially recognised are Derivatives income. comprehensive of in the statement recognised gain or loss is immediately resulting The date. the reporting at value their fair is negative. value financial liabilities when the fair and as is positive value when the fair carried financial assets as are Derivatives is more relationship of the remaining maturity liability if the or a non-current asset as a non-current is classified derivatives of value fair The months. is less than twelve the relationship of maturity liability if the remaining a current or asset a current and as months than twelve purposes. accounting hedges for as been designated have contracts No derivative investments net Hedge of investment, the net part of as for is accounted that item a monetary including a hedge of operation, in a foreign investment a net Hedges of in recognised the hedge are portion of the effective to relating gains or losses on the hedging instrument follows: as for accounted are the operation, the foreign or loss. On disposal of in profit recognised portion are the ineffective to gains or losses relating OCI while any or loss. profit to is reclassified in equity such gains or losses recorded any of value cumulative operations. in foreign investments risk on its exchange foreign to exposure its a hedge of as in local currencies uses borrowings Group The Accounting policy Accounting final dividends, this is when the dividend to In relation a liability. as recognition for the criteria meet when they recognised Dividends are dividends, when paid. interim to and in relation meeting, in the general the Directors by is approved Depreciation in advance of capital allowances capital of advance in Depreciation Deferred tax liability Fair valueFair movements derivative of instruments financial Other temporary differences temporary Other Interim dividend 2019: for 1.60 pence per share (2018: 1.46pence) Final dividend 2019: for 3.30 pence per share (2018: 2.98 pence) 28. Risk management paid and declared shares ordinary on dividends Cash 27. Dividends paid and proposed 27. 2018 differences Temporary Annual Report 2019 Report Annual tax continued Deferred 26. Customer base, trademark and patent Deferred tax asset Losses Proposed dividends on ordinary shares ordinary on dividends Proposed cash flows. of statement is included in the consolidated £3,172,000 of dividend payment interim The a liability at as recognised and is not Meeting the Annual General at approval is subject to shares final dividend on ordinary proposed The 31 July 2019. Untaxed reserves Untaxed Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
28. Risk management continued As a result of entering into financial instruments, the Group is exposed to market risk, credit risk, foreign exchange risk and liquidity risk. The Group’s principal financial instruments are:
>> interest-bearing loans and borrowings;
>> trade and other receivables, trade and other payables, cash and short-term deposits; and
>> foreign exchange forward contracts.
This note provides further detail on financial risk management and includes quantitative information on the specific risks the Group is exposed to.
Derivative financial instruments The Group uses forward foreign currency contracts to reduce exposure to foreign exchange risk.
Forward foreign currency contracts The Group’s purchases in foreign currencies, net of Group sales in those currencies, represent less than 8% (2018: less than 1%) of total material and component purchases. This has increased due to the diversification of the Group to more overseas regions. Each quarter the Group enters into forward exchange contracts for the purchase of the budgeted monthly net expenditure in US Dollars for the following rolling 12–15 months. Hedge accounting is not applied for these derivatives.
The Group’s criteria for entering into a forward foreign currency contract would require that the instrument must:
>> be related to anticipated foreign currency commitment;
>> involve the same currency as the foreign currency commitment; and
>> reduce the risk of foreign currency exchange movements on the Group’s operations.
Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risks, such as equity price risk and commodity risk.
The Group’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into derivative financial instruments to manage its exposure to these risks when appropriate.
At 31 July 2019, the Group had commitments under forward foreign exchange contracts with varying settlement dates to 2 July 2020 (2018: 4 June 2019). See note 19 for fair values.
Sensitivity analysis The Group recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might affect the value of its derivatives and also the amounts recorded in its equity in the overseas entities and its statement of comprehensive income for the period. Therefore the Group has assessed:
>> what would be reasonably possible changes in the risk variables at the end of the reporting period; and
>> the effects on profit or loss and equity if such changes in the risk variables were to occur.
Interest rate risk The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the Group’s floating rate loans and borrowings which at the relevant reporting dates are not hedged. With all other variables being constant the Group’s profit before tax is affected through the impact on floating rate borrowings as follows. There is only an immaterial impact on the Group’s equity.
