Volution Group plc Annual Report 2016
Excellence in
ventilation
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Strategic Report
Governance Report
Financial Statements
Additional Information
02 Highlights
04 At a Glance
06 Chairman’s Statement
44 Board of Directors
46
Introduction to Governance
47 Corporate Governance
08 Chief Executive Officer’s Review
54 Nomination Committee Report
56 Audit Committee Report
61 Directors’ Remuneration Report
77 Directors’ Report
80 Directors’ Responsibility
Statement
12 Our Business Model
14 Our Strategy
16 Brands in Action
18
Innovation in Action
20 Scale in Action
22 People in Action
24 Technology Highlight
26 Key Performance Indicators
30 Principal Risks and Uncertainties
36 Corporate Social Responsibility
38 Operational Review
40 Financial Review
81
Independent Auditor’s Report
143 Glossary of Technical Terms
90 Consolidated Statement
144 Shareholder Information
of Comprehensive Income
91 Consolidated Statement
of Financial Position
92 Consolidated Statement
of Changes in Equity
93 Consolidated Statement
of Cash Flows
94 Notes to the Consolidated
Financial Statements
132 Parent Company Statement
of Financial Position
133 Parent Company Statement
of Changes in Equity
134 Parent Company Statement
of Cash Flows
135 Notes to the Parent Company
Financial Statements
Find out more online
www.volutiongroupplc.com
Volution Group plc is a leading supplier
of ventilation products to the residential
and commercial construction markets
in the UK and northern Europe.
We aim for our products to enhance our
customers’ experience of ventilation
by reducing energy consumption,
improving design and making them
easier to use.
Our acquisition strategy has increased
the number of our key brands from
seven to twelve during the year.
Locations
Acquisition in FY16
Highlights
Strong results with revenue
growth of 19% and EPS up 15%
Financial
Strategic
> Four acquisitions completed in the year broadening
> We saw an increase in sales of high end products
our geographic range and routes to market.
> Revenue growth of 18.7% (18.6% at constant
currency) comprised:
> organic revenue growth of 3.0%
(3.1% at constant currency); and
> inorganic revenue growth of 15.7% (15.5% at
constant currency) as a result of acquisitions.
> Adjusted operating profit growth of 10.4%
to £32.5 million (10.3% at constant currency).
> As anticipated, adjusted operating profit margin
declined by 1.6% as a consequence of new
acquisitions. Like-for-like adjusted operating profit
margin improved by 0.2 percentage points to 22.8%.
> Reported profit before tax of £18.4 million
(2015: £15.5 million).
> Net debt increased as a result of four acquisitions
made in the year; adjusted EBITDA ratio of 1.0x.
> Full year dividend of 3.80 pence per share, up 15.2%.
> Adjusted EPS growth of 14.5% to 12.6 pence
(2015: 11.0 pence).
such as quiet, silent and energy-efficient fans and the
launch of a range of app-controlled fans in the Group,
driving organic growth.
> Four acquisitions completed during the year with all
integration activity progressing as anticipated:
> Ventilair provides the Group with access to markets
in both Belgium and the Netherlands.
> Energy Technique (trading as Diffusion) complements
the Group’s leading position in the UK with its
strong position in the niche market of fan coils
for heating and cooling of both commercial
and residential buildings. Diffusion sells mainly
into the new build market.
> NVA Services (trading as National Ventilation and
Airtech) provides the Group with additional brands
and routes to the UK market. It supplies
ventilation products for both residential
and commercial applications.
> Welair, a small heat recovery manufacturer in
Sweden, provides the Nordic business with a
wider product portfolio and greater exposure
to the new build market.
> OEM (Torin-Sifan) revenue growth was assisted
by growth in the Electronically Commutated (EC)
motor sales category in both the heating and
ventilation markets.
The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted
EBITDA, adjusted operating profit, adjusted profit before tax and adjusted operating cash flow.
Notes
1.
Details of adjusted operating profit and adjusted profit before tax can be found in note 10 to the consolidated financial statements.
2.
For a definition of all adjusted measures see the glossary of terms in note 36 to the consolidated financial statements.
02
Volution Group plcAnnual Report 2016Strategic Report Revenue £m
£154.5m
120.7
130.2
102.3
154.5
Adjusted operating profit and adjusted operating
profit margin £m (% of revenue)
£32.5m
(21.0%)
26.5
(22.0%)
22.2
(21.7%)
29.4
(22.6%)
32.5
(21.0%)
2013
2014
2015
2016
2013
2014
2015
2016
Adjusted basic and diluted EPS p
Adjusted operating cash flow £m
12.6p
12.6
11.0
8.8
£31.1m
20.9
22.8
31.1
27.6
2014
2015
2016
2013
2014
2015
2016
Net debt £m
£36.1m
Reported profit before tax £m
£18.4m
172.7
2013
15.5
18.4
42.9
2014
21.2
2015
36.1
2016
(15.5)
(4.2)
2013
2014
2015
2016
Dividend per share p
3.80p
3.80
3.30
Nil
2013
Nil
2014
2015
2016
03
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information At a Glance
Volution Group plc is a leading supplier of ventilation products to the residential
and commercial construction markets in the UK and northern Europe.
We operate through two segments: the Ventilation Group and OEM (Torin-Sifan).
Ventilation Group segment
OEM (Torin-Sifan) segment
The Ventilation Group consists of eleven key brands, focused
primarily on the UK, Swedish, Norwegian, German, Belgian
and Dutch ventilation markets:
In the UK:
Vent-Axia, Manrose, Diffusion,
National Ventilation and Airtech
In the Nordics:
Fresh, PAX and Welair
Torin-Sifan is a leading supplier of motors, motorised impellers,
fans and blowers for the European heating, ventilation and
air conditioning (HVAC) industry. The majority of Torin-Sifan’s
products are sold into the residential and commercial heating
and ventilation products markets.
In Central Europe: Ventilair, inVENTer and Brüggemann
% of Volution Group revenue (by sector)
The Ventilation Group has market-leading positions in the UK
residential ventilation products market, the Swedish residential
refurbishment ventilation products market and the German
decentralised heat recovery residential ventilation systems market.
Ventilation Group
2016
2015
OEM (Torin-Sifan)
2016
13.2%
2015
14.4%
During the year, we completed acquisitions which have:
> strengthened our position in UK residential ventilation with the
acquisition of NVA Services, adding the National Ventilation
and Airtech brands;
> broadened our geographic spread into the Belgian and Dutch
residential ventilation markets with the addition of Ventilair;
% of Ventilation Group revenue (by sector)
UK residential
UK commercial
2016
2015
2016
2015
16.2%
14.5%
> strengthened our exposure to the UK new build commercial
market with the addition of the Diffusion fan coil brand,
through the acquisition of Energy Technique; and
UK export
Nordics
> expanded our product capability in the Nordics into the rotary
wheel heat recovery market with the acquisition of Welair.
Central Europe
2016
5.8%
2015
7.5%
2016
2015
2016
2015
19.0%
20.0%
17.8%
9.8%
86.8%
85.6%
41.2%
48.2%
04
Volution Group plcAnnual Report 2016Strategic Report
Our business model
Our recent history
We have four key differentiators that are our pivotal
focus: Brands, Innovation, Scale and People.
The Volution Group was formed in
December 2002 through the buy-out
from Smiths Group plc of its air movement
and cable management divisions.
Brands
People
Innovation
Scale
Our Business Model
> page 12
Our strategy
Our strategy continues to focus on three key pillars:
Organic growth in our core markets
Growth through a disciplined and
value-adding acquisition strategy
Further develop Torin-Sifan’s range and
build customer preference and loyalty
Our Strategy
> page 14
2006
2007
2008
2012
> AAC Capital and Management Team
acquires Volution Holdings
> Cable management division sold
> Manrose Manufacturing acquired
> Ronnie George joins Volution Holdings
as Managing Director
> TowerBrook acquires Volution Holdings
> Fresh AB acquired
2013
> PAX AB acquired
> Assets and business of Öko-Haustechnik
2014
inVENTer GmbH acquired
> Volution Group plc is formed and
listed on the London Stock Exchange
> Torin-Sifan opens new Manufacturing and
Technology Centre in Swindon
2015
FY16
> Brüggemann Energiekonzepte
GmbH acquired
> Ventilair Group International BVBA acquired
> Weland Luftbehandling AB
(renamed Welair AB) acquired
> Energy Technique plc
(trading as Diffusion) acquired
2016
> NVA Services Limited (trading as National
Ventilation and Airtech) acquired
Find out more online
> www.volutiongroupplc.com
05
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Chairman’s Statement
Peter Hill, CBE
Summary
> Strong results in line with
our expectations
> Continued to deliver on all three
strategic pillars
> Completed four value-adding and
strategically important acquisitions
> Strong cash generation supporting
ambition to grow through acquisition
> Full year dividend increased by 15.2%
I am proud to announce
another year of strong
performance.
Peter Hill, CBE
Chairman
06
Dear shareholder,
I am proud to announce another year of strong performance.
The Group has recorded another year of revenue and underlying
operating profit growth, making this the fifth consecutive year
of growth.
Our strategy remains unchanged. Organic growth, combined with
selective value-adding acquisitions, has supported the achievement
of another year of strong performance and growth in revenues
and profitability. You can find further details on the Group’s three
strategic pillars on pages 14 to 15.
Results
The strong set of results reflects the strong growth achieved, both
organically and through acquisitions, with Group revenue increasing
by 18.7% to £154.5 million. Adjusted operating profit was
£32.5 million, representing 21.0% of revenue and a £3.1 million
improvement compared to the prior year. The basic and diluted
earnings per share for the year was 7.8 pence (2015: 5.9 pence).
Our adjusted earnings per share was 12.6 pence, a significant
14.5% increase over the adjusted earnings per share for the prior
year of 11.0 pence. Cash generation was strong with adjusted
operating cash flow of £31.1 million (2015: £27.6 million). Our
organic growth results showed strong growth in the Nordics and
UK Residential New Build offset by the disappointing performance
in UK Residential RMI. Revenue from the OEM (Torin-Sifan)
segment was £20.4 million, up 9.0% (8.8% at constant currency).
Inorganic growth of £21.2 million during the year benefited from
the acquisitions of Ventilair, Energy Technique, NVA Services and
Welair. Net debt at the year end of £36.1 million (2015: £21.2 million)
was only £14.9 million higher than last year, despite having completed
four acquisitions costing £25.0 million.
Volution Group plcAnnual Report 2016Strategic Report Acquisitions
Governance
During the year, the Group made excellent progress with its
strategy of making selective value-adding and strategically
important acquisitions in our ventilation segment as follows:
> Ventilair provides the Group with access to markets in both
Belgium and the Netherlands.
> Energy Technique (trading as Diffusion) complements the
Group’s leading position in the UK with its strong position in
the niche market of fan coils for heating and cooling of both
commercial and residential buildings. Diffusion sells mainly
into the new build market.
> NVA Services (trading as National Ventilation and Airtech)
provides the Group with additional brands and routes to the
UK market. It supplies ventilation products for both residential
and commercial applications.
> Welair, a small heat recovery manufacturer in Sweden,
provides the Nordic business with a wider product portfolio
and greater exposure to the new build market.
All acquisitions were funded from the Group’s existing cash
and banking facilities. As a board, we evaluate each acquisition
opportunity very carefully to ensure that it meets our strategic
objectives as well as the financial hurdles set for investment.
More details can be found in the Chief Executive Officer’s Review
and in the Financial Review. These acquisitions are on track to
deliver revenue and profit growth for the Group and have been
earnings enhancing. We very much welcome the employees of
all these companies into the Volution Group.
Dividends
We aim to deliver shareholder value through organic and inorganic
growth and a sustainable dividend policy. We paid an interim
dividend of 1.20 pence per share in May 2016. On the basis of
our strong results, the Board has recommended a final dividend
of 2.60 pence per share, giving a total dividend for the financial
year of 3.80 pence per share (2015: 3.30 pence per share),
an increase of 15.2% on the previous year. As a consequence
of this recommendation, the resulting adjusted earnings dividend
cover for the year is 3.32x (2015: 3.33x). Subject to approval by
shareholders at the Annual General Meeting on 9 December 2016,
the final dividend will be paid on 14 December 2016 to shareholders
on the register at 18 November 2016.
UK referendum on EU membership
Following the UK’s vote to leave the European Union, the Company
has been monitoring business performance closely and has not
yet seen any discernible impact on trading.
Although too early to assess the implications for our business
and operations over the longer term, we believe that the outcome
of the referendum will not have any material near-term impact
on demand for our products. Following the four acquisitions
completed during the last financial year, Volution is now a more
diversified and flexible business which can adjust if necessary.
With our proven track record of performing well in challenging
trading environments and our strong balance sheet, we are
confident about delivering on our strategy over time.
The Group continues to be committed to high levels of corporate
governance, in line with its status as a company with a premium
listing on the Main Market of the London Stock Exchange. Details
of our processes and approach, including those relating to the
role and effectiveness of the Board, and compliance with the
UK Corporate Governance Code, are set out in the Corporate
Governance Report on pages 46 to 53.
Board
As part of the Board’s ongoing remit to set the right tone from
the top and build its understanding of Volution’s business, during
the year the Board visited the facilities in Germany and Swindon
in the UK. It is the Board’s intention to continue to visit other
facilities across the Group to build its understanding of each
business unit.
On 3 August 2016, Claire Tiney joined the Board as an independent
Non-Executive Director. Claire is a highly commercial director with
over 20 years of board-level experience encompassing executive
and non-executive roles in blue-chip retailing, property development
and the services sectors, across the UK and Continental Europe.
I would like to welcome Claire to Volution Group and the Board
looks forward to working with her and to benefiting from her
board and commercial experience.
On behalf of the Board I would like to express our thanks to
Gavin Chittick, who was our non-independent Non-Executive Director
who stepped down from the Board on 18 March 2016. Gavin joined
the Group in 2012 and was appointed to the Board in May 2014,
just prior to IPO, as the Director representing Windmill Holdings B.V.,
the Group’s controlling shareholder at that time. He made a valuable
contribution to the Board and in particular helped steer the Group
through its successful IPO in June 2014.
People
As always, our people are extremely important to our success.
They are the ones who reflect our values, run our operations
and ensure we maintain good relationships with our stakeholders.
All deserve to work in safe environments and reach their full potential.
Volution’s safety record at every facility has benefited in recent
years from the establishment of global standards, measurement
and direction, and over the last year, we saw a 12% decrease
in all accidents in the workplace. I recommend that you read
the Corporate Social Responsibility section on pages 36 to 37
for further details.
On behalf of the Board, I would like to thank all our employees
for their hard work, commitment and contribution towards the
Group’s performance, making this another successful year.
Peter Hill, CBE
Chairman
11 October 2016
07
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Chief Executive Officer’s Review
Ronnie George
Summary
> Second full financial year as a listed
company, again delivering both organic
and inorganic revenue growth in line
with our strategy
> A year of strong financial results
underpinned by revenue growth of 18.7%,
and an expansion of our underlying
adjusted profit margin, excluding the
dilution from the four acquisitions
completed in the year
> Four acquisitions completed in the
year, providing the Group with greater
access to continental Europe as well
as a more diversified exposure to the
UK market
> Ongoing and significant investment in
new products including, we believe,
the world’s first app-controlled fan in
the Nordics and the market leading
residential central heat recovery
system product developed in the UK
08
Overview
Our second full financial year as a listed company continues
to build on the success of the previous year and I am pleased
to report yet another year of strong results. Volution continues
to make good progress in its strategy of making selective
value-adding acquisitions with four acquisitions completed
in the year. Ventilair, based in Belgium and the Netherlands,
completed in August 2015, Energy Technique (trading as Diffusion)
in the UK was completed in December 2015, Welair in Sweden
also completed in December 2015 and more recently we acquired
NVA Services in the UK (trading as National Ventilation and Airtech),
completed in May 2016.
The integration of Ventilair was completed during the year with
additional cross selling of heat recovery and domestic fan products
from the UK ventilation business, as well as the recent introduction
of the world’s first app-controlled extractor fan from the Nordics,
being sold through the new sales channels for the Group in
Belgium and the Netherlands.
In the UK we achieved another year of good organic growth in the
sales of higher-value ventilation systems used in new residential
dwellings and of more quiet, energy efficient ventilation used
for residential repair, maintenance and improvement (RMI)
applications which was also underpinned by the launch of
the new app-controlled fan.
Torin-Sifan delivered good organic revenue growth, despite another
mild winter, and the benefits of improved customer service and
reliability were delivered with the first full financial year of operation
of the additional new production site in Swindon, UK.
Volution Group plcAnnual Report 2016Strategic Report Our second full financial year
as a listed company continues
to build on the success of the
previous year and I am pleased
to report yet another year of
strong results.
Ronnie George
Chief Executive Officer
Ventilation Group segment
The Ventilation Group’s performance was encouraging, with
a 20.3% increase in revenue on prior year (20.3% at constant
currency). Organic growth was 1.9% (2.0% at constant currency)
including the declining revenue from the disappointing results
in UK Residential RMI offset by the strong organic growth
in UK Residential New Build and in the Nordics.
United Kingdom
Sales in our UK Residential New Build sector were £19.8 million
(2015: £17.2 million), growth of 15.4%, assisted in the year by the
additional revenues from Diffusion, acquired in December 2015.
Organic growth achieved was 7.2% with the order intake for new
residential projects growing more quickly than sales. The new
Kinetic Advance was successfully launched in the year and has
been specified for a number of projects which will come to
fruition in our financial year 2017.
The UK Residential RMI market was soft with both private refurbishment
and public refurbishment volumes declining with prices remaining
stable. Public refurbishment declined by 5.3% in the year (organic
decline of 6.0%), the first half of the year declining by 8.7%.
The public market remains difficult due to the ongoing austerity
measures and government cutbacks in particular, the impact on
Housing Association budgets of rent reductions for their tenants.
Several initiatives are underway in an attempt to gain further
market share in the future. The new product development of the
Revive™ bathroom and kitchen fan was completed in the year
and the product was launched in the summer of 2016.
The Revive™ is one of the most efficient, quiet and discrete
bathroom and kitchen fans available to the public refurbishment
market and together with the additional new product range there
has been significant investment in the sales team during the year.
Private refurbishment declined by 1.6% in the year (an organic
decline of 3.4%) and this was exacerbated by the annual price
increase being delayed until financial year 2017, against a strong
comparator, which benefited from pre-price increase buying.
The new Svara app-controlled fan was launched in 2016 and
has already established a position with both electrical wholesalers
and retailers which is expected to bring additional revenue benefit
in financial year 2017.
UK Commercial grew by 33.9% in the year to £21.7 million
(2015: £16.2 million) as a result of the acquisition of Diffusion.
The organic decline was 7.0% which was primarily due to the
RMI market which performed less well than the market for new
applications. Since acquisition, Diffusion sales have performed
very strongly with a number of notable project wins for the supply
of fan coils, requiring us to increase the manufacturing capacity
of the business to support the increasing demand.
UK Export sales were £7.8 million (2015: £6.6 million excluding
sales to Ventilair which are now eliminated as intercompany
sales), strong growth of 17.4%, benefiting from the additional
export sales from Diffusion with an organic like-for-like growth
of 3.9% (3.5% growth at constant currency). Sales to our
distribution partner Simx in New Zealand performed particularly
well as did sales of heat recovery systems to Eire.
09
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Chief Executive Officer’s Review continued
Ventilation Group segment continued
The Nordics
Sales in the Nordics sector were £25.5 million (2015: £22.2 million),
an increase of 14.7% (15.5% at constant currency) with organic
revenue growth of 10.5% (11.3% growth at constant currency).
Sales of the market-leading, low-energy and near-silent ventilation
products continued to grow during the year as they had in the
prior year. The new Calima fan, the first app-controlled extractor
fan on the market, performed very well in the year. There was
also significant growth in the sales of our electric towel warmers
sold under the PAX brand. Following the acquisition of Welair
in December 2015, integration is progressing as expected and
in the autumn of 2016 we will launch an extended range of heat
recovery units in the Nordics under the Fresh brand, designed
and manufactured by Welair.
Central Europe
Sales in Central Europe were £23.8 million, strong growth with
sales more than doubling due to the acquisition of Ventilair in
Belgium and the Netherlands. Sales in Germany were down
2.3% on the prior year although this was offset by higher gross
margin generated by replacing existing products with those
exclusively manufactured by Volution. This decision, whilst accretive
to earnings, resulted in a small loss of sales whilst the changeover
process was implemented. In June and July 2016 the sales
in Germany generated strong organic growth compared to the
prior year. During the year we increased the number of agents
operating in Germany and now have full coverage of the market,
the benefit of which we expect to see in the financial year 2017.
OEM (Torin-Sifan) segment
Our OEM (Torin-Sifan) segment’s revenue in the year was
£20.4 million (2015: £18.7 million), an increase of 9.0%
(8.8% at constant currency), with sales of EC fans growing
strongly in the year despite the delays in launching the new
EC3 motorised impeller range. Sales of alternating current (AC)
fans also delivered growth, mainly as a result of the price increase
implemented on the traditional product lines including spares for
gas boilers. Whilst it was another mild winter with volumes broadly
constant with the prior year, the additional price improvement
increased the revenue in this category. As reported last year, the
market for sales of electrically commutated direct current (EC/DC)
motorised impellers continues to grow as this area is supported
by regulatory drivers, both in the UK and in continental Europe.
Our investment in the new EC3 motorised impeller range, whilst
delayed, is expected to gain sales traction in financial year 2017.
Sales in Central Europe were
£23.8 million, strong growth
with sales more than doubling
due to the acquisition of Ventilair
in Belgium and the Netherlands.
Ronnie George
Chief Executive Officer
10
Volution Group plcAnnual Report 2016Strategic Report Three strategic pillars
Our strategy continues to focus on three key pillars:
organic growth in our
core markets
(which now extend through Ventilair to
Belgium and the Netherlands)
growth through a disciplined
and value-adding
acquisition strategy
further develop Torin-Sifan’s
range, build customer
preference and loyalty
Our Strategy
> page 14
Our core markets were greatly extended during the year and
now extend to Belgium and the Netherlands with the acquisition
of Ventilair, to heat recovery markets in the Nordics through the
acquisition of Welair, more comprehensive commercial exposure
in the UK with the acquisition of Diffusion, and greater access to
the UK residential market with the acquisition of National Ventilation
and Airtech. These markets, as well as the original core markets
for Volution, continue to benefit from the favourable regulatory
backdrop that focuses on reducing carbon emissions from
buildings (in particular new buildings) as well as the need to
improve energy efficiency.
The European market remains highly fragmented and we will continue
to pursue acquisition opportunities leveraging the Group capabilities
in operations, procurement, distribution and finance, which we
have invested in over recent years. Our Research and Development
function, as well as our recently expanded procurement function,
including our own sourcing team in China (a new investment in 2016),
should enable us to deliver substantial synergies from both existing
and potential new acquisitions.
The investment we have made in Torin-Sifan, both in new product
development and a new production facility, helped underpin our
improvements during the financial year 2016. The service levels
from Torin-Sifan, mainly an OEM supplier of motorised impellers,
significantly improved during the year. The launch of the new
EC3 motorised impeller range, whilst later than planned, is now
starting to gain approval and we expect to see sales commence
during the financial year 2017.
People
I am delighted to advise that in April 2016 we launched our
second internal Management Development Programme (MDP)
which consists of fifteen high potential managers from across all
geographic and functional areas of the Group. The programme
will now run for just over a year including site visits to several of
the Volution Group locations.
During the financial year 2016, we completed four acquisitions,
with the integration of each of these made so much easier by
the considerable hard work and dedication of our employees.
Whilst focusing on the considerable benefits of integration,
the efforts of our employees, their openness and collaborative
approach, has ensured that all of our employees, including those
in the newly acquired businesses, really do feel part of a wider
Volution team. I am particularly proud of how this process has
worked and would like to thank everyone across the Group for
making the year a great success.
Outlook
The new financial year has started well and notwithstanding
the ongoing uncertainty in the UK post the EU referendum,
our acquisitions completed in the 2016 financial year, as well as
new product launches and the various sales initiatives across the
Group, give us confidence in delivering further growth in 2017.
Ronnie George
Chief Executive Officer
11 October 2016
11
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Our Business Model
How do we create value?
The Volution Group is committed to building on the strength of our successful
business model. We continuously develop the four key differentiators that are
central to our success: Brands, Innovation, Scale and People.
Our key differentiators
Brands
Innovation
12
1,900
key brands across twelve operating companies
new product lines launched in 2015/16
Through intercompany trading and rebranding existing
product lines, as well as new product development,
we have continued to leverage our strong local brands
to launch 1,900 new product lines.
Through constant effort to improve the customer
experience, in the last year we have launched
our most sophisticated fan to date, the Revive™.
The innovative Multi-Vortex™ airflow technology makes
it the best in class.
Brands in Action
> page 16
Innovation in Action
> page 18
Our Company values
GROWTH
INNOVATION
SERVICE
RELIABILITY
12
Volution Group plcAnnual Report 2016Strategic Report Scale
People
660,000
1,337
square feet of manufacturing facilities
average number of employees
With our continued growth, we have invested in a
newly created role of Head of Group Procurement
helping to leverage our purchasing power and
increased scale.
Our ability to attract and retain talented people is vital
to our long-term success. We continue to invest in
training to support and grow our teams.
Scale in Action
> page 20
People in Action
> page 22
INTEGRITY
COMMITMENT
FUN
PROFESSIONALISM
13
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Our Strategy
The three strategic pillars
We will continue to build on our core strengths and strong industry track record to gain
further market share in each of our core geographical markets. We intend to achieve our
goals through a combination of organic growth and selective acquisitions. To achieve this,
we have identified three key strategic pillars.
Organic growth in our core markets
Continue to grow through a focused sales strategy for
each of our core market sectors. Focus on opportunities
arising from favourable regulatory environments and
continue to build public awareness to create upselling
opportunities 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
> Drive demand growth in our core markets benefiting
from regulation and educated end users
> Bespoke sales and marketing strategy to address
each market sector
> Provide innovative products to address evolving
market demand and generate upselling opportunities
> Promote sales opportunities for Group products
through newly acquired companies
Growth through a disciplined and value-adding acquisition strategy
We will continue to seek to acquire and integrate select
businesses, primarily, but not exclusively, related to the
residential ventilation market. Our focus will be principally
on opportunities in the UK and Europe, where there are
clear synergistic benefits available.
Actions
> Make acquisitions to establish leading positions in new
markets and expand our presence in existing markets
> Deliver revenue and cost synergies from acquisitions
> Increase cross-selling and export growth
Further develop Torin-Sifan’s range and build customer preference and loyalty
In the context of a favourable legislation-led shift towards
more technologically advanced, more energy-efficient
and quieter EC/DC motorised impellers, we will develop
our product range and enhance our customer offer.
Actions
> Develop a technically superior residential motorised
impeller product
> Expand the new product development function and
enhance responsiveness to customers
14
Volution Group plcAnnual Report 2016Strategic Report Achievements during the year
Future focus
> Continued growth in our value-added product lines
including Silent and app-controlled fans
> Range development, maximising the opportunities
created by the Energy Related Product Directive
> Roll-out of the Calima™ platform in the Nordics
> Maximise the sales opportunities for Group products
and wider Group channels
through the new businesses within the UK
> Expand the range of central heat recovery systems
> Launch of the Vent-Axia brand in the Netherlands
and Germany through Ventilair
Achievements during the year
Future focus
> Completion of the acquisitions of Ventilair,
Energy Technique, NVA Services and Welair
> Leveraged increased scale by establishing a centralised
Group procurement function
> Continued integration of the new acquisitions into the Group
> Continue to search and pursue new acquisition opportunities
> Maximise synergies available through our growing scale
> Further grow intercompany sales to widen product categories
> Continued the active integration of recent acquisitions
served internationally
into the Group
> Launch of Vent-Axia brand in selected new geographies
utilising new acquisitions
Achievements during the year
Future focus
> Increased the number of EC3 motor variants to 36
> Continue to drive sales in EC fan decks
> Launch of EC Direct Drive fan range, converting sales
> Continue the integration of new EC platforms
from AC to EC motors
into customers’ bespoke applications
15
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Brands in Action
Brands
As the Group’s scale continues to increase through acquisitions, we are adding
new sales channels and brands. Our ability to use our brands to create new
opportunities for the newly acquired businesses helps to generate value.
Highlights
> Five new brands acquired in the year
> Launch of the Vent-Axia brand in the
Netherlands with further roll-out planned
in Germany
> Acquisition of Welair and relaunch
of the Welair brand in Sweden
> Multi-branding of the Group’s
product portfolio
16
Volution Group plcAnnual Report 2016Strategic Report Further internationalisation of the Vent-Axia brand
Welair in Sweden
Vent-Axia has long been a strong brand in the UK market and
in September 2016 it celebrated its 80th anniversary. With a long
history of international trading and export, the brand also has
a position in over 40 countries around the world. Following
the acquisition of Ventilair, we now own a business with wide
distribution channels in the Netherlands and Belgium. To assist
in increasing sales of products from the wider Group product
portfolio, we have launched the Vent-Axia brand through the
Ventilair infrastructure. The Vent-Axia brand has been launched
in the Netherlands with its own local language website, literature
and commercial team, in order to build additional sales from
products outside the current Ventilair products portfolio.
With the acquisition of Weland Luftbehandling AB, which we
renamed Welair AB after its major product range, we have now
gained new competency to design and manufacture air handling
units for the Nordic market for both residential and commercial
applications. Following the rebranding, a new website for Welair
was launched. The new competency which Welair has added
to the Group has enabled us to design and manufacture a new
range of smaller residential and light commercial air handling units
for launch through the Fresh brand sales channel. Fresh already
has the brand and sales team necessary to take these products
to the professional channel through wholesalers. Welair will also
maintain its existing route to market.
Multi-branding of the Group’s product portfolio
We have continued to focus on intercompany trading and making
sure that we maximise our sales opportunities through all of our
channels. In the last year we have introduced intercompany products
to the newly acquired businesses as well as adding to the product
portfolios of our more established companies. Our developing sales
channels have significantly helped us open up new sales opportunities.
This has led to the launch of over 1,900 new stock-keeping units
(SKUs) across the Group.
Fresh MVHR unit
The further roll-out of the Vent-Axia brand internationally gives us an exciting
opportunity to provide new propositions to customers. This enhances our
revenue stream within the new geographies and ensures wider category
exposure without compromising existing channel and brand positions.
Lee Nurse
Marketing Director, Ventilation Group
17
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Innovation in Action
Innovation
As part of our continuing effort to improve the customer experience, we have recently
launched our most sophisticated fan to date, the Revive™. Its innovative Multi-Vortex™
airflow technology is one of its many innovative features that make it the best in class.
Highlights
> Launch of Revive™, the smallest compact
bathroom and kitchen fan available in the UK
> Roll-out of the app-controlled Calima™
platform throughout the Group
> Launch of Kinetic Advance™ (next
generation heat recovery system)
in Belgium and the Netherlands
> Increased number of variants of the EC3
Torin-Sifan EC fan decks
Torin-Sifan 3 phase motor
18
Volution Group plcAnnual Report 2016Strategic Report Developments
Torin-Sifan
We have continued to roll out the app-controlled platform across
our companies. The Calima™ platform alone now operates under
three brands in six languages, across six markets. During the year
we launched Calima™ under the PAX brand in the Nordics region
and have subsequently rolled it out in the UK, Germany, Belgium
and the Netherlands. The product has been launched under the
inVENTer brand in Germany and under the Vent-Axia brand in the
UK. With the addition of Ventilair to the Group, we also launched
it under the Vent-Axia brand in the Netherlands and Belgium.
Another example of the Group utilising its wide product portfolio
to gain synergies across its growing sales channels.
Technical excellence
With the launch of the app-controlled platform last year, we now
have a solid platform to provide the most flexible and intuitive
interface available. In addition to developing improved user interfaces
for our products, we have been working hard to improve technical
performance. We continue to strive to make the experience for
the end user the best it can be. We continually work to improve
the air movement performance of our products. In the last year
our development team has developed a new motor and impeller
platform which provides increased airflow and pressure with
extremely low noise levels and a very compact design. The first
product to include this new technology was the Revive™ fan in the
UK. We have been able to improve airflow through the product
significantly so that noise is reduced, providing a 32% reduction
in energy consumed compared to the previous Lo-Carbon product
it replaced. We are confident that these attributes make the Revive™
fan a best in class product for the UK public RMI market.
The new Revive™ fan really does
set a new standard in ventilation
design. With focus on producing
the smallest and quietest high
pressure product possible, we
have without doubt delivered
an inspired product which is
best in class.
Paul Davies
Operations Director, Ventilation Group
The range of the EC3 Torin-Sifan motor platform has now been
expanded and contains 36 product variants to cater for a wider
range of customer requirements. The expanded range will offer
scrolled variants of our forward curved product offering opening
up the number of applications for which the motor is suitable.
We continue to develop customer-specific impellers to optimise
performance, efficiency and noise level in specific applications,
as well as creating a wider range of standard impeller and
housing configurations for commercial market applications.
Such applications include fan coils and constant volume
software variants of our forward curved range ensuring
optimal airflow performance over the lifetime of the product,
as the fan adjusts to a build-up of resistance in its system.
Vent-Axia Revive™ fan (open grille)
19
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Scale in Action
Scale
With our continued focus on acquisitions, we have grown both our product portfolio and
our production capability this year. We now promote more products to more customers across
the Group and continue to focus on the sales synergy opportunities that increased scale brings.
In the last year we have invested in our procurement team ensuring we optimise the
procurement opportunities across the enlarged Group.
Highlights
> Now shipping over 23,000 SKUs to over
12,000 shipping addresses
> Increased our manufacturing and
warehouse footprint to over 660,000
square feet
> Extended the Group product proposition
by over 1,900 SKUs
20
Volution Group plcAnnual Report 2016Strategic Report Developments
Centralised internal purchasing support
Increasing manufacturing footprint
This year we created the new role Head of Group Procurement
which has brought further structure and focus to our procurement
processes and supply chain. With every acquisition we bring a focus
and granular approach ensuring we maximise the opportunities
available through the Group’s size and reach. This continues
to yield better relationships with our primary suppliers who see
increased potential being realised through growth in the business
that they transact with us.
With the acquisitions made during the year, we have increased
our manufacturing footprint by 94,000 square feet. As we integrate
new acquisitions into the Group we continue to look for ways to
optimise our manufacturing capacity. For example, we are now
expanding capacity in the recently acquired Diffusion business
by manufacturing some Diffusion components in Dudley, UK,
to assist with increased demand for Diffusion products.
Since joining the Volution team in this newly created role, I have further
developed the Group vision for the procurement function and introduced
category management strategies to deliver that vision. The procurement
function is performed by a value-adding team across the Group and we’ve
had a successful year from additional focus on business process and skills
development. The basic platform has been developed for the future,
enabling the team to harmonise and optimise cost saving synergies across
the businesses, supporting Volution to further enhance its competitive
advantage in the marketplace.
Wayne Wignall
Head of Group Procurement
21
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information People in Action
People
Our ability to attract and retain talented people is vital to our
long-term success. We continue to invest in training to support
and grow our team.
Highlights
> Launch of the latest Management
Development Programme (MDP) for 2016
> English language lessons in Germany to
support employees working within the
wider Group
> Continued upskilling of employees across
the Group
22
Volution Group plcAnnual Report 2016Strategic Report 66%
male employees
34%
female employees
80%
of employees in the UK
20%
of employees in continental Europe
Being part of Volution for more
than two years now, the inVENTer
team is enjoying and benefiting
from the new experiences inside
the Group. Joint cross-border
projects are widening our view
and this enables us to perform
in a more structured, faster and
more efficient way in our projects
and daily operations.
Annett Wettig
Country Manager, Germany
Management Development Programme
Many organisations rely purely on offsite training courses to develop
their managers for future responsibilities. In contrast, we have chosen
a blended approach. We acknowledge that a range of important
managerial skills will be learned on training courses. However,
real advantage for the business and for individuals comes from
applying the learning gained from training courses to real-life
business challenges. Our Management Development Programme
is based on four learning modules: personal effectiveness, managing
business finance, managing change, and coaching and development.
These modules are taken over a twelve month period and run in
parallel with a real-life business case that applies directly to Volution.
We believe that this process provides real advantage for the
business and for individuals as it applies the learning gained from
the course to real-life, relevant business challenges. This year’s
business case focuses on further stimulating intercompany
trading and supporting the business aim of maximising value
from our growing sales channels.
English language lessons
English is Volution’s official business language and it is therefore
important that employees are able to engage at all levels across
the Group in English. To assist this, it is important that all employees
are supported as far as possible with the development of their
language skills. In inVENTer in Germany, the management team
provided on-site English language lessons to all employees
to help them integrate within the Group. This now continues
as a weekly internal workshop to ensure all employees can
maintain their English language skills to a high standard.
Upskilling
With all of our businesses operating performance appraisals, we
continue to focus on the development needs of each individual
employee and operate both external and internal development
courses. Across the Group we continue to have a number of
individuals in the process of gaining qualifications. This year
we have had HR employees successfully pass CIPD level 5
qualifications and have marketing employees sitting their CIM
Diploma. In addition, employees in many other departments
including finance, production and sales have gained professional
level qualifications. At the same time we strive to engage as
many employees as possible to improve their own skills by
running NVQs and internal workshops.
