Thursday 21 October 2021
Volution Group plc
Annual Report and Accounts 2021 and Notice of Annual General Meeting
Volution Group plc ("Volution", the "Group" or the "Company", LSE: FAN), a leading international designer and manufacturer of energy efficient indoor air quality solutions, announces that following the release on 7 October 2021 of the Company's Preliminary Announcement of Final Results for the year ended 31 July 2021, it has today posted and made available to shareholders on its website, www.volutiongroupplc.com the documents listed below:
· Annual Report and Accounts 2021
· Notice of Annual General Meeting 2021
· Form of Proxy for Annual General Meeting 2021
Copies of these documents are also being submitted to the Financial Conduct Authority's National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
A condensed set of financial statements and information on important events that have occurred during the year ended 31 July 2021 and their impact on the financial statements, were included in the Company's Preliminary Announcement of Final Results made on 7 October 2021, which is available on the Company's website referred to above. That information together with the information set out below in the appendices to this announcement (which is extracted from the Annual Report and Accounts 2021), constitute the material required by Disclosure Guidance & Transparency Rule 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full Annual Report and Accounts 2021.
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Enquiries:
Volution Group plc
Michael Anscombe, Company Secretary +44 (0) 1293 441562
Legal Entity Identifier: 213800EPT84EQCDHO768.
Note to Editors:
Volution Group plc (LSE: FAN) is a leading international designer and manufacturer of energy efficient indoor air quality solutions. Volution Group comprises 19 key brands across three regions:
UK: Vent-Axia, Manrose, Diffusion, National Ventilation, Airtech, Breathing Buildings, Torin-Sifan.
Continental Europe: Fresh, PAX, VoltAir, Kair, Air Connection, Rtek, inVENTer, Ventilair, ClimaRad, ERI Corporation.
Australasia: Simx, Ventair, Manrose.
For more information, please go to: www.volutiongroupplc.com
APPENDICES
Appendix A: Directors' Responsibility Statement
The following Directors' Responsibility Statement is extracted from page 120 of the Annual Report and Accounts 2021 and is repeated in this announcement solely for the purpose of complying with DTR 6.3.5. The statement relates to the full Annual Report and Accounts 2021 and not the extracted information contained in this announcement:
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
The financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced Disclosure Framework and applicable law). 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 Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider 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 Group and Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages 72 and 73, confirms that, to the best of their knowledge:
• the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced Disclosure Framework and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that they face.
In the case of each Director in office at the date the Directors' Report is approved:
• so far as the Director is aware, there is no relevant audit information of which the Group and Company's auditor is unaware;
• they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditor is aware of that information; and
• the financial statements on pages 130 to 182 were approved by the Board of Directors on 6 October 2021 and signed on its behalf by Ronnie George and Andy O'Brien.
On behalf of the Board
Ronnie George
Chief Executive Officer
6 October 2021
Andy O'Brien
Chief Financial Officer
6 October 2021
Appendix B: Principal Risks and Uncertainties
The following is extracted from pages 58 to 67 of the Annual Report and Accounts 2021 and is repeated in this announcement solely for the purpose of complying with DTR 6.3.5. The information relates to the full Annual Report and Accounts 2021 and not the extracted information contained in this announcement:
The Board is committed to protecting and enhancing the Group's reputation and assets in the interests of shareholders as a whole, while having due regard to the interests of all stakeholders. 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 other companies of similar scale and operations.
The risks and uncertainties facing the Group have been considered in the context of the continuing Covid-19 pandemic, as well as the implications from the changes in the trading relationship between the UK and the European Union (EU) from 1 January 2021. A specific assessment of the potential risks and our approach to management of these risks can be found on pages 62 to 67
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. To enhance risk awareness, embed risk management and gain greater participation in managing risk across the Group, a programme of employee communication continues with all new employees receiving a brochure on joining Volution.
The Group's framework of risk management is 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 2021.
Identifying and monitoring material risks
Material risks (including emerging risks) that we consider may lead to threats to our business model, strategy and liquidity are identified through our framework of risk management, our 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 an annual 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 2018 UK Corporate Governance Code (the 2018 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 29 of the 2018 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. During this review we also considered the emerging risks facing the Group, the main one being the ongoing Covid-19 pandemic, and any impact on our assessment of principal risks. For each risk there is a description of the possible impact of the risk to the Group, should it occur, together with strategic consequences and the mitigation and control processes in place to manage the risk. This list is likely to change over time as different risks take on larger or smaller significance.
