Volution Group plc Annual Report 2017
Excellence in ventilation
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Excellence in ventilation
Volution Group plc is a
leading supplier of ventilation
products to the residential
and commercial construction
markets in the UK, the
Nordics and Central Europe.
Front cover:
The Pulsar fan launched in Germany
under the inVENTer brand based
on a Group fan platform developed
jointly by Sweden and the UK.
Strategic Report
Innovation in Action
02 Highlights
04 At a Glance
06 Chairman’s Statement
09 Chief Executive Officer’s Review
12 Excellence in Ventilation
16 Our Business Model
18 Our Strategy
20
22 Scale in Action
24 People in Action
26 Brands in Action
28 Key Performance Indicators
32 Risk Management and Principal Risks
38 Corporate Social Responsibility
40 Operational Review
42 Financial Review
Governance Report
Introduction to Governance
46 Board of Directors
48
50 Corporate Governance
58 Nomination Committee Report
60 Audit Committee Report
67 Directors’ Remuneration Report
85 Directors’ Report
88 Directors’ Responsibility Statement
Financial Statements
Independent Auditor’s Report
89
98 Consolidated Statement of Comprehensive Income
99 Consolidated Statement of Financial Position
100 Consolidated Statement of Changes in Equity
101 Consolidated Statement of Cash Flows
102 Notes to the Consolidated Financial Statements
142 Parent Company Statement of Financial Position
143 Parent Company Statement of Changes in Equity
144 Parent Company Statement of Cash Flows
145 Notes to the Parent Company Financial Statements
Additional Information
151 Glossary of Technical Terms
152 Shareholder Information
Find out more online
www.volutiongroupplc.com
We aim for our products to enhance our customers’ experience
of ventilation by reducing energy consumption, improving air
quality and design and making them easier to use.
Our acquisition strategy over the last year has increased
the number of our key brands from twelve to fourteen.
Total locations
21
UK & Ireland
Ten locations
Seven brands
Nordics
Seven locations
Four brands
Locations
Acquisitions
in FY2017
Central Europe
Four locations
Four brands
01
Strategic ReportVolution Group plcAnnual Report 2017 Highlights
Strong revenue growth of 20%
and adjusted EPS up 8%.
Recent acquisitions integrating well,
supplementing continued organic growth.
Financial
> Strong revenue growth of 19.8%
(14.5% at constant currency):
> organic revenue growth of 7.3%
(2.1% at constant currency); and
> inorganic revenue growth of 12.5%
(12.4% at constant currency).
> Adjusted operating profit increased by 9.6% to
£35.6 million (4.2% at constant currency).
> As anticipated, adjusted operating profit margin
declined by 1.7 percentage points, partly as a
consequence of new acquisitions.
> Reported profit before tax declined by 2.5%
to £17.9 million (2016: £18.4 million), resulting
predominantly from the increased amortisation
of acquired intangible assets and a movement
in the fair value of derivative financial instruments.
> Adjusted operating cash flow was very strong
at £35.9 million (2016: £31.1 million).
> Net debt to adjusted EBITDA ratio of 0.9x after
two acquisitions completed in the year.
> Adjusted basic and diluted EPS growth of 7.9%
to 13.6 pence (2016: 12.6 pence).
> Reported basic and diluted EPS declined by 10.3%
to 7.0 pence (2016: 7.8 pence).
> Full year dividend of 4.15 pence per share, up 9.2%.
Strategic
> Two acquisitions completed during the year,
> Acquisition of VoltAir System AB completed in
strengthening our position in existing geographies,
with all integration activity for recent acquisitions
progressing well.
> Acquisition of Breathing Buildings Limited
completed in December 2016. Breathing Buildings
has been pioneering natural and hybrid ventilation
systems since 2006, with which it has become
very successful within the new build education
sector. The acquisition has widened our capability
with a leader in natural and hybrid ventilation for
commercial buildings, strengthened our product
range and broadened our channel to market.
May 2017. VoltAir System has a strong presence in
the residential and commercial new build ventilation
markets in Sweden in the growing market for
energy‑efficient air handling units. The business
is highly complementary to our strong position
in the Nordic residential refurbishment ventilation
products market.
> OEM (Torin‑Sifan) launched its new high‑efficiency
Revolution 360 range of EC fans into volume
production during the year, which offers benefits in
both high efficiency and low noise to the European
heating, ventilation and air conditioning industry.
02
Volution Group plcAnnual Report 2017Strategic Report Revenue £m
£185.1m
185.1
154.5
120.7
130.2
102.3
Adjusted operating profit and
adjusted operating profit margin
£m (% of revenue)
£35.6m (19.3%)
35.6
(19.3%)
32.5
(21.0%)
29.4
(22.6%)
26.5
22.2
(22.0%)
(21.7%)
Reported profit before tax £m
£17.9m
18.4
17.9
15.5
(15.5)
(4.2)
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Adjusted operating cash flow £m
Net debt £m
Adjusted EPS (basic and diluted) p
£35.9m
£37.0m
13.6p
35.9
172.7
13.6
31.1
27.6
20.9
22.8
12.6
11.0
8.8
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2014
2015
2016
2017
42.9
21.2
36.1
37.0
Reported EPS (basic and diluted) p
Dividend per share p
7.0p
4.15p
7.8
7.0
5.9
(14.0)
4.15
3.80
3.30
The Group uses some alternative performance
measures to track and assess the underlying
performance of the business. These measures
include adjusted operating profit, adjusted profit
before tax, adjusted basic and diluted EPS and
adjusted operating cash flow. For a definition of
all the adjusted and non‑GAAP measures, please
see the glossary of terms in note 34. A reconciliation
to reported measures is set out in note 2.
2014
2015
2016
2017
2013
2014
2015
2016
2017
Nil
Nil
03
Strategic ReportVolution Group plcAnnual Report 2017 At a Glance
Excelling in residential
and commercial
markets across two
business segments.
Ventilation Group, which primarily
supplies ventilation products for
residential and commercial construction
applications in the UK, the Nordics and
Central Europe.
OEM (Torin-Sifan), which manufactures
and supplies motors, motorised impellers,
fans and blowers to OEMs of heating,
ventilation and air conditioning products
for both residential and commercial
construction markets worldwide.
04
Ventilation Group
The Ventilation Group consists of 13 key brands, focused
primarily on the UK, Swedish, Norwegian, German, Belgian and
Dutch ventilation markets:
In the UK:
Vent‑Axia, Manrose, Breathing Buildings,
Diffusion, National Ventilation and Airtech
In the Nordics:
Fresh, PAX, VoltAir System and Welair
In Central Europe: Ventilair, inVENTer, Brüggemann and Vent‑Axia
The Ventilation Group has sector‑leading positions in the UK,
Sweden, Germany and Belgium.
During the year, we completed the following acquisitions,
enhancing and widening the Group’s capability:
> Breathing Buildings: a leader in natural and hybrid ventilation
for commercial buildings.
> VoltAir System: a strong player in the residential and
commercial new build ventilation markets in Sweden in the
growing market for energy‑efficient air handling units.
OEM (Torin-Sifan)
Torin‑Sifan is a leading supplier of motors, motorised impellers,
fans and blowers for the heating, ventilation and air conditioning
industry worldwide. The majority of Torin‑Sifan’s products are
sold into the residential and commercial heating and ventilation
products markets.
88.1%
86.8%
37.9%
41.2%
% of Volution Group revenue (by segment)
Ventilation Group
2017
2016
OEM (Torin-Sifan)
2017
11.9%
2016
13.2%
% of Ventilation Group revenue (by sector)
UK Residential
UK Commercial
UK Export
Nordics
Central Europe
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
6.3%
5.8%
20.1%
16.2%
18.9%
19.0%
16.8%
17.8%
Find out more online
> www.volutiongroupplc.com
Volution Group plcAnnual Report 2017Strategic Report
Our business model
Our recent history
We have four key differentiators that are our pivotal
focus: Innovation, Scale, People and Brands.
Volution was formed in December 2002 through
the buy‑out from Smiths Group plc of its air
movement and cable management divisions.
Innovation
Brands
Scale
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
People
2013
> PAX AB acquired
Our Business Model
> page 16
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
> 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, UK
2015
> 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
FY2017
2017
> Breathing Buildings Limited acquired
> VoltAir System AB acquired
Our Strategy
> page 18
Find out more online
> www.volutiongroupplc.com
05
Strategic ReportVolution Group plcAnnual Report 2017 Chairman’s Statement
Peter Hill, CBE
Strong results created through
excellence in ventilation.
Summary
> A further set of strong results in line with
our expectations
> Completed two value‑adding acquisitions,
enhancing our strategic positioning
> Strong cash generation which supports our
continuing strategy to grow through acquisition
> Full year dividend increased by 9.2%
> Product innovation receiving industry accolades
and underpinning our growth
It was a historic year in which Vent‑Axia,
the UK’s leading ventilation company,
celebrated 80 years of innovation since
the brand was founded by Joe Akester in
1936. Since then Volution has gone from
strength to strength, by building on the
heritage of our brands.
Peter Hill, CBE
Chairman
Dear shareholder,
I am pleased to present our Annual Report and Accounts for the
year ended 31 July 2017, a year in which we have continued to
make strong progress in building a more valuable Volution Group.
This was despite the vote for the UK to leave the European Union
and the resulting devaluation of Sterling against both the US Dollar
and the Euro. While we expect some uncertainty ahead as the
UK negotiates the terms of Brexit, we remain confident in the
long‑term prospects for the Group based on our clear strategy
of building our brand portfolio while diversifying in markets and
geographies. Our businesses performed well with excellent trading
performance during the year with 19.8% growth in revenue, an
increase in adjusted operating profit of 9.6% to £35.6 million and
strong cash generation, making this the sixth consecutive year
the business has recorded revenue and underlying operating
profit growth.
During the year the Group made further progress with its strategy
of making selective value‑adding and strategically important
acquisitions in our ventilation segment, acquiring Breathing
Buildings in the UK and VoltAir System in Sweden. This strategic
pillar, acquiring selective value‑adding acquisitions, together with
organic growth, has supported the achievement of another year
of strong performance and growth. You can find further details
on the Group’s three strategic pillars on pages 18 to 19.
06
Volution Group plcAnnual Report 2017Strategic Report Performance and results
Another strong set of results reflects the growth achieved, both
organically and through acquisitions, with the Group’s revenue
increasing by 19.8% to £185.1 million. Adjusted operating profit
was £35.6 million, representing 19.3% of revenue and a £3.1 million
improvement compared to the prior year. Reported profit before
tax declined by 2.5% to £17.9 million (2016: £18.4 million), driven
by the increased amortisation of acquired intangible assets and
the movement in the fair value of financial instruments.
The basic and diluted earnings per share for the year was
7.0 pence (2016: 7.8 pence). Our adjusted earnings per share
was 13.6 pence, representing a 7.9% increase over the adjusted
earnings per share for the prior year (2016: 12.6 pence).
Revenue from the ventilation segment grew by 21.6% (16.3%
at constant currency) to £163.1 million. Strong organic growth
in the Nordics and the UK Residential New Build sector was
partly offset by the continued challenging performance in the
UK Residential Repair, Maintenance and Improvement (RMI)
sector. Revenue from the OEM (Torin‑Sifan) segment grew by
7.7% (2.8% at constant currency) to £22.0 million. The Group’s
inorganic revenue growth of 12.5% benefited from the full year
effect of the prior year acquisitions and the acquisitions of
Breathing Buildings in the UK and VoltAir System in Sweden
during the year.
Cash generation was strong with adjusted operating cash flow
of £35.9 million (2016: £31.1 million). Net debt at the year end
of £37.0 million (2016: £36.1 million) was only £0.9 million higher
than last year, despite having completed two acquisitions
incurring a net cash outflow of £18.1 million.
Acquisitions
The acquisition of Breathing Buildings widens Volution’s capability
with a market leader in natural and hybrid ventilation for commercial
buildings, in particular focusing on new construction in the UK
education sector. VoltAir System is a strong player in the residential
and commercial new build ventilation markets in Sweden in the
growing market for energy‑efficient air handling units.
Both 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. We very much welcome the employees
of all these companies to 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 1.35 pence per share in May 2017. On the basis of
our strong results, the Board has recommended a final dividend
of 2.80 pence per share, giving a total dividend for the financial
year of 4.15 pence per share (2016: 3.80 pence per share), an
increase of 9.2% on the previous year. As a consequence of this
recommendation, the resulting adjusted earnings dividend cover
for the year is 3.3x (2016: 3.3x). Subject to approval by shareholders
at the Annual General Meeting on 13 December 2017, the final
dividend will be paid on 18 December 2017 to shareholders on
the register at 24 November 2017.
Innovation
It was a historic year in which our subsidiary Vent‑Axia, the UK’s
leading ventilation company, celebrated 80 years of innovation
since the brand was founded by Joe Akester in 1936 when he
invented the world’s first electrically operated window fan. Vent‑Axia
has been a leading British manufacturer ever since and the brand
has become a household name featuring annually in the UK
Superbrands league table and holding the prestigious Royal Warrant.
This ethos of innovation has continued and we were delighted
when Vent‑Axia celebrated winning three separate awards during
the year, two for the Kinetic Advance mechanical ventilation with
heat recovery unit and one for the Revive fan. More information
on these awards can be found in the Chief Executive Officer’s Review
on pages 9 to 11. This spirit of innovation and continuous
improvement is applied across our brand portfolio.
During the year we commenced a project to rationalise part of
our UK manufacturing footprint into one location. The facilities in
Reading and Slough are being relocated to a newly built facility at
Suttons Business Park in Reading, with the move to be complete
by the middle of 2018. This new facility is state of the art and is
aligned with our ethos of innovation and “Excellence in Ventilation”.
UK leaving the European Union
Since the UK’s vote to leave the European Union, the Group
has continued to monitor business performance closely. Although
it is still too early to assess the implications for our business and
operations over the longer term, we do not believe that there will be
any material near‑term impact on demand for our products. However,
the weakness of Sterling against foreign currencies has persisted
and has led to increasing cost pressures in the UK, primarily from the
direct import of components whose costs are tied to the US Dollar.
Our exposure to US Dollar‑denominated purchases from Asia is
substantially hedged for the balance of the 2018 financial year
and we continue to mitigate the effect on costs by implementing
price increases and product cost reductions.
Following the completion of ten acquisitions since September 2012,
Volution is now a more diversified and flexible business. 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.
07
Strategic ReportVolution Group plcAnnual Report 2017 Chairman’s Statement continued
Peter Hill, CBE
Governance
People
It has been another year of growth for the Group with the addition
and integration of two new businesses and the Volution team has
performed well against this continued backdrop of change. Our
strategy would not succeed were it not for the positive attitude
and sheer hard work of our people in adapting to the constant
change across the Group. Volution has a clear idea of where it is
going and how to get there and we also have excellent leadership
in our management teams.
Our second internal Management Development Programme
concluded during the year. We place considerable value on this
programme which, as well as helping to develop the effectiveness
and scope of our people, has significantly assisted in the integration
of new acquisitions as our high potential managers are made to
feel part of a wider group network and assist in the formation of
the overall Group culture. Given its success, a third programme is
due to commence later in 2017.
In accordance with the relevant regulations, the Directors’
Remuneration Policy will be put to a shareholder vote at the
forthcoming Annual General Meeting and a number of changes
have been proposed to reflect current best practice. The
proposed changes are set out in the Directors’ Remuneration
Report on pages 67 to 84.
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
10 October 2017
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 Governance
Report on pages 50 to 57.
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, the Board
visited the Hälleforsnäs facility in Sweden, following its visit to our
German operations in 2016. It is the Board’s intention to continue
to visit other facilities across the Group to build its understanding
of each business unit.
As previously reported in August 2016, we welcomed Claire Tiney
to the Board as an independent Non‑Executive Director. Claire
has 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.
The Board has welcomed Claire’s contribution since her
appointment reflecting her board experience.
In June 2017 we celebrated three years as a listed company. At
that time the four Non‑Executive Directors who were appointed
at listing (Tony Reading, Paul Hollingworth, Adrian Barden and
me) were re‑appointed as Non‑Executive Directors following the
end of the three‑year term of office. Adrian Barden was initially
appointed to the former holding company of the Group, Windmill
Topco Limited, on 3 February 2012 and provided important continuity
on the Board whilst the business moved from private‑equity
ownership to a listed company. With the need to progressively
refresh the Board and given that Adrian will have served just under
six years on the current and pre‑IPO Board at the time of the
2017 Annual General Meeting, he will be retiring at the AGM and
will not be seeking re‑election from shareholders. I would like to
extend my thanks to Adrian for his contributions during his tenure.
To ensure an orderly succession plan, the Nomination Committee
has recently initiated a search for a new Non‑Executive Director
and an announcement will be made in due course. Further information
can be found in the Nomination Committee Report on pages 58
to 59.
08
Volution Group plcAnnual Report 2017Strategic Report Chief Executive Officer’s Review
Ronnie George
Using our knowledge to create
excellence in ventilation.
Summary
Overview
> Revenue of £185.1 million achieved by both
organic and inorganic growth totalling 19.8%
> Another year of strong financial results with
adjusted operating profit of £35.6 million, an
increase of 9.6% over the prior year
> Two acquisitions completed in the year have
further diversified the Group’s market exposure,
which now extends to new construction in the
Nordics and a greater exposure to commercial
projects in the UK
> Continuing investment in new product development
including the upgraded offer to public housing
refurbishment in the UK and a further extension
of our market‑leading residential heat recovery
systems range
> The completion of our second Management
Development Programme, developing our
managers and leaders of tomorrow
I am pleased to report another year of strong results as we
continue to build on the success of the past. We completed
two acquisitions in the year, in line with our strategy of making
selective value‑adding acquisitions, and also successfully
integrated the acquisitions made in the prior year. The acquisition
of Breathing Buildings, a natural and hybrid ventilation system
provider to the education sector in the UK was completed in
December 2016 and more recently VoltAir System, a Swedish
producer of heat recovery ventilation solutions for primarily the
commercial new build market was completed in May 2017.
The integration of the National Ventilation and Airtech brands was
completed in the year with a significant increase in their operating
margins through the pre‑planned product “swap‑out” initiatives,
product upgrades and the closure of the small manufacturing
assembly operation in Lasham, Hampshire. The closure of the
Lasham facility (part of our factory relocation project) was made
possible through a product range development initiative, which
resulted in the integration of the product supply inside the existing
UK manufacturing footprint. I am also pleased to advise that all ten
factory operatives at the facility were able to find alternative, local
employment post closure.
The Group delivered organic revenue growth of 2.1% on a constant
currency basis, in spite of the weakness in the Residential Public
Repair, Maintenance and Improvement (RMI) market and the
small decline in the UK commercial sector; all of our other market
sectors across the Group delivered organic growth in the financial
year. Input cost inflation has been rising, largely as a result of the
weakness of Sterling versus the US Dollar; in mitigation we achieved
more traction on our selling price initiatives towards the end of
the financial year.
Torin‑Sifan, after a decline in revenue in the first half of our
financial year, delivered a full year organic revenue growth of
2.8% on a constant currency basis, assisted by the sales of the
new, more energy‑efficient and quieter electronically commutated
(EC) 3 phase motorised impeller range.
09
Strategic ReportVolution Group plcAnnual Report 2017 Chief Executive Officer’s Review continued
Ronnie George
Ventilation Group segment
The Ventilation Group’s performance resulted in a 21.6% increase
in revenue on prior year (16.3% at constant currency). Organic
growth was 7.3% (2.0% at constant currency) including the
organic decline in revenue from the UK Residential Public RMI
market, offset by the continuing strong organic growth in the UK
Residential New Build market and in the Nordics.
United Kingdom
Sales in our UK Residential New Build sector were £23.4 million
(2016: £19.8 million), growth of 18.2%, assisted in the year by the
additional revenues from National Ventilation, acquired in May 2016.
Organic growth achieved was 8.3% with continuing growth in
the order book. The Kinetic Advance, initially launched in 2016,
is now gaining good revenue traction and is now being widely
specified in a number of residential new projects for our financial
year 2018. This product won “Energy Efficient Product of the Year”
at the widely acclaimed Chartered Institution of Building Services
Engineers Building Performance Awards in February 2017
together with “Domestic Ventilation Product of the Year” at the
prestigious Heating and Ventilation News Awards in April 2017.
The UK Residential Public RMI market remained challenging with
total revenue of £15.8 million up 10.1% on the prior year assisted
by the acquisition of Airtech in May 2016. In this market, although
our overall share has increased as a result of this acquisition, we
experienced an organic decline of 9.2% in the year. The Revive,
one of the most efficient, quiet and discreet bathroom and
kitchen fans available to the public market sector, established
itself during the year as did the upgraded Airtech product range.
The Revive also won an award in the Air Movement category at
the Heating and Ventilation News Awards in April 2017. Further
new product launches are planned for later in 2017 and we have
now combined the public housing resources of the acquired
Airtech business with that of the Vent‑Axia team, to provide a
more diverse and compelling offer to the public market sector.
The UK private refurbishment sector performed better in the year
with revenue of £22.7 million, an increase of 7.4% on prior year
mainly due to the acquisition of National Ventilation. The second
half of the financial year delivered an organic growth of 1.6%
having declined in the first half of the year, resulting in a flat
performance overall. Despite the market being subdued, we
gained some significant new accounts towards the end of our
financial year and have had greater success with price increase
delivery in recent months. These successes, together with
upselling our silent range of products across all our UK brands,
give us a more optimistic outlook for revenue growth in this
market sector for our financial year 2018.
UK Commercial revenue grew by 51.0% in the year to
£32.7 million (2016: £21.7 million) mainly as a result of the
acquisition of Breathing Buildings in December 2016 and the
full year effect of Diffusion, acquired in the prior year. Organic
revenue declined by 0.3% in the year. Since the acquisition of
Diffusion in December 2015, sales have performed very strongly,
requiring us to increase the manufacturing capacity of the business
to support the increasing demand. The acquisitions of Diffusion
and Breathing Buildings have improved our access to the
attractive new build commercial projects market and provide
us with a more balanced exposure in the UK to both the new
and refurbishment opportunities in the commercial sector.
UK Export sales were £10.2 million (2016: £7.8 million), strong
growth of 30.8% (20.7% at constant currency), benefiting from
the additional export sales from Diffusion with an organic growth
of 21.0% (10.8% growth at constant currency). Sales of our
market‑leading residential heat recovery products and our fan coil
range have performed particularly well in Eire with exports from
the UK also benefiting from weaker Sterling.
Nordics
Sales in the Nordics sector were £30.8 million (2016: £25.5 million),
an increase of 20.8% (8.8% at constant currency) with organic revenue
growth of 16.5% (5.1% growth at constant currency). Sales of the
Calima fan, the first app‑controlled extractor fan on the market,
have developed well in the year extending our leadership position
in the Nordic RMI market for high end, near silent, energy‑efficient
solutions. Welair, acquired in December 2015, has provided us
with the capability to manufacture heat recovery ventilation
systems for the new construction market in the Nordics and our
focus on this market has been enhanced with the acquisition of
VoltAir System in May 2017.
VoltAir System has a capability to supply highly configurable,
specialised solutions for heat recovery ventilation in new construction
projects. A modular system that can be completed onsite enables
us to supply ventilation products for applications where our
competitors are restricted due to the size and configuration of
their units. VoltAir System had a strong order intake following its
acquisition and this strong forward order book provides us with
confidence for the year ahead.
Central Europe
Sales in Central Europe were £27.5 million, growth of 15.3%
(1.3% at constant currency). Sales in Germany grew 17.6%
on the prior year (3.3% at constant currency) with stronger
performance towards the end of the financial year. We have
continued to invest in new product development, marketing and
the sales team in Central Europe in order to support the targeted
higher organic growth in the future. In Belgium, where we are a
leading supplier of heat recovery ventilation systems for the new
build market, the Kinetic Advance has started to gain traction in
sales and further enhancements to the range are to be added in
the financial year 2018.
OEM (Torin-Sifan) segment
Our OEM (Torin‑Sifan) segment’s revenue in the year was £22.0 million
(2016: £20.4 million), an increase of 7.7% (2.8% at constant currency),
with a stronger performance from sales in the second half of the year.
The UK had a generally mild winter and our sales volume of traditional
spares for gas boilers declined slightly, mitigated by a price increase
in other products. Our new EC 3 motorised impeller range was
launched in the second half of the year and sales to both UK
and export customers are progressing well. The market for sales
of EC direct current motorised impellers is expected to grow,
underpinned by new construction growth and regulatory drivers,
both in the UK and in Continental Europe.
10
Volution Group plcAnnual Report 2017Strategic Report Three strategic pillars
People
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 core markets were again extended in the 2017 financial year
as we acquired Breathing Buildings in the UK and VoltAir System
in the Nordics. Both businesses focus on the new construction
markets and improve our product portfolio, which now has a
more diversified mix of RMI and new construction.
The acquisitions made in the 2016 financial year have all been
progressing well and, although not classed as delivering organic
growth until one year after acquisition, did grow revenue in their
first year. The expected synergies from the acquisition of NVA
Services (National Ventilation and Airtech brands) were largely
delivered in the year. Further synergies are expected resulting
from more recent changes including the closure of the Lasham
production facility and launch of new upgraded products
manufactured at our other UK production facilities.
These new 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) and improving air quality,
as well as the need to improve energy efficiency.
The ventilation 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 and will continue to invest in.
We will continue to provide strong central leadership in research
and development to facilitate the Group’s growth. Investment in
our own sourcing team in China is delivering good value to the
procurement efforts around the enlarged Group.
The investment we made during the year in the new production
facility for Torin‑Sifan has helped support the organic growth during
the year. Sales of the new EC 3 motorised impeller range are gaining
traction and production of the range at this new facility is going well
with dedicated space reserved for further production lines to
underpin the expected growth of the range.
As our Group becomes more complex and more diverse through
acquisition and organic growth, it is essential that we have a talent
pool to support our development plans. In April 2017 we completed
our second internal Management Development Programme (MDP),
which consisted of 15 high potential managers from across the
Group. Such has been the success of this programme that we
have decided not to wait a further year before commencing the
next programme and will be starting our third MDP in November 2017.
The programme itself is always oversubscribed and this time will
consist of 18 delegates.
During the year we completed two new acquisitions in existing
Volution geographies. The integration of new acquisitions has
become easier as our experience of this process grows. I am
extremely proud of the dedication and commitment of our talented
group of employees, who show a great deal of sensitivity when
new acquisitions join the Group, and as a result of these actions
and behaviour we have been able to successfully build a more
geographically and market diverse Group since listing in 2014.
I would like to take this opportunity to thank each and every
one of our employees for their part in this success.
Outlook
The new financial year has started well with organic growth ahead
of that achieved in the same period in the prior year. Our significant
investment in new product development as well as specific initiatives
in both public and private RMI are translating into benefits as
anticipated. As a result, the Board is confident of delivering good
progress in this financial year.
Ronnie George
Chief Executive Officer
10 October 2017
Another year of progress with
good organic growth and inorganic
growth from our new acquisitions,
and an overall strong year of results
and cash generation.
Ronnie George
Chief Executive Officer
11
Strategic ReportVolution Group plcAnnual Report 2017 Excellence in Ventilation
The acquisition of Breathing Buildings enhances
our commercial proposition by providing unique
natural and hybrid product solutions.
Hybrid and natural ventilation systems can help reduce
energy consumption by up to 60% for a building that would
otherwise be mechanically ventilated and air conditioned.
Breathing Buildings was formed in 2006 following
a major research programme between the
University of Cambridge and the Massachusetts
Institute of Technology resulting in the development
of a proprietary e‑stack mixing ventilation system.
The technology was initially patented by the
University of Cambridge, with Breathing Buildings
having exclusive rights to the intellectual property.
Since then, Breathing Buildings’ technology has
influenced how designers and consultants choose
to ventilate buildings. The company is now the UK’s
leading provider of controlled hybrid and natural
ventilation systems, which can help reduce energy
consumption by up to 60% for a building that
would otherwise be mechanically ventilated
and air conditioned.
By joining the Volution Group in December 2016,
Breathing Buildings has greatly widened its
market potential.
What does it mean for customers?
From the moment a customer has a query about
how to ventilate their building, they are supported
by a team of MEng and PhD engineers who help
clients design low‑energy buildings with stimulating
environments, superb air quality and thermal comfort.
Our consulting engineers work with the design team
to discuss the different ventilation options and provide
in‑depth analysis to ensure their buildings do not
overheat. Breathing Buildings can provide the whole
range of tools to model ventilation in buildings: dynamic
thermal modelling, computational fluid dynamics,
water‑bath modelling, zonal modelling, analytical
modelling and bespoke energy modelling. The
widening of its product range to include mechanical
systems helps to ensure that the tool kit available
to Breathing Buildings continues to develop and that
we provide the widest range of solutions available.
12
Monkseaton High School, Tyne and Wear, UK
Bespoke design with specific energy targets:
four‑storey building with central atrium housing
a sports hall, two gymnasiums and school hall,
plus 22 classrooms.
Up to 60% more efficient
Volution Group plcAnnual Report 2017Strategic Report Breathing Buildings Penthouse Louvre
We are delighted to have Breathing Buildings
as part of the Volution Group. The expansion of
our commercial proposition and sales channels
will lead to further synergies and opportunities for
both market development and sales growth.
Ronnie George
Chief Executive Officer
Up to 60% more efficient
13
Strategic ReportVolution Group plcAnnual Report 2017 Excellence in Ventilation continued
The acquisition of VoltAir System strengthens our
product solutions by offering unique air handling
unit design to deliver high efficiencies.
High heat recovery efficiency,
flexible configuration and low
power consumption lead to
the lowest life cycle cost
on the market.
VoltAir System was formed in 2006 with the purpose
of developing an efficient and cost effective heat
recovery system that could be flexible in configuration
and was a superior alternative to the rotary wheel
solution which was then preferred in the cold, dry
climate of the Nordic region. The VoltAir System
solution incorporates a patented cross‑flow heat
exchanger specifically designed with high thermal
efficiency, and to eliminate cross‑contamination
of airflows. The VoltAir System is designed to be
inherently resistant to frosting and can therefore
compete with rotary wheel systems in this regard
in the extreme cold of a Nordic winter.
What does this mean for customers?
The specific characteristics of the VoltAir System
heat exchanger mean that dirt and ice adhere
poorly to the heat exchanger’s surface, which
contributes to the product’s high resistance to freezing.
The design, with low air velocities, laminar flow and
a large heat exchange surface, means the product
provides high efficiencies of up to 90% without the need
for defrosting. This makes them highly suitable for colder
climates without the issues associated with rotary heat
exchangers and provides VoltAir System with a unique
and marketable benefit. In addition, VoltAir System is
capable of designing highly flexible configurations for its
modular systems. This means that installation in difficult
to access locations in a building or the use of lower
value, sub‑optimal shaped rooms for the ventilation
equipment become possible. This can be attractive
in building consultants’ calculations of whole life
costs for VoltAir System products.
14
Exhaust dampers
Inspection door
Exhaust fans
VoltAir System has market‑leading flexible
products which have low environmental
impact and provide good, healthy indoor
climates. We are delighted to have VoltAir
System as part of the Volution Group,
which is highly complementary to our
strong position in the Nordic residential
refurbishment ventilation products
market and further develops our
commercial proposition.