23
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Technology Highlight
Optimising Design
The Revive™ platform is a fan designed to
maximise performance, whilst minimising
noise and energy consumption, all within
the smallest, most discreet design possible.
The secret lies within the shape of the
impeller and of the plastics that lead air
on to and off the impeller.
Bellmouth inlet
The aerodynamically efficient bellmouth design feature allows air
to enter the fan fluidly and silently. This design feature improves
efficiency and ensures the customer is not disturbed by air noise.
Impeller design
With an innovative hybrid impeller, fusing axial and mixed flow
impeller technologies, our design team has developed a high
pressure fan that is powerful and efficient, yet quiet. This ensures
that we are not compromising on performance whist delivering
the most comfortable experience for the customer. To aid the
reduction in air noise, we added a saw-tooth design to the
impeller blades which breaks up the airflow and the resulting
sound spectrum, reducing the air noise from the fan.
Octo-vortex chamber
The eight-chamber conical cylinder straightens the air coming
off the impeller to achieve greater pressure. Situated behind the
impeller blades, the cylinder leads the airflow away from the fan
more effectively, minimising dirt and dust build-up on the fan
itself. This in turn reduces maintenance and maintains peak
performance for longer.
24
Volution Group plcAnnual Report 2016Strategic Report With continued development of high end new build residential developments, we are well positioned to capitalise on the benefits that
our products offer. With the acquisition of Diffusion, we now not only supply mechanical extract ventilation systems to improve indoor
air quality, but also fan coils to help deliver flexible heating and cooling solutions. The synergies between the Vent-Axia and the Diffusion
sales channels now provide greater representation within the supply chain, ensuring we increase our importance to specifiers through
a wider solution offering. The case studies set out below are examples of where our products have been employed, and where in the
future we see more integrated solutions enabling greater sales.
Case study
Case study
The Corniche, London:
Fan coils by Diffusion
Located in the heart of London, this exclusive riverside development
is situated on the southern stretch of Albert Embankment, adjacent
to the River Thames and opposite the Houses of Parliament.
Designed by an internationally acclaimed architectural practice,
Fosters + Partners, The Corniche offers a selection of luxurious one,
two and three-bedroom apartments and penthouses, boasting
magnificent views over some of London’s most iconic landmarks.
Diffusion is supplying 580 Highline 270 fan coil units which will provide
heating and cooling to this stunning riverside development. A mixed-use
development of three towers ranging from 15 to 27 storeys in height,
The Corniche provides 252 apartments, including affordable homes
for senior living, offices, restaurants and a residents’ club lounge with
a terrace, a private screening room, a gym, an infinity pool and a spa.
The Highline 270 is an energy-efficient range of fan coil units that
provide heating and cooling to both residential and commercial
properties. Discreet, the fan coil units are 270mm deep and can
be mounted in horizontal (ceiling), vertical (wall) and underfloor
applications. In The Corniche, the fan coil units are discreetly mounted
in the horizontal ceiling void. Boasting Specific Fan Power (SFP) figures
as low as 0.16W/l/s, the Highline is the most efficient fan coil on
the market, therefore offering the best possible energy savings.
Aldgate Place, London:
Mechanical ventilation with
heat recovery by Vent-Axia
Vent-Axia is supplying 304 Sentinel Kinetic ventilation units for
the first phase of the new Aldgate Place development in London.
This mixed-use scheme is a flagship project which will create 463
homes in a mix of studios and one, two, three and four-bedroom
apartments as well as luxury penthouses. Located in Zone 1 in
London, Aldgate Place has excellent transport links and is within
walking distance of the City of London. The development includes
private landscaped gardens, a 24-hour concierge service and
a fitness suite. Most homes feature a private balcony or winter
garden to enjoy views across London, including Tower Bridge
and The Shard.
The Sentinel Kinetic BH is a pioneering mechanical ventilation with
heat recovery (MVHR) system designed for new build properties.
A whole house, multi-room ducted solution, this MVHR system
combines supply and extract ventilation in one unit. Warm, moist
air is extracted from “wet” rooms through ducting and passed through
the heat exchanger before being exhausted to the outside. Fresh
incoming air is preheated via the integral heat exchanger which
recovers more than 91% of the heat energy that would otherwise
be wasted. With comfort being key for customers, the system also
features a “summer bypass” to prevent warm air being reintroduced
in summer months and an integral humidity sensor to control air
humidity levels.
We are thrilled to be part of these developments. Indoor air quality and comfort
are becoming an ever increasing concern, as properties become more air-tight.
Our technical expertise, experience and extensive product portfolio mean we
are well placed to provide unique value-adding solutions.
Ronnie George
Chief Executive Officer
25
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Key Performance Indicators
Measuring our progress
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.
We discuss the KPI performance in the Financial Review on pages 40 to 43.
Financial performance
Revenue
£m
£154.5m
1
2
0
.
7
1
3
0
.
2
8
9
.
3
1
0
2
.
3
Tracks our performance against our strategic aim to grow the business
Comments
1
5
4
.
5
> Strong revenue development in the year with growth of 18.7%
(18.6% on a constant currency basis)
> The recent acquisitions of Ventilair, Energy Technique, NVA
Services and Welair contributed significantly to our growth:
15.7% (15.5% on a constant currency basis)
> Organic growth on a constant currency basis was 3.1%
2012
2013
2014
2015
2016
Link to Directors’ remuneration
Strategic initiatives measured by this KPI
> ABP awards are linked directly to adjusted operating profit and
adjusted EPS and LTIP awards are linked directly to measures of
TSR and EPS growth, all of which can be favourably affected by
increasing revenue
Adjusted EBITDA and adjusted EBITDA margin1
£m (% of revenue)
£35.4m
(22.9%)
2
1
.
6
(
2
4
.
2
%
)
2
3
.
8
(
2
3
.
3
%
)
3
5
.
4
(
2
2
.
9
%
)
3
2
.
1
(
2
4
.
7
%
)
2
8
.
5
(
2
3
.
6
%
)
2012
2013
2014
2015
2016
Strategic initiatives measured by this KPI
Tracks the underlying financial performance of the Group before
depreciation and amortisation
Comments
> Strong growth in underlying profitability
> Margins reduced in the year as lower margin businesses were
added; however, margins on a like-for-like basis improved
to 24.8%
Link to Directors’ remuneration
> ABP awards are linked directly to adjusted operating profit and
adjusted EPS and LTIP awards are linked directly to TSR and
EPS growth, all of which correlate with adjusted EBITDA
26
Volution Group plcAnnual Report 2016Strategic Report
The three strategic pillars
Organic growth in our core markets
Growth through a disciplined and value-adding
acquisition strategy
Further develop Torin-Sifan’s range and build
customer preference and loyalty
We discuss the KPI performance
in the Financial Review
> pages 40 to 43
Adjusted operating profit and adjusted
operating profit margin1
£m (% of revenue)
£32.5m
(21.0%)
2
0
.
2
(
2
2
.
6
%
)
2
2
.
2
(
2
1
.
7
%
)
2
9
.
4
(
2
2
.
6
%
)
2
6
.
5
(
2
2
.
0
%
)
3
2
.
5
(
2
1
.
0
%
)
2012
2013
2014
2015
2016
Strategic initiatives measured by this KPI
Adjusted profit before tax and adjusted profit
before tax margin1
£m (% of revenue)
£31.3m
(20.3%)
9
.
2
(
9
.
0
%
)
6
.
3
(
7
.
0
%
)
1
4
.
0
(
1
1
.
6
%
)
3
1
.
3
(
2
0
.
3
%
)
2
7
.
5
(
2
1
.
1
%
)
2012
2013
2014
2015
2016
Strategic initiatives measured by this KPI
Tracks the underlying financial performance of the Group
Comments
> Strong growth in underlying profitability
> Low depreciation charges as the business is not capital intensive
> Margins reduced in the year as lower margin businesses
were added; however, margins on a like-for-like basis improved
to 22.8%
Link to Directors’ remuneration
> ABP awards are linked directly to adjusted operating profit; LTIP
awards are linked directly to TSR and EPS growth which correlate
with adjusted operating profit
Tracks the underlying financial performance of the Group
Comments
> Strong growth in underlying profitability
> Profit growth supported by reduced finance costs from full year
effect of refinancing in February 2015; however, margins on a
like-for-like basis improved to 21.9%
Link to Directors’ remuneration
> ABP awards are linked directly to adjusted operating profit and
adjusted EPS and LTIP awards are linked directly to TSR and
EPS growth, all of which correlate with adjusted profit before tax
27
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information
Key Performance Indicators continued
Financial performance continued
Adjusted operating cash flow1
£m
£31.1m
3
1
.
1
2
7
.
6
2
1
.
2
2
0
.
9
2
2
.
8
Monitors cash generation at the operational level (important for our
acquisition strategy), after movements in working capital and after
capital expenditure
Comments
> Adjusted operating cash flow in 2016 remained strong despite
capital investment of £4.3 million (2015: £5.6 million)
> Working capital remained under control at 11.7% of revenues
(2015: 12.3%)
2012
2013
2014
2015
2016
Link to Directors’ remuneration
Strategic initiatives measured by this KPI
> ABP awards are linked directly to working capital management
in order to maintain good adjusted operating cash flow
Adjusted operating cash flow conversion1
%
95%
1
0
5
9
4
8
6
Tracks the efficiency of cash generation at the operational
level (important for our acquisition strategy), after
movements in working capital and after capital expenditure
9
3
9
5
Comments
> Strong cash generation even after capital expenditure
of £4.3 million (2015: £5.6 million)
Link to Directors’ remuneration
> ABP awards are linked directly to working capital
management in order to maintain good adjusted
operating cash flow conversion
To provide a measure of increasing shareholder value
Comments
> Improved EPS resulting from improved profitability, new
profitable acquisitions, reduced finance costs and a lower
effective tax rate
Link to Directors’ remuneration
> ABP and LTIP awards are linked directly to measures
of earnings per share
2012
2013
2014
2015
2016
Strategic initiatives measured by this KPI
Adjusted earnings per share (basic and diluted)1
p
12.6p
1
2
.
6
1
1
.
0
8
.
8
2014
2015
2016
Strategic initiatives measured by this KPI
28
Volution Group plcAnnual Report 2016Strategic Report Net debt1
£m
£36.1m
1
7
2
.
7
4
2
.
9
3
6
.
1
2
1
.
2
2013
2014
2015
2016
Strategic initiatives measured by this KPI
To ensure we have an efficient capital structure with headroom
to support organic and inorganic growth
Comments
> Strong cash generation from operations
> Leverage (expressed as a ratio of net debt to adjusted EBITDA)
was 1.0x (2015: 0.7x)
> Debt increased after £25.0 million was spent on acquisitions
Link to Directors’ remuneration
> ABP awards are linked directly to working capital management
in order to maintain good operating cash flow and therefore
minimising net debt
Non-financial performance
Employee retention %
90.4%
(2015: 89.0%)
Sales of low-carbon products %
49%
(2015: 48%)
Strategic initiatives measured by this KPI
Strategic initiatives measured by this KPI
To ensure we continue to retain employees, we monitor the
number of voluntary resignations from our businesses and
calculate the percentage retention as a function of total
average full-time equivalent employees
Tracks our success at upselling and the effect of regulations on sales
of more energy-efficient low-carbon products (value of low-carbon
product sales expressed as a percentage of total sales)
Comments
Comments
> The high level of staff retention continued in 2016
> The trend towards higher value-added low-carbon products
continues, supported by our acquisitions
Link to Directors’ remuneration
Link to Directors’ remuneration
> ABP awards are linked directly to employee retention
> Sales of low-carbon products generally attract a higher selling
price and better margins thus improving revenue and profitability.
ABP awards are linked directly to adjusted operating profit and
LTIP awards are linked directly to TSR and EPS growth, all of
which correlate to higher sales of low-carbon products
Note
1. For a definition of all adjusted measures and constant currency see the
glossary of terms in note 36 to the consolidated financial statements.
29
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Principal Risks and Uncertainties
The Board is committed to protecting and enhancing the Group’s
reputation and assets, while safeguarding the interests of shareholders.
It has overall responsibility for the Group’s system of risk management
and internal control.
The Group’s businesses are affected by a number of risks and
uncertainties. These may be impacted by internal and external
factors, some of which we cannot control. Many of the risks are
similar to those found by comparable companies in terms of scale
and operations.
The risks and uncertainties facing the Group have also been considered
in the context of the result of the UK referendum on EU membership.
Whilst it is too early to judge the impact of the result on the UK
economy we consider that the principal risks affecting the Group
are unchanged. The Board will, however, continue to closely monitor
market conditions and will react accordingly.
Identifying and monitoring material risks
Material risks are identified through a detailed analysis of
individual processes and procedures (bottom-up approach)
and a consideration of the strategy and operating environment
of the Group (top-down approach).
The risk evaluation process begins in the operating businesses
with a biannual exercise undertaken by management to identify
and document the significant strategic, operational, financial and
accounting risks facing the businesses. This process ensures
risks are identified and monitored and management controls are
embedded in the businesses operations.
The risk assessments from each of the operating businesses
are then considered by Group management which evaluates
the principal risks of the Group with reference to the Group’s
strategy and operating environment for review by the Board.
Our approach
Risk management and maintenance of appropriate systems of
control to manage risk are the responsibilities of the Board and are
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. This framework of risk management has been
enhanced this year and additional processes have been developed
which will assist the Board to monitor and assess the principal
risks throughout the year.
The Group’s risk management systems are monitored
by the Audit Committee, under delegation from the Board.
The Audit Committee is responsible for overseeing the effectiveness
of the internal control environment of the Group.
During the financial year ended 31 July 2015, the Board appointed
BDO LLP to act in the capacity of internal auditor and provide
independent assurance that the Group’s risk management, governance
and internal control processes are operating effectively. BDO
continued to act in this capacity throughout the financial year
ended 31 July 2016.
Our principal risks and uncertainties
The UK Corporate Governance Code 2014 (the Code) states that
the Board is responsible for determining the nature and extent
of the principal risks it is willing to take in achieving its strategic
objectives and that it should maintain sound risk management
and internal control systems. In accordance with provision C.2.1
of the Code, the Directors confirm that they have carried out a
robust assessment of the principal risks facing the Group, including
those which would threaten the business model, future
performance, solvency or liquidity.
Set out in this section of the Strategic Report are the principal risks
and uncertainties which could effect the Group and which have
been determined by the Board, based on the robust risk evaluation
process described above, to have the potential to have the greatest
impact on the Group’s future viability. These risks are similar to
those reported last year, although with some movement on the
relative ranking of these risks. For each risk there is a description
of the possible impact of the risk to the Group, should it occur, together
with strategic consequences and the mitigation and control
processes in place to manage the risk. This list is likely to change
over time as different risks take on larger or smaller significance.
30
Volution Group plcAnnual Report 2016Strategic Report Viability statement
In accordance with provision C.2.2 of the UK Corporate Governance
Code 2014, the Directors have assessed the viability of the
Group over the next three year period, taking into account the
Group’s current position and the potential impact of the principal
risks documented on pages 32 to 35 of the Annual Report and
Accounts. Based on this assessment, the Directors confirm that
they have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period to 31 July 2019.
The Directors have determined that a three year period to
31 July 2019 is an appropriate period over which to provide
its viability statement given the dynamic nature of the sector
and as it is in line with our business planning cycle.
In making this statement, the Board carried out a robust assessment
of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. Principal risks are identified through our risk management
process and are set out on pages 32 to 35. They are recorded in
a Group Risk Register which is reviewed and discussed by the
Board at least twice a year. These risks have also been considered
in the context of the result of the UK referendum on EU membership
and, whilst it is too early to judge the impact of the result on the
UK market, we consider the principal risks affecting the Group
to be unchanged.
The Board considers annually a three year strategic plan.
The output of this plan is used to perform central debt and
headroom profile analysis, which includes a review of sensitivity
to key principal risks. It also considers the ability of the Group
to raise finance and deploy capital.
Whilst the review has considered all the principal risks identified
by the Group, the following were focused on for enhanced stress
testing: economic slowdown, increased debt from acquisitions,
supply chain risk affecting gross margins and combinations of the
above scenarios. The geographical and sector diversification of
the Group’s operations helps minimise the risk of serious business
interruption or catastrophic damage to our reputation. Furthermore,
our business model is structured so that the Group is not reliant
on one particular group of customers or sector. In addition, our ability
to flex our cost base protects our viability in the face of adverse
economic conditions and/or other political or regulatory uncertainties.
Whilst this review does not consider all of the risks that the Group
may face, the Directors consider that this assessment of the Group’s
prospects is reasonable in the circumstances of the inherent
uncertainty involved.
Going concern
The financial position of the Group, its cash flows and liquidity
position are set out in the Financial Statements section. Furthermore,
note 30 on page 125 to the consolidated financial statements
includes the Group’s objectives and policies for managing its
capital, its financial risk management objectives, details of its
financial instruments and its exposure to credit and liquidity risk.
The Directors believe the Group is in a strong financial position
due to its profitable operations and strong cash generation and
that the Group has adequate resources to continue in operation
for the foreseeable future. For this reason, they continue to adopt
the going concern basis in preparing the financial statements.
The Directors have made this assessment after consideration
of the Company’s budgeted cash flows and related assumptions.
31
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Principal Risks and Uncertainties continued
The assessment of likelihood and potential impact is subjective and based on the following definitions:
Likelihood of
risk occurring
Potential impact
Assessment of change
in risk year on year
Unlikely
Possible
Likely
Low
Medium
High
Reducing
No change
Increasing
The Board’s assessment
of whether there has been
a change in the level of risk
due to either a change
in likelihood or a change
in potential impact.
Risk
Impact
Strategic consequence
Likelihood
Potential impact Change1
Mitigation
Economic risk
A decline in general economic activity
and/or a specific decline in activity in the
construction industry, including, but not
exclusively, an economic decline caused
by the result of the UK referendum on
EU membership.
Acquisitions
We may fail to identify suitable acquisition
targets at an acceptable price or we may
fail to consummate or properly integrate
the acquisition.
Demand for our products serving the
residential and commercial RMI and new
build markets would decline. This would
result in a reduction in revenue
and profitability.
Our ability to achieve our ambition for
continuing organic growth would be
adversely affected.
Our strategic ambition to grow by
acquisition may be compromised.
Revenue and profitability would not grow
in line with management’s ambitions and
investor expectations.
Failure to properly integrate a business
may distract senior management from
other priorities and adversely affect
revenue and profitability.
Financial performance could be impacted
by failure to integrate acquisitions and
therefore not secure possible synergies.
Innovation
We may fail to innovate commercially or
technically viable products to maintain and
develop our product leadership position.
Scarce development resource may be
misdirected and costs incurred unnecessarily.
Failure to innovate may result in an ageing
product portfolio which falls behind that of
our competition.
Our organic growth ambitions depend in
part upon our ability to innovate new and
improved products to meet and create
market needs. In the medium term, failure
to innovate may result in a decline in sales
and profitability.
32
Geographic spread from our international acquisition strategy helps to mitigate
the impact of local fluctuations in economic activity.
New product development, the breadth of our product portfolio and the strength
and specialisation of our sales forces should allow us to outperform against a
general decline.
We are heavily exposed to the RMI market, which is more resilient to the effects
of general economic decline.
Our business is not capital intensive and our operational flexibility allows us
to react quickly to the impact of a decline in volume.
The ventilation industry in Europe is fragmented with many opportunities to court
acquisition targets.
Senior management has a clear understanding of potential targets in the industry
and a track record of eight acquisitions over the past four years.
Management is experienced in integrating new businesses into the Group.
Our product innovation is driven by a deep understanding of the ventilation
market and its economic and regulatory drivers. The Group starts with a clear
marketing brief before embarking on product development.
Volution Group plcAnnual Report 2016Strategic Report
Strategic consequence
Organic growth in our core markets
Growth through a disciplined and value-adding
acquisition strategy
Further develop Torin-Sifan’s range and build
customer preference and loyalty
Note
1. Following a review of the financial impact thresholds approved
by the Board during the year, although potential financial
impacts have changed for some risks, the overall risk rating
has not been deemed to have changed as there has been no
change in the nature of underlying risk.
Risk
Impact
Strategic consequence
Likelihood
Potential impact Change1
Mitigation
Economic risk
A decline in general economic activity
and/or a specific decline in activity in the
construction industry, including, but not
exclusively, an economic decline caused
by the result of the UK referendum on
EU membership.
Acquisitions
We may fail to identify suitable acquisition
targets at an acceptable price or we may
fail to consummate or properly integrate
the acquisition.
Demand for our products serving the
residential and commercial RMI and new
build markets would decline. This would
result in a reduction in revenue
and profitability.
Our ability to achieve our ambition for
continuing organic growth would be
adversely affected.
Our strategic ambition to grow by
acquisition may be compromised.
Revenue and profitability would not grow
in line with management’s ambitions and
investor expectations.
Failure to properly integrate a business
may distract senior management from
other priorities and adversely affect
revenue and profitability.
Financial performance could be impacted
by failure to integrate acquisitions and
therefore not secure possible synergies.
Innovation
We may fail to innovate commercially or
technically viable products to maintain and
develop our product leadership position.
Scarce development resource may be
misdirected and costs incurred unnecessarily.
Failure to innovate may result in an ageing
product portfolio which falls behind that of
our competition.
Our organic growth ambitions depend in
part upon our ability to innovate new and
improved products to meet and create
market needs. In the medium term, failure
to innovate may result in a decline in sales
and profitability.
Geographic spread from our international acquisition strategy helps to mitigate
the impact of local fluctuations in economic activity.
New product development, the breadth of our product portfolio and the strength
and specialisation of our sales forces should allow us to outperform against a
general decline.
We are heavily exposed to the RMI market, which is more resilient to the effects
of general economic decline.
Our business is not capital intensive and our operational flexibility allows us
to react quickly to the impact of a decline in volume.
The ventilation industry in Europe is fragmented with many opportunities to court
acquisition targets.
Senior management has a clear understanding of potential targets in the industry
and a track record of eight acquisitions over the past four years.
Management is experienced in integrating new businesses into the Group.
Our product innovation is driven by a deep understanding of the ventilation
market and its economic and regulatory drivers. The Group starts with a clear
marketing brief before embarking on product development.
33
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information
Principal Risks and Uncertainties continued
Risk
Impact
Strategic consequence
Likelihood
Potential impact Change1
Mitigation
Foreign exchange risk
The exchange rates between currencies
that we use may move adversely.
Supply chain
and raw materials
Raw materials or components may
become difficult to source because of
material scarcity or disruption of supply.
The commerciality of transactions
denominated in currencies other than
the functional currency of our businesses
and/or the perceived performance of
foreign subsidiaries in our Sterling
denominated consolidated financial
statements, may be adversely affected
by changes in exchange rates.
Sales and profitability may be reduced
during the period of constraint.
Prices for the input material may
increase and our costs may increase.
IT systems
We may be adversely affected by a
breakdown in our IT systems or a failure
to properly implement any new systems.
Failure of our IT and communication
systems could affect any or all of our
business processes and have significant
impact on our ability to trade, collect
cash and make payments.
Our ambition to grow internationally
through acquisition exposes us to
increasing levels of translational foreign
exchange risk.
Organic growth may be reduced.
Our product development efforts may be
redirected to find alternative materials
and components.
We could temporarily lose sales
and market share and could
potentially damage our reputation
for customer service.
Customers
A significant amount of our revenue is
derived from a small number of customers
and from our relationships with heating
and ventilation consultants. We may fail to
maintain these relationships.
Any deterioration in our relationship
with a significant customer could have
an adverse significant effect on our
revenue to that customer.
Our organic growth ambitions would be
adversely affected.
Legal and regulatory
environment
Changes in laws or regulation relating to
the carbon efficiency of buildings or the
efficiency of electrical products may change.
The shift towards higher value added
and more energy efficient products may
not develop as anticipated resulting in
lower sales and profit growth.
If our products are not compliant and we
fail to develop new products in a timely
manner we may lose revenue and
market share to our competitors.
People
Our continuing success depends on
retaining key personnel and attracting
skilled individuals.
Skilled and experienced employees
may decide to leave the Group,
potentially moving to a competitor.
Any aspect of the business could be
impacted with resultant reduction in
prospects, sales and profitability.
Our organic growth ambitions may be
adversely affected.
We may need to review our acquisition
criteria to reflect the dynamics of a new
regulatory environment.
We may have to redirect our new product
development activity.
Our competitiveness and growth potential,
both organic and inorganic, could be
adversely affected.
34
Significant transactional risks are hedged by using forward currency contracts
to fix exchange rates for the ensuing financial year.
Revaluation of foreign currency denominated assets and liabilities is partially
hedged by corresponding foreign currency bank debt.
We establish long-term relationships with key suppliers to promote continuity
of supply and where possible we have alternative sources identified.
Disaster recovery and data backup processes are in place, operated diligently and
tested regularly.
A significant Enterprise Resource Planning system upgrade is underway, managed
by a team of experienced senior employees from the business. A disaster failover
site has been implemented to cover this upgrade.
We undertake cyber security testing.
We have strong brands, recognised and valued by our end users, and this gives us
continued traction through our distribution channels and with consultants and specifiers.
We have a very wide range of ventilation and ancillary products that enhance our
brand proposition and make us a convenient “one-stop-shop” supplier.
We continue to develop new and existing products to support our product portfolio
and brand reputation.
We provide an excellent level of customer service.
We participate in trade bodies that help to influence the regulatory environment
in which we operate and as a consequence we are also well placed to understand
future trends in our industry.
We are active in new product development and have the resource to react to and
anticipate necessary changes in the specification of our products.
Regular employee appraisals allow two-way feedback on performance
and ambition.
A Management Development Programme was initiated in 2013 (with the latest
launched in 2016) to provide key employees with the skills needed to grow within
the business and to enhance their contribution to the business.
The Group aims to reward and incentivise employees competitively.
Volution Group plcAnnual Report 2016Strategic Report
Risk
Impact
Strategic consequence
Likelihood
Potential impact Change1
Mitigation
Foreign exchange risk
The exchange rates between currencies
that we use may move adversely.
The commerciality of transactions
denominated in currencies other than
the functional currency of our businesses
Our ambition to grow internationally
and/or the perceived performance of
through acquisition exposes us to
foreign subsidiaries in our Sterling
increasing levels of translational foreign
denominated consolidated financial
exchange risk.
Supply chain
and raw materials
Raw materials or components may
become difficult to source because of
material scarcity or disruption of supply.
statements, may be adversely affected
by changes in exchange rates.
Sales and profitability may be reduced
during the period of constraint.
Prices for the input material may
increase and our costs may increase.
Our product development efforts may be
Organic growth may be reduced.
redirected to find alternative materials
and components.
IT systems
Failure of our IT and communication
systems could affect any or all of our
We may be adversely affected by a
breakdown in our IT systems or a failure
to properly implement any new systems.
business processes and have significant
We could temporarily lose sales
impact on our ability to trade, collect
and market share and could
cash and make payments.
potentially damage our reputation
for customer service.
Any deterioration in our relationship
with a significant customer could have
an adverse significant effect on our
revenue to that customer.
Our organic growth ambitions would be
adversely affected.
Customers
A significant amount of our revenue is
derived from a small number of customers
and from our relationships with heating
and ventilation consultants. We may fail to
maintain these relationships.
Legal and regulatory
environment
Changes in laws or regulation relating to
the carbon efficiency of buildings or the
efficiency of electrical products may change.
The shift towards higher value added
and more energy efficient products may
not develop as anticipated resulting in
lower sales and profit growth.
Our organic growth ambitions may be
adversely affected.
If our products are not compliant and we
fail to develop new products in a timely
We may need to review our acquisition
criteria to reflect the dynamics of a new
manner we may lose revenue and
market share to our competitors.
regulatory environment.
We may have to redirect our new product
development activity.
People
Our continuing success depends on
retaining key personnel and attracting
skilled individuals.
Skilled and experienced employees
may decide to leave the Group,
potentially moving to a competitor.
Any aspect of the business could be
impacted with resultant reduction in
prospects, sales and profitability.
Our competitiveness and growth potential,
both organic and inorganic, could be
adversely affected.
Significant transactional risks are hedged by using forward currency contracts
to fix exchange rates for the ensuing financial year.
Revaluation of foreign currency denominated assets and liabilities is partially
hedged by corresponding foreign currency bank debt.
We establish long-term relationships with key suppliers to promote continuity
of supply and where possible we have alternative sources identified.
Disaster recovery and data backup processes are in place, operated diligently and
tested regularly.
A significant Enterprise Resource Planning system upgrade is underway, managed
by a team of experienced senior employees from the business. A disaster failover
site has been implemented to cover this upgrade.
We undertake cyber security testing.
We have strong brands, recognised and valued by our end users, and this gives us
continued traction through our distribution channels and with consultants and specifiers.
We have a very wide range of ventilation and ancillary products that enhance our
brand proposition and make us a convenient “one-stop-shop” supplier.
We continue to develop new and existing products to support our product portfolio
and brand reputation.
We provide an excellent level of customer service.
We participate in trade bodies that help to influence the regulatory environment
in which we operate and as a consequence we are also well placed to understand
future trends in our industry.
We are active in new product development and have the resource to react to and
anticipate necessary changes in the specification of our products.
Regular employee appraisals allow two-way feedback on performance
and ambition.
A Management Development Programme was initiated in 2013 (with the latest
launched in 2016) to provide key employees with the skills needed to grow within
the business and to enhance their contribution to the business.
The Group aims to reward and incentivise employees competitively.
35
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information
Corporate Social Responsibility
Volution Group is founded upon the excellence of its people, products and technology.
We are committed to operating in a manner that protects human rights, provides real
opportunities for our employees, protects the environment and makes a positive
contribution to the community.
Overview
We embrace a culture of continual improvement in all aspects
of our business. We aim to understand and respond to the needs
of shareholders, employees, customers, suppliers, the communities
in which we work and the wider public.
As part of our commitment to corporate social responsibility we
aim to align our business values, purpose and strategy with the
needs of our stakeholders, whilst embedding such responsible
and ethical principles into everything we do.
Business and ethics
Our core values and principles, and the standards of behaviour
to which every employee and agent across the Group is expected
to work, are set out in the Volution Code of Conduct. These values
and principles are applied to dealings with our customers, suppliers
and other stakeholders.
We have a zero-tolerance approach to all forms of bribery
and corruption. Our Anti-Bribery and Corruption Policy has been
approved by the Board and rolled out across the Group. It applies
to all businesses, Directors, employees and agents within the
Group to ensure compliance with all laws and regulations
governing bribery and corruption in the countries in which
the Group operates.
A “Speak-Up” facility was introduced during 2015 operated by
an independent external company, where employees can report
any incidents or inappropriate behaviours in their own language
by telephone, by email or online. The confidentiality of the
information reported is protected. Web-based anti-bribery and
corruption training was also launched during 2015 and is carried
out by all employees in areas of the business where risk is
deemed to be highest.
Environment
We recognise the impact that our businesses may have on the
environment and, as a minimum standard, we comply with current
applicable legislation in the countries in which we operate.
We endeavour to limit the impact on the environment within which
we operate and also protect the environment that we all share.
Across the Group, energy reducing initiatives will continue including
using recycled plastics in manufacturing, recycling waste paper
and cardboard and working with our customers to reduce waste
on site. Our Lo-Carbon range of products will continue to be
donated to environmental projects to demonstrate innovative
energy reduction techniques.
Our product development programme continues to focus on
low-carbon initiatives, using technology which reduces power
consumption and recovers, recycles and reuses energy that would
otherwise be wasted. At all times the Group will produce products
that are as energy efficient as possible and will continue to research
and develop energy-efficient solutions for the marketplace.
Sales of the Lo-Carbon range of products
> page 29
Health and safety
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
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 their legal duty to take reasonable care for their own
safety and the safety of others in their work area with working
safely a condition of employment.
All accidents, dangerous incidents and near-miss situations
are promptly and thoroughly investigated. The details of such
incidents as well as the remedial and preventative measures
taken are shared between sites as a means of raising awareness
and reducing the risk of repetition.
Our safety record at every facility has benefited in recent years
from the establishment of global standards, measurement and
direction, and over the last year, we saw a 12% decrease in all
accidents in the workplace.
Modern Slavery Act
We are opposed to slavery, servitude, forced labour and human
trafficking. We take a zero-tolerance approach to modern slavery
in the supply chain and businesses under our control. The Board
has approved a statement setting out the steps that have been
taken to combat modern slavery. This statement can be found
on the Group’s website at www.volutiongroupplc.com.
Diversity
We employ a diverse workforce and pride ourselves on providing
equal opportunities for all. High value is placed on rewarding
our people for their commitment, their integrity and their service.
We aim to ensure that no employee is discriminated against,
directly or indirectly, on the grounds of colour, race, ethnic or
national origins, sexual orientation or gender, marital status,
disability, religion or belief, being part time, or age.
36
Volution Group plcAnnual Report 2016Strategic Report The Board supports the aims, objectives and recommendations
outlined in Lord Davies’ report “Women on Boards” and recognises
the need to recruit more women to the Board, to which it is
committed over time. Progress on this commitment is set out in the
Nomination Committee report on pages 54 to 55. We are committed
to developing the potential of women throughout the Group.
Our policy on donations and community involvement is to support
local educational and charitable causes.
We continue to work with the Engineering Development Trust to
help inspire children and young people to choose a future career
in science and engineering. In addition, we support initiatives
creating opportunities for work experience within our Group.
The Group’s split between male and female employees
is shown below:
Human rights
Female
%
Male
%
Total
Directors
Senior managers¹
All other employees
Total
1
2
463
466
14.3
15.4
34.0
33.8
6
11
897
85.7
84.6
66.0
7
13
1,360
914
66.2
1,380
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.
Values
We have the following values:
Grow
Our sales and profit, our people,
our capability, our capacity
and our ambition. Grow our
value and invest for the future.
Innovate
Our products, services
and solutions.
Customer service
Strive for quality and excellence
in everything we do.
H
T
W
R O
G
I N N OVATION S
E
R
V
I
C
E
M
S
I
L
A
N
O
I
S
S
E
F
O
R
P
Our
Company
Values
R
E
L
I
A
B
I
L
I
T
Y
IN
T
EGRIT
N
U
Y COMMITMENT F
Professional and reliable
With customers, suppliers, colleagues, shareholders
and all relationships.
Integrity
Environmentally, socially and in our governance.
Commitment
100% every day, everywhere.
Fun
Enjoying what we do, respecting those around us.
Community
Each company within the Group understands the importance
of being a contributing member of society and its impact on the
long-term development and sustainability of the business. Each
business takes responsibility for managing its relationship with its
local community. This responsibility involves the positive engagement
with, and support of, worthwhile projects and programmes as a
company, as well as the volunteering activities and efforts of its
employees. Support is given to local initiatives such as manufacturing
and business forums and talks and training are given to local groups.
Human rights is not considered to be a material risk for the business
owing to the fact that our activities are substantially carried out in
developed countries that have strong legislation governing human
rights. We support human rights as set down by:
> International Labour Organisation standards;
> the United Nations Global Compact (covering the areas of
human rights, labour, the environment and anti-corruption); and
> the United Nations Universal Declaration of Human Rights.
Greenhouse gas emissions
We are required to measure and report our direct and
indirect greenhouse gas (GHG) emissions pursuant to the
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
The mandatory requirement is for the disclosure of the scope 1 and
2 emissions only. These are direct emissions such as heating, vehicle
fuel and indirect emissions, for example purchased electricity.
Our total GHG footprint in line with DEFRA’s mandatory
reporting requirement is shown in the table below.
Emissions data for the year ended 31 July 2016
Emissions from
Electricity, gas and other fuels
Petrol and diesel vehicle fuels
Refrigerants
Total footprint
Greenhouse gas emissions
intensity ratio: CO2e tonnes per
£m of revenue
Note that:
2016
CO2e tonnes
2015
CO2e tonnes
3,325
968
55
4,348
3,572
746
121
4,439
28.14
34.10
> data collected is in respect of the years ended 31 July 2015
and 31 July 2016. The conversion factors used are those
published by DEFRA; and
> some extrapolation or estimation techniques have been
used to calculate the Group footprint, specifically regarding
the calculation of emissions from cooling units.
37
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information
Operational Review
The Ventilation Group segment
The Ventilation Group has market-leading positions in the UK residential ventilation products
market, the Swedish residential refurbishment ventilation products market and the German
decentralised residential heat recovery ventilation systems market.
During the year, we completed acquisitions which have:
> strengthened our position in UK residential ventilation with the acquisition of NVA Services, adding the National Ventilation and
Airtech brands;
> broadened our geographic spread into the Belgian and Dutch residential ventilation markets with the addition of Ventilair;
> strengthened our exposure to the UK new build commercial market with the addition of the Diffusion fan coil brand, through
the acquisition of Energy Technique; and
> expanded our product capability in the Nordics into the rotary wheel heat recovery market with the acquisition of Welair.
Highlights for Ventilation Group segment
Revenue
Adjusted operating profit
£134.1 million, 86.8% of Group revenue (£134.0 million
at constant currency) (2015: £111.5 million, 85.6% of
Group revenue)
£31.6 million, 97.3% of Group adjusted operating profit
(2015: £28.9 million, 98.3% of Group adjusted operating profit)
Average number of employees
1,108 (2015: 800)
Revenue
Revenue within the Ventilation Group grew strongly, by 20.3%
(20.3% at constant currency), of which 1.9% was organic and
18.4% the result of acquisitions.
