Volution Group plc

Hello, good morning and welcome to Volution Group FY21 results presentation. I'm delighted to be here this morning. It's Ronnie George as Chief Executive and over on my right is Andy O'Brien. Good morning everybody. So we're delighted to be here. Unfortunately, it's a virtual presentation. I remain optimistic that we'll certainly have an opportunity maybe next time around at the half year to talk to you in person. But look, what we'd like to do this morning is I'll start with the introduction and strategy, I'll hand over to Andy to take you through the financial review. I'll come back on the business review and summary and outlook, and then we'd be delighted at the end to hand over and talk about sort of any questions that you might have. If we move on to the next slide. So from a Volution perspective, our energy efficient indoor air quality solutions are part of the global green economy. And what I'd like to start with on the next slide today is just to talk to you a little bit about sustainability. And we announced this in our previous financial year at FY20, and it's what we refer to as our three Ps, product, planet, and people. And so from a product perspective, Our ambition is to champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. And we'll talk a little bit more about that and some of the metrics later on. From a planet perspective, we absolutely want to reduce our environmental impact. the application of recycled materials, materials, if you like, from the circular economy. And from a people perspective, we want to continue to develop an engaging and inclusive workforce where our employees feel valued and reach their full potential. And we think we've made tremendous progress with that in the year and in terms of how our employees are absolutely embracing what we're doing around sustainability and driving our low carbon revenue streams. On the next slide, we've got some KPIs and we announced these KPIs in FY20, and we've set out across product, planet and people some stretching targets for delivery by FY25. What I'd like to do now is just give you a sense of how we're doing with those targets. So the first is around product, and this is committed to a zero carbon future. And I think it's clear to say that since we announced these targets in FY20, we've seen a considerable increase in the focus on reducing carbon emissions from across the world. And so we think this ambition that we have to increase the proportion of our revenue that is a low carbon solution is a hugely virtuous and rewarding KPI to have. So in FY20, 59% of our revenue was from a low carbon product set. We've increased that to 62.1% in the year in FY21. We think we're in really good shape to deliver the 70% target by the end of FY25. And indeed, some of the acquisitions that we've made in year will potentially help us accelerate the delivery of that target. From a planet perspective, it was about reducing our environmental impact. We've got a huge ambition here that the plastics that we utilise in our own facilities, but predominantly in the UK and in the Nordics, will be from a 90% recycled source. That's a huge ambition and of course we've gone from 56% to 59.7% in the year so we're clearly going to have to accelerate the application of those materials to deliver the 90% by 2025. 2021 was difficult in some respects in terms of the availability of some of these materials. But I feel as if we had, particularly in the latter part of the year, a bit of a breakthrough in the application of materials. We use recycled PVC, hips, and ABS. And what we were able to do, and we've been running some trials more recently, is to get to almost 100% application of recycled hips. And we're moving towards a very significant application of recycled ABS. So whilst we only moved up, let's say, 4% along the curve, as it were, to 60%, the remaining 30% is a big challenge. I know that the breakthroughs that we made, particularly in the last couple of months in terms of applying these materials and having the right mechanical properties in the final solution, give us a high degree of confidence in terms of delivering on the 90% over the next four years. From a people perspective, We targeted to have, our ambition is to have zero accidents and regrettably in the year we had six lost time accidents. And what we felt that we needed a more meaningful measure that could be benchmarked against other companies. And so we've introduced the frequency rate. It's a frequency rate showing reportable accidents as a frequency rate per 100,000 hours worked. And that frequency rate was at 0.2 accidents per hour. 100,000 hours worked and What we've looked at is an industry average frequency rate of 0.17. So we're looking to provide more colour on that as we go forwards. And certainly when we look at the annual report for this year, there's