Ronnie George
Chief Executive Officer
Volution Group plcAnnual Report 2017Strategic Report Filters
exhaust air
Bypass damper
exhaust air
Exhaust air
chamber
Exhaust air duct
Supply air fans
Supply air duct
Supply air chamber
Control equipment
Inspection door
Bypass damper
supply air
VoltAir System: modular, flexible design and
construction for easy location within buildings
Heat exchanger
Filters supply air
of up to
Energy recovery
90%
15
Strategic ReportVolution Group plcAnnual Report 2017 Our Business Model
A business model which creates 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: Innovation, Scale, People and Brands.
Our key differentiators
Innovation
Scale
Developing our connectivity strategy
Value-adding acquisitions and continuous expansion
We have continued to develop our connectivity strategy and this
year at the Elfack Exhibition in Sweden, we introduced our first
smart towel rail which works in conjunction with our Calima fan,
forming the start of the Volution Group ecosystem.
With selective value‑adding acquisitions, we have continued
to increase our footprint in the commercial market, helping
to leverage our product range into new channels.
Innovation in Action
> page 20
Scale in Action
> page 22
Our Company values
GROWTH
INNOVATION
SERVICE
RELIABILITY
16
Volution Group plcAnnual Report 2017Strategic Report People
Brands
Engaging with our employees
Growth opportunities for our brands
Participants in this year’s Management Development Programme
reflected our increasing geographic range with representatives
from all geographical areas across our Group. The next
programme, due to start in late 2017, will continue to help
develop our leaders of tomorrow.
Extension of our brands into new channels and new geographies
continues to provide growth opportunities.
People in Action
> page 24
Brands in Action
> page 26
INTEGRITY
COMMITMENT
FUN
PROFESSIONALISM
17
Strategic ReportVolution Group plcAnnual Report 2017 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 preferred 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 of indoor air quality
issues and the benefits of higher value ventilation options
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 in the residential market and, where
appropriate, in the commercial ventilation market. Our
focus will be principally on opportunities in Europe where
there are clear synergistic benefits available and, for key
strategic opportunities, outside of Europe.
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
> Expand the range of our technically superior
residential motorised impeller products
> Expand the new product development function
and enhance responsiveness to customers
18
Volution Group plcAnnual Report 2017Strategic 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 arising
from our expanding geographic and market sector range
> Roll‑out of the Calima platform in the Nordics
and wider Group channels
> Launch of the Vent‑Axia brand in the Netherlands
> Maximise the sales opportunities for Group products
through the new businesses within the UK and in
Continental Europe
and Germany through Ventilair
> Expand the range of central heat recovery systems
> Widening the Kinetic Advance platform to increase airflow
Achievements during the year
Future focus
> Completion of the acquisitions of Breathing Buildings
> Continued integration of the new acquisitions into the Group
and VoltAir System
> Expansion of the centralised Group procurement
function by establishing a team in China through
the China–Britain Business Council
> Continued the active integration of recent acquisitions
into the Group
> Expansion of the Vent‑Axia brand internationally
through newly acquired businesses
> Continue to search and pursue new acquisition opportunities
> Maximise synergies available through our growing scale
> Further grow intercompany sales to widen product categories
served internationally
> Focused new product development to expand our offer
in acquired channels
Achievements during the year
Future focus
> Launch of the EC 3 motor platform
> Continue to drive sales in EC fan decks
> Optimisation of electronics, reducing energy usage
and improving specific fan power for customers
> Continue the expansion of EC platforms into
applications using more than 90 watts of power
19
Strategic ReportVolution Group plcAnnual Report 2017 Innovation in Action
Innovation
In recent years we have been developing the connectivity of our product lines enabling
customers to interact with them in ways that were once not possible. This year we have
started to evolve the Volution Group ecosystem. Our ambition is for all of our products
in your home to work intuitively with each other to improve comfort and health.
Future developments
> Launch of the new Intellivent Sky fan
in the Nordics
> Launch of the smart Momento II controller
for towel rails
> Range expansion of Torin‑Sifan
EC 3 motor platform
Intellivent Sky
20
Volution Group plcAnnual Report 2017Strategic Report Developing our connectivity strategy
Developments for Momento II
Expanding the horizon for the Torin-Sifan EC 3 motor
To supplement the extensive range of electronically commutated
(EC) motors, motorised impellers, fans and blowers officially
launched at the ISH Exhibition in Frankfurt in 2017, Torin‑Sifan has
made further advances in the area of energy efficiency. By working
closely with customers and understanding the input options they
have to drive the new EC 3 fans, Torin‑Sifan is able to adjust the
specification of the printed circuit board by removing redundant
energy using electrical components, thereby enhancing the
Specific Fan Power (SFP) of the EC 3 fan in our customer
applications. Low SFP is a critical consideration within residential
ventilation units. Torin‑Sifan has also worked very closely with a
customer in the design of an application‑specific EC 3 motorised
impeller, further improving the energy efficiency of the fan in
application. This particular application is one of the most
efficient ventilation units in its class.
Extending the power capability of the current EC 3 product
platform above our current capability of 90 watts is being
developed to satisfy the requirements of commercial
market applications.
The new Momento II towel rail controller is being designed
to enable the home owner to control their towel rail through
the Group’s application software (app). It will allow the customer
to set the length of operation as well as the heat output level as
desired. In addition the Momento II will also link with other devices
in the bathroom enabling both the Calima fan and Momento II to
communicate to optimise their effect. An example would be if the
fan detects high levels of humidity from a shower, the towel rail
would automatically activate to ensure the towel is warmed ready
for when you have finished your shower. The warmed towel rail
will then help evaporate water from the towel and ensure the
fan exhausts the resulting humidity. These relationships between
our products will continue to deliver optimised performance
and automation, therefore increasing value over time.
Demonstrating technical excellence through Intellivent Sky
We have continued to focus on product excellence this year, and
nowhere more so than in the Nordics, where the new Intellivent Sky
was previewed at the Elfack exhibition in Gothenburg, Sweden.
This introduced a new generation of the Intellivent fan, which is our
most sophisticated to date. With built‑in touch controls and smart
capability, it has been designed to provide the owner with the most
discreet, flexible and intelligent fan to date. New functions such
as cruise control, which ensures that the fan delivers the required
airflow constantly, along with reduced noise whilst delivering 40%
more pressure, will make this fan our most innovative to date.
In addition, the Intellivent Sky was also nominated for an
Elfack Design Award due to its innovative interface and
modern aesthetics.
The Intellivent Sky will set new standards of Nordic design
and will continue to build on our successful Intellivent range.
With focus on the customer experience, we have developed
a discreet high performance fan targeted to provide a
compelling DIY and trade proposition.
Eva Thunholm
Managing Director, Ventilation Group Nordics
21
Strategic ReportVolution Group plcAnnual Report 2017 Scale in Action
Scale
This year our acquisitions have grown our commercial footprint. We have added
complementary businesses in both the UK and the Nordics which will help us
develop our sales channels and optimise sales across the new businesses.
Highlights
> Acquisition of Breathing Buildings and the
launch of a range of mechanical ventilation
products under that brand to extend its
product offering
> Acquisition of VoltAir System, improving
Airtech range extension
our commercial and new build residential
sales channels in the Nordics
> Extending Group product ranges through
the National Ventilation (including Monsoon)
and Airtech brands
National Ventilation range extension
22
Volution Group plcAnnual Report 2017Strategic Report Value-adding acquisitions and continuous expansion
Launching a range of mechanical ventilation products
through Breathing Buildings
Breathing Buildings provides customers with unique natural
and hybrid ventilation product solutions. Its relationships in
the specification of ventilation systems for schools provide an
excellent channel to also market the Group’s wider mechanical
ventilation systems. Since the acquisition, we have introduced
the first of what is expected to be a line of mechanical ventilation
product ranges. This will ensure we can supply a broader range
of solutions to our customers.
Acquisition of VoltAir System
VoltAir System provides a unique air handling unit design that delivers
high efficiencies of up to 90% in cold climates. The technology
behind the highly efficient heat recovery lies in a patented heat
exchanger with unique features that provide long, economical
and trouble‑free ownership.
The VoltAir System application is applied, designed and installed
in a modular way. The flexible design means a solution can
be created to fit into any building, no matter how it is configured.
The technology can therefore be used in residential buildings, offices,
schools, hospitals, nursing homes and industry, all with great results.
This unique approach is often preferred by customers as the VoltAir
System units are significantly easier to accommodate in a building.
The integration of VoltAir System into our Nordics business will
help deliver efficiencies of scale, expose us to the attractive new
build market in the Nordics and broaden our product offering in
the region.
Launching Group products through our National
Ventilation (including Monsoon) and Airtech brands
The integration of both the National Ventilation and Airtech brands
has progressed as planned during the year. Rationalisation of fan
platforms has ensured continued cost optimisation as well as
range extension across both new businesses. This not only assists
with production and purchasing efficiencies, but has also assisted
in the extension of product ranges across our sales channels.
VoltAir System air handling unit
Breathing Buildings range extension
Breathing Buildings has been a pioneer in the development
of hybrid ventilation strategies. Joining the Volution Group
has enabled us to extend our product portfolio to include a
wider range of products. This has helped ensure we continue
to provide unique, intelligent and value‑added solutions to
our customers.
Dr Shaun Fitzgerald
CEO, Breathing Buildings
23
Strategic ReportVolution Group plcAnnual Report 2017 People in Action
People
The latest Management Development Programme concluded in April 2017
and had representation from all geographical areas across our Group.
We maintain our commitment to developing and retaining talent within
the organisation.
Highlights
> Completion of the latest Management
Development Programme
> Torin‑Sifan graduate training programme
> Staff wellbeing and health checks
introduced in the UK
Launch of the Management Development Programme II
in 2016
24
Volution Group plcAnnual Report 2017Strategic Report Engaging with our employees
The Management Development Programme
Our values
As reported last year, the Management Development Programme
(MDP) started in April 2016 and ran over a twelve‑month period.
It is based around 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 our business. It concludes with a presentation to the Senior
Management Team and an award to the “Best Participant”. This
year’s intake was the most international to date and represented
all of our businesses. The programme has not only assisted in
developing new managers and leaders for the future, but also
ensured that participants have built strong networks across the
organisation and a better understanding of our diverse businesses.
These new networks mean that implementation of synergies across
businesses flows more freely as colleagues have already met and
discussed their businesses in that context. The next MDP will
start later in 2017 with the selection process complete.
H
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F
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Our
Company
values
R
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IN
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EGRIT
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Y COMMITMENT F
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.
Professional and reliable
With customers, suppliers, colleagues, shareholders
and all relationships.
Torin-Sifan’s graduate training programme
Integrity
We have previously reported on Torin‑Sifan’s commitment to
engaging with young people and our ongoing support of the
Engineering Development Trust. This commitment continues
through to our employees. Torin‑Sifan runs a three‑year graduate
training programme and currently has eight graduate engineers
enrolled on the programme. The programme is a combination of
self‑study and practical goals. To complete the training programme
the graduates must demonstrate competence and commitment
against the five core elements: Knowledge and Understanding;
Application to Practice; Leadership and Personal Responsibility;
Interpersonal Skills; and Professional Conduct.
Staff wellbeing
The health, safety and wellbeing of everyone affected by our
business activities has continued to be a high priority for Volution.
The implementation of wellbeing activities across our businesses
has had renewed focus this year. In the UK we have introduced
wellbeing and health checks, and improved onsite occupational
health support, helping to support healthy lifestyle choices.
Environmentally, socially and in our governance.
Commitment
100% every day, everywhere.
Fun
Enjoying what we do, respecting those around us.
The MDP provided me with a new level
of self‑confidence. The programme took
me out of my comfort zone but showed
me what I was capable of. In addition,
the network I formed across the Group
proved a great advantage when I was
later promoted to the role of Group
Procurement Manager. The skills I learnt
have helped me achieve greater results
both personally and for the Group.
Emily Shortte
Group Procurement Manager
25
Strategic ReportVolution Group plcAnnual Report 2017
Brands in Action
[
Brands
With the acquisitions completed
during the year, we have strengthened
our position in both the UK and Nordic
commercial sectors. Integration of
these businesses provides both
new brands and sales channels
for the Group.
Highlights
> Extension of Breathing Buildings’ product
range to include mechanical ventilation
> Launch of the Vent‑Axia brand into the
distribution market in Germany
> Multi‑branding of selected parts of the
Group’s product range
26
UK & Ireland
Nordics
Central Europe
Volution Group plcAnnual Report 2017Strategic Report [
Growth opportunities for our brands
Launch of our wider product
portfolio through Breathing Buildings
Breathing Buildings has been pioneering natural and hybrid
ventilation systems since 2006, with which it has become very
successful within the new build education sector. The acquisition
of Breathing Buildings has strengthened the Group’s product
range and broadened its channels to market. In addition,
Breathing Buildings now has access to the Group’s entire
portfolio of products making it possible for it to offer a more
comprehensive project solution to customers when all aspects
of a building’s ventilation cannot be met by natural and hybrid
systems. We are now capable of quoting for more parts of every
project in line with our ambition to ensure that we can provide our
customers with more of their ventilation needs for every project.
Continued internationalisation of the Vent-Axia brand
Following the acquisition of the Ventilair Group in 2015, we have
been extending the product range and the coverage of the
Vent‑Axia brand that we offer in the Benelux region and Germany.
Last year we reported on the roll‑out of the Vent‑Axia brand in
the Netherlands and this year we have continued with the roll‑out
in Germany. To support this activity, over the last twelve months
we have further developed the Vent‑Axia website to be an
international platform with consistent branding across multiple
geographies. The site enables us to activate appropriate products
across the platform by geography. Geolocation then enables us
to direct searches as appropriate. The consistent branding,
literature style and web platform enable us to optimise product
launches and manage content and printed materials.
Multi-branding of the Group product portfolio
We continue to focus on leveraging our product portfolio across
our many strong brands and on making sure that we maximise
our sales opportunities through all of our channels. For example,
in the last year we have introduced a number of the Group’s
mechanical ventilation with heat recovery (MVHR) units across
more of our brands. We continue to provide differentiation for
each of our brands through advanced controls, modified
functionality and other added value features. Centralised platform
development then allows cost optimisation and leverage across
product development projects. The extension of product ranges
continues to provide new revenue opportunities, helping to grow
market share through our existing sales channels.
Multi-branding of Group products
The international roll‑out of the Vent‑Axia brand gives us an exciting
opportunity to provide new propositions to customers. This allows us
to grow brands in new geographies and ensures wider product category
exposure without compromising on existing channel and brand positions.
Lee Nurse
Marketing Director, Ventilation Group
27
Strategic ReportVolution Group plcAnnual Report 2017 Key Performance Indicators
Measuring our performance.
We have identified a number of financial and non‑financial key performance indicators
(KPIs) that reflect the internal benchmarks we use to measure the success of our business
and strategy. These will enable investors and other stakeholders to measure our progress.
The three strategic pillars
Organic growth in our core markets
Note
1. For a definition of all adjusted measures and constant currency see the
glossary of terms in note 34 to the consolidated financial statements.
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 42 to 45
Tracks our performance against our strategic aim to grow
the business
Comments
> Strong revenue development in the year with growth of 19.8%
(14.5% on a constant currency basis)
> The acquisitions of Breathing Buildings and more recently
VoltAir System, in addition to a full year of acquisitions
completed in the prior year, contributed significantly to
our growth: 12.5% (12.4% on a constant currency basis)
> Organic growth of 7.3% (2.1% on a constant currency basis)
Link to Directors’ remuneration
> Annual Bonus Plan (ABP) awards are linked directly to adjusted
operating profit and adjusted EPS and Long Term Incentive Plan
(LTIP) awards are linked directly to measures of EPS growth
and TSR, all of which correlate with increasing revenue
Financial performance
Revenue £m
£185.1m
185.1
154.5
120.7
130.2
102.3
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
28
Volution Group plcAnnual Report 2017Strategic Report Adjusted EBITDA and adjusted
EBITDA margin1
£m (% of revenue)
£39.2m (21.2%)
39.2
(21.2%)
35.4
(22.9%)
32.1
(24.7%)
28.5
(23.6%)
23.8
(23.3%)
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
Adjusted operating profit and
adjusted operating profit margin1
£m (% of revenue)
£35.6m (19.3%)
35.6
(19.3%)
32.5
(21.0%)
29.4
(22.6%)
26.5
(22.0%)
22.2
(21.7%)
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
Adjusted profit before tax and
adjusted profit before tax margin1
£m (% of revenue)
£34.6m (18.7%)
34.6
(18.7%)
31.3
(20.3%)
27.5
(21.1%)
9.2
14.0
(9.0%)
(11.6%)
2013
2014
2015
2016
2017
Strategic pillars 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:
> Lower margin businesses acquired
> Decline in organic revenue in our UK Residential Public
RMI sector
> Currency inflationary pressure on the imported materials
> Investment in direct costs for future growth
Link to Directors’ remuneration
> ABP awards are linked directly to adjusted operating
profit and adjusted EPS and LTIP awards are linked
directly to EPS growth and TSR, all of which correlate
with adjusted EBITDA, adjusted operating profit and
adjusted profit before tax
29
Strategic ReportVolution Group plcAnnual Report 2017 Key Performance Indicators continued
Financial performance continued
Adjusted operating cash flow1 £m
£35.9m
35.9
31.1
27.6
20.9
22.8
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
Adjusted operating cash flow
conversion1 %
99%
94
86
93
95
99
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
Adjusted earnings per share
(basic and diluted)1 p
13.6p
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 2017 remained strong despite
capital investment of £3.9 million (2016: £4.3 million)
> Working capital remained under control at 10.4% of revenues
(2016: 11.7%)
Link to Directors’ remuneration
> ABP awards are linked directly to working capital management
in order to maintain good adjusted operating cash flow
Tracks the efficiency of cash generation at the operational level
(important for our acquisition strategy), after movements in
working capital and after capital expenditure
Comments
> Strong cash generation even after capital expenditure
of £3.9 million (2016: £4.3 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
13.6
12.6
Comments
> Improved EPS resulting from improved profitability and new
profitable acquisitions
Link to Directors’ remuneration
> ABP and LTIP awards are linked directly to measures
of earnings per share
11.0
8.8
2014
2015
2016
2017
Strategic pillars measured by this KPI
30
Volution Group plcAnnual Report 2017Strategic Report Net debt1 £m
£37.0m
172.7
Note
1. For a definition of all adjusted measures and constant currency see the
glossary of terms in note 34 to the consolidated financial statements.
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 0.9x (2016: 1.0x)
42.9
21.2
36.1
37.0
> Small increase in debt despite £18.1 million net cash outflow
2013
2014
2015
2016
2017
Strategic pillars measured by this KPI
Non-financial performance
Employee retention %
88.5%
93.5
89.0
90.4
88.5
2014
2015
2016
2017
Strategic pillars measured by this KPI
Sales of low-carbon products %
52%
48
49
52
43
2014
2015
2016
2017
Strategic pillars measured by this KPI
as a result of 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
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
Comments
> The high level of staff retention continued in 2017
Link to Directors’ remuneration
> ABP awards for the 2017 financial year were linked directly
to employee retention
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
> The trend towards higher value‑added low‑carbon products
continues, supported by our acquisitions
Link to Directors’ remuneration
> 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 EPS growth and TSR, all of
which correlate to higher sales of low‑carbon products
31
Strategic ReportVolution Group plcAnnual Report 2017 Risk Management and Principal Risks
We are committed to protecting
and enhancing the Group’s
reputation and assets.
Executive Management
Day‑to‑day management of risk
Design and implementation of the necessary
systems of internal control
Audit Committee
Assurance of the internal controls and
risk management process
Board
Overall responsibility for risk management
Reviews principal risks and uncertainties, along with
actions taken, where possible, to mitigate them
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 UK leaving the European Union.
Whilst negotiations continue between the UK and the European
Union, it is still too early to judge the long‑term implications, and
at the current time 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.
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 introduced
across the Group which will assist the Board to monitor and
assess the principal risks throughout the year. In addition, to
enhance risk awareness, embed risk management and gain greater
participation in managing risk across the Group, a programme of
employee communication commenced during 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.
BDO LLP (BDO) continued 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 2017.
32
Volution Group plcAnnual Report 2017Strategic Report 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 principal risks and uncertainties
The UK Corporate Governance Code (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 affect 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 direction of the perceived risk. 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.
Viability statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, 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 34 to 37 of the Annual
Report and Accounts. Based on this assessment, the Directors
confirm that they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as
they fall due over the period to 31 July 2020.
The Directors have determined that a three‑year period to
31 July 2020 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 34 to 37. 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 UK leaving the European Union and, whilst it
is too early to judge the longer‑term impact 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 which has been considered in the
context of the UK leaving the European Union, increased debt
from acquisitions, supply chain risk affecting gross margins and
combinations of the above scenarios. Stress tests using more
significant revenue sensitivities than that seen during the most
recent global financial crisis in 2008/9 have been applied. None
of the individual sensitivities applied change the Director’s
assessment of viability. 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.
Going concern
The financial position of the Group, its cash flows and liquidity
position are set out in the Financial Statements section. Furthermore,
note 28 on page 134 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 Group’s budgeted cash flows and related assumptions.
33
Strategic ReportVolution Group plcAnnual Report 2017 Risk Management and Principal Risks continued
Risk
Impact
Strategic consequence
Likelihood
impact
Risk direction
Mitigation
Potential
Demand for our products serving the
residential and commercial construction
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.
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 to
secure possible synergies.
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.
Our strategic ambition to grow by acquisition may
be compromised.
Our ambition to grow internationally through acquisition
exposes us to increasing levels of translational foreign
exchange risk.
Growth through a disciplined and
value‑adding acquisition strategy
Further develop Torin‑Sifan’s
range and build customer
preference and loyalty
Economic risk
including the UK
exit from the EU
A decline in general economic
activity and/or a specific decline in
activity in the construction industry,
including, but not exclusively, an
economic decline caused by the
UK leaving the European Union.
Acquisitions
We may fail to identify suitable
acquisition targets at an acceptable
price or we may fail to complete or
properly integrate the acquisition.
Foreign
exchange risk
The exchange rates between
currencies that we use may
move adversely.
Strategic consequence
Organic growth
in our core markets
34
Trading patterns during the year
have remained stable including
any which may be attributed to
the decision to leave the EU.
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 affecting the construction industry.
This remains true even under current circumstances where conditions
specific to the public RMI market mean that our sales in that sector have
recently declined.
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.
We continue to implement
our strategy, completing two
acquisitions during the year.
Senior management has a clear understanding of potential targets in the
industry and a track record of ten acquisitions over the past five years.
Management is experienced in integrating new businesses into the Group.
Our policy of rigorous due diligence prior to acquisition and a structured
integration process post acquisition has been maintained.
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.
Our policy on foreign currency
risk has remained unchanged.
Our exposure to the translation
effect of foreign earnings has
increased following the
acquisition of VoltAir System
in Sweden during the year.
Volution Group plcAnnual Report 2017Strategic Report
Risk
Impact
Strategic consequence
Likelihood
Potential
impact
Risk direction
Mitigation
The assessment of likelihood and potential impact is subjective and based on the following definitions:
Likelihood of
risk occurring
Potential impact
Assessment
of risk direction
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.
Demand for our products serving the
residential and commercial construction
markets would decline. This would result
Our ability to achieve our ambition for continuing organic
in a reduction in revenue and profitability.
growth would be adversely affected.
Economic risk
including the UK
exit from the EU
A decline in general economic
activity and/or a specific decline in
activity in the construction industry,
including, but not exclusively, an
economic decline caused by the
UK leaving the European Union.
Acquisitions
Revenue and profitability would not grow
in line with management’s ambitions and
We may fail to identify suitable
investor expectations.
Our strategic ambition to grow by acquisition may
be compromised.
acquisition targets at an acceptable
price or we may fail to complete or
properly integrate the acquisition.
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 to
secure possible synergies.
The commerciality of transactions
denominated in currencies other
than the functional currency of our
businesses and/or the perceived
performance of foreign subsidiaries in
exchange risk.
our Sterling‑denominated consolidated
financial statements may be adversely
affected by changes in exchange rates.
Foreign
exchange risk
The exchange rates between
currencies that we use may
move adversely.
Our ambition to grow internationally through acquisition
exposes us to increasing levels of translational foreign
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 affecting the construction industry.
This remains true even under current circumstances where conditions
specific to the public RMI market mean that our sales in that sector have
recently declined.
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 ten acquisitions over the past five years.
Management is experienced in integrating new businesses into the Group.
Our policy of rigorous due diligence prior to acquisition and a structured
integration process post acquisition has been maintained.
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.
Trading patterns during the year
have remained stable including
any which may be attributed to
the decision to leave the EU.
We continue to implement
our strategy, completing two
acquisitions during the year.
Our policy on foreign currency
risk has remained unchanged.
Our exposure to the translation
effect of foreign earnings has
increased following the
acquisition of VoltAir System
in Sweden during the year.
35
Strategic ReportVolution Group plcAnnual Report 2017
Risk Management and Principal Risks continued
Risk
Impact
Strategic consequence
Likelihood
impact
Risk direction
Mitigation
Potential
IT systems
including cyber
breach
We may be adversely affected by a
breakdown in our IT systems or a
failure to properly implement any
new systems.
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, the efficiency
of electrical products, or
compliance may change.
Supply chain
and raw materials
Raw materials or components may
become difficult to source because
of material scarcity or disruption
of supply.
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.
We could temporarily lose sales and market share
and could 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 from that customer.
Our organic growth ambitions would be
adversely affected.
The shift towards higher value‑added and
more energy‑efficient products may not
develop as anticipated resulting in lower
sales and profit growth.
If our products are not compliant and
we fail to develop new products in a
timely manner we may lose revenue
and market share to our competitors.
Failure to manage certain compliance risks
adequately could lead to death or serious
injury of an employee or third party, and/or
penalties for non‑compliance in health
and safety, anti‑bribery, data protection
or competition law.
Sales and profitability may be reduced
during the period of constraint.
Prices for the input material may
increase and our costs may increase.
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.
Organic growth may be reduced.
Our product development efforts may be redirected
to find alternative materials and components.
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.
Our competitiveness and growth potential, both organic
and inorganic, could be adversely affected.
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.
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.
36
Disaster recovery and data backup processes are in place, operated
diligently and tested regularly.
A significant Enterprise Resource Planning system upgrade is underway
for several key sites, managed by a dedicated team of experienced senior
employees from the business. A disaster failover site has been implemented.
We have a three‑layered system of network security protection against
cyberattack or breaches of security. This infrastructure is maintained to
withstand the increasingly sophisticated worldwide cyber threats. We also
undertake regular 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.
We employ internal specialist expertise, supported where needed by
suitably qualified and experienced external providers. Local operational
compliance audits are undertaken.
We have training and awareness programmes in place such as health
and safety and anti‑bribery. We have a whistleblowing hotline managed
by an independent third party providing employees with a process to
raise non‑compliance issues.
We establish long‑term relationships with key suppliers to promote continuity
of supply and where possible we have alternative sources identified.
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.
We believe there is an increasing
risk as the frequency and
sophistication of cyberattacks on
businesses has been increasing.
Our underlying risk of losing the
revenue of any one customer
continues unchanged; however,
our recent acquisitions have
further served to diversify
our customer base.
There has been no significant
new legislation or regulation, or
changes to current legislation or
regulation, which has had, or
could have, a material impact
on the business.
Our pattern of purchasing and
relationships with our long‑term
supplier base remains unchanged.
Our policy of ensuring a resilient
supply base remains a priority.
We continue to demonstrate
innovation with new product
launches, and a number of awards
were received during the year.
Regular employee appraisals allow two‑way feedback on performance
and ambition.
There have been no significant
changes to the supply and
retention of quality employees.
A Management Development Programme was initiated in 2013 (with the latest
to be launched in late 2017) 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 2017Strategic Report
Risk
Impact
Strategic consequence
Likelihood
Potential
impact
Risk direction
Mitigation
Failure of our IT and communication
systems could affect any or all of our
business processes and have significant
We could temporarily lose sales and market share
impact on our ability to trade, collect
and could potentially damage our reputation for
cash and make payments.
customer service.
IT systems
including cyber
breach
We may be adversely affected by a
breakdown in our IT systems or a
failure to properly implement any
new systems.
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, the efficiency
of electrical products, or
compliance may change.
Customers
Any deterioration in our relationship
with a significant customer could have
A significant amount of our revenue
an adverse significant effect on our
Our organic growth ambitions would be
revenue from that customer.
adversely affected.
The shift towards higher value‑added and
more energy‑efficient products may not
develop as anticipated resulting in lower
Our organic growth ambitions may be adversely affected.
sales and profit growth.
We may need to review our acquisition criteria to reflect
If our products are not compliant and
the dynamics of a new regulatory environment.
We may have to redirect our new product
development activity.
we fail to develop new products in a
timely manner we may lose revenue
and market share to our competitors.
Failure to manage certain compliance risks
adequately could lead to death or serious
injury of an employee or third party, and/or
penalties for non‑compliance in health
and safety, anti‑bribery, data protection
or competition law.
Supply chain
and raw materials
Sales and profitability may be reduced
during the period of constraint.
Prices for the input material may
Organic growth may be reduced.
increase and our costs may increase.
Our product development efforts may be redirected
to find alternative materials and components.
Raw materials or components may
become difficult to source because
of material scarcity or disruption
of supply.
Innovation
Scarce development resource
may be misdirected and costs
We may fail to innovate commercially
incurred unnecessarily.
or technically viable products to
maintain and develop our product
leadership position.
Failure to innovate may result in an
ageing product portfolio which falls
behind that of our competition.
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 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.
Our competitiveness and growth potential, both organic
and inorganic, could be adversely affected.
Disaster recovery and data backup processes are in place, operated
diligently and tested regularly.
A significant Enterprise Resource Planning system upgrade is underway
for several key sites, managed by a dedicated team of experienced senior
employees from the business. A disaster failover site has been implemented.
We have a three‑layered system of network security protection against
cyberattack or breaches of security. This infrastructure is maintained to
withstand the increasingly sophisticated worldwide cyber threats. We also
undertake regular 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.
We employ internal specialist expertise, supported where needed by
suitably qualified and experienced external providers. Local operational
compliance audits are undertaken.
We have training and awareness programmes in place such as health
and safety and anti‑bribery. We have a whistleblowing hotline managed
by an independent third party providing employees with a process to
raise non‑compliance issues.
We establish long‑term relationships with key suppliers to promote continuity
of supply and where possible we have alternative sources identified.
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.
We believe there is an increasing
risk as the frequency and
sophistication of cyberattacks on
businesses has been increasing.
Our underlying risk of losing the
revenue of any one customer
continues unchanged; however,
our recent acquisitions have
further served to diversify
our customer base.
There has been no significant
new legislation or regulation, or
changes to current legislation or
regulation, which has had, or
could have, a material impact
on the business.
Our pattern of purchasing and
relationships with our long‑term
supplier base remains unchanged.
Our policy of ensuring a resilient
supply base remains a priority.
We continue to demonstrate
innovation with new product
launches, and a number of awards
were received during the year.
There have been no significant
changes to the supply and
retention of quality employees.
Regular employee appraisals allow two‑way feedback on performance
and ambition.