Effect on profit Increase in before tax basis points £000 31 July 2019 Sterling +25 (54) Swedish Krona +25 (60) Euro +25 (102) 31 July 2018 Sterling +25 (78) Swedish Krona +25 (61) Euro +25 (100)
142 Financial Statements
91 — — 22 (76) 143 106 (110) 512 353 318 446 2018 2018 989 Total £000 £000 £000 15,337 86,146 37,263 (16,245) 124,320
(6) — — — — — — — — 12 60 (87) (96) 198 722 249 405 2019 2019 £000 £000 £000 Effect on equity five years More than than More Effect on profit before tax
— — — — 5% 5% 5% 5% 5% 5% 5% 5% 5% rate rate 512 AUD AUD 989 £000 GBP vs 87,647 86,146 Change in Change Change in in Change GBP vs USD/ Between one and five years SEK/EUR/NZD/ SEK/EUR/NZD/
— — — 318 £000 15,337 37,263 36,673 one year one (16,245) Less than than Less
Australian Dollar New Zealand Dollar Zealand New Interest-bearing loans and borrowings (excluding interest) (excluding borrowings and loans Interest-bearing ApS Connection Air – consideration Contingent Euro Trade payables and other accrued expenses accrued other and payables Trade Forward foreign currency exchange inflow exchange currency foreign Forward New Zealand Dollar Zealand New Liquidity risk fall they as financial obligations its and meeting capital commitments working of the management arises from the Group Liquidity risk for that ensure cash to balances regarding information as well as forecasts/projections cash flow review regularly to policy is Group’s The due. in parallel funding requirements long-term its reviews Group The become due. liabilities when they its meet it to allow significant cashit has to is the Group that indicate forecasts date, the reporting At in a timely manner. aligning both of with an objective strategy, long-term with its years. three the next least at for financial obligations its meet liquidity to sufficient have to expected and 2018. 31 July 2019 financial liabilities at significant undiscounted the Group’s of profile summarise the maturity below tables The Financial liabilities Financial At 31 JulyAt 2019 Swedish Krona Krona Swedish Swedish Krona Krona Swedish Australian Dollar Interest rate risk continued rate Interest environment. market observable upon the currently is based sensitivity analysis rate interest for points in basis movement assigned The any concluded that has Management interest. of levels and earn immaterial accounts current held in bank are cash balances Group The No interest cash balances. on the Group income earned on interest impact an immaterial will have SEK Libor rates changes in the Libor and cash balances. the Group’s to sensitivity been included in relation has rate risk currency Foreign from currency in a different denominated are and expenses risk primarily arises when revenue exchange foreign to exposure Group’s The risk also arises exchange Foreign results. the Group’s into consolidation GBP for into and translated currency presentational the Group’s functional currency. in their denominated not are that transactions into enter when the individual entities and GBP/AUD GBP/NZD GBP/SEK, GBP/EUR, GBP/USD, the spot to changes several of impact the illustrate tables following The to and equity if those tax changes were before on profit the impact reflect below tables The GBP. of weakening of +5% rates exchange as been considered have balances Dollar-denominated NZD and Australian Euro, changes in the SEK, USD, of Only the impact occur. the Group. used by significant non-GBP denominations the most these are Annual Report 2019 Report Annual continued 28. Risk management Contingent consideration – Ventair pty Limited pty Ventair – consideration Contingent Forward foreign currency exchange outflow exchange currency foreign Forward US Dollar Dollar US Euro Contingent consideration – Oy Pamon Ab Pamon Oy – consideration Contingent Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
28. Risk management continued Liquidity risk continued Less than Between one More than one year and five years five years Total At 31 July 2018 £000 £000 £000 £000 Financial liabilities Interest-bearing loans and borrowings (excluding interest) — 95,410 — 95,410 Forward foreign currency exchange outflow 11,059 — — 11,059 Forward foreign currency exchange inflow (11,361) — — (11,361) Contingent consideration – Oy Pamon Ab — 580 — 580 Contingent consideration – Air Connection ApS — 564 — 564 Trade payables and other accrued expenses 44,156 — — 44,156 43,854 96,554 — 140,408
The multicurrency revolving credit facility which was signed on 15 December 2017 was for a term of four years; the option to extend the termination of the facility by a period of twelve months was taken on 15 December 2018. The facility is fully flexible, with the amount borrowed being reset within one to three months. No interest has been included in the above table. For further details see note 23.
Fair values of financial assets and financial liabilities There are no material differences between the book values and fair values for any of the Group’s financial instruments carried at amortised cost. Derivative financial instruments have all been valued using other techniques, for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.
Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations under a financial instrument or customer contract, leading to a financial loss. The Group is mainly exposed to credit risk from its operating activities (primarily for trade receivables – credit sales) and from cash and cash equivalents and deposits with banks and financial institutions and other financial instruments.
Trade receivables Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables and contract assets are regularly monitored and any shipments to major customers are generally covered by credit insurance obtained from reputable banks and other financial institutions.
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by geographical region, product type, customer type and rating, and coverage by credit insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 18. The Group does not hold collateral as security. The credit insurance is considered an integral part of trade receivables and considered in the calculation of impairment.
Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix:
Trade receivables Current <30 days 30-60 days 61-90 days >91 days Total 31 July 2019 £000 £000 £000 £000 £000 £000 Expected credit loss rate 0.1% 0.4% 3.0% 21.8% 69.0% Estimated total gross carrying amount at default 32,341 4,660 950 321 683 38,955 Expected credit loss 18 18 28 70 472 606
144 Financial Statements 461 145 2018 £000 3,267 2,806 834 2019 £000 2,816 3,650 Level 3 – techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. based on observable not are value that fair recorded on the effect a significant which use which have inputs 3 – techniques Level Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities; or liabilities; assets identical for markets prices in active (unadjusted) 1 – quoted Level or either directly observable, are value fair on the recorded effect a significant have that which all inputs for techniques 2 – other Level and indirectly; > > > benefits employee Short-term 29. Related party29. Related transactions and are on consolidation eliminated subsidiaries, are between subsidiaries, and transactions plc and its Group Volution between Transactions parties is disclosed below. related and its the Group between transactions of A breakdown disclosed in this note. not or 31 July 2018. 2019 31 July at exist balances note party loan No related their close of personnel or members management key and its the Company between or balances transactions no material were There amounts. any the Company owe personnel did not management the period, key the end of At family. remuneration. Directors’ of certain disclosures require 2013 Regulations Report Remuneration 2006 and the Directors’ Act Companies The 90). to 72 pages (see Report Remuneration in the Directors’ provided are remuneration total the Directors’ of details The personnel management key Compensation of > in notes consideration 19 and the contingent in note financial instruments comprise the derivative value fair carried at Financial instruments in the valuation involved are valuers external 2 as be Level to deemed are financial instruments purposes derivative hierarchy 16 and 22. For include the this calculation to including the DCF model. Inputs techniques valuation using is measured value fair Their these contracts. of 3; be Level is deemed to consideration Contingent rates. discount and relevant contracts these derivative to in relation cash flows expected value. the fair measure used to techniques on the valuation details 16 for see note Financial instruments and cash and depositsFinancial instruments cash deposits Group The policy. with the Group’s in accordance is managed and financial institutions with banks balances risk from Credit maximum exposure Group’s The be remote. loss to the possibilities of believes which management from financial institutions, with reputable maximum is the carrying Group’s The and 2018 amount. 31 July 2019 financial position at of the statement of the components risk for credit to page. on the previous or in the liquidity table 19 note in either is noted financial instruments derivative to exposure Capital management risk the business and grow operate to the capital it has required that ensure policy is to capital management the Group’s of primaryThe objective it meets ensure to capital structure its periodically reviews Board The capital incurring undue financial risks. without of cost a reasonable at foreign account, premium share shares), treasury capital (excluding share its capital its as defines Group The changing business needs. element be an important to debt of consider the management the Directors earnings. In addition, and retained reserves translation currency fund to debt subordinated and structural long-term of carry levels significant may Group The the Group. of the capital structure in controlling no been have There capital requirements. in working fluctuations for allow to facilities debt arranged and has and acquisitions investments covenant that ensure to capital basis manages on an ongoing period. Management policy in the current capital the management changes to met. are debt party on third requirements hierarchy value Fair technique: valuation by financial instruments of value and disclosing the fair determining for hierarchy uses the following Group The > > Annual Report 2019 Report Annual continued 28. Risk management Total Key management personnel is defined as the CEO, the CFO and the ten (2018: ten) individuals who report directly to the CEO. to directly individuals who report ten) (2018: and the ten the CFO the CEO, as personnel is defined management Key Share-based payment change (see note 32) note (see change Share-based payment Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
30. Group structure details At 31 July 2019, Volution Group plc held 100% of the voting shares of the following subsidiaries:
Country of Group company Principal activity incorporation Direct Windmill Topco Limited1 Intermediate holding company England Volution Holdings Limited1 Intermediate holding company England Energy Technique Limited1 Intermediate holding company England Indirect Windmill Midco Limited1 Intermediate holding company England Windmill Cleanco Limited1 Intermediate holding company England Windmill Bidco Limited1 Intermediate holding company England Manrose Manufacturing Limited1 Non-trading England Volution Ventilation Group Limited1 Intermediate holding company England Torin-Sifan Limited1 Original equipment manufacturer England Anda Products Limited1 Non-trading England Axia Fans Limited1 Non-trading England Roof Units Limited1 Non-trading England Torin Limited1 Non-trading England Vent-Axia Limited1 Non-trading England Vent-Axia Clean Air Systems Limited1 Non-trading England Vent-Axia Group Limited1 HR services to Group England ET Environmental Limited1 Non-trading England Diffusion Environmental Systems Limited1 Non-trading England NVA Services Limited1 Non-trading England SW National Ventilation Limited1 Non-trading England Airtech Humidity Controls Limited1 Non-trading England Sens-Air Limited1 Non-trading England Breathing Buildings Limited1 Non-trading England Volution Ventilation UK Limited1 Ventilation products England Volution Holdings Sweden AB2 Intermediate holding company Sweden Fresh AB2 Ventilation products Sweden Welair AB3 Ventilation products Sweden
146 Financial Statements 147 China France Finland Norway Belgium Belgium Sweden Sweden Country of Australia Australia Denmark Germany Germany Germany Germany incorporation Netherlands Netherlands New Zealand New Zealand Ventilation products Ventilation Principal activity Principal Intermediate holding company holding Intermediate products Ventilation Ventilation products Ventilation products Ventilation products Ventilation Ventilation products Ventilation products Ventilation products Ventilation products Ventilation products Ventilation company holding Intermediate company holding Property products Ventilation company holding Intermediate products Ventilation products Ventilation products Ventilation company holding Intermediate 6 8 8 9 10 11 10 7 12 16 15 16 4 13 8 14 13 5 Fleming Way, Crawley, West Sussex RH10 9YX. Sussex West Crawley, Fleming Way, Gemla, 35599 Sweden. 136, Gransholmsvägen Nyland, Sweden. 65, 87052 Strandvägen Sweden. Stockholm-Globen, 12107 7033, Box Sweden. 4, 64831 Hälleforsnäs, Kattkärrsvägen Norway. Oslo, 1081 24B, vei Birkelands Professor Shanghai, China. Julu Road, 272–3 No. Germany. Löberschütz, 4a 07751 Ortsstraße Germany. 149A, Stelle, 21435 Uhlenhorst Belgium. 8, 8520 Kuurne, Verhaeghestraat Pieter Netherlands. 5521 DB Eersel, 16, Kerver France. Lille, FR-59000 130, de la Liberté Boulevard Zealand. New 2013, Auckland, Tamaki, East Place, 1 Haliday Hollola, 15680 Finland. 17, Keskikankaantie Denmark. Odder, 17B, DK-8300 Rude Havvej Australia. VIC 3201, Pl, Carrum Downs 4 Capital Ventilair Group Belgium BVBA Belgium Group Ventilair Ventilair Group Netherlands B.V. PAX AB AS) Norge Fresh (formerly AS Norge Volution inVENTer GmbH inVENTer Simx Limited Simx (formerly known as AirFanVent-Axia B.V.) B.V. Woomera Pty Limited Ventair PtyVentair Limited Registered offices Registered 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Air Connection ApS Connection Air Volution Ventilation New Zealand Limited (formerly known as as known (formerly Limited Zealand New Ventilation Volution Chinook Limited) Group company Group VoltAir System AB Annual Report 2019 Report Annual details continued structure Group 30. Ventilair France SARL France Ventilair Oy Pamon Ab Fresh Shanghai Limited Shanghai Fresh Volution Management Holdings GmbH Holdings Management Volution Volution Deutschland Real GmbH Estate GmbH Energiekonzepte Brüggemann BVBA International Group Ventilair Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
31. Commitments and contingencies
Accounting policy Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Payments under operating leases are charged to the statement of comprehensive income on a straight line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.