quite a bit of detail. But look, delighted about progress with sustainability. Low carbon revenue is on a great trajectory. The recycled material content is really important for us, not just because of our sustainability objectives, but also from a cost perspective. And we've got some really exciting breakthroughs that we're delivering on there. If we go to slide six, And just to talk about very quickly the summary, and I certainly don't want to talk about this too much now. I'd like Andy to take you through in more detail. But look, it was a strong revenue growth. We expanded our operating margin to our 20% target and completed it six months earlier than we expected. Three acquisitions completed in the year, a fourth completed early in the new financial year. Just a couple of headlines, because I know that referring to our prior financial year that was quite impacted by Covid is not necessarily a good comparator. But if we look at FY19, which absolutely was a Covid unaffected year, we've delivered 12% revenue growth. against 19, and a very compelling 31.5% growth in our adjusted EPS. That's 31.5% over the two years. So very strong revenue and profit growth. Operating margin increased to 20.9%. On the next slide, slide seven, delivering well against our strategy. Our strategy has been largely the same since we listed in 2014. We want to grow well organically, and we delivered a very strong organic growth against the prior year, but nevertheless a good organic growth against 2019. We completed three acquisitions in the year, and I'd like to talk in a moment a little bit about the fourth one. And from an operational excellence perspective, that really did help us underpin an operating margin of greater than 20 percent. So that was really exciting. And look, we'll talk about a little bit more later on with respect to current trading. But we have successfully mitigated the cost pressures in the second half of the year. And we're confident about how the group is positioned in terms of those inflationary headwinds that everybody is seeing at the moment. On the next slide, There's quite a bit of detail here. I don't propose to go through each of the acquisitions in detail. Clemarag, Clemat Fabrique and Airtek all completed in the year. That's two in the Nordics and one in the Netherlands. Predominantly low carbon solutions. But ERI Corporation, this is a manufacturing facility in North Macedonia providing energy efficient heat recovery cells to a whole range indeed, inside pollution across the European market. That was completed in September. We're busy integrating that acquisition now and really excited about the potential. ERI is one of the leading producers of heat recovery cells in Europe, and heat recovery ventilation will be really well underpinned in all markets as we go forward, as we drive reduced carbon emissions from buildings in the months and years ahead. On slide nine, which is our business model, Volusion's purpose is to provide healthy air sustainably. And we think our business model is relatively simple and straightforward, not necessarily easy to execute, but it's really important that we understand where we think we create value. We understand and shape our markets. We understand intimately the regulations and the drivers in each of our markets. And each of our markets intrinsically is different. There is an overarching principle around regulations, but each individual market behaves differently. And we think we understand those intricacies really well locally. We leverage our scales. Volusion is now one of the largest ventilation providers, particularly in the residential space in Europe, and that scale benefit is starting to shine through. We saw operating margin improvement in the year, but it gives us cross-selling potential that is very exciting. It gives us economies of scale and scale benefits that, quite frankly, we didn't have to the same degree that we have now when we listed seven years ago. We support our companies to grow, and we've had some fantastic examples of that. I'd like to talk to you about Australasia a little bit later on in the presentation, but it's cross-selling and innovation that we're able to then extrapolate across many different routes to market. And we drive sustainability. And sustainability is something that Andy and I believe in passionately. It's in our DNA. It's something that our employees have embraced. And it's how we go to market. We provide low carbon products to help save energy and reduce carbon emissions from buildings. And that is absolutely essential. So that was a very, very quick, high level summary of the year that we've just had. Clearly we're delighted about our record results. And what I'd like to do now is hand over to Andy O'Brien just to take you through the financial review and the financial results in a little bit more detail.