A Management Development Programme was initiated in 2013 (with the latest
to be launched in late 2017) 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.
37
Strategic ReportVolution Group plcAnnual Report 2017
Corporate Social Responsibility
Volution Group is founded upon
the excellence of its people.
People
Human rights
Community
Environment
Overview
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.
We embrace a culture of continual improvement in all aspects of
our business. We aim to understand and respond to the needs of
employees, customers, suppliers, shareholders, 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.
People
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.
The Group has a “Speak‑Up” facility operated by an independent
external company, where employees can report any incidents or
inappropriate behaviours in their own language by telephone, by
38
email or online. The confidentiality of the information reported is
protected. In addition, web‑based anti‑bribery and corruption
training is carried out by all employees in areas of the business
where risk is deemed to be highest.
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 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. The Board reviews health and safety
at every meeting.
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 have continued to introduce
improvements with further independent health and safety audits
and management focus on accidents in the workplace.
Diversity
Although the Group has no specific gender and diversity targets
as we believe that appointments should be based on merit,
we strongly support diversity throughout the workforce. 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. We believe that better
business decisions can be made by having representation from
different genders and cultural backgrounds with differing skill
sets, experience and knowledge, which reflects our customer
base and the wider population in our markets.
The building materials industry traditionally attracts a higher
than average proportion of male employees. This is reflected
in the Group’s split between male and female employees as
shown opposite:
Volution Group plcAnnual Report 2017Strategic Report
Diversity
Directors
Senior managers1
All other employees
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.
6 – 85.7%
Male
1 – 14.3%
Female
8 – 72.7%
Male
3 – 27.3%
Female
979 – 67.9%
Male
463 – 32.1%
Female
Human rights
Breaches of human rights are 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.
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.
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. 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.
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 onsite. 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.
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 2017
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:
2017
CO2e tonnes
2016
CO2e tonnes
3,513
1,147
57
4,717
3,325
968
55
4,348
25.49
28.14
> data collected is in respect of the years ended 31 July 2016
and 31 July 2017. 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.
Sales of the Lo-Carbon range of products
> page 31
39
Strategic ReportVolution Group plcAnnual Report 2017
Operational Review
The Ventilation Group segment
The Ventilation Group has sector‑leading positions in the UK, the Nordics and Central Europe.
During the year, we completed two acquisitions which have expanded our residential and commercial proposition and sales channels
as follows:
> Breathing Buildings in the UK has been pioneering natural and hybrid ventilation systems since 2006, with which it has become
very successful within the new build education sector. The acquisition has widened our capability into this new niche, strengthened
our product range and broadened our channel to market; and
> VoltAir System has a strong presence in the commercial and residential new build ventilation markets in Sweden where demand
is increasing for energy‑efficient air handling units. The business is highly complementary to our strong position in the Nordic
residential refurbishment ventilation products market.
Highlights for Ventilation Group segment
Revenue
Adjusted operating profit
£163.1 million, 88.1% of Group revenue (£155.9 million
at constant currency) (2016: £134.1 million, 86.8% of
Group revenue)
£34.6 million, 97.1% of Group adjusted operating profit
(2016: £31.6 million, 97.3% of Group adjusted operating profit)
Average number of employees
1,155 (2016: 1,108)
In May 2017 the Vent‑Axia business successfully implemented a
new Enterprise Resource Planning (ERP) business management
system. Amongst the many benefits, the new system allows
greater transparency of the customer order book and allows
the business to further improve its on‑time delivery performance.
In the same month Fresh in the Nordics migrated to a common
ERP platform for the Nordics region.
The plastic injection moulding facility located in Gemla in Sweden
benefited from an investment programme which enabled the
installation of a new, highly efficient injection moulding machine
together with a pair of pick and pack robots, enabling lights‑out
night‑time operation to increase capacity and reduce cost.
In line with the Group’s philosophy of striving to achieve the highest
standards of quality across the business, both inVENTer and
Ventilair achieved accreditation to the quality standard, ISO 9001,
for their facilities in Germany, Belgium and the Netherlands.
The Diffusion business located in West Molesey in the UK has
continued to benefit from strong demand for its products in the
fan coil market. To enable production to meet demand, a satellite
assembly unit was opened and Diffusion moved to a 24‑hour
shift pattern.
Revenue
Revenue within the Ventilation Group grew strongly, by 21.6%
(16.3% at constant currency), of which 7.3% was organic and
14.3% the result of acquisitions.
Market sectors
Ventilation Group
Constant currency
2017
£000
2017
£000
2016
£000
Growth
%
UK Residential RMI
38,444
38,444 35,427
8.5%
UK Residential New Build
23,421
23,421 19,818
18.2%
UK Commercial
32,724
32,724 21,677
51.0%
UK Export
Nordics
Central Europe
27,460
24,139 23,820
10,206
9,415
7,803
20.7%
30,829
27,757 25,521
8.8%
1.3%
Total Ventilation Group
163,084 155,900 134,066
16.3%
During the year a project was commenced to consolidate the UK
Ventilation Group’s plastic injection moulding facility and its main
plastic fan assembly facility into a single site in order to improve
logistical efficiency and provide capacity for expansion. The new
leased facility is located at Suttons Business Park in Reading in
the UK and construction of the purpose built premises is well
underway. The relocation will begin in early 2018.
40
Volution Group plcAnnual Report 2017Strategic Report
The Vent‑Axia facility in Dudley in the UK continued to grow
its output of mechanical ventilation with heat recovery units
to supply the New Build Residential ventilation market. Sales of
the Kinetic Advance MVHR product are growing and a second
assembly cell is in the process of being installed at the facility
to ensure sufficient capacity to support growing demand.
Breathing Buildings in Cambridge in the UK, acquired in
December 2016, has been integrated into the Group and is
benefiting from cost optimisation of its supply chain. The Group
technical resource is also leading a number of new product
development initiatives.
VoltAir System in Torsby in Sweden, acquired in May 2017,
has expanded our ventilation product portfolio in the Nordic
region into the new build market and especially the market for
large ventilation projects. We expect to benefit from new product
development, operational leverage, procurement effectiveness
and from higher sales resulting from the combination of VoltAir
System’s highly energy‑efficient and tailor‑made air handling
units with Welair’s high quality conventional technology units.
OEM (Torin-Sifan) segment
Torin‑Sifan designs and manufactures highly efficient alternating current (AC) and
electronically commutated (EC) motors, motorised impellers, fans and blowers for
the heating, ventilation and air conditioning (HVAC) industry and is a leading supplier
to the residential and commercial HVAC manufacturing markets worldwide.
Highlights for OEM (Torin-Sifan) segment
Revenue
Adjusted operating profit
£22.0 million, 11.9% of Group revenue (£21.0 million at constant
currency) (2016: £20.4 million, 13.2% of Group revenue)
£3.8 million, 10.6% of Group adjusted operating profit
(2016: £3.3 million, 10.0% of Group adjusted operating profit)
Revenue
Revenue within the OEM segment grew by 2.8% at constant currency.
Market sectors
Total OEM
Constant currency
2017
£000
2017
£000
2016
£000
Growth
%
21,976
20,974
20,398
2.8%
Overall, our OEM (Torin‑Sifan) business enjoyed strong demand
for both traditional AC and EC motor technology, particularly during
the second half of the year, with sales growth in the year of 7.7%.
Sales within the residential market grew by 2.8% on a constant
currency basis, with a particularly strong performance in the
combined production of EC fans and spares for AC fans for gas
boilers. Our residential sales were also strengthened by the launch
of our new high‑efficiency Revolution 360 range of EC fans into
volume production during the year. This new product range was
officially launched at the 2017 ISH Exhibition in Frankfurt (the world’s
leading exhibition for building, ventilation and plumbing solutions)
and offers benefits in both high efficiency and low noise to the
European heating, ventilation and air conditioning industry. Interest
in the new EC fans has been strong and the product line has already
moved to two‑shift production, operating 18 hours a day within
our EC Manufacturing & Technology Centre in Swindon in the UK.
Average number of employees
223 (2016: 229)
Sales within the commercial market have remained stable,
with some sales erosion in traditional AC technology fans due
to energy‑related product legislation changes being offset by
high growth within our EC Fandeck product family, particularly
within the fan coil industry. Our range of large EC blowers has
also performed well within the fan refurbishment and OEM
production segments.
The sustained demand in the second half of the year has created
some productivity and service challenges with initiatives in place
aimed at ensuring the necessary production capacity and component
supply. Cost pressures in the year caused by adverse exchange
rates on imports and inflation in commodity materials have been
managed effectively through a combination of cost saving initiatives
and sales price re‑alignment. Investment in enhanced management
capability in both engineering and procurement has been made
to ensure optimisation of production costs through design and
supply chain activities.
During the year, resources have been committed to ensure the
successful implementation of a new ERP system within Torin‑Sifan,
which is scheduled to be fully implemented in early 2018.
41
Strategic ReportVolution Group plcAnnual Report 2017 Financial Review
Ian Dew
Organic growth, two acquisitions
and strong cash generation created
through excellence in ventilation.
Summary
> Strong revenue growth of 19.8%
(14.5% at constant currency)
> Strong growth in adjusted profit before
tax of 10.3% (4.7% at constant currency)
> Two acquisitions completed in the year
> Adjusted operating cash inflow of £35.5 million
(2016: £31.1 million)
> Closing debt leverage of 0.9x
I am proud to announce another
year of strong financial performance.
Ian Dew
Chief Financial Officer
42
Revenue
The Group continued its strong revenue growth during 2017.
Revenue for the year ended 31 July 2017 was £185.1 million
(2016: £154.5 million), a 19.8% increase (14.5% at constant
currency). Growth was achieved both organically, 7.3% (2.1% at
constant currency), and inorganically, 12.5% (12.4% at constant
currency). The inorganic growth was a result of the two acquisitions
made in the year and the full year effect of the four acquisitions
made in the prior year.
The Ventilation Group revenues grew by 21.6% (16.3% at constant
currency), of which organic growth represented 7.3% (2.0% at
constant currency). OEM (Torin‑Sifan) grew, entirely organically,
by 7.7% (2.8% at constant currency).
Due to the significant weakening of Sterling in June 2016 and its
low value throughout the financial year, the movements in foreign
currency exchange rates for the year as a whole have had a
favourable translation effect on the reported revenue of our
overseas businesses. If we had translated the full year revenue
of our business at our 2016 exchange rates, the reported Group
revenues would have been £176.9 million.
Profitability
Our underlying result, as measured by adjusted operating profit, was
£35.6 million (2016: £32.5 million), 19.3% of revenues (2016: 21.0%),
delivering a £3.1 million improvement compared to the prior year.
The Group benefited from the acquisition of Breathing Buildings
in December 2016 and VoltAir System in May 2017 and the full
year effect of the prior year acquisitions.
On sales growth of 19.8%, adjusted profit before tax improved
by £3.3 million to £34.6 million, growth of 10.3%. Our Group
adjusted profit before tax margin declined by 1.6 percentage
points to 18.7% as a consequence of the acquisition of businesses
that operated with profit margins lower than our Group average,
exchange rate linked inflation in the UK and a decline in the
profitable UK RMI (public) sector revenue.
The Group’s reported profit before tax in the year was £17.9 million
compared to £18.4 million in 2016. The reported profit before tax
for the period has declined by £0.5 million in spite of a £3.3 million
increase in underlying profitability largely because:
> in the reported results there was a finance cost of £1.4 million
in the year relating to the revaluation of financial instruments carried
at fair value (2016: a gain of £1.1 million) which uncrystallised
movement we do not include in our adjusted results; and
> the amortisation of acquired intangible assets increased by
£1.1 million in the year, as a consequence of recent
acquisitions, to £13.8 million (2016: £12.7 million).
Volution Group plcAnnual Report 2017Strategic 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 2017
Year ended
31 July 2016
Movement
Year ended
31 July 2017
Year ended
31 July 2016
Movement
185.1
154.5
37.8
20.4
2.5
17.9
7.0
4.15
34.5
37.0
33.9
18.4
1.2
18.4
7.8
3.80
29.7
36.1
19.8%
11.5%
11.0%
111.3%
(2.5)%
(10.3)%
9.2%
15.6%
0.9
185.1
154.5
39.2
35.6
1.1
34.6
13.6
4.15
35.9
37.0
35.4
32.5
1.2
31.3
12.6
3.80
31.1
36.1
19.8%
10.8%
9.6%
(10.6)%
10.3%
7.9%
9.2%
15.5%
0.9
Note
1. The reconciliation of the Group’s reported profit before tax to adjusted measures of performance is summarised in the table below and in detail in note 2 to the
consolidated financial statements. For a definition of all adjusted measures see the glossary of terms in note 34 to the consolidated financial statements.
Reconciliation of statutory measures to adjusted performance measures
The Board and key management personnel use some alternative performance measures to track and assess the underlying performance
of the business. These measures include adjusted operating profit, adjusted profit before tax, adjusted basic and diluted EPS and
adjusted operating cash flow. These measures are deemed more appropriate as they remove income and expenditure which is not
directly related to the ongoing trading of the business. A reconciliation of these measures of performance to the corresponding
reported figure is shown below and is detailed in note 2 to the consolidated financial statements.
Revenue
Gross profit
Administration and distribution costs
excluding the costs listed below
Amortisation of intangible assets
acquired through business combinations
Exceptional items
Non‑recurring items not meeting
the definition of exceptional
Year ended 31 July 2017
Year ended 31 July 2016
Reported
£000
Adjustments
£000
185,060
91,037
(55,410)
(13,826)
(1,380)
—
—
—
13,826
1,380
—
—
Adjusted
results
£000
185,060
91,037
Reported
£000
154,464
75,366
(55,410)
(42,861)
Adjustments
£000
—
—
—
—
—
—
(12,658)
(1,209)
12,658
1,209
(236)
236
Adjusted
results
£000
154,464
75,366
(42,861)
—
—
—
Operating profit
20,421
15,206
35,627
18,402
14,103
32,505
Net (gain)/loss on financial instruments
at fair value
Other net finance costs
Profit before tax
Income tax
Profit after tax
(1,449)
(1,074)
17,898
(4,021)
1,449
—
16,655
(3,509)
—
(1,074)
34,553
(7,530)
13,877
13,146
27,023
1,139
(1,177)
18,364
(2,757)
15,607
(1,139)
—
12,964
(3,496)
9,468
—
(1,177)
31,328
(6,253)
25,075
The following are the items excluded from adjusted measures:
> Amortisation of acquired intangibles
On acquisition of a business, where appropriate, we value identifiable intangible fixed assets acquired such as trademarks and
customer base and recognise these assets in our consolidated statement of financial position; we then amortise these acquired
intangible assets over their useful lives. In the year the amortisation charge of these intangible assets increased to £13.8 million
(2016: £12.7 million) as a consequence of recent acquisitions. We exclude this accounting adjustment in the calculation of our
adjusted earnings because it is a cost associated with acquisitions, not the underlying trading of the businesses.
43
Strategic ReportVolution Group plcAnnual Report 2017 Financial Review continued
Reconciliation of statutory measures
to adjusted performance measures continued
> Exceptional items
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 £1.4 million (2016: £1.2 million)
and relate to the cost of acquisitions £0.8 million (2016: £1.2 million)
and the factory relocation £0.6 million (2016: £nil). Details of
these exceptional items can be found in note 5 to the
consolidated financial statements.
> 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 to give a fairer representation
of the underlying performance of the business. There were no
such costs this year (2016: £0.2 million).
> 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
loss of £1.4 million (2016: gain of £1.1 million). We exclude these
gains or losses from our measures of adjusted earnings because
they are accounting adjustments which will reverse in future
periods and do not reflect the underlying trading of the business.
Acquisitions
Two acquisitions were completed during the year:
> Breathing Buildings, based in the UK, acquired in December 2016
for a consideration of £11.6 million net of cash acquired; and
> VoltAir System, based in Sweden, acquired in May 2017
for a cash consideration of SEK 72.9 million (approximately
£6.5 million) net of cash acquired. In addition there is an
element of consideration which is contingent upon the level
of EBITDA for the twelve months ended 31 December 2017,
with a fair value of SEK 16,930,000 (approximately £1.5 million).
Finance revenue and costs
Net finance costs of £2.5 million (2016: £nil) increased in the year as
a consequence of the loss of £1.4 million in the fair value of financial
derivatives in the year (2016: gain of £1.1 million) as discussed above.
Our net finance cost before these revaluations has decreased
slightly in the year to £1.1 million (2016: £1.2 million).
Taxation
The UK Finance (No. 2) Act 2015, which was enacted on
18 November 2015, introduced a reduction in the UK headline
rate of corporation tax to 19% and 18% from 1 April 2017 and
1 April 2020 respectively. A further reduction in the headline rate
to 17% from 1 April 2020 was included in the UK Finance Act
2016, enacted on 15 September 2016.
The effective tax rate for the year was 22.5% (2016: 15.0%), the
prior year benefited from a one‑off deferred tax credit of £1.6 million,
mainly arising from the changes to the UK corporation tax rates
mentioned above.
44
Our underlying effective tax rate, on adjusted profit before tax,
was 21.8% (2016: 20.0%). The increase of 1.8 percentage points,
over the prior year, was partly as a result of a higher proportion
of our profits, in the year, being earned in jurisdictions with higher
tax rates (an expense of £0.2 million) and partly because the prior
year’s adjusted tax charge benefited from a £0.4 million one‑off
deferred tax credit, part of the £1.6 million credit outlined above.
The Group’s medium‑term adjusted effective tax rate is expected
to remain around 21% of the Group’s adjusted profit before tax.
Operating cash flow
The Group continued to be strongly cash generative in the year with
adjusted operating cash inflow of £35.9 million (2016: £31.1 million).
This represents a cash conversion, after capital expenditure and
movement in working capital, of 99% (2016: 95%). The Group
continues to manage its working capital efficiently with operating
working capital representing 10.5% of revenue (2016: 11.7%).
In addition, the Group continues to invest for the future with net capital
expenditure of £3.9 million (2016: £4.3 million) including investment in
new product development and improved IT systems. See the glossary
of terms in note 34 to the consolidated financial statements for a
definition of adjusted operating cash flow and cash conversion.
Reconciliation of adjusted operating cash flow
Net cash flow generated
from operating activities
Net capital expenditure
UK and overseas tax paid
Cash flows relating to exceptional items
Exceptional items: fair value of inventories
Adjusted operating cash flow
2017
£m
32.9
(3.9)
5.6
1.2
0.1
35.9
2016
£m
29.1
(4.3)
5.2
0.8
0.3
31.1
Employee Benefit Trust
In the period the Group loaned £0.5 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 250,000 shares at an
average price of £1.95 per share in the period for an aggregate
consideration of £0.5 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 £37.0 million (2016: £36.1 million), comprised
of bank borrowings of £51.5 million (2016: £51.8 million), offset by
cash and cash equivalents of £14.5 million (2016: £15.7 million).
The net debt of £37.0 million represents leverage of 0.9x
adjusted EBITDA.
Volution Group plcAnnual Report 2017Strategic Report Movements in net debt position for the year ended 31 July 2017
Opening net debt 1 August 2016
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
– Other
Movements from acquisitions:
– Acquisition consideration net of cash acquired
Closing net debt 31 July 2017
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 2017, we had £37.0 million of undrawn, committed
bank facilities and £14.5 million of cash and cash equivalents on
the consolidated statement of financial position.
Foreign exchange
The Group is exposed to the impact of changes in the foreign
currency exchange rates on transactions denominated in currencies
other than the functional currency of our operating businesses.
We have significant Euro income in the UK which is mostly balanced
by Euro expenditure in the UK. We have little US Dollar income
but significant expenditure. We limited our transactional foreign
exchange risk by purchasing the majority of our forecast US
Dollar requirements for the 2017 financial year in advance,
and similarly we have purchased the majority of our forecast
US Dollar requirements in advance of the 2018 financial year.
We are also exposed to translational currency risk as the Group
consolidates foreign currency‑denominated assets, liabilities,
income and expenditure into Group reporting denominated in
Sterling. We hedge the translation risk of the net assets in the
Nordics with £23.2 million of borrowings denominated in SEK
(2016: £15.9 million). We have partially hedged our risk of
translation of the net assets in Belgium, the Netherlands and
Germany by having Euro‑denominated bank borrowings in the
amount of £23.3 million as at 31 July 2017 (2016: £22.0 million).
The Sterling value of our foreign currency‑denominated loans and
cash increased by £2.4 million in the year as a consequence of
exchange rate movements. We do not hedge the translational
exchange rate risk to the results of overseas subsidiaries.
During the year, movements in foreign currency exchange
rates have had a favourable effect on the reported revenue and
profitability of our business. If we had translated the full year
performance of our business at our 2016 exchange rates, our
reported Group revenues would have been £8.2 million or 4.4%
lower and adjusted operating profit would have been £1.8 million
or 4.9% lower.
£m
(36.1)
35.9
(0.8)
(5.6)
(1.3)
(7.9)
(0.5)
(2.4)
(0.2)
(18.1)
(37.0)
At the end of the financial year the weakening of Sterling increased
the value of foreign currency‑denominated working capital by
£0.3 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 7.0 pence
(2016: 7.8 pence). Our adjusted basic and diluted earnings per share
was 13.6 pence (2016: 12.6 pence), an increase of 7.9%.
Dividends
In May 2017 the Group paid an interim dividend of 1.35 pence
per share.
The Board has proposed a final dividend of 2.80 pence per share.
Subject to approval at our Annual General Meeting of shareholders
on 13 December 2017, the recommended final dividend will be
paid on 18 December 2017 to shareholders who are on the
register on 24 November 2017.
Ian Dew
Chief Financial Officer
10 October 2017
The Strategic Report comprising pages 1 to 45 was approved
and signed on behalf of the Board on 10 October 2017.
Ronnie George
Chief Executive Officer
45
Strategic ReportVolution Group plcAnnual Report 2017 Board of Directors
Committee membership
A Audit Committee
N Nomination Committee
R Remuneration Committee
X Chairman of Committee
Appointed
Re-appointed
Committees
Term of office
Key strengths
Experience
External appointments
46
Peter Hill, CBE
Non-Executive Chairman
Ronnie George
Chief Executive Officer
Ian Dew
Chief Financial Officer
23 June 2014
23 June 2017
N R
Peter joined the Board on listing
as Non-Executive Chairman
and Chairman of the
Nomination Committee.
Wide ranging public company
experience and extensive
international business experience
gained in both executive and
non-executive roles.
Peter has extensive experience
of this role, currently acting
as non-executive chairman of
Keller Group plc and Imagination
Technologies Group plc. In addition,
Peter 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, Oxford
Instruments plc and Essentra 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
Imagination Technologies Group plc,
and a non-executive director of the
Royal Air Force.
15 May 2014
N/A
15 May 2014
N/A
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.
Significant strategic and operational
expertise together with extensive
merger and acquisition experience,
both in the UK and internationally
and in-depth knowledge of the
ventilation industry.
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.
Financial and accounting expertise
together with extensive merger
and acquisition experience, both
in the UK and internationally.
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 2017 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 2017
23 June 2014*
23 June 2017
23 June 2014
23 June 2017
A N R
A N R
A N R
3 August 2016
N/A
A N R
Tony joined the Board on listing as
Senior Independent Non-Executive
Director and Chairman of the
Remuneration Committee.
Extensive public company
experience and wide ranging
international business experience
gained in both executive and
non-executive roles.
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 joined the Group in
February 2012 as an independent
Non-Executive Director of our
then holding company, Windmill
Topco. He was then appointed
on 23 June 2014 to Volution
Group plc on listing.
In-depth business development
experience and extensive knowledge
of the building products industry.
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 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.
Financial and accounting
expertise together with extensive
public company experience; wide
ranging international business
experience, particularly in
manufacturing environments.
Extensive board-level experience
with key strengths in business
strategy and turnaround,
strategic development and
change management.
Paul previously headed the finance
function and served on the boards
of a number of UK listed public
companies, including Thomas
Cook Group plc, Mondi Group plc,
BPB plc, De La Rue plc and
Ransomes plc. He recently retired
as a non-executive director and
chairman of the audit committee
of Electrocomponents plc, having
served nine years on its Board.
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.
None.
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.
47
Governance ReportVolution Group plcAnnual Report 2017
Introduction to Governance
High standards of governance.
The Board remains committed to maintaining high standards of
corporate governance as we believe this underpins the achievement
of the Group’s strategy and also creates and maintains value for
shareholders and other stakeholders.
After serving just under six years in office on the current and pre-IPO
Board, Adrian Barden will be retiring from the Board at the
conclusion of the Annual General Meeting on 13 December 2017.
Adrian provided important continuity on the Board whilst the
business moved from private-equity ownership to a listed
company and I would like to thank him for his contributions
during his tenure. To ensure an orderly succession plan, the
Nomination Committee has initiated a search for an independent
Non-Executive Director and an announcement will be made in
due course.
Further information on these changes to the Board is set out
in the Nomination Committee Report on pages 58 to 59.
Succession planning and diversity
This year we have continued to review Board and senior management
succession planning. Although the Group has no specific gender
and diversity targets as we believe that appointments should
be based on merit, we strongly support diversity throughout
the workforce. We believe that better business decisions can
be made by having representation from different genders and
cultural backgrounds with differing skill sets, experience and
knowledge, which reflects our customer base and the wider
population in our markets. 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.
Further information on the Group’s diversity and inclusion is
provided on pages 38 to 39.
Peter Hill, CBE
Chairman
Dear shareholder,
On behalf of the Board, I am pleased to
introduce you to the Governance Report.
This review and the reports of the Nomination,
Audit and Remuneration Committees that
follow summarise the Board’s activities
during the year.
The Board remains committed to maintaining high standards of
corporate governance as we believe this underpins the achievement
of the Group’s strategy and also creates and maintains value for
shareholders and other stakeholders. We make our decisions based
on what we believe is likely to be for the benefit of shareholders and
other stakeholders by promoting and maintaining the long-term
success of the Company and its reputation.
Compliance with the 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 April 2016 (the Code). A copy of
the Code can be found at www.frc.gov.uk.
Composition of the Board
In August 2016 we welcomed Claire Tiney to the Board as an
independent Non-Executive Director, 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.
48
Governance ReportVolution Group plcAnnual Report 2017 Evaluating the Board’s effectiveness
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
10 October 2017
Each year, the Board undertakes a formal evaluation of its
effectiveness. This year, for the first time since the IPO in June 2014,
we carried out an externally facilitated evaluation in accordance
with the provisions of the Code. 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. A number of actions were identified to further
enhance the Board’s effectiveness and these can be found on
page 55.
Appointment and re-election of Directors
In accordance with the Code Provisions and following performance
evaluation of those Directors standing for re-election at the Annual
General Meeting, I can confirm that they all continue to be effective,
committed to their roles and have sufficient time available to perform
their duties. Accordingly, as recommended by the Nomination
Committee, all Directors, except Adrian Barden, will be offering
themselves for re-election at the Company’s Annual General Meeting
to be held on 13 December 2017, in accordance with the Code.
Further information on the Directors can be found in the Directors’
biographies on pages 46 to 47 and in the Directors’ Report on
page 86.
Remuneration Policy review
During 2017 a review of Volution’s Remuneration Policy was
completed and a revised Policy has been designed to operate
for three years. The Policy is being proposed for approval by
shareholders at the Annual General Meeting on 13 December 2017.
Further details are provided in the Directors’ Remuneration Report,
which can be found on pages 67 to 84.
49
Governance ReportVolution Group plcAnnual Report 2017 Corporate Governance
Overview
The Board fully supports the principles laid down in the UK Corporate Governance Code as issued by the Financial Reporting Council
in April 2016 (the Code), which applies to financial years beginning on or after 17 June 2016 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 Guidance and Transparency Rules (DTRs). The disclosures in this report relate to our responsibilities for preparing the Annual
Report and Accounts, including compliance with the Code to the extent required, our report on the effectiveness of the Group’s risk
management and internal control systems, and the functioning of our Committees.
Compliance with the 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 (April 2016), which is the version of the Code which applies to the Company for its financial year ended 31 July 2017.
The role of the Board and its Committees
Board
Strategy development, growing shareholder value, oversight and corporate 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 page 52.
The Board has delegated certain responsibilities to three Committees to assist it with discharging its duties. The Committees play
an essential role in supporting the Board to implement its strategy and provide focused oversight of key aspects of the business.
Set out below is the governance framework giving a summary of the membership and responsibilities of each Committee. The full
terms of reference for each Committee are available on the Company’s website, www.volutiongroupplc.com.
Members:
Non-Executive Chairman
Four independent Non-Executive Directors
Two Executive Directors
Nomination Committee
Audit Committee
Remuneration Committee
Responsibility for Board
composition, succession planning
and Director selection
Members:
Non-Executive Chairman
Four independent
Non-Executive Directors
The Committee report can be
found on pages 58 to 59
Responsibility for oversight and
governance of the Group’s financial
reporting, internal controls, risk
management and relationship with
external auditor
Members:
Four independent
Non-Executive Directors
Responsibility for Remuneration
Policy and setting individual
remuneration levels for Executive
Directors and senior management
Members:
Non-Executive Chairman
Four independent
Non-Executive Directors
The Committee report can be
found on pages 60 to 66
The Committee report can be
found on pages 67 to 84
50
Governance ReportVolution Group plcAnnual Report 2017 Board responsibilities
Role
Main responsibilities
Chairman of the Board
> Manages and provides leadership to the Board of Directors
Peter Hill, CBE
> Acts as a direct liaison between the Board and the management of the Company, through the
Chief Executive Officer
> Ensures that the Directors are properly informed and that sufficient information is provided to
enable the Directors to form appropriate judgements
> In concert with the Chief Executive Officer and the Company Secretary, develops and sets the
agendas for meetings of the Board
> Recommends an annual schedule of the date, time and location of Board and Committee meetings
> Ensures effective communications with shareholders and other stakeholders
Chief Executive Officer
> Responsible for the day-to-day management of the Group
Ronnie George
> Together with the Senior Management Team, is responsible for executing the strategy, once it has
been agreed by the Board
> Creates a framework that optimises resource allocation to deliver the Group’s agreed strategic
objectives over varying timeframes
> Ensures the successful delivery against the financial business plan and other key business
objectives, allocating decision making and responsibilities accordingly
> Together with the Senior Management Team, identifies and executes new business opportunities
and potential acquisitions or disposals
> Manages the Group with reference to its risk profile in the context of the Board’s risk appetite
Chief Financial Officer
> Responsible for financial planning and record-keeping, as well as financial reporting to the Board
Ian Dew
and shareholders
> Ensures effective compliance and control and responding to ever increasing regulatory
developments, including financial reporting and capital requirements
Senior
Independent Director
Tony Reading, MBE
Independent
Non-Executive Directors
Adrian Barden,
Paul Hollingworth,
Claire Tiney
> Management of the financial risks of the Group
> An independent Non-Executive Director
> Provides a sounding board for the Chairman
> Serves as an intermediary for the other Directors when necessary
> Is available to shareholders if they have concerns which contact through the normal channel of the
Chief Executive Officer has failed to resolve, or for which such contact is inappropriate
> Provide constructive challenge to the Executive Team
> Help develop proposals on strategy
> Scrutinise management’s performance in meeting agreed goals and objectives
> Monitor performance reports
> Satisfy themselves on the integrity of financial information and that controls and risk management
systems are robust and defensible
> Determine appropriate levels of remuneration for Executive Directors, appointing and removing
Executive Directors, and succession planning
51
Governance ReportVolution Group plcAnnual Report 2017 Corporate Governance continued
Board responsibilities continued
Role
Main responsibilities
Company Secretary
Michael Anscombe
> 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, ensuring governance processes
remain fit for purpose, considering any improvements as appropriate
> Ensures compliance with the rules and regulations associated with a premium Main Market
listing on the London Stock Exchange including the UK Corporate Governance Code
> All Directors have access to the services of the Company Secretary, who may facilitate independent
professional advice at the Company’s expense at their request to fulfil their duties
> Ensuring good information flows within the Board and its Committees and between the Senior
Management Team and the Non-Executive Directors, as well as facilitating induction and
assisting with professional development as required
> Acts as secretary to the Board and each of its Committees
> The appointment or removal of the Company Secretary is a matter for the Board as a whole
The matters reserved for the Board include:
> agreeing the Group’s strategy and objectives;
> approving acquisitions and disposals;
> changing the structure and capital of the Group;
> approving the Annual Report and Accounts and Half-year Report;
> approving the Group’s dividend policy and declaration of dividends;
> reviewing the effectiveness of risk identification and management and internal controls;
> approving significant expenditure and material transactions and contracts;
> ensuring a satisfactory dialogue with the Group’s shareholders;
> appointing and removing Directors;
> determining the Remuneration Policy for the Executive and Non-Executive Directors;
> reviewing the Company’s overall corporate governance arrangements;
> approving the Group’s Treasury Policy;
> reviewing the effectiveness of the Board;
> delegating authority to the Chief Executive Officer;
> each year, meeting to set an annual budget for the business in line with the current Group strategy. The Board monitors the
achievement of the budget through Board reports which include updates from the Chief Executive Officer, the Chief Financial
Officer and other functions; 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.