Operating lease commitments The Group has entered into commercial leases on certain items of land and building and others. These leases have an average life of between five and fifteen years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these contracts.
Future minimum rentals payable under non-cancellable operating leases are as follows:
Land and buildings Other 2019 2018 2019 2018 £000 £000 £000 £000 Within one year 3,364 1,729 449 281 After one year but not more than five years 10,014 7,260 544 350 More than five years 16,954 9,831 — —
30,332 18,820 993 631
Commitments Commitments for the acquisition of property, plant and equipment as of 31 July 2019 are £469,000 (2018: £158,000).
32. Share-based payments The Company operates a share-based incentive scheme for Directors and key employees, known as the Volution Long Term Incentive Plan (LTIP). Share options were granted in October 2016, March 2018 and October 2018; these nil-cost options normally vest after three years assuming continuing employment with the Company. The extent to which the options will vest is dependent upon the Company’s performance over a three-year period set at the date of grant. The vesting of the awards will be determined by the Company’s relative total shareholder return (TSR) performance and EPS growth. The TSR element of the options granted has been valued using the Group’s share price volatility, the correlation between the share price movements of TSR comparators and the relevant vesting schedule.
2019 2018 Number Number Outstanding at 1 August 2,010,811 1,624,828 Granted during the year 937,026 745,479 Dividend equivalent added on vesting 15,461 19,894 Exercised during the year (21,099) (37,013) Lapsed during the year (260,910) (342,377)
Outstanding at 31 July 2,681,289 2,010,811
The weighted average exercise price for all options is £nil.
Of the total number of options outstanding at 31 July 2019 612,783 had vested and were exercisable.
The weighted average fair value of each option granted during the year was £1.87 (2018: £2.01).
The following information is relevant in the determination of the fair value of options granted during the year under the LTIP:
148 Financial Statements 3 Nil 149 475 475 2018 1.87 2019 £000 0.91% 33.3% Monte Carlo 895 895 2019 £000 Expected volatility The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of share share of analysis on a statistical is based price returns, share expected of deviation the standard at measured assumption, volatility The the option. of life with the expected commensurate a period prices over comprises: expense remuneration share-based The Weighted average share price grant (£) at date periods. or previous during the current than employees with parties other transactions payment share-based any into enter did not Group The Risk-free interest rate 33. Events after the reporting period after 33. Events would that financial statements the consolidated of authorisation of and the date 31 July 2019 between events been no material have There or disclosure. financial statements the consolidated of adjustments require schemes Equity-settled used model pricing Option Annual Report 2019 Report Annual continued payments 32. Share-based Exercise price (£) price Exercise Expected (years) life Financial Statements Volution Group plc
Notes to the Consolidated Financial Statements continued For the year ended 31 July 2019
34. Glossary of terms Adjusted basic and diluted EPS: calculated by dividing the adjusted profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the adjusted net profit/(loss) attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are 551,467 dilutive potential ordinary shares at 31 July 2019 (2018: 413,555).
Adjusted EBITDA: adjusted operating profit before depreciation and amortisation.
Adjusted finance costs: finance costs before net gains or losses on financial instruments at fair value and the exceptional write off of unamortised loan issue costs upon refinancing.
Adjusted operating cash flow: adjusted EBITDA plus or minus movements in operating working capital, less net investments in property, plant and equipment and intangible assets.
Adjusted operating profit: operating profit before exceptional operating costs, release of contingent consideration and amortisation of assets acquired through business combinations.
Adjusted profit after tax: profit after tax before exceptional operating costs, release of contingent consideration, exceptional write off of unamortised loan issue costs upon refinancing, net gains or losses on financial instruments at fair value, amortisation of assets acquired through business combinations and the tax effect on these items.
Adjusted profit before tax: profit before tax before exceptional operating costs, release of contingent consideration, exceptional write off of unamortised loan issue costs upon refinancing, net gains or losses on financial instruments at fair value and amortisation of assets acquired through business combinations.
Adjusted tax charge: the reported tax charge less the tax effect on the adjusted items.
CAGR: compound annual growth rate.
Cash conversion: is calculated by dividing adjusted operating cash flow by adjusted EBITA.