Market sectors
Ventilation Group
Constant currency
2016
£000
2016
£000
2015
£000
Growth
%
UK Residential RMI
35,427
35,427 36,574
(3.1)%
UK Residential New Build
19,818
19,818
17,180
15.4%
UK Commercial
21,677
21,677
16,188
33.9%
UK Export
Nordics
7,803
7,775
8,374
(7.2)%
25,521
25,692 22,241
15.5%
Central Europe
23,820
23,653 10,904 116.9%
Total Ventilation Group
134,066 134,042 111,461
20.3%
Overall, our UK Residential RMI sector declined by 3.1%. Within
this, sales of products for the Private sub-sector declined by 1.6%.
The difficult market for the Public sub-sector in UK Residential
RMI continued in the year. The rate of decline for Public Residential
RMI sales slowed in the second half of the financial year and a
recent new product launch specifically designed for this sector
should assist in its recovery (the Revive™ fan).
We enjoyed strong growth in UK Residential New Build, UK
Commercial, Nordics and Central Europe, all assisted by recent
acquisitions, including the full year effect of the acquisition
of Brüggemann in Central Europe, acquired in April 2015.
UK Export sales declined by 7.2% at constant currency due to
sales in to the Belgian residential heat recovery market now being
intercompany through Ventilair and eliminated on consolidation.
On a like-for-like basis UK Export revenue grew organically by
3.5% at constant currency and inorganically by 13.5% at
constant currency.
Revenue in the Nordics grew organically by 11.3% at constant
currency, with particularly strong performance in sales to the
Swedish professional and wholesale market. During the financial
year, the final government subsidies for residential refurbishment
boosted sales in the first half and the launch of a new app-controlled
bathroom fan primarily for the Nordic markets continued the
favourable trend in the second half.
Central Europe grew by 116.9% at constant currency from the
full year effect of the acquisition of Brüggemann in April 2015, a
strong second half performance from inVENTer and the acquisition
of Ventilair in August 2015. During the year, we continued to
extend our sales area coverage in the German market.
The continuing strong growth of sales in the UK Residential
New Build sector has been supported by increased production
of heat recovery units at our Dudley site in the UK, together with
the introduction of a night shift to allow greater utilisation of the
production facility. This will underpin further growth in this market
sector as sales of these products increase across Europe.
The Kinetic Advance™ assembly cell was also established in
the year in Dudley, UK and allows greater flexibility for customers’
bespoke language and control option requirements with an end
of production line control logic programming station.
38
Volution Group plcAnnual Report 2016Strategic Report
A similar end of production line programming facility, installed
in the Hälleforsnäs facility in Sweden, producing the new
Calima™app-controlled fan, allows programming of controls
appropriate to the country of destination. This flexibility is crucial
to the product’s increasing sales across the Group.
Diffusion, the recently acquired fan coil unit business based in
West Molesey in the UK, has been able to take advantage of
existing Group capacity at our Dudley facility to assist in the
production and assembly of steel cases on a short lead time
basis to support the increased demand for Diffusion products.
be completed during the 2017 financial year with an implementation
across two further UK locations. Following implementation in the
UK, the business will have a modern ERP platform to help drive
further business improvements.
With four acquisitions completed in the year, there has been
significant focus on the process of integrating these companies
in to the Volution Group. The Head of Group Procurement,
a new role created in the year, is adding significant value during
integration of new businesses and generally through the
optimisation of procurement across the enlarged Group.
During the year, resources were committed to the successful
implementation of a new business Enterprise Resource Planning
(ERP) system across two UK locations. The current roll-out plan will
The Vent-Axia business achieved the environmental standard
certification ISO14001 and both inVENTer and Ventilair are now
working to achieve the ISO9001:2015 quality standard.
OEM (Torin-Sifan) segment
Torin-Sifan is a leading supplier of motors, motorised impellers, fans and blowers for the European
heating, ventilation and air conditioning (HVAC) industry. The majority of Torin-Sifan’s products are
sold in the residential and commercial heating and ventilation products markets.
Highlights for OEM (Torin-Sifan) segment
Revenue
Adjusted operating profit
£20.4 million, 13.2% of Group revenue (£20.4 million at constant
currency) (2015: £18.7 million, 14.4% of Group revenue)
£3.3 million, 10.0% of Group adjusted operating profit
(2015: £2.5 million, 8.5% of Group adjusted operating profit)
Revenue
Revenue within the OEM segment grew by 8.8% at constant currency.
Market sectors
OEM
Constant currency
2016
£000
2016
£000
2015
£000
Growth
%
20,398
20,358
18,717
8.8%
Total OEM
20,398
20,358
18,717
8.8%
The OEM (Torin-Sifan) business revenue growth of 8.8% has been
delivered through improved efficiency of our existing manufacturing
capacity without significantly increasing manning levels during the
year. In 2014 we opened our new Manufacturing and Technology
Centre in Swindon, UK, to support the increased demand for
electronically commutated motors. We benefited in the year from
the additional capacity arising from a full year of production from
the new facility and from a general increase in operational efficiency
of 3%. Our increased focus on manufacturing efficiencies and
the deployment of improved production planning methods have
allowed us to meet the increased demand for our products.
Average number of employees
229 (2015: 226)
The business benefited from strong growth within its Commercial
segment due to both existing account management and new business
development in the UK and export markets. Revenue growth was
also achieved for products addressing residential applications.
Progress was made during the course of the year in securing technical
approval from a number of customers for our new EC3 motor
platform. As a result, sales of this new product platform are expected
to increase as we move through the 2017 financial year.
The EC3 motor platform has been delayed due to longer than
anticipated customer technical approval processes and an
extended accelerated life test programme.
An upgrade to our production planning methodology and investment
in our continuous quality improvement drive have allowed us to
develop and maintain excellent levels of customer service, resulting
in an on-time-in-full delivery performance of 97%. The business
has also delivered significant cost reduction improvements through
several initiatives relating to procurement, value-engineering and
logistics. Investment in resources to support a structured approach
to discovering potential failures that may exist within the design of
a product or production process has resulted in design and process
improvement and enhanced engagement with, and training of,
our employees.
39
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Financial Review
Ian Dew
Key highlights
> Strong revenue growth of 18.7%
(18.6% at constant currency)
> Strong growth in adjusted profit before
tax of 13.9% (13.8% at constant currency)
> Four acquisitions completed in the year
> Adjusted operating cash inflow of
£31.1 million (2015: £27.6 million)
> Closing debt leverage of 1.0x
Revenue
The Group continued its strong revenue growth during 2016. Revenue for
the year ended 31 July 2016 was £154.5 million (2015: £130.2 million), an
18.7% increase (18.6% at constant currency). Growth was achieved both
organically, 3.0% (3.1% at constant currency), and inorganically from acquisitions,
15.7% (15.5% at constant currency). The inorganic growth was a result
of the four acquisitions made in the year and the full year effect of the
acquisition of Brüggemann in April 2015.
The Ventilation Group revenues grew by 20.3% (20.3% at constant currency),
of which organic growth represented 1.9% (2.0% at constant currency). OEM
(Torin-Sifan) grew, entirely organically, by 9.0% (8.8% at constant currency).
Despite the significant weakening of Sterling in June 2016, the movements
in foreign currency exchange rates for the year as a whole have had a minimal
effect on the reported revenue of our business. If we had translated the full
year revenue of our business at our 2015 exchange rates, the reported
Group revenues would have been £154.4 million, less than 0.1% lower.
Profitability
Our underlying result, as measured by adjusted operating profit, was
£32.5 million (2015: £29.4 million), 21.0% of revenues (2015: 22.6%),
delivering a £3.1 million improvement compared to the prior year.
The Group benefited from the effect of the acquisitions of Ventilair in
August 2015, Energy Technique in December 2015, NVA Services
in May 2016 and the full year effect of the prior year acquisition
of Brüggemann in April 2015.
40
Volution Group plcAnnual Report 2016Strategic Report Trading performance summary
Revenue (£m)
EBITDA (£m)
Operating profit (£m)
Finance costs (£m)
Profit before tax (£m)
Basic and diluted EPS (p)
Total dividend per share (p)
Operating cash flow (£m)
Net debt (£m)
Reported
Adjusted 1
Year ended
31 July 2016
Year ended
31 July 2015
Movement
Year ended
31 July 2016
Year ended
31 July 2015
Movement
154.5
130.2
33.9
18.4
1.2
18.4
7.8
3.80
31.1
36.1
31.4
17.2
2.2
15.5
5.9
3.30
27.6
21.2
18.7%
8.2%
7.0%
45.6%
18.3%
32.5%
15.2%
12.6%
14.9
154.5
130.2
35.4
32.5
1.2
31.3
12.6
3.80
31.1
36.1
32.1
29.4
2.0
27.5
11.0
3.30
27.6
21.2
18.7%
10.2%
10.4%
39.9%
13.9%
14.5%
15.2%
12.6%
14.9
Note
1. The reconciliation of the Group’s reported profit before tax to adjusted measures of performance is summarised in the table above and in detail in note 10 to the
consolidated financial statements. For a definition of all adjusted measures see the glossary of terms in note 36.
Exceptional items and adjusted performance measures
Exceptional items, by virtue of their size, incidence or nature, are
disclosed separately in order to allow a better understanding of
the underlying trading performance of the Group. During the year,
exceptional items were £1.2 million (2015: £0.7 million) and relate
solely to the cost of the four acquisitions made in the year. Details
of these exceptional items can be found in note 8 to the consolidated
financial statements.
The Board believes that the performance measures, adjusted
operating profit and adjusted profit before tax, stated before
deduction of exceptional items, give a clearer indication of the
underlying performance of the business. A reconciliation of these
measures of performance to profit before tax is detailed in note 10.
In addition to exceptional items, the following are also excluded
from adjusted measures, as reconciled in note 10:
> Amortisation of acquired intangibles: on acquisition of a
business, where appropriate, we value identifiable intangible
fixed assets acquired such as trademarks and customer base
and recognise these assets in our consolidated statement of
financial position; we then amortise these acquired intangible
assets over their useful lives. In the year the amortisation
charge of these intangible assets increased to £12.7 million
(2015: £11.5 million) as a consequence of recent acquisitions.
> Fair value adjustments: at each reporting period end
date, we measure the fair value of financial derivatives and
recognise any gains or losses immediately in finance cost.
During the year, we recognised a gain of £1.1 million
(2015: gain of £0.4 million).
On sales growth of 18.7%, adjusted profit before tax improved by
£3.8 million to £31.3 million, growth of 13.9%. Our Group adjusted
profit before tax margin of 20.3% declined by 0.8 percentage points
in the year as a consequence of the acquisition of businesses that
operated with profit margins lower than our Group average. Our
like-for-like adjusted profit before tax margins (of the organic portion
of our business) improved by 0.8% to 21.9% of revenues.
The Group’s reported profit before tax in the year was £18.4 million
compared to £15.5 million in 2015. The reported profit before tax
for the period has benefited from:
> increased organic operating profits and margins;
> a reduction in finance costs to £1.2 million (2015: £2.2 million),
from the full year effect of our refinancing in February 2015 of
the prior financial year; and
> recent acquisitions.
Acquisitions
The Group’s trading benefited in the year from the full year effect
of the acquisition of Brüggemann in Germany, acquired in April 2015.
A further four acquisitions were completed during the year:
> Ventilair, based in Belgium and the Netherlands, acquired in
August 2015 for a consideration of €14.3 million (approximately
£10.0 million net of cash acquired), €16.3 million including
settlement of the target’s debt on acquisition;
> Welair, based in Sweden, acquired in December 2015 for a
consideration of SEK 7.8 million (approximately £0.6 million);
> Energy Technique (trading as Diffusion), based in the UK, acquired
in December 2015 for a consideration of £9.4 million (£8.2 million
net of cash acquired); and
> NVA Services (trading as National Ventilation and Airtech), based
in the UK, acquired in May 2016 for a consideration of £6.7 million
(£8.4 million including net debt acquired).
All four acquisitions were funded in full from the Group’s existing
cash and banking facilities.
41
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Financial Review continued
Finance revenue and costs
Operating cash flow
Finance costs of £1.2 million (2015: £2.2 million) have reduced
during the year, largely as a consequence of the full year effect
of refinancing our bank debt in February 2015 resulting in lower
interest rates during the period.
Taxation
As a result of the Summer Finance Bill 2015, which achieved
royal assent during the period, future UK corporation tax rates
were reduced to 19% effective from 1 April 2017 and 18%
effective from 1 April 2020. We have large deferred tax liabilities
on our consolidated statement of financial position, arising on
recognition of identifiable intangible fixed assets acquired, and
these liabilities have been recalculated as a consequence of the
tax rate changes. As a result the deferred tax liability has decreased,
with a one-off credit of £1.6 million recognised in the income
statement. This has reduced our effective tax rate in the period
to 15.0% (2015: 23.8%). Our underlying effective tax rate, before
the effect of this adjustment to deferred tax liabilities, was 20.0%
(2015: 20.1%).
The Group’s medium-term adjusted effective tax rate is expected
to remain around 20% of the Group’s adjusted profit before tax.
The Group continued to be strongly cash generative in the
year with adjusted operating cash inflow of £31.1 million
(2015: £27.6 million). This represents a cash conversion, after
capital expenditure and movement in working capital, of 95%
(2015: 93%). The Group continues to manage its working capital
efficiently with operating working capital representing 11.7%
of revenue (2015: 12.3%). In addition, the Group continues to
invest for the future with net capital expenditure of £4.4 million
(2015: £4.6 million) including investment in new product development
and improved IT systems. See the glossary of terms in note 36 for
a definition of adjusted operating cash flow and cash conversion.
Employee Benefit Trust
In the period the Group loaned £1.5 million to the Volution Employee
Benefit Trust for the exclusive purpose of purchasing shares in
Volution Group plc in order to partly fulfil the Company’s obligations
under its Long Term Incentive Plan and Deferred Share Bonus Plan.
The Employee Benefit Trust acquired 916,878 shares at an average
price of £1.67 per share in the period, an aggregate consideration
of £1.5 million. The Employee Benefit Trust has been consolidated
into our results and the shares purchased have been treated as
treasury shares deducted from shareholders’ funds.
Net debt
Year-end net debt was £36.1 million (2015: £21.2 million), comprised of bank borrowings of £51.8 million (2015: £32.8 million), offset by cash
and cash equivalents of £15.7 million (2015: £11.6 million). The net debt of £36.1 million represents leverage of 1.0x adjusted EBITDA.
Movements in net debt position for the year ended 31 July 2016
£m
(21.2)
31.1
(1.0)
(5.2)
(1.0)
(6.9)
(1.5)
(5.4)
(25.0)
(36.1)
Opening net debt 1 August 2015
Movements from normal business operations:
– Adjusted operating cash flow
– Interest paid net of interest received
– Income tax paid
– Exceptional items
– Dividend paid
– Purchase of own shares
– FX on foreign currency loans/cash
Movements from acquisitions:
– Acquisition consideration net of cash acquired
Closing net debt 31 July 2016
42
Volution Group plcAnnual Report 2016Strategic Report Bank facilities, refinancing and liquidity
The Group’s bank facilities, at the year end, consisted of a £90 million
revolving credit facility, maturing April 2019.
As at 31 July 2016, we had £38.2 million of undrawn, committed
bank facilities and £15.7 million of cash and cash equivalents on
the consolidated statement of financial position.
During the year, movements in foreign currency exchange
rates have had a minimal effect on the reported revenue and
profitability of our business. If we had translated the full year
performance of our business at our 2015 exchange rates, our
reported Group revenues would have been £154.4 million or less
than 0.1% lower and adjusted operating profit would have been
£32.5 million or 0.1% lower.
Foreign exchange
The Group is exposed to the impact of changes in the foreign
currency exchange rates on transactions denominated in
currencies other than the functional currency of our operating
businesses. We have significant Euro income in the UK which
is mostly balanced by Euro expenditure in the UK. We have little
US Dollar income but significant expenditure. We have limited
our transactional foreign exchange risk by purchasing the majority
of our forecast US Dollar requirements for, and in advance of,
the 2017 financial year.
We are also exposed to translational currency risk as the Group
consolidates foreign currency-denominated assets, liabilities,
income and expenditure into Group reporting denominated in
Sterling. We hedge the translation risk of the net assets in Fresh
and PAX with £15.9 million of borrowings denominated in SEK
(2015: £13.4 million). We have partially hedged our risk of
translation of the net assets of inVENTer, Brüggemann and
Ventilair by having Euro-denominated bank borrowings in the
amount of £22.0 million as at 31 July 2016 (2015: £8.3 million).
The Sterling value of our foreign currency-denominated loans
increased by £5.4 million in the year as a consequence of
exchange rate movements, in particular the significant weakening
of Sterling in June 2016. We do not hedge the translational
exchange rate risk to the results of overseas subsidiaries.
At the end of the financial year the weakening of Sterling
increased the value of foreign currency-denominated working
capital by £0.9 million compared to the foreign exchange rates
applying at the beginning of the year.
Earnings per share
The basic and diluted earnings per share for the year was
7.8 pence (2015: 5.9 pence). Our adjusted basic and diluted
earnings per share was 12.6 pence (2015: 11.0 pence), a
significant 14.5% increase.
Dividends
In May 2016 the Group paid an interim dividend of 1.20 pence
per share.
The Board has proposed a final dividend of 2.60 pence per share.
Subject to approval at our Annual General Meeting of shareholders
on 9 December 2016, the recommended final dividend will be paid
on 14 December 2016 to shareholders who are on the register on
18 November 2016.
Ian Dew
Chief Financial Officer
11 October 2016
The Strategic Report comprising pages 1 to 43 was approved and signed on behalf of the Board on 11 October 2016.
Ronnie George
Chief Executive Officer
43
Volution Group plcAnnual Report 2016Strategic ReportGovernance ReportFinancial StatementsAdditional Information Board of Directors
Committee membership
A Audit Committee
N Nomination Committee
R Remuneration Committee
X Chairman of Committee
Peter Hill, CBE
Non-Executive Chairman
Ronnie George
Chief Executive Officer
Ian Dew
Chief Financial Officer
Appointed
23 June 2014
15 May 2014
15 May 2014
Committees
N R
Term of office
Peter joined the Board on
listing as Non-Executive
Chairman and Chairman of
the Nomination Committee.
Peter has extensive experience
of this role, currently acting
as non-executive chairman of
Keller Group plc and having
acted as non-executive chairman
of Alent plc for three years
until December 2015. He has
previously acted as non-executive
director on the boards of
Cookson Group plc, Meggitt
PLC and Oxford Instruments plc,
and was a non-executive
board member of UK Trade
and Investment. He also has
substantial experience in
executive roles, having been
chief executive of Laird PLC
from 2002 until late 2011,
an executive director of
Costain Group plc and a
senior executive at BTR plc
(subsequently Invensys plc).
Peter is currently non-executive
chairman of Keller Group plc,
and a non-executive director
of Essentra plc and of the
Royal Air Force.
Experience
External appointments
44
Ronnie joined in 2008 as
Managing Director of Vent-Axia
Division (now the Ventilation
Group) and a director of our
then holding company, Volution
Holdings Limited, and was
appointed our CEO and a
director of our then holding
company, Windmill Topco,
in February 2012.
Ian joined in 2012 in
Consultant Services before
being appointed Business
Improvement Director and
subsequently our CFO in
January 2014, becoming a
director of our then holding
company, Windmill Topco,
in April 2014.
Ronnie has over 25 years’
experience in industry and,
prior to joining us, served
as the managing director
of Draka UK, a £200 million
turnover business with c.450
employees focusing on
electric cable production for
construction, where he had
full financial and operational
responsibility for the UK
business. Latterly, he also
served as the president
of Draka’s global marine,
oil and gas division.
Ian has over 25 years’
experience in industry and,
prior to joining us, held the
position of group finance
director (industry and speciality
group) at Draka Holding N.V.,
where he had previously been
divisional financial controller in
the company’s marine, oil and
gas division. He has also served
as finance director of Draka UK
and Transplastix Limited.
None
None
Governance ReportVolution Group plcAnnual Report 2016 Anthony Reading, MBE
Senior Independent
Non-Executive Director
Adrian Barden
Independent
Non-Executive Director
Paul Hollingworth
Independent
Non-Executive Director
Claire Tiney
Independent
Non-Executive Director
23 June 2014
23 June 2014
23 June 2014
3 August 2016
A N R
A N R
A N R
A N R
Tony joined the Board on
listing as Senior Independent
Non-Executive Director
and Chairman of the
Remuneration Committee.
Adrian joined in 2012 as an
independent Non-Executive
Director of our then holding
company, Windmill Topco.
Paul joined the Board on
listing as an independent
Non-Executive Director
and Chairman of the
Audit Committee.
Claire joined the Board in
August 2016 as an independent
Non-Executive Director.
Tony has extensive board
experience, having been
a non-executive director of
Taylor Wimpey plc, Laird PLC,
e2v technologies plc, Spectris
plc and George Wimpey plc.
He was previously an executive
director of Tomkins plc and
chairman and chief executive
of Tomkins Corp. USA.
Adrian was previously
chairman of the Construction
Products Association and
chief business development
officer of Wolseley plc as
well as a board member
of Sanitec Corporation.
Paul previously headed the
finance function and served
on the boards at a number
of UK listed public companies,
including Thomas Cook
Group plc, Mondi Group,
BPB plc, De La Rue plc
and Ransomes plc.
Claire has over 30 years’
experience in large PLCs and has
spent half of her career as an
executive director in businesses
including WH Smith Group plc,
Mothercare plc and McArthurGlen
Ltd, the developer and owner of
designer outlet villages throughout
Europe. She now runs her own
consultancy business working
with executive teams as a
coach and facilitator.
None
Adrian is currently a board
member of Van Elle Limited
and Quinn Industrial
Holdings Limited.
Paul is currently a
non-executive director
and chairman of the
audit committee at
Electrocomponents plc.
Claire is currently the senior
independent director and chair
of the remuneration committee
at Topps Tiles Plc and
non-executive director and chair
of the remuneration committee
of Hollywood Bowl Group plc.
45
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Introduction to Governance
Supporting the Group’s strategy
Dear shareholder,
Evaluating the Board’s effectiveness
I am pleased to introduce the 2016 Governance Report on behalf
of the Board. This review and the reports of the Audit, Remuneration
and Nomination Committees that follow summarise the Board’s
activities during the year.
As Chairman I am committed to ensuring that your Board operates
in an effective, transparent and ethical manner, and that we make
our decisions based only on what we believe is likely to be for the
benefit of shareholders by promoting and maintaining the long-term
success of the Company and its reputation, having regard, amongst
other things, to the interests of our employees and stakeholders.
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 rest of 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 UK Corporate Governance
Code which was published in September 2014 (the Code).
A copy of the Code can be found at www.frc.gov.uk.
Board changes
There were two changes to the Board during the year. Claire Tiney
joined the Board as an independent Non-Executive Director on
3 August 2016, bringing with her over 20 years of board level
experience encompassing executive and non-executive roles
in blue-chip retailing, property development and the services
sector, across the UK and Continental Europe. Gavin Chittick,
our non-independent Non-Executive Director, stepped down
from the Board on 18 March 2016.
Claire Tiney has actively engaged with the Group through
her induction, and will no doubt provide fresh insight and new
perspectives to the Board’s discussions. Combined with the deep
knowledge and experience of our existing Non-Executive Directors,
this gives us a Board that has a well balanced array of skills and
is well attuned to the Group’s requirements.
Diversity
We take diversity seriously and the Board continues to bear
in mind Lord Davies’ recommendations about gender diversity.
Our policy is to recruit the right people based on merit, so that
the Board has the diversity of skills and experience it needs.
In this regard, our recruitment of Claire Tiney has expanded
the Board’s diversity by adding board level experience across
executive and non-executive roles in blue-chip retailing, property
development and the services sector, across the UK and
Continental Europe, in addition to improving gender diversity.
Each year, the Board undertakes a formal evaluation of its
effectiveness. This year we carried out an internal evaluation,
using tailored questionnaires, followed by conversations between
individual Directors and me as appropriate and by Board discussions,
to drill down into particular issues that arose in the questionnaires
and individual discussions.
The results of the Board evaluation confirmed that the Board
continues to function effectively and that there are no significant
concerns among the Directors about its effectiveness. During the
financial year ending 31 July 2017, the Board will be undergoing
an externally facilitated evaluation for the first time and I look
forward to being able to share the findings from that exercise with
you next year. More information on the Board evaluation can be
found on page 51.
Appointment and re-election of Directors
Following the internal performance evaluation of Directors during
the year, I can confirm that all Directors continue to be effective
and committed to their roles and have sufficient time available
to perform their duties. Accordingly, as recommended by the
Nomination Committee, all Directors will be offering themselves
for annual election at the Company’s Annual General Meeting
to be held on 9 December 2016, in accordance with the Code.
Shareholder approval will also be sought for the election of our
new independent Non-Executive Director, Claire Tiney. Further
information on the appointment of Directors can be found on
page 78 of the Directors’ Report.
Annual General Meeting
I look forward to meeting any shareholders who can join us at
our Annual General Meeting in December and extend my thanks
to you all for your continued support as we look forward to the
year ahead.
Peter Hill, CBE
Chairman
11 October 2016
46
Governance ReportVolution Group plcAnnual Report 2016 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 September 2014 (the Code), which applies to financial years beginning on or after 1 October 2014 and is available at www.frc.org.uk.
This report sets out the Company’s governance structure and how it complies with the Code and also includes items required by the
Disclosure 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 UK Corporate Governance Code
The Board considers that it and the Company have, throughout the year, complied with the provisions of the UK Corporate
Governance Code (September 2014), which is the version of the Code which applies to the Company for its financial year ended
31 July 2016.
Board governance
The Board is appointed by shareholders, who are the owners of the Company. The Board’s principal responsibility is to act in the
best interests of shareholders as a whole, within the legal framework of the Companies Act 2006. It is also collectively responsible
to shareholders for the long-term success of the Company. It agrees the strategic direction and governance structure that will help
achieve this long-term success and deliver shareholder value. The Board oversees areas such as strategy, financial policy and making
sure we maintain a sound system of internal control, and focuses primarily on strategic policy and governance issues. The Board’s
main responsibilities are included in a schedule of matters reserved for the Board, as set out on the next page.
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.
Our Governance framework
Volution Group plc Board
Members:
Non-Executive Chairman
Four independent Non-Executive Directors
Two Executive Directors
Audit Committee
Remuneration Committee
Nomination Committee
Members:
Four independent
Non-Executive Directors
Responsibility for oversight and
governance of the Group’s financial
reporting, internal controls, risk
management and relationship
with external auditor
Members:
Non-Executive Chairman
Four independent
Non-Executive Directors
Responsibility for remuneration
policy and setting individual
remuneration levels for Executive
Directors and senior management
The Committee report can be
found on pages 56 to 60
The Committee report can be
found on pages 61 to 76
Members:
Non-Executive Chairman
Four independent
Non-Executive Directors
Responsibility for Board
composition, succession
planning and Director selection
The Committee report can be
found on pages 54 to 55
47
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Corporate Governance continued
Board balance and independence
Board composition
The 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. From the beginning of the financial year
until 18 March 2016 the Company’s Board consisted of a
Non-Executive Chairman, three independent Non-Executive Directors,
one non-independent Non-Executive Director appointed by
Windmill Holdings B.V., our controlling shareholder until 8 April 2016,
and two Executive Directors. On 18 March 2016 Gavin Chittick,
the non-independent Non-Executive Director, stepped down from
the Board and on 3 August 2016 Claire Tiney was appointed to the Board as an independent Non-Executive Director. Accordingly, the
Company’s Board now consists of a Non-Executive Chairman, four independent Non-Executive Directors and two Executive Directors.
A list of the Directors is provided on pages 44 to 45. Accordingly, the composition of the Board has remained in compliance with the
Code throughout the financial year ended 31 July 2016.
Independent
Non-Executive 4
Non-Executive
Chairman 1
Executive 2
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; and
> a rolling agenda of items that regularly need to be considered by the Board. This agenda will be continually updated to include
any topical matters that arise.
48
Governance ReportVolution Group plcAnnual Report 2016 Board activities and priorities during the year ended 31 July 2016
Board meetings consist of a mix of regular and standard items considered at each meeting and also special items which arise from time
to time, either annually or as part of key project-related work. The table below shows the key agenda items discussed during the year:
Matters considered at all Board meetings
> Management accounts including current trading and financial performance against budget and forecast
> Operations and new product development updates
> Merger and acquisition update
> Health and safety, and environmental updates
> Customers and marketing
> Investor relations including market and sector updates
> People update
> IT and Enterprise Resource Planning system implementation
> Regulatory updates
> Company policies and future governance planning
Matters considered during 2015/16
Area
Strategy
Agenda items
> Review and approval of Group strategy
Financial reporting
> Approval of Annual Report and Accounts, AGM Notice and associated documentation for the year
ended 31 July 2015
> Approval of interim financial statements for the six months ended 31 January 2016
> Approval of Trading Update in August 2015
> Dividend payment/recommendation (as appropriate)
Budget
> Review and approval of three year financial plan including budget for 2016/17
Operations
> Approval of acquisition of Ventilair, Energy Technique, NVA Services and Welair and their integration plans
> Consideration of risk framework, significant risks and risk appetite (in conjunction with the Audit Committee)
> Review of Viability Statement
> Property matters
> Consideration of construction market updates
> Appointment of new financial PR adviser
Shareholder
engagement
> Broker presentation on the Company’s shareholder profile and market perception following the share
disposals by the Company’s major shareholder, Windmill Holdings B.V.
> Independent feedback from joint brokers following full and half-year investor roadshows
> AGM 2015 proxy results and review of shareholder voting
Board
> Visit to facilities at inVENTer in Germany and Torin-Sifan in Swindon, UK, and presentations on the
Governance
> Board composition and the appointment of Claire Tiney
businesses
> Consideration of Board performance evaluation results
> Governance, legislation and regulatory updates
> Market Abuse Regulations briefings and appropriate approvals
> Approval of Modern Slavery Act Statement
> Updates from Board Committee chairmen as appropriate
49
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Corporate Governance continued
Chairman and Chief Executive Officer
Non-Executive Directors and independence
The Company has established a clear division between the
respective responsibilities of the Non-Executive Chairman of the
Board and the Chief Executive Officer. The Non-Executive Chairman
is Peter Hill, who is responsible for leading the Board’s discussions
and decision-making. The Chairman promotes a culture
of openness and debate by facilitating the effective contribution
of Non-Executive Directors in particular and ensuring constructive
relations between Executive and Non-Executive Directors.
The Chief Executive Officer is Ronnie George, who, through
delegation from the Board, is responsible for executing the
strategy and leading the Company’s operating performance
and day-to-day management of the Group. This separation of
responsibilities between the Chairman and the Chief Executive Officer,
coupled with the schedule of reserved matters described on
page 48, ensures that no individual has unfettered powers
of decision-making.
Senior Independent Director
The Code recommends that the board of directors of a company
with a premium listing should appoint one of the non-executive
directors as a senior independent director to provide a sounding
board for the chairman and to serve as an intermediary for the
other directors when necessary. The senior independent director
should be available to shareholders if they have concerns, when
contact through the normal channel of the chief executive officer
has failed to resolve, or for which such contact is inappropriate.
Tony Reading has been appointed as the Senior Independent
Director and has considerable experience of acting as an
independent non-executive director on listed company boards.
Prior to joining the Company, he was a non-executive director of
Taylor Wimpey plc, Laird PLC, e2v Technologies plc, Spectris plc
and George Wimpey plc. He was also an executive director of
Tomkins plc, and chairman and chief executive of Tomkins Corp. USA.
The independence of each Non-Executive Director is considered
each year immediately prior to the signing of the Annual Report
and Accounts. The Company’s Non-Executive Directors provide
a broad range of skills and experience to the Board which assists
both in their roles in formulating the Company’s strategy and
in providing constructive challenge to the Executive Directors.
All of the Non-Executive Directors are regarded by the Company
as independent Non-Executive Directors within the meaning defined
in the Code and free from any business or other relationship
which could materially interfere with the exercise of their
independent judgement.
Gavin Chittick stepped down from the Board on 18 March 2016
and prior to that was not considered independent due to his
position in TowerBrook Capital Partners L.P. and its relationship
with our then controlling shareholder, Windmill Holdings B.V.
Our controlling shareholder prior to listing controlled the Company
and following a disposal of the Company’s ordinary shares on
8 April 2016 now holds ordinary shares totalling 22.38% of the
total issued share capital. So long as Windmill Holdings B.V.
holds at least 15% of the share capital or voting rights, the
Relationship Agreement remains in place and it has the right
to nominate one person to be a Director of the Company.
Company Secretary
The Company Secretary plays a leading role in the good governance
of the Company by supporting the Chairman and helping the Board
and its Committees to function efficiently. Together with the Chairman,
the Company Secretary keeps under review the governance
processes adopted by the Company to ensure they remain fit for
purpose and considers any improvements that could strengthen
the governance of the Company. All Directors have access to the
services of the Company Secretary and may take independent
professional advice at the Company’s expense in conducting their
duties. The Company Secretary 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. Michael Anscombe has been
Company Secretary since August 2014.
50
Governance ReportVolution Group plcAnnual Report 2016 Board meetings
The Board met regularly during the year, holding eight Board meetings. A number of Board Committee meetings were also held
during the year. Details of attendance at Board and Committee meetings are shown in the table below.
Meetings held
Meetings attended
Peter Hill
Adrian Barden
Gavin Chittick1
Ian Dew
Ronnie George
Paul Hollingworth
Tony Reading
Board
Audit
Remuneration
Nomination
8
8
8
6
8
8
8
8
3
—
3
—
—
—
3
3
3
3
3
—
—
—
3
3
4
4
4
—
—
—
4
4
Notes
1. Gavin Chittick stepped down from the Board on 18 March 2016.
2. Where a Director is not a member of the Committee, this is indicated as a dash. During the year, certain Directors who were not Committee members attended
meetings of the Audit Committee, Remuneration Committee and Nomination Committee by invitation. These details have not been included in the table.
Agendas for the Board meetings are set out at the beginning of the year and new items are added to this as and when appropriate.
All Directors receive papers in advance of Board meetings. These include a business and market update report with updates
from the Chief Executive Officer and the Chief Financial Officer. Members of the Group’s Senior Management Team may also be
invited to present at Board meetings as appropriate so that Non-Executive Directors keep abreast of developments in the Group.
All Directors attended the Annual General Meeting in 2015.
Appointment and tenure
Board evaluation and effectiveness
The appointment dates of Directors are shown on pages 44 to 45.
The Board believes that all Directors are effective and committed
to their roles and have sufficient time available to perform their duties.
Accordingly, all members of the Board will be offering themselves
for election at the Company’s Annual General Meeting to be held
on 9 December 2016.
All of the Directors have service agreements or letters of
appointment and the details of their terms are set out in the
Directors’ Remuneration Report on pages 61 to 76. The service
agreements and letters of appointment are available for inspection
at the Company’s registered office during normal business hours.
No other contract with the Company or any subsidiary undertaking
of the Company in which any Director was materially interested
subsisted during or at the end of the financial year other than the
Relationship Agreement, further details of which can be found on
page 78. Under the Relationship Agreement, Windmill Holdings B.V.,
which was our controlling shareholder from listing until 8 April 2016,
has the right to nominate one person to the Board of the Company
for so long as its shareholding is at least 15% of the Company’s
ordinary shares.
The effectiveness and performance of the Board is vital to our
continuing success. This was the second year of a three-year cycle
and an internal evaluation of the performance of the Board and
its Committees was carried out during the year. The process of
evaluating the performance was facilitated by the Chairman, assisted
by the Company Secretary. A tailored, high level questionnaire
was distributed for the Directors to complete.
This was structured to provide Directors with an opportunity to
express their views about:
> the performance of the Board and its Committees, including
how the Directors work together as a whole;
> the balance of skills, experience, independence and
knowledge of the Directors; and
> the Board processes and operation.
The responses to the evaluation of the Board and its Committees
were reviewed with the Chairman and then considered by the Board
and the Committees. The results of the Board evaluation indicated
that the Board is working well and that there are no significant
concerns among the Directors about its effectiveness. Actions were
agreed as a result of the exercise and these will be progressed
over the coming year. These will include the Board adopting a
more formal process for evaluating the performance of the
Chief Executive Officer and Chief Financial Officer and further
detailed reviews of senior management succession planning.
51
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Corporate Governance continued
Board evaluation and effectiveness continued
External directorships
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.
Details of all Directors’ significant directorships can be found in
their biographies on pages 44 to 45.
Where Non-Executive Directors have external directorships,
the Board is comfortable that these do not impact on the time
that any Director devotes to the Company and we believe that
this experience only enhances the capability of the Board.
Information and support available to Directors
All Board Directors have access to the Company Secretary,
who advises them on governance matters. The Chairman and
the Company Secretary work together to ensure that Board papers
are clear, accurate, delivered in a timely manner to Directors, and
of sufficient quality to enable the Board to discharge its duties.