52
Governance ReportVolution Group plcAnnual Report 2017 Board activities and priorities during the year ended 31 July 2017
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 regular Board meetings
> Management accounts including current trading and financial performance against budget and forecast
> Operations and new product development updates
> Merger and acquisition opportunities
> 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
> Minutes and actions from previous meetings
Other matters considered during the year
Area
Strategy
Agenda items
> Review and approval of Group strategy (last fully considered in the 2015/16 financial year)
Financial reporting
> Review and approval of Annual Report and Accounts, AGM Notice and associated documentation
for the year ended 31 July 2016
> Review and approval of interim financial statements for the six months ended 31 January 2017
> Review and approval of Trading Update in August 2016
> Review and declaration of interim dividend and recommendation of final dividend
Budget
> Review and approval of three-year financial plan including budget for the year ended 31 July 2018
Operations
> Review and approval of acquisition of Breathing Buildings Limited and VoltAir System AB
> Post-acquisition review of Ventilair, Energy Technique, NVA Services and Welair
> Consideration of risk framework, significant risks and risk appetite (in conjunction with the Audit Committee)
Shareholder
engagement
Board
governance
> Review and approval of Viability Statement
> Property matters
> Consideration of construction market updates
> 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 corporate brokers following full and half-year investor roadshows
> AGM 2016 proxy results and review of shareholder voting
> Presentations on the UK Ventilation Group
> Board composition and the appointment of Claire Tiney
> Board performance evaluation results presented by Lintstock
> Governance, legislation and regulatory updates
> Review and approval of the Group’s Modern Slavery Act Statement
> Updates from Board Committee chairmen as appropriate
53
Governance ReportVolution Group plcAnnual Report 2017 Corporate Governance continued
Board meetings
The Board met regularly during the year, holding seven 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
Ian Dew
Ronnie George
Paul Hollingworth
Tony Reading
Claire Tiney
Board
Audit
Remuneration
Nomination
7
7
7
7
7
7
7
7
3
—
3
—
—
3
3
3
4
4
4
—
—
4
4
4
3
3
3
—
—
3
3
3
Note
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 2016.
Board balance and independence
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. For the first two days of the financial year,
the Company’s Board consisted of a Non-Executive Chairman,
three independent Non-Executive Directors and two Executive
Directors. On 3 August 2016 Claire Tiney was appointed to the
Board as an independent Non-Executive Director. Accordingly,
the Company’s Board since then has consisted of a Non-Executive
Chairman, four independent Non-Executive Directors and two
Executive Directors. A list of the Directors is provided on pages
46 to 47. Accordingly, the composition of the Board has remained
in compliance with the Code throughout the financial year ended
31 July 2017.
Appointment and tenure
The appointment dates of Directors are shown in their
biographies on pages 46 to 47.
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, except for Adrian Barden,
who is retiring from the Board at the conclusion of the Annual General
Meeting, will be offering themselves for re-election at the Company’s
Annual General Meeting to be held on 13 December 2017.
Board composition
Independent
Non-Executive
Directors 4
Executive
Directors 2
Non-Executive
Chairman 1
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 67 to 84. 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 86. Under the Relationship Agreement, Windmill Holdings B.V.,
which was our controlling shareholder from listing until 8 April 2016,
had the right to nominate one person to the Board of the Company
for so long as its shareholding was at least 15% of the Company’s
ordinary shares. This right expired when Windmill Holdings B.V.
disposed of its remaining holding of ordinary shares in the Company
on 31 October 2016, when the Relationship Agreement also ended.
54
Governance ReportVolution Group plcAnnual Report 2017 Non-Executive Directors and independence
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.
Board evaluation and effectiveness
Process for Board and
Committee evaluation
All Directors completed a web-based questionnaire
developed by Lintstock, the Company Secretary, the
Chairman and each Committee chair
Questionnaire results used to facilitate
face-to-face discussion between Lintstock and
each Director
Reports produced by Lintstock and reviewed
and discussed with the Chairman and each
Committee chair
Reports discussed at the Board meeting
and action plans formulated
Since listing in June 2014, two internal Board and Committee
performance evaluations have been conducted. The main
recommendations from each of these evaluations were set out
in the Annual Report and addressed during each year. During the
2017 financial year, an external evaluation of the performance of
the Board and its Committees was carried out.
From listing until 8 April 2016, the Group had a controlling
shareholder, Windmill Holdings B.V. On 31 October 2016
Windmill Holdings B.V. disposed of its remaining holding
of ordinary shares in Volution Group and until that disposal,
under a Relationship Agreement with the Company, had the
right to nominate one person to be a Director of the Company.
Their nominated Director from listing until 18 March 2016 was
Gavin Chittick, and following his resignation, Windmill Holdings B.V.
had no representative Director on the Board.
The process of evaluating the performance to identify areas for
further development was undertaken by Lintstock Limited, under
the direction of the Chairman. Lintstock is an independent specialist
corporate governance consultancy which provides board evaluation
services and has no other connection with the Company.
The evaluation process involved Lintstock engaging with the
Chairman and the Company Secretary to discuss and agree the
scope and to develop a series of comprehensive questionnaires
tailored to the specific circumstances of the Company.
The evaluation took the form of web-based questionnaires
addressing the composition and performance of the Board
and its Committees, and the performance of the Chairman.
Directors were required to score certain aspects of the Board’s
and Committees’ performance, and to comment on the areas
of focus, which included leadership and accountability, strategy
and risk, Board culture, Board composition and roles and
responsibilities. All respondents were then interviewed by
Lintstock during which their responses to the questionnaire
were reviewed. The anonymity of all respondents was ensured
throughout the process in order to promote the open and frank
exchange of views.
The responses to the evaluation of the Board and its Committees
were collated and analysed by Lintstock and then reviewed by
them with the Chairman and Company Secretary prior to being
considered by the full Board. The Chairman also appraised the
performance of individual Directors following feedback from
Lintstock through the questionnaires.
The results of the evaluation demonstrated that the composition and
performance of the Board and its Committees (and the performance
of the Chairman) were rated highly and continue to operate effectively.
Whilst there are no significant concerns among the Directors
about the Board’s effectiveness, some detailed observations
and recommendations were made which were considered by
the Board. The key areas of recommendation set out in the
report resulting in actions agreed by the Directors are set out
below and will be monitored by the Board over the next year.
55
Governance ReportVolution Group plcAnnual Report 2017 Corporate Governance continued
2017 Board evaluation recommendations
> Enhancing information to enable more in-depth Board focus on the strategic agenda, including Volution’s potential acquisition
pipeline and growth opportunities, the industry, market dynamics and competition.
> Ensuring the Non-Executive Directors could explore opportunities to further grow their understanding of the business,
in particular as Volution’s presence in Continental Europe grows.
> Devoting further Board time to discussions concerning talent management and Executive and Non-Executive succession
planning, ensuring that the Board is exposed to the Senior Management Team and rising stars as part of the annual cycle
of presentations and dinners.
> Further enhancing the Board’s understanding of the new products being developed by the Group.
As a separate exercise the Senior Independent Director, together with the Non-Executive Directors, conducted the Chairman’s
performance evaluation. It was agreed that Peter Hill gave appropriate time and commitment to his role as Chairman of the Company
and was effective in that role throughout the year. The Senior Independent Director then discussed the results with the Chairman at a
separate one-to-one meeting.
Director induction
A formal induction programme has been developed in line with
the Code, to ensure that any new Director receives 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 Team); 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. Following
the appointment of Claire Tiney to the Board in August 2016, a
personalised formal induction programme was developed tailored
to her experience and background and to her own requirements.
Any newly appointed Non-Executive Director would also have a
personalised formal induction programme created for them.
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.
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 46 to 47.
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 34 to 37, 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 65.
The Audit Committee Report on pages 60 to 66 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.
56
Governance ReportVolution Group plcAnnual Report 2017 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.
The Board has placed reliance on the following to form this opinion:
> a verification process dealing with the factual content of the
reports and to ensure consistency across the various sections;
> a 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 Wednesday 13 December 2017 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.
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 as follows:
August 2016
Trading Update
October 2016
Consultation on remuneration with major
shareholders and principal investor
advisory groups
Full Year Results Announcement and
analyst presentation
Institutional broker sales desk briefings
UK shareholder roadshow
November 2016 Annual Report and Accounts and Notice
of AGM posted to shareholders and placed
on website
December 2016 Annual General Meeting
March 2017
Half-year Results Announcement and
analyst presentation
Institutional broker sales desk briefings
UK shareholder roadshow
US shareholder roadshow
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.
57
Governance ReportVolution Group plcAnnual Report 2017 Nomination Committee Report
Peter Hill, CBE
Chairman, Nomination Committee
Nomination Committee members
Peter Hill (chairman)
Adrian Barden
Paul Hollingworth
Tony Reading
Claire Tiney (from 3 August 2016)
I would like to extend my thanks to
Adrian Barden, who will be retiring
from the Board at the conclusion
of the Annual General Meeting
on 13 December 2017.
Peter Hill, CBE
Chairman of the Nomination Committee
58
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)
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.
Claire Tiney was appointed to the Board and as a Committee
member on 3 August 2016 and Adrian Barden will retire from
the Board and the Committee at the conclusion of the Annual
General Meeting on 13 December 2017.
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 three times during the year with attendance
disclosed on page 54. The Committee will meet formally at least
once a year and at such other times as the Board or the Committee
chairman requires.
Board composition
In 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. Following due
process, which was set out in the Nomination Committee Report
2016, the Committee recommended the preferred candidate
to the Board and 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
Governance ReportVolution Group plcAnnual Report 2017 Nomination Committee activities during the year
The following matters were considered at the Committee meetings held during the year:
> evaluated the size and composition of the Board including the balance of skills, experience, independence, diversity
and knowledge on the Board;
> commenced a process to find a new independent Non-Executive Director;
> reviewed succession planning for the Executive Directors and the Senior Management Team;
> considered the re-appointment of those Directors appointed at IPO in June 2014;
> reviewed and approved the recommendations to be made to shareholders for the re-election of Directors at the
Annual General Meeting;
> 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 2017.
development companies and in the services sector, across the
UK and Continental Europe. Combined with the deep knowledge
and experience of our existing Non-Executive Directors, Claire’s
experience ensures that the Board has a well-balanced array of
skills and is well attuned to the Group’s requirements.
I would like to extend my thanks to Adrian Barden, who will be
retiring from the Board at the conclusion of the Annual General
Meeting on 13 December 2017 after serving just under six years
in office on the current and pre-IPO Board. Adrian provided
important continuity on the Board whilst the business moved
from private-equity ownership to a listed company and I would
like to thank him for his contributions during his tenure. To ensure
an orderly succession plan, the Committee has initiated a search
for an independent Non-Executive Director and an announcement
will be made in due course.
Board diversity
Volution believes that diversity throughout the business is important
in order to reflect the varied nature of the communities that it
operates in and its customer base. The Board continues to be
supportive of the need for diversity of its members to provide the
necessary range of background, experience, values and diversity
of thinking and perspectives to optimise the decision-making
process. The recent reports by the Parker Review Committee on
the ethnic diversity of UK boards, the Hampton-Alexander Review,
focused on senior women below the company board, and the
McGregor-Smith Review by Baroness McGregor-Smith, considering
the issues affecting black and minority ethnic groups in the workplace,
have also been noted. Gender and ethnicity are important aspects
of diversity which the Chairman and the Committee will consider
when deciding upon the most appropriate composition of the
Board including Executive Director succession planning.
Appointments to the Board are always made on merit against
objective criteria, having regard to the benefits of all forms of
diversity, including gender diversity and the current and future
needs of the business. The Board has not set any specific gender
or diversity targets. When identifying candidates for appointment
to the Board, any search firm engaged will be instructed to include
gender diversity and a range of diverse backgrounds and capabilities
in formulating a long-list of candidates.
Following the appointment to the Board during the year of Claire
Tiney 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 form part of the considerations
in the decision to appoint any new Directors to the Board as and
when existing members step down from the Board.
Re-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, except for Adrian Barden, will stand for
re-election at the Annual General Meeting 2017. The biographical
details of the Directors can be found on pages 46 to 47. The
Committee considers that the performance of each of the Directors
standing for re-election at the Annual General Meeting continues to
be effective and each demonstrates commitment to their role.
Committee performance evaluation
During the year, the Board appointed an independent specialist
corporate governance consultancy, Lintstock, to conduct a formal
externally facilitated evaluation of the performance of the Board,
its Committees, the Directors and the Chairman in compliance
with the Code. Further details can be found in the Governance
Report on page 55. I am pleased to confirm that this process
concluded that the Committee had fulfilled its role effectively and
did not identify any significant development points requiring action.
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
10 October 2017
59
Governance ReportVolution Group plcAnnual Report 2017 Dear shareholder,
I am pleased to introduce the Audit Committee
Report for the year ended 31 July 2017, which
outlines the activities of the Committee
during the year.
During the year, the Committee’s focus has, as in previous years,
centred on the integrity of the Group’s financial reporting and
ensuring an effective system of risk management and internal
controls is in place. The Committee has continued to follow a
detailed programme of work and to respond to the increasing
depth of review and reporting that is now required of audit
committees. The Committee can also confirm, on behalf of the
Board, that the Annual Report and Accounts 2017, taken as a
whole, is fair, balanced and understandable.
The Committee members have been selected to provide the wide
range of financial and commercial expertise necessary to fulfil the
Committee’s duties and responsibilities and the Board considers
the Committee members’ financial experience to be recent and
relevant for the purposes of the 2016 edition of the UK Corporate
Governance Code (the Code). Further, in accordance with the
Code, the Board has determined that the current composition
of the Committee as a whole has competence relevant to the
sector in which the Group operates. Claire Tiney was appointed
to the Board and as a Committee member on 3 August 2016 and
Adrian Barden will retire from the Board and the Committee at the
conclusion of the Annual General Meeting on 13 December 2017.
BDO LLP (BDO) has continued to perform the internal audit
function on behalf of the Group in accordance with an agreed
strategic internal audit plan. This plan continues to provide the
Committee with a means of assessing the level and effectiveness
of controls across the Group. In addition, the Committee reviews
the results of a biannual internal assessment of internal controls
carried out by management across all businesses. During the
financial year ending 31 July 2018, the Committee will continue
to look in detail at the Group’s business operations, with a number
of 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.
Audit Committee Report
Paul Hollingworth
Chairman, Audit Committee
Audit Committee members
Paul Hollingworth (chairman)
Adrian Barden
Tony Reading
Claire Tiney (from 3 August 2016)
During the year, the Committee’s focus
has, as in previous years, centred on the
integrity of the Group’s financial reporting
and ensuring an effective system of
risk management and internal controls
is in place.
Paul Hollingworth
Chairman of the Audit Committee
60
Governance ReportVolution Group plcAnnual Report 2017 Andy Glover, having completed five years as lead audit partner,
and in line with FRC’s partner rotation policy, will be replaced
by Andy Smyth on completion of the 2017 financial year audit.
On behalf of the Committee I would like to mark our appreciation
of the work completed by Andy Glover as lead audit partner over
the last five years, especially during the period when Volution
transitioned from a private-equity owned business to a listed
company. Andy Smyth has over 25 years of audit and accounting
advisory experience with EY and has spent the last nine years as
a partner reporting on listed multinational businesses across a
number of industry sectors. I would like to welcome Andy Smyth
and on behalf of the Committee we look forward to working
with him.
On behalf of the Committee, I would like to thank everyone for
their hard work over the past year, especially 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
10 October 2017
Audit Committee activities during the year
During the period, the Committee met on three occasions and dealt with the following matters:
Financial statements and reports
> reviewed the Preliminary Results Announcement, the Annual Report and Accounts and the Half-year Results Announcement,
received reports from the external auditor on the above, 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 and significant
areas of accounting estimates and judgements;
> reported to the Board on the appropriateness of accounting policies and practices; and
> reviewed the Viability Statement and associated stress testing.
Risk management
> reviewed and recommended to the Board the revised Group Risk Policy and Risk Management Procedures and Plans
to further embed risk awareness and management across the business;
> 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, in particular macroeconomic and cyber risk; and
> monitored and reviewed the risk management and internal control processes to ensure compliance with the UK Corporate
Governance Code for disclosure in the Annual Report and Accounts.
Internal audit
> reviewed regular reports from BDO as Group internal auditor and reviewed its strategic internal audit plan;
> reviewed management responses and actions to address any recommendations resulting from BDO’s internal audit reports
issued during the year; and
> monitored the Group’s Code of Conduct and Anti-Bribery and Corruption Policy, 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;
> 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.
61
Governance ReportVolution Group plcAnnual Report 2017 Audit Committee Report continued
Membership and attendance
Role and responsibilities
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 46 to 47. 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 54.
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.
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;
> 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;
> 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.
62
Governance ReportVolution Group plcAnnual Report 2017 Significant accounting matters
In reviewing the financial statements with management and the external auditor, the Committee discussed and debated the critical
accounting judgements and key sources of estimation uncertainty. As a result of its review, the Committee identified the following
issues that required particular judgement or had significant impact on interpretation of this Annual Report and Accounts 2017:
Area of focus
Why was this significant?
How did the Committee address this area?
Impairment of
goodwill and
other intangible
assets
Rebates payable
and receivable
The Committee has reviewed the key assumptions
behind these valuations and impairment reviews,
notably the expected development of future cash flows
and the discount rates used, as well as considering
reasonable sensitivities to these estimates and
concluded that these support the carrying values
set out in note 15 to the consolidated financial
statements and no impairment provision is required.
The Committee has also reviewed the allocation of
goodwill and other intangible assets to the appropriate
cash generating units (CGUs) and the level of CGUs
at which the impairment testing is completed and
considers it reasonable.
The Committee received a paper from management
setting out the process for estimating the amount
of rebates to be recognised and considered the
operating effectiveness of controls surrounding
revenue recognition and management’s subjective
assessment and recognition of rebates at the
interim and year end. The Committee reviewed
management’s methodology and judgement
in assessing the recognition of rebates.
The Committee concurred with their approach.
The Group’s policies on accounting for separately
acquired intangible assets and goodwill on acquired
businesses is set out in notes 13 and 14 to the
consolidated financial statements. At 31 July 2017
intangible assets relating to goodwill and other
intangible assets amounted to £182.6 million.
Goodwill on acquisitions and acquired intangible
assets, which are judged to have indefinite lives,
are initially recorded at fair value, and are subject
to testing for impairment at each balance sheet
date. 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. As is customary, such
testing involves estimation of the future cash flows
attributable to the asset, or cash generating unit
of which it is part, and discounting these future
cash flows to today’s value.
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,
management makes estimates of the amount of
rebate that will become both payable by 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.
Exceptional items Exceptional items on a pre-tax basis of £1.4 million
(2016: £1.2 million) represent a material item in the
profit and loss account. Full details are set out in
note 5 to the consolidated financial statements.
Included in this year’s results is a charge of
£0.8 million relating to the costs associated with
acquisitions (2016: £1.2 million) and factory
relocation £0.6 million (2016: £nil).
The Committee reviewed the inclusion of costs shown
as re-organisation and acquisition costs by virtue
of their size, nature or occurrence, and received
updates on the level and nature of these costs.
In particular, exceptional costs relating to the
consolidation of two UK production facilities in
Reading and Slough into one new site in Reading
were reviewed. The Committee believes that the
treatment of re-organisation costs and costs
associated with acquisitions has been applied
consistently, and that separate disclosure enables
the reader more clearly to understand the headline
financial and operating performance of the Group.
In addition, the Committee reviewed policy and provisions with respect to warranty, doubtful debts and inventory.
63
Governance ReportVolution Group plcAnnual Report 2017 Audit Committee Report continued
External audit
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 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.
The policy is in line with the new EU Audit Directive and
Regulation which states that the total non-audit fees for any
financial year should not exceed 70% of the average of the
external audit fee over the last three financial years.
During the year, EY charged the Group £25,000 (2016: £25,000)
for non-audit services relating to the half-year review, which
represents 8.3% of the average of the external audit fee over the
last three financial years, significantly below the 70% cap set by
the EU Audit Directive and Regulation. A breakdown of the fees
paid to EY during the year is set out in note 9 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, and, if appropriate, from 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.
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 during the 2017 financial year was 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 audit partner every five years in order to protect
auditor independence and objectivity. Accordingly, Andy Glover
acted as lead audit partner until the 2017 financial year audit was
completed, following which a new lead audit partner, Andy Smyth,
was formally appointed. In preparation for the role, Andy Smyth
shadowed Andy Glover during the 2017 financial year audit.
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 2017 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 has reviewed the tendering and rotation provisions
in the EU Audit Directive and Regulation and the Companies Act
2006, which state that there should be a public tender every
ten years and a change of external auditor at least every 20 years.
The Company is not obliged to tender for audit services until
2024 (ten years from listing). These provisions, together with the
satisfactory outcome of the evaluation of EY and the external
audit process, have led the Committee to conclude that there
is no current intention of 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 2017 and the Board
accepted and endorsed this recommendation.
The Committee confirms compliance with the provisions of the
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014, as published by the
UK Competition and Markets Authority (CMA Order). In addition,
the Committee confirms that, at the appropriate time, it will put
the external audit out to tender to meet the requirements under
the CMA Order.
The Committee routinely meets EY without executive
management present.
64
Governance ReportVolution Group plcAnnual Report 2017 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.
Following initial appointment during the financial year ended
31 July 2015, BDO has continued 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, including reviewing
the control environment in recently acquired companies.
How we manage risk
As outlined on page 32, the Group has a risk management
process that follows a sequence of risk identification, assessment
of probability and impact, and assigns an owner to manage mitigation
activities at the operation level. 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
34 to 37.
Review of effectiveness
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’s Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting document issued in September 2014. This
process was in place throughout the year and post year end up
to the date of approval of this Annual Report and Accounts.
65
Governance ReportVolution Group plcAnnual Report 2017 Audit Committee Report continued
Code of Conduct, anti-bribery and whistleblowing
Fair, balanced and understandable
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. The Code of Conduct
was updated at the beginning of the financial year to address
the Group’s policy on anti-slavery and human trafficking, in
accordance with the Modern Slavery Act 2015. Group employees,
agents and suppliers are asked, where relevant, to confirm that
they do and will continue to comply with these policies. 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. When a disclosure is made, the Company
Secretary initiates an investigation to include all necessary parties
to ensure the matter is appropriately resolved. A report on any
investigations is submitted to the Committee to ensure it is
satisfied that such matters have been resolved satisfactorily.
The Committee also has the power to conduct further enquiries
itself or any other additional actions it sees fit.
Committee performance evaluation
During the year, the Board appointed an independent specialist
corporate governance consultancy, Lintstock, to conduct a formal
externally facilitated evaluation of the performance of the Board,
its Committees, the Directors and the Chairman in compliance
with the Code. Further details can be found in the Governance
Report on page 55. I am pleased to confirm that this process
concluded that the Committee had fulfilled its role effectively and
did not identify any significant development points requiring action.
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 (FBU) 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 Board members, 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 addition, the Committee receives a report highlighting
areas for FBU consideration to ensure compliance before approval
of the Annual Report and Accounts.
In particular, the Committee:
> reviewed all material matters, as reported elsewhere in this
Annual Report and Accounts;
> ensured that it fairly reflected the Group’s performance in the
reporting year;
> ensured that it 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 2017.
The outcome of that review was that the Committee confirmed
to the Board that the Annual Report and Accounts 2017 met
the requirements of the Code and the Board’s formal statement
to that effect is set out on page 50.
Paul Hollingworth
Chairman of the Audit Committee
10 October 2017
66
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report
Dear shareholder,
On behalf of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report for the year ended
31 July 2017.
At the Annual General Meeting in December 2016 (2016 AGM),
the Annual Report on Remuneration received strong support from
shareholders with just under 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 continued
to operate under this during the year under review. We are seeking
approval to renew the Remuneration Policy at the Annual General
Meeting 2017 (2017 AGM), in line with the required three-year cycle.
Anthony Reading, MBE
Chairman, Remuneration Committee
Remuneration Committee members
Review of remuneration arrangements
Tony Reading (chairman)
Adrian Barden
Peter Hill
Paul Hollingworth
Claire Tiney (from 3 August 2016)
The Remuneration Policy has been
updated to incorporate a number of best
practice features and to further align the
Executive Directors with shareholders.
Anthony Reading, MBE
Chairman of the Remuneration Committee
During the year, the Committee reviewed the Remuneration Policy
and the implementation of the Policy to ensure they remained
appropriate going forward and continued 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.
As part of this, the Committee also reviewed total remuneration
as a whole. When Volution listed in 2014, the remuneration
packages for the Executive Directors were set conservatively
to reflect Volution’s status as a newly listed company. Over the
period since IPO, Volution has smoothly transitioned from a
private company to an established public company, and the
CEO and CFO have developed into the role of Executive Directors
of a listed company.
The Remuneration Policy has been updated (see pages 69 to 75
for more detail) to incorporate a number of best practice features
and to further align the Executive Directors with shareholders.
These changes include:
> increase to the annual bonus deferral requirements –
one-third of the total bonus will now be deferred into shares;
> increase to the share ownership guidelines –
increased to 200% of salary;
> more stringent malus and clawback provisions –
clawback extended to the cash part of the annual bonus; and
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Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Review of remuneration arrangements continued
> holding period incorporated –
the Policy has been updated to reflect the introduction of the
two-year holding period under the Long Term Incentive Plan
(LTIP) which was introduced for 2016/17 LTIP grants.
of a listed company, the Committee is proposing an increase
to the 2017/18 maximum annual bonus opportunity and to the
2017/18 LTIP award, in line with the Remuneration Policy being
put forward at the 2017 AGM. These changes are in addition
to the best practice features that have also been introduced.
As part of the Policy review, the Committee discussed the variable
incentive limits, as set out in the Policy, in light of the performance
of the Group since IPO and the strategic priorities of the business
going forward. Taking this into account, the Committee believes
an increase to the maximum bonus opportunity to 150% of salary
(from 100% of salary), along with the best practice features set
out above, is appropriate. Whilst the maximum bonus opportunity
permissible under the proposed Policy will be increased from 100%
to 150% of salary, it is the Committee’s intention that the total
variable pay (annual bonus plus LTIP) maximum opportunity will
remain the same at 275% of salary, as it is in the previous Policy.
These changes will provide the Committee with flexibility to change
the annual bonus and LTIP balance, if appropriate, subject to an
overall maximum of 275% of salary.
Performance in 2016/17 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 87.8% of salary to Ronnie George
and 87.8% 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 existing 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 79.
The 2014 LTIP award, being the first grant after our IPO, had a
performance period ending on 31 July 2017 and is due to vest
in October 2017. Due to strong EPS growth and total shareholder
return performance over the period, the 2014 LTIP awards will
vest at 72% of maximum for both Ronnie George and Ian Dew.
Further details can be found on page 78.
Remuneration decisions for 2017/18
As part of the review of remuneration arrangements set out above,
we assessed the base salaries of the Chief Executive Officer and
the Chief Financial Officer. The Committee determined that they
should both be awarded an increase in base salary in line with the
wider workforce equal to 2% with effect from 1 August 2017.
Since listing in June 2014, the Company has grown in complexity,
successfully completed seven important acquisitions and delivered
strong financial results. To ensure the Chief Executive Officer and
Chief Financial Officer are incentivised to continue the successful
execution of the Group strategy and ensure continued strong
financial results, as well as taking into account the development
and performance of the CEO and the CFO as Executive Directors
68
The Chief Executive Officer’s maximum annual bonus opportunity
for 2017/18 will be 125% of base salary, with one-third to be deferred
into shares to be held for at least two years after payment.
The CEO’s award of shares under the LTIP will be 150% of base
salary and the two-year holding period following the end of the
three-year performance period will apply as it did last year.
The Chief Financial Officer’s maximum annual bonus opportunity
for 2017/18 will be 125% of base salary with one-third to be
deferred into shares to be held for at least two years after payment.
The CFO’s award of shares under the LTIP will be 125% of base
salary and the two-year holding period following the end of the
three-year performance period will apply as it did last year.
The Committee is mindful of the fact that the fixed elements
of the remuneration package remain conservatively positioned
against the market – however, we are of the view that greater
emphasis should be given to the variable pay arrangements in
order to manage the fixed costs and to ensure executives only
benefit if the Company performs well against the targets set.
Taking into account feedback from shareholders and the current
focus of the Group, the Committee is also proposing to make
some changes to the annual bonus and LTIP performance
measures, further detail of which can be found on page 83.
The Committee will continue its policy of setting stretching 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.
We have communicated with our major shareholders on the
proposed changes to the Remuneration Policy together with the
changes set out above on the remuneration decisions for 2017/18
and we have been pleased with the broad support for the proposals.
Sharesave Scheme
In addition to the above, we are also implementing an all-employee
Sharesave Scheme, which is being put forward for shareholder
approval at the 2017 AGM, to enable employees to invest in the
future of the Group and encourage wider share ownership.
Annual General Meeting 2017
On behalf of the Board I would like to thank shareholders for
their continued support and do hope that you will support the
resolutions requesting approval of the new Remuneration Policy
and the Annual Report on Remuneration at this year’s Annual
General Meeting on 13 December.
Anthony Reading, MBE
Chairman of the Remuneration Committee
10 October 2017
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Policy Report
This section of the Directors’ Remuneration Report sets out the Remuneration Policy (the Policy) for Executive and Non-Executive Directors,
which shareholders are being asked to approve by binding shareholder vote at the Annual General Meeting in December 2017.