Constant currency: to determine values expressed as being at constant currency we have converted the income statement of our foreign operating companies for the year ended 31 July 2019 at the average exchange rate for the period ended 31 July 2018. In addition, we have converted the UK operating companies’ sale and purchase transactions in the year ended 31 July 2019, which were denominated in foreign currencies, at the average exchange rates for the year ended 31 July 2018.
EBITDA: profit before net finance costs, tax, depreciation and amortisation.
Net debt: bank borrowings less cash and cash equivalents.
Operating cash flow: EBITDA plus or minus movements in operating working capital, less share-based payment expense, less net investments in property, plant and equipment and intangible assets.
150 Financial Statements
151 174 297 542 2018 2018 603 (273) £000 1,690 11,527 (1,962) 2,000 94,249 93,349 167,001 (19,699) (19,699) 179,983 179,983 199,322 (94,605) (94,605) (114,304) 294,287 200,038
39 157 907 598 2019 (273) £000 1,599 95,111 2,000 11,527 (2,030) 94,165 177,031 (19,943) (19,943) (85,391) (85,391) 295,188 199,322 189,854 189,854 200,077 (105,334)
7 5 4 9 6 8 11 10 Notes Andy O’Brien Financial Officer Chief liabilities Total
Cash and short-term deposits short-term and Cash Retained earnings Retained Current assets Deferred tax asset Property, plant and equipment and plant Property, Treasury shares Treasury Other receivables and prepayments and receivables Other Trade and other payablesTrade borrowings and loans Interest-bearing capital Share Net assets Current liabilities Current Capital and reserves statements. been included in these financial not has income statement the Company’s 2006, Act the Companies of 408 Section by permitted As million). £7.9 million (2018: £19.2 was ended 31 July 2019 the year for profit Company’s The and authorised for Directors of the Board by approved were 09041571) number: plc (registered Group Volution of financial statements The 2019. issue on 9 October the Board On behalf of Non-current assets Annual Report 2019 Report Annual Position Financial of Statement Company Parent 2019 31 July At George Ronnie Officer Executive Chief Share premium Share Other current financial assets financial current Other Investments Total equity Share-based payment reserve Share-based payment Total assets Total liabilities Non-current Capital reserve Capital Financial Statements Volution Group plc
Parent Company Statement of Changes in Equity For the year ended 31 July 2019
Share-based Share Share Treasury payment Capital Retained capital premium shares reserve reserve earnings Total £000 £000 £000 £000 £000 £000 £000 At 1 August 2017 2,000 11,527 (2,027) 1,289 (273) 165,673 178,189 Profit for the year — — — — — 7,904 7,904 Total comprehensive income — — — — — 7,904 7,904 Share-based payment — — 65 401 — — 466 Dividends paid — — — — — (8,471) (8,471) Waiver of inter-group loan payable — — — — — 1,895 1,895
At 1 August 2018 2,000 11,527 (1,962) 1,690 (273) 167,001 179,983 Profit for the year — — — — — 19,202 19,202 Total comprehensive income — — — — — 19,202 19,202 Share-based payment — — — 952 — — 952 Purchase of own shares — — (1,199) — — — (1,199) Vesting of shares — — 1,131 (1,043) — (88) — Dividends paid — — — — — (9,084) (9,084)
At 31 July 2019 2,000 11,527 (2,030) 1,599 (273) 177,031 189,854
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 option schemes.
Share-based payment reserve The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key management personnel, as part of their remuneration. Refer to note 32 of the Group financial statements for further details.
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.
Retained earnings £82,335,000 of the retained earnings balance at 31 July 2019 is available for distribution (2018: £72,214,000).
152 Financial Statements
18 — 63 157 (65) 153 557 239 446 2018 2018 603 (128) (891) (572) (779) (796) (954) £000 (684) 1,284 7,904 (8,471) (1,049) 35,138 (57,862) 103,474 (34,627) (40,907)
(9) 26 39 (73) 143 134 247 895 303 603 2019 490 (180) (745) (753) £000 (564) (490) (1,199) 2,243 (2,013) 17,500 (9,084) 21,345 19,202 (27,067) (22,043)
4 4 Note Finance costs Finance Cash flows relating exceptional to costs Investing activities Investing Interest received Interest Dividend paid to equity holders equity to paid Dividend Profit for the for Profit year after tax Income tax the for year prepayments and receivables other in Increase equipment and plant property, of Purchase paid Interest Exceptional costs Net cash flow (used in)/generated from financing activities financing from in)/generated (used flow cash Net Share-based payment expense Share-based payment Net cash flow generated from/(used operating in) activities Purchase own shares of Net (decrease)/increase in cash and cash equivalents cash equivalents cash and in (decrease)/increase Net Issue costs new of borrowings Adjustments reconcile to profit for the year net to cash flow from operating activities: Cash and cash equivalents the at start the of year Financing activities Financing activities Operating Annual Report 2019 Report Annual Flows Cash of Statement Company Parent 2019 ended 31 July the year For Depreciation of property, plant and equipment and plant property, of Depreciation Net cash flow generated from/(used investing in) activities Increase/(decrease) in trade and other payables Repayment of interest-bearing loans and borrowings and loans interest-bearing of Repayment Working capital adjustments: capital Working Cash and cash equivalents at the end the of year Proceeds from new borrowings new from Proceeds Finance revenue Finance Effect of exchangeEffect of on foreign-denominated rates loans Financial Statements Volution Group plc
Notes to the Parent Company Financial Statements For the year ended 31 July 2019
1. General information These financial statements were approved and authorised for issue by the Board of Directors of Volution Group plc (the Company) on 9 October 2019.