Thank you, Ronnie. Good morning, everybody. Yes, slide 11, please. So first slide here are financial highlights. And I suppose it's fairly obvious what this shows is our key metrics and how they developed over the last five years. So I guess my key takeaway from this slide, we'll go into more detail on each of the constituents later. Yes, unsurprising that there's a very strong bounce back and recovery from financial year 2020 and the Covid impacted year that we had then. But I think what this chart really does demonstrate is the consistent and indeed accelerating progress on all these key metrics if you look back over the last five years, so whether revenue operating margin, earnings, and indeed cash generation, you know, all of those lines show really good, consistent progression, and as I say, indeed acceleration, which we're very pleased and excited about. Next slide, please. So this slide here, apologies, there's rather a lot of data and numbers on here, but normally we would just show comparatives to the prior year, but to the point just then, we thought it was helpful to just remind people how financial year 2021 stacks up, not just against 2020, but against the sort of pre-COVID 2019 year. And, you know, I think as you see down the movement column there, again, really good progression across all of the key metrics. So revenue, we'll unpick the sort of the geographical and market sector makeup in the slides to come, but over 2020 at 25.8%, revenue growth, 22% constant currency, organic growth, and some acquisition support and benefit from, in particular, Klimarag, which came in in December of the year. Operating margins. We've obviously talked a lot about our operating margin ambition and aspiration over the last couple of years and the 20% target that we set ourselves. And we set ourselves that target back in 2019, when, as you see from the chart there, our margins were 17.8% as a group. So we've expanded those margins in the last two years by 310 basis points. And what you have got also on this slide, of course, is the gross margin as well as the operating margin. So you can see that that That 310 basis points has come from an array of factors. It's come from gross margin, i.e. product cost actions, scale, new product innovation. It's come from work we've done on indirect cost, in particular around restructuring of our uk organization to take advantage of the fact that we now have scale across multiple brands and it's come from operating leverage as as the group continues to grow and expand in in scale um if i look also down that chart there i'd probably sort of draw your attention to the cash generation metrics and in particular leverage so we closed the year 2021 on a leverage basis. Now this of course is excluding leases. So this is pre IFRS 16. So a leverage of 0.9 X compared to 1.3, 12 months ago and 1.6, two years before that. And that's not withstanding a really exciting year where we spent just over 42 million pounds on acquisitions. But what that means is that we entered a new financial year with balance sheets and debt in a very, very healthy and robust position. Next slide, please. Not much to dwell on this slide. This is the movement between our adjusted earnings and our reported earnings. And effectively, it all relates to acquisitions. I guess the one line I'd probably allude to here is the £3.3 million charge for contingent consideration in the year. And what that is, is our Ventair business in Australia. So this was its measurement year for earn-out purposes. We were delighted to see the hugely strong performance of that business in the year, meaning that it's hit and exceeded its maximum earn-out targets. Whilst I don't like getting the checkbook out, probably writing a cheque for achievement of earn-out is one of the most pleasing cheques that we can write as a business because it means that the acquisitions have done what we expected them to do and hopefully more besides. Next slide, please. So this is just laying out the revenue progression organically by our three geographies, the contribution from inorganic and the impact of foreign exchange in the years. We had a small foreign exchange benefit as all of the principal currencies were slightly weaker against. our currencies in the year just gone, that is expected to revert back based on where the rates are now in 2022. In terms of the regions, Ronnie will go into more detail later, but again, probably good percentage growth across all three, but probably the one that jumps off the page is Australasia and the 31.5% constant currency growth there, which we'll talk some more about in slides to come. Next slide, please. So I've already mentioned our 20% operating margin target, which is a reset basis, the 17.8% that we sat at at financial year 2019 as a group. And it was really pleasing to us to get to that target early. to maintain the delivery of that target through what's been a pretty turbulent last six eight months in terms of supply chain and input cost pressures and so emerging from the year with a margin of 20.9 is is very pleasing all three businesses you know the right side of that target in terms of the expansion of margins compared to last year, really strong and fairly similar levels of margin expansion in all three of our geographies. Next slide, please. So here you see our sort of cash performance And really, we set ourselves a 90% target for cash conversion. So 97% this year, again, nicely above it. And indeed, I think over the seven years since listing, we've exceeded that 90% target in every single year except for one. And as I've already referenced, leverage ending the year at 0.9 times. And that is with, you see the large acquisition block there of £42 million. A little bit of additional investment in working capital in the year and in particular in the second half of the year. And of course, that is activity returning, but it's also a conscious decision and strategic intent to hold more inventories where we can. to