Subject to the passing of that resolution, the Policy will become effective on 13 December 2017.
Key changes made to the Policy that was approved by shareholders at the 2014 AGM are as follows, with more detail set out in the
Chairman’s letter and the Annual Report on Remuneration:
> an increase in the maximum opportunity available under the Annual Bonus Plan (notwithstanding that the total variable pay
(ABP plus LTIP) will be subject to an overall cap in line with the previous Directors’ Remuneration Policy, being 275% of salary);
> an increase in the annual bonus deferral requirements;
> an increase in share ownership guidelines;
> a strengthening of the current malus and clawback provisions; and
> formally incorporating the holding period, which was introduced last year, into the Policy.
In addition to the above, minor changes have been made to align the Policy with evolving investor guidance and to clarify the scope
of the practical operation of the Policy (in particular in respect of the clawback provisions) to reflect market practice.
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:
> Company performance and external
market conditions;
> pay and conditions elsewhere in
the Group;
> role, experience and personal
performance; and
> salary levels at companies of a similar
size and complexity.
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,
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 to attract, retain and
reward Executive Directors of the required calibre to successfully deliver Company strategy.
Executive Directors may receive an
employer’s pension contribution to a
personal or Group pension scheme and/or
any other arrangement the Committee
considers has the same economic benefit
(including a cash allowance).
15% of base salary.
N/A
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Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
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.
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, one-third of any annual bonus
payment earned by the Executive Directors
will be deferred into awards over the
Company’s shares under the Company’s
Deferred Share Bonus Plan (DSBP) which
normally vest after at least two years.
150% of base salary (subject to a
combined Annual Bonus Plan
opportunity and Long Term Incentive
Plan award cap of 275% of salary in
respect of any financial year).
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.
On-target bonus is set at 60% of the
maximum opportunity.
The Committee retains the discretion to
vary the level of bonus paid away from
the formulaic outcome to reflect overall
Company and individual performance.
Long Term Incentive Plan (LTIP)
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.
Vesting of the awards is dependent on the
achievement of performance targets set by the
Committee, measured over a period of at least
three years. Shares will then normally be
subject to an additional two-year holding
period. During this holding period, no further
performance measures will apply.
175% of base salary as permitted by the
plan rules (subject to a combined Annual
Bonus Plan opportunity and Long Term
Incentive Plan award cap of 275% of
salary in respect of any financial year).
Awards vest based on challenging
financial, operational or share
price targets.
At least 50% will be based on financial
and/or share price-based measures.
No more than 25% vests at threshold
with 100% of awards vesting at
maximum performance.
Other benefits
Purpose and link to strategy: To provide a market-competitive package of benefits consistent with the role to attract, retain and
reward Executive Directors of the required calibre to successfully deliver Company strategy.
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 (for the Executive Director and their
immediate family) and relocation benefits.
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 and the individual’s personal
circumstances.
N/A
Executive Directors are also eligible to participate
in any all-employee share plans on the same
basis as other eligible employees.
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Governance ReportVolution Group plcAnnual Report 2017 Remuneration Policy table continued
Operation
Share ownership guidelines
Maximum opportunity
Performance metrics
Purpose and link to strategy: To provide close alignment between the longer-term interests of Executive Directors and shareholders.
200% of base salary.
N/A
Executive Directors are expected to achieve and
retain a holding of the Company’s shares worth
200% of their base salary.
It is expected that Executive Directors will retain at
least 50% of any shares delivered under the DSBP
and LTIP, after the deduction of applicable taxes,
until the guideline is met.
Chairman and Non-Executive Director fees
Purpose and link to strategy: To enable the Company to attract and retain Non-Executive Directors of the required calibre
by offering market-competitive fees.
Fees are 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 or for an
increased time commitment.
The Committee reviews the fees paid to the
Chairman and the Board reviews the fees paid
to the Non-Executive Directors, periodically, with
reference to the time commitment of the role and
market levels in companies of comparable size
and complexity.
Non-Executive Directors shall be entitled to have
reimbursed all expenses (such as their travel to
Board meetings), and any associated tax, that they
reasonably incur in the performance of their duties.
Choice of performance measures and approach to setting
The performance metrics and targets that will be set for the Executive Directors for the ABP and LTIP will be carefully selected to align
closely with the Company’s strategic plan and key performance indicators.
Awards under the ABP will be determined by a combination of financial and strategic objectives appropriate to an individual’s role.
The long-term performance metrics relating to the LTIP awards will be set at the time of each grant but will normally include at least
50% based on financial and/or share price performance in line with the Company’s key strategic objectives.
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.
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Directors’ Remuneration Policy Report continued
Legacy arrangements
The Committee reserves the right to make any remuneration
payments and/or payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the Policy set out
above where the terms of the payment were agreed:
(i) before the 2014 AGM (the date the Company’s first
shareholder-approved Directors’ Remuneration Policy
came into effect);
(ii) before the Policy set out above came into effect, provided
that the terms of the payment were consistent with the
shareholder-approved Directors’ Remuneration Policy in
force at the time they were agreed; or
(iii) 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
awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are “agreed” at the time the
award is granted.
Common award terms
The Committee will operate the LTIP and DSBP in accordance
with the respective rules, the Policy set out above and the Listing
Rules where relevant. Awards under the LTIP and DSBP may:
> be granted as conditional share awards or nil-cost options
or in such other form that the Committee determines has
the same economic effect;
> have any performance conditions applicable to them amended
or substituted by the Committee if an event occurs which causes
the Committee to determine an amended or substituted
performance condition would be more appropriate and not
materially less difficult to satisfy;
> incorporate the right to receive an amount (in cash or additional
shares) equal to the value of dividends which would have been
paid on the shares under an award that vests up to the time
of vesting (or where the award is subject to a holding period,
release). This amount may be calculated assuming that the
dividends have been reinvested in the Company’s shares
on a cumulative basis;
> be settled in cash at the Committee’s discretion; and
> be adjusted in the event of any variation of the Company’s
share capital or any demerger, delisting, special dividend or
other event that may affect the Company’s share price.
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 any awards granted
under the ABP, DSBP and LTIP 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 payment of the cash bonus, and the
earlier of the sixth anniversary of grant and the third anniversary
of satisfying awards for DSBP and LTIP awards.
Takeover or other corporate event
In the event of a change of control, outstanding DSBP awards will
normally vest in full as soon as practicable after the date of the event.
For outstanding LTIP awards, generally the performance period
and holding period applicable to them will end on the date of the
event. The Committee will determine the level of vesting of unvested
awards taking into account the extent to which performance
conditions have been achieved at this point. Unless the Committee
determines otherwise, unvested awards will generally vest on a
time pro-rata basis taking into account the period of time between
grant and the relevant event as a proportion of the vesting period.
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, or 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 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.
72
Governance ReportVolution Group plcAnnual Report 2017 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.
£1,600,000
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£0
£1,566,740
38%
32%
£922,265
16%
32%
£476,090
100%
52%
30%
100%
£325,960
Long-term variable remuneration
Annual variable remuneration
Fixed remuneration
£1,001,960
34%
34%
32%
£613,260
14%
33%
53%
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 2017
> Benefits – as set out in the single figure table for the 2016/17 year
> 15% of base salary pension contributions
Variable pay
Below threshold performance
> No payout under the ABP
> No vesting under the LTIP
In line with expectations
Maximum performance
> 60% of the maximum potential payout under the ABP
> 25% vesting under the LTIP, assuming awards equivalent to 150% and
125% of base salary are granted to the CEO and the CFO, respectively
> 100% of the maximum potential payout under the ABP (i.e. 125% of base salary)
> 100% vesting under the LTIP, assuming awards equivalent to 150% and
125% of base salary are granted to the CEO and the CFO, respectively
Note
LTIP awards have been shown at face value with no share price growth, dividends or discount rate assumptions.
External appointments of Executive Directors
The Board allows Executive Directors to accept one external commercial non-executive director appointment provided the
commitment is compatible with their duties as an Executive Director. The Executive Director concerned may retain fees paid for these
services which will be subject to approval by the Board. Currently, neither of the Executive Directors holds an external directorship.
73
Governance ReportVolution Group plcAnnual Report 2017
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report continued
Approach to recruitment
Service agreements and letters of appointment
The Committee will aim to set a new Executive Director’s
remuneration package in line with the Policy approved
by shareholders.
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.
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 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 a three-year term which is
renewable and is terminable by the Company or the individual on
one month’s written notice.
The maximum level of variable remuneration (excluding any buy-outs)
in respect of an appointment will be in line with the maximum 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.
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 Policy. The
length of service and notice periods will 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 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.
The terms of the Non-Executive Directors’ positions are subject
to their election by the Company’s shareholders at the Annual
General Meeting 2017. 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.
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 2017 AGM.
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 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
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. Payments are subject to mitigation in the event
alternative employment is taken up during the notice period.
74
Governance ReportVolution Group plcAnnual Report 2017 Policy on Directors leaving the Group continued
Discretionary bonus payments will not form part of any payments
made in lieu of notice. Annual bonus may be payable, at the
Committee’s discretion, with respect to the period of the financial
year served although it would be normally paid in cash, pro-rated
for time and paid at the normal payment date.
Any share-based entitlements granted to an Executive Director
under the Company’s share plans will be determined based on
the relevant plan rules.
The default treatment under the LTIP is that any outstanding
awards lapse when the individual leaves the Group. However, in
certain prescribed circumstances, such as death, ill health, injury
or disability, transfer of the employing entity outside of the Group
or in other circumstances at the discretion of the Committee
(except where the Director is summarily dismissed), “good leaver”
status may be applied.
For good leavers, LTIP awards will normally continue until the
normal vesting date, or when awards are subject to a holding
period, to the end of the holding period, although the Committee
may allow awards to vest (and be released from any holding
periods) as soon as reasonably practicable after leaving in the
case of death or such other circumstances the Committee
considers appropriate. When a good leaver leaves holding
unvested LTIP awards, the award will vest taking into account the
extent to which the performance condition has been satisfied
and, unless the Committee determines otherwise, the period of
time that has elapsed between grant and the date of leaving as a
proportion of the vesting period.
If a participant of the DSBP leaves the Group for any reason, the
award will usually vest in full at the date of cessation, unless the
Committee determines otherwise.
In the event that a buy-out award is made on recruitment, the
leaver provisions would be determined at the time of the award.
Differences in Policy for Executive Directors
compared to other employees
The Committee has regard to pay structures across the wider Group
when setting the Policy for Executive Directors. The Committee
considers the general basic salary increase for the broader
workforce when determining the annual salary review for the
Executive Directors.
Overall, the Policy for the Executive Directors is more heavily weighted
towards performance-related pay than for other employees.
The level of performance-related pay varies within the Group by
grade of employee and is calculated by reference to the specific
responsibilities of each role as appropriate.
Statement of consideration of employment conditions
elsewhere in the Group
Although pay and employment conditions elsewhere in the Group
are taken into account to ensure the relationship between the pay
of Executive Directors and employees remains appropriate, the
Committee does not consult with employees when formulating
the Policy.
Consideration of shareholder views
We take an active interest in shareholder views on our executive
remuneration policy. The Committee is also committed to maintaining
an ongoing dialogue with major shareholders and shareholder
representative bodies whenever material changes are under
consideration. The Committee consulted with shareholders
and proxy voting agencies when formulating this Policy.
75
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Annual Report on Remuneration
This section provides details of how the Remuneration Policy (the Policy) was implemented during the year and how the Remuneration
Committee (the Committee) intends to apply the new Policy submitted to the 2017 AGM for shareholder approval, in the financial year
2017/18. 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 2017 AGM.
Role of the Committee
Meetings
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;
The Committee met four times during the year and has had two
meetings to date in 2017/18. Committee member attendance
can be found in the table of Board and Committee attendance
on page 54.
Committee activity and key decisions during the year
ended 31 July 2017
Matters considered and decisions reached by the Committee
during the year included:
> reviewed the Policy which was last approved by shareholders
at the 2014 AGM and recommended a new Policy for approval
by shareholders at the 2017 AGM;
> considered and approved the Directors’ Remuneration
Report 2015/16;
> determine the remuneration, including pension arrangements,
> reviewed outcomes and approved payments for Executive
of the Executive Directors;
Director and Senior Management Team bonuses for 2015/16;
> monitor and make recommendations in respect of
> reviewed and approved the parameters of the ABP, including
remuneration for the tier of senior management one level
below that of the Board;
performance measures and targets for 2016/17 for the
Executive Directors and Senior Management Team;
> approve annual and long-term incentive arrangements
> considered and approved the LTIP awards to the Executive
together with their targets and levels of awards;
Directors and Senior Management Team for 2016/17;
> determine the level of fees for the Chairman of the Board; and
> reviewed market trends and developments in executive
> select and appoint the external advisers to the Committee.
Membership
The Committee currently comprises four independent Non-Executive
Directors, Tony Reading, Adrian Barden, Paul Hollingworth and
Claire Tiney (appointed to the Board and Committee on
3 August 2016), and the Chairman of the Board, Peter Hill.
Adrian Barden will retire from the Board and the Committee at the
conclusion of the Annual General Meeting on 13 December 2017.
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.
remuneration in advance of considering Executive Director
and Senior Management Team remuneration proposals
for 2017/18;
> reviewed and approved the Executive Director and
Senior Management Team salaries for 2017/18;
> reviewed and approved the parameters of the ABP, including
performance measures for 2017/18 for the Executive Directors
and Senior Management Team;
> reviewed and approved the performance measures to be
used for any LTIP awards made during 2017/18;
> agreed the process for consultation with shareholders
on the Policy;
> considered and approved the introduction of an all-employee
Sharesave Scheme; and
> evaluated the performance of the Committee.
76
Governance ReportVolution Group plcAnnual Report 2017 Committee performance evaluation
During the year, the Board appointed an independent specialist corporate governance consultancy, Lintstock, to conduct a formal
externally facilitated evaluation of the performance of the Board, its Committees, the Directors and the Chairman in compliance with
the Code. Further details can be found in the Governance Report on page 55. I am pleased to confirm that this process concluded
that the Committee had fulfilled its role effectively and did not identify any significant development points requiring action.
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 £27,550 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 IFRS2 valuation advice and all-employee share plan advice 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 2017 and 31 July 2016.
Salary and fees
Benefits1
Pension2
Annual bonus3
Long-term
incentives4
Other
Total
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
Chairman
Peter Hill
Executive Directors
Ronnie George
Ian Dew
Non-Executive Directors
Adrian Barden5
Gavin Chittick6
Paul Hollingworth
Tony Reading
Claire Tiney7
139
135
—
—
—
—
—
—
—
—
—
— 139
135
389
265
353
253
46
—
56
61
46
45
—
55
60
—
22
18
—
—
—
—
—
12
12
—
—
—
—
—
51
35
—
—
—
—
—
47
34
—
—
—
—
—
341
232
226
162
355
254
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 1,158
—
804
638
461
—
—
—
—
—
46
—
56
61
46
45
—
55
60
—
Notes
1. Benefits include an annual car allowance, life assurance equivalent to four times annual salary and private medical 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 2016/17 relates to annual incentive payments for performance in that financial year. The calculation of this amount is set out on page 78.
50% of the 2016/17 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 £54,030 and Ian Dew will be awarded shares equivalent to £36,839.
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 had a performance period that ended on 31 July 2017, and this has been included in the table above. This award is
due to vest in October 2017 and therefore the value included in the table above represents an estimated value using the average share price of 192.47 pence
over the three months to 31 July 2017. As a result of no LTIP awards having a performance period ending in 2016, there is a zero figure in the 2016 column.
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.
7. Claire Tiney joined the Board on 3 August 2016.
77
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Annual Bonus Plan (ABP) (audited)
The operation of the ABP during the year ended 31 July 2017 was consistent with the framework set out in the 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. In the 2016 Directors’ Remuneration Report we stated that the weightings of the
annual bonus performance measures for the year ending 31 July 2017 would be the same as the previous year. However, when the
performance targets were set at the beginning of the year, the Remuneration Committee decided to decrease the weighting on adjusted
operating profit to 43% (from 50%) and increase the weighting on adjusted EPS to 42% (from 35%). This was considered appropriate
to ensure that the annual bonus performance measures were suitably balanced, given that both adjusted operating profit and adjusted
EPS are key strategic measures for the Company and closely monitored by shareholders. The actual 2016/17 weightings continue to
be consistent with our Policy.
Measure
Strategic objective
Weighting
Threshold
Target Maximum
Actual
performance
Payment
(% of
maximum)
Payment
(% of
base salary)
Adjusted operating profit To increase profit
43% £32.6m £34.3m £36.0m
£35.3m
83.2%
35.8%
Adjusted EPS
Creation of shareholder value
42%
12.5p
12.95p
13.4p
13.6p
100%
42.0%
Working
capital management
Delivering efficiency of working
capital and cash generation
Group employee
retention
To continue to retain
our skilled employees
10% £23.7m £23.3m £22.3m
£18.8m
100%
10.0%
5%
93.5%
94.0%
95.0%
88.5%
0%
0%
Total
87.8%
Note
All measures exclude unbudgeted acquisitions completed during the year except adjusted EPS.
Long Term Incentive Plan vesting of 2014 Awards
The LTIP values included in the single total figure of remuneration table for 2017 relate to the 2014 LTIP award, being the first LTIP
award granted after our IPO. Awards with a face value of 100% of salary were granted to the Executive Directors in October 2014,
and following a three-year performance period ending on 31 July 2017, are due to vest in October 2017. Performance against the
performance targets is set out below:
Weighting
(% of total
award) 1
Below
threshold
(0% vesting)
Threshold
(25% vesting)
Maximum
(100% vesting)
TSR vs Direct Peer Group index2
25% Below index Equal to index
Index
+ 8% p.a.
Actual
performance
outcome
Vesting
(% of
maximum)
Below index
0%
TSR vs FTSE companies
of a similar size3
25%
Less than
median
Median
Upper
quartile
Ranked 12.5 out
of 41 companies
Cumulative average EPS growth
50% Below 6% p.a.
6% p.a.
15% p.a.
15.5% p.a.
Total vesting (% of maximum)
Notes
1. Awards vest on a straight line basis between these points.
89%
100%
72%
2. Direct Peer Group index is an index comprised of Polypipe, Tyman, Topps Tiles, Marshalls, Safestyle, Epwin Group and Norcros.
3. The companies of a similar size represent the group of 50 companies above and below the Company in terms of market capitalisation (excluding financial
services and oil and gas companies). Since the start of the performance period, nine companies originally included in the peer group have delisted and
subsequently been excluded from the group.
78
Governance ReportVolution Group plcAnnual Report 2017 Share awards granted during the year (audited)
Long Term Incentive Plan (LTIP)
2016/17 Awards
During the year the Committee made awards under the LTIP in accordance with the 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 2019, 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 17 November 2016 were as follows:
Executive Director
Ronnie George
Ian Dew
Number
of shares
228,735
155,955
Base price
Face value 1
Face value
% of base salary
£1.70
£388,850
£1.70
£265,125
100%
100%
Release date 2
Expiry date
18 October 2021
17 October 2026
18 October 2021
17 October 2026
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.
2. The LTIP awards were granted with a three-year performance period and an additional two-year holding period.
Deferred Share Bonus Plan (DSBP)
2016/17 Awards (audited)
As set out in the 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 17 October 2016, the Executive Directors received an award of shares under the Deferred Share Bonus Plan relating to the 2015/16
annual bonus. The value of these shares is included in the annual bonus figure in the 2016/17 single total figure of remuneration.
No further performance conditions apply to these shares.
The DSBP awards made on 17 October 2016 were as follows:
Executive Director
Ronnie George
Ian Dew
Number of shares
Base price
Face value 1
Vesting date
4,106
2,933
£1.70
£1.70
£6,981
17 October 2019
£4,987
17 October 2019
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.
79
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Annual Report on Remuneration continued
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
2016
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
2017
Face value
at date
of grant
£1
Earliest
release
date 2
Expiry
date
Name/Plan
Ronnie George
LTIP 20143
29/10/2014
243,325
LTIP 2015
LTIP 2016
19/11/2015
188,533
17/10/2016
—
228,735
DSBP 2015
19/11/2015
DSBP 2016
17/10/2016
4,666
—
—
4,106
Total
Ian Dew
436,524
232,841
LTIP 20143
29/10/2014
173,804
LTIP 2015
LTIP 2016
19/11/2015
134,666
17/10/2016
—
155,955
DSBP 2015
19/11/2015
DSBP 2016
17/10/2016
3,333
—
—
2,933
Total
311,803
158,888
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 243,325
349,998 29/10/2017 29/10/2024
— 188,533
353,499 19/11/2018 19/11/2025
— 228,735
388,850 18/10/2021 18/10/2026
—
—
4,666
4,106
8,749 19/11/2018
6,981 17/10/2019
N/A
N/A
— 669,365
1,108,077
— 173,804
249,999 29/10/2017 29/10/2024
— 134,666
252,499 19/11/2018 19/11/2025
— 155,955
265,125 18/10/2021 18/10/2026
—
—
—
3,333
2,933
6,249 19/11/2018
4,987 17/10/2019
N/A
N/A
470,691
778,859
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, £1.875 for the LTIP 2015 and DSBP 2015 and £1.70 for
the LTIP 2016 and DSBP 2016.
2. LTIP 2016 awards were granted with a three-year performance period and an additional two-year holding period.
3. LTIP 2014 awards had a performance period ending on 31 July 2017. 72% of the award will vest in October 2017, with further detail set out on page 78.
Employee Benefit Trust
The Volution Employee Benefit Trust (EBT) currently holds 1,166,878 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.
80
Governance ReportVolution Group plcAnnual Report 2017
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, during the year the Company had share ownership guidelines in place which stated that Executive
Directors were expected to achieve and retain a holding of the Company’s shares equal to 100% of their base salary. As set out in the
new proposed Remuneration Policy, this is being increased to 200% of salary. It should be noted that both the Executive Directors
currently have shareholdings well in excess of 200% 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 2017 (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 2017 and the date of this report.
Chairman
Peter Hill
Executive Directors
Ronnie George
Ian Dew
Non-Executive Directors
Adrian Barden
Paul Hollingworth
Tony Reading
Claire Tiney
Shares held
beneficially at
1 August 20161
Shares held
beneficially at
31 July 20171
Beneficial
shareholding
at 31 July 2017
(% 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
2,751%
614%
107,725
19,333
60,000
—
107,725
19,333
70,000
2,869
N/A
N/A
N/A
N/A
N/A
Yes
Yes
N/A
N/A
N/A
N/A
—
—
660,593
464,425
8,772
6,266
—
—
—
—
—
—
—
—
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 2017 using the share price on that date of 190.25 pence
per share.
3. LTIP awards in this column consist of all awards granted as at the date of this report which are structured as nil-cost options subject to the same performance
conditions (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 financial years.
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.
81
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Annual Report on Remuneration continued
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
(31/07/14)
(23/06/14)
2015 year end
(31/07/15)
2016 year end
(31/07/16)
2017 year end
(31/07/17)
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)
1,158
87.8%
72.1%
638
64%
N/A
643
65%
N/A
1,061
100%
N/A
428
54.8%
N/A
2017
2016
2015
2014
2013
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
10.0%
66.7%
46.5%
4.8%
(1.9)%
24.3%
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 costs1
Distributions to shareholders
Adjusted operating profit
2017
£m
47.6
7.9
35.6
2016
£m
38.3
6.9
32.5
%
change
24.2
14.1
9.6
Note
1. The increase in employee remuneration costs is due to the increasing employee population resulting from the acquisitions made during the year.
82
Governance ReportVolution Group plcAnnual Report 2017
Statement of implementation of Remuneration Policy
for the financial year ending 31 July 2018
As set out in the Remuneration Committee Chairman’s letter, the 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 (the Policy) for the 2017/18 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.
The Committee determined that they should both be awarded an increase in base salary in line with the wider workforce equal
to 2% with effect from 1 August 2017, taking the base salary for Ronnie George to £396,600 and for Ian Dew to £270,400.
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 private medical insurance.
Annual Bonus Plan (ABP) and Long Term Incentive Plan (LTIP)
Award levels and time horizons
Following the review, it was recognised that since listing in June 2014 the Company had grown in complexity, successfully completed
seven important acquisitions and delivered strong financial results. To ensure the Chief Executive Officer and Chief Financial Officer are
incentivised to continue the successful execution of the Group strategy and ensure continued strong financial results, the Committee
is proposing to increase the annual bonus maximum opportunity for 2017/18 to 125% of salary for both the CEO and the CFO
(in line with the proposed new Policy), and the 2017/18 LTIP awards to 150% of salary for the CEO and 125% of salary for the CFO.
At the same time, the Committee is increasing the annual bonus plan deferral requirements so that one-third of the total bonus is
now deferred into shares. This will result in significantly more of the bonus being deferred into shares, creating further alignment with
shareholders. The LTIP will continue to be subject to a two-year holding period following the end of the three-year performance period.
Annual Bonus Plan performance measures
Following the review and feedback from shareholders, it was determined that the ABP performance measures would be changed for
the year ended 31 July 2018 in order to further align the interests of the Executive Directors with shareholders. Taking into account this
feedback from shareholders, the Committee has increased the weighting of the EPS measure and reduced the weighting of the adjusted
operating profit measure, whilst keeping the total percentage of the bonus based on profit measures the same as last year (85%).
The Committee has also determined that the Group employee retention measure is no longer as relevant to measuring the success
of the business and it will therefore not be used as a measure for the 2017/18 ABP. Instead, there will be an increased weighting on
working capital management, which remains a focus for management. The Committee is aware of the current trend of a “simplification”
of incentive arrangements in the UK listed environment. These changes reduce the number of performance measures used (from four
to three), therefore simplifying the arrangements in place at Volution. The performance measures and weightings for the year ended
31 July 2018 will therefore become adjusted operating profit (35%), adjusted EPS (50%) and working capital management (15%).
The targets set for the year ended 31 July 2018 will be disclosed in the next Annual Report on Remuneration, unless they remain
commercially sensitive.
Long Term Incentive Plan performance measures
Following the review and feedback from shareholders, it was determined that the LTIP framework would remain the same but the
performance measures would be changed for the year ended 31 July 2018, in order to further align the interests of the Executive
Directors with shareholders. The performance measures to be used for the LTIP awards will give much greater emphasis to EPS
growth (75%) and will use a single measure of Total Shareholder Return, TSR vs Direct Peer Group (25%). The Total Shareholder
Return measure of TSR vs FTSE companies of a similar size used last year will no longer be used. The Committee determined that
the TSR vs Direct Peer Group was the more appropriate measure to retain as it measures the performance of Volution against our
peer group. Again, these changes simplify the incentive arrangements in place by reducing the number of performance measures
from three to two.
83
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Remuneration Report continued
Statement of implementation of Remuneration Policy
for the financial year ending 31 July 2018 continued
Share ownership guidelines
Share ownership guidelines are to be increased to 200% of salary (from 100% of salary) to improve the alignment between Executive
Directors and shareholders.
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 last reviewed in July 2016 and the next review is due in July
2018. Accordingly, they will remain unchanged for the year ended 31 July 2018.
The fees with effect from 1 August 2017 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 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 2016 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
167,666,621
99.99
30
0.01
8,978,259
Approval
This Directors’ Remuneration Report was approved by the Board of Directors on 10 October 2017 and signed on its behalf by the
Remuneration Committee chairman.
Anthony Reading, MBE
Chairman of the Remuneration Committee
10 October 2017
84
Governance ReportVolution Group plcAnnual Report 2017 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 2017.
This Directors’ Report includes additional information required
to be disclosed under the Companies Act 2006, the Code,
the Disclosure, Guidance and Transparency Rules (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 45;
> the Governance Report on pages 46 to 87;
> information relating to financial instruments, as set out in note 23
to the consolidated financial statements; and
> related party transactions as set out in note 29 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 98.
An interim dividend of 1.35 pence per share was paid to
shareholders on 4 May 2017 and the Directors are recommending
a final dividend in respect of the financial year ended 31 July 2017
of 2.80 pence per share. If approved, the final dividend will be
paid on 18 December 2017 to shareholders on the register
on 24 November 2017. The total dividend paid and proposed
for the year amounts to 4.15 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 2017.
As at 31 July 2017 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 2017 are shown in note 25 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.
At the AGM in 2016, the Company was authorised by members
to purchase up to a maximum of 19,908,312 of its own shares.
During the financial year ended 31 July 2017, 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 (Windmill Holdings B.V.) 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 86.
The Company has in place certain share incentive plans and details
can be found on pages 78 to 80. 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 67 to 84.
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 2017 and as at the
date of this report, there were 1,166,878 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 25 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.
85
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Report continued
Substantial shareholdings
Appointment and removal of Directors
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:
Name of holder
PrimeStone Capital LLP
Standard Life Aberdeen plc
FMR LLC
Baillie Gifford & Co
Total holding
of shares
26,130,940
13,496,183
12,731,662
11,343,105
Lazard Asset Management LLC
9,832,096
UBS Global Asset Management
6,413,511
% of total
voting rights
13.14%
6.78%
6.40%
5.70%
4.94%
3.23%
Relationship Agreement
On 18 June 2014, prior to listing, the Company and our then
controlling shareholder (Windmill Holdings B.V.) entered into a
Relationship Agreement, the principal purpose of which was to
ensure that the Company was capable at all times of carrying on
its business independently of the controlling shareholder and its
associates and to ensure all transactions and arrangements
between it and the Group would be conducted at arm’s length
and on normal commercial terms.
On 8 April 2016, Windmill Holdings B.V. reduced its shareholding
to 22.38% of the Company’s share capital and accordingly ceased
to be a controlling shareholder at that date. On 31 October 2016,
Windmill Holdings B.V. disposed of its remaining shareholding in
the Company at which point the Relationship Agreement ended.
From the start of the financial year until that date, the terms of the
Relationship Agreement remained unchanged.
The Board can confirm that from the start of the financial year until
31 October 2016, the Company complied with the independence
provisions and, so far as the Board is aware, the independence
provisions were also complied with by Windmill Holdings B.V.
and its associates.
Directors
The Directors of the Company and their biographies are set out
on pages 46 to 47. Their interests in the ordinary shares of the
Company are shown in the Directors’ Remuneration Report
on page 81. Claire Tiney was appointed as an independent
Non-Executive Director during the financial year and her
biography is set out on page 47.
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) held 15% or
more of the voting rights over the Company’s shares. The Relationship
Agreement ended on 31 October 2016 and from the start of the
financial year until that date, no representative Director sat on the
Board 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.
Directors’ indemnities and insurance
The Articles of Association of the Company permit it to indemnify
the Directors of the Company against liabilities arising from or in
connection with the execution of their duties or powers to the
extent permitted by law.
The Company has directors’ and officers’ indemnity insurance
in place in respect of each of the Directors. The Company has
entered into a qualifying third party indemnity (the terms of which
are in accordance with the Companies Act 2006) with each of the
Directors. Neither the indemnity nor insurance provide cover in the
event that a Director or officer is proved to have acted fraudulently.
Transactions with related parties
Details of the transactions entered into by the Company with
parties who are related to it are set out in note 29 to the
consolidated financial statements.
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 ended on 31 October 2016 and
described 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.