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.
2. Basis of preparation The financial statements of Volution Group plc (the Company) are presented as required by the Companies Act 2006. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
The financial statements are presented in Sterling (£), rounded to the nearest thousand (£000) unless otherwise stated. They have been prepared under the historical cost convention.
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented an income statement or a statement of comprehensive income for the Company. The profit for the year is disclosed in the statement of changes in equity.
The policies applied by the Company are consistent with those set out in the notes to the consolidated financial statements. The following additional policies are also relevant to the Company financial statements.
Investments Investments in subsidiary undertakings are valued at cost, being the fair value of the consideration given and including directly attributable transaction costs. The carrying value is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
Dividends received Revenue is recognised when the Company’s right to receive the payment is established, which is generally when the shareholders approve the dividend.
Financial instruments For detailed disclosures of financial instruments refer to note 28 of the Group financial statements.
New standards and interpretations The following standards and interpretations are new or amended and have been effective for the first time in 2019.
IFRS 9 Financial Instruments IFRS 9 Financial Instruments was issued in July 2014 and replaces IAS 39 Financial Instruments: Recognition and Measurement.
The Company applied IFRS 9 prospectively, with an initial application date of 1 August 2018. The Company has not restated the comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS 9 were not material therefore no adjustment has been made to opening retained earnings or other components of equity.
IFRS 9 has introduced changes to the accounting for impairment of financial assets, which has resulted in the Company moving away from an incurred loss model to an expected credit loss (ECL) model. The revised standard has impacted the way in which the Company calculates the ECL, however the impact is not material.
IFRS 9 has also impacted the classification of the Company’s Other receivables. Other receivables classified as loans and receivables as at 31 July 2018 are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. These are classified and measured as debt instruments at amortised cost beginning 1 August 2018.
The adoption of IFRS 9 has not had a material impact on the Company’s financial statements.
IFRS 16 Leases IFRS 16 Leases was issued in January 2017 to replace IAS 17 Leases. The standard is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Company on 1 August 2019.
The Directors do not consider IFRS 16 to have a significant impact on the Company.
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.
Critical accounting judgements and key sources of estimation uncertainty The preparation of the Company financial statements requires the use of certain judgements, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions relevant to the financial statements are embedded with the relevant notes to the consolidated financial statements.
154 Financial Statements
13 87 52 30 90 155 239 845 2018 2018 2018 2018 £000 £000 1,423 2,766 2,407 Number
13 91 29 54 895 939 209 2019 2019 2019 £000 £000 1,561 2,957 4,090 Number Directors’ remuneration Directors’ The number of Directors accruing benefits under Company money purchase pension arrangements was nil (2018: nil). nil (2018: was pension arrangements purchase money under Company benefits accruing Directors number of The Hollingworth, Paul Reading, Hill, Tony Peter of in respect £336,000) (2018: £359,000 of and expenses fees also incurred Company The Directors. their services Non-Executive as and Amanda Mellor for Tiney Claire Other pension costs relate to the Company’s contribution to defined contribution pension plans. Total contributions payable in the next financial financial in the next payable contributions Total pension plans. contribution defined to contribution the Company’s to relate Other pension costs in 2019/20. salary on actual levels based but those in 2018/19 similar to broadly rates be at to expected are year in the year employees number of monthly Average Other pension costs pension Other Aggregate Directors’ remuneration Directors’ Aggregate remuneration Director’s Aggregate Amounts paid in respect qualifying of services Administration 3. Staff costs 3. Staff salaries and Wages Carrying value of investments of Carrying value company parent to the adjustment of causing a material a significant risk has that date the reporting at uncertainty estimation of source key The 5. out in note set the investments of is the recoverability financial statements net future expected in potential factoring investments, the of and value performance on the expected based is estimated recoverability The when these financial statements available on information estimation its based Company The the investments. from be generated to cash flow changes or circumstances market change due to may developments about future and assumptions circumstances Existing prepared. were occur. when they reflected Such changes are Company. the of the control arising beyond Annual Report 2019 Report Annual continued preparation 2. Basis of In respect the of highest paid Director Aggregate Directors’ pension scheme contributions scheme pension Directors’ Aggregate Aggregate Director’s pension scheme contributions scheme pension Director’s Aggregate
Share-based payment charge Share-based payment Social security costs security Social Financial Statements Volution Group plc
Notes to the Parent Company Financial Statements continued For the year ended 31 July 2019
4. Property, plant and equipment Fixtures, fittings, tools, equipment and vehicles Total 2019 £000 £000 Cost At 1 August 2018 198 198 Additions 9 9 At 31 July 2019 207 207 Depreciation At 1 August 2018 24 24 Charge for the year 26 26 At 31 July 2019 50 50 Net book value At 31 July 2019 157 157
Fixtures, fittings, tools, equipment and vehicles Total 2018 £000 £000 Cost At 1 August 2017 70 70 Additions 128 128 At 31 July 2018 198 198
Depreciation At 1 August 2017 6 6 Charge for the year 18 18 At 31 July 2018 24 24
Net book value At 31 July 2018 174 174
5. Investments £000 Cost At 31 July 2018 and 31 July 2019 199,322
For a list of the subsidiaries in which Volution Group plc held 100% of the voting shares as at 31 July 2019, see note 30 of the Group financial statements.