Specific business-related presentations are given by senior
management when appropriate. As well as the support of the
Company Secretary, there is a procedure in place for any Director
to take independent professional advice at the Company’s expense
in the furtherance of their duties, where considered necessary.
Deloitte LLP advises on remuneration matters, Ernst & Young LLP
on external audit matters and BDO LLP on internal audit matters.
Internal control and risk management
The Board acknowledges its responsibility for determining the
nature and extent of the significant risks it is willing to take in
achieving its strategic objectives, and for the Group’s system of
internal control. The principal risks facing the Group are set out
in the Strategic Report on pages 30 to 35, being those risks which
could threaten our business model, future performance, solvency
or liquidity and mitigation measures are detailed against each risk.
The Audit Committee, on behalf of the Board, carried out a review
of the effectiveness of the Group’s risk management and system
of internal control together with a robust assessment of the risks
facing the Group. Details can be found on page 60.
The Audit Committee Report on pages 56 to 60 describes the
system of internal control and how it is managed and monitored.
The Board acknowledges that such a system is designed to manage,
rather than eliminate, the risk of failure to achieve business objectives
and can only provide reasonable and not absolute assurance against
material misstatement or loss.
In the Annual Report 2015 the main actions from the evaluation
process completed in the financial year 2014/15 were set out, which
were for more visits to business units to broaden understanding
of the business and more exposure to members of the
Senior Management Team through being invited to present at more
Board meetings. These actions were addressed during the year.
The Senior Independent Director met with the other
Non-Executive Directors in the absence of the Chairman, to assess
the Chairman’s effectiveness. After considering and discussing
the tasks undertaken by the Chairman during the period under
review, the Non-Executive Directors 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 at a separate one-to-one meeting.
The performance of individual Directors was evaluated by
the Chairman, with input from the Committee chairmen and
other Directors.
The Board intends to comply with Code guidance that the evaluation
process should be externally facilitated at least every three years
and having now completed internal evaluations for two years,
an external independent consultant will be engaged next year
to evaluate the Board’s effectiveness.
Induction
Following the appointment of Claire Tiney on 3 August 2016, a
formal personalised induction programme was developed in line
with the Code, to ensure that Claire would receive an appropriate
induction to the Group with the support of the Company Secretary.
The programme covers, amongst other things, the operation and
activities of the Group (including site visits and meeting members
of the senior management teams); the Group’s principal risks and
uncertainties; the role of the Board and the decision-making matters
reserved to it; the responsibilities of the Board Committees; the
strategic challenges and opportunities facing the Group; and the
opportunity to meet the Company’s main advisers. Any future
Non-Executive Director appointed to the Board would have a similar
induction programme personalised according to their individual
experience and background and to their own requirements.
Directors’ conflicts of interest
Directors have a statutory duty to avoid situations in which they
have or may have interests that conflict with those of the Company,
unless that conflict is first authorised by the Board. This includes
potential conflicts that may arise when a Director takes up a position
with another company. The Company’s Articles of Association
allow the Board to authorise such potential conflicts, and there is
in place a procedure to deal with any actual or potential conflict of
interest. The Board deals with each appointment on its individual
merit and takes into consideration all the circumstances. All potential
conflicts approved by the Board are recorded in a conflicts of
interest register, which will be reviewed by the Board on a regular
basis to ensure that the procedure is working effectively.
52
Governance ReportVolution Group plcAnnual Report 2016 Whistleblowing
An external independent whistleblowing facility is available to enable
employees to report any concerns which they feel need to be
brought to the attention of management concerning any possible
impropriety, financial or otherwise, and the appropriateness of the
facility is reviewed by the Audit Committee. The Group believes
that it is important to have a culture of openness and accountability
in order to prevent such situations occurring or to address them
when they do occur.
Shareholder engagement
Responsibility for shareholder relations rests with the Chairman,
the Chief Executive Officer and the Chief Financial Officer. They
ensure that there is effective communication with shareholders
on matters such as governance and strategy, and are responsible
for ensuring that the Board understands the views of major
shareholders. The Board aims to present a balanced and clear
view of the Group in communications with shareholders and
believes that being transparent in describing how we see the
market and the prospects for the business is extremely important.
We have communicated with existing and potential shareholders
in a number of different ways during the year, such as:
August 2015
Trading Update
Consultation on remuneration with major
shareholders and principal investor
advisory groups
October 2015
Full Year Results Announcement and
analyst presentation
In addition to the above, we communicate with existing and
potential shareholders in a number of other ways, such as:
> one-to-one meetings and telephone briefings for analysts and
investors; and
> periodic visits to the business sites to give analysts and major
shareholders a better understanding of how we manage our
business. These visits and meetings are principally undertaken
by the Chief Executive Officer, the Chief Financial Officer and
other members of the Senior Management Team.
In the above situations, any material presented is also uploaded to the
Company’s website so it is available to all shareholders.
The Board receives regular updates on the views of its shareholders
from the Chief Executive Officer and Company brokers. This is
a standing agenda item for all Board meetings. In addition, the
Senior Independent Director is available to meet shareholders
if they wish to raise issues separately from the arrangements
as described above.
The Company’s investor website is also regularly updated with news
and information including this Annual Report and Accounts which
sets out our strategy and performance together with our plans for
future growth.
Fair, balanced and understandable
The Board recognises its duty to ensure that the Annual Report
and Accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the performance, strategy and business model of the Company.
Institutional broker sales desk briefings
The Board has placed reliance on the following to form this opinion:
UK shareholder roadshow
> a verification process dealing with the factual content of the
November 2015 Annual Report and Accounts and Notice
reports and to ensure consistency across the various sections;
of AGM posted to shareholders and placed
on website
December 2015 Annual General Meeting
March 2016
Half-year Results Announcement and
analyst presentation
Institutional broker sales desk briefings
UK shareholder roadshow
May 2016
Investor and sell-side analyst perception review
July 2016
US shareholder roadshow
> review of the Annual Report and Accounts by senior management
to ensure consistency and overall balance; and
> the Audit Committee reviewed the Annual Report and Accounts
and its compliance with the requirements, concluded that they
had been met and recommended its approval by the Board
as fair, balanced and understandable.
Annual General Meeting
The Annual General Meeting (AGM) of the Company will
take place at 12.00 noon on Friday 9 December 2016 at the
offices of Norton Rose Fulbright LLP, 3 More London Riverside,
London SE1 2AQ, United Kingdom. All shareholders have the
opportunity to attend and vote, in person or by proxy, at the AGM.
The Notice of AGM can be found in a circular which is being
posted at the same time as this Annual Report and Accounts.
The Notice of AGM sets out the business of the meeting and
explanatory notes on all resolutions. Separate resolutions are
proposed in respect of each substantive issue. The Chairman
and all Directors will be present at the AGM and will be available
to answer shareholders’ questions.
53
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Dear shareholder,
As chairman of the Nomination Committee,
I present our report detailing the role and
responsibilities of the Committee and its
activities during the year.
Role and responsibilities
The key responsibilities of the Committee are:
> assessing whether the size, structure and composition of the
Board (including its skills, knowledge, experience and diversity,
including gender diversity) continue to meet the Group’s business
and strategic needs;
> examining succession planning for Directors and other senior
executives and, in particular, for the key roles of Chairman of
the Board 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
> identifying and nominating, for approval by the Board, candidates
to fill Board vacancies as and when they arise together with
leading the process for such appointments.
The full terms of reference of the Committee are available
on the Company’s website at www.volutiongroupplc.com.
Membership and attendance
The Code recommends that a majority of the members of a
nomination committee should be independent non-executive
directors. As the Committee is chaired by me, and its other
members are Adrian Barden, Paul Hollingworth, Tony Reading and
Claire Tiney, all of whom are independent Non-Executive Directors,
the Company complies with this Code recommendation.
By invitation, the meetings of the Committee may be attended
by the Chief Executive Officer and the Chief Financial Officer.
The Chairman of the Board normally chairs the Committee except
where it is dealing with his own re-appointment or replacement.
The Company Secretary acts as the Secretary to the Committee.
The Committee met four times during the year with attendance
disclosed on page 51. The Committee will meet formally at
least once a year and at such other times as the Board or
the Committee chairman requires.
Nomination Committee Report
Peter Hill, CBE
Chairman, Nomination Committee
Nomination Committee members
Peter Hill (chair)
Adrian Barden
Paul Hollingworth
Tony Reading
Claire Tiney
On 3 August 2016, Claire Tiney
was appointed to the Board.
Claire is a highly experienced
director with over 20 years’
experience of board level roles.
Peter Hill, CBE
Chairman, Nomination Committee
54
Governance ReportVolution Group plcAnnual Report 2016 Nomination Committee activities during 2015/16
The following matters were considered at the Committee
meetings held during the year:
> evaluated the balance of skills, experience,
independence, diversity and knowledge on the Board;
> conducted a process leading to the appointment to the
Board of Claire Tiney as an independent
Non-Executive Director;
> reviewed succession planning for the Executive Directors
and the Senior Management Team;
> reviewed and approved the recommendations to be
On 3 August 2016, Claire Tiney was appointed to the Board.
Claire is a highly experienced director with over 20 years’
experience of board level roles encompassing executive and
non-executive positions in blue-chip retailing and property
development companies and in the services sector, across the
UK and Continental Europe. Her key strengths are in HR and in
implementing business strategy, with a particular focus on strategic
and business development, marketing and change management.
Claire will no doubt provide fresh insight and new perspectives to
the Board’s discussions and, combined with the deep knowledge
and experience of our existing Non-Executive Directors, this
gives us a Board that has a well balanced array of skills and
is well attuned to the Group’s requirements.
made to shareholders for the election of Directors at the
Annual General Meeting;
Diversity
> reviewed the results of the Committee performance
evaluation; and
> reviewed the Committee’s report in the Annual Report
and Accounts and recommended approval to the Board.
After the year end, the Committee considered the outcome
of the performance evaluations when discussing the
effectiveness of the Non-Executive Directors seeking
re-election at the Annual General Meeting 2016.
Election of Directors
On the recommendation of the Committee and in line with the Code
and the Company’s Articles of Association, all of the Company’s
Directors will stand for election at the Annual General Meeting 2016.
The biographical details of the Directors can be found on pages 44
to 45. The Committee considers that the performance of each of the
Directors standing for election at the Annual General Meeting 2016
continues to be effective and each demonstrates commitment to
their role.
Board changes
On 18 March 2016, Gavin Chittick, our non-independent
Non-Executive Director, stepped down from the Board. This led
to a search for an additional independent Non-Executive Director
which was led by an independent external search firm, Ingenium.
They produced a long list of candidates for review by the Committee.
The list of suitable candidates was discussed by the Committee
followed by an interview process that included meetings with the
Chairman, the Senior Independent Director, independent Directors
and the Executive Directors. The candidates remaining on the
short list were then discussed by the Committee resulting in
a recommendation of the preferred candidate to the Board.
The Board supports the aims, objectives and recommendations
outlined in Lord Davies’ Report “Women on Boards” and recognises
the need to recruit more women to the Board, to which it is
committed over time.
Following the appointment of Claire Tiney to the Board as an
independent Non-Executive Director, I am pleased to report that
the Company is now progressing towards the voluntary gender
diversity target set in the Lord Davies Report published in
October 2015. The Board’s continued commitment towards
achievement of the voluntary target will be considered as and
when the other Board members need to be replaced, given that
they were only appointed on listing in June 2014 and the Board
is considered to be the right size at the current time. The Committee
and the Board understand the importance of a diverse Board
membership as well as throughout the Company, and recognise
that diversity encompasses not only gender but also background,
ethnicity and disability. The Company’s policy is to make appointments
based on merit and against objective criteria, the key criterion
being whether or not the appointee can add to or complement
the existing range of skills and experience on the Board.
Committee performance evaluation
During the year, the Committee carried out an evaluation of its
performance through completion of a confidential questionnaire
by the Committee members within the context of the wider Board
performance evaluation review. This process concluded that the
Committee had fulfilled its role effectively.
I look forward to meeting with shareholders at the Annual General
Meeting in December to answer any questions on the work of
the Committee.
Peter Hill, CBE
Chairman of the Nomination Committee
11 October 2016
55
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Audit Committee Report
Paul Hollingworth
Chairman, Audit Committee
Audit Committee members
Paul Hollingworth (chair)
Adrian Barden
Tony Reading
Claire Tiney
I am able to confirm, on behalf of the
Board, that the Annual Report and
Accounts 2016, taken as a whole,
is fair, balanced and understandable.
Paul Hollingworth
Chairman, Audit Committee
56
Dear shareholder,
I am pleased to present the report on the
activities of the Audit Committee for the year
ended 31 July 2016, and to be able to confirm,
on behalf of the Board, that the Annual Report
and Accounts 2016, taken as a whole, is fair,
balanced and understandable.
This report has been written to offer shareholders an insight into
the activities of the Committee during the year and provide an
overview of how the Committee has reviewed the work of the
external auditor and the effectiveness of the Group’s risk management
and internal control systems.
In September 2014, the Financial Reporting Council updated
the UK Corporate Governance Code (the Code), applying to all
companies with shares listed on the London Stock Exchange for
financial reporting periods beginning on or after 1 October 2014
and therefore is applicable to the financial year ended 31 July 2016.
The principle behind the updated Code is to ensure that risk
management and internal control are embedded in the business
process by which a company pursues its objectives.
Since Volution became a listed company, the Committee has
focused on the integrity of the Group’s financial reporting, risk
management and internal controls, and the quality of the internal
and external audit processes. BDO LLP (BDO) has continued to
perform the internal audit function on behalf of the Group and the
three-year internal audit plan continues to give the Committee
assurance on internal controls.
During the financial year ending 31 July 2017, the Committee will
continue to look in detail at the Group’s business operations, with
a further six internal audits planned to take place during the period,
with particular focus on recent acquisitions. These will cover internal
control and compliance areas and be undertaken across functions
in the UK and European business units.
In line with the new Code, there is a requirement to assess the
Company’s prospects and viability over a longer period of time
than is required under the Going Concern provisions. Accordingly,
the Committee has reviewed and recommended to the Board the
Company’s Viability Statement, which can be found on page 31.
On behalf of the Committee, I would like to thank everyone for
their hard work over the past year, including Ernst & Young LLP
(EY) as our external auditor, BDO as our internal auditor and the
finance teams across the businesses.
I look forward to meeting with shareholders at the Annual General
Meeting to answer any questions on the work of the Committee.
Paul Hollingworth
Chairman of the Audit Committee
11 October 2016
Governance ReportVolution Group plcAnnual Report 2016 Audit Committee activities during 2015/16
The following matters were considered at the Committee meetings held during the year:
Financial statements and reports
> reviewed the Preliminary Results Announcement, Annual Report and Accounts, Half-year Results Announcement, received
reports from the external auditor, and reviewed the Trading Update;
> reviewed the effectiveness of the Group’s internal controls and disclosures made in the Annual Report and Accounts;
> reviewed management representation letters, going concern reviews, fair, balanced and understandable criteria, significant
areas of accounting estimates and judgements (including exceptional items, intangible assets and rebates);
> reported to the Board on the appropriateness of accounting policies and practices; and
> reviewed the draft Viability Statement and stress testing.
Risk management
> considered the Group Risk Register, which identified, evaluated and set out mitigation of risks, and reviewed the
Principal Risks and Uncertainties disclosed in the Annual Report and Accounts; and
> monitored and reviewed the current risk management and internal control processes to determine the key enhancements required
to ensure compliance with the UK Corporate Governance Code requirements for disclosure in the Annual Report and Accounts.
Internal audit
> reviewed regular reports from BDO as Group internal auditor and reviewed its three-year plan;
> reviewed management responses to BDO’s internal audit reports issued during the year; and
> monitored the Group’s Code of Conduct and Anti-Bribery and Corruption Policy, including external independent whistleblowing
provider reports from the facility which allows the receipt, in confidence, of complaints on accounting, risk issues, internal controls,
auditing issues and non-financial related matters.
External auditor and non-audit work
> reviewed the recent tendering and rotation provisions from the EU and the Competition and Markets Authority;
> reviewed the relationship with the external auditor including its independence, objectivity and effectiveness, and on the basis
of that review, recommended to the Board its re-appointment at the Annual General Meeting 2016;
> reviewed, considered and agreed the scope and methodology of the audit work to be undertaken by the external auditor;
> agreed the terms of engagement and fees to be paid to the external auditor; and
> reviewed and approved the Group policy on non-audit services and reviewed any non-audit fees.
Compliance
> met with the external auditor without executive management being present; and
> reviewed the Committee terms of reference and evaluated its performance.
Membership and meetings
The Code recommends that all members of an audit committee
be non-executive directors, independent in character and judgement
and free from any relationship or circumstance which may, could
or would be likely to, or appear to, affect their judgement and that
one such member has recent and relevant financial experience.
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, Adrian Barden
and Claire Tiney. All members have a sufficiently wide range of
business experience and expertise such that the Committee can
fulfil its responsibilities. Biographies of all Committee members
can be found on pages 44 to 45. As such, the Committee complies
with the Code recommendations.
Regular Committee meetings are also normally attended by the
Chairman, the Chief Executive Officer, the Chief Financial Officer,
the external auditor, the internal auditor and the Company Secretary,
who acts as secretary to the Committee. Other members of
management are invited to attend depending on the matters
under discussion. The Committee meets regularly with the
external auditor with no members of management present.
Meetings are scheduled in accordance with the financial and
reporting cycles of the Company and generally take place prior
to Board meetings to ensure effectiveness of the collaboration
with the Board.
Members and their attendance at meetings during the year are
set out in the Governance Report on page 51.
The Committee has independent access to BDO, the internal
auditor, and to EY, the external auditor. BDO and EY have direct
access to the Chairman of the Committee outside formal
Committee meetings.
Minutes of each Committee meeting are provided to Board members.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Audit Committee Report continued
Role and responsibilities
The primary function of the Committee is to assist the Board in
fulfilling its responsibilities with regard to the integrity of financial
reporting, audit, risk management and internal controls. This comprises:
> monitoring and reviewing the Group’s accounting policies,
practices and significant accounting judgements; and
> reviewing the annual and half-yearly financial statements and
any public financial announcements and advising the Board
on whether the Annual Report and Accounts is fair, balanced
and understandable.
In relation to the external audit:
> approving the appointment and recommending the re-appointment
of the external auditor and its terms of engagement and fees;
> considering the scope of work to be undertaken by the
external auditor and reviewing the results of that work;
> reviewing and monitoring the independence of the external
auditor and approving its provision of non-audit services;
> monitoring and reviewing the effectiveness of the external auditor;
> monitoring and reviewing the effectiveness of the Group’s internal
audit function, and resolution of its material findings, in the
context of the Group’s overall risk management systems;
> overseeing the Group’s procedures for its employees to raise
concerns through its whistleblowing policy as set out in the
Code of Conduct;
> monitoring and reviewing the adequacy and effectiveness of
the risk management systems and processes; and
> assessing and advising the Board on the internal financial,
operational and compliance controls.
Significant accounting matters
In reviewing the financial statements with management and the external auditor, the Committee has discussed and debated the
critical accounting judgements and key sources of estimation uncertainty as set out in note 4 to the consolidated financial statements.
As a result of its review, the Committee has identified the following issues that require particular judgement or have significant
impact on interpretation of this Annual Report and Accounts 2016:
> Exceptional items: exceptional items on a pre-tax basis of £1.2 million (2015: £0.7 million) represent a material item in the
profit and loss account and solely consist of costs associated with acquisitions (see note 8 to the consolidated financial statements).
> Intangible assets: as a result of a number of recent acquisitions, intangible assets, both goodwill and others, are the biggest
single asset in the balance sheet. At 31 July 2016 intangible assets relating to goodwill, customer base and trademarks amounted
to £172.4 million. The value of goodwill and other intangible assets has been reviewed for impairment using a value in use
model using cash flow and discount rates as set out in note 19 to the consolidated financial statements. All acquisitions are
showing reasonable headroom on their goodwill calculations (see note 19 to the consolidated financial statements).
> Rebate agreements: the Group has a number of customer and supplier rebate agreements that are recognised as a reduction
from sales or a reduction of cost of sales as appropriate (collectively referred to as rebates). Rebates are based on an agreed
percentage of revenue or purchases, which will increase with the level of revenue achieved or purchases made. These agreements
typically run to a different reporting period to that of the Group with some of the amounts payable and receivable being subject
to confirmation after the reporting date. At the reporting date, the Directors make estimates of the amount of rebate that will
become both payable and due to the Group under these agreements based upon their best estimates of volumes and product
mix that will be bought or sold over each individual rebate agreement period. The total rebate payable provision at 31 July 2016
within trade and other payables was £5,414,000 (2015: £5,017,000).
In addition, the Committee reviewed policy and provisions with respect to warranty, doubtful debts and inventory.
External audit
EY was appointed as external auditor for the financial year
commencing 1 August 2012 following a competitive tendering
process. There are no contractual obligations restricting the
Committee’s choice of external auditor.
The lead partner is Andy Glover whose appointment in this
role also commenced with the audit for the financial year ended
31 July 2013. Andy Glover had no previous involvement with the
Group in any capacity. In accordance with current professional
standards, the external auditor is required to change the lead
partner every five years in order to protect auditor independence
and objectivity. Accordingly, Andy Glover will act as lead partner
until 31 July 2017 after which a new lead partner will be
introduced to the business.
The Committee assessed the effectiveness of EY and the
external audit process using a checklist and questionnaire issued
to senior management across the Group and involvement of
senior management in the detailed stages of the audit process.
A summary of the findings was prepared for consideration by
the Committee at its October 2016 meeting. The Committee
was satisfied with EY’s performance, the external audit process
and that it had employed an appropriate level of professional
challenge in fulfilling its role. There were no significant findings from
the evaluation process.
The Committee reviewed recent tendering and rotation provisions
from the EU and the Competition and Markets Authority, and the
satisfactory outcome of the evaluation of EY and the external
58
Governance ReportVolution Group plcAnnual Report 2016 audit process. The result was that the Committee will not be
placing the external audit out to tender during the next financial
year, subject to any other changes to the regulatory regime and
continued satisfaction with the effectiveness of the auditor, which
is evaluated annually. Accordingly, the Committee recommended
to the Board that a resolution to re-appoint EY be proposed to
shareholders at the Annual General Meeting in December 2016
and the Board accepted and endorsed this recommendation.
The Committee routinely meets EY without executive management
present. It was confirmed that the external auditor had been able
to offer rigorous and constructive challenge to executive management
during the year.
Non-audit services
The Group’s external auditor may also be used to provide specialist
advice where, as a result of its position as auditor, it either must,
or is best placed, to perform the work in question. The Committee
agrees the fees paid to the external auditor for its services as
auditor and a formal policy is in place in relation to the provision
of non-audit services by the external auditor to ensure that there
is adequate protection of its independence and objectivity.
During the year, EY charged the Group £25,000 (2015: £25,000)
for non-audit related services relating to the half-year review.
A breakdown of the fees paid to EY during the year is set out
in note 13 to the consolidated financial statements.
It is the Company’s practice that for any new non-audit services,
it will seek quotes from other firms, which may include EY, before
work on non-audit projects is awarded. Contracts are awarded to
our suppliers based on individual merits.
The Committee is satisfied that the overall levels of audit-related
and non-audit fees are not material relative to the income of the office
of EY conducting the audit or EY as a whole and therefore the objectivity
and independence of the external auditor was not compromised.
Internal control and risk management
The Board is responsible for the effectiveness of the Group’s system
of internal control, which has been designed and implemented to
meet the particular requirements of the Group and the risks to which
it is exposed. Details can be found below on the Group’s internal
control environment, how risk is managed and the Committee’s
review of the effectiveness of the risk management and internal
control systems.
Internal control environment
The following key elements comprise the internal control environment
which has been designed to identify, evaluate and manage, rather
than eliminate, the risks faced by the Group in seeking to achieve
its business objectives and ensure accurate and timely reporting
of financial data for the Company and the Group:
> an appropriate organisational structure with clear lines
of responsibility;
> an experienced and qualified finance function which regularly
assesses the possible financial impact of the risks facing the Group;
> a comprehensive annual strategic and business planning process;
> systems of control procedures and delegated authorities
which operate within defined guidelines, and approval limits
for capital and operating expenditure and other key business
transactions and decisions;
> a robust financial control, budgeting and rolling forecast
system, which includes regular monitoring, variance analysis,
key performance indicator reviews and risk and opportunity
assessments at Board level;
> procedures by which the consolidated financial statements
are prepared, which are monitored and maintained through
the use of internal control frameworks addressing key
financial reporting risks arising from changes in the business
or accounting standards;
> established policies and procedures setting out expected standards
of integrity and ethical standards which reinforce the need for
all employees to adhere to all legal and regulatory requirements;
> an annual compliance checklist; and
> BDO acting as the internal auditor.
During the financial year ended 31 July 2015, the Board appointed
BDO to act in the capacity of internal auditor. The Committee
agreed the BDO internal audit plan prior to the commencement
of the last financial year. The plan was approved to ensure that
there was appropriate coverage of the internal control environment,
strategic priorities and key risks identified by the Board. At each
Committee meeting, BDO gives an update on the progress of the
internal audit plan, which is reviewed to ensure that it is in line
with the Committee’s expectations.
During the year, the internal audit plan was amended so that
additional areas were added to the plan based on the changes
that gave rise to increased levels of risk. These changes to the
agreed audit plan were approved by the Committee. Given the
acquisitions that were made during the year and the growth of
the Group, the Committee spent time ensuring that an appropriate
level of coverage was in place to confirm that the control environment
was appropriate particularly in recently acquired companies.
How we manage risk
As outlined on page 30, the Group has a robust risk management
process that follows a sequence of risk identification, assessment of
probability and impact, and assigns an owner to manage mitigation
activities. Each business unit operates a process to ensure that key
risks are identified, evaluated, managed and reviewed appropriately.
This process is also applied at Board level to major business decisions
such as acquisitions. The business unit risk registers form the basis
for the Group Risk Register, which is maintained for all corporate
risks and is monitored by senior management and reviewed by the
Committee. Throughout the year, the Group Risk Register and the
methodology applied was the subject of review by senior management
and updated to reflect new and developing areas which might
impact business strategy. The Committee reviews the Group Risk
Register at least twice a year and assesses the actions being taken
by senior management to monitor and mitigate the risks.
The Group’s principal risks and uncertainties, the areas which they
impact and how they are mitigated are described on pages 30 to 35.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Audit Committee Report continued
Review of effectiveness
Committee performance evaluation
Provision C.2.3 of the Code states that the Board should monitor
the Company’s risk management and internal control systems
and, at least annually, carry out a review of their effectiveness.
The Committee, on behalf of the Board, reviews the effectiveness
of risk management and internal control systems on an ongoing
basis. Following advice from the Committee, the Board is satisfied
that an effective system of internal controls and risk management
is in place which enables the Group to identify, evaluate and manage
key risks and which accords with the FRC guidance published
in September 2014 entitled “Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting”.
This process was in place throughout the year and post year end
up to the date of approval of this Annual Report and Accounts.
Code of Conduct, anti-bribery and whistleblowing
The Group is committed to providing a safe and confidential
avenue for all employees across the Group to raise concerns
about serious wrongdoings. The Group also acknowledges
the requirements of the Code in this area, which states that the
Committee should review arrangements by which employees
across the Group may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters and ensuring that these concerns are investigated and
escalated as appropriate.
The Company has a Group-wide Code of Conduct and Anti-Bribery
and Corruption Policy. These policies set out clearly the Group’s
values and the importance that is placed on honest, ethical and
lawful conduct in all business dealings. All Group employees,
agents and suppliers are asked to confirm that they do and will
continue to comply with them. A gifts and hospitality register is
operated by each business unit to ensure transparency where
items are over a certain monetary threshold. In addition, all employees
who are considered the most likely to be exposed to bribery and
corruption are given web-based anti-bribery and corruption training.
During the year, the Committee reviewed the arrangements by
which employees are able to raise, in confidence, any concerns
they may have about possible wrongdoing or dishonest or unethical
behaviour, such as bribery, corruption, fraud, dishonesty and
illegal practices. An external independent whistleblowing provider
provides a confidential web-based, email and telephone facility
which has been communicated across the Group, branded as
“Speak Up”, to ensure awareness. The Code of Conduct protects
anyone who comes forward to make a disclosure under the
Whistleblowing Policy. Should any disclosures be made, the
Company Secretary will initiate an investigation to include all
necessary parties, then the Committee is notified and monitors
their resolution. The Committee also has the power to conduct
further enquiries itself or any other additional actions it sees fit.
The Board conducted an internal review of Committee effectiveness
during the year and concluded that the Committee had acted in
accordance with its terms of reference and carried out all of its
responsibilities effectively. No significant items were identified
for action.
Fair, balanced and understandable
The Board has responsibility under the Code for preparing the
Company’s Annual Report and Accounts, ensuring that it presents
a fair, balanced and understandable assessment of the Group’s
position and prospects and that it provides the information necessary
for shareholders to assess the Group’s performance, business
model and strategy.
The review of the Annual Report and Accounts took the form
of a detailed assessment of the collaborative drafting process,
which involves the Senior Management Team, Group Finance,
the Company Secretary and Group Marketing with guidance
and input from external advisers. It ensured that there is a clear
and unified link between this Annual Report and Accounts and
the Group’s other external reporting, and between the three main
sections of the Annual Report and Accounts – the Strategic Report;
the Governance Report; and the Financial Statements.
In particular, the Committee:
> reviewed all material matters, as reported elsewhere in this
Annual Report and Accounts;
> ensured that it correctly reflected the Group’s performance
in the reporting year;
> ensured that it correctly reflected the Group’s business model
and strategy;
> ensured that it presented a consistent message throughout; and
> considered whether it presented the information in a clear
and concise manner, illustrated by appropriate KPIs, to facilitate
shareholders’ access to relevant information.
A summary of the process, and of the Committee’s findings,
was considered by the Board at its meeting in October 2016.
The outcome of that review was that the Committee confirmed
to the Board that the Annual Report and Accounts 2016 met
the requirements of the Code and the Board’s formal statement
to that effect, to meet the requirements of the Code, is set out
on page 47.
Paul Hollingworth
Chairman of the Audit Committee
11 October 2016
60
Governance ReportVolution Group plcAnnual Report 2016 Directors’ Remuneration Report
Anthony Reading, MBE
Chairman, Remuneration Committee
Remuneration Committee members
Tony Reading (chair)
Adrian Barden
Peter Hill
Paul Hollingworth
Claire Tiney
Whilst shareholders will not be
asked to vote on a Remuneration
Policy at our 2016 AGM, to help
shareholders assess the reported
remuneration in the context of the
Policy we have set out in full the
Remuneration Policy, which was
approved by shareholders at the
2014 AGM.
Anthony Reading, MBE
Chairman, Remuneration Committee
Dear shareholder,
On behalf of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report for the year ended
31 July 2016. At the Annual General
Meeting in December 2015 (2015 AGM),
the Annual Report on Remuneration received
strong support from shareholders with 100%
of the votes cast being in favour of the resolution.
Our Remuneration Policy was approved by shareholders at the
Annual General Meeting in 2014 (2014 AGM) and we continue to
operate under this. However, for the 2016/17 LTIP grant onwards
we are introducing a two-year holding period following the end of
the three-year performance period, further strengthening the alignment
between our Executive Directors and shareholders. This feature
will be fully incorporated in the Policy to be tabled for shareholder
approval at the 2017 AGM in line with the required three-year cycle.
The Committee believes that the Remuneration Policy approved
at the 2014 AGM continues to appropriately support our
remuneration principles, which are to:
> attract and retain the best talent;
> drive behaviours that support the Group’s strategy and
business objectives which are developed in the long-term
interests of the Company and its shareholders;
> reward senior management appropriately for their personal
and collective achievements;
> provide incentives that help to maintain commitment over the
longer term and align the interests of senior management with
those of shareholders; and
> ensure that a significant percentage of the overall package
of the Executive Directors and senior management remains
at risk dependent on performance, and that their pay and
benefits adequately take account of reward versus risk.
Whilst shareholders will not be asked to vote on a Remuneration
Policy at our 2016 AGM, to help shareholders assess the reported
remuneration in the context of the Policy we have set out in full
the Remuneration Policy, which was approved by shareholders
at the 2014 AGM, in this Directors’ Remuneration Report.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Directors’ Remuneration Report continued
Performance in 2015/16 and remuneration outcomes
It has been another strong year for Volution Group. Adjusted
operating profit, adjusted EPS, working capital management
and Group employee retention were the key measures used
by the Committee to measure performance towards achieving
the Group’s strategic objectives and, accordingly, were the
performance measures used in the Annual Bonus Plan (ABP).
Performance against these measures resulted in the Committee
awarding an annual bonus of 64% of salary to Ronnie George
and 64% of salary to Ian Dew. We have provided full retrospective
disclosure of the ABP targets as well as the actual performance
against them. In accordance with the Directors’ Remuneration Policy,
50% of the annual bonus payment above the target incentive
(which was 60% of the maximum opportunity) has been deferred
into awards over the Company’s shares which will vest after three
years. Further details can be found on page 72.
As the earliest vesting date for awards made under the LTIP since
its introduction is 29 October 2017, no LTIP awards vested during
the year.
Remuneration decisions for 2016/17
The Committee has recently undertaken a review of the
remuneration arrangements for our Executive Directors, with
assistance from the Committee’s advisers, Deloitte LLP. Aside
from the introduction of a holding period for new LTIP awards,
we believe that the framework remains broadly fit for purpose
and so are not proposing any significant changes.
As part of the review, we assessed the base salaries of the
Chief Executive Officer and the Chief Financial Officer. Since
Volution listed in June 2014, the Executive Directors have only
been awarded one salary increase of 1%. Over the same period,
the Company has grown in complexity, successfully completed
a number of key acquisitions, and delivered strong results. To ensure
base salaries remain competitive, the Committee awarded a
salary increase of 10% to the Chief Executive Officer and 5%
to the Chief Financial Officer with effect from 1 August 2016.
These new salaries also reflect the development and performance
of Ronnie George and Ian Dew as executive directors of a public
company. In reaching this position, the Committee has been
mindful of the impact of adjusting salary levels purely as a result
of market data and the ratcheting impact this can have. It should
be noted that the revised salaries would still be positioned below
the median when compared to other UK listed companies of a
similar size. We have communicated with our major shareholders
on these changes.
Following the review it was determined that the annual bonus
maximum levels and the performance measures continue to be
appropriate. The Committee will continue its policy of setting
stretching annual bonus targets which take into account a number
of internal and external factors and disclose performance against
targets and associated payouts unless the Committee considers
them to be commercially sensitive.
As noted earlier in this letter, the Committee is introducing a two-year
holding period following the end of the three-year performance
period under the LTIP. This change will extend time horizons such
that the combined performance and holding period will be five
years for awards granted from 2016/17. This further strengthens
the alignment between our Executive Directors and shareholders.
The performance measures used for LTIP awards made during
the 2015/16 financial year remain appropriate, and as a result,
LTIP awards to be granted during the 2016/17 financial year will
be consistent with the awards made in 2015/16, other than the
introduction of the two-year holding period.
During 2016/17, the Committee will be reviewing the
Remuneration Policy prior to submitting it for formal approval
by shareholders at the Annual General Meeting in 2017 in line
with the required three-year cycle. The Committee will consult
with major shareholders in advance if significant changes are
to be proposed.
Annual General Meeting 2016
On behalf of the Board I would like to thank shareholders for their
continued support and do hope that you will support the resolution
requesting approval of the Annual Report on Remuneration at this
year’s Annual General Meeting on 9 December.
Anthony Reading, MBE
Chairman of the Remuneration Committee
11 October 2016
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Governance ReportVolution Group plcAnnual Report 2016 Directors’ Remuneration Policy Report
This section of the Directors’ Remuneration Report sets out the Remuneration Policy for Executive and Non-Executive Directors, which
shareholders approved at the Annual General Meeting in 2014 and was brought into effect from 17 December 2014. In practice the
Remuneration Policy has been applied since the beginning of the financial year on 1 August 2014. The Remuneration Policy will remain
binding until the Annual General Meeting in 2017. The Remuneration Policy Report has been updated to show new chart illustrations of
the application of the Remuneration Policy to reflect the revised Executive Director salaries for 2016/17.
Remuneration Policy table
Operation
Base salary
Maximum opportunity
Performance metrics
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.
In determining base salaries,
the Committee considers:
> salary levels at companies of a similar
size and complexity;
> Company performance and external
market conditions;
> pay and conditions elsewhere
in the Group; and
> role, experience and
personal performance.
There is no automatic entitlement to an
increase each year.
Pension
The current salaries for the Executive
Directors are set out in the Annual Report
on Remuneration.
Company and individual performance
are factors considered when
reviewing salaries.
While the Committee does not consider
it appropriate to set a maximum salary
increase, annual increases will generally
be in line with those of the wider workforce.
Increases beyond those awarded to the wider
workforce (in percentage of salary terms)
may be awarded in certain circumstances
such as progression in the role, where there
is a change in responsibility, or experience
or a significant increase in the scale of the
role and/or size, value and/or complexity
of the Group.
Purpose and link to strategy: The Company aims to provide competitive retirement benefits for the role.
Executive Directors may receive an
employer’s pension contribution to a
personal or Group pension scheme
and/or cash allowance.
15% of base salary.
