Volution Group plc

Good morning. Fantastic to see so many people here in the room this morning. It's a real pleasure. I think through COVID it was quite difficult presenting our results remotely. So thanks for coming along. We're delighted to be here this morning and talk to you about our results for FY22 and indeed we'll give you a little bit of a hint of what we think comes next so we'll have to wait for that to the end of the presentation but we're here today to talk to you about healthy air sustainable that solution I'm Ronnie George I'm the Chief Executive I've actually been Chief Exec for over 10 years now a little bit scary when you say that eight years listed and over 10 years Andy O'Brien, Chief Financial Officer, three years with the group and really pleased to talk about our FY22. So a little bit about overview. Andy will take us through the financial review in a little bit more detail. Something about the business review, our three geographic areas. about summary, what happened in 22, and then we'll come on to outlook. And we'll try, I think what we'll try to do is allow a little bit more time for questions. I suspect there'll be quite a few questions around the inevitable what comes next and what are you seeing and so forth. So moving on from overview and a summary of what's just happened, I mean, it's been a year of strong progress, strong growth in revenue, operating profit, and in our earnings per share. Our operating margins have been maintained above the target despite the sort of well-publicised inflationary headwinds. Great progress with sustainability. Recycled plastics now at 67% of our manufacturing content. We're really delighted about that. And a statistic, I know a lot of people have asked us about this over time, our heat recovery ventilation proportion of total sales is now at 30% of the group's revenue. In the year, very important for us, strategic investment in two acquisitions. One very notable acquisition, Energy Recovery Industries, a company that we acquired in September last year. That's a provider of heat exchangers that go inside heat recovery devices, an excellent company and one that we've really enjoyed having as part of the group. And I mean, just a summary, really, we are very well positioned with the sort of regulatory underpinnings in our wider market. We have a flexible business model, and we'll talk a little bit about that as we go along. A strong balance sheet, really delighted with the position that we ended up at the end of the year with respect to the balance sheet. And this diversified end market exposure is crucial. It's really important. And I have to stress here that although Volution is a UK-listed, UK-headquartered company, we are very much international. And we'll talk a little bit more about that as we go along. So delivering on our strategy, three strategic pillars. Organic growth, we grew at 6.6% at a constant currency basis. That was supported by price. We have a sort of 3% to 5% organic growth range that we believe that we can deliver within. We were above that, and certainly we had a little bit more price delivery in the year necessary to deal with some of the inflationary headwinds that we're looking at. Value-adding acquisitions, and again, I think those that know us very well, we continue to acquire funded by our own cash generation and debt facilities. We haven't raised any equity in the eight years since we've been listed and delighted about energy recovery industries. And a small acquisition at the end of the year bearer in Germany, which is actually our inventor, our decentralised heat recovery proposition route to market in Germany. Small acquisition at the end of the year, actually quite nicely accretive in terms of the consideration. Basically, we just enjoy a little bit more of the margin that that distributor partner who was retiring had previously. And then on operational excellence, 21.1%. In actual fact, we improved our margins by 20 basis points in the year. So continuing to drive sustainability. Sustainability is essential for us. I genuinely believe it's authentic. I think it runs throughout the company. And I'd just like to talk to these slides here and just give a little bit of a flavor as to what's happened. So our low carbon content of sales You probably remember that we've got the green economy mark, one of very few listed companies, building products companies, that have the green economy mark. But this is to do with the proportion of our sales that are in what we call low-carbon product groups. And that increased in the year to 66.1% of our total revenue. We set, a few years back, we set long-term targets for... low carbon content of sales and also, I'll come on to it in a moment, our recycling content. And you can see there that in 2022 we actually exceeded the target that we'd set ourselves for the future years. Now we're looking to get to 70% of our revenue in low carbon content by 2025 and of course what we've demonstrated there is we're in good shape to deliver on that. The next one is about recycled content. For us, we make products that are primarily plastic. And I'm very mindful of the fact that plastic, I remember many years back or not so long back, we had