156 Financial Statements
311 157 297 297 504 2018 2018 2018 2018 598 2019 £000 £000 £000 £000 (805) £000 1,223 18,165 31 July Current 95,410 19,699 92,845 93,349 94,605 Non-current
2018 — — — 57 123 907 907 390 2019 2019 2019 £000 £000 £000 £000 £000 1,834 Current to equity to Current 17,986 Charged Charged 94,165 19,943 93,775
(1) £000 (755) £000 Charged Charged 86,146 85,391 to income to Non-current
2019 — — — 542 2018 £000 £000 1 August 1 Current Borrowings under the revolving credit facility (maturing 2022) Foreign exchange forward contracts forward exchange Foreign
Temporary differences Temporary Amounts Group owed to undertakings 7. Other receivables and prepayments Other receivables 7. Amounts Group owed by undertakings Deferred tax assets and liabilities arise from the following: arise and liabilities from assets tax Deferred asset tax Deferred Annual Report 2019 Report Annual tax balances Deferred 6. Unsecured – at amortised cost 10. Interest-bearing loans and borrowings Interest-bearing 10. 9. Trade and other payables and other Trade 9. payables Trade Financial assets Financial 8. Other financial assets Prepayments Accruals In December 2018, the Group exercised the option to extend its multicurrency revolving credit facility by a period of twelve months at a cost a cost at months twelve a period of by facility credit revolving multicurrency its extend to the option exercised the Group In December 2018, 15 December 2022. is now date million; the maturity £0.2 of with HSBC Scotland Bank of HSBC and the Royal Bank A/S, Danske from facility credit comprised a revolving 31 July 2019 at Bank loans provided No security was below. out in the table set are loans outstanding The agreement. a facilities by governed and are agent as acting under the facility. Cost of arranging bank loan bank arranging of Cost
consolidated in the Company’s with the gain or loss being recognised value their fair carried at are contracts forward exchange foreign The uses to the Group hierarchy value the fair for financial statements within the Group’s 28 note to Refer income. comprehensive of statement instruments. financial of value the fair determine Financial Statements Volution Group plc
Notes to the Parent Company Financial Statements continued For the year ended 31 July 2019
10. Interest-bearing loans and borrowings continued Revolving credit facility – at 31 July 2019 Amount outstanding Termination Repayment Currency £000 date frequency Rate % GBP 21,500 15 December 2022 One payment Libor + margin% Euro 40,640 15 December 2022 One payment Euribor + margin% Swedish Krona 24,006 15 December 2022 One payment Stibor + margin%
Total 86,146
Revolving credit facility – at 31 July 2018 Amount outstanding Termination Repayment Currency £000 date frequency Rate % GBP 31,000 15 December 2021 One payment Libor + margin% Euro 39,943 15 December 2021 One payment Euribor + margin% Swedish Krona 24,467 15 December 2021 One payment Stibor + margin%
Total 95,410
The consolidated leverage level fell below 1.0:1 for the year ended 31 July 2017 and therefore the margin for the first half of the year ended 31 July 2018 was 1.00%. On refinancing the margin was reduced to 0.9%. At the half year, the consolidated leverage was below 1.0:1 and therefore the margin continued to be 0.9% under the new facility. For the second half of the year ended 31 July 2018 the margin increased to 1.40% due to the acquisition of Simx Limited which increased leverage to 1.7:1; this rate has continued throughout the year ended 31 July 2019.
At 31 July 2019, the Group had £33,854,000 (2018: £24,590,000) of its multicurrency revolving credit facility unutilised.
Reconciliation of movement in financial liabilities 2019 2018 Reconciliation of movement of financial liabilities £000 £000 At 1 August 95,410 51,490 Additional loans 17,500 103,474 Repayment of loans (27,067) (57,862) Interest charge 1,913 1,017 Interest paid (1,913) (1,017) Foreign exchange 303 (1,692)
At 31 July 86,146 95,410
11. Share capital and share premium The movement in called-up share capital and share premium accounts is set out below:
Share Share Number of capital premium ordinary shares £000 £000 At 31 July 2018 and 31 July 2019 200,000,000 2,000 11,527
12. Dividends paid and proposed 2019 2018 £000 £000 Cash dividends on ordinary shares declared and paid Interim dividend for 2019: 1.60 pence per share (2018: 1.46 pence) 3,172 2,903
Proposed dividends on ordinary shares Final dividend for 2019: 3.30 pence per share (2018: 2.98 pence) 6,541 5,926
The interim dividend payment of £3,172,000 is included in the consolidated statement of cash flows.
The proposed dividend on ordinary shares is subject to approval at the Annual General Meeting and is not recognised as a liability at 31 July 2019.