N/A
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Directors’ Remuneration Policy Report continued
Remuneration Policy table continued
Operation
Annual Bonus Plan (ABP)
Maximum opportunity
Performance metrics
Purpose and link to strategy: To incentivise Executive Directors to achieve specific, pre-determined goals during a one-year period.
Rewards achievement of objectives linked to the Company’s strategy.
100% of base salary.
Annual bonus payment is determined by
the Committee after the financial year end,
based on annual performance against
targets set at the start of the year.
Normally, 50% of any annual bonus
payment above the target incentive (which
will be 60% of the maximum opportunity)
earned by the Executive Directors will be
deferred into awards over the Company’s
shares which normally vest after at least
two years.
Dividend equivalent payments (cash and/
or shares) may be payable on awards to
the extent that they vest.
Long Term Incentive Plan (LTIP)
Performance measures are
determined with reference to the
Company’s key strategic business
objectives for the year.
No less than 50% of the bonus will
be dependent on financial measures
and the remainder will be based on
non-financial measures that are
aligned to the strategic priorities
of the business.
At threshold performance up to 25%
of the maximum pays out. Below this
level of performance, no bonus pays out.
Purpose and link to strategy: To incentivise the delivery of key strategic objectives over the longer term and align the interests
of Executive Directors with those of our shareholders.
Typically a contingent award of shares or
nil-cost options is made on an annual basis.
Vesting of the awards is dependent on the
achievement of performance targets,
typically measured over a three-year period.
Dividend equivalent payments (cash and/or
shares) may be payable on awards to the
extent that they vest.
Other benefits
The Committee intends initially to make
awards of 100% of base salary, with the
ability to make awards of up to 175% of
base salary as permitted by the plan rules.
Awards vest based on challenging
financial, operational or share
price targets.
At least 50% will be based on
financial measures.
No more than 25% vests at threshold
with 100% of awards vesting at
maximum performance.
Purpose and link to strategy: To provide a market-competitive package of benefits consistent with the role.
Although the Committee does not consider
it appropriate to set a maximum benefits
level, they are set at an appropriate level
for the specific nature of the role.
N/A
Various cash/non-cash benefits are
provided to Executive Directors which may
include (but are not limited to) a company
car (or cash equivalent), life assurance,
expatriate benefits, private medical
insurance and relocation benefits.
Executive Directors would also be able
to participate in any all-employee share
plans on the same basis as other eligible
employees, should such plans be
implemented by the Company.
64
Governance ReportVolution Group plcAnnual Report 2016 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.
100% of base salary.
N/A
Executive Directors are expected to achieve
and retain a holding of the Company’s
shares worth 100% of their base salary
within a period of four years from listing
on the London Stock Exchange, which
was 23 June 2015, or, if later, within four years
of the new Director becoming subject to
such guidelines.
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 set within the aggregate limits set
out in the Company’s Articles of Association.
N/A
Non-Executive Directors are eligible for
fee increases during the three-year period
that the policy operates to ensure they
continue to appropriately recognise the time
commitment of the role and fee levels in
companies of a similar size and complexity.
Fees are determined by the Board.
The Chairman is paid an all-inclusive fee for
all Board responsibilities.
Non-Executive Directors receive a basic
Board fee.
Neither the Chairman nor Non-Executive
Directors are eligible to participate in any
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.
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 that
they reasonably incur in the performance
of their duties.
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Directors’ Remuneration Policy Report continued
Any use of the above discretions would, where relevant, be explained
in the Annual Report on Remuneration and may, as appropriate,
be the subject of consultation with the Company’s major shareholders.
Malus and clawback
Malus and clawback provisions (as relevant) may be operated
at the discretion of the Committee in respect of awards granted
under the LTIP and the DSBP in certain circumstances including,
but not limited to, a material misstatement of the Company’s
financial results, a material failure of risk management by any
member of the Group or a relevant business unit, material
reputational damage to any member of the Group or relevant
business unit, or if the participant is summarily dismissed.
Clawback may be applied at the discretion of the Committee up
to the third anniversary of delivery of the shares to the individual.
Takeover or other corporate event
In the event of a change of control, outstanding deferred share
bonus awards will vest in full as soon as practicable after the date
of the event, unless the Committee determines otherwise.
For outstanding LTIP awards, generally the performance period
will end on the date of the event. The Committee will determine
the level of vesting taking into account the extent to which performance
conditions have been achieved at this point. Unless the Committee
determines otherwise, awards will generally vest on a time pro-rata
basis taking into account the period of time between grant and
the relevant event.
Alternatively, the Committee may permit a participant to exchange
his awards for equivalent awards which relate to shares in a different
company. If the change of control is an internal re-organisation of
the Group, if the Committee so decides, participants will be required
to exchange their awards (rather than awards vesting).
If other corporate events occur, such as a winding-up of the
Company, demerger, delisting, special dividend or other event
which, in the opinion of the Committee, may affect the current
or future value of the Company’s shares, the Committee may
determine that awards will vest on the same basis as set out
above for a takeover.
Minor changes
The Committee may make minor amendments to the Remuneration
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.
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 performance in line with the
Company’s key strategic objectives.
Challenging targets for both plans will be set each year based
on a number of internal and external reference points.
The Committee will review the choice of performance measures
and the appropriateness of the performance targets prior to each
grant under the LTIP and will consult with major shareholders in
the event of any significant proposed change.
Committee discretion
The Committee reserves the right to make any remuneration
payments and payments for loss of office (including exercising
any discretions available to it in connection with such payments)
that are not in line with the Remuneration Policy set out above
where the terms of the payment were agreed:
> before the Remuneration Policy came into effect; or
> at a time when the relevant individual was not a Director of the
Company and, in the opinion of the Committee, the payment
was not in consideration for the individual becoming a Director
of the Company.
For these purposes, “payments” includes the Committee satisfying
variable remuneration.
The Committee will operate the LTIP and Deferred Share Bonus Plan
(DSBP) in accordance with the respective rules, the Remuneration
Policy set out above and the Listing Rules where relevant. The
Committee, consistent with market practice, retains discretion
over a number of areas relating to the operation and administration
of these plans. These include (but are not limited to) the following:
> the Committee may settle an award in cash;
> in the event of a variation of share capital, demerger, delisting,
special dividend or any other exceptional event which, in the
reasonable opinion of the Committee, may affect the current
or future value of the Company’s shares, the Committee may
(i) adjust the terms of the awards and (ii) make amendments to
the plan rules in accordance with the terms of the plan; and
> a performance condition may be amended or substituted
if one or more events occur which cause the Committee
to consider that it would be more appropriate and would
not be materially less difficult to satisfy.
66
Governance ReportVolution Group plcAnnual Report 2016 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.
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£0
£797,700
12%
29%
£467,178
£1,244,878
31%
31%
100%
59%
38%
100%
£319,894
Long-term variable remuneration
Annual variable remuneration
Fixed remuneration
£850,144
31%
31%
38%
£545,250
12%
29%
59%
Minimum
performance
In line with
expectations
Maximum
performance
Minimum
performance
In line with
expectations
Maximum
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 2016
> Benefits – effective as at 1 August 2016
> 15% of base salary pension contributions
Variable pay
Below threshold performance
> No cash payout under the ABP
> No vesting under the LTIP
In line with expectations
Maximum performance
> 60% of the maximum potential payout under the ABP (i.e. 60% of base salary)
> 25% vesting under the LTIP (i.e. 25% of base salary), assuming awards
equivalent to 100% of base salary are granted
> 100% of the maximum potential payout under the ABP (i.e. 100% of base salary)
> 100% vesting under the LTIP (i.e. 100% of base salary), assuming awards
equivalent to 100% of base salary are granted
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 Directors’
remuneration package in line with the Remuneration 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, the market rate for
a candidate of that experience, as well as the importance of
securing the preferred candidate.
The maximum level of variable remuneration (excluding any buy-outs)
on appointment will be in line with the maximum Remuneration
Policy set out above (i.e. 275% of base salary). The Committee
retains discretion to flex the balance of the annual bonus and
LTIP and the measures used to assess performance.
The Committee may make additional cash and/or share-based
awards as it deems appropriate and if the circumstances so
demand to replace remuneration arrangements forfeited by an
Executive Director on leaving a previous employer. This may
include the use of the relevant provisions in the Financial Conduct
Authority’s Listing Rules allowing for exceptional awards to be
made without shareholder approval.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report continued
Approach to recruitment continued
Awards to replace forfeited remuneration would, where possible,
be consistent with the awards forfeited in terms of delivery mechanism
(cash or shares), time horizons, attributed expected value and
whether or not they were subject to performance conditions.
Other payments may be made in relation to relocation expenses
and support as appropriate.
In the case of an internal appointment, any element of
remuneration in respect of the prior role would be allowed to
continue according to its original terms, or adjusted if appropriate
to take into account the appointment.
For the appointment of a new Chairman or Non-Executive Director,
the fee would be set in accordance with the approved Remuneration
Policy in force at that time. The length of service and notice periods
shall be set at the discretion of the Committee taking into account
market practice, corporate governance considerations and the
particular candidate at that time.
The Committee retains discretion to make appropriate remuneration
decisions outside the standard Remuneration Policy to meet the
individual circumstances of recruitment when:
> an interim appointment is made to fill an Executive Director
role on a short-term basis; and
> exceptional circumstances require that the Chairman or a
Non-Executive Director takes on an executive function on a
short-term basis.
Service agreements and letters of appointment
Each of the Executive Directors’ service agreements is for a
rolling term and may be terminated by the Company or the
Executive Director by giving not less than twelve months’ prior
written notice.
A Non-Executive Director’s appointment may be terminated with
immediate effect if such Director has:
> materially breached a term of their letter of appointment;
> committed a serious or repeated breach of his duties to
the Company;
> been found guilty of fraud, dishonesty or certain criminal offences;
> acted in a way likely to bring the Company into disrepute
or which is materially adverse to the Company;
> been declared bankrupt; or
> been disqualified from acting as a director.
The Executive Directors’ service agreements and
Non-Executive Directors’ letters of appointment are available
for inspection at the Company’s registered office and will be
available at the Annual General Meeting 2016.
Policy on Directors leaving the Group
The Committee must satisfy any contractual obligations agreed
with the Executive Director. This is dependent on the contractual
obligations not being in contradiction with the Remuneration Policy
set out in this report.
If an Executive Director’s employment is terminated, in the absence
of a breach of service agreement by the Director, the Company may,
although it is not obliged to, terminate the Director’s employment
immediately by payment of an amount equal to base salary and the
specified benefits (including pension scheme contribution) in lieu of
the whole or the remaining part of the notice period. Payments in lieu
of notice may be paid in monthly instalments over the length of the
notice period. The Executive Directors are obliged to seek alternative
income during the notice period and to notify the Company of any
income so received. The Company would then reduce the monthly
instalments to reflect such alternative income.
The Chairman and each of the Non-Executive Directors of the
Company do not have service contracts. Each of these Directors
has a letter of appointment which has an initial three-year term
which is renewable and is terminable by the Company or the
individual on one month’s written notice.
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 paid in cash and normally pro-rated for time
and paid at the normal payment date.
Under a Relationship Agreement between the Company and our
major shareholder, Windmill Holdings B.V., one Non-Executive Director
(who shall be deemed non-independent) can be appointed to the
Board on behalf of the major shareholder. Gavin Chittick was the
nominated Director from listing on 23 June 2014 until he stepped
down from the Board on 18 March 2016. Windmill Holdings B.V.
has not had a representative Director on the Board since that
date and up to the date of this report.
The terms of the Non-Executive Directors’ positions are
subject to their election by the Company’s shareholders at the
Annual General Meeting 2016. No contractual payments would
become due on termination.
Non-Executive Directors are not eligible to participate in cash
or share incentive arrangements and their service does not
qualify for pension or other benefits. No element of their fee
is performance related.
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, awards will normally vest to the extent that
the Committee determines, taking into account the satisfaction
of the relevant performance conditions and, unless the Committee
determines otherwise, the period of time that has elapsed between
grant and the date of leaving. Awards will normally vest at the
original vesting date, unless the Committee decides that awards
should vest at the time of leaving.
68
Governance ReportVolution Group plcAnnual Report 2016 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.
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.
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 Remuneration Policy for Executive Directors
compared to other employees
The Committee has regard to pay structures across the wider
Group when setting the Remuneration 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 Remuneration Policy for the Executive Directors is more
heavily weighted towards performance-related pay than for
other employees.
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 Remuneration Policy set out in this report.
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.
Annual Report on Remuneration
This section provides details of how the Remuneration Policy was implemented during the year and how the Remuneration Committee
(the Committee) intends to apply the Policy in the financial year 2016/17. Certain sections of this report are audited and indicated as such
where applicable. The Annual Report on Remuneration will be subject to an advisory shareholder vote at the Annual General Meeting 2016.
Role of the Committee
The role of the Committee is to recommend to the Board a strategy
and framework for remuneration for Executive Directors and the
Senior Management Team in order to attract and retain leaders
who are focused and incentivised to deliver the Company’s
strategic business priorities, within a remuneration framework
which is aligned with the interests of our shareholders and thus
designed to promote the long-term success of the Company.
The Committee has clearly defined terms of reference which are
available on the Company’s website, www.volutiongroupplc.com.
The Committee’s main responsibilities are to:
> establish and maintain formal and transparent procedures for
developing policy on executive remuneration and for fixing the
remuneration packages of individual Directors, and to monitor
and report on them;
> determine the remuneration, including pension arrangements,
of the Executive Directors;
> monitor and make recommendations in respect of remuneration
for the tier of senior management one level below that of the Board;
Tony Reading is the Committee chairman and he has chaired the
Committee from his appointment to the Board on 23 June 2014.
The Chairman of the Board is a member of the Committee because
the Board considers it essential that the Chairman is involved in
setting remuneration policy (although he is not party to any discussion
directly relating to his own remuneration).
During the year the Committee also consulted with the
Chief Executive Officer, the Chief Financial Officer and the Company
Secretary, but not on matters relating to their own remuneration.
Meetings
The Committee met three times during the year and has had
two meetings to date in 2016/17. Committee member attendance
can be found in the table on Board and Committee attendance
on page 51.
Committee activity and key decisions during the year
ended 31 July 2016
Matters considered and decisions reached by the Committee
during the year included:
> approve annual and long-term incentive arrangements
together with their targets and levels of awards;
> reviewed outcomes and approved payments for Executive
Director and Senior Management Team bonuses for 2014/15;
> determine the level of fees for the Chairman of the Board; and
> considered and approved the Directors’ Remuneration
> select and appoint the external advisers to the Committee.
Report 2014/15;
Membership
The Committee currently comprises four independent
Non-Executive Directors, Tony Reading, Adrian Barden,
Paul Hollingworth and Claire Tiney (appointed to the Board
on 3 August 2016), and the Chairman of the Board, Peter Hill.
> reviewed and approved the Remuneration Policy and
arrangements in the light of market trends for the 2015/16
Directors’ Remuneration Report and reviewed and confirmed
the Remuneration Policy remained appropriate for 2016/17;
> reviewed and approved the parameters of the ABP, including
performance measures and targets for 2015/16 for the
Executive Directors and Senior Management Team;
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Committee activity and key decisions during the year
ended 31 July 2016 continued
> considered and approved the LTIP awards to the Executive
Directors and Senior Management Team for 2015/16;
> reviewed market trends and developments in executive
remuneration in advance of considering Executive Director and
Senior Management Team remuneration proposals for 2016/17;
> reviewed and approved the Executive Director
and Senior Management Team salaries for 2016/17;
> reviewed and approved the parameters of the ABP, including
performance measures for 2016/17 for the Executive Directors
and Senior Management Team;
> reviewed and approved the performance measures to be used
for any LTIP awards made during 2016/17;
> agreed the process for consultation with shareholders on
Remuneration Policy;
> reviewed the Committee’s terms of reference;
> evaluated the performance of the Committee; and
> reviewed and approved the Committee’s rolling annual agenda.
Committee performance evaluation
The Board conducted an internal review of Committee
effectiveness during the year and concluded that the Committee
has acted in accordance with its terms of reference and carried
out all of its responsibilities effectively.
Advice to the Committee
The Committee keeps itself fully informed on developments and
best practice in the field of remuneration and it seeks advice from
external advisers when appropriate.
The Committee appoints its own independent remuneration
advisers and at the time of listing appointed Deloitte LLP to that
role. Deloitte LLP have served as advisers to the Committee since
listing and throughout the year. Total fees for advice provided to
the Committee during the year by Deloitte LLP were £21,825 and
were charged based on the time spent and seniority of the staff
involved in providing the advice. Deloitte LLP also provided the
Company with tax and transaction related services during the year.
Deloitte LLP is a member of the Remuneration Consultants
Group and as such voluntarily operates under the code of
conduct in relation to executive remuneration consulting in
the United Kingdom. The Committee requests Deloitte LLP
to attend meetings periodically during the year.
Single total figure of remuneration (audited)
The audited table below sets out the total remuneration for the Directors in the years ended 31 July 2016 and 31 July 2015.
Salary and fees
Benefits1
Pension2
Annual bonus3
Long-term
incentives4
Other
Total
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
Chairman
Peter Hill
Executive Directors
Ronnie George
Ian Dew
Non-Executive Directors
Adrian Barden5
Gavin Chittick6
Paul Hollingworth
Tony Reading
135
135
—
—
—
—
—
—
—
—
—
— 135
135
353
253
350
250
45
—
55
60
45
—
55
60
12
12
—
—
—
—
12
12
—
—
—
—
47
34
—
—
—
—
53
38
—
—
—
—
226
162
228
163
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
638
461
643
463
—
—
—
—
45
—
55
60
45
—
55
60
Notes
1. Benefits include an annual car allowance, life assurance equivalent to four times annual salary and permanent health insurance.
2. An employer’s pension contribution of 15% of base salary was paid to each of the Executive Directors until 31 October 2015. From 1 November 2015, a cash
payment in lieu of employer’s pension contribution, equivalent to 15% of base salary was paid to each of the Executive Directors.
3. The annual bonus for 2015/16 relates to annual incentive payments for performance in that financial year. The calculation of this amount is set out on page 71.
50% of the 2015/16 annual bonus above target (which is 60% of the maximum) is deferred into shares for a minimum period of two years. Ronnie George
will be awarded shares equivalent to £6,981 and Ian Dew will be awarded shares equivalent to £4,987.
4. Long-term incentives: this column relates to the value of long-term awards whose performance period ends in the year under review. The first long-term
incentive awards granted post-listing have a performance period that ends on 31 July 2017. As a result, this column has a zero figure in 2015 and 2016.
5. Adrian Barden’s fees were paid through Blue Burgee Limited up until 5 April 2016.
6. Gavin Chittick was the non-independent Non-Executive Director appointed by the Company’s major shareholder, Windmill Holdings B.V., under a Relationship
Agreement dated 18 June 2014 between the Company and Windmill Holdings B.V. He was not entitled to receive any fees for the services he provided to the
Company. Gavin Chittick stepped down from the Board on 18 March 2016.
70
Governance ReportVolution Group plcAnnual Report 2016
Annual Bonus Plan (ABP) (audited)
The operation of the ABP during the year ended 31 July 2016 was consistent with the framework set out in the Remuneration Policy.
The maximum annual bonus potential for the Executive Directors during the year was 100% of base salary, and bonus for on-target
performance was 60% of base salary. 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.
Measure
Strategic objective
Weighting
Threshold
Target
Maximum
Actual
performance
Payment
(% of
maximum)
Payment
(% of
base salary)
Adjusted
operating profit
Adjusted EPS
To increase profit
50%
£30.4m
£32.1m
£33.8m
£32.5m
39.8%
19.88%
Creation of shareholder
value
35%
11.4p
12.0p
12.6p
12.56p
97.3%
34.07%
Working
capital management
Delivering efficiency
of working capital
and cash generation
Group
employee retention
To continue to retain
our skilled employees
10%
£21.0m
£20.7m
£19.7m
£18.0m
100%
10.0%
5%
93.5%
94.0%
95.0%
90.4%
0%
0%
Total
63.95%
Note
All measures exclude unbudgeted acquisitions completed during the year except adjusted EPS.
Share awards granted during the year (audited)
Long Term Incentive Plan (LTIP)
2015/16 Awards
During the year the Committee made awards under the LTIP in accordance with the Remuneration Policy. The LTIP awards were made
in the form of nil-cost options which will vest following the Committee’s determination of the extent to which performance conditions,
measured over three financial years to 31 July 2018, have been met.
As described in last year’s Annual Report on Remuneration, the Committee approved the following performance conditions which
were used for these awards.
TSR vs Direct Peer Group index2
TSR vs FTSE companies of a similar size3
Cumulative average EPS growth
25%
25%
50%
Below index
Equal to index
Index + 8% p.a.
Less than median
Median
Upper quartile
Below 6% p.a.
6% p.a.
15% p.a.
Weighting1
(% of total award)
Below threshold
(0% vesting)
Threshold
(25% vesting)
Maximum
(100% vesting)
Notes
1. Awards will vest on a straight line basis between these points.
2. Direct Peer Group index is an unweighted 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).
In addition to the stretching performance conditions set out above, for awards to vest, the Committee must be satisfied with the
overall financial performance of the Company over the performance period.
The LTIP awards made on 19 November 2015 were as follows:
Executive Director
Ronnie George
Ian Dew
Number
of shares
188,533
134,666
Base price
Face value1
Face value
% of base salary
Vesting date
Expiry date
£1.875
£353,499
100%
19 November 2018
19 November 2025
£1.875
£252,499
100%
19 November 2018
19 November 2025
Note
1. 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
business days immediately preceding the date of grant.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Share awards granted during the year (audited) continued
Deferred Share Bonus Plan (DSBP)
2015/16 Awards (audited)
As set out in the Remuneration Policy, under the Company’s Annual Bonus Plan, 50% of any bonus payment above the target
incentive (which is 60% of the maximum opportunity) earned by the Executive Directors will normally be deferred into awards of the
Company’s shares. On 19 November 2015, the Executive Directors received an award of shares under the Deferred Share Bonus Plan
relating to the 2014/15 annual bonus. The value of these shares was included in the annual bonus figure in the 2015/16 single total
figure of remuneration. No further performance conditions apply to these shares.
The DSBP awards made on 19 November 2015 were as follows:
Executive Director
Ronnie George
Ian Dew
Number of shares
Base price
4,666
3,333
£1.875
£1.875
Face value
£ 1
Vesting date
8,749
19 November 2018
6,249
19 November 2018
Note
1. 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 business days immediately preceding the date of grant.
Equity incentives (audited)
Details of the awards granted and outstanding during the year to the Executive Directors under the LTIP and DSBP are as follows:
Number of
share
awards
at 1 August
2015
Date of
award
Share
awarded
during the
year
Shares
lapsed
during the
year
Shares
vested/
exercised
during the
year
Number of
share
awards
at 31 July
2016
Face value
at date
of grant
£1
Earliest
vesting
date
Expiry
date
Name/Plan
Ronnie George
LTIP 2014
LTIP 2015
19/11/2015
DSBP 2015
19/11/2015
29/10/2014
243,325
—
—
—
188,533
4,666
243,325
193,199
Total
Ian Dew
LTIP 2014
LTIP 2015
29/10/2014
173,804
—
19/11/2015
DSBP 2015
19/11/2015
—
—
134,666
3,333
Total
173,804
137,999
—
—
—
—
—
—
—
—
— 243,325
349,998 29/10/2017 29/10/2024
— 188,533
353,499 19/11/2018 19/11/2025
—
4,666
8,749 19/11/2018
N/A
— 436,524
712,246
— 173,804
249,999 29/10/2017 29/10/2024
— 134,666
252,499 19/11/2018 19/11/2025
—
—
3,333
6,249 19/11/2018
N/A
311,803
508,747
Note
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 £1.4384 for LTIP 2014 and £1.875 for the LTIP 2015 and DSBP 2015.
Employee Benefit Trust
The Volution Employee Benefit Trust (EBT) currently holds 916,878 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 and Deferred Share Bonus 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.
72
Governance ReportVolution Group plcAnnual Report 2016
Statement of Directors’ shareholding and share interests (audited)
We believe that Executive Directors should have shareholdings in the Company to ensure that they are as closely aligned as possible
with shareholder interests. As such the Company has implemented share ownership guidelines which state that Executive Directors
are expected to achieve and retain a holding of the Company’s shares equal to 100% of their base salary within a period of four years
from listing or, if later, within four years of the new Director becoming subject to such guidelines. It should be noted that both the
Executive Directors currently have shareholdings well in excess of 100% of base salary. The Chairman and the Non-Executive Directors
are also encouraged to hold shares in the Company in order to align their interests with those of shareholders. Directors’ interests in
ordinary shares held as at 31 July 2016 (together with the interests held by Persons Closely Associated with them) are set out below.
There were no changes in the Directors’ shareholdings between 31 July 2016 and the date of this report.
Chairman
Peter Hill
Executive Directors
Ronnie George
Ian Dew
Non-Executive Directors
Adrian Barden
Paul Hollingworth
Tony Reading
Shares held
beneficially at
1 August 20151
Shares held
beneficially at
31 July 20161
Beneficial
shareholding
at 31 July 2016
(% of salary)
Target
shareholding
achieved?2
LTIP awards
(unvested awards
subject to
performance)3
DSBP awards
(unvested awards,
not subject to
performance)
35,333
35,333
N/A
5,622,833
5,622,833
855,327
855,327
2,465%
525%
97,725
19,333
40,000
107,725
19,333
60,000
N/A
N/A
N/A
N/A
Yes
Yes
N/A
N/A
N/A
—
—
431,858
308,470
—
—
—
4,666
3,333
—
—
—
Notes
1. Includes any shares held by Persons Closely Associated.
2. The target shareholding achieved has been calculated based on shares held beneficially as at 31 July 2016 using the share price on that date of 155.0 pence
per share.
3. LTIP awards in this column consist of the 2015 LTIP award described elsewhere in this report and the 2014 LTIP award (consisting of 243,325 shares for
Ronnie George and 173,804 shares for Ian Dew). 2014 LTIP awards are structured as nil-cost options subject to the same performance conditions as the
2015 LTIP awards (being TSR vs Direct Peer Group index, TSR vs FTSE companies of a similar size and cumulative average EPS growth), with performance
measured over three years to 31 July 2017. The 2014 LTIP awards have a normal vesting date of 29 October 2017 and the last date of exercise for the nil-cost
options shall be 29 October 2024.
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.
Volution Group plc
FTSE SmallCap Index
140
130
120
110
100
90
80
)
d
e
s
a
b
e
r
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
Listing
2014 year end
(23/06/14)
(31/07/14)
2015 year end
(31/07/15)
2016 year end
(31/07/16)
73
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Performance graph and Chief Executive Officer remuneration table (audited) continued
The table below summarises the Chief Executive Officer’s single figure for total remuneration, annual bonus payments and LTIP vesting
levels as a percentage of maximum opportunity.
Chief Executive Officer’s single total figure of remuneration (£000)
Annual bonus payout (as a % of maximum opportunity)
LTIP vesting (as a % of maximum opportunity)
2016
638
64%
N/A
2015
643
65%
N/A
2014
1,061
100%
N/A
2013
428
54.8%
N/A
Percentage change in remuneration of the Chief Executive Officer (audited)
The table below shows the movement in salary, benefits and bonus for the Chief Executive Officer between the current and prior years
compared to the average remuneration for all Group employees.
% change
Base salary
Benefits2
Total annual bonus
Notes
1. Also including Chief Executive Officer’s remuneration.
2. Benefits include car allowance, health cover and pension contributions.
Relative importance of the spend on pay (audited)
Chief Executive
Officer
All
employees1
1.0%
0.0%
(0.9)%
3.4%
(1.1)%
5.0%
The following table shows the total expenditure on pay for all of the Company’s employees compared to distributions to shareholders
by way of dividend and share buyback. In order to provide context for these figures, adjusted operating profit is also shown.
Employee remuneration costs
Distributions to shareholders1
Adjusted operating profit
2016
£m
38.3
6.9
32.5
2015
£m
31.5
2.1
29.4
%
change
21.6
228.6
10.4
Note
1. The Company commenced dividend payments in the 2015 financial year with an interim payment only. A final and interim dividend were paid in the 2016
financial year.
74
Governance ReportVolution Group plcAnnual Report 2016 Statement of implementation of Remuneration Policy
for the financial year ending 31 July 2017
The Remuneration Committee has recently undertaken a review of the remuneration arrangements for our Executive Directors, with
assistance from the Committee’s advisers, Deloitte LLP. The following conclusions were reached by the Committee on implementation
of the Remuneration Policy for the 2016/17 financial year.
Executive Director base salaries
As part of the review, the Committee assessed the base salaries of the Chief Executive Officer and the Chief Financial Officer.
Since Volution listed in June 2014, the Executive Directors have only been awarded one salary increase of 1%. Over the same period,
the Company has grown in complexity and has successfully completed a number of key acquisitions. To ensure base salaries remain
competitive, the Committee awarded a salary increase of 10% to the Chief Executive Officer and 5% to the Chief Financial Officer with
effect from 1 August 2016, taking the base salary for Ronnie George to £388,850 and for Ian Dew to £265,125. These new salaries
reflect the development and performance of Ronnie George and Ian Dew as Executive Directors of a public company. In reaching this
position, the Committee has been mindful of the impact of adjusting salary levels purely as a result of market data and the ratcheting
impact this can have. It should be noted that the revised salaries would still be positioned below the median when compared to other
UK listed companies of a similar size. We have communicated with our major shareholders on these changes.
Pension and other benefits
The Executive Directors will continue to receive a cash payment in lieu of an employer’s pension contribution, equivalent to 15% of base
salary. Other benefits received comprise of an annual car allowance paid in cash of £20,000 per annum for the Chief Executive Officer
and £15,000 per annum for the Chief Financial Officer, life assurance equivalent to four times annual salary and permanent health insurance.
Annual Bonus Plan (ABP)
Following the review, it was determined that there would be no change to the maximum percentage payable for Executive Director
annual bonuses which would be up to a maximum of 100% of base salary. In addition it was determined that the performance measures
and weightings would remain the same as for the year ended 31 July 2016, being adjusted operating profit (50%), adjusted EPS (35%),
working capital management (10%), and Group employee retention (5%). The targets set for the 2016/17 financial year will be disclosed
in the next Annual Report on Remuneration, unless they remain commercially sensitive.
Long Term Incentive Plan (LTIP)
Following the review, it was determined that the LTIP framework would remain unchanged for the year ended 31 July 2017, except
for the introduction of a holding period as described below. Performance measures to be used for the LTIP awards will remain the
same as for the year ended 31 July 2016, being TSR vs Direct Peer Group index (25%), TSR vs FTSE companies of a similar size
(25%) and EPS growth (50%).
The Committee is introducing a two-year holding period following the end of the three-year performance period under the LTIP.
This change will extend time horizons such that the combined performance and holding period will be five years for awards granted
from 2016/17. This further strengthens the alignment between our Executive Directors and shareholders. This will be applied to awards
granted from the 2016/17 financial year onwards. It is the Committee’s intention that this new arrangement will be fully incorporated
in the Remuneration Policy that will be put forward for shareholder approval at the 2017 AGM.
75
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Directors’ Remuneration Report continued
Statement of implementation of Remuneration Policy
for the financial year ending 31 July 2017 continued
Non-Executive Director fees
Fees of Non-Executive Directors are determined by the Board in their absence. The fees of the Chairman (whose fees are determined
by the Committee in his absence) and the Non-Executive Directors were set when the Company listed on the London Stock Exchange
on 23 June 2014 and have not changed since that date.
Following a review in July 2016 it was determined that the basic fees should be increased by 3% with effect from 1 August 2016.
No changes are being made to the supplementary fees paid.
The fees with effect from 1 August 2016 are summarised in the table below:
Chairman fee covering all Board duties
Non-Executive Director basic fee
Supplementary fees to Non-Executive Directors covering additional Board duties:
– Senior Independent Director
– Audit Committee Chairman
– Remuneration Committee Chairman
Statement on shareholder voting
£139,050
£46,350
£5,000
£10,000
£10,000
The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes in respect of the approval
of the Directors’ Remuneration Report and the Remuneration Policy. In the event of a substantial vote against a resolution in relation to
Directors’ remuneration, the Company would seek to understand the reasons for any such vote and would set out in the following
Annual Report and Accounts any actions in response to it.
The following table sets out the voting by shareholders at the Annual General Meeting in December 2015 in respect of our Annual Report
on Remuneration.
Resolution
Votes cast for
% of
votes cast
Votes
cast against
% of
votes cast
Votes
withheld
Approval of Annual Report on Remuneration
183,934,721
100
0
0
5,534,882
Approval
This Directors’ Remuneration Report was approved by the Board of Directors on 11 October 2016 and signed on its behalf by the
Remuneration Committee chairman.
Anthony Reading, MBE
Chairman of the Remuneration Committee
11 October 2016
76
Governance ReportVolution Group plcAnnual Report 2016 Directors’ Report
Introduction
Powers of the Directors
The Directors present their Annual Report and the audited financial
statements of the Company for the year ended 31 July 2016.
This Directors’ Report includes additional information required
to be disclosed under the Companies Act 2006, the Code, the
DTRs and the Listing Rules of the Financial Conduct Authority.
Certain information required to be included in the Directors’ Report
is included in other sections of this Annual Report as follows, which
is incorporated by reference into this Directors’ Report:
> the Strategic Report on pages 1 to 43;
> the Governance Report on pages 44 to 80;
> information relating to financial instruments, as set out in note 25
to the consolidated financial statements; and
> related party transactions as set out in note 31 to the
consolidated financial statements.
This Directors’ Report also represents the Management Report
for the purpose of compliance with the DTRs.
Corporate structure
Volution Group plc is a public company limited by shares, incorporated
in England and Wales and its shares are traded on the premium
segment of the Main Market of the London Stock Exchange
(LSE: FAN).
Results and dividend
The Group’s results for the year are shown in the statement
of comprehensive income on page 90.
An interim dividend of 1.20 pence per share was paid to
shareholders on 5 May 2016 and the Directors are recommending
a final dividend in respect of the financial year ended 31 July 2016
of 2.60 pence per share. If approved, the final dividend will be
paid on 14 December 2016 to shareholders on the register on
18 November 2016. The total dividend paid and proposed for
the year amounts to 3.80 pence per share.
Share capital and related matters
The Company has only one class of share and the rights attached
to each share are identical. Details of the rights and obligations
attaching to the shares are set out in the Company’s Articles
of Association which are available from the Company Secretary.
The Company may refuse to register any transfer of any share
which is not a fully paid share. At a general meeting of the Company,
every member has one vote on a show of hands and on a poll
one vote for each share held. Details of the voting procedure,
including deadlines for exercising voting rights, are set out in
the Notice of Annual General Meeting 2016.
As at 31 July 2016 the issued share capital of the Company
was 200,000,000 ordinary shares of 1 pence each. Details
of the share capital as at 31 July 2016 are shown in note 28
to the consolidated financial statements.
The Directors may exercise all the powers of the Company including,
subject to obtaining the required authority from the shareholders
in general meeting, the power to authorise the issue of new shares
and the purchase of the Company’s shares. During the financial
year ended 31 July 2016, the Directors did not exercise any
of the powers to issue or purchase shares in the Company.
Restrictions on transfer and voting rights
There are no general restrictions on the transfer of ordinary
shares in the Company other than in relation to certain restrictions
that are imposed from time to time by laws and regulations
(for example insider trading laws). Pursuant to the Market Abuse
Regulation, Directors and certain officers and employees of the
Group require the approval of the Company to deal in the ordinary
shares of the Company.
Each ordinary share in the capital of the Company ranks equally
in all respects. No shareholder holds shares carrying special rights
relating to the control of the Company. However, on 18 June 2014,
the Company entered into a Relationship Agreement with our
then controlling shareholder in connection with the exercise of
its rights as principal shareholder in the Company and its right
to appoint a Director to the Board. More details on the
Relationship Agreement can be found on page 78.
The Company has in place certain share incentive plans and details
can be found on pages 71 to 72. Awards under the Company’s
Long Term Incentive Plan and Deferred Share Bonus Plan are
normally made on an annual basis and details can be found
in the Directors’ Remuneration Report on pages 71 to 72.
The Company also has an Employee Benefit Trust (EBT) in which
to hold ordinary shares to satisfy awards under the share incentive
plans. As at the financial year end on 31 July 2016 and as at the
date of this report, there were 916,878 ordinary shares held in the
EBT. The trustee of the EBT has the power to exercise the rights
and powers incidental to, and to act in relation to, the ordinary
shares subject to the EBT in such manner as the trustee in its
absolute discretion thinks fit.
The trustee of the EBT has waived the right to receive dividends
on any ordinary shares held, except for a nominal amount of
1 pence, other than for those ordinary shares held in the EBT
which are the beneficial property of an employee or shareholder.
For further details on the EBT please see note 28 to the consolidated
financial statements. The trustee does not vote ordinary shares
held in the EBT, except for those ordinary shares which are the
beneficial property of an employee or shareholder, which the
trustee will vote in accordance with the instructions received
from the beneficial owner.
77
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 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:
All Directors will stand for 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.
Name of holder
Windmill Holdings B.V.