the plastic bags fiasco with supermarkets and the plastic bag tax and so forth. So I'm mindful that we make products from plastic. And what we set out to do some years ago is to increase the recycled content. This is circular economy. We actually partnered with AO.com and we talk about fridges to fans. You're probably aware that the products come back, they're recycled, the plastic content is recycled and we are up to 67.2% of our plastic injection moulding and extrusion from recycled plastics. It's an incredible statistic. I absolutely believe it's market leading. I think our business development director told us recently that the average recycled content of a building products company in the UK at the moment is a maximum of about 16%. So we're at 67% there. But it's not just about circular economy. It's also the fact that if we use these recycled materials, they're more They're less volatile commercially price-wise. And we're keen to make further improvements there in the period ahead. And then ultimately, if we think about our three Ps, product, planet and people, it is absolutely about our people. And I have to say it's... It's a great sense of pride here today that I can talk about our people in the organisation. We are moving forward in a great fashion. We created a new role earlier on this year. Michelle Depman joined us as the head of group HR and I think our engagement with employees has moved to a new level more recently. Also worth noting that our sustainability committee that we kicked off in September last year has now had three meetings and is also attended by the senior NED, by Amanda Mellor. So look, on the three Ps, I think we made really good progress. This next slide I've got here for you It's quite complicated, and I thought, try not to lose the audience when I walk you through what this is trying to tell us. So lots of words on the page, but I'll try and be succinct here. We are a provider of ventilation products that reduce carbon emissions in buildings. What we've calculated through our scope one, two and three emissions is that effectively we have about 223,000 tonnes of carbon emissions across scope one, two and three. And sorry, that's nonsense. But what we have is 52,000 tonnes of scope one, two and three carbon emissions. What we did, and we wanted this to be credible, is we went to Arabs about six months ago and said, help us calculate the carbon emissions that our heat recovery products, one year's sales of heat recovery products installed for one year in a building would save as a carbon emission. And there's very well publicised energy performance if you like, energy performance for our products. And so therefore they've used this independent data to verify the amount of carbon that our products save. And in very, very simple terms, we are saving about four times our scope one, two and three emissions when our products are installed in a building for one year. But what does 223,000 tonnes of carbon emission means? It's about the equivalent of carbon emissions from 28,000 homes in one year. We're really pleased about this because our products are not just important in terms of indoor air quality and health, but they also save money and save carbon emissions. So it's basically four times saved than the carbon emissions from our group. However, the trick here going forward is to further reduce our carbon emissions. And what you'll see on the bottom right hand side of the slide is our carbon intensity. So this is our carbon intensity measured against effectively every million pounds worth of revenue that the group has. And we've delivered a 67% reduction in our carbon intensity in the last nine years. So really pleased about that. I hope the explanation makes sense. We spent a lot of time with Arabs and they independently, naturally they did the calculations and they were happy to put their name to it. There's a more detailed feature in our annual report. So look, what I'll do now, I'll hand over to Andy to talk about the financial results for last year and then I'll come back on the business review in a moment.

Thanks, Ronnie. Good morning, everybody. So, yes, just covering the numbers for last year. So, first of all, our sort of typical overview slide, just sort of charting the progress against our key indicators in the last five years. Revenue, Ronnie's already touched on, and we will provide a bit more colour later from a regional perspective, which I guess is going to be more enlightening, but look, a really strong... revenue performance in the year part through organic means part through inorganic means more importantly translating that through to profit and I guess you know if you look at the top right there the adjusted operating profit margin Ronnie again did mention this in the introductory slide but in in the context of a year where supply chains were enormously unstable where price pressure inward was was definitely more profound than we're ever used to seeing it. I think our ability to hold and actually ever so gently increase margins by 20 basis points really does stand out and I think look as testament to the agility of the team's decisive actions as regarding in particular price increases into the customer base