Principal Risks
| Risk | Impact | Strategic consequence | Likelihood | Potential impact | Risk Direction | Reason for risk direction | Mitigation |
| Economic risk
A decline in general economic activity and/or a specific decline in activity in the construction industry, including, but not exclusively, an economic decline caused by the Covid-19 pandemic and the new relationship between the UK and the EU from 1 January 2021. | 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. | Possible | Medium | Decreasing
| Following the implementation of the new trading relationship between the UK and the European Union, the well-publicised issues around imports and exports through UK ports have created some input material supply challenges; however, our order intake remains strong, and our asset light and flexible operating model continues to be resilient in servicing demand. Covid-19 has impacted and will continue to impact economic outlook and confidence in a number of regions in which we operate. That said we believe that government responses and stimulus packages deployed are likely to continue to be supportive and help underpin demand with a particular focus on energy efficient and sustainable technologies including ventilation systems. Specifically in the UK, which remains our largest market, the speed and success of the vaccination programme and the current lack of restrictions have been positive for broader confidence and sentiment. | 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 have a strong presence in 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. Our business is not capital intensive and our operational flexibility allows us to react quickly to the impact of a decline in volume. |
| Covid-19
Covid-19 continues to be a significant risk to the economy and impacts many other risks reported in the Group Risk Register. | Demand for our products serving the residential and commercial construction markets could decline. Our supply chain could be disrupted. Our people may be impacted. | Our ability to achieve our ambition for continuing organic growth would be adversely affected. | Possible | Low | No change | Covid-19 continues to impact all aspects of society and in particular the economic outlook of all geographies in which we operate, the supply chain of input materials and our people. However, the continuing strong performance of the Group and the regulatory and demand changes developing from the advantages of ventilation in preventing transmission mean the overriding risk of Covid-19 to the business is not considered significant. | Our product and geographic diversification assists in mitigating the impact of local fluctuations in economic activity as a result of Covid-19. The regulatory and demand changes developing from the advantages of ventilation in preventing transmission are assisting the business in mitigating any potential impact of Covid-19 on the Group. |
| Acquisitions
We may fail to identify suitable acquisition targets at an acceptable price or we may fail to complete or properly integrate the acquisition. | 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.
| Our strategic ambition to grow by acquisition may be compromised. | Possible | Medium | No change
| The potential continuing impact of Covid-19 and mitigating factors set out in the Annual Report 2020 remain the same. Whilst the timing and opportunity landscape for acquisitions will vary from time to time, we are positive about the potential range of opportunities in the coming years as exemplified by the transactions completed during the year ended 31 July 2021. | The ventilation industry in Europe remains 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 16 acquisitions since IPO in June 2014. 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 have been maintained. |
| Supply chain and raw materials
Raw materials or components may become difficult to source because of material scarcity or disruption of supply, including as a consequence of the Covid-19 pandemic and the new relationship between the UK and the EU from 1 January 2021. The increased friction and potential for a "trade war" and disputes primarily between the US and China could also destabilise supply chain activity.
| Sales and profitability may be reduced during the period of constraint. Prices for input materials may increase and our costs may increase. | Organic growth may be reduced. Our product development efforts may be redirected to find alternative materials and components. Operational excellence may be adversely affected. | Likely | Medium | Increasing | The Covid-19 pandemic and the associated potential for disruption to supply chains, especially relating to products and materials sourced from China, continues to be a specific risk that we are managing very closely. Potential impacts could include inability to service customer demand due to non-availability of products, as well as input cost increases due principally to the potential need to air freight. | We establish long-term relationships with key suppliers to promote continuity of supply and where possible we have alternative sources identified. We continue to monitor stock levels and order patterns and where deemed necessary will adjust inventory levels to help mitigate any disruptions in supply. |
| Foreign exchange risk
The exchange rates between currencies that we use may move adversely. | The commerciality of transactions denominated in currencies other than the functional currency of our businesses 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 ambition to grow internationally through acquisition exposes us to increasing levels of translational foreign exchange risk. | Likely | Medium | Increasing | Covid-19 has impacted the customer demand and supply chain patterns, which could lead to unpredictable hedging of currencies. We believe that the increased economic uncertainty in the context of Covid-19 and Brexit makes it likely that in the near term exchange rates may continue to see heightened levels of volatility. | 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. |
| 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.
