Preliminary Results 2019

Strong results for the year with revenue growth of 14.6% and adjusted EPS growth of 10.3%

Volution Group plc (“Volution” or “the Group” or “the Company”, LSE: FAN), a leading supplier of ventilation products to the residential and commercial construction markets, today announces its audited financial results for the 12 months ended 31 July 2019.

The Group uses some alternative performance measures to track and assess the underlying performance of the business.  These measures include adjusted operating profit, adjusted profit before tax, adjusted EPS and adjusted operating cash flow. For a definition of all the adjusted and non-GAAP measures, please see the glossary of terms in note 18. A reconciliation to reported measures is set out in note 2.

Financial highlights

• Revenue growth of 14.6% (15.7% at constant currency):
  • organic revenue growth of 2.6% (3.5% at constant currency); and
  • inorganic revenue growth of 12.0% (12.2% at constant currency).
• Adjusted operating profit increased by 13.3% to £42.1 million (14.9% at constant currency), assisted by acquisitions.
• Adjusted operating profit margin of 17.8% (2018: 18.0%), an improving trend through the year:
  • H1 17.6%, impacted by Reading and Torin-Sifan operational issues; and
  • H2 18.1%, finalised commissioning of Reading facility; strong performance in Central Europe.
• Reported profit before tax increased by £6.4 million to £23.1 million (2018: £16.7 million); exceptional costs significantly reduced to £1.8 million (2018: £6.4 million).
• Adjusted operating cash inflow of £36.9 million (2018: £34.4 million).
• Net debt of £74.6 million was £2.6 million lower than at 31 July 2018 after having spent £10.4 million on the acquisition of Ventair Pty Limited and £0.6 million of contingent consideration paid relating to Oy Pamon Ab.
• Full year dividend of 4.90 pence per share, up 10.4% (2018: 4.44 pence).

Strategic and operational highlights

Ventilation

Organic growth

• Highlights in the UK include a return to growth for the UK Public RMI sector and another period of good growth for UK New Build Residential Systems.
• As previously reported, operational difficulties at our Reading facility adversely impacted profitability in the first half of the financial year; however, there was a significant improvement in production levels and efficiency in the second half of the financial year. The Reading facility is now fully commissioned.
• Good sales of our new Xenion range of decentralised heat recovery ventilation in Germany with an associated increase in gross margin in the region.
• The launch of the first application software controlled ventilation extract fan in New Zealand, Genius, under the Manrose brand sold by our company Simx, further demonstrating our capability to launch existing Volution products in to newly accessed markets.

Acquisitions

• On 1 March 2019, we acquired Ventair Pty Limited, a market leading residential ventilation product supplier, in Australia, for an initial cash consideration of AUD$19.2 million (approximately £10.4 million). A further amount of deferred cash consideration of up to AUD$7.7 million (approximately £4.3 million) may be payable, contingent on Ventair achieving an EBITDA target in the financial year ending 31 July 2020.
• The acquisition of Ventair Pty Limited has further increased our geographic diversity, product offer and market access. The acquisition is integrating and performing well under the management of our Australasian team.
• Including the pro-forma effect of the Ventair acquisition, our revenue from customers outside the UK now represents 53.0% of total Group revenue.

OEM (Torin-Sifan)

• OEM (Torin-Sifan) has continued to see a good take-up of its new, high-efficiency, Revolution 360 range of EC fans (EC3), with further capacity investment underway to support the growth in sales.
• Operations in OEM (Torin-Sifan) were adversely impacted during the year by procurement issues which manifested in higher input costs. However, we are confident these issues have now been resolved.

Progress against strategy
This strong set of results for the year maintains our consistent track record of revenue and earnings growth in the 5 years since listing in 2014 and continues to validate our strategy:

• Organic revenue growth of 3.5% (at constant currency) in the year, an average of 3.2% over the 5 years since listing in 2014;
• Acquisition strategy delivering inorganic revenue growth of 12.2% (at constant currency) in the year, providing access to new markets, resulting in non-UK revenues increasing from 36.5% in 2014 to 53.0% on a pro-forma basis;
• Strong earnings growth; EPS increased by 82% in the 5 years since listing in 2014 (13% CAGR);
• Cumulative operating cash flow generation in the 5 years since listing in 2014 of £165.9 million; and
• Excellent track record of innovative product introductions; strong development pipeline.

UK leaving the EU

In the context of the considerable uncertainty surrounding the outcome of the Brexit process, we have analysed the potential risks and operational challenges to our business in the event of a no-deal exit from the European Union. We have reviewed potential tariffs which we do not consider to represent a significant impact, and on the supply side we have increased inventory levels of faster moving items in certain locations. We see the principal risk and potential impact to be that of a broader downturn in confidence and activity levels in the UK albeit noting that the UK does now represent just under half of Volution’s revenues. 

Commenting on the Group’s performance, Ronnie George, Chief Executive Officer, said:

“Our strong results this year were underpinned by improving organic revenue growth and the excellent contribution and progress achieved with the acquisitions made in the prior and current financial year. Organic growth improved in the UK as we continued to innovate and introduce new products in all of our market sectors with 5.3% organic growth from our UK residential public refurbishment market being particularly pleasing, underpinned by the new products launched in the last two years. A particular highlight was Central Europe with 9.3% (constant currency) organic growth, again underpinned by our innovation and introduction of new, market leading products. 

We also completed our factory rationalisation project in the UK: consolidating two older and capacity constrained facilities in to a new, purpose built injection moulding, ducting extrusion and fan assembly facility in Reading. This new and enlarged facility will future proof our production capability to serve all of our residential markets, not just in the UK but including our ambitious growth plans in Australasia leveraging the benefits from the recent acquisition of Ventair in March 2019.”

Outlook

Whilst there is major uncertainty in the UK economy caused by the current state of Brexit negotiations, we continue to focus on building on our strong financial performance and in particular the pursuit of operational excellence to further expand our operating margins.

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