try and give ourselves some buffer and some protection against the vagaries of the supply chain. So we have increased our inventories excluding acquisitions by about 11 million pounds compared to where we were 12 months ago, but they still end up with 97% conversion and a very healthy leverage position. Next slide, please. this slide now talks to our returns on acquisition and this is a metric that we introduced for the first time 12 months ago and this is setting ourselves a target of within three full years of ownership delivering an 18 return on our on our acquisition spend um and and it's a high part to set um but i think you know hopefully some some color and some context as to why we feel confident in setting that target so on the left hand side there you'll see by geography um you know where we are respectively on our uk nordic central europe and australasian um segments and all of them at or above the 18 clearly acquisitions for longer and therefore being able to continue to expand the operating result, a la Nordics, a la Central Europe, you see the highest rates, but really pleasing that all of them are basically at or above the 18% and as a group we're at 25%. Then what I've done on the right hand side of the chart here is to focus, as I said, we set ourselves a three year horizon to reach the 18% mark. So here you've got the three acquisitions that we completed in our financial year 2018. So the three that are now newly part of this metric. And without going into too much detail, so the big one there obviously is the Cymex acquisition in New Zealand. of entry point of acquisition that number would have been about 11 percent um and it's now showing 17 and a half percent if you solely look at the result of new zealand itself the little gray bit on top of both the cymex and air connection bar there what that represents is that um these are these are businesses and this is again a core part of our acquisition strategy these are businesses which we supply the product into that market in-house from from our facilities in the uk And of course, therefore, as we've developed and expanded the businesses in New Zealand and indeed in Denmark with Air Connection, as well as pulling through the profits and the earnings in New Zealand itself, what we also do is generate additional incremental intercompany sales and margins in the UK. And so if I value that into the acquisition, Then Symex moves from 17.5% to 19.7%. And Air Connection in Denmark from just under 16% to 22.5%. The one that's slightly below the line, as of last year, is our Panama acquisition in Finland. And really, that is largely a result of Finland being more impacted than our other Nordic markets by COVID-19 restrictions. What we're seeing in the latter part of 2021 and certainly the first couple of months of 2022 and supported by the acquisition of Artec recently and therefore the integration benefits that brings, we're seeing a really strong earnings development in PAMON which is moving us above that line. But hopefully that gives a little bit more detail on the new ones and a bit more reassurance as to why we think this is an important target and how we're going about it. So with that, I'm going to hand back to Ronnie to go into a little bit more detail on our respective markets.

Brilliant. Well, look, thank you, Andy. I mean, what a great set of results for Andy to present there. He joined the group two years ago and, of course, the first year was very difficult with COVID, but clearly what we did in that year is set the foundations for the strong year that we just had, and that was essentially about this slide, which is Geographic diversity. The group has moved from being a UK leader. We are absolutely a leader in the UK, but we're growing very nicely in continental Europe and Australasia. And this slide covers it off really well. You see that more than half of our revenue last year was from outside of the UK. We still love the UK market. It's very important to us, but clearly the diversification is really important. And of course, think about the acquisitions that we made in the year. and how we further diversify away from the UK, as it were, or we grow more quickly outside of the UK, but we're still expecting great things in the UK market as well. And that's really covered off on the next slide. This presentation is now available on the Volution Group website, and I don't propose to go through this in detail, but it is a quite explicit view of the different markets that we serve and this geographic diversity this not relying on one single market for our revenue stream is is really important the next slide slide 21 i'd just like to take you through each of the individual areas here so we'll start with the uk and of course it would have been very difficult not to grow against 2020. And so I will refer also to 19 as we go along. But what we've got here in the UK, for example, is operating margins at 20.4%. There was 17.8% in the year before COVID impacted our result when we delivered 14% in the year 2020. So a substantial uplift in our margin in the UK. Last year, we saw strong residential RMI demand, and we believe that that's coming from a number of different areas. Upselling, which is hugely important for us, is going very well. Ventilation doesn't have to be noisy in residential refurbishment. We have leading solutions. innovative solutions including app controls and that portfolio grew really well last year and is set to continue to grow. We've also got not just in the UK but of course globally a heightened awareness around how ventilation can improve indoor air quality and indoor air quality is inextricably linked to health. Covid-19 as a pandemic is a respiratory disease, a respiratory virus and Good indoor air quality will reduce health risks. That's not a new statement, but it's one that I think people are hugely aware of. And look, the runway of opportunity of residential RMI, not just in the UK, but in all of our markets, is very