158 Financial Statements — 159 £000 18,165 18,165 owed to Amounts related parties related 2018 902 £000 91,943 owed by 92,845 Amounts related parties related — £000 owed to 17,986 17,986 Amounts related parties related 2019 745 £000 owed by owed by 93,775 93,030 Amounts related parties related All text to be supplied be to text All
14. Share-based payments 14. Share-based financial statements. the Group 32 of note to refer employees to granted payments share-based of disclosures detailed For Related parties Related Limited Group Ventilation Volution The following table provides the total amount of transactions that have been entered into with subsidiary undertakings for the relevant the relevant with subsidiaryfor undertakings into been entered have that transactions of amount the total provides table following The financial period. Annual Report 2019 Report Annual party13. Related transactions Volution Holdings Limited Holdings Volution the legal form. merely not relationship, the of the substance to is directed attention party relationship, possible related In considering each personnel management key Compensation of that plc. It is the Board Group Volution personnel of management be key to deemed are Directors and Non-Executive Executive The the Executive of details 3 for note to Please refer the Group. of the activities and controlling planning, directing for has responsibility remuneration. Directors’ and Non-Executive their close of personnel or members management key its and the Company between or balances transactions no material were There amounts. any the Company owe personnel did not management key the year, the end of At family. Additional Information Volution Group plc
Glossary of Technical Terms
Alternating current or AC the flow of electric current which reverses direction periodically, typically at 50Hz in the UK and Europe. This is the standard type of electricity supply to domestic and commercial properties AC blowers a low-pressure fan with an AC motor AC motor an alternating current motor AHU air handling unit: a ventilation device which usually integrates air, heating and filtration into one combined unit. May also include cooling and heat recovery Decentralised heat recovery a system of ventilation that collects heat from exhaust air that would otherwise be lost and reuses such heat by transferring it to the incoming fresh air. Decentralised heat recovery consists of multiple units supplying and extracting from around the home EC/DC electronically commutated direct current Electronically commutated or EC a type of motor which historically used a mechanical means of reversing the current flow but which now uses an electronic device to do the same, which is more reliable and more efficient Fan coil a device used to heat or cool a space which includes a water coil and fan for connection to the wider HVAC package within a building HVAC heating, ventilation and air conditioning Hybrid ventilation a method that combines both passive and mechanical means to form a mixed mode ventilation system IAQ indoor air quality Lo-Carbon products a trademark used to represent our low-energy range of products MEV Mechanical Extract Ventilation: a system of ventilation operated by a power-driven mechanism which extracts air from a room and discharges it only to the external air Motorised impellers a motor that is supplied complete with an impeller attached to it MVHR Mechanical Ventilation with Heat Recovery: a centralised system of ventilation that collects heat from exhaust air that would otherwise be lost and reuses such heat by transferring it to the incoming fresh air NVHR Natural Ventilation with Heat Recycling OEM original equipment manufacturer PIV Positive Input Ventilation: this is an energy-efficient method of pushing out and replacing stale, unhealthy air by gently pressurising the home with fresh, filtered air to increase the overall circulation of air in the dwelling RMI repair, maintenance and improvement Rotary heat exchanger a type of heat exchanger consisting of a circular honeycomb matrix which rotates in the air stream of a heat recovery device Plate heat exchanger a type of heat exchanger consisting of a series of plates which transfer the heat from one airstream to another Specifiers persons who may specify certain characteristics of products
160 Shareholder Information
Shareholder services Company Secretary and registered office For any enquiries concerning your shareholding please contact Michael Anscombe FCIS our registrar: Volution Group plc Fleming Way Equiniti Limited Crawley Aspect House West Sussex RH10 9YX Spencer Road United Kingdom Lancing West Sussex BN99 6DA Registered in England and Wales United Kingdom Company number: 09041571
Equiniti has a shareholder portal offering access to services and LSE ticker code: FAN information to help manage your shareholdings and inform your important investment decisions. Please visit www.shareview.co.uk. Legal Entity Identifier: 213800EPT84EQCDHO768
Shareholder helpline: 0371 384 2030* from the UK Tel: +44 (0) 1293 441 662 or +44 (0) 121 415 7047 from overseas. Shareholder enquiries: [email protected] General enquiries: [email protected] * Lines are open 8.30 am to 5.30 pm, Monday to Friday (excluding public holidays in England and Wales). Website: www.volutiongroupplc.com You can access our Annual Report and Accounts and other shareholder communications through our website, Forward-looking statements www.volutiongroupplc.com. The Annual Report and Accounts contains certain statements, statistics and projections that are or may be forward looking. The accuracy and completeness of all such statements including, without limitation, statements Company advisers regarding the future financial position, strategy, projected costs, plans and External independent auditor objectives for the management of future operations of Volution Group plc and its subsidiaries is not warranted or guaranteed. These statements typically Ernst & Young LLP contain words such as “intends”, “expects”, “anticipates” and “estimates” and words of similar import. By their nature, forward-looking statements involve Joint corporate brokers risk and uncertainty because they relate to events and depend on circumstances Liberum Capital Limited that will occur in the future. Although Volution Group plc believes that the expectations reflected in such statements are reasonable, no assurance can Canaccord Genuity Limited be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Volution Group plc, that could Legal adviser cause actual results and developments to differ materially from those expressed Norton Rose Fulbright LLP or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities Financial PR adviser may be listed, Volution Group plc has no intention or obligation to update forward-looking statements contained herein. Tulchan Communications LLP
Volution Group’s commitment to environmental issues is reflected in this Annual Report which has been printed on Arcoprint, an FSC® mix certified paper, which ensures that all virgin pulp is derived from well-managed forests and other responsible sources. Volution Group plc Annual Report 2019
Volution Group plc Fleming Way Crawley West Sussex RH10 9YX United Kingdom www.volutiongroupplc.com