| 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. | Possible | Medium | No change
| We believe that when the Covid-19 pandemic struck the risk increased as there was the potential for: • new risks linked to employees working from home; and • an increase in targeted phishing campaigns and fraud attempts. However, this risk is deemed to have stabilised during 2021. | Disaster recovery and data backup processes are in place, operated diligently and tested regularly. A significant Enterprise Resource Planning system has been implemented for several key sites. 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 increasingly sophisticated worldwide cyber threats. We also undertake regular cyber security testing and training of our employees. We have commenced a process of annual internal and external penetration testing with quarterly monitoring checks. |
| Customers
A significant amount of our revenue is derived from a small number of customers and from our relationships with heating and ventilation consultants. We may fail to maintain these relationships. | Any deterioration in our relationship with a significant customer could have an adverse significant effect on our revenue from that customer. | Our organic growth ambitions and operational excellence would be adversely affected. | Possible | Low | No change | Covid-19 increased the risk that customers could fall into financial difficulties or change the way they do business, moving to more online trading and a reduction in stock levels. However, this risk is deemed to have stabilised during 2021. | 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 focus on providing excellent customer service. |
| Regulatory environment
Laws or regulation relating to the carbon efficiency of buildings, the efficiency of electrical products and compliance may change.
| The shift towards higher value-added and more energy efficient products may not develop as anticipated resulting in lower sales and profit growth. If our products are not compliant and we fail to develop new products in a timely manner we may lose revenue and market share to our competitors. | 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. | Possible | Medium | Decreasing | Covid-19 has further heightened consumer and regulator/government awareness of air quality and the role ventilation can play. We therefore believe that, in addition to the already supportive regulatory backdrop and drivers around carbon and energy efficiency, Covid-19 is placing additional emphasis on governments developing appropriate regulations in support of improving indoor air quality. We believe this risk has reduced during 2021 and the regulatory environment has presented Volution with opportunities. | 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. With the proposed UK Future Homes Standard and the European Green Deal along with Healthy Homes Standards (HHS) in New Zealand, favourable regulatory tailwinds have continued to develop. This is especially true since the outbreak of Covid-19. We are active in new product development and have the resource to react to and anticipate necessary changes in the specification of our products. |
| Innovation
We may fail to innovate commercially or technically viable products to maintain and develop our product leadership position.
| Scarce development resource may be misdirected and costs incurred unnecessarily. Failure to innovate may result in an ageing product portfolio which falls behind that of our competition. | Our organic growth ambitions depend in part upon our ability to innovate new and improved products to meet and create market needs. In the medium term, failure to innovate may result in a decline in sales and profitability. Operational excellence may be adversely affected. | Possible | Low | No change | Covid-19 has not impacted our innovation process. | 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. |
| People
Our continuing success depends on retaining key personnel and attracting skilled individuals. | Skilled and experienced employees may decide to leave the Group, potentially moving to a competitor. Any aspect of the business could be impacted with resultant reduction in prospects, sales and profitability. | Our competitiveness and growth potential, both organic and inorganic, could be adversely affected. Operational excellence may be adversely affected. | Unlikely | Medium | Decreasing | The Covid-19 pandemic has increased the risk to the health and wellbeing of our employees and we have taken appropriate steps across our business to minimise this risk. There have been no significant changes to the supply and retention of employees across the wider workforce since the Covid-19 outbreak. Our continuing growth has increased the size and complexity of our business. | Regular employee appraisals allow two-way feedback on performance and ambition. A Management Development Programme is run periodically to provide key employees with the skills needed to grow within the business and to enhance their contribution to the business. Succession planning and key roles are regularly reviewed by the Directors. |
Appendix C: Related Party Transactions
The following description of related party transactions involving the Company and its subsidiaries during the financial year ended 31 July 2021 is extracted from page 169 of the Annual Report and Accounts 2021 and is repeated in this announcement solely for the purpose of complying with DTR 6.3.5:
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 2021 or 31 July 2020.
There were no material transactions or balances between the Company and its key management personnel or members of their close family other than the compensation shown below. At the end of the period, key management personnel did not owe the Company any amounts.
The Companies Act 2006 and the Directors' Remuneration Report Regulations 2013 require certain disclosures of Directors' remuneration. The details of the Directors' total remuneration are provided in the Directors' Remuneration Report (see pages 97 to 116).
Compensation of key management personnel
|
| 2021 | 2020 |
|
| £000 | £000 |
| Short-term employee benefits | 4,139 | 2,749 |
| Share-based payment change (see note 34) | 1,605 | 58 |
| Total | 5,744 | 2,807 |
Key management personnel is defined as the CEO, the CFO and the eleven (2020: eleven) individuals who report directly to the CEO.
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