PrimeStone Capital LLP
Baillie Gifford & Co
Standard Life Investments
(Holdings) Limited
Polar Capital European Forage
Fund Limited
UBS Global Asset Management
Relationship Agreement
Total holding
of shares
44,751,087
22,733,783
11,343,105
% of total
voting rights
22.38%
11.37%
5.67%
10,033,103
5.02%
7,986,906
6,413,511
3.99%
3.21%
On 18 June 2014, the Company and our then controlling shareholder
entered into a Relationship Agreement, the principal purpose of
which was to ensure that the Company is capable at all times of
carrying on its business independently of our controlling shareholder
and its associates and ensure all transactions and arrangements
between it and the Group would be conducted at arm’s length
and on normal commercial terms. The terms of the Relationship
Agreement remain unchanged.
On 8 April 2016, Windmill Holdings B.V. reduced its shareholding
to 22.38% of the Company’s share capital and accordingly is no
longer a controlling shareholder. The Board can confirm that from
the start of the financial year until 8 April 2016, the Company complied
with the independence provisions in the Relationship Agreement
and, so far as the Board is aware, the independence provisions
were also complied with by the Company’s then controlling
shareholder and its associates.
Directors
The Directors of the Company and their biographies are set
out on pages 44 to 45. Their interests in the ordinary shares of
the Company are shown in the Directors’ Remuneration Report
on page 73. Claire Tiney was appointed as an independent
Non-Executive Director following the financial year end and
her biography is set out on page 45.
Appointment and removal of Directors
Directors may be appointed by ordinary resolution of the
Company or by the Board.
Under the Relationship Agreement, the Company agreed
with Windmill Holdings B.V. that it may appoint and remove one
Non-Executive Director to the Board for so long as the shareholder
(and/or any of its associates, when taken together) holds 15% or
more of the voting rights over the Company’s shares. Currently
no representative Director sits on the Board of the Company.
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 31 to the consolidated
financial statements.
The only material agreement with related parties in place during
the year was as follows:
> the Relationship Agreement with Windmill Holdings B.V., which
was our controlling shareholder from listing until 8 April 2016.
This Relationship Agreement describes the relationship of the
Company with Windmill Holdings B.V., and subject to certain
minimum shareholding requirements, the right of this shareholder
to be represented on the Board and certain anti-dilution rights.
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 13 February 2015 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 26 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.
78
Governance ReportVolution Group plcAnnual Report 2016 Amendments to the Company’s Articles of Association
Auditor and disclosure of information to auditor
The Company may alter its Articles of Association by special
resolution passed at a general meeting of shareholders.
Each of the Directors in office at the date when this Annual Report
and Accounts was approved confirms that:
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 31.
> so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
> the Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
Ernst & Young LLP has expressed its willingness to be
re-appointed as auditor of the Company. A resolution to re-appoint
Ernst & Young LLP as the Company’s independent auditor will
be proposed at the forthcoming Annual General Meeting.
Viability Statement
By order of the Board
In accordance with provision C.2.2 of the UK Corporate
Governance Code 2014, the Board assessed the prospects of
the Group over a longer period than the twelve months required
by the Going Concern provision and the statement is set out on
page 31.
Annual General Meeting
The Annual General Meeting will be held at 12.00 noon on
Friday 9 December 2016 at the offices of Norton Rose Fulbright LLP,
3 More London Riverside, London SE1 2AQ. The Notice of Annual
General Meeting and an explanation of the items of non-routine
business are set out in the explanatory circular that accompanies
this Annual Report and Accounts.
Michael Anscombe
Company Secretary
11 October 2016
Volution Group plc
Registered office: Fleming Way, Crawley, West Sussex RH10 9YX
Company number: 09041571
79
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 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.
Responsibility statement of Directors in respect
of the Annual Report and the financial statements
We confirm that to the best of our knowledge:
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;
> 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; and
> 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.
> make judgements and estimates that are reasonable and prudent;
By order of the Board
Ronnie George
Chief Executive Officer
11 October 2016
Ian Dew
Chief Financial Officer
11 October 2016
> state whether the Group and parent company financial
statements have been prepared in accordance with IFRS as
adopted by the EU; and
> 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.
80
Governance ReportVolution Group plcAnnual Report 2016 Independent Auditor’s Report
to the members of Volution Group plc
Our opinion on the financial statements
What we have audited
In our opinion:
> Volution Group plc’s group financial statements and parent
company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and of
the parent company’s affairs as at 31 July 2016 and of the
Group’s profit for the year then ended;
> the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
> the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union as applied in accordance with the provisions
of the Companies Act 2006; and
> the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of
the IAS Regulation.
We have audited the Annual Report and Accounts
of Volution Group plc for the year ended 31 July 2016,
which comprise the following:
In respect of the Group financial statements:
The consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement
of cash flows and the related notes 1 to 36.
In respect of the Parent Company financial statements:
The statement of financial position, statement of changes in
equity, statement of cash flows and the related notes 1 to 18.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
Overview of our audit approach
We have identified the following risks of material misstatement
> Impairment of goodwill and other intangible assets, including the re-assessment of cash generating units (‘CGUs’).
> Inappropriate revenue recognition, including accounting for sales rebates.
> Management override in respect of:
> the recognition and valuation of judgemental provisions, specifically debtors, credit notes, inventory and warranty provisions; and
> the presentation of recurring items as exceptional.
The scope of our audit
> We performed an audit of the complete financial information of four components and audit procedures on specific balances
of a further seven components.
> The components where we performed full or specific audit procedures accounted for:
> 99% of normalised pre-tax earnings;
> 95% of revenue; and
> 94% of total assets.
Materiality applied in performing our procedures
> Final Group materiality is £979k (FY 15: £812k), which represents 5% of normalised pre-tax earnings (i.e. profit before tax after
adding back non-recurring exceptional items).
81
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Independent Auditor’s Report continued
to the members of Volution Group plc
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the
allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the
procedures below, which were designed in the context of the financial statements as a whole and consequently, we do not express an
opinion on these individual areas.
Impairment of goodwill and other intangible assets,
including the assessment of CGUs.
Our evaluation of the risk profile of the Group:
The risk profile has remained stable.
The Group’s assets include £68.2 million (FY 15: £51.7 million)
of goodwill and £105.4 million (FY 15: £101.0 million) of other
intangible assets.
We determined that the impairment of goodwill and other intangible assets contains a risk of material misstatement as these balances
make up 66% of the Group’s total assets, and the impairment review involves a number of subjective assumptions. For intangible
assets amortised over finite lives, the Group is required to determine whether indicators of impairment exist, and if so, perform a full
impairment review. The identification of CGUs is an important judgement in ascertaining whether the carrying value of goodwill and
other intangible assets is recoverable.
Summary of the nature of the risk
Our planned procedures in response to the risk identified
included the following
Our conclusion to the Audit Committee
We concluded:
> the carrying value of goodwill and
intangible assets to be supportable;
> management’s identification of
CGUs to be reasonable and in
accordance with changes to the
Group from new acquisitions; and
> the associated financial statement
disclosures are appropriate.
Goodwill
The Group is required to perform
an impairment assessment
of goodwill, which involves
comparing each CGU’s
value in use with
its carrying amount.
In deriving the value in use,
the Group is required to make a
number of subjective assumptions
including price and cost inflation,
discount rates and perpetuity
growth rates.
Other intangible assets
For intangible assets amortised
over finite lives, the Group is
required to determine whether
indicators of impairment exist,
and if so, perform a full
impairment review.
We ensured that the methodology applied by management
complied with the requirements of IAS 36, including the
computation of carrying value and the nature of cash flows
included in determining the value in use.
We also performed the following:
> We obtained forecasts underlying the impairment review
and agreed these to budgets approved by the Board;
> We assessed the reasonableness of terminal growth
rates used in the model for the period beyond the
approved budgets;
> We reviewed key assumptions including sales and
EBITDA against actual performance and ascertained
the historical accuracy of forecasting;
> We made enquiries of the appropriate finance and
commercial personnel where forecasted performance
significantly deviated from historic performance levels,
observable trends or our expectations;
> We also performed sensitivity analysis on key assumptions;
CGUs
The Group re-assessed and
adjusted its CGUs during the year,
which requires disclosure in the
Annual Report and Accounts.
> We determined whether the discount rates applied
were appropriate with support from our internal
valuation experts;
> We considered whether the associated financial
statement disclosures were appropriate;
> We reviewed management’s assessment of whether
indicators of impairment exist for other non-current
assets and challenged key judgements and sensitivities
in management’s goodwill impairment model; and
> We evaluated the judgements made by management
in reassessing its CGUs, and ensured the associated
financial statement disclosures were appropriate.
The procedures set-out above were carried out by the
Group audit team.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 58);
Accounting policies (page 97); and
Note 19 of the Consolidated Financial Statements (page 115).
82
Volution Group plcAnnual Report 2016Financial Statements Our assessment of risk of material misstatement continued
Inappropriate revenue recognition, including accounting
for sales rebates.
During the year the Group recognised revenue of £154.5 million
(FY 15: £130.2 million).
Our judgement on the risk profile of the Group:
The risk profile has remained stable.
We determined that there is a risk of material misstatement associated with revenue recognition as revenue is the most significant item
in the consolidated income statement and impacts the majority of the key performance indicators of the Group. Revenue substantially
arises from the sale of goods, which was the focus of our audit procedures.
Summary of the nature of the risk
Our planned procedures in response to the risk identified
included the following
Our conclusion to the Audit Committee
We concluded:
> the application of sales cut-off
to be appropriate;
> revenue was recognised in line
with Group policy;
> judgemental sales rebate provisions
were appropriate; and
> appropriate disclosure of the nature
of rebates is included in the
financial statements.
The risk of inappropriate
revenue recognition arises from
the following:
> inappropriate application
of sales cut-off;
> revenue not being recognised
in line with Group policy; and
> judgemental sales
rebate provisions.
We tested the correct application of the timing
of revenue recognition through substantive testing.
Our procedures included the following:
> We developed an understanding of the sales cycle and
obtained details of transactions occurring immediately
prior to, and following, the reporting date. We selected
a sample of transactions for testing and obtained the
terms specific to the transaction. We developed an
expectation of the correct period in which revenue
should be recognised and compared our expectation
to the actual period of recognition;
> We selectively tested manual journal entries to
revenue, credit notes issued subsequent to the
year-end and the appropriate recognition of rebates;
> We also performed analytical review procedures to
identify significant fluctuations and trends and obtained
explanations for unusual variances in revenue;
> For a sample of rebates, we obtained agreements and
re-computed the rebate accrual;
> We performed a retrospective review of accruals made
in the previous year with actual payments to determine
whether this indicates a history of over or underproviding;
> In performing our revenue testing, we assessed
whether any rebate clauses exist and if so, determined
whether the provision recorded at year-end is complete
and whether appropriate authorisation was obtained
for accrued rebates; and
> We gained comfort on the completeness of the rebate
provision through recalculating agreed amounts,
verifying the percentage of the prior year provision that
materialised and reviewing transactions selected for
revenue testing for the existence of unidentified rebates.
Instructions to perform the above were issued to all
full and specific scope locations, which covered 95%
of consolidated revenue.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 58);
Accounting policies (page 95); and
Note 6 of the Consolidated Financial Statements (page 103).
83
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Independent Auditor’s Report continued
to the members of Volution Group plc
Our assessment of risk of material misstatement continued
Management override arising from the recognition and
valuation of judgemental provisions and the recording
of unauthorised, non-standard journal entries.
Our judgement on the risk profile of the Group:
The risk profile has remained stable.
The Group’s trading transactions principally comprise non-complex transactions, which involve limited judgement. We determined that
certain provisions, as set-out below, contain a risk of material misstatement as this is the principal area of judgement in the Group’s
statement of financial position.
Summary of the nature of the risk
Our planned procedures in response to the risk identified
included the following
Our conclusion to the Audit Committee
We concluded that provision
balances and the methodology
applied were acceptable.
We concluded that the bases for
recognising judgemental provisions
were appropriate.
Our testing of journal entries raised
at subsidiary and Group levels did
not uncover any unusual or
unauthorised journal entries.
We identified risk to be present in
the following:
> judgemental provisions,
specifically debtors, credit
notes, inventory and warranty
provisions; and
> unauthorised non-standard
journal entries (including
manual journal entries).
Judgemental provisions:
> We obtained management’s calculations and
assumptions used for calculating judgemental
provisions and assessed if the methodology
is appropriate;
> Where management did apply judgement to the
provision amounts calculated, we have enquired
of management for the basis to ensure the rationale
is valid; and
> In order to verify the accuracy of the methodology
used by management, we performed a retrospective
review of prior year provisions.
Unauthorised non-standard journal entries:
> We reviewed unusual journal entries at the subsidiary
and Group levels;
> We enquired of management of the risks of fraud
and the controls put in place to address management
override; and
> We assessed the possibility of fraud arising as a result
of errors identified during our audit.
Instructions to perform the above were issued to all full
and specific scope locations.
Supporting references in the Annual Report and Accounts:
Accounting policies (page 99); and
Notes 21, 22 and 27 of the Consolidated Financial Statements
(pages 121 and 124).
84
Volution Group plcAnnual Report 2016Financial Statements Our assessment of risk of material misstatement continued
Management override arising from the presentation
of recurring items as exceptional.
Our evaluation of the risk profile of the Group:
The risk profile has remained stable.
£1.2 million (FY 15: £0.7 million) of costs incurred in the year
are classified as exceptional.
We determined that exceptional items contain a risk of material misstatement as adjusted performance measures are regularly
referred to by management in describing the Group’s performance and form the basis of bonuses payable to Executive Directors.
The principal area of judgement in the adjusted measures relates to exceptional costs.
Summary of the nature of the risk
Our planned procedures in response to the risk identified
included the following
Our conclusion to the Audit Committee
Costs could inappropriately
be presented as exceptional to
enhance underlying earnings.
We obtained an analysis of exceptional items
and determined whether the underlying event was
exceptional in the context of the guidance for separate
presentation of ‘material items’ provided in IAS 1,
and is consistent with the narrative sections of the
Annual Report and Accounts.
We verified whether the supporting disclosure
in the Annual Report and Accounts is consistent
with the costs being reported as exceptional.
The audit of judgements made in classifying costs
as exceptional was performed by the Group team.
We concluded that the presentation
of items as exceptional is acceptable.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 58);
Accounting policies (page 99); and
Note 8 of the Consolidated Financial Statements (page 105).
The following risks of material misstatement were presented in our FY 15 Audit Report. However, these are not considered relevant for
FY 16 and have therefore been removed:
> Inappropriate accounting for the legal entity restructuring; and
> Incorrect accounting for the refinancing.
Incorrect accounting for share-based payments has also been removed as we have concluded the likelihood of occurrence of an error
has decreased from the prior year.
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, these enable
us to form an opinion on the consolidated financial statements.
In allocating a scope to individual components we took into
account size, the organisation of the Group and effectiveness
of Group-wide controls and changes in the business environment.
The Group structure includes 30 components spread across
seven countries. In line with the Group’s operating model the
individual components typically operate in a decentralised
manner. 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, we selected 11 components covering entities
within the United Kingdom, Sweden, Germany, Belgium and
the Netherlands (‘Benelux’), which represent the principal
business units within the Group.
Of the 11 components selected, we performed an audit of the
complete financial information of four components (“full scope
components”), which were selected based on their size or risk
characteristics. For the remaining seven components (“specific
scope components”), we performed audit procedures on specific
accounts that we determined 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.
85
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Independent Auditor’s Report continued
to the members of Volution Group plc
The scope of our audit continued
Tailoring the scope continued
The charts below summarise the reporting components and the coverage from our audit procedures:
% contribution to normalised PBT*
% contribution to revenue
% contribution to total assets
30%
(FY15: 14%)
1%
(FY15: 1%)
34%
(FY15: 25%)
5%
(FY15: 2%)
13%
(FY15: 5%)
6%
(FY15: 9%)
69%
(FY15: 85%)
61%
(FY15: 73%)
81%
(FY15: 86%)
Full
Specific
Review
* Normalised pre-tax earnings (i.e. profit before tax after adding back non-recurring exceptional items).
The audits of these components were performed at a materiality
level calculated as a proportion of Group materiality appropriate
to the relative scale and risk of the location.
Full scope locations were subject to an audit of the entire balance
sheet and income statement. Specific scope locations were not
significant enough to require a full scope audit; our procedures
therefore focused on individual balances or procedures that are
significant to the Group either based on their size or risk. Limited
review locations were subject to analytical procedures, testing
of entity level controls at Group level and review of the Group
financial statement close process.
Changes to our scoping from the prior year arose due to differing
contributions of components to the Group’s results and additional
components from acquisitions during the year. The percentage
coverage from full scope components has decreased as
acquisitions made in the year were allocated specific scope,
due to their contribution to the Group being for part of the year.
These components may increase in scope next year when they
make a full year contribution to the Group.
Involvement with component audit teams
In establishing our overall approach to the Group audit, we
determined the nature of work that needed to be undertaken
at each of the components by us, as the Group team, or by
component auditors from other EY global network firms operating
under our instruction. Audit procedures were performed on all
four full scope components by the Group team. For the seven
specific scope components, where the work was performed
by component audit teams, we determined the appropriate
level of involvement to enable us to determine that sufficient
audit evidence had been obtained as a basis for our opinion
on the Group as a whole.
The Group audit team continued to follow a programme of
planned visits that has been designed to ensure that a suitably
senior member of the Group team physically participates in the
closing meeting of all full scope components. During the current
year’s audit cycle, visits were undertaken by the Group audit
team to the component audit teams in Sweden and Benelux.
These visits involved discussing with the component team
issues arising from their work, meeting with local management,
attending closing meetings and reviewing key audit working
papers on areas that carry a risk of material misstatement to the
Group. The Group audit team also attended the German closing
meeting by telephone.
We held an audit planning meeting, which all component audit
teams were required to attend. We also issued detailed reporting
instructions to component audit teams setting out our expectation
of procedures to be performed, including those on areas of potential
material misstatement. The above, together with the additional
procedures performed at Group level, gave us appropriate
evidence for our opinion on the Group financial statements.
86
Volution Group plcAnnual Report 2016Financial Statements Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion. The key measures
applied are illustrated and explained below:
We set performance materiality at 75% of planning materiality in
FY 16 due to the active implementation of controls and procedures
to address comments raised in the internal auditor’s reports and
our internal control observations; we also gave consideration to our
low expectation of audit differences based on recent experience.
FY 16
£000
979
734
49
FY 15
£000
Explanatory
narrative
812
406
40
A
B
C
Materiality
Performance materiality
Reporting threshold
A Materiality
This is defined as the magnitude of an omission or misstatement
that, individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the
nature and extent of our audit procedures.
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 £130,000 to £160,000
(2015: £75,000 to £169,000).
C Reporting threshold
This is defined as an amount below which identified misstatements
are considered as being clearly trivial.
Our calculation of materiality is summarised below:
Statutory pre-tax earnings
Add back: Non-recurring acquisition costs
Normalised pre-tax earnings
Normalised pre-tax earnings x 5%
At planning, we agreed with the Audit Committee that we would
report all uncorrected audit differences in excess of £47,000
(FY 15: £38,000), 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 updated the
reporting threshold to £49,000. There was an increase in our
reporting threshold due to higher normalised earnings, as
explained in the previous two sub-sections.
£000
18,364
1,209
19,573
979
During our audit planning, we determined materiality for the
Group to be £942,000, which was 5% of forecast normalised
pre-tax earnings. During our year-end procedures we updated
materiality based on actual results.
FY 15 materiality was £812,000. Whilst there has been no
change to the basis of calculating materiality, the amount has
increased due to the increase in FY 16 earnings, including the
results of the new acquisitions.
Based on the operations of the Group, we believe that normalised
pre-tax earnings is the most relevant performance measure for
management and users of the financial statements.
B Performance materiality
This is defined in the application of materiality at the individual
account or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement at
our planning stage was that performance materiality was 75%
(FY 15: 50%) of materiality, calculated at £706,000 (FY 15: £376,000).
Final performance materiality was £734,000.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion
and concluded the impact of unadjusted audit differences to
be immaterial.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate
to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the Annual Report and Accounts to identify material inconsistencies
with the audited financial statements and to identify any information
that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
87
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Independent Auditor’s Report continued
to the members of Volution Group plc
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 80, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.
Opinion 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; and
> 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.
Matters on which we are required to report by exception
ISAs (UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial
information in the Annual Report and Accounts is:
> materially inconsistent with the information in the audited financial statements; or
> apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
> otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies
between our knowledge acquired in the course of performing the audit and the
directors’ statement that they consider the Annual Report and Accounts taken as a
whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess the entity’s performance, business model and strategy;
and whether the Annual Report and Accounts appropriately addresses those
matters that we communicated to the audit committee that we consider should
have been disclosed.
We are required 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.
Companies Act 2006
reporting
We have no
exceptions
to report.
We have no
exceptions
to report.
Listing Rules review
requirements
We are required to review:
> the directors’ statement in relation to going concern, which is set-out on
page 31; and the longer-term viability, which is set out on page 31; and
> the part of the Corporate Governance Statement relating to the company’s
compliance with the provisions of the UK Corporate Governance Code specified
for our review.
We have no
exceptions
to report.
88
Volution Group plcAnnual Report 2016Financial Statements Opinion on other matters prescribed by the Companies Act 2006 continued
Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity of the Entity
We have nothing
material to add
or to draw
attention to.
ISAs (UK and Ireland)
reporting
We are required to give a statement as to whether we have anything material to add
or to draw attention to in relation to:
> the directors’ confirmation in the Annual Report and Accounts that they have
carried out a robust assessment of the principal risks facing the entity, including
those that would threaten its business model, future performance, solvency
or liquidity;
> the disclosures in the Annual Report and Accounts that describe those risks
and explain how they are being managed or mitigated;
> the directors’ statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to
the entity’s ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements; and
> the directors’ explanation in the Annual Report and Accounts as to how they
have assessed the prospects of the entity, over what period they have done
so and why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the entity will be able
to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Andy Glover (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
11 October 2016
Notes
1. The maintenance and integrity of the Volution Group plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
89
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Consolidated Statement of Comprehensive Income
For the year ended 31 July 2016
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit before exceptional items
Exceptional items
Operating profit
Finance revenue
Finance costs
Profit before tax
Income tax
Profit for the year
Other comprehensive income/(expense)
Items that may subsequently be reclassified to profit or loss:
Exchange differences arising on translation of foreign operations
Loss on hedge of net investment in foreign operations
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
Profit per share
Basic and diluted earnings per share
Notes
6
8
12
9
9
14
2016
£000
154,464
(79,098)
75,366
(22,500)
(33,255)
19,611
(1,209)
18,402
1,164
(1,202)
18,364
(2,757)
15,607
3,394
(1,469)
1,925
17,532
2015
£000
130,178
(67,019)
63,159
(18,052)
(27,174)
17,933
(731)
17,202
533
(2,209)
15,526
(3,691)
11,835
(533)
(187)
(720)
11,115
15
7.8p
5.9p
90
Volution Group plcAnnual Report 2016Financial Statements Consolidated Statement of Financial Position
At 31 July 2016
Non-current assets
Property, plant and equipment
Intangible assets – goodwill
Intangible assets – others
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Other current financial assets
Cash and short-term deposits
Total assets
Current liabilities
Trade and other payables
Other current financial liabilities
Income tax
Provisions
Deferred tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
Treasury shares
Capital reserve
Share-based payment reserve
Foreign currency translation reserve
Retained earnings
Total equity
Notes
2016
£000
2015
£000
16
17
18
14
21
22
25
23
24
25
27
14
26
27
14
28
19,130
68,228
16,047
51,725
105,361
100,951
450
394
193,169
169,117
20,156
32,935
914
15,744
69,749
15,019
26,271
—
11,565
52,855
262,918
221,972
(35,090)
(25,295)
—
(2,472)
(1,268)
(2,395)
(225)
(1,411)
(855)
—
(41,225)
(27,786)
(51,235)
(671)
(16,242)
(31,867)
(600)
(19,273)
(68,148)
(51,740)
(109,373)
(79,526)
153,545
142,446
2,000
11,527
(1,533)
93,855
649
1,462
45,585
2,000
11,527
—
92,325
181
(463)
36,876
153,545
142,446
The consolidated financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors
and authorised for issue on 11 October 2016.
On behalf of the Board
Ronnie George
Chief Executive Officer Chief Financial Officer
Ian Dew
91
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
Consolidated Statement of Changes in Equity
For the year ended 31 July 2016
At 1 August 2014
Profit for the year
Other comprehensive expense
Total comprehensive
(expense)/income
Share-based payment
Dividends paid
At 31 July 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Fair value adjustment1
Purchase of own shares
Share-based payment
including tax
Dividends paid
At 31 July 2016
Share
capital
£000
2,000
Share
premium
£000
11,527
—
—
—
—
—
—
—
—
—
—
2,000
11,527
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Treasury
shares
£000
—
—
—
—
—
—
—
—
—
—
—
(1,533)
—
—
Capital
reserve
£000
92,325
—
—
—
—
—
92,325
—
—
—
1,530
—
—
—
2,000
11,527
(1,533)
93,855
Share-based
payment
reserve
£000
Foreign
currency
translation
reserve
£000
Retained
earnings
£000
Total
£000
—
—
—
—
181
—
181
—
—
—
—
—
468
—
649
257
—
(720)
27,141
133,250
11,835
11,835
—
(720)
(720)
11,835
—
—
—
(2,100)
11,115
181
(2,100)
(463)
36,876
142,446
—
15,607
1,925
1,925
—
15,607
15,607
1,925
17,532
1,526
(1,533)
468
(4)
—
—
(6,894)
(6,894)
1,462
45,585
153,545
—
—
—
—
Note
1. The adjustment relates to a correction to the deferred tax on fair value adjustments made on acquisitions in prior years.
Capital reserve
The capital reserve is the difference in share capital and reserves arising from the use of the pooling of interest method for preparation
of the financial statements in 2014. This is a non-distributable reserve.
Treasury shares
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.
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 34 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 directly to the foreign currency translation reserve.
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 Volution Group, Volution Group plc, had distributable retained earnings at 31 July 2016 of £64,368,000.
92
Volution Group plcAnnual Report 2016Financial Statements Consolidated Statement of Cash Flows
For the year ended 31 July 2016
Operating activities
Profit for the year after tax
Adjustments to reconcile profit for the year to net cash flow
from operating activities:
Income tax
Loss/(gain) on disposal of property, plant and equipment
Exceptional costs
Cash flows relating to exceptional costs
Finance revenue
Finance costs
Share-based payment expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Working capital adjustments:
Decrease/(increase) in trade receivables and other assets
Movement in inventories
Exceptional costs: fair value of inventories
(Decrease)/increase in trade and other payables
Movement in provisions
UK income tax paid
Overseas income tax paid
Net cash flow from operating activities
Investing activities
Payments to acquire intangible assets
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Interest received
Net cash flow used in investing activities
Financing activities
Repayment of interest-bearing loans and borrowings
Proceeds from new borrowings
Issue costs of new borrowings
Interest paid
Dividends paid
Purchase of own shares
Net cash flow generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at the end of the year
23
Notes
2016
£000
2015
£000
15,607
11,835
8
9
9
16
18
18
16
20
2,757
9
1,209
(795)
(1,164)
1,202
431
2,559
12,987
572
(775)
(332)
(41)
186
(3,900)
(1,349)
3,691
(19)
731
(89)
(533)
2,209
181
2,536
11,646
(895)
453
—
750
(164)
(2,313)
(770)
29,163
29,249
(1,626)
(2,879)
162
(24,983)
24
(29,302)
(15,291)
28,222
—
(971)
(6,894)
(1,533)
3,533
3,394
11,565
785
15,744
(1,723)
(3,880)
979
(1,521)
66
(6,079)
(57,060)
39,760
(968)
(2,004)
(2,100)
—
(22,372)
798
10,987
(220)
11,565
93
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
Notes to the Consolidated Financial Statements
For the year ended 31 July 2016
1. General information
The consolidated financial statements present the results of Volution Group plc (the Company) and its subsidiaries (collectively referred
to as the Group) for the year ended 31 July 2016. A list of subsidiaries and their countries of incorporation is presented in note 32.
From a trading perspective, the Group is engaged in the following:
> the design, manufacture and distribution of unitary and systems ventilation products and equipment. These include a number
of respected brands in the ventilation industry; and
> the design, manufacture and distribution of a range of motors and components for use in air movement applications and gas boilers.
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. 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 for the foreseeable future.
Group cash flow forecasts have been produced for the period to 31 July 2019 and demonstrate that the Group will be able to meet its
liabilities as and when they fall due for the foreseeable future. The Group is also forecast to remain in compliance with its banking agreement
covenants at each quarter end during the forecast period.
The Directors confirm that, after making appropriate enquiries, they have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis
in preparing the financial statements.
3. Accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to the years presented, unless otherwise stated.
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 below.
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. The areas involving a
higher degree of judgement or complexity, and areas where assumptions and estimates are significant to the consolidated financial
statements, are set out in note 4.
The consolidated financial statements are presented in GBP and all values are rounded to the nearest thousand (£000), except as
otherwise indicated.
Basis of consolidation
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. Subsidiaries are consolidated from the date on which control is transferred and cease to be consolidated from the
date on which control no longer exists.
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.
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Volution Group plcAnnual Report 2016Financial Statements 3. Accounting policies continued
Business combinations
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 acquisition date fair value. 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 valued 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 take into consideration the probability of
meeting each performance target and the 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.
Business combinations are set out in note 20.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns,
rebates and other similar allowances that are calculated based upon the price of goods, volumes and product mix purchased by the
customer. Revenue is stated net of settlement discounts, VAT, other sales taxes and duties.
Sale of goods
Revenue from the sale of goods is recognised when all the following conditions are satisfied:
> the Group has transferred ownership of the goods when the significant risks and rewards have passed to the buyer, usually on the
delivery of the goods;
> the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control
over the goods sold;
> the amount of revenue can be measured reliably;
> it is probable that the economic benefits associated with the transaction will flow to the entity; and
> the costs incurred or to be incurred in respect of the transaction can be measured reliably.
The Group has a number of customer and supplier rebate agreements that are recognised as a reduction from sales or a reduction of
cost of sales as appropriate (collectively referred to as rebates). Rebates are based on an agreed percentage of revenue or purchases, which
will increase with the level of revenue achieved or purchases made. These agreements typically run to a different reporting period to that
of the Group with some of the amounts payable and receivable being subject to confirmation after the reporting date. At the reporting
date, the Directors make estimates of the amount of rebate that will become both payable and due to the Group under these agreements
based upon their best estimates of volumes and product mix that will be bought or sold over each individual rebate agreement period.
Where the respective customer or supplier has been engaged with the Group for a number of years, historical settlement trends are also
used to assist in ensuring an appropriate estimate is recorded at the reporting date and that appropriate internal approvals and reviews take
place before rebates are recorded.
Rendering of services
Revenue from the provision of services is recognised by reference to the stage of completion. The stage of completion is measured by
reference to costs incurred to date as a percentage of total expected cost for each contract. Where the contract outcome cannot be
measured reliably, revenue is recognised only to the extent of expenses recognised that are recoverable.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 3. Accounting policies continued
Revenue recognition continued
Finance revenue
Revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
Segmental analysis
The method of identifying segments is based on internal management reporting information that is regularly reviewed by the chief
operating decision maker, which is considered to be the Chief Executive Officer of the Company.
For management purposes, the Group is organised into two reportable segments: Ventilation Group and Original Equipment Manufacturer
(OEM (Torin-Sifan)). Each reportable segment is managed separately as they require different marketing approaches.
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 in 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 directly to reserves together with the exchange difference on the net investment in these operations.
Income taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted at the reporting date.
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.
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.
96
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 3. Accounting policies continued
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such
cost includes the cost of replacing part of the property, plant and equipment; when significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates
them accordingly. All other repair and maintenance costs are recognised in the statement of comprehensive income as incurred.
Depreciation is charged so as to write off the cost or valuation of assets, except freehold land, over their estimated useful lives using
the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the
effect of any changes in estimates accounted for on a prospective basis.
The following useful lives are used in the calculation of depreciation:
Freehold buildings
Plant and machinery
Fixtures, fittings, tools, equipment and vehicles
–
–
–
30–50 years
5–10 years
4–10 years
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between
the disposal proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income as part of
administrative expenses, as set out in note 12, or if the amount is deemed significant within exceptional items, as set out in note 8.
Intangible assets
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the
definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at
the acquisition date.
The fair value of patents, trademarks and customer base acquired and recognised as part of a business combination is determined using
the relief-from-royalty method or multi-period excess earnings method.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation
and accumulated impairment losses.
Research and development costs
Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an intangible asset when
the Company can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its
intention to complete and its ability to use or sell the asset; how the asset will generate future economic benefits; the availability of
resources to complete the asset; and the ability to reliably measure the expenditure during development.
Subsequent measurement of intangible assets
Intangible assets with a definitive life are amortised on a straight line basis over their estimated useful lives as follows:
Development costs
Software costs
Customer base
Trademarks
Patents
Other
–
–
–
–
–
–
10 years
5 years
5–11 years
20–25 years
20–25 years
5 years
The estimated useful life and amortisation methods are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets with definite lives to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash generating
units, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation
basis can be identified.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
97
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 3. Accounting policies continued
Intangible assets continued
Impairment of tangible and intangible assets excluding goodwill continued
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognised in the statement
of comprehensive income.
During the year the Group has reviewed its cash generating units. The previously identified cash generating units, used for the
impairment review of tangible and intangible assets during the year ended 31 July 2015, were as follows:
Residential Repair, Maintenance and Improvement (RMI)
Residential New Build
Commercial
UK Export
Nordics Residential
Germany Residential
Original Equipment Manufacturer (OEM (Torin-Sifan))
As a result of the changes to the Group during the year, the following cash generating units have now been identified:
UK Ventilation
Diffusion
Nordics
Germany
Benelux
Original Equipment Manufacturer (OEM (Torin-Sifan))
These are used in the impairment review of tangible and intangible assets for the year ended 31 July 2016 and will be used for
future periods.
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.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
> raw materials: purchase cost on a first in, first out basis; and
> work in progress and finished goods: cost of direct materials and labour and an appropriate portion of fixed and variable overhead
expenses based on normal operating capacity, but excluding borrowing costs.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to
make the sale.
Trade and other receivables
Trade and other receivables are recognised when it is probable that a future economic benefit will flow to the Group. Trade and other
receivables are carried at original invoice or contract amount less any provisions for discounts and doubtful debts. Provisions are made
where there is evidence of a risk of non-payment taking into account ageing, previous experience and general economic conditions.
Cash and cash equivalents
Cash and short-term deposits comprise cash at banks and in hand and short-term deposits with an original maturity of three months
or less.
98
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 3. Accounting policies continued
Provisions
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. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows.
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.
Exceptional items
The Group discloses exceptional items by virtue of their nature, size or incidence to allow a better understanding of the underlying
trading performance of the Group. Exceptional items include, but are not limited to, significant restructuring costs, acquisition and
related integration and earn-out costs, fair value adjustments as a result of acquisitions and material gains or losses on disposal
of property, plant and equipment.
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 finance leases, 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.
Financial liabilities
Interest-bearing loans and borrowings
Borrowings and other financial liabilities, including loans, are initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected
life of the financial liability or, where appropriate, a shorter period.
All transaction costs relating to the refinancing which occurred during 2012/13 have been expensed in the prior year. Borrowing costs
consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Derivative financial instruments
The Group enters into derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk. Instruments
used are principally foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are
included in notes 25 and 30.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to
their fair value at the reporting date. The resulting gain or loss is immediately recognised in the statement of comprehensive income.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The fair value of derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the relationship is more
than twelve months and as a current asset or a current liability if the remaining maturity of the relationship is less than twelve months.
No derivative contracts have been designated as hedges for accounting purposes.
Hedge of net investment
Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment,
are accounted for as follows: gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised
in OCI while any gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation,
the cumulative value of any such gains or losses recorded in equity is reclassified to profit or loss.
The Group uses borrowings in local currencies as a hedge of its exposure to foreign exchange risk on its investments in foreign operations.
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Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 3. Accounting policies continued
Fair value measurement
The Group measures certain financial instruments, such as derivatives, at fair value at each reporting date. The Group also measures
assets and liabilities (for example, intangible assets) acquired in a business combination at fair value on initial recognition. The fair values
of financial instruments measured at amortised cost are disclosed in note 30.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset
or transfer the liability takes place either:
> in the principal market for the asset or liability; or
> in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or most advantageous market must be accessible by the Group.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using
the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value,
maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
> Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities;
> Level 2 – valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
observable; and
> Level 3 – valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
For recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, based on a multi-criteria
approach, the following valuation techniques can be used for the same class of assets:
> discounted cash flow using the following inputs: net current inflow, terminal value and discount rate; and
> yield methodology using market values capitalised with a market capitalisation rate.
The resulting valuations are cross-checked against the initial yields and the fair market values derived from actual market transactions.
If the fair value is not reliably determinable, the asset is measured at cost model until such time as the fair value can be reliably measured.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognised in share premium. Share options exercised during the period are satisfied with
treasury shares.
Leasing commitments
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.