substantial. Residential new build and commercial, they all grew well in the year. We were disappointed with residential new build and commercial last year, and we've alluded to strong order books, particularly in the commercial space, and we've had a good start to the new year, and indeed we're seeing those areas continue to perform very well, and a all in the UK, we grew 21.8% in the year, particularly in residential refurbishment, which was substantially up on 19, 12% residential RMI growth in 21 over 19. Onto the continental Europe area. Continental Europe was So continental Europe was far less impacted in 20 than elsewhere, than in the UK, I should say. And so therefore, the comparative with 21 and 20 is a good one. Operating margin was 21.4 in 19, 20.5 in 20. That's a culmination of quite a few things. The acquisition of Cleveland Rad, a very profitable company with a market leading decentralized heat recovery proposition. the strong growth that we had in the Nordics and indeed in Germany, and the high levels of profitability that we generate in those areas. So the revenue growth is 25.3%, but it was still 22% up on 19. You can see that actually 20 as a sort of delta on 19 wasn't as severe as we had in the UK. But look, absolutely delighted with a 26.6% operating margin. we've got leading positions now in the nordics belgium netherlands and germany and more recently we acquired eri which of course doesn't feature in these numbers but will act as a huge tailwind for revenue growth in fy 22. and then finally if we move on to slide 23 australasia and It's a long way away. And I know when we acquired in New Zealand, that was the comment we got from maybe some more nervous shareholders. But these propositions, these strong brands with Cymex and Vente, New Zealand and Australia respectively, strong management teams, very well run activities and delighted. 21.7% operating margin up from 17.7% in 2019. Organic growth of 31.5%. Our revenue in Australia in Ventair is 70% higher than when we acquired the business in March 2019. We're a market leader in New Zealand. We have an ambition to be one of the leading ventilation companies in Australia. and it's growing very well. In Australia, I draw your attention to the last bullet on the page there. New sizeable account win in Australia in FY21 to commence in half one FY22. We've seen no revenue yet. It actually kicks off in earnest through October. We're in the process now of stocking out many hundreds of DIY stores in that Australian market. We have a great proposition and we're very, very excited, as you can tell, our Australasian activities. So look, overall, really good organic growth across all three areas, operating margins improving. And what I'd just like to say, just to echo what Andy said earlier on, I'm sure it will come back in Q&A, we believe in Volution that we saw most of the inflation that we're likely to see throughout FY22. In the second half of our FY21, we've been on the front foot with price increases and we believe we've got strong propositions and strong brands the uk came a little bit later with price increases basically through april july and october quite a significant increase going in now and so we've actually got this sort of further improvement in pricing but we're managing our input costs and mitigating some of those input cost inflation really well not least of which is really not only help with our sustainability calls, and we're really committed to that, but also help reduce our input costs. So if we just jump a couple of pages now and go to slide 24, The summary, strong revenue growth, 24.4% of constant currency, operating margins at 20.9%, the group's target six months earlier than anticipated, three acquisitions in the year, all really high quality attractive propositions, and a fourth transaction completed early in the new financial year. And the pipeline remains full. We're very excited about M&A. We did four transactions in a period where It's undoubtedly more difficult to do M&A when it's harder for us to travel. It took us a month of planning to travel to the ERI facility in North Macedonia in June. It's going to get easier. We don't have to plan a month in advance now, thankfully, to travel around Europe. Excellent progress with our key sustainability metrics. It's embedded into our business. It's part of our DNA. And we have mitigated most of the supply chain and input cost inflation through selling price increases. And look, I believe We flagged it earlier on. We were concerned that people might see it as negative that we were holding more inventory in our facilities, but we believe that deploying that capital into more inventory to mitigate these inevitable supply chain disruptions that have been well publicised for nearly 12 months now was the right deployment of capital. And we'll continue with that strategy until we see an ease in, but it will protect us as we go forwards. Everybody's aware of indoor air quality. There's not a day go by that I don't hear about ventilation, ventilation, ventilation. And that's not going away. That's a nice underpinning trend for all of our markets for the long term. Cash conversion strong, very strong. And we know what to do with it. And a return to pay dividend at 6.3 pence per share, reflecting a strong performance in the year. So just to finish, and I know there'll be questions there, the outlook. The financial year has started well, delivering organic revenue ahead of the same period in the prior year. Our market leading products and brands, our implementation and proactiveness around price, we believe agile approach to product assembly and supply, and the benefit of the four acquisitions that we have executed in the last 12 months since we presented FY20 results, progress in the year ahead. So look with that that takes us to the end of the sort of formal presentation and we'd like to hand over to the audience now to see if there are any questions, but like to thank you for your time.