86
Governance ReportVolution Group plcAnnual Report 2017 Change of control
Annual General Meeting
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 23 to the
consolidated financial statements.
The provisions of the Company’s share incentive plans may
cause options and awards granted to employees under such
plans to vest on takeover.
The Company does not have agreements with any Director that
would provide compensation for loss of office or employment
resulting from a change of control.
Amendments to the Company’s Articles of Association
The Company may alter its Articles of Association by special
resolution passed at a general meeting of shareholders.
Political donations
The Annual General Meeting will be held at 12.00 noon on
Wednesday 13 December 2017 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.
Auditor and disclosure of information to auditor
Each of the Directors in office at the date when this Annual
Report and Accounts was approved confirms that:
> 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.
The Group has not made in the past, nor does it intend to make
in the future, any political donations.
By order of the Board
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 33.
Michael Anscombe
Company Secretary
10 October 2017
Viability Statement
In accordance with the UK Corporate Governance Code 2016
(provision C.2.2), 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 33.
Volution Group plc
Registered office: Fleming Way, Crawley, West Sussex RH10 9YX
Company number: 09041571
87
Governance ReportVolution Group plcAnnual Report 2017 Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with IFRS as adopted by the EU and applicable law
and have elected to prepare the parent company financial
statements in accordance with IFRS as adopted by the EU.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent company and
of their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the Directors
are required to:
> select suitable accounting policies and then apply
them consistently;
> make judgements and estimates that are reasonable
and prudent;
> state whether the Group and parent company financial
statements have been prepared in accordance with IFRS
as adopted by the EU; 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.
Responsibility statement of Directors in respect
of the Annual Report and the financial statements
We confirm that to the best of our knowledge:
> the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Group and the undertakings included in the
consolidation taken as a whole;
> the Strategic Report and the Directors’ Report include a fair
review of the development and performance of the business
and the position of the issuer and the undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; 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.
By order of the Board
Ronnie George
Chief Executive Officer
10 October 2017
Ian Dew
Chief Financial Officer
10 October 2017
88
Governance ReportVolution Group plcAnnual Report 2017 Independent Auditor’s Report
to the members of Volution Group plc
Our opinion on the financial statements
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 2017 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 as
adopted by the European Union (IFRS);
> the parent company financial statements have been properly prepared in accordance with IFRS 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.
What we have audited
We have audited the Annual Report and Accounts of Volution Group plc for the year ended 31 July 2017 which comprise the following:
Group
Parent company
Consolidated statement of comprehensive income
Statement of financial position
Consolidated statement of financial position
Statement of changes in equity
Consolidated statement of changes in equity
Statement of cash flows
Consolidated statement of changes in cash flows
The related notes 1 to 15 to the financial statements including
a summary of significant accounting policies
The related notes 1 to 34 to the financial statements,
including a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards as adopted by the European Union (IFRS) and, as regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our
report below. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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.
89
Volution Group plcAnnual Report 2017Financial Statements Independent Auditor’s Report continued
to the members of Volution Group plc
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to
report to you whether we have anything material to add or draw attention to:
> the disclosures in the Annual Report set out on page 34 that describe the principal risks and explain how they are being managed
or mitigated;
> the Directors’ confirmation set out on page 33 in the Annual Report 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 Directors’ statement set out on page 33 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;
> whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3)
is materially inconsistent with our knowledge obtained in the audit; or
> the Directors’ explanation set out on page 33 in the Annual Report 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.
Overview of our audit approach
Key audit matters
> Impairment of goodwill and other intangible assets, including the re-assessment of Cash Generating Units
(“CGUs”).
> Improper revenue recognition, including accounting for sales rebates.
> Management override in respective of provisions and exceptional items.
Audit scope
> We performed an audit of the complete financial information of four components and audit procedures on
specific balances for a further ten components.
> The components where we performed full or specific audit procedures accounted for 99% of profit before
tax, 91% of revenue and 71% of total assets.
Materiality
> Overall Group materiality of £960k (FY 2016: £970k) which represents 5% of normalised pre-tax earnings
(i.e. profit before tax after adding back non-recurring exceptional items).
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
90
Volution Group plcAnnual Report 2017Financial Statements Key audit matters continued
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 £81.6 million (FY 2016: £68.2 million)
of goodwill and £100.9 million (FY 2016: £105.4 million) of other
intangible assets.
The Group has significant goodwill and other non-current assets, which comprise 66% of the Group’s total assets, and the impairment
review involves a number of subjective assumptions. The additions to goodwill of £13.4 million and other intangible assets of £7.2 million
principally arose from the acquisitions of Breathing Buildings and VoltAir.
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. For intangible assets with an infinite useful life the Group is required to perform a full annual impairment review.
The identification of CGU’s is an important judgement in ascertaining whether the carrying value of goodwill and other intangible assets
is recoverable. The Group changed its assessment of impairment of goodwill allocated to CGU’s in the year.
Key observations communicated
to the Audit Committee
We concluded:
> the carrying value of
goodwill and intangible
assets to be supportable;
> management’s
identification of CGU’s
to be appropriate and in
accordance with changes
to the Group from new
acquisitions; and
> the associated financial
statement disclosures
are appropriate.
Risk
Our response to the risk
Goodwill
The Group is required to
perform an impairment
assessment of goodwill
annually, 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. There is a
risk that the impairment has not
been recognised appropriately.
Goodwill allocated to CGUs
The Group started assessing
impairment of goodwill at an
aggregated regional CGU level
in the current year. This is
different to the grouped CGUs
that were presented in the
prior year. The reasons for the
change have been disclosed in
note 15 to the Annual Report
and Accounts.
We ensured 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 evaluated the reasons for the change in approach to
assessing impairment of goodwill at an aggregated regional
CGU level, which were set forth by management in their
Goodwill impairment memorandum.
> We challenged management’s assessment by reviewing the
internal management reporting of how the business is currently
monitored and agreed this to management’s memorandum.
> We challenged the arguments in the memorandum with
reference to compliance with IFRS and specifically around the
impairment of goodwill allocated to CGU as indicated in IAS36.
> We noted that on a historical basis the goodwill related to the
CGUs would not have been impaired if the evaluation was based
on the previous CGUs.
> We obtained forecasts underlying the impairment review and
agreed these to budgets approved by the Board and against
actual performance in order to ascertained the historical
accuracy of forecasting.
> Our valuation specialists assessed the reasonableness of terminal
growth rates and WACC rates used in the model by comparing
them to similar rates which are representative of the industry in
which the Group operates.
> We made enquiries of the appropriate finance and commercial
personnel to determine whether forecasted performance
significantly deviated from historic performance levels, observable
trends or our expectations.
> We also performed sensitivity analysis on key assumptions
including sensitivities to key drivers such as sales prices and
gross margin.
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 63);
Accounting policies (page 115); and
Note 15 of the consolidated financial statements (page 118).
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Volution Group plcAnnual Report 2017Financial Statements Independent Auditor’s Report continued
to the members of Volution Group plc
Key audit matters continued
Inappropriate revenue recognition, including accounting
for sales rebates.
During the year the Group recognised revenue of £185.1 million
(FY 2016: £154.5 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.
Key observations communicated
to the Audit Committee
We concluded:
> we identified one audit difference
related to revenue, however, this
was not material in the context
of consolidated revenue, or the
consolidated financial statements
as a whole;
> 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.
Risk
Our response to the risk
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
IAS18; and
> judgemental sales
rebate provisions.
We tested the correct application of the timing of revenue
recognition through substantive testing a sample of
revenue transactions before and after the period end
to identify revenue recognised in the incorrect period.
We used data analytics to identify transactions beyond
our expectation of the transaction flow. We also
performed the following:
> Obtained an understanding of the significant classes
of transactions impacting revenue and performing
walkthroughs to confirm our understanding of these
transactions and the controls in place.
> Evaluated the adequacy of the design of the controls on
the significant classes of transactions impacting revenue.
> Performed overall analytical review procedures, which
included comparing actual revenue against budget and
prior year.
> Performed revenue correlation data analytical procedures
on Manrose, which is the only entity that has been on
the new ERP for a full year.
> Tested the application of cut-off and obtained the
incoterms, supporting sales orders, proof of dispatch
and proof of payment for a sample of sales
transactions across all trading companies in scope.
> Tested customer rebate accruals by obtaining formal
agreements with a sample of customers and recalculating
the expected sales rebate. We also noted that a consistent
methodology was applied.
> Circularised a sample of customers with rebate
agreements in place to obtain direct confirmation
of the sales rebate terms entered into.
Instructions to perform the above were issued to all
full and specific procedures scope locations, which
covered 91% of consolidated revenue.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 63);
Accounting policies (page 104); and
Note 3 of the Consolidated Financial Statements (page 104).
92
Volution Group plcAnnual Report 2017Financial Statements Key audit matters continued
Management override arising from the recognition and
valuation of judgemental provisions and journal entries.
Our judgement on the risk profile of the Group:
The risk profile has remained stable.
The Group’s trading transactions principally comprise of 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.
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Judgemental provisions:
We concluded:
We identified risk to be present in
the following:
> Judgemental provisions,
specifically debtors, credit
notes, inventory and warranty
provisions.
> We obtained management’s calculation and
assumptions used for calculating judgemental
provisions. We noted the methodology is appropriate
and consistent with prior years.
> Where management has overridden the provision
> Unauthorised non-standard
journal entries (including
manual journal entries.
amounts calculated, we have enquired of management
for the basis and obtained corroborative evidence to
ensure the rationale is valid.
> 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 inquired of management of the risks of fraud and
the controls put in place to address management override.
> 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.
> provision balances and the
methodology applied were
acceptable;
> the bases for recognising
judgemental provisions were
appropriate; and
> our testing of unusual journal
entries raised at subsidiary and
Group levels did not uncover
any unusual or unauthorised
journal entries.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 63);
Accounting policies (page 131); and
Note 24 of the Consolidated Financial Statements (page 131).
93
Volution Group plcAnnual Report 2017Financial Statements Independent Auditor’s Report continued
to the members of Volution Group plc
Key audit matters continued
Management override arising from the presentation
of recurring items as exceptional.
£1.4 million (FY 2016: £1.2 million) of costs incurred
in the year are classified as exceptional.
Our evaluation on the risk profile of the Group:
The risk profile has remained stable.
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 the treatment of exceptional costs.
Key observations communicated
to the Audit Committee
We concluded that the presentation
of items as exceptional is acceptable.
Risk
Our response to the risk
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 challenged whether items presented as exceptional
meet the definition of “material and non-recurring” and are
consistent with Group accounting policy.
We determined whether the disclosure of exceptional items
is consistent with the nature of exceptional items as
suggested in the FRC’s press release from December 2013.
The audit of judgements made in classifying costs as
exceptional was performed by the Group team.
Supporting references in the Annual Report and Accounts:
The Audit Committee Report (page 63);
Accounting policies (page 107); and
Note 5 of the Consolidated Financial Statements (page 107).
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into
account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment
and other factors such as recent Internal audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 23 reporting components of the Group, we selected 14 components covering
entities within Sweden, Belgium, Germany and the United Kingdom, which represent the principal business units within the Group.
Of the 14 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 ten components (“specific scope components”), we
performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact
on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
We have set out below the details of our audit procedures:
% of Group profit before tax and
non-recurring exceptional items
% of Group revenue
% of Group total assets
2017
2016
2017
2016
2017
2016
Reporting components where we
performed audit procedures
Full scope
Specific scope
99%
57%
42%
99%
69%
30%
91%
53%
38%
95%
61%
34%
80%
54%
17%
80%
53%
17%
94
Volution Group plcAnnual Report 2017Financial Statements An overview of the scope of our audit continued
Tailoring the scope continued
The audit scope of these components may not have included
testing of all significant accounts of the component but will have
contributed to the coverage of significant tested for the Group.
We also instructed three locations to perform specified procedures
over certain aspects of risk of inappropriate revenue recognition
and management override of controls, as described in the Risk
section above.
exceptional items, none are individually greater than 1.0% of the
Group’s profit before tax after adding back non-recurring exceptional
items. For these components, the Group Team performed other
procedures, including analytical review of ‘review scope’ components,
testing of consolidation journals and intercompany eliminations and
foreign currency translation recalculations to respond to any potential
risks of material misstatement to the Group financial statements.
Of the remaining twelve components that together represent 1.0%
of the Group’s profit before tax after adding back non-recurring
The charts below illustrate the coverage obtained from the work
performed by our audit teams.
Revenue
9%
Profit before tax
-1%
Total assets
9%
17%
53%
38%
57%
44%
54%
Specific/Specified scope
Full scope
Other procedure
Changes from the prior year
The Group acquired VoltAir and Breathing Buildings during FY 2017.
The Company has been assigned review scope for the 31 July 2017
Group audit. There are no other changes in Group scope from
the prior year.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at
each of the components by us, as the primary audit engagement
team, or by component auditors from other EY global network
firms operating under our instruction. Of the four full scope
components, all of these were audited directly by the primary
audit team. For the three specific scope components, where the
work was performed by component auditors, 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 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 primary audit team to the component team in
Crawley, Bristol and Cambridge. These visits involved discussing
the audit approach with the component team and any issues arising
from their work, meeting with local management, attending planning
and closing meetings, reviewing key audit working papers on risk
areas. The full scope components are also audited by the primary
team. The Group audit team also attended the German, Sweden
and Benelux closing meeting by telephone.
The primary team interacted regularly with the component teams
where appropriate during various stages of the audit, reviewed
key working papers and were responsible for the scope and
direction of the audit process. We held an audit planning meeting,
which was attended by all component audit teams. 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.
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:
FY 2017
£000
FY 2016
£000
Explanatory
narrative
Materiality
Performance materiality
Reporting threshold
960
720
48
979
734
49
A
B
C
A) Materiality
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.
95
Volution Group plcAnnual Report 2017Financial Statements Independent Auditor’s Report continued
to the members of Volution Group plc
Our application of materiality continued
A) Materiality continued
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%
£000
17,898
1,380
19,278
960
Normalised earnings refers to our estimate of what the
earnings based measure may be if certain factors affecting
earnings are removed. We have used calculated materiality based
on the Group’s profit before tax after adding back non-recurring
exceptional items.
B) Performance materiality
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 was
that performance materiality was 75% (2016: 75%) of our planning
materiality, namely £720k (2016: £734k). We have set performance
materiality at this percentage 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.
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 ranged between £141k to
£317k (2016: £130k to £160k).
C) Reporting threshold
An amount below which identified misstatements are considered
as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of £48k (2016: £47k),
which is set at 5% of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
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
We have no
exceptions
to report.
> 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.
Companies
Act 2006
reporting
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.
We are required to review:
> the Directors’ statement in relation to going concern, which is set out on page 33; and the
longer-term viability, which is set out on page 33; 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.
Listing Rules
review
requirements
96
We have no
exceptions
to report.
We have no
exceptions
to report.
Volution Group plcAnnual Report 2017Financial Statements Opinions on other matters prescribed
by the Companies Act 2006
In our opinion:
> the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006;
> the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
> the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions
of users taken on the basis of these financial statements.
The objectives of our audit, in respect to fraud, are: to identify
and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit
evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate
responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility
for the prevention and detection of fraud rests with both those
charged with governance of the entity and management.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Other matters we are required to address
> adequate accounting records have not been kept by the
> Following the recommendation of the Audit Committee, we
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
> the parent company financial statements and the part of
the Directors’ remuneration report to be audited are not
in agreement with the accounting records and returns; or
> certain disclosures of Directors’ remuneration specified by
law are not made; or
> we have not received all the information and explanations
we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement
set out on page 88, the Directors are responsible for the preparation
of the financial statements and for being satisfied that give a true
and fair view in accordance, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible
for assessing the Group and Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or the Company
or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
were appointed as auditors by the Board of Directors and signed
an engagement letter on 16 May 2016. We were appointed
by the Company at the AGM on 9 December 2016 to audit
the financial statements for the year ending 31 July 2017
and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals
and reappointments is four years, covering the years ending
31 July 2014 to 31 July 2017.
> The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the Company
and we remain independent of the Group and the Company
in conducting the audit.
> The audit opinion is consistent with the additional report to
the Audit Committee.
Andy Glover (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
10 October 2017
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.
97
Volution Group plcAnnual Report 2017Financial Statements Consolidated Statement of Comprehensive Income
For the year ended 31 July 2017
Revenue
Cost of sales
Gross profit
Administrative and distribution 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 for the year
Total comprehensive income for the year
Earnings per share
Basic and diluted earnings per share
Notes
3
5
6
6
10
2017
£000
185,060
(94,023)
91,037
(69,236)
21,801
(1,380)
20,421
17
(2,540)
17,898
(4,021)
13,877
922
(493)
429
14,306
2016
£000
154,464
(79,098)
75,366
(55,755)
19,611
(1,209)
18,402
1,164
(1,202)
18,364
(2,757)
15,607
3,394
(1,469)
1,925
17,532
11
7.0p
7.8p
98
Volution Group plcAnnual Report 2017Financial Statements Consolidated Statement of Financial Position
At 31 July 2017
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
2017
£000
2016
£000
12
13
14
26
17
18
19
20
21
22
24
26
23
24
26
25
25
19,590
81,584
19,130
68,228
101,006
105,361
810
450
202,990
193,169
22,737
37,231
16
14,499
74,483
20,156
32,935
914
15,744
69,749
277,473
262,918
(40,629)
(35,090)
(2,124)
(3,768)
(1,841)
—
—
(2,472)
(1,268)
(2,395)
(48,362)
(41,225)
(51,088)
(51,235)
(134)
(671)
(17,756)
(16,242)
(68,978)
(68,148)
(117,340)
(109,373)
160,133
153,545
2,000
11,527
(2,027)
93,855
1,289
1,891
51,598
2,000
11,527
(1,533)
93,855
649
1,462
45,585
160,133
153,545
The consolidated financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors
and authorised for issue on 10 October 2017.
On behalf of the Board
Ronnie George
Chief Executive Officer Chief Financial Officer
Ian Dew
99
Volution Group plcAnnual Report 2017Financial Statements Consolidated Statement of Changes in Equity
For the year ended 31 July 2017
Share
capital
£000
2,000
Share
premium
£000
11,527
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Treasury
shares
£000
—
—
—
—
—
(1,533)
—
—
Capital
reserve
£000
92,325
—
—
—
1,530
—
—
—
2,000
11,527
(1,533)
93,855
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(494)
—
—
—
—
—
—
—
—
Share-based
payment
reserve
£000
Foreign
currency
translation
reserve
£000
Retained
earnings
£000
Total
£000
181
(463)
36,876
142,446
—
—
—
—
—
468
—
649
—
—
—
—
640
—
—
—
—
—
—
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
—
429
429
—
—
—
13,877
13,877
—
429
13,877
14,306
—
—
(494)
640
(7,864)
(7,864)
2,000
11,527
(2,027)
93,855
1,289
1,891
51,598
160,133
At 1 August 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Fair value adjustment
Purchase of own shares
Share-based payment
including tax
Dividends paid
At 31 July 2016
Profit for the year
Other comprehensive income
Total comprehensive income
Purchase of own shares
Share-based payment
including tax
Dividends paid
At 31 July 2017
Treasury shares
The treasury shares reserve represents the cost of shares in Volution Group plc purchased in the market and held by the Volution
Employee Benefit Trust to satisfy obligations under the Group’s share incentive schemes.
Capital reserve
The capital reserve is the difference in share capital and reserves arising from the use of the pooling of interest method for preparation
of the financial statements in 2014. This is a non-distributable reserve.
Share-based payment reserve
The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key
management personnel, as part of their remuneration. Refer to note 32 for further detail of these plans.
Foreign currency translation reserve
Exchange differences arising on translation of the Group’s foreign subsidiaries into GBP are included in the foreign currency translation
reserve. The Group hedges some of its exposure to its net investment in foreign operations; foreign exchange gains and losses relating
to the effective portion of the net investment hedge are accounted for by entries made 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 Group, Volution Group plc, had distributable retained earnings at 31 July 2017 of £72,781,000
(2016: £64,368,000).
100
Volution Group plcAnnual Report 2017Financial Statements Consolidated Statement of Cash Flows
For the year ended 31 July 2017
Operating activities
Profit for the year after tax
Adjustments to reconcile profit for the year to net
cash flow from operating activities:
Income tax
(Gain)/loss on disposal of property, plant and equipment
Exceptional items
Cash flows relating to exceptional items
Finance revenue
Finance costs
Share-based payment expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Working capital adjustments:
(Increase)/decrease in trade receivables and other assets
Increase in inventories
Exceptional items: fair value of inventories
Increase/(decrease) in trade and other payables
Movement in provisions
UK income tax paid
Overseas income tax paid
Net cash flow generated 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
Interest paid
Dividends paid
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
Effect of exchange rates on cash and cash equivalents
Notes
2017
£000
2016
£000
13,877
15,607
5
6
6
12
14
14
12
16
4,021
(70)
1,380
(1,166)
(17)
2,540
531
2,836
14,581
(1,053)
(1,147)
(81)
2,391
(106)
(3,466)
(2,119)
32,932
(1,699)
(2,438)
306
2,757
9
1,209
(795)
(1,164)
1,202
431
2,559
12,987
572
(775)
(332)
(41)
186
(3,900)
(1,349)
29,163
(1,626)
(2,879)
162
(18,118)
(24,983)
17
24
(21,932)
(29,302)
(20,778)
17,491
(860)
(7,864)
(494)
(12,505)
(1,505)
15,744
260
(15,291)
28,222
(971)
(6,894)
(1,533)
3,533
3,394
11,565
785
15,744
Cash and cash equivalents at the end of the year
20
14,499
Volution Group plc (the Company) is a public limited company and is incorporated and domiciled in the UK (registered number: 09041571).
The share capital of the Company is listed on the London Stock Exchange. The address of its registered office is Fleming Way, Crawley,
West Sussex RH10 9YX.
101
Volution Group plcAnnual Report 2017Financial Statements Notes to the Consolidated Financial Statements
For the year ended 31 July 2017
1. Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards (IFRS) adopted by the European Union and the Companies Act 2006. The consolidated financial statements have been
prepared under the historical cost convention, except as disclosed in the accounting policies under the relevant notes.
The preparation of the consolidated financial information in conformity with IFRS requires the use of certain critical accounting
estimates and requires management to exercise judgement in the process of applying the Group’s accounting policies. Accounting
policies, including critical accounting judgements and estimates used in the preparation of the financial statements, that relate to a
particular note are described in the specific note to which they relate.
The consolidated financial statements are presented in GBP and all values are rounded to the nearest thousand (£000), except as
otherwise indicated.
The financial information includes all subsidiaries. The results of subsidiaries are included from the date on which effective control is
acquired up to the date control ceases to exist.
Subsidiaries are controlled by the parent (in each relevant period) regardless of the amount of shares owned. Control exists when the
parent has the power, either directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits
from its activities.
The financial statements of subsidiaries are prepared for the same reporting periods using consistent accounting policies. All intercompany
transactions and balances, including unrealised profits arising from intra-group transactions, have been eliminated on consolidation.
We have simplified the presentation in the consolidated statement of comprehensive income this year compared with the prior year
by amalgamating administrative and distribution costs.
Going concern
The Group’s Strategic Report on page 33 shows the Directors’ assessment of the Group’s ability to continue as a going concern.
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence in the foreseeable future, for the period not less than twelve months
from the date of this report.
Foreign currencies
The individual financial statements of each subsidiary are presented in the currency of the primary economic environment in which the
entity operates (its functional currency). For the purpose of the Group financial statements, the results and financial position of each
entity are expressed in GBP (£000), which is the functional currency of the Company and the presentational currency of the Group.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recorded at the rate of exchange prevailing at the dates of the transactions. At the end of each reporting
period, monetary items denominated in foreign currencies are retranslated at the rate prevailing at the end of the reporting period.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the
initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date
the fair value was determined.
For the purpose of presenting consolidated financial information, the assets and liabilities of the Group’s foreign operations are expressed
in GBP using exchange rates prevailing at the end of the reporting period. Income and expenses are translated at the average exchange
rate for the period. Exchange differences arising are classified as other comprehensive income and are transferred to the foreign currency
translation reserve. All other translation differences are taken to profit and loss with the exception of differences on foreign currency
borrowings to the extent that they are used to finance or provide a hedge against Group equity investments in foreign operations,
in which case they are taken directly to reserves together with the exchange difference on the net investment in these operations.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The significant judgements, estimates and assumptions made in these financial statements relate to: Exceptional items (note 5),
Intangible assets – goodwill (note 13), Intangible assets – other (note 14), Impairment assessment of goodwill (note 15), Inventories
(note 17) and Rebates payable (note 21).
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.
102
Volution Group plcAnnual Report 2017Financial Statements 1. Basis of preparation continued
Critical accounting judgements and key sources of estimation uncertainty continued
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant
risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are described
under the relevant notes.
The Group based its assumptions and estimates on parameters available when these financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising
beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
New standards and interpretations
There were no new or amended accounting standards relevant to the Group’s results that are effective for the first time in 2017 that
have a material impact on the Group’s consolidated financial statements.
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.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was issued in July 2014 to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9
has been endorsed by the EU and is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the
Group on 1 August 2018.
IFRS 9 will impact the classification and measurement of the Group’s financial instruments and will require certain additional disclosures.
IFRS 9 also introduces changes to impairments of financial assets, which will result in the Group moving from an incurred loss model
to an expected loss model. Although the new standard will impact the way in which bad debt provisions are calculated, the Group
does not anticipate that the impact of this change will be significant.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers was issued in May 2014 and has been endorsed by the EU. The subsequent
amendments, Clarifications to IFRS 15 issued in April 2016, have not yet been endorsed by the EU. IFRS 15, as amended,
is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Group, subject to EU
endorsement, on 1 August 2018.
The Directors do not consider IFRS 15 to have a significant impact on the recognition of revenue from the sale of goods. However,
revenue which arises from the provision of services will be impacted by the changes in the new standard.
IFRS 16 Leases
IFRS 16 Leases was issued in January 2016 to replace IAS 17 Leases. IFRS 16 has not yet been endorsed by the EU. The standard
is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group, subject to EU endorsement,
on 1 August 2019.
IFRS 16 will require most leases to be recognised in the statement of financial position effectively ending the distinction between
finance and operating leases for lessees. The new standard will require the Group to recognise a right-of-use asset and a
corresponding lease liability.
The Group is still assessing the impact of the new standard. However, the Directors do anticipate material changes to the following areas:
> Operating leases would be recognised as right-of-use assets in the statement of financial position. Currently no lease assets are
included on the Group’s consolidated statement of financial position for operating leases.
> Lease liabilities would be recognised in the statement of financial position for future lease payments. Currently liabilities are generally
not recorded for future operating lease payments. Lease obligations are instead disclosed as commitments (see note 31).
> Depreciation expenses for right-of-use assets and interest on lease liabilities would be recognised in the consolidated statement
of comprehensive income. The interest expense will generally be higher in the early stages of the lease and reduce over the lease
term. Currently operating lease rentals are expensed on a straight line basis over the lease term and included within operating
expenses (see note 8).
> Lease cash flows would be recorded as cash flows from financing activities in the consolidated statement of cash flows, to reflect
the repayment of lease liabilities and related interest. Currently payments for operating leases are included within operating cash flows.
Other new standards or interpretations in issue, but not yet effective, are not expected to have a material impact on the Group’s net
assets or results.
103
Volution Group plcAnnual Report 2017Financial Statements 2. Adjusted earnings
The Board and key management personnel use some alternative performance measures to track and assess the underlying
performance of the business. These measures include adjusted operating profit and adjusted profit before tax. These measures are
deemed more appropriate as they remove income and expenditure which is not directly related to the ongoing trading of the business.
Such alternative performance measures are not defined terms under IFRS and may not be comparable with similar measures disclosed
by other companies. Likewise, these measures are not a substitute for IFRS measures of profit. A reconciliation of these measures of
performance to the corresponding reported figure is shown below.
Profit after tax
Add back:
Exceptional items
Other non-recurring items not meeting the definition of exceptional
Net loss/(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 34, Glossary of terms.
3. Revenue
Accounting policy
2017
£000
2016
£000
13,877
15,607
1,380
—
1,449
13,826
(3,509)
27,023
7,530
34,553
1,091
(17)
1,209
236
(1,139)
12,658
(3,496)
25,075
6,253
31,328
1,202
(25)
35,627
32,505
2,836
755
2,559
329
39,218
35,393
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer
returns, rebates (see note 21) 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 the significant risks and rewards have passed to the buyer, usually on the
delivery of the goods, and the Group retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold.
Rendering of services
Revenue from the provision of services arises from the installation of products and 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 costs
for each contract. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of expenses
recognised that are considered to be recoverable.
104
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 3. Revenue continued
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
Nordics
Central Europe
Total Ventilation Group
Original Equipment Manufacturer (Torin-Sifan)
OEM (Torin-Sifan)
Total revenue
4. Segmental analysis
Accounting policy
2017
£000
2016
£000
182,502
150,986
2,558
3,478
185,060
154,464
2017
£000
2016
£000
38,444
23,421
32,724
10,206
30,829
27,460
35,427
19,818
21,677
7,803
25,521
23,820
163,084
134,066
21,976
20,398
185,060
154,464
The method of identifying reporting segments is based on internal management reporting information that is regularly reviewed
by the chief operating decision maker, which is considered to be the Chief Executive Officer of the Group.
In identifying its operating segments, management follows the Group’s market sectors. These are Ventilation UK, Ventilation Nordics,
Ventilation Central Europe and OEM (Torin-Sifan). Operating segments that provide ventilation services have been aggregated as
they have similar economic characteristics, assessed by reference to the gross margins of the segments. In addition, the segments
are similar in relation to the nature of products, services and production processes, type of customer, method for distribution and
regulatory environment. The Group is considered to have two reportable segments: Ventilation Group and OEM (Torin-Sifan).
The measure of revenue reported to the chief operating decision maker to assess performance is total revenue for each operating
segment. The measure of profit reported to the chief operating decision maker to assess performance is adjusted operating profit
(see note 34 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.
Transfer prices between operating segments are on an arm’s length basis on terms similar to transactions with third parties.
105
Volution Group plcAnnual Report 2017Financial Statements 4. Segmental analysis continued
Year ended 31 July 2017
Revenue
External customers
Inter-segment
Total revenue
Gross profit
Results
Ventilation
Group
£000
163,084
17,070
180,154
84,265
OEM
£000
Unallocated
£000
Total
£000
Eliminations
£000
Consolidated
£000
21,976
1,179
23,155
6,772
—
—
—
—
185,060
18,249
—
185,060
(18,249)
—
203,309
(18,249)
185,060
91,037
Adjusted segment EBITDA
37,167
4,347
(2,296)
39,218
Depreciation and amortisation of
development 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
(2,558)
34,609
(578)
3,769
(455)
(3,591)
(2,751)
35,627
(12,468)
(1,358)
—
(1,380)
20,761
—
—
—
—
—
(13,826)
—
(1,380)
2,411
(2,751)
20,421
(297)
—
(2,226)
(2,523)
Profit/(loss) before tax
20,464
2,411
(4,977)
17,898
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
development 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
Profit/(loss) before tax
(2,217)
31,642
(524)
3,256
(147)
(2,888)
(2,393)
32,505
(11,300)
(1,358)
(236)
(373)
—
—
—
—
(836)
(12,658)
(236)
(1,209)
19,733
1,898
(3,229)
18,402
—
19,733
—
1,898
(38)
(38)
(3,267)
18,364
106
—
—
—
—
—
—
—
—
—
—
91,037
39,218
(3,591)
35,627
(13,826)
—
(1,380)
20,421
(2,523)
17,898
—
—
—
—
—
—
—
—
—
—
75,366
35,393
(2,888)
32,505
(12,658)
(236)
(1,209)
18,402
(38)
18,364
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 4. Segmental analysis continued
Geographic information
Revenue from external customers by customer 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
2017
£000
105,426
54,580
21,470
3,584
2016
£000
87,536
44,716
19,500
2,712
185,060
154,464
2017
£000
151,732
28,226
22,222
2016
£000
150,239
27,970
13,360
202,180
191,569
Information about major customers
Annual revenue from no individual customer accounts for more than 10% of Group revenue in either the current or prior year.
5. Exceptional items
Accounting policy
The Group discloses exceptional items by virtue of their nature, size or incidence to allow a better understanding of the underlying
trading performance of the Group. Exceptional items include, but are not limited to, significant restructuring costs, acquisition and
related integration and earn-out costs, fair value adjustments as a result of acquisitions and material gains or losses on disposal
of property, plant and equipment.
Critical accounting judgements and key sources of estimation uncertainty
The Group identifies an item of expense or income as exceptional when, in management’s judgement, the underlying event giving
rise to the exceptional item is deemed to be non-recurring in its nature, size or incidence such that Group results would be distorted
without specific reference to the event in question. To enable the full impact of an exceptional item to be understood, the tax
impact is disclosed and it is presented separately in the statement of cash flows.
Exceptional items
Acquisition related costs, including inventory fair value adjustments
Factory relocation costs
Total tax relating to exceptional items for the year
2017
£000
831
549
1,380
(172)
1,208
2016
£000
1,209
—
1,209
(80)
1,129
107
Volution Group plcAnnual Report 2017Financial Statements Notes to the Consolidated Financial Statements continued
For the year ended 31 July 2017
5. Exceptional items continued
Acquisition related costs, including inventory fair value adjustments
Inventory fair value adjustments relate to the requirement to uplift the finished goods of the acquired entities on acquisition by the
addition of value not ordinarily considered when accounting for inventory. When these goods are subsequently sold the additional
expense to the statement of comprehensive income is classified as exceptional. The cost of £81,000 in the period relates to
Breathing Buildings Limited. Inventory fair value adjustments in the prior year were £332,000.
Professional fees incurred in respect of the acquisition of Breathing Buildings Limited, which completed on 16 December 2016,
totalled £207,000 and fees incurred in respect of the acquisition of VoltAir System AB, which completed on 29 May 2017, totalled
£117,000. Professional fees incurred in respect of prior year and potential acquisitions totalled £58,000.
The acquisition costs in the prior year relate to the acquisitions of Energy Technique Limited (£603,000), Ventilair Group International BVBA
(£85,000), Weland Luftbehandling AB (£22,000) and NVA Services Limited (£167,000).
Acquisition related restructuring costs relate to two of the senior management team within Energy Technique plc who have decided
to leave the business. Within the terms of their employment, at acquisition, there was a clause which provided that, on a change
of ownership, they could leave the business on enhanced terms. Both have now tendered their resignation and therefore triggered
the clause at a cost of £264,000. The remaining balance relates to PAYE payable to HMRC in respect of fees invoiced to
Energy Technique plc by its former chairman prior to acquisition.
It was deemed that the items allowable for or chargeable to tax were approximately £883,000 (2016: £332,000), with a potential tax
benefit of £172,000 (2016: £80,000).
Factory relocation
The cost of the factory relocation relates to a project to rationalise manufacturing capacity which commenced in 2017. The affected
UK manufacturing locations are Reading, Slough and Lasham.
A relocation project team has been established and has recruited the expertise of a professional project manager with experience
in managing industrial relocations. A breakdown of the costs are as follows:
Legal and professional fees
Project manager
Redundancy related costs
Stock write-off
Fixed asset write-off
Site clearance and closure
Total
2017
£000
179
112
131
89
24
14
549
The project to relocate the factories to the new facility will last until mid-2018 when we expect to finalise the production move. It is our
intention that all costs associated with the project will similarly be treated as exceptional, given their size in aggregate and the unusual
(one-off) nature of the project. We anticipate that the revenue expenditure associated with the project will cost, in aggregate, around
£1.75 million.
108
Volution Group plcAnnual Report 2017Financial Statements 6. Finance revenue and costs
Accounting policy
Finance revenue
Finance revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that
discounts estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
Net financing costs
Net financing costs comprise interest income on funds invested, gains/losses on the disposal of financial instruments, changes in
the fair value of financial instruments, interest expense on borrowings and 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.
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
2017
£000
—
17
17
(766)
(231)
(94)
(1,091)
(1,449)
(2,540)
(2,523)
2016
£000
1,139
25
1,164
(915)
(232)
(55)
(1,202)
—
(1,202)
(38)
The net loss or gain on financial instruments at each year-end date relates to the measurement of fair value of the financial derivatives
and the Group recognises any finance losses or gains immediately within net finance costs. The fair value of the Group’s financial
derivatives can be found in notes 19 and 22.
7. Staff costs
Accounting policy
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.
Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge (see note 32)
2017
£000
2016
£000
40,227
32,338
5,218
1,630
531
4,303
1,268
431
47,606
38,340
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 2016/17 but based on actual salary levels in 2017/18.
109
Volution Group plcAnnual Report 2017Financial Statements 7. Staff costs continued
Average monthly number of employees in the year
Production
Sales and administration
2017
Number
2016
Number
662
716
714
623
1,378
1,337
Note
Distribution staff in certain locations have historically been included within the production category. During FY 2017 these staff have been included within the sales
and administration category for consistency across the Group.
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
2017
£000
1,876
86
1,107
51
2016
£000
1,018
81
591
47
The number of Directors accruing benefits under Group money purchase pension arrangements was nil (2016: two).
The Group also incurred costs of £349,000 (2016: £295,000) from Peter Hill, Tony Reading, Paul Hollingworth, Adrian Barden and
Claire Tiney for their services as Non-Executive Directors.
8. Other operating expenses
Accounting policy
The Group’s research and development concentrates on the development of new products. Research and development costs
that are not eligible for capitalisation have been expensed in the period incurred and are disclosed in the table above.
Cost of sales, distribution costs and administrative expenses include the following:
2017
£000
2016
£000
92,156
701
1,166
3,025
1,670
14,581
1,359
270
(70)
77,122
882
1,094
1,507
1,465
12,987
493
382
9
Cost of sales
Costs of inventories recognised as expenses
Operating lease expense
Depreciation of property, plant and equipment
Administrative and distribution expenses
Research and development costs
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Operating lease expense
Net foreign exchange differences
(Gain)/loss on disposal of property, plant and equipment
110
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 9. Auditor’s remuneration
The Group paid the following amounts to its auditor, Ernst & Young LLP, and its member firms in respect of the audit of the financial
statements and for other services provided to the Group:
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
10. Income tax
Accounting policy
2017
£000
2016
£000
143
197
25
365
127
177
25
329
Current income tax assets and liabilities are measured at the amount expected to be recovered from, or payable to, the taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted at the reporting date.
The Group’s deferred tax policy can be found in note 26.
(a) Income tax charges against profit for the year
Current income tax
Current UK income tax expense
Current foreign income tax expense
Tax (credit)/charge relating to the prior year
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect of changes in the tax rate
Tax charge/(credit) relating to the prior year
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
2017
£000
2016
£000
4,623
2,209
(171)
6,661
(2,820)
(351)
531
(2,640)
4,021
2017
£000
(109)
(109)
4,588
1,592
73
6,253
(1,876)
(1,105)
(515)
(3,496)
2,757
2016
£000
(37)
(37)
111
Volution Group plcAnnual Report 2017Financial Statements 10. Income tax continued
(c) Reconciliation of total tax
Profit before tax
Profit before tax multiplied by the standard rate of corporation tax in the UK of 19.67% (2016: 20.00%)
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
Other
2017
£000
17,898
3,521
394
303
(351)
(43)
318
(121)
2016
£000
18,364
3,673
(442)
556
(1,105)
(39)
114
—
Net tax charge reported in the consolidated statement of comprehensive income
4,021
2,757
The Finance Act 2016 was enacted on 15 September 2016 which reduced the headline rate from 18% to 17% to apply from 1 April 2020
and the impact of this rate change has been included in these financial statements, leading to a credit of £351,000 to the tax charge.
The Finance Act (No. 2) 2015 was enacted on 18 November 2015 and introduced 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 were incorporated within
the financial statements for the year ended 31 July 2016, which lead to a credit of £1,105,000 to the tax charge.
The higher overseas tax rates relates to the Group’s profits from subsidiaries which are subject to tax jurisdictions with a higher rate
of tax compared to the standard rate of corporation tax in the UK (see note 30 for subsidiary locations).
11. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by
the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares
that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are no dilutive potential ordinary
shares for the years ended 31 July 2017 and 2016.
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
2017
£000
2016
£000
13,877
15,607
Number
Number
Weighted average number of ordinary shares for basic earnings per share and diluted earnings per share 199,050,930
199,627,253
Earnings per share
Basic and diluted
7.0p
7.8p
112
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 11. Earnings per share (EPS) continued
Year ended 31 July
Adjusted profit attributable to ordinary equity holders
2017
£000
2016
£000
27,023
25,075
Number
Number
Weighted average number of ordinary shares for adjusted basic earnings per share and adjusted
diluted earnings per share
199,050,930
199,627,253
Adjusted earnings per share
Basic and diluted
13.6p
12.6p
The weighted average number of ordinary shares has declined as a result of treasury shares purchased by the Volution Employee
Benefit Trust (EBT) during the year (see note 25 for details). The shares are excluded when calculating the reported and adjusted EPS.
See note 34, Glossary of terms, for explanation of the adjusted basic and diluted earnings per share calculation.
12. Property, plant and equipment
Accounting policy
Property, plant and equipment is stated at cost, net of accumulated depreciation and impairment losses, if any. Such cost
includes the cost of replacing part of the property, plant and equipment. When significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and
depreciates them accordingly. All other repair and maintenance costs are recognised in the statement of comprehensive income
as incurred.
Depreciation is charged so as to write off the cost or valuation of assets, except freehold land, over their estimated useful lives
using the straight line method. The estimated useful lives, residual values and depreciation methods are reviewed at each year
end, with the effect of any changes in estimates accounted for on a prospective basis.
The following useful lives are used in the calculation of depreciation:
Buildings
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, or if the amount is deemed significant within exceptional items, as set out in note 5.
The Group’s impairment policy can be found in note 14.
113
Volution Group plcAnnual Report 2017Financial Statements
12. Property, plant and equipment continued
2017
Cost
At 1 August 2016
On acquisition
Additions
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2017
Depreciation
At 1 August 2016
Charge for the year
Disposals
Net foreign currency exchange differences
Transfers
At 31 July 2017
Net book value
At 31 July 2017
Land and
buildings
£000
Plant and
machinery
£000
Fixtures,
fittings, tools,
equipment
and vehicles
£000
12,897
428
192
(84)
331
—
13,764
2,641
480
(26)
61
—
5,418
149
1,008
(440)
155
2,087
8,377
2,051
1,100
(388)
111
193
Total
£000
27,516
708
2,438
(1,726)
784
—
9,201
131
1,238
(1,202)
298
(2,087)
7,579
29,720
3,694
1,256
(1,057)
207
(193)
8,386
2,836
(1,471)
379
—
3,156
3,067
3,907
10,130
10,608
5,310
3,672
19,590
During the year ended 31 July 2017 tooling which was previously included within fixtures, fittings, tools, equipment and vehicles was
transferred to plant and machinery, as this category better represented the true nature of the assets.
Land and
buildings
£000
Plant and
machinery
£000
11,480
3,754
570
61
—
786
—
624
478
(227)
482
307
Fixtures,
fittings, tools,
equipment
and vehicles
£000
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
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
114
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 13. Intangible assets – goodwill
Accounting policy
Goodwill
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group’s cash generating units that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently if there is an indication of impairment. Impairment of goodwill is
determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Where the recoverable
amount of the cash generating unit is less than the carrying value of the cash generating unit to which goodwill has been allocated,
an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Critical accounting judgements and key sources of estimation uncertainty
Impairment of goodwill
The Group’s impairment test for goodwill is based on a value in use calculation using a discounted cash flow model. The test aims
to ensure that goodwill is not carried at a value greater than the recoverable amount, which is considered to be the higher of fair
value less costs of disposal and value in use.
The cash flows are derived from the business plan for the following three years. The recoverable amount is very sensitive to the
discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for
extrapolation purposes. The key assumptions used to determine the recoverable amount for the different cash generating units
are explained further in note 15.
The identification of the Group’s cash generating units (CGUs) used for impairment testing involves a degree of judgement (see note 15).
Management has reviewed the Group’s assets and cash inflows and identified the lowest aggregation of assets that generate
largely independent cash inflows.
Goodwill
Cost and net book value
At 1 August 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
At 31 July 2016
On acquisition of Breathing Buildings Limited
On acquisition of VoltAir System AB
Net foreign currency exchange differences
At 31 July 2017
£000
51,725
1,526
5,426
3,859
12
3,415
2,265
68,228
6,688
5,527
1,141
81,584
115
Volution Group plcAnnual Report 2017Financial Statements 14. Intangible assets – other
Accounting policy
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the
definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value
at the acquisition date.
The fair value of patents, trademarks and customer base acquired and recognised as part of a business combination is
determined using the relief-from-royalty method or multi-period excess earnings method.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
Research and development
Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an intangible asset
when the Company can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use
or sale; its intention to complete and its ability to use or sell the asset; how the asset will generate future economic benefits; the
availability of resources to complete the asset; and the ability to reliably measure the expenditure during development.
Subsequent measurement of intangible assets
Intangible assets with a finite life are amortised on a straight line basis over their estimated useful lives as follows:
Development costs
Software costs
Customer base
Trademarks
Patents
Other
–
–
–
–
–
–
10 years
5 years
5–15 years
15–25 years
5–25 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.
Critical accounting judgements and key sources of estimation uncertainty
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets with finite lives to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate
the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual cash generating units, or otherwise they are allocated to the smallest group of cash generating units for which a
reasonable and consistent allocation basis can be identified.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognised
in the statement of comprehensive income.
Impairment of other intangible assets
The Group’s accounting policy for impairment of other intangible assets is set out above. The Group records all assets and
liabilities acquired in business combinations at fair value. Intangible assets are reviewed for impairment annually if events or
changes in circumstances indicate that the carrying amount may not be recoverable.
116
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 14. Intangible assets – other continued
Development
costs
£000
2017
Software
costs
£000
Customer
base
£000
Trademarks
£000
Patents
£000
Other
£000
Total
£000
Cost
At 1 August 2016
Additions
On acquisitions
Disposals
Net foreign currency
exchange differences
2,232
350
—
—
44
5,587
1,328
55
(19)
34
110,973
40,481
—
3,682
—
1,462
—
1,246
—
441
573
21
1,646
—
51
At 31 July 2017
2,626
6,985
116,117
42,168
2,291
165
206
8
379
1,880
530
45,580
11,521
6,930
1,792
14
596
84
2,424
57,697
8,806
52
200
6
258
300
—
576
—
20
896
178
332
3
513
160,146
1,699
7,205
(19)
2,052
171,083
54,785
14,581
711
70,077
2,247
4,561
58,420
33,362
2,033
383
101,006
Included in software costs are assets under construction of £148,000 (2016: £86,000), which are not amortised. Included in development
costs are assets under construction of £217,000 (2016: £1,514,000), which are not amortised.
Development
costs
£000
Software
costs
£000
Customer
base
£000
Trademarks
£000
Patents
£000
Other
£000
Total
£000
1,645
522
—
65
2,232
65
95
5
4,325
1,104
114
97,844
—
9,561
37,260
—
2,145
44
3,568
1,076
5,587
110,973
40,481
1,669
207
33,734
10,812
4
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
117
Amortisation
At 1 August 2016
Charge for the year
Net foreign currency
exchange differences
At 31 July 2017
Net book value
At 31 July 2017
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
Volution Group plcAnnual Report 2017Financial Statements Notes to the Consolidated Financial Statements continued
For the year ended 31 July 2017
14. Intangible assets – other continued
The remaining amortisation periods for acquired intangible assets at 31 July 2017 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
Breathing Buildings Limited
VoltAir System AB
15. Impairment assessment of goodwill
Accounting policy
Customer base
Trademark
Patent
5 years
2 years
4 years
6 years
3 years
6 years
7 years
3 years
9 years
9 years
15 years
20 years
15 years
16 years
17 years
—
8 years
19 years
—
14 years
14 years
15 years
—
—
—
17 years
—
—
—
—
—
4 years
5 years
Intangible assets, including goodwill, that have an indefinite useful life or intangible assets not ready to use are not subject to
amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever
events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable amount, where the recoverable amount is the higher of the asset’s
fair value less costs of disposal and value in use.
Goodwill acquired through business combinations has been allocated, for impairment testing purposes, to a group of cash
generating units (CGUs). These grouped CGUs are: UK Ventilation, Central Europe, Nordics and OEM. This is different to the
grouped CGUs that were presented in the prior year; the changes have been made as we have taken the opportunity to review
what is presented and bring the level of CGUs reported in line with the level at which management regularly reviews the Group’s
performance. This is also the level at which management is monitoring the value of goodwill for internal management purposes,
which differs from the prior year due to the recent growth of the Group.
31 July 2017
Carrying value of goodwill
CGU value in use headroom1
UK
Ventilation
£000
OEM
(Torin-Sifan)
£000
Nordics
£000
Central Europe
£000
55,899
182,262
5,101
24,519
8,805
71,818
11,779
17,011
Applying the same grouped CGUs to the 31 July 2016 goodwill gives the following headroom:
31 July 2016
Carrying value of goodwill
CGU value in use headroom1
UK
Ventilation
£000
49,211
147,187
OEM
(Torin-Sifan)
£000
5,101
31,995
Nordics
£000
Central Europe
£000
2,887
52,182
11,029
14,700
The table below was disclosed in the 31 July 2016 financial statements using the previously identified CGUs:
31 July 2016
Carrying value of goodwill
CGU value in use headroom1
UK
Ventilation
£000
45,352
140,141
OEM
(Torin-Sifan)
£000
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
Note
1. Headroom is calculated by comparing the value in use (VIU) of a group of CGUs to the carrying amount of its asset, which includes the net book value of fixed
assets (tangible and intangible), goodwill and operating working capital (current assets and liabilities).
118
Volution Group plcAnnual Report 2017Financial Statements 15. Impairment assessment of goodwill continued
Impairment review
Under IAS 36 Impairment of Assets, the Group is required to complete a full impairment review of goodwill, which has been performed
using a value in use calculation. A discounted cash flow (DCF) model was used, taking a period of five years, which has been established
using pre-tax discount rates of 11.0% to 12.9% 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 historical 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 historical 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 11.0% to 12.9%.
> 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.
We have modelled various sensitivities in relation to the above key assumptions and in all cases an adverse movement of more
than 10% would be required to cause the carrying value of the cash generating units to materially exceed their recoverable value.
16. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, measured at 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.
119
Volution Group plcAnnual Report 2017Financial Statements 16. Business combinations continued
Acquisitions in the year ended 31 July 2017
Breathing Buildings Limited
On 16 December 2016, Volution Ventilation Group Limited acquired the entire issued share capital of Breathing Buildings Limited.
The transaction was funded from the Group’s existing revolving credit facility. The Group acquired Breathing Buildings Limited as it
extended Volution’s capability with a leader in natural and hybrid ventilation for commercial buildings, in particular focusing on new
construction for education.
Total consideration for the transaction was cash consideration of £11,881,000.
Transaction costs associated with the acquisition in the period ended 31 January 2017 were £207,000 and have been expensed.
The provisional fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax asset
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Cash and cash equivalents
Total identifiable net assets
Goodwill on acquisition
Discharged by:
Consideration satisfied in cash
Book value
£000
Fair value
adjustments
£000
54
444
147
734
2,208
(1,917)
—
250
4,318
(240)
12
61
(12)
(86)
(780)
—
1,920
3,273
Fair value
£000
4,372
204
159
795
2,196
(2,003)
(780)
250
5,193
6,688
11,881
11,881
Goodwill of £6,688,000 reflects certain intangible assets that cannot be individually separated and reliably measured due to their
nature. These items include the value of expected synergies arising from the acquisition and the experience and skill of the acquired
workforce. The fair value of the acquired tradename and customer base was identified and included in intangible assets.
The gross amount of trade and other receivables is £2,208,000. The amounts for trade and other receivables not expected to be
collected are £12,000.
Breathing Buildings Limited generated revenue of £4,918,000 and generated a profit after tax of £337,000 in the period from
acquisition to 31 July 2017 that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2016, the Group’s revenue would have been £188,514,000 and the profit before
tax from continuing operations would have been £17,239,000.
120
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017
16. Business combinations continued
Acquisitions in the year ended 31 July 2017 continued
VoltAir System AB
On 29 May 2017, Volution Group plc, through one of its wholly owned subsidiaries, Volution Holdings Sweden AB, acquired the
entire issued share capital of VoltAir System AB (VoltAir). The transaction was funded from the Group’s existing revolving credit facility.
The acquisition is in line with the Group’s strategy of acquiring selective value-adding and strategically important businesses and will
give Volution an enlarged presence in the new build sector in both the residential and commercial ventilation markets in Sweden and
the Nordics in the growing and regulatory driven market for air handling units.
Total consideration for the transaction was cash consideration of SEK 79,711,000 (£7,091,000) and contingent consideration with a
fair value of SEK 16,930,000 (£1,506,000), giving total consideration of SEK 96,641,000 (£8,597,000). The contingent consideration
is based on the level of EBITDA achieved during the twelve months to 31 December 2017. There is a minimum level of EBITDA which
must be achieved otherwise no contingent consideration is payable; the maximum amount of contingent consideration payable is
SEK 28,000,000. The contingent consideration has been recognised in line with management’s best estimate of the level of EBITDA
expected to be achieved during the earn-out period. Whilst the level of EBITDA to be achieved is as yet unobservable, management’s
estimate has been based on the 2017 budget. The contingent consideration has not been discounted as the impact is considered to
be immaterial. The contingent consideration is expected to be finalised and paid during FY 2018.
Transaction costs associated with the acquisition in the year ended 31 July 2017 were SEK 1,292,000 (£117,000) and have been expensed.
The provisional fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax liability
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
—
—
465
367
758
(1,112)
604
1,082
2,833
(708)
84
(64)
(12)
(145)
—
1,988
2,833
(708)
549
303
746
(1,257)
604
3,070
5,527
8,597
7,091
1,506
The fair value of the acquired customer base, trademark, patents and committed order book were identified and included in intangible
assets. Other fair value adjustments made to the book value of assets and liabilities acquired were immaterial.
Goodwill of £5,527,000 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 £758,000. The amounts for trade and other receivables not expected to be
collected are £12,000.
VoltAir System AB generated revenue of £515,000 and generated a profit after tax of £6,000 in the period from acquisition to 31 July 2017
that is included in the consolidated statement of comprehensive income for this reporting period.
If the combination had taken place at 1 August 2016, the Group’s revenue would have been £190,285,000 and the profit before tax
from continuing operations would have been £18,780,000.
121
Volution Group plcAnnual Report 2017Financial Statements 16. Business combinations continued
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 2017 were £20,000 (2016: £85,000) and have been expensed.
The fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax liability
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 BVBA 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.
122
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 16. 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 fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax asset
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
—
—
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.
123
Volution Group plcAnnual Report 2017Financial Statements 16. 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 fair value of the net assets acquired is set out below:
Intangible assets
Deferred tax liability
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
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.
124
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 16. 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 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
286
—
913
1,181
2,066
(3,016)
178
1,608
Fair value
adjustments
£000
2,460
(479)
—
(189)
(55)
(63)
—
1,674
Fair value
£000
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.
125
Volution Group plcAnnual Report 2017Financial Statements 16. Business combinations continued
Acquisitions in the year ended 31 July 2016 continued
Cash outflows arising from business combinations are as follows:
Breathing Buildings Limited
Cash consideration
Less: cash acquired with the business
VoltAir System AB
Cash consideration
Less: cash acquired with the business
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
17. Inventories
Accounting policy
2017
£000
2016
£000
11,881
(250)
7,091
(604)
—
—
—
—
—
—
—
—
—
—
—
—
9,960
(270)
597
(9)
9,396
(1,210)
6,697
(178)
18,118
24,983
Inventories are stated at the lower of cost and net realisable value. The cost of raw materials is purchase cost on a first in, first out
basis. The cost of work in progress and finished goods includes: cost of direct materials and labour and an appropriate portion of
fixed and variable overhead expenses based on normal operating capacity, but excludes borrowing costs.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and cost to sell.
Critical accounting judgements and key sources of estimation uncertainty
Provisions for inventory obsolescence
Provisions for inventory obsolescence are made with reference to the inventory balances and usage. Management also considers
sales history and the latest sales forecasts to determine whether the amounts are recoverable.
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2017
£000
12,773
1,208
8,756
22,737
2016
£000
10,015
1,432
8,709
20,156
During 2017, £261,000 (2016: £258,000) was recognised as a cost of sales for inventories written off in the year.
Inventories are stated net of an allowance for excess, obsolete or slow-moving items which totalled £2,829,000 (2016: £2,882,000).
This provision was split amongst the three categories: £1,526,000 for raw materials and consumables; £184,000 for work in progress;
and £1,119,000 for finished goods and goods for resale.
A 10% increase in the inventory provision for raw material would increase the overall inventory provision by 5.4%. A 10% increase in
the inventory provision for work in progress would increase the overall inventory provision by 0.7%. A 10% increase in the inventory
provision for finished goods would increase the overall inventory provision by 4.0%.
126
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 18. Trade and other receivables
Accounting policy
Trade and other receivables are recognised when it is probable that a future economic benefit will flow to the Group. Trade
and other receivables are carried at original invoice or contract amount less any provisions for discounts and 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.
Provisions for bad debts
Provisions for bad debts are made with reference to the ageing of receivables and the view of management as to whether amounts
are recoverable. Bad debt will be determined with consideration given to recent customer trading and management experience.
Rebates receivable
The Group has a number of supplier rebate agreements that are recognised as a reduction of cost of sales (collectively referred
to as rebates). Rebates are based on an agreed percentage of purchases, which will increase with the level of purchases made.
These agreements typically are not coterminous with the Group’s year end and some of the amounts payable are subject to
confirmation after the reporting date.
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
2017
£000
34,111
(967)
33,144
1,538
2,549
37,231
2017
£000
(893)
(758)
702
(18)
(967)
2016
£000
30,591
(893)
29,698
687
2,550
32,935
2016
£000
(1,185)
(239)
620
(89)
(893)
2017
£000
2016
£000
25,332
22,756
19
3,971
4,130
659
7
4,014
3,043
771
34,111
30,591
127
Volution Group plcAnnual Report 2017Financial Statements 18 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
2017
£000
2016
£000
27,369
23,952
3,993
1,241
280
261
4,491
883
223
149
33,144
29,698
The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings where
available; otherwise, historical information relating to counterparty default rates is used. The Group continually assesses the recoverability
of trade receivables and the level of provisioning required.
19. Other financial assets
Financial assets
Cash held in escrow
Foreign exchange forward contracts
20. Cash and cash equivalents
Accounting policy
2017
Current
£000
2016
Current
£000
16
—
16
—
914
914
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.
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:
2017
£000
2016
£000
14,499
15,744
2017
£000
7,086
5,561
524
1,057
271
2016
£000
9,705
4,078
525
1,243
193
14,499
15,744
Cash and short-term deposits
Cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
US Dollar
Swedish Krona
Other
128
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 21. Trade and other payables
Critical accounting judgements and key sources of estimation uncertainty
Rebates payable
The Group has a number of customer rebate agreements that are recognised as a reduction from sales (collectively referred to
as rebates). Rebates are based on an agreed percentage of revenue, which increases with the level of revenue achieved. These
agreements typically are not coterminous with the Group’s year end and some of the amounts payable are subject to confirmation
after the reporting date.
At the reporting date, the Directors make estimates of the amount of rebate that will become payable by the Group under these
agreements, based upon their best estimates of volumes and product mix that will be sold over each individual rebate agreement
period. Where the respective customer has been engaged with the Group for a number of years, historical settlement trends are
also used to assist in ensuring an appropriate estimate is recorded at the reporting date and that appropriate internal approvals
and reviews take place before rebates are recorded.
The total rebate payable provision at 31 July 2017 included within trade and other payables is £5,061,000 (2016: £5,414,000).
The sales rebate provision is recognised within trade payables, rather than trade receivables, as a significant proportion of the
agreements across the Group do not provide for credit notes to be raised against receivable balances. Rather, cash payment
of the rebate amount due is expected. Furthermore, the majority of rebate agreements do not contain a clause which provides
a legally enforceable right to offset invoiced amounts.
The total rebate provision of £5,061,000 included within trade and other payables is based on the Directors’ best estimate of
customer sales over the rebate agreement period. The provision as at 31 July 2017 is based on the Directors’ sales estimate
based on prior year trading and results. Given that the rebate provision represents an estimate within the financial statements,
there is a risk that the Directors’ estimate of the potential liability may be incorrect.
Trade payables
Social security and staff welfare costs
Accrued expenses
22. Other financial liabilities
Financial liabilities
Foreign exchange forward contracts
Contingent consideration
2017
£000
21,056
1,434
18,139
40,629
2017
Current
£000
536
1,588
2,124
2016
£000
18,205
1,786
15,099
35,090
2016
Current
£000
—
—
—
The contingent consideration included within the other financial liabilities note relates to the acquisition of VoltAir System AB. The total
contingent consideration payable is based on VoltAir’s EBITDA performance for the twelve months to 31 December 2017. At the date
of acquisition the Group estimated the EBITDA result for the twelve-month period and has recognised a liability based on this estimate.
Management anticipates that the additional consideration payable will be SEK 16,930,000. This is equivalent to £1,588,000 using the
spot rate as at 31 July 2017 or £1,506,000 using the spot rate on the date of acquisition (29 May 2017), as is disclosed in note 16.
129
Volution Group plcAnnual Report 2017Financial Statements 23. Interest-bearing loans and borrowings
Accounting policy
Borrowings and other financial liabilities, including loans, are initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability or, where appropriate, a shorter period.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Unsecured – at amortised cost
Revolving credit facility
Cost of arranging bank loan
2017
2016
Current
£000
Non-current
£000
Current
£000
Non-current
£000
—
—
—
51,490
(402)
51,088
—
—
—
51,869
(634)
51,235
Interest-bearing borrowings at 31 July 2017 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 2017
Currency
GBP
Euro
Swedish Krona
Total
Revolving credit facility – at 31 July 2016
Currency
GBP
Euro
Swedish Krona
Total
Amount
outstanding
£000
5,000
23,320
23,170
51,490
Amount
outstanding
£000
14,000
21,973
15,896
51,869
Termination
date
Repayment
frequency
Rate %
30 April 2019
One payment
Libor + 1.00%
30 April 2019
One payment
Euribor + 1.00%
30 April 2019
One payment
Stibor + 1.00%
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 2016, 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 2016 and therefore the margin for the first
period of the year ended 31 July 2017 was 1.00%. At the half year, the consolidated leverage remained below 1.0:1 and therefore the margin
for the second period of the year ended 31 July 2017 was 1.00%; this rate will continue into the first period of the year ended 31 July 2018.
At 31 July 2017, the Group had £37,010,000 (2016: £38,131,000) of its multi-currency revolving credit facility unutilised.
130
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017
24. Provisions
Accounting policy
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable
that the Group will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.
Provisions for the expected costs of maintenance guarantees are charged against profits when products have been invoiced.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation taking into
account the risks and uncertainties surrounding the obligation. The timings of cash outflows are by their nature uncertain and are
therefore best estimates. Provisions are not discounted as the time value of money is not considered material.
Provisions for warranties and property dilapidations
Provisions for warranties are made with reference to recent trading history and historical warranty claim information, and the view
of management as to whether warranty claims are expected.
Warranty provisions are determined with consideration given to recent customer trading and management experience.
Dilapidation provisions relate to dilapidation charges relating to leasehold properties. The timing of cash flows associated with the
dilapidation provision is dependent on the timing of the lease agreement termination.
2017
At 1 August 2016
On acquisition
Arising during the year
Utilised
Foreign currency adjustment
At 31 July 2017
Analysis:
Current
Non-current
2016
At 1 August 2015
On acquisition
Arising during the year
Utilised
Foreign currency adjustment
At 31 July 2016
Analysis:
Current
Non-current
Product warranties
Product
warranties
£000
Property
dilapidations
£000
1,268
120
1,010
(1,130)
23
1,291
1,291
—
1,291
671
12
—
—
1
684
550
134
684
Product
warranties
£000
Property
dilapidations
£000
855
179
857
(673)
50
1,268
1,268
—
1,268
600
67
—
—
4
671
—
671
671
Total
£000
1,939
132
1,010
(1,130)
24
1,975
1,841
134
1,975
Total
£000
1,455
246
857
(673)
54
1,939
1,268
671
1,939
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.
131
Volution Group plcAnnual Report 2017Financial Statements 25. Authorised and issued share capital and reserves
Accounting policy
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.
At 31 July 2016 and 31 July 2017
Number of
ordinary shares
Ordinary shares
£000
Share premium
£000
200,000,000
2,000
11,527
At 31 July 2017, a total of 1,166,878 (2016: 916,878) ordinary shares in the Company were held by the Volution EBT, all of which
were unallocated and available for transfer to participants of the Long Term Incentive Plan and Deferred Share Bonus Plan on exercise.
During the year 250,000 ordinary shares in the Company were purchased by the trustees (2016: 916,878), and nil (2016: nil) were
disposed of by the trustees. The market value of the shares at 31 July 2017 was £2,220,000 (2016: £1,421,000).
The Volution EBT has agreed to waive its rights to dividends.
26. Deferred tax
Accounting policy
Deferred tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following exceptions:
> where the temporary differences arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
> in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that the Directors consider it is probable that there will be taxable profits
from which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at tax rates that are expected to apply when the related
asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date. Deferred tax assets and liabilities are offset only
if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred taxes relate to the same
taxation authority and that authority permits the Group to make a single net payment.
Deferred tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other
comprehensive income. Similarly, deferred tax is charged or credited directly to equity if it relates to items that are credited or
charged directly to equity.
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely
timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. Uncertainties
exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future
taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing
contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and expense already recorded.
At 31 July 2017, the Group had not recognised a deferred tax asset in respect of gross tax losses of £5,195,000 (2016: £5,195,000)
relating to management expenses, capital losses of £3,975,000 (2016: £3,975,000) arising in UK subsidiaries and gross tax
losses of £385,000 (2016: £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 2017, the Group had no deferred tax liability (2016: £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.
132
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 26. Deferred tax continued
Deferred tax assets and liabilities arise from the following:
2017
Temporary differences
1 August
2016
£000
Credited/
(charged)
to income
£000
Credited
to equity
£000
Translation
difference
£000
On
acquisition
£000
31 July
2017
£000
Depreciation in advance of capital allowances
(365)
(376)
Fair value movements of derivative
financial instruments
Customer base, trademark and patent
Losses
Untaxed reserves
Other temporary differences
Deferred tax asset
Deferred tax liability
2016
Temporary differences
(108)
(18,158)
872
(398)
(30)
(18,187)
450
(18,637)
(18,187)
1 August
2015
£000
254
3,083
(779)
62
396
2,640
155
2,485
2,640
Credited/
(charged)
to income
£000
Depreciation in advance of capital allowances
(676)
444
Fair value movements of derivative
financial instruments
Customer base, trademark and patent
Losses
Untaxed reserves
Historical fair value adjustments
Other temporary differences
Deferred tax asset
Deferred tax liability
27. Dividends paid and proposed
Accounting policy
45
(18,276)
536
(468)
—
(40)
(18,879)
394
(19,273)
(18,879)
(153)
3,524
(133)
25
—
(211)
3,496
61
3,435
3,496
—
—
—
—
—
109
109
—
109
109
(4)
—
(223)
—
(23)
—
(250)
—
(250)
(250)
—
—
(745)
146
(1,375)
(16,673)
205
(88)
—
298
(447)
475
(1,258)
(16,946)
205
810
(1,463)
(17,756)
(1,258)
(16,946)
Credited
to equity
£000
Translation
difference
£000
On
acquisition
£000
31 July
2016
£000
(365)
(108)
(18,158)
872
(398)
—
(30)
(94)
—
(2,805)
351
—
(1,526)
178
(3,896)
(18,187)
6
(3,902)
(3,896)
450
(18,637)
(18,187)
—
—
—
—
—
1,526
37
1,563
—
1,563
1,563
(39)
—
(601)
118
45
—
6
(471)
(11)
(460)
(471)
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.
Cash dividends on ordinary shares declared and paid
Interim dividend for 2017: 1.35 pence per share (2016: 1.20 pence)
Proposed dividends on ordinary shares
2017
£000
2016
£000
2,688
2,394
Final dividend for 2017: 2.80 pence per share (2016: 2.60 pence)
5,567
5,176
The interim dividend payment of £2,688,000 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 2017.
133
Volution Group plcAnnual Report 2017Financial Statements 28. Risk management
Accounting policy
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 19 and 22.
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 investments
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.
As a result of entering into financial instruments, the Group is exposed to market risk, credit risk, foreign exchange risk and liquidity risk.
The Group’s principal financial instruments are:
> interest-bearing loans and borrowings;
> trade and other receivables, trade and other payables, cash and short-term deposits; and
> foreign exchange forward contracts.
This note provides further detail on financial risk management and includes quantitative information on the specific risks the Group is exposed to.
Derivative financial instruments
The Group uses forward foreign currency contracts to reduce exposure to foreign exchange risk.
Forward foreign currency contracts
The Group’s purchases in foreign currencies, net of Group sales in those currencies, represent less than 1% (2016: 3%) 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.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: interest rate risk, currency risk and other price risks, such as equity price risk and commodity risk.
The Group’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group
enters into derivative financial instruments to manage its exposure to these risks when appropriate.
At 31 July 2017, the Group had commitments under forward foreign exchange contracts with varying settlement dates to 23 July 2018
(2016: 24 July 2017). See notes 19 and 22 for fair values.
Sensitivity analysis
The Group recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might affect the value
of its derivatives and also the amounts recorded in its equity in the overseas entities and its statement of comprehensive income for
the period. Therefore the Group has assessed:
> what would be reasonably possible changes in the risk variables at the end of the reporting period; and
> the effects on profit or loss and equity if such changes in the risk variables were to occur.
134
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 28. Risk management continued
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 2017
Sterling
Swedish Krona
Euro
31 July 2016
Sterling
Swedish Krona
Euro
Increase in
basis points
Effect on
profit
before tax
£000
+25
+25
+25
+25
+25
+25
(13)
(58)
(58)
(35)
(40)
(55)
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.
Swedish Krona
US Dollar
Euro
Swedish Krona
Euro
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
2017
£000
414
81
(409)
Effect on equity
2017
£000
(84)
(129)
2016
£000
312
55
(127)
2016
£000
(12)
108
135
Volution Group plcAnnual Report 2017Financial Statements 28. 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 2017 and 2016.
At 31 July 2017
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)
—
51,490
Forward foreign currency exchange outflow
Forward foreign currency exchange inflow
Trade payables and other accrued expenses
15,025
(14,489)
39,195
—
—
—
39,731
51,490
—
—
—
—
—
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
—
—
—
—
—
Total
£000
51,490
15,025
(14,489)
39,195
91,221
Total
£000
51,869
12,944
(13,858)
33,327
84,282
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 18 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.
136
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 28. 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 2017 and 2016 is the carrying amount.
The Group’s maximum exposure for derivative financial instruments is noted in either note 22 on page 129 or in the liquidity table
on the previous page.
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 comprise the derivative financial instruments in notes 19 and 22 and the contingent consideration
in notes 16 and 22. For hierarchy purposes derivative financial instruments are deemed to be Level 2 as external valuers are involved
in the valuation of these contracts. Their fair value is measured using valuation techniques including the DCF model. Inputs to this
calculation include the expected cash flows in relation to these derivative contracts and relevant discount rates. Contingent
consideration is deemed to be Level 3.
29. 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 2017 or 31 July 2016.
There were no material transactions or balances between the Company and its key management personnel or members of their close
family. At the end of the period, key management personnel did not owe the Company any amounts.
The Companies Act 2006 and the Directors’ Remuneration Report Regulations 2013 require certain disclosures of Directors’ remuneration.
The details of the Directors’ total remuneration are provided in the Directors’ Remuneration Report (see pages 67 to 84).
Compensation of key management personnel
Short-term employee benefits
Share-based payment change (see note 32)
Total
2017
£000
2,714
512
3,226
2016
£000
2,292
389
2,681
Key management personnel is defined as the CEO, the CFO and the ten (2016: nine) individuals who report directly to the CEO.
137
Volution Group plcAnnual Report 2017Financial Statements Notes to the Consolidated Financial Statements continued
For the year ended 31 July 2017
30. Group structure details
At 31 July 2017, Volution Group plc held 100% of the voting shares of the following subsidiaries:
Group company
Direct
Windmill Topco Limited1
Volution Holdings Limited1
Energy Technique Limited2
Indirect
Windmill Midco Limited1
Windmill Cleanco Limited1
Windmill Bidco Limited1
Manrose Manufacturing Limited1
Volution Ventilation Group Limited1
Torin-Sifan Limited1
Anda Products Limited1
Axia Fans Limited1
Roof Units Limited1
Torin Limited1
Vent-Axia Limited1
Vent-Axia Clean Air Systems Limited1
Vent-Axia Group Limited1
ET Environmental Limited2
Diffusion Environmental Systems Limited2
NVA Services Limited1
SW National Ventilation Limited1
Airtech Humidity Controls Limited1
Sens-Air Limited1
Breathing Buildings Limited1
Volution Holdings Sweden AB3
Fresh AB3
Welair AB4
VoltAir System AB5
PAX AB6
Volution Norge AS (formerly Fresh Norge AS)7
Fresh Shanghai Limited8
inVENTer GmbH9
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
Ventilation products
Intermediate holding company
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Ventilation products
Volution Management Holdings GmbH9
Volution Deutschland Real Estate GmbH9
Intermediate holding company
Property holding company
Brüggemann Energiekonzepte GmbH10
Ventilation products
Ventilair Group International BVBA11
Ventilair Group Belgium BVBA11
Ventilair Group Netherlands B.V.12
Ventilair France SARL13
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
England
Sweden
Sweden
Sweden
Sweden
Sweden
Norway
China
Germany
Germany
Germany
Germany
Belgium
Belgium
Netherlands
France
1. Fleming Way, Crawley, West Sussex RH10 9YX.
5. Box 7033, 12107 Stockholm-Globen, Sweden.
10. Uhlenhorst 149A, 21435 Stelle, Germany.
2. 47 Central Avenue, West Molesey,
6. Kattkärrsvägen 4, 64831 Hälleforsnäs, Sweden.
11. Pieter Verhaeghestraat 8, 8520 Kuurne, Belgium.
Surrey KT8 2QZ.
3. Gransholmsvägen 136, 35599 Gemla, Sweden.
4. Strandvägen 65, 87052 Nyland, Sweden.
7. Professor Birkelands vei 24B, 1081 Oslo, Norway.
12. Kerver 16, 5521 DB Eersel, Netherlands.
8. No. 272–3 Julu Road, Shanghai, China.
13. Boulevard de la Liberté 130,
9. Ortsstraße 4a 07751 Löberschütz, Germany.
FR-59000 Lille, France.
138
Volution Group plcAnnual Report 2017Financial Statements 31. Commitments and contingencies
Accounting policy
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Payments under operating leases are charged to the statement of comprehensive income on a straight line basis over the term of the lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.
Operating lease commitments
The Group has entered into commercial leases on certain items of land and building and others. These leases have an average life of
between five and 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
Land and buildings
Other
2017
£000
1,735
6,828
1,864
10,427
2016
£000
1,577
5,687
1,856
9,120
2017
£000
240
266
12
518
2016
£000
122
107
—
229
Commitments
Commitments for the acquisition of property, plant and equipment as of 31 July 2017 are £495,000 (2016: £226,000).
32. Share-based payments
The Company operates a share-based incentive scheme for Directors and key employees, known as the Volution Long Term Incentive
Plan (LTIP). Share options were granted in October 2014, November 2015 and October 2016; 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 cumulative average EPS growth.
The TSR element of the options granted has been valued using the Group’s share price volatility, the correlation between the share
price movements of TSR comparators and the relevant vesting schedule.
Outstanding at 1 August
Granted during the year
Forfeited during the year
Outstanding at 31 July
2017
Number
1,023,309
648,788
(47,269)
2016
Number
563,354
459,955
—
1,624,828
1,023,309
139
Volution Group plcAnnual Report 2017Financial Statements Notes to the Consolidated Financial Statements continued
For the year ended 31 July 2017
32. Share-based payments continued
The weighted average exercise price for all options is £nil.
Of the total number of options outstanding at 31 July 2017 none had vested or were exercisable.
The weighted average fair value of each option granted during the year was £1.70 (2016: £1.90).
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
2017
Monte Carlo
1.70
nil
3
29.3%
0.3%
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.
The share-based remuneration expense comprises:
Equity-settled schemes
2017
£000
531
531
2016
£000
431
431
The Group did not enter into any share-based payment transactions with parties other than employees during the current
or previous periods.
33. Events after the reporting period
There have been no material events between 31 July 2017 and the date of authorisation of the consolidated financial statements
that would require adjustments of the consolidated financial statements or disclosure.
140
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Consolidated Financial Statements continuedFor the year ended 31 July 2017 34. Glossary of terms
Adjusted basic and diluted EPS – calculated by dividing the adjusted profit/(loss) for the period attributable to ordinary equity
holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the adjusted net profit/(loss) attributable to ordinary equity holders
of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are no
dilutive potential ordinary shares for the years ended 31 July 2017 and 31 July 2016.
Adjusted EBITDA – EBITDA removing exceptional items and other non-recurring items not meeting the definition of exceptional.
Adjusted finance costs – finance costs removing net gains or losses on financial instruments at fair value.
Adjusted operating cash flow – adjusted EBITDA plus or minus movements in operating working capital, less net investments
in property, plant and equipment and intangible assets.
Adjusted operating profit – operating profit removing exceptional items, other non-recurring items not meeting the definition
of exceptional and amortisation of intangible assets associated with the customer base, trademarks and patents.
Adjusted profit after tax – profit after tax removing exceptional items, other non-recurring items not meeting the definition of
exceptional, net gains or losses on financial instruments at fair value, amortisation of intangible assets associated with the customer
base, trademarks and patents, and the tax effect on these items.
Adjusted profit before tax – profit before tax removing exceptional items, other non-recurring items not meeting the definition
of exceptional, net gains or losses on financial instruments at fair value and amortisation of intangible assets associated with the
customer base, trademarks and patents.
Adjusted tax charge – the reported tax charge less the tax effect on the adjusted items.
Cash conversion – calculated by dividing adjusted operating cash flow by adjusted EBITDA less depreciation.
Constant currency – to determine values expressed as being at constant currency we have converted the income statement of
our foreign operating companies for the year ended 31 July 2017 at the average exchange rate for the period ended 31 July 2016.
In addition, we have converted the UK operating companies’ sale and purchase transactions in the year ended 31 July 2017,
which were denominated in foreign currencies, at the average exchange rates for the year ended 31 July 2016.
EBITDA – profit before tax, net finance costs, depreciation and amortisation.
Like for like – the performance of the Group as though the position of the Group was the same as it was in the comparative period.
Net debt – bank borrowings less cash and cash equivalents.
Operating cash flow – EBITDA plus or minus movements in operating working capital, less share-based payment expense, less net
investments in property, plant and equipment and intangible assets.
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.
141
Volution Group plcAnnual Report 2017Financial Statements Parent Company Statement of Financial Position
At 31 July 2017
Non-current assets
Property, plant and equipment
Investments
Deferred tax asset
Current assets
Other receivables and prepayments
Other current financial assets
Cash and short-term deposits
Total assets
Current liabilities
Trade and other payables
Other current financial liabilities
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
5
6
4
7
8
9
10
11
4
12
2017
£000
64
2016
£000
17
199,429
199,429
478
—
199,971
199,446
51,545
40,407
—
157
914
82
51,702
41,403
251,673
240,849
(21,866)
(19,964)
(531)
—
(22,397)
(19,964)
(51,087)
(51,235)
—
(20)
(51,087)
(51,255)
(73,484)
(71,219)
178,189
169,630
2,000
11,527
(2,027)
1,289
(273)
2,000
11,527
(1,533)
649
(273)
165,673
157,260
178,189
169,630
As permitted by Section 408 of the Companies Act 2006, the Company’s income statement has not been included in these
financial statements.
The Company’s profit for the year ended 31 July 2017 was £16.3 million (2016: £14.0 million).
The financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors and authorised
for issue on 10 October 2017.
On behalf of the Board
Ronnie George
Chief Executive Officer Chief Financial Officer
Ian Dew
142
Volution Group plcAnnual Report 2017Financial Statements Parent Company Statement of Changes in Equity
For the year ended 31 July 2017
Share
capital
£000
Share
premium
£000
Treasury
shares
£000
Share-based
payment
reserve
£000
2,000
11,527
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,533)
—
2,000
11,527
(1,533)
—
—
—
—
—
—
—
—
—
—
—
—
—
(494)
—
181
—
—
468
—
—
649
—
—
640
—
—
Capital
reserve
£000
Retained
earnings
£000
Total
£000
(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
—
—
—
—
—
16,277
16,277
16,277
16,277
—
—
640
(494)
(7,864)
(7,864)
2,000
11,527
(2,027)
1,289
(273)
165,673
178,189
At 1 August 2015
Profit for the year
Total comprehensive income
Share-based payment
Purchase of own shares
Dividends paid
At 1 August 2016
Profit for the year
Total comprehensive income
Share-based payment
Purchase of own shares
Dividends paid
At 31 July 2017
Treasury shares
The treasury shares reserve represents the cost of shares in Volution Group plc purchased in the market and held by the Volution
Employee Benefit Trust to satisfy obligations under the Group’s share option schemes.
Share-based payment reserve
The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key
management personnel, as part of their remuneration. Refer to note 32 of the Group financial statements for further details.
Capital reserve
The capital reserve is the difference in share capital and reserves arising from the use of the pooling of interest method for preparation
of the financial statements in 2014. This is a non-distributable reserve.
Retained earnings
£72,781,000 of the retained earnings balance at 31 July 2017 is available for distribution (2016: £64,368,000).
143
Volution Group plcAnnual Report 2017Financial Statements Parent Company Statement of Cash Flows
For the year ended 31 July 2017
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
Effect of exchange rates on foreign denominated loans
Depreciation of property, plant and equipment
Working capital adjustments:
(Increase) in other receivables and prepayments
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 investing activities
Financing activities
Interest paid
Repayment of interest-bearing loans and borrowings
Proceeds from new borrowings
Dividend paid to equity holders
Purchase of own shares
Notes
2017
£000
2016
£000
16,277
14,017
(1,033)
136
(9)
(34)
2,476
531
771
5
(8,558)
1,738
12,300
(52)
34
—
(18)
(800)
(20,540)
17,491
(7,864)
(494)
(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
Net cash flow (used in)/generated from financing activities
(12,207)
5,025
Net increase/(decrease) 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
75
82
157
(499)
581
82
144
Volution Group plcAnnual Report 2017Financial Statements Notes to the Parent Company Financial Statements
For the year ended 31 July 2017
1. General information
These financial statements were approved and authorised for issue by the Board of Directors of Volution Group plc (the Company)
on 10 October 2017.
The Company is a public limited company and is incorporated and domiciled in the UK (registered number: 09041571). The share
capital of the Company is listed on the London Stock Exchange. The address of its registered office is Fleming Way, Crawley,
West Sussex RH10 9YX.
2. Basis of preparation
The financial statements of Volution Group plc (the Company) are presented as required by the Companies Act 2006. The financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
The financial statements are presented in Sterling (£), rounded to the nearest thousand (£000) unless otherwise stated. They have
been prepared under the historical cost convention.
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented an income
statement or a statement of comprehensive income for the Company. The profit for the year is disclosed in the statement of changes
in equity.
The policies applied by the Company are consistent with those set out in the notes to the consolidated financial statements. The following
additional policies are also relevant to the Company financial statements.
Investments
Investments in subsidiary undertakings are valued at cost, being the fair value of the consideration given and including directly attributable
transaction costs. The carrying value is reviewed for impairment if events or changes in circumstances indicate the carrying value may
not be recoverable.
Dividends received
Revenue is recognised when the Company’s right to receive the payment is established, which is generally when the shareholders
approve the dividend.
Financial instruments
For detailed disclosures of financial instruments refer to note 28 of the Group financial statements.
New standards and interpretations
There were no new or amended accounting standards relevant to the Company’s results that are effective for the first time in 2017 that
have a material impact on the Company’s consolidated financial statements.
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.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was issued in July 2014 to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9
has been endorsed by the EU and is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the
Company on 1 August 2018.
IFRS 9 will impact the classification and measurement of the Company’s financial instruments and will require certain additional
disclosures. IFRS 9 also introduces changes to impairments of financial assets, which will result in the Company moving from an
incurred loss model to an expected loss model. Although the new standard will impact the way in which bad debt provisions are
calculated, the Company does not anticipate that the impact of this change will be significant.
145
Volution Group plcAnnual Report 2017Financial Statements 2. Basis of preparation continued
New standards and interpretations continued
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers was issued in May 2014 and has been endorsed by the EU. The subsequent
amendments, Clarifications to IFRS 15, issued in April 2016, have not yet been endorsed by the EU. IFRS 15, as amended,
is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Company, subject to EU
endorsement, on 1 August 2018.
The Directors do not consider that IFRS 15 will have a significant impact on the Company.
IFRS 16 Leases
IFRS 16 Leases was issued in January 2016 to replace IAS 17 Leases. IFRS 16 has not yet been endorsed by the EU. The standard
is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Company, subject to EU endorsement,
on 1 August 2019.
The Directors do not consider IFRS 16 to have a significant impact on the Company.
Other new standards or interpretations in issue, but not yet effective, are not expected to have a material impact on the Company’s
net assets or results.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Company financial statements requires the use of certain judgements, estimates and assumptions that affect the
reported amount of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the actual results. The estimates and assumptions relevant to the financial statements are embedded with the relevant notes to
the consolidated financial statements.
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 investments. 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.
3. Staff costs
Wages and salaries
Social security costs
Share-based payment charge
Other pension costs
2017
£000
2,237
195
531
26
2016
£000
1,897
173
431
48
2,989
2,549
Other pension costs relate to the Company’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 2016/17 but based on actual salary levels in 2017/18.
146
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Parent Company Financial Statements continuedFor the year ended 31 July 2017 3. Staff costs continued
Average monthly number of employees in the year
Administration
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
2017
Number
13
2016
Number
8
2017
£000
1,876
86
1,107
51
2016
£000
1,018
81
591
47
The number of Directors accruing benefits under Company money purchase pension arrangements was nil (2016: two).
The Company also incurred costs of £349,000 (2016: £295,000) from Peter Hill, Tony Reading, Paul Hollingworth, Adrian Barden
and Claire Tiney for their services as Non-Executive Directors.
4. Deferred tax balances
Deferred tax assets and liabilities arise from the following:
Deferred tax (liabilities)/assets
Temporary differences
5. Property, plant and equipment
2017
Cost
At 1 August 2016
Additions
At 31 July 2017
Depreciation
At 1 August 2016
Charge for the year
At 31 July 2017
Net book value
At 31 July 2017
At 31 July 2016
1 August
2016
£000
Charged
to income
£000
Charged
to equity
£000
31 July
2017
£000
(20)
389
109
478
Fixtures,
fittings, tools,
equipment
and vehicles
£000
18
52
70
1
5
6
64
17
Total
£000
18
52
70
1
5
6
64
17
147
Volution Group plcAnnual Report 2017Financial Statements 5. Property, plant and equipment continued
2016
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
6. Investments
Cost
At 31 July 2017 and 31 July 2016
Fixtures,
fittings, tools,
equipment
and vehicles
£000
1
17
18
—
1
1
17
1
Total
£000
1
17
18
—
1
1
17
1
£000
199,429
For a list of the subsidiaries in which Volution Group plc held 100% of the voting shares as at 31 July 2017, see note 30 of the Group
financial statements.
7. Other receivables and prepayments
Amounts owed by Group undertaking
Prepayments
8. Other financial assets
Financial assets
Foreign exchange forward contracts
9. Trade and other payables
Trade payables
Accruals
Amounts owed to Group undertaking
148
2017
£000
51,168
377
51,545
2016
£000
40,046
361
40,407
2017
Current
£000
2016
Current
£000
—
—
914
914
2017
£000
165
1,277
20,424
21,866
2016
£000
213
861
18,890
19,964
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Parent Company Financial Statements continuedFor the year ended 31 July 2017
10. Other financial liabilities
Financial liabilities
Foreign exchange forward contracts
11. Interest-bearing loans and borrowings
Unsecured – at amortised cost
Revolving credit facility
Cost of arranging bank loan
2017
Current
£000
2016
Current
£000
531
531
—
—
2017
2016
Current
£000
Non-current
£000
Current
£000
Non-current
£000
—
—
—
51,490
(403)
51,087
—
—
—
51,869
(634)
51,235
Interest-bearing borrowings at 31 July 2016 and 2017 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 2017
Currency
GBP
Euro
Swedish Krona
Total
Revolving credit facility – for the year ended 31 July 2016
Currency
GBP
Euro
Swedish Krona
Total
Amount
outstanding
£000
Termination
date
Repayment
frequency
Rate %
5,000 30 April 2019 One payment
Libor + 1.00%
23,320 30 April 2019 One payment Euribor + 1.00%
23,170 30 April 2019 One payment Stibor + 1.00%
51,490
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
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 2016, 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 2016 and therefore the margin for the
first period of the year ended 31 July 2017 was 1.00%. At the half year the consolidated leverage remained below 1.0:1 and therefore the
margin for the second period of the year ended 31 July 2017 was 1.00%; this rate will continue into the first period of the year ended
31 July 2018.
At 31 July 2017 the Group had £37,010,000 (2016: £38,131,000) of its multi-currency revolving credit facility unutilised.
149
Volution Group plcAnnual Report 2017Financial Statements
12. Share capital and share premium
The movement in called-up share capital and share premium accounts is set out below:
At 31 July 2016 and 31 July 2017
13. Dividends paid and proposed
Cash dividends on ordinary shares declared and paid
Interim dividend for 2017: 1.35 pence per share (2016: 1.20 pence)
Proposed dividends on ordinary shares
Number of
ordinary shares
Share capital
£000
Share premium
£000
200,000,000
2,000
11,527
2017
£000
2016
£000
2,688
2,394
Final dividend for 2017: 2.80 pence per share (2016: 2.60 pence)
5,567
5,176
The interim dividend payment of £2,688,000 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 2017.
14. 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
2017
2016
Amounts
owed by
related parties
£000
Amounts
owed to
related parties
£000
Amounts
owed by
related parties
£000
Amounts
owed to
related parties
£000
51,168
—
—
51,168
18,079
145
2,200
20,424
40,046
18,045
—
—
145
700
40,046
18,890
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 7 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.
15. Share-based payments
For detailed disclosures of share-based payments granted to employees refer to note 32 of the Group financial statements.
150
Volution Group plcAnnual Report 2017Financial StatementsNotes to the Parent Company Financial Statements continuedFor the year ended 31 July 2017 Glossary of Technical Terms
Alternating current or AC
the flow of electric current which reverses direction periodically, typically at 50Hz
in the UK and Europe. This is the standard type of electricity supply to domestic
and commercial properties
AC blowers
AC motor
AHU
Decentralised heat recovery
a low-pressure fan with an AC motor
an alternating current motor
a ventilation device which usually integrates air, heating and filtration into one combined unit.
May also include cooling and heat recovery
a system of ventilation that collects heat from exhaust air that would otherwise be lost
and reuses such heat by transferring it to the incoming fresh air. Decentralised heat
recovery consists of multiple units supplying and extracting from around the home
EC/DC
electronically commutated direct current
Electronically commutated or EC
Fan Coil
HVAC
Hybrid ventilation
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
a method that combines both passive and mechanical means to form a mixed mode
ventilation system
IAQ
indoor air quality
Lo-Carbon products
a trademark used to represent our low-energy range of products
MEV
Mechanical Extract Ventilation: a system of ventilation operated by a power-driven
mechanism which extracts air from a room and discharges it only to the external air
Motorised impellers
a motor that is supplied complete with an impeller attached to it
MVHR
NVHR
OEM
RMI
Mechanical Ventilation with Heat Recovery: a centralised system of ventilation that collects
heat from exhaust air that would otherwise be lost and reuses such heat by transferring
it to the incoming fresh air
Natural ventilation with heat recycling
original equipment manufacturer
repair, maintenance and improvement
Rotary heat exchanger
Plate heat exchanger
a type of heat exchanger consisting of a circular honeycomb matrix which rotates
in the air stream of a heat recovery device
a type of heat exchanger consisting of a series of plates which transfer the heat from
one airstream to another
Specifiers
persons who may specify certain characteristics of products
151
Volution Group plcAnnual Report 2017Additional Information Shareholder Information
Shareholder services
Company Secretary and registered office
For any enquiries concerning your shareholding please contact
our registrar:
Michael Anscombe FCIS
Volution Group plc
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 public holidays in England and Wales).
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
Fleming Way
Crawley
West Sussex RH10 9YX
United Kingdom
Registered in England and Wales
Company number: 09041571
LSE ticker code: FAN
Legal Entity Identifier: 213800EPT84EQCDHO768
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.
152
Volution Group plcAnnual Report 2017Additional 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.
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Volution Group plc
Fleming Way
Crawley
West Sussex RH10 9YX
United Kingdom
www.volutiongroupplc.com