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Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 3. Accounting policies continued
Pensions
Contributions to defined contribution schemes are recognised in the statement of comprehensive income in the period they become
payable. The cost charged to the statement of comprehensive income of providing retirement pensions for employees represents the
amounts paid by the Group to various defined contribution pension schemes operated by the Group in the financial period.
Dividends
Dividends are recognised when they meet the criteria for recognition as a liability. In relation to final dividends, this is when the dividend
is approved by the Directors in the general meeting, and in relation to interim dividends, when paid.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
Judgements
The following are the critical judgements (apart from those involving estimations) that management has made in the process of applying
the entity’s accounting policies and that have the most significant effect on the amounts recognised in financial statements:
Exceptional items
The Group discloses exceptional items by virtue of their nature, size or incidence to allow a better understanding of the underlying
trading performance of the Group mainly relating to acquisition costs, inventory fair value adjustments as a result of acquisitions and
restructuring costs following acquisitions. The Group identifies an item of expense or income as exceptional when, in management’s
judgement, the underlying event giving rise to the exceptional item is deemed to be non-recurring in its nature, size or incidence such
that Group results would be distorted without specific reference to the event in question. To enable the full impact of an exceptional
item to be understood, the tax impact is disclosed and it is presented separately in the statement of cash flows. See note 8 for details
of exceptional items.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant
risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are described
below. The Group 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.
Fair value of assets acquired during business combinations
Judgements and estimates are required in assessment of fair value of the consideration and net assets acquired, including the identification
and valuation of intangible assets. In valuing certain intangible assets management has made assumptions about the retention rate of
customers and cash flow forecasts used to determine the fair value of the assets at the date of acquisition. Note 20 provides details
on business combinations.
Impairment of goodwill and other intangible assets
The Group’s impairment test for goodwill is based on a value in use calculation using a discounted cash flow model. The cash flows
are derived from the business plan for the following three years. The recoverable amount is very sensitive to the discount rate used
for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.
The key assumptions used to determine the recoverable amount for the different cash generating units are explained further in note 19.
The identification of the Group’s cash generating units (CGUs) used for impairment testing involves a degree of judgement.
Management has reviewed the Group’s assets and cash inflows and identified the lowest aggregation of assets that generate largely
independent cash inflows. Further details of the CGUs identified by the Group are contained in note 3.
The Group’s accounting policy for impairment of other intangible assets is set out in note 3. The Group records all assets and liabilities
acquired in business combinations at fair value. Intangible assets are reviewed for impairment annually if events or changes in circumstances
indicate that the carrying amount may not be recoverable. Further details are included in note 18.
101
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 4. Critical accounting judgements and key sources of estimation uncertainty continued
Estimates and assumptions continued
Taxation
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. A breakdown of the deferred
tax asset is included in note 14. 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.
Rebates payable and receivable
The Group has a number of customer and supplier rebate agreements that are recognised as a reduction from sales or a reduction of
cost of sales as appropriate (collectively referred to as rebates). Rebates are based on an agreed percentage of revenue or purchases,
which will increase with the level of revenue achieved or purchases made. These agreements typically run to a different reporting period to
that of the Group with some of the amounts payable and receivable being subject to confirmation after the reporting date. At the reporting
date, the Directors make estimates of the amount of rebate that will become both payable and due to the Group under these agreements
based upon their best estimates of volumes and product mix that will be bought or sold over each individual rebate agreement period.
Where the respective customer or supplier has been engaged with the Group for a number of years, historical settlement trends are also
used to assist in ensuring an appropriate estimate is recorded at the reporting date and that appropriate internal approvals and reviews
take place before rebates are recorded. The total rebate payable provision at 31 July 2016 included within trade and other payables
is £5,414,000 (2015: £5,017,000).
Provisions for warranties, bad debts and inventory obsolescence
Provisions for warranties are made with reference to recent trading history and historic warranty claim information, and the view of
management as to whether warranty claims are expected.
Provisions for bad debts and inventory obsolescence are made with reference to the ageing of receivables and inventory balances and
the view of management as to whether amounts are recoverable. Bad debt and warranty provisions will be determined with consideration
given to recent customer trading and management experience, and provision for inventory obsolescence to sales history and to latest
sales forecasts.
5. New standards and interpretations
No new accounting standards or amendments have been adopted during the period.
The following standards and interpretations have an effective date after the date of these financial statements. The Group plans to adopt
them from the effective dates adopted by the EU and is currently completing an impact assessment to be able to quantify the effect
the new standards will have on the Group financial statements.
Standard
or interpretation
Title
IAS 1
Disclosure initiative – Amendments to IAS 1
IAS 16 and IAS 38
Clarification of acceptable methods of depreciation and amortisation
IFRS 14
IAS 7
IAS 12
IFRS 15
IFRS 9
IFRS 16
Regulatory Deferral Accruals
Disclosure initiative – Amendments to IAS 7
Recognition of Deferred Tax Assets for Unrealised Losses
Revenue from Contracts with Customers
Financial Instruments: Classification and Measurement
Leases
Effective for accounting
periods beginning
on or after
1 January 2016
1 January 2016
1 January 2016
1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2019
102
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 6. Revenue
Revenue recognised in the statement of comprehensive income is analysed below:
Sale of goods
Rendering of services
Total revenue
Market sectors
Ventilation Group
UK Residential RMI
UK Residential New Build
UK Commercial
UK Export
Nordics1
Central Europe2
Total Ventilation Group
Original Equipment Manufacturer (OEM (Torin-Sifan))
OEM (Torin-Sifan)
Total revenue
2016
£000
150,986
3,478
2015
£000
127,652
2,526
154,464
130,178
2016
£000
2015
£000
35,427
19,818
21,677
7,803
25,521
23,820
36,574
17,180
16,188
8,374
22,241
10,904
134,066
111,461
20,398
18,717
154,464
130,178
Notes
1. Represents revenue of Fresh AB and its subsidiaries, PAX AB, Volution Norge AS and Welair AB.
2. Represents revenue of inVENTer GmbH, Brüggemann Energiekonzepte GmbH, Ventilair Group Belgium BVBA, Ventilair Group Netherlands B.V. and Ventilair SARL.
7. Segmental analysis
In identifying its operating segments, management follows the Group’s product markets. The Group is considered to have two reportable
segments: Ventilation Group and Original Equipment Manufacturer (OEM (Torin-Sifan)). Each reportable segment is managed separately
as they require different marketing approaches.
Operating segments that provide ventilation services have been aggregated as they have similar economic characteristics, assessed
by reference to the gross margins of the segments. In addition the segments are similar in relation to the nature of products, services
and production processes, type of customer, method for distribution and regulatory environment.
The measure of revenue reported to the chief operating decision maker to assess performance is total revenue for each operating
segment. The measure of profit reported to the chief operating decision maker to assess performance is adjusted operating profit
(see note 36 for definition) from external customers for each operating segment. Gross profit and the analysis below segment profit
is additional voluntary information and not “segment information” prepared in accordance with IFRS 8.
Finance revenue and costs are not allocated to individual operating segments as the underlying instruments are managed on a Group basis.
Total assets and liabilities are not disclosed as this information is not provided by operating segment to the chief operating decision
maker on a regular basis.
103
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 7. Segmental analysis continued
Transfer prices between operating segments are on an arm’s length basis on terms similar to transactions with third parties.
Year ended 31 July 2016
Revenue
External customers
Inter-segment
Total revenue
Gross profit
Results
Ventilation
Group
£000
134,066
15,999
150,065
69,170
OEM
£000
Unallocated
£000
Total
£000
Eliminations
£000
Consolidated
£000
20,398
982
21,380
6,196
—
—
—
—
154,464
16,981
—
154,464
(16,981)
—
171,445
(16,981)
154,464
75,366
Adjusted segment EBITDA
33,859
3,780
(2,246)
35,393
Depreciation and amortisation of
developments costs, software and patents
Adjusted operating profit/(loss)
Amortisation of intangible assets acquired
through business combinations
Other non-recurring items not meeting
the definition of exceptional
Exceptional items
Operating profit/(loss)
Unallocated expenses
Net finance cost
(2,217)
31,642
(524)
(147)
(2,888)
3,256
(2,393)
32,505
(11,300)
(1,358)
(236)
(373)
—
—
—
—
(836)
(12,658)
(236)
(1,209)
19,733
1,898
(3,229)
18,402
—
—
(38)
(38)
Profit/(loss) before tax
19,733
1,898
(3,267)
18,364
Year ended 31 July 2015
Revenue
External customers
Inter-segment
Total revenue
Gross profit
Results
Ventilation
Group
£000
111,461
11,834
123,295
57,702
OEM
£000
Unallocated
£000
Total
£000
Eliminations
£000
Consolidated
£000
18,717
1,249
19,966
5,457
—
—
—
—
130,178
13,083
—
130,178
(13,083)
—
143,261
(13,083)
130,178
63,159
Adjusted segment EBITDA
31,117
2,977
(1,979)
32,115
Depreciation and amortisation of
developments costs, software and patents
Adjusted operating profit/(loss)
Amortisation of intangible assets acquired
through business combinations
Exceptional items
Operating profit/(loss)
Unallocated expenses
Net finance cost
Profit/(loss) before tax
(2,176)
28,941
(10,140)
6
18,807
—
18,807
(477)
2,500
(1,358)
(24)
1,118
—
1,118
(31)
(2,684)
(2,010)
29,431
—
(713)
(11,498)
(731)
(2,723)
17,202
—
17,202
(1,676)
(4,399)
(1,676)
15,526
—
—
(1,676)
15,526
The Group overhead costs are not allocated to individual operating segments. Likewise, certain exceptional costs have not been allocated
to individual operating segments.
Inter-segment revenues are eliminated on consolidation.
104
—
—
—
—
—
—
—
—
—
—
75,366
35,393
(2,888)
32,505
(12,658)
(236)
(1,209)
18,402
(38)
18,364
—
—
—
—
—
—
63,159
32,115
(2,684)
29,431
(11,498)
(731)
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 7. Segmental analysis continued
Geographic information
Revenue from external customers by destination
United Kingdom
Europe (excluding United Kingdom and Sweden)
Sweden
Rest of the world
Total revenue
Non-current assets excluding deferred tax
United Kingdom
Europe (excluding United Kingdom and Nordics)
Nordics
Total
Information about major customers
2016
£000
2015
£000
87,536
44,716
19,500
2,712
79,936
31,131
16,663
2,448
154,464
130,178
2016
£000
2015
£000
150,239
142,957
27,970
13,360
13,787
11,979
191,569
168,723
Annual revenue from no individual customer accounts for more than 10% of Group revenue. In the year ended 31 July 2015 one customer
accounted for annual revenue of £13,607,000, which represented 10.5% of Group revenue.
8. Exceptional items
The Group discloses exceptional items by virtue of their nature, size or incidence to allow a better understanding of the underlying trading
performance of the Group. Exceptional costs are summarised below:
Inventory fair value adjustment arising on business combinations
Acquisition costs
Restructuring and acquisition integration
Profit on disposal of property, plant and equipment
Costs associated with the stock market listing of the Group
Total tax credit for the year
Notes
(a)
(b)
(c)
2016
£000
332
877
—
—
—
1,209
(80)
1,129
2015
£000
—
875
128
(261)
(11)
731
(26)
705
(a) As set out in note 20, inventory acquired on acquisitions was recognised at fair value, which is based on selling price less costs of
disposal and a profit allowance for selling efforts. In line with the Group’s definition of exceptional costs, inclusion of the inventory
fair value adjustment within trading results would not be reflective of ongoing business performance. The inventory fair value adjustment
has therefore been presented separately.
The relevant inventory was disposed of in the same period it was acquired.
105
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 8. Exceptional items continued
(b) Acquisition costs relate to professional fees incurred in respect of the business combinations disclosed in note 20:
Brüggemann Energiekonzepte GmbH
Ventilair Group International BVBA
Fresh AB and its subsidiaries
Energy Technique plc
Weland Luftbehandling AB
NVA Services Limited
Aborted acquisitions
2016
£000
—
85
—
603
22
167
—
877
2015
£000
134
559
49
—
—
—
133
875
(c) It was deemed that the items allowable for or chargeable to tax were approximately £332,000 (2015: £128,000) with a potential tax
benefit of £80,000 (2015: £26,000).
9. Finance revenue and costs
Finance revenue
Net gain on financial instruments at fair value
Interest receivable
Total finance revenue
Finance costs
Interest payable on bank loans
Amortisation of finance costs
Other interest
Total interest expense
Net loss on financial instruments at fair value
Total finance costs
Net finance costs
2016
£000
1,139
25
1,164
(915)
(232)
(55)
(1,202)
—
(1,202)
(38)
2015
£000
467
66
533
(2,004)
(102)
—
(2,106)
(103)
(2,209)
(1,676)
Included in the interest payable on bank loans is £nil (2015: £106,000) relating to breakage costs of the interest rate swaps.
106
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 10. Adjusted earnings
Profit after tax
Add back:
Exceptional items
Other non-recurring items not meeting the definition of exceptional
Breakage costs of interest rate swaps
Net gain on financial instruments at fair value
Amortisation and impairment of intangible assets acquired through business combinations
Tax effect of the above
Adjusted profit after tax
Add back:
Adjusted tax charge
Adjusted profit before tax
Add back:
Interest payable on bank loans and amortisation of financing costs
Finance revenue
Adjusted operating profit
Add back:
Depreciation of property, plant and equipment
Amortisation of development costs, software and patents
Adjusted EBITDA
For definitions of terms referred to above see note 36, Glossary of terms.
11. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge (see note 34)
2016
£000
2015
£000
15,607
11,835
1,209
236
—
(1,139)
12,658
(3,496)
731
—
106
(364)
11,498
(1,838)
25,075
21,968
6,253
31,328
1,202
(25)
5,529
27,497
2,000
(66)
32,505
29,431
2,559
329
35,393
2,536
148
32,115
2016
£000
2015
£000
32,338
26,759
4,303
1,268
431
3,407
1,174
181
38,340
31,521
Other pension costs relate to the Group’s contribution to defined contribution pension plans. Total contributions payable in the next
financial year are expected to be at rates broadly similar to those in 2015/16 but based on actual salary levels in 2016/17.
Average monthly number of employees in the year
Production
Sales and administration
2016
Number
2015
Number
714
623
586
450
1,337
1,036
107
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 11. Staff costs continued
Directors’ remuneration
Amounts paid in respect of qualifying services
Aggregate Directors’ emoluments
Aggregate Directors’ pension scheme contributions
In respect of the highest paid Director
Aggregate Directors’ emoluments
Aggregate Directors’ pension scheme contributions
2016
£000
1,018
81
591
47
2015
£000
1,011
91
588
53
The number of Directors accruing benefits under Group money purchase pension arrangements was two (2015: two).
The Group also incurred costs of £295,000 (2015: £295,000) from Peter Hill, Tony Reading, Paul Hollingworth and Adrian Barden
for their services as Non-Executive Directors.
12. Other operating expenses
Cost of sales, distribution costs and administrative expenses include the following:
Cost of sales
Costs of inventories recognised as expenses
Operating lease expense
Depreciation of property, plant and equipment
Distribution costs
Depreciation of property, plant and equipment
Administrative expenses
Research and development costs
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Operating lease expense
Net foreign exchange differences
Loss/(gain) on disposal of property, plant and equipment
2016
£000
2015
£000
77,122
882
1,094
65,050
847
1,122
579
436
1,507
886
12,987
493
382
9
1,485
978
11,646
74
(483)
(19)
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 above.
13. 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:
Audit services
Fees for the audit of the parent and Group financial statements
Fees for local statutory audits of subsidiaries
Non-audit services
Fees payable for interim review
108
2016
£000
2015
£000
127
177
25
329
120
136
25
281
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 14. Income tax
(a) Income tax recognised in profit for the year
Current income tax
Current UK income tax expense
Current foreign income tax expense
Tax charge/(credit) relating to the prior year
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect of changes in the tax rate
Tax (credit)/charge relating to prior years
Total deferred tax
Net tax charge reported in the consolidated statement of comprehensive income
(b) Income tax recognised in equity for the year
Increase in deferred tax asset on share-based payments
Net tax credit reported in equity
(c) Reconciliation of total tax
Profit before tax
Profit before tax multiplied by the standard rate of corporation tax in the UK of 20.0% (2015: 20.67%)
Adjustment in respect of previous years
Expenses not deductible for tax purposes
Effect of changes in the tax rate (see explanation below)
Non-taxable income
Higher overseas tax rate
2016
£000
4,588
1,592
73
6,253
(1,876)
(1,105)
(515)
(3,496)
2,757
2016
£000
(37)
(37)
2016
£000
18,364
3,673
(442)
556
(1,105)
(39)
114
2015
£000
4,451
1,178
(100)
5,529
(2,002)
26
138
(1,838)
3,691
2015
£000
—
—
2015
£000
15,526
3,209
38
401
26
(38)
55
Net tax charge reported in the consolidated statement of comprehensive income
2,757
3,691
The Finance Act (No. 2) 2015 was enacted on 18 November 2015 and introduced a reductions in the headline rate of corporation tax
to 19% and 18% to apply from 1 April 2017 and 1 April 2020 respectively. The implications of the rate changes are incorporated within
the financial statements, leading to a credit of £1,105,000 to the tax charge. A further reduction in the headline rate to 17% to apply from
1 April 2020 was included in the Finance Bill 2016. As the Finance Bill 2016 had not been enacted at 31 July 2016, the impact of this
rate change has not been included in these financial statements.
(d) Unrecognised deferred tax assets
At 31 July 2016, the Group had not recognised a deferred tax asset in respect of gross tax losses of £5,195,000 relating to management
expenses (2015: £nil), capital losses of £3,975,000 arising in UK subsidiaries and gross tax losses of £264,000 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 2016, the Group had no deferred tax liability (2015: £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.
109
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 1 August
2015
£000
Credited/
(charged)
to income
£000
Credited
to equity
£000
Translation
difference
£000
On
acquisition
£000
31 July
2016
£000
14. Income tax continued
(e) Deferred tax balances
Deferred tax assets and liabilities arise from the following:
2016
Temporary differences
Depreciation in advance
of capital allowances
(676)
444
Fair value movements of derivative
financial instruments
45
Customer base, trademark and patent
(18,276)
Losses
Untaxed reserves
Historical fair value adjustments
Other temporary differences
Deferred tax asset
Deferred tax liability
536
(468)
—
(40)
(18,879)
394
(19,273)
(18,879)
2015
Temporary differences
Depreciation in advance of capital allowances
Fair value movements of derivative financial instruments
Customer base, trademark and patent
Losses
Untaxed reserves
Other temporary differences
Deferred tax asset
Deferred tax liability
(153)
3,524
(133)
25
—
(211)
3,496
61
3,435
3,496
1 August
2014
£000
(58)
122
(21,050)
560
(617)
(315)
(21,358)
732
(22,090)
(21,358)
Deferred tax asset
Non-current
Deferred tax liability
Current
Non-current
110
—
—
—
—
—
1,526
37
1,563
—
1,563
1,563
(39)
—
(601)
118
45
—
6
(471)
(11)
(460)
(471)
(94)
—
(365)
(108)
(2,805)
(18,158)
351
—
(1,526)
178
872
(398)
—
(30)
(3,896)
(18,187)
6
450
(3,902)
(18,637)
(3,896)
(18,187)
Credited/
(charged)
to income
£000
Translation
difference
£000
On
acquisition
£000
(618)
(77)
2,241
(57)
82
267
1,838
(378)
2,216
1,838
—
—
587
33
67
8
695
40
655
695
—
—
(54)
—
—
—
(54)
—
(54)
(54)
2016
£000
450
2016
£000
2,395
16,242
18,637
31 July
2015
£000
(676)
45
(18,276)
536
(468)
(40)
(18,879)
394
(19,273)
(18,879)
2015
£000
394
2015
£000
—
19,273
19,273
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016
15. 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 no dilutive potential ordinary
shares for the years ended 31 July 2016 and 2015.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Year ended 31 July
Profit attributable to ordinary equity holders
2016
£000
2015
£000
15,607
11,835
Number
Number
Weighted average number of ordinary shares for basic earnings per share and diluted earnings per share 199,627,253 200,000,000
Earnings per share
Basic and diluted
Year ended 31 July
Adjusted profit attributable to ordinary equity holders
7.8p
2016
£000
5.9p
2015
£000
25,075
21,968
Number
Number
Weighted average number of ordinary shares for adjusted basic earnings per share and adjusted
diluted earnings per share
199,627,253 200,000,000
Adjusted earnings per share
Basic and diluted
12.6p
11.0p
See note 36, Glossary of terms, for explanation of the adjusted basic and diluted earnings per share calculation.
111
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
16. Property, plant and equipment
2016
Cost
At 1 August 2015
On acquisition
Additions
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2016
Depreciation
At 1 August 2015
Charge for the year
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2016
Net book value
At 31 July 2016
2015
Cost
At 1 August 2014
On acquisition
Additions
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2015
Depreciation
At 1 August 2014
Charge for the year
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2015
Net book value
At 31 July 2015
112
Freehold
land and
buildings
£000
Plant and
machinery
£000
Fixtures,
fittings, tools,
equipment
and vehicles
£000
11,480
3,754
570
61
—
786
—
624
478
(227)
482
307
6,515
738
2,340
(737)
652
(307)
Total
£000
21,749
1,932
2,879
(964)
1,920
—
12,897
5,418
9,201
27,516
2,082
434
—
125
—
925
663
(213)
369
307
2,695
1,462
(580)
424
(307)
5,702
2,559
(793)
918
—
2,641
2,051
3,694
8,386
10,256
3,367
5,507
19,130
Fixtures,
fittings, tools,
equipment
and vehicles
£000
Plant and
machinery
£000
Freehold
land and
buildings
£000
12,477
—
265
(611)
(651)
—
2,998
—
1,113
(76)
(281)
—
11,480
3,754
1,980
432
(252)
(78)
—
2,082
718
552
(72)
(273)
—
925
Total
£000
20,936
51
3,880
(1,745)
(1,278)
(95)
21,749
5,021
2,536
(1,176)
(694)
15
5,702
5,461
51
2,502
(1,058)
(346)
(95)
6,515
2,323
1,552
(852)
(343)
15
2,695
9,398
2,829
3,820
16,047
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 17. Intangible assets – goodwill
Cost and net book value
At 1 August 2014
Adjustment to goodwill relating to inVENTer and its subsidiaries
On acquisition of Brüggemann Energiekonzepte GmbH
Net foreign currency exchange differences
At 31 July 2015
Fair value deferred tax adjustment relating to prior year acquisitions
On acquisition of Ventilair Group International BVBA and its subsidiaries
On acquisition of Energy Technique Limited and its subsidiaries
On acquisition of Weland Luftbehandling AB
On acquisition of NVA Services Limited and its subsidiaries
Net foreign currency exchange differences
£000
50,127
473
1,395
(270)
51,725
1,526
5,426
3,859
12
3,415
2,265
68,228
At 31 July 2016
18. Intangible assets – other
2016
Cost
At 1 August 2015
Additions
On acquisitions
Net foreign currency exchange differences
At 31 July 2016
Amortisation
At 1 August 2015
Charge for the year
Net foreign currency exchange differences
At 31 July 2016
Net book value
At 31 July 2016
Development
costs
£000
Software
costs
£000
Customer
base
£000
Trademarks
£000
Patents
£000
Other
£000
Total
£000
1,645
522
—
65
4,325
1,104
114
44
97,844
37,260
—
9,561
3,568
—
2,145
1,076
2,232
5,587
110,973
40,481
65
95
5
1,669
207
4
33,734
10,812
1,034
165
1,880
45,580
5,118
1,668
144
6,930
479
—
—
94
573
16
27
9
52
—
—
300
—
300
—
178
—
178
141,553
1,626
12,120
4,847
160,146
40,602
12,987
1,196
54,785
2,067
3,707
65,393
33,551
521
122
105,361
Included in software costs are assets under construction of £86,000 (2015: £2,441,000), which are not amortised.
Included in development costs are assets under construction of £1,514,000 (2015: £1,395,000), which are not amortised.
113
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 18. Intangible assets – other continued
2015
Cost
At 1 August 2014
Additions
Disposals
On acquisition
Transfers
Net foreign currency exchange differences
At 31 July 2015
Amortisation
At 1 August 2014
Charge for the year
Disposals
Transfers
Net foreign currency exchange differences
At 31 July 2015
Net book value
At 31 July 2015
Development
costs
£000
Software
costs
£000
Customer
base
£000
Trademarks
£000
Patents
£000
Total
£000
1,029
637
—
—
—
(21)
2,973
1,086
(5)
—
271
—
100,066
38,182
—
—
208
(360)
(2,070)
—
—
—
—
(922)
1,645
4,325
97,844
37,260
40
25
—
—
—
65
1,576
97
(4)
—
—
24,212
9,904
—
—
(382)
1,669
33,734
3,691
1,594
—
—
(167)
5,118
927
—
—
—
(176)
(272)
479
7
26
—
(15)
(2)
16
143,177
1,723
(5)
208
(265)
(3,285)
141,553
29,526
11,646
(4)
(15)
(551)
40,602
1,580
2,656
64,110
32,142
463
100,951
The remaining amortisation periods for acquired intangible assets at 31 July 2016 are as follows:
Volution Holdings Limited and its subsidiaries
Fresh AB and its subsidiaries
PAX AB and PAX Norge AS
inVENTer GmbH
Brüggemann Energiekonzepte GmbH
Ventilair Group International BVBA and its subsidiaries
Energy Technique Limited and its subsidiaries
Weland Luftbehandling AB
NVA Services Limited and its subsidiaries
Customer base
Trademark
Patent
6 years
3 years
5 years
7 years
4 years
7 years
8 years
4 years
21 years
16 years
17 years
18 years
—
9 years
20 years
—
10 years
15 years
—
—
—
18 years
—
—
—
—
—
114
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016
19. Impairment assessment of goodwill
Goodwill acquired through business combinations has been allocated for impairment testing purposes to cash generating units.
These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.
During the year the Group has reviewed its cash generating units. The previously identified cash generating units, used for the impairment
review of tangible and intangible assets during the year ended 31 July 2015 were updated as a result of the changes to the Group
(see note 20) during the year ended 31 July 2016.
31 July 2016
Carrying value of goodwill
CGU value in use headroom1
UK
Ventilation
£000
OEM
(Torin-Sifan)
£000
45,352
140,141
5,101
31,995
Nordics
£000
2,887
52,182
Germany
£000
4,463
12,144
Benelux
£000
6,566
2,556
Diffusion
£000
3,859
7,046
Applying the same CGUs to the 31 July 2015 goodwill gives the following headroom:
31 July 2015
Carrying value of goodwill
CGU value in use headroom1
UK
Ventilation
£000
40,672
154,744
OEM
(Torin-Sifan)
£000
4,996
18,823
Nordics
£000
2,303
36,843
Germany
£000
3,754
18,393
Benelux
£000
N/A
N/A
Diffusion
£000
N/A
N/A
The table below was disclosed in the 31 July 2015 financial statements using the previously identified CGUs:
31 July 2015
Residential
RMI
£000
Residential
New Build
£000
Carrying value of goodwill
CGU value in use headroom1
21,195
72,267
7,143
33,946
Commercial
£000
8,744
31,985
UK
Export
£000
3,590
16,546
OEM
(Torin-Sifan)
£000
4,996
18,823
Nordics
Residential
£000
2,303
36,843
Germany
Residential
£000
3,754
18,393
Note
1. Headroom is calculated by comparing the Value in use (VIU) of a CGU 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 three years, which has been established
using pre-tax discount rates of 11.7% to 14.8% 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:
> Price inflation – small annual percentage increases specific to each CGU are assumed in all markets based on historic data.
> Growth in the forecast period – specific growth rates have been used for each of the CGUs for the five-year forecast period based
on historic growth rates and market expectations.
> Discount rates – rates reflect the current market assessment of the risks specific to each operation. The pre-tax discount rate ranged
from 11.7% to 14.8%.
> No growth rate has been used to extrapolate cash flows beyond the forecast period other than the 2% rate of inflation.
The value in use headroom for each cash generating unit where these sensitivities would be applicable has been set out above.
No reasonably possible change in the above key assumptions would cause the carrying value of the cash generating units to
materially exceed their recoverable value.
115
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 20. Business combinations
Acquisitions in the year ended 31 July 2016
Ventilair Group International BVBA
On 5 August 2015, Volution Ventilation Group Limited acquired the entire issued share capital of Ventilair Group International BVBA.
The transaction was funded from the Group’s existing revolving credit facility. The Group acquired Ventilair Group International BVBA as it
offers a channel to sell existing ventilation products in a new region.
Total consideration for the transaction was cash consideration of €14,312,000 (£9,960,000) and contingent consideration with a fair value
of €48,000 (£34,000).
Transaction costs associated with the acquisition in the period ended 31 July 2016 were £85,000 (2015: £559,000) and have been expensed.
The fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Contingent consideration
Book value
£000
Fair value
adjustments
£000
Fair value
£000
114
—
339
1,407
2,574
(3,583)
270
1,121
4,874
(1,141)
(9)
178
(369)
(86)
—
3,447
4,988
(1,141)
330
1,585
2,205
(3,669)
270
4,568
5,426
9,994
9,960
34
Goodwill of £5,426,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature.
These items include the value of expected synergies and the experience and skill of the workforce arising from the acquisition. The fair
value of the acquired tradename and customer base was identified and included in intangible assets; the deferred tax on these assets
has been recognised separately.
The gross amount of trade and other receivables is £2,574,000. The amounts for trade and other receivables not expected to be
collected are £369,000.
Ventilair Group International and its subsidiaries generated revenue of £12,737,000 and generated a profit before tax of £962,000 in the
period from acquisition to 31 July 2016 that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place as at 1 August 2015, the Group’s revenue would have been £154,464,000 and the profit before tax
would have been £18,364,000.
116
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 20. Business combinations continued
Acquisitions in the year ended 31 July 2016 continued
Weland Luftbehandling AB
On 1 December 2015, Volution Holdings Sweden AB acquired the entire issued share capital of Weland Luftbehandling AB. The transaction
was funded from the Group’s existing revolving credit facility. The Group acquired Weland Luftbehandling AB because it provided additional
manufacturing capabilities to the current Nordics group. The company changed its name on 29 December 2015 to Welair AB.
Total consideration for the transaction was cash consideration of SEK 7,808,000 (£597,000).
Transaction costs associated with the acquisition in the period ended 31 July 2016 were £22,000 and have been expensed.
The provisional fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Book value
£000
Fair value
adjustments
£000
Provisional fair
value
£000
—
—
168
412
235
(227)
9
597
156
47
—
(149)
(1)
(65)
—
(12)
156
47
168
263
234
(292)
9
585
12
597
597
The fair value of the acquired customer base was identified and included in intangible assets; the deferred tax on these assets has
been recognised separately.
Goodwill of £12,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature.
These items include the value of expected synergies and the experience and skill of the workforce arising from the acquisition.
Welair AB generated revenue of £944,000 and generated a loss before tax of £65,000 in the period from acquisition to 31 July 2016
that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place as at 1 August 2015, the Group’s revenue would have been £154,997,000 and the profit before tax
would have been £18,368,000.
117
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 20. Business combinations continued
Acquisitions in the year ended 31 July 2016 continued
Energy Technique Limited
On 21 December 2015, the Group acquired the entire issued share capital of Energy Technique Limited (ET). The transaction was funded
from the Group’s existing revolving credit facility. The Group acquired ET because there is a strong commercial and cultural fit between
ET and the existing Group in terms of its strategies, products and service offerings. The acquisition is in line with the strategy to continue
to acquire and integrate businesses with well established brands in the HVAC and ventilation market, operating in markets underpinned
by favourable structural dynamics and with an emphasis on heat recovery systems.
Total consideration for the transaction was £9,396,000.
Transaction costs associated with the acquisition in the period ended 31 July 2016 were £603,000 and have been expensed.
The provisional fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Book value
£000
9
(23)
409
816
1,880
(2,154)
1,210
2,147
Fair value
adjustments
£000
4,221
(774)
112
(49)
—
(120)
—
3,390
Provisional
fair value
£000
4,230
(797)
521
767
1,880
(2,274)
1,210
5,537
3,859
9,396
9,396
The fair value of the acquired customer base, trademark, favourable contract agreements and committed order book were identified
and included in intangible assets; the deferred tax on these assets has been recognised separately.
Goodwill of £3,859,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature.
These items include the value of expected synergies and the experience and skill of the workforce arising from the acquisition.
The gross amount of trade and other receivables is £1,880,000. It is expected that the full contractual amounts for trade and other
receivables can be collected.
ET generated revenue of £7,064,000 and generated a profit before tax of £790,000 in the period from acquisition to 31 July 2016 that
is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place as at 1 August 2015, the Group’s revenue would have been £158,911,000 and the profit before tax
would have been £17,868,000.
118
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 20. Business combinations continued
Acquisitions in the year ended 31 July 2016 continued
NVA Services Limited
On 10 May 2016, Volution Ventilation Group Limited acquired the entire issued share capital of NVA Services Limited (NVA).
The transaction was funded from the Group’s existing revolving credit facility. The Group acquired NVA because there is a
strong commercial and cultural fit between NVA and the existing Group in terms of its strategies, products and service offerings.
The acquisition is in line with the strategy to continue to acquire and integrate businesses with well established brands in the
ventilation market.
Total consideration for the transaction was £6,697,000.
Transaction costs associated with the acquisition in the period ended 31 July 2016 were £167,000 and have been expensed.
The provisional fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Book value
£000
Fair value
adjustments
£000
Provisional fair
value
£000
286
—
913
1,181
2,066
(3,016)
178
1,608
2,460
(479)
—
(189)
(55)
(63)
—
1,674
2,746
(479)
913
992
2,011
(3,079)
178
3,282
3,415
6,697
6,697
The fair value of the acquired customer base, trademark and committed order book was identified and included in intangible assets;
the deferred tax on these assets has been recognised separately.
Goodwill of £3,415,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies and the experience and skill of the workforce arising from the acquisition.
The gross amount of trade and other receivables is £2,066,000. The amount for trade and other receivables not expected to be collected
is £55,000.
NVA generated revenue of £2,352,000 and generated a profit before tax of £119,000 in the period from acquisition to 31 July 2016
that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place as at 1 August 2015, the Group’s revenue would have been £161,936,000 and the profit before tax
would have been £18,583,000.
Acquisition in the year ended 31 July 2015
Brüggemann Energiekonzepte GmbH
On 14 April 2015, Volution Management Holdings GmbH acquired the entire issued share capital of Brüggemann Energiekonzepte GmbH.
The transaction was funded from the Group’s existing revolving credit facility. The Group acquired Brüggemann as it offered a channel
to sell existing ventilation products in a new region.
Total consideration for the transaction was cash consideration of €2,280,000 (£1,649,000).
119
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 20. Business combinations continued
Acquisition in the year ended 31 July 2015 continued
Brüggemann Energiekonzepte GmbH continued
The fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Book value
£000
Fair value
adjustments
£000
Fair value
£000
—
—
63
8
23
(110)
128
112
208
(54)
(12)
—
—
—
—
142
208
(54)
51
8
23
(110)
128
254
1,395
1,649
1,649
The fair value of the acquired customer base was identified and included in intangible assets.
Goodwill of £1,395,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature.
These items include the value of expected synergies and the experience and skill of the workforce arising from the acquisition.
Brüggemann Energiekonzepte GmbH generated revenue of £719,000 and generated a profit after tax of £55,000 in the period from
acquisition to 31 July 2015 that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2014, the Group’s revenue would have been £132,539,000 and the profit before tax
from continuing operations would have been £15,705,000.
Cash outflows arising from business combinations are as follows:
Ventilair Group International BVBA
Cash consideration
Less: cash acquired with the business
Weland Luftbehandling AB
Cash consideration
Less: cash acquired with the business
Energy Technique Limited
Cash consideration
Less: cash acquired with the business
NVA Services Limited
Cash consideration
Less: cash acquired with the business
Brüggemann Energiekonzepte GmbH
Cash consideration
Less: cash acquired with the business
120
2016
£000
2015
£000
9,960
(270)
597
(9)
9,396
(1,210)
6,697
(178)
—
—
24,983
—
—
—
—
—
—
—
—
1,649
(128)
1,521
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 21. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2016
£000
10,015
1,432
8,709
20,156
During 2016, £258,000 (2015: £331,000) was recognised as a cost of sales for inventories written off in the year.
22. Trade and other receivables
Trade receivables
Allowance for doubtful debts
Other debtors
Prepayments
Movement in the allowance for doubtful debts is set out below.
At the start of the year
Charge for the year
Amounts utilised
Foreign currency adjustment
At the end of the year
Gross trade receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
Swedish Krona
Other
2015
£000
7,545
1,212
6,262
15,019
2015
£000
24,818
(1,185)
23,633
311
2,327
26,271
2015
£000
(926)
(864)
599
6
(1,185)
2016
£000
30,591
(893)
29,698
687
2,550
32,935
2016
£000
(1,185)
(239)
620
(89)
(893)
2016
£000
2015
£000
22,756
19,725
7
4,014
3,043
771
36
2,285
2,180
592
30,591
24,818
121
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 22. Trade and other receivables continued
Net trade receivables are aged as follows:
Neither past due nor impaired
Past due but not impaired
Overdue 0–30 days
Overdue 31–60 days
Overdue 61–90 days
Overdue more than 90 days
2016
£000
2015
£000
23,952
21,056
4,491
883
223
149
1,721
687
123
46
29,698
23,633
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.
23. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks. Cash and cash
equivalents as shown in the statement of cash flows is equal to that in the statement of financial position as follows:
2016
£000
2015
£000
15,744
11,565
2016
£000
9,705
4,078
525
1,243
193
2015
£000
6,070
3,729
201
1,187
378
15,744
11,565
2016
£000
18,205
1,786
15,099
35,090
2015
£000
10,629
1,234
13,432
25,295
Cash and short-term deposits
Cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
US Dollar
Swedish Krona
Other
24. Trade and other payables
Trade payables
Social security and staff welfare costs
Accrued expenses
122
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 25. Other financial assets and liabilities
Financial assets
FX forward contracts
Financial liabilities
Interest rate swap
FX forward contracts
26. Interest-bearing loans and borrowings
Unsecured – at amortised cost
Revolving credit facility
Cost of arranging bank loan
2016
Current
£000
2015
Current
£000
914
914
—
—
—
—
—
(73)
(152)
(225)
2016
2015
Current
£000
Non-current
£000
Current
£000
Non-current
£000
—
—
—
51,869
(634)
51,235
—
—
—
32,733
(866)
31,867
Interest-bearing borrowings at 31 July 2015 and 2016 comprise a revolving credit facility from Danske Bank A/S, HSBC and The Royal
Bank of Scotland with HSBC acting as agent and are governed by a facilities agreement. The outstanding loans are set out in the table
below. No security is provided under the new facility.
Revolving credit facility – at 31 July 2016
Currency
GBP
Euro
Swedish Krona
Total
Revolving credit facility – at 31 July 2015
Currency
GBP
Euro
Swedish Krona
Total
Amount
outstanding
£000
14,000
21,973
15,896
51,869
Amount
outstanding
£000
11,000
8,283
13,450
32,733
Termination
date
Repayment
frequency
Rate %
30 April 2019
One payment
Libor + 1.25%
30 April 2019
One payment
Euribor + 1.25%
30 April 2019
One payment
Stibor + 1.25%
Termination
date
Repayment
frequency
Rate %
30 April 2019
One payment
Libor + 1.25%
30 April 2019
One payment
Euribor + 1.25%
30 April 2019
One payment
Stibor + 1.25%
The interest rate on borrowings includes a margin that is dependent on the consolidated leverage level of the Group in respect of
the most recently completed reporting period. For the year ended 31 July 2015, Group leverage was between 1.0:1 and 1.5:1 and
therefore the margin was 1.25%.
The consolidated leverage level fell below 1.0:1 for the year ended 31 July 2015 and therefore the margin for the first period of the year
ended 31 July 2016 was 1.00%. At the half year the consolidated leverage level increased to between 1.0:1 and 1.5:1 and therefore
the margin for the second period of the year ended 31 July 2016 was 1.25%; this rate will continue into the first period of the year
ended 31 July 2017.
At 31 July 2016 the Group had £38,131,000 (2015: £57,267,000) of its multi-currency revolving credit facility unutilised.
123
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
27. Provisions
2016
At 1 August 2015
On acquisition
Arising during the year
Utilised
Foreign currency adjustment
At 31 July 2016
Analysis:
Current
Non-current
2015
At 1 August 2014
Arising during the year
Utilised
Foreign currency adjustment
At 31 July 2015
Analysis:
Current
Non-current
Product warranties
Product
warranties
£000
Property
dilapidations
£000
855
179
857
(673)
50
600
67
—
—
4
Total
£000
1,455
246
857
(673)
54
1,268
671
1,939
1,268
—
1,268
—
671
671
Product
warranties
£000
Property
dilapidations
£000
1,018
600
656
(791)
(28)
855
855
—
855
—
—
—
600
—
600
600
1,268
671
1,939
Total
£000
1,618
656
(791)
(28)
1,455
855
600
1,455
A provision is recognised for warranty costs expected to be incurred in the following twelve months on products sold during the year
and in prior years. Product warranties can range between one and five years; however, based on management’s knowledge of the products,
claims in relation to warranties after more than twelve months are rare and highly immaterial.
Property dilapidations
A provision has been recognised for dilapidations relating to obligations under leases for leasehold buildings and will be payable at the
end of the lease term.
28. Authorised and issued share capital and reserves
At 31 July 2015 and 31 July 2016
Number of
ordinary
shares
200,000,000
Ordinary
shares
£000
2,000
Share
premium
£000
11,527
At 31 July 2016, a total of 916,878 (31 July 2015: nil) ordinary shares in the Company were held by the Volution EBT, all of which were
under option to employees for nil consideration. During the period 916,878 ordinary shares in the Company were purchased by the trustees
(31 July 2015: nil), and nil (31 July 2015: nil) were disposed of by the trustees. The market value of the shares at 31 July 2016 was
£1,421,000 (31 July 2015: £nil).
The Volution EBT has agreed to waive its rights to dividends.
124
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 29. Dividends paid and proposed
2016
£000
2015
£000
Cash dividends on ordinary shares declared and paid
Interim dividend for 2016: 1.20 pence per share (2015: 1.05 pence)
2,394
2,100
Proposed dividends on ordinary shares
Final dividend for 2016: 2.60 pence per share (2015: 2.25 pence)
5,176
4,500
The interim dividend payment of £2,394,000 is included in the consolidated statement of cash flows.
The proposed final dividend on ordinary shares is subject to approval at the Annual General Meeting and is not recognised as a liability
at 31 July 2016.
30. Risk management
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
> FX forward contracts and interest rate swaps.
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 and interest rate swaps to reduce
its exposure to interest rate risk.
Forward foreign currency contracts
The Group’s purchases in foreign currencies, net of Group sales in those currencies, represent approximately 3% (2015: 4%) of total
material and component purchases. 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 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.
Interest rate swaps
The Group’s criteria for entering into an interest rate swap would require that the instrument must:
> be related to an asset or a liability; and
> change the character of the interest rate by converting a variable rate to a fixed rate or vice versa.
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.
In February 2014, the Group entered into an interest rate swap agreement with Royal Bank of Scotland plc and Bank of Ireland. Under
this agreement, which matured on 31 December 2015, the Libor interest rate above the margin related to the bank loan with GE Corporate
Finance Bank SAS, London branch, is subject to a fixed rate of 1.15%, replacing Libor. Following the maturing of this interest rate swap,
no new interest rate swaps were entered into in the year.
The fair value of the interest rate swap at 31 July 2016 was £nil (2015: liability of £73,000).
At 31 July 2016, the Group had commitments under forward foreign exchange contracts with varying settlement dates to 24 July 2017
(2015: 6 May 2016). See note 25 for fair values.
125
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 30. Risk management continued
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.
31 July 2016
Sterling
Swedish Krona
Euro
31 July 2015
Sterling
Swedish Krona
Euro
Increase in
basis points
Effect on
profit
before tax
£000
+25
+25
+25
+25
+25
+25
(35)
(40)
(55)
—
(18)
(21)
The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable market environment.
The Group cash balances are held in bank current accounts and earn immaterial levels of interest. Management has concluded that
any changes in the Libor and SEK Libor rates will have an immaterial impact on interest income earned on the Group cash balances.
No interest rate sensitivity has been included in relation to the Group’s cash balances.
Foreign currency risk
The Group’s exposure to foreign exchange risk primarily arises when revenue and expenses are denominated in a different currency
from the Group’s presentational currency. Foreign exchange risk also arises when the individual entities enter into transactions that are
not denominated in their functional currency.
The following tables illustrate the impact of several changes to the spot GBP/USD, GBP/EUR and GBP/SEK exchange rates of +5%.
The tables below reflect the impact on profit before tax and equity if those changes were to occur. Only the impact of changes in the
SEK, USD and Euro-denominated balances have been considered as these are the most significant non-GBP denominations used by
the Group.
Change in
GBP vs USD/
SEK/EUR rate
5%
5%
5%
Change in
GBP vs
SEK/EUR rate
5%
5%
Effect on profit before tax
2016
£000
312
55
(127)
Effect on equity
2016
£000
(12)
108
2015
£000
240
107
(186)
2015
£000
5
(39)
Swedish Krona
US Dollar
Euro
Swedish Krona
Euro
126
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 30. Risk management continued
Liquidity risk
Liquidity risk for the Group arises from the management of working capital commitments and meeting its financial obligations as they
fall due. The Group’s policy is to regularly review cash flow forecasts/projections as well as information regarding cash balances to
ensure that it has significant cash to allow it to meet its liabilities when they become due. The Group reviews its long-term funding
requirements in parallel with its long-term strategy, with an objective of aligning both in a timely manner. At the reporting date, forecasts
indicate that the Group is expected to have sufficient liquidity to meet its financial obligations for the foreseeable future.
The tables below summarise the maturity profile of the Group’s significant undiscounted financial liabilities at 31 July 2016 and 2015.
At 31 July 2016
Financial liabilities
Less than
one year
£000
Between one
and five years
£000
More than
five years
£000
Interest-bearing loans and borrowings (excluding interest)
—
51,869
Forward foreign currency exchange outflow
Forward foreign currency exchange inflow
Trade payables and other accrued expenses
12,944
(13,858)
33,327
—
—
—
32,413
51,869
—
—
—
—
—
At 31 July 2015
Financial liabilities
Interest-bearing loans and borrowings (excluding interest)
Forward foreign currency exchange outflow
Forward foreign currency exchange inflow
Interest rate swaps
Trade payables and other accrued expenses
Less than
one year
£000
Between one
and five years
£000
More than
five years
£000
—
8,224
(8,072)
73
24,061
24,286
32,733
—
—
—
—
32,733
—
—
—
—
—
—
Total
£000
51,869
12,944
(13,858)
33,327
84,282
Total
£000
32,733
8,224
(8,072)
73
24,061
57,019
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
The Group’s finance function has established a credit policy under which each new customer is analysed by each business unit subject
to the Group’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables
are regularly monitored and credit insurance is used where applicable. 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. Customers
that fail to meet the Group’s benchmark creditworthiness may transact with the Group on a prepayment/pro-forma basis.
Refer to note 22 for the table of the age of accounts receivable that are past due.
The carrying amount of accounts receivable is reduced by an allowance account and the amount of loss is recognised within the consolidated
income statement. When a receivable balance is considered uncollectable, it is written off against the allowance for doubtful accounts.
Subsequent recoveries of amounts previously written off are credited to the consolidated statement of comprehensive income.
The Group evaluated the concentration of credit risk with respect of trade receivables as low in view of the Group’s large and diversified
client base, which is located in several jurisdictions, and the Group’s established credit policies.
127
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 30. Risk management continued
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy. The Group deposits
cash with reputable financial institutions, from which management believes the possibilities of loss to be remote. The Group’s maximum
exposure to credit risk for the components of the statement of financial position at 31 July 2016 and 2015 is the carrying amount.
The Group’s maximum exposure for derivative financial instruments is noted in either note 25 on page 123 or in the liquidity table on
the previous page, respectively.
Capital risk management
The primary objective of the Group’s capital management policy is to ensure that it has the capital required to operate and grow
the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure
to ensure it meets changing business needs. The Group defines its capital as its share capital (excluding treasury shares), share premium
account, foreign currency translation reserves and retained earnings. In addition, the Directors consider the management of debt to
be an important element in controlling the capital structure of the Group. The Group may carry significant levels of long-term structural
and subordinated debt to fund investments and acquisitions and has arranged debt facilities to allow for fluctuations in working capital
requirements. There have been no changes to the capital management policy in the current period. Management manages capital on
an ongoing basis to ensure that covenant requirements on third party debt are met.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
> Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities;
> Level 2 – other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly
or indirectly; and
> Level 3 – techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
Financial instruments carried at fair value solely comprise the derivative financial instruments in note 25. For hierarchy purposes all these
instruments are deemed to be Level 2 as external valuers are involved in the valuation of these contracts. Their fair value is measured using
valuation techniques including the DCF model. Inputs to this calculation include the expected cash flows in relation to these derivative
contracts and relevant discount rates.
31. Related party transactions
Transactions between Volution Group plc and its subsidiaries, and transactions between subsidiaries, are eliminated on consolidation
and are not disclosed in this note. A breakdown of transactions between the Group and its related parties is disclosed below.
No related party loan note balances exist at 31 July 2016 or 31 July 2015.
There were no material transactions or balances between the Company and its key management personnel or members of their close family.
At the end of the period, key management personnel did not owe the Company any amounts.
Other disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for the audit by the
Directors’ Remuneration Report Regulations 2013 are included in the Directors’ Remuneration Report.
Other transactions with related parties include the following:
> The Group incurred costs of £295,000 (2015: £295,000) from Peter Hill, Tony Reading, Paul Hollingworth and Adrian Barden for their
services as Non-Executive Directors.
> Non-Executive Director Paul Hollingworth is also a non-executive director of Electrocomponents plc. During the year, the Group
sold goods to Electrocomponents plc amounting to £223,000 (2015: £253,000). At the year end, amounts owing by Electrocomponents plc
were £12,000 (2015: £44,000). During the year the Group purchased goods from Electrocomponents plc amounting to £85,000
(2015: £79,000). At the year end, amounts owed to Electrocomponents plc were £16,000 (2015: £15,000).
Compensation of key management personnel
Short-term employee benefits
2016
£000
2,292
2015
£000
2,134
Key management personnel is defined as the CEO, the CFO and the nine individuals who report directly to the CEO.
128
Volution Group plcAnnual Report 2016Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2016 32. Group structure details
At 31 July 2016, Volution Group plc held 100% of the voting shares of the following subsidiaries:
Group company
Direct
Windmill Topco Limited
Volution Holdings Limited
Energy Technique Limited
Indirect
Windmill Midco Limited
Windmill Cleanco Limited
Windmill Bidco Limited
Manrose Manufacturing Limited
Volution Ventilation Group Limited
Torin-Sifan Limited
Anda Products Limited
Axia Fans Limited
Roof Units Limited
Torin Limited
Vent-Axia Limited
Vent-Axia Clean Air Systems Limited
Vent-Axia Group Limited
ET Environmental Limited
Diffusion Environmental Systems Limited
NVA Services Limited
SW National Ventilation Limited
Airtech Humidity Controls Limited
Sens-Air Limited
Volution Holdings Sweden AB
Fresh AB
Welair AB
Volution Norge AS (formerly Fresh Norge AS)
Fresh Shanghai Limited
PAX AB
inVENTer GmbH
Principal activity
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Ventilation products
Intermediate holding company
Original equipment manufacturer
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Ventilation products
Ventilation products
Non-trading
Intermediate holding company
Ventilation products
Ventilation products
Ventilation products
Intermediate holding company
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Volution Management Holdings GmbH
Volution Deutschland Real Estate GmbH
Intermediate holding company
Property holding company
Brüggemann Energiekonzepte GmbH
Ventilation products
Ventilair Group International BVBA
Ventilair Group Belgium BVBA
Ventilair Group Netherlands B.V.
Ventilair France SARL
Intermediate holding company
Ventilation products
Ventilation products
Ventilation products
Country of
incorporation
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Sweden
Sweden
Sweden
Norway
China
Sweden
Germany
Germany
Germany
Germany
Belgium
Belgium
Netherlands
France
129
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Notes to the Consolidated Financial Statements continued
For the year ended 31 July 2016
33. Commitments and contingencies
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 15 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:
Within one year
After one year but not more than five years
More than five years
2016
£000
1,699
5,794
1,856
9,349
2015
£000
1,033
3,859
1,212
6,104
Commitments
Commitments for the acquisition of property, plant and equipment as of 31 July 2016 are £226,000 (2015: £789,000).
34. 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 2014 and November 2015; 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 50% of the awards will be determined by the Company’s relative total
shareholder return (TSR) performance and the other 50% by the Company’s absolute EPS performance. 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.
Outstanding at 1 August
Granted during the year
Outstanding at 31 July
2016
Number
563,354
459,955
2015
Number
—
563,354
1,023,309
563,354
The weighted average exercise price for all options is £nil.
Of the total number of options outstanding at 31 July 2016 none had vested or were exercisable.
The weighted average fair value of each option granted during the year was £1.90 (2015: £1.44).
The following information is relevant in the determination of the fair value of options granted during the year under the LTIP.
Option pricing model used
Weighted average share price at grant date (£)
Exercise price (£)
Expected life (years)
Expected volatility
Risk-free interest rate
Deloitte TSR pricing tool/Monte Carlo simulation
2016
1.90
nil
3
26%
0.9%
The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of share
prices since the Company listed in June 2014.
130
Volution Group plcAnnual Report 2016Financial Statements 34. Share-based payments continued
The share-based remuneration expense comprises:
Equity-settled schemes
2016
£000
431
431
2015
£000
181
181
The Group did not enter into any share-based payment transactions with parties other than employees during the current or previous periods.
35. Events after the reporting period
There have been no material events between 31 July 2016 and the date of authorisation of the consolidated financial statements that
would require adjustments of the consolidated financial statements or disclosure.
36. Glossary of terms
Adjusted basic and diluted EPS – calculated by dividing the adjusted profit/(loss) 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 adjusted net profit/(loss) 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 no dilutive potential
ordinary shares for the years ended 31 July 2016 and 2015.
Adjusted EBITDA – earnings before tax, exceptional items, other non-recurring items not meeting the definition of exceptional,
net finance costs, depreciation, amortisation and impairment.
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 (including cash held in escrow).
Adjusted operating profit – earnings before tax, exceptional items, other non-recurring items not meeting the definition of exceptional,
amortisation and impairment of intangible assets associated with the customer base, trademarks and patents and net finance costs.
Adjusted profit before tax – earnings before tax, exceptional items, amortisation of financing costs, breakage costs on interest rate
swaps, net gains or losses on financial instruments at fair value and amortisation and impairment of intangible assets associated with
the customer base, trademarks and patents.
Cash conversion – calculated by dividing adjusted operating cash flow by adjusted EBITDA less depreciation.
Change at constant currency – to calculate the change at constant currency we have converted the income statement of our
foreign operating companies for the year ended 31 July 2016 at the average exchange rate for the year ended 31 July 2015. In
addition we have converted the UK operating companies’ sales and purchase transactions in the year ended 31 July 2016, which were
denominated in foreign currencies, at the average exchange rates for the year ended 31 July 2015.
Other non-recurring items not meeting the definition of exceptional – these are items of expense incurred by the Group which
are non-recurring but do not meet the IFRS definition of exceptional items; they have been adjusted for to give a fairer representation of
the underlying performance of the business.
Net debt – interest-bearing loans and borrowings less cash and cash equivalents.
131
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Parent Company Statement of Financial Position
At 31 July 2016
Non-current assets
Property, plant and equipment
Investments
Deferred tax assets
Current assets
Other receivables and prepayments
Other current financial assets
Income tax
Cash and short-term deposits
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
Treasury shares
Share-based payment reserve
Capital reserve
Retained earnings
Total equity
Notes
8
9
7
10
11
12
13
7
14
2016
£000
17
2015
£000
1
199,429
189,941
—
48
199,446
189,990
40,407
23,435
914
—
82
—
591
581
41,403
24,607
240,849
214,597
(19,964)
(19,158)
(51,235)
(31,867)
(20)
—
(51,255)
(31,867)
(71,219)
(51,025)
169,630
163,572
2,000
11,527
(1,533)
649
(273)
2,000
11,527
—
181
(273)
157,260
150,137
169,630
163,572
The financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors and authorised
for issue on 11 October 2016.
On behalf of the Board
Ronnie George
Chief Executive Officer Chief Financial Officer
Ian Dew
132
Volution Group plcAnnual Report 2016Financial Statements Parent Company Statement of Changes in Equity
For the year ended 31 July 2016
Share
capital
£000
Share
premium
£000
Treasury
shares
£000
Share-based
payment
reserve
£000
2,000
11,527
—
—
—
—
—
—
—
—
—
—
2,000
11,527
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,533)
—
2,000
11,527
(1,533)
—
—
—
—
181
—
181
—
—
468
—
—
649
Capital
reserve
£000
Retained
earnings
£000
Total
£000
(273)
52,113
65,367
—
—
—
—
—
7,233
92,891
7,233
92,891
100,124
100,124
—
181
(2,100)
(2,100)
(273)
150,137
163,572
—
—
—
—
—
14,017
14,017
14,017
14,017
—
—
(6,894)
468
(1,533)
(6,894)
(273)
157,260
169,630
At 1 August 2014
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payment
Dividends paid
At 1 August 2015
Profit for the year
Total comprehensive income
Share-based payment
Purchase of own shares
Dividends paid
At 31 July 2016
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 34 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.
Foreign currency translation reserve
Exchange differences arising on translation of the company’s foreign subsidiaries into GBP are included in the foreign currency translation
reserve. The Company hedges some of its exposure to its net investment in foreign operations; foreign exchange gains and losses
relating to the effective portion of the net investment hedge are accounted for by entries made directly to the foreign currency translation
reserve. No ineffectiveness has been recognised in the statement of comprehensive income for any of the periods presented.
Retained earnings
£64,368,000 of the retained earnings balance at 31 July 2016 is available for distribution.
133
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Parent Company Statement of Cash Flows
For the year ended 31 July 2016
Operating activities
Profit for the year after tax
Adjustments to reconcile profit for the year to net cash flow
from operating activities:
Income tax for the year
Exceptional costs
Cash flows relating to exceptional costs
Finance revenue
Finance costs
Share-based payment expense
Non-cash dividends received
Depreciation of property, plant and equipment
Working capital adjustments:
(Increase)/decrease in other receivables, prepayments and other current financial assets
Increase in trade and other payables
Net cash flow generated from operating activities
Investing activities
Purchase of property, plant and equipment
Interest received
Investment in subsidiary undertaking
Net cash flow (used in)/generated from investing activities
Financing activities
Interest paid
Repayment of interest-bearing loans and borrowings
Proceeds from new borrowings
Issue costs of new borrowings
Dividend paid to equity holders
Purchase of own shares
Net cash flow (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
Notes
2016
£000
2015
£000
14,017
100,124
8
(468)
428
(428)
(1,018)
1,250
339
—
1
(10,925)
692
3,888
(17)
1
(9,396)
(9,412)
(915)
(13,855)
28,222
—
(6,894)
(1,533)
5,025
(499)
581
82
(639)
34
(34)
(17)
530
181
(97,743)
—
717
5,199
8,352
(1)
17
—
16
(428)
(45,260)
40,435
(967)
(2,100)
—
(8,320)
48
533
581
134
Volution Group plcAnnual Report 2016Financial Statements Notes to the Parent Company Financial Statements
For the year ended 31 July 2016
1. General information
These financial statements were approved and authorised for issue by the Board of Directors of Volution Group plc (the Company)
on 11 October 2016.
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. Accounting policies
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 note 3 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.
3. 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.
Carrying value of investments
The key source of estimation uncertainty at the reporting date that has a significant risk of causing a material adjustment to the parent
company financial statements is the recoverability of the investments set out in note 9.
The recoverability is estimated based on the expected performance and value of the investments factoring in potential expected future
net cash flow to be generated from the investment. The Company based its estimation on information available when these financial
statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes
or circumstances arising beyond the control of the Company. Such changes are reflected when they occur.
135
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Notes to the Parent Company Financial Statements continued
For the year ended 31 July 2016
4. Standards issued but not yet effective
No new accounting standards or amendments have been adopted during the period.
The following standards and interpretations have an effective date after the date of these financial statements. The Company plans to
adopt them from the effective dates adopted by the EU and is currently completing an impact assessment to be able to quantify the
effect the new standards will have on the Company financial statements.
Standard
or interpretation
Title
IAS 1
Disclosure initiative – Amendments to IAS 1
IAS 16 and IAS 38
Clarification of acceptable methods of depreciation and amortisation
IFRS 14
IAS 7
IAS 12
IFRS 15
IFRS 9
IFRS 16
Regulatory Deferral Accruals
Disclosure initiative – Amendments to IAS 7
Recognition of Deferred Tax Assets for Unrealised Losses
Revenue from Contracts with Customers
Financial Instruments: Classification and Measurement
Leases
Effective for accounting
periods beginning
on or after
1 January 2016
1 January 2016
1 January 2016
1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2019
5. Auditor’s remuneration
The Company 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:
Audit services
Fees for the audit of the parent and Group financial statements
Fees for local statutory audits of subsidiaries
Non-audit services
Fees payable for interim review
6. Staff costs
Wages and salaries
Social security costs
Share-based payment charge
Other pension costs
2016
£000
2015
£000
127
98
25
250
2016
£000
1,897
173
431
48
2,549
120
76
25
221
2015
£000
1,746
155
181
111
2,193
Other pension costs relate to the Group’s contribution to defined contribution pension plans. Total contributions payable in the next
financial year are expected to be at rates broadly similar to those in 2015/16 but based on actual salary levels in 2016/17.
Average monthly number of employees in the year
2016
Number
8
2015
Number
7
Administration
136
Volution Group plcAnnual Report 2016Financial Statements 6. Staff costs continued
Directors’ remuneration
Amounts paid in respect of qualifying services
Aggregate Directors’ emoluments
Aggregate Directors’ pension scheme contributions
In respect of the highest paid Director
Aggregate Directors’ emoluments
Aggregate Directors’ pension scheme contributions
2016
£000
1,018
81
591
47
2015
£000
1,011
91
588
53
The number of Directors accruing benefits under Company money purchase pension arrangements was two (2015: two).
The Company also incurred costs of £295,000 (2015: £295,000) from Peter Hill, Tony Reading, Paul Hollingworth and Adrian Barden
for their services as Non-Executive Directors.
7. Deferred tax balances
Deferred tax assets and liabilities arise from the following:
Deferred tax asset/liabilities
Temporary differences
8. Property, plant and equipment
1 August
2015
£000
Charged
to income
£000
Charged
to equity
£000
31 July
2016
£000
48
(105)
37
(20)
Cost
At 1 August 2015
Additions
At 31 July 2016
Depreciation
At 1 August 2015
Charge for the year
At 31 July 2016
Net book value
At 31 July 2016
At 31 July 2015
Fixtures,
fittings, tools,
equipment
and vehicles
£000
1
17
18
—
1
1
17
1
Total
£000
1
17
18
—
1
1
17
1
137
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Notes to the Parent Company Financial Statements continued
For the year ended 31 July 2016
9. Investments
Cost
At 1 August 2015
Acquired in the period
At 31 July 2016
£000
189,941
9,488
199,429
For a list of the subsidiaries in which Volution Group plc held 100% of the voting shares as at 31 July 2016, see note 32 of the Group
financial statements.
Energy Technique Limited and its subsidiaries were purchased during the year; for full details see note 20 of the Group financial statements.
2016
£000
40,046
361
40,407
2015
£000
23,085
350
23,435
2016
Current
£000
2015
Current
£000
914
914
—
—
2016
£000
213
861
18,890
19,964
2015
£000
152
1,046
17,960
19,158
10. Other receivables and prepayments
Amounts owed by Group undertaking
Prepayments
11. Other financial assets and liabilities
Financial assets
FX forward contracts
12. Trade and other payables
Trade payables
Accruals
Amounts owed to Group undertaking
138
Volution Group plcAnnual Report 2016Financial Statements 13. Interest-bearing loans and borrowings
Unsecured – at amortised cost
Revolving credit facility
Cost of arranging bank loan
2016
2015
Current
£000
Non-current
£000
Current
£000
Non-current
£000
—
—
—
51,869
(634)
51,235
—
—
—
32,733
(866)
31,867
Interest-bearing borrowings at 31 July 2015 and 2016 comprise a revolving credit facility from Danske Bank A/S, HSBC and The Royal
Bank of Scotland with HSBC acting as agent and are governed by a facilities agreement. The outstanding loans are set out in the table
below. No security is provided under the facility.
Revolving credit facility – for the year ended 31 July 2016
Currency
GBP
Euro
Swedish Krona
Total
Revolving credit facility – for the year ended 31 July 2015
Currency
GBP
Euro
Swedish Krona
Total
Amount
outstanding
£000
Termination
date
Repayment
frequency
Rate %
14,000 30 April 2019 One payment
Libor + 1.25%
21,973 30 April 2019 One payment Euribor + 1.25%
15,896 30 April 2019 One payment Stibor + 1.25%
51,869
Amount
outstanding
£000
Termination
date
Repayment
frequency
Rate %
11,000 30 April 2019 One payment
Libor + 1.25%
8,283 30 April 2019 One payment Euribor + 1.25%
13,450 30 April 2019 One payment Stibor + 1.25%
32,733
The interest rate on borrowings includes a margin that is dependent on the consolidated leverage level of the Group in respect of the
most recently completed reporting period. For the year ended 31 July 2015, Group leverage was between 1.0:1 and 1.5:1 and therefore
the margin was 1.25%. The consolidated leverage level fell below 1.0:1 for the year ended 31 July 2015 and therefore the margin for
the first period of the year ended 31 July 2016 was 1.00%. At the half year the consolidated leverage level increased to between 1.0:1
and 1.5:1 and therefore the margin for the second period of the year ended 31 July 2016 was 1.25%; this rate will continue into the
first period of the year ended 31 July 2017.
At 31 July 2016 the Group had £38,131,000 (2015: £57,267,000) of its multi-currency revolving credit facility unutilised.
139
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016
Notes to the Parent Company Financial Statements continued
For the year ended 31 July 2016
14. Share capital and share premium
The movement in called-up share capital and share premium accounts is set out below:
At 31 July 2015 and 31 July 2016
15. Dividends paid and proposed
Number of
ordinary shares
Share capital
£000
Share premium
£000
200,000,000
2,000
11,527
2016
£000
2015
£000
Cash dividends on ordinary shares declared and paid
Interim dividend for 2016: 1.20 pence per share (2015: 1.05 pence)
2,394
2,100
Proposed dividends on ordinary shares
Final dividend for 2016: 2.60 pence per share (2015: 2.25 pence)
5,176
4,500
The interim dividend payment of £2,394,000 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 2016.
16. Financial instruments
The Company’s principal financial liabilities are trade payables, Group debt and the revolving credit facility. The Company’s principal
financial assets include investments, Group receivables and cash and cash equivalents. The Company also enters into forward foreign
currency contracts. The Company is exposed to a variety of risks, including credit risk and liquidity risk. The Company’s senior
management oversees the management of these risks and agrees the policies for managing each of these risks. The risks are
summarised as follows:
Forward foreign currency contracts
The Group’s purchases in foreign currencies, net of Group sales in those currencies, represent approximately 3% (2015: 4%) of total
material and component purchases. 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 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.
At 31 July 2016, the Company had commitments under forward foreign exchange contracts with varying settlement dates to 24 July 2017
(2015: 6 May 2016). See note 25 to the Group financial statements for fair values.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument, leading to a financial loss. The Company
is exposed to credit risk from its financing activity, including cash and cash equivalents and deposits with banks and financial institutions.
Amounts owed to/from Group undertakings are repayable on demand with no interest currently charged on the balances.
140
Volution Group plcAnnual Report 2016Financial Statements 16. Financial instruments continued
Interest rate risk
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the Company’s floating rate loans
and borrowings which at the relevant reporting dates are not fully hedged. With all other variables being constant the Company’s profit
before tax is affected through the impact on floating rate borrowings as follows. There is only an immaterial impact on the Company’s equity.
31 July 2016
Sterling
Swedish Krona
Euro
Increase in
basis points
Effect on loss
before tax
£000
+25
+25
+25
(35)
(40)
(55)
The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable market environment.
The Company cash balances are held in bank current accounts and earn immaterial levels of interest. Management has concluded that
any changes in the Libor and Euribor rates will have an immaterial impact on interest income earned on the Company cash balances.
No interest rate sensitivity has been included in relation to the Company’s cash balances.
Fair values of financial assets and financial liabilities
There are no material differences between the book values and fair values for any of the Company’s financial instruments carried
at amortised cost.
Liquidity risk
Liquidity risk for the Company arises from the management of working capital commitments and meeting its financial obligations as
they fall due. The Company’s policy is to review cash flow forecasts/projections regularly as well as information regarding cash balances
to ensure that it has significant cash to allow it to meet its liabilities when they become due. The Company reviews its long-term funding
requirements in parallel with its long-term strategy, with an objective of aligning both in a timely manner. At the reporting date, forecasts
indicate that the Company is expected to have sufficient liquidity to meet its financial obligations for the foreseeable future.
The tables below summarise the maturity profile of the Company’s significant undiscounted financial liabilities at 31 July 2016 and
31 July 2015.
At 31 July 2016
Financial liabilities
Less than
one year
£000
Between one
and five years
£000
More than
five years
£000
Interest-bearing loans and borrowings (excluding interest)
—
51,869
Forward foreign currency exchange outflow
Forward foreign currency exchange inflow
Trade and other payables
12,944
(13,858)
19,964
—
—
—
19,050
51,869
—
—
—
—
—
At 31 July 2015
Financial liabilities
Interest-bearing loans and borrowings (excluding interest)
Trade and other payables
Less than
one year
£000
Between one
and five years
£000
More than
five years
£000
—
1,198
1,198
32,733
17,960
50,693
—
—
—
Total
£000
51,869
12,944
(13,858)
19,964
70,919
Total
£000
32,733
19,158
51,891
Capital risk management
The Board’s objectives and policies for the Company are consistent with those of the Group. Full details are provided in note 30 of the
consolidated financial statements.
141
Strategic ReportGovernance ReportFinancial StatementsAdditional InformationVolution Group plcAnnual Report 2016 Notes to the Parent Company Financial Statements continued
For the year ended 31 July 2016
17. Related party transactions
The following table provides the total amount of transactions that have been entered into with subsidiary undertakings for the relevant
financial period.
Related parties
Volution Ventilation Group Limited
Energy Technique Limited
ET Environmental Limited
2016
2015
Amounts
owed by
related parties
£000
Amounts
owed to
related parties
£000
Amounts
owed by
related parties
£000
Amounts
owed to
related parties
£000
39,474
18,045
23,085
17,960
—
—
145
700
—
—
—
—
39,474
18,890
23,085
17,960
In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Compensation of key management personnel
The Executive and Non-Executive Directors are deemed to be key management personnel of Volution Group plc. It is the Board that
has responsibility for planning, directing and controlling the activities of the Group. Please refer to note 6 for details of the Executive
and Non-Executive Directors’ remuneration.
There were no material transactions or balances between the Company and its key management personnel or members of their close
family. At the end of the year, key management personnel did not owe the Company any amounts.
18. Share-based payments
For detailed disclosures of share-based payments granted to employees refer to note 34 of the Group financial statements.
142
Volution Group plcAnnual Report 2016Financial Statements Glossary of Technical Terms
Alternating current or AC
AC blowers
AC motor
Decentralised heat recovery
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
a low-pressure fan with an AC motor
an alternating current motor
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
Fan Coil
HVAC
IAQ
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
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
heating, ventilation and air conditioning
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
OEM
RMI
Specifiers
Mechanical Ventilation with Heat Recovery: a centralised system of ventilation that collects
heat from exhaust air that would otherwise be lost and re-uses such heat by transferring
it to the incoming fresh air
original equipment manufacturer
repair, maintenance and improvement
persons who may specify certain characteristics of products
143
Strategic ReportVolution Group plcAnnual Report 2016Governance ReportFinancial StatementsAdditional Information Shareholder Information
Shareholder services
For any enquiries concerning your shareholding please contact
our registrar:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Equiniti has a shareholder portal offering access to services and
information to help manage your shareholdings and inform your
important investment decisions. Please visit www.shareview.co.uk.
Shareholder helpline: 0371 384 2030* from the UK or
+44 (0) 121 415 7047 from overseas.
*
Lines are open 8.30 am to 5.30 pm, Monday to Friday
(excluding UK public holidays).
You can access our Annual Report and Accounts and other
shareholder communications through our website,
www.volutiongroupplc.com.
Company advisers
External independent auditor
Ernst & Young LLP
Joint corporate brokers
Liberum Capital Limited
Canaccord Genuity Limited
Legal adviser
Norton Rose Fulbright LLP
Financial PR adviser
Tulchan Communications LLP
Company Secretary and registered office
Michael Anscombe FCIS
Volution Group plc
Fleming Way
Crawley
West Sussex RH10 9YX
United Kingdom
Registered in England and Wales
Company number: 09041571
LSE ticker code: FAN
Tel: +44 (0) 1293 441 662
Shareholder enquiries: investors@volutiongroupplc.com
General enquiries: info@volutiongroupplc.com
Website: www.volutiongroupplc.com
Forward-looking statements
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 regarding the future financial position, strategy, projected
costs, plans and objectives for the management of future operations of
Volution Group plc and its subsidiaries is not warranted or guaranteed.
These statements typically contain words such as “intends”, “expects”,
“anticipates” and “estimates” and words of similar import. By their nature,
forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future.
Although Volution Group plc believes that the expectations reflected in
such statements are reasonable, no assurance can 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 cause
actual results and developments to differ materially from those expressed
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 may be listed, Volution Group plc has no intention or obligation
to update forward-looking statements contained herein.
144
Volution Group plcAnnual Report 2016Additional Information 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.
Design Portfolio is committed to planting
trees for every corporate communications
project, in association with Trees for Cities.
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Volution Group plc
Fleming Way
Crawley
West Sussex RH10 9YX
United Kingdom
www.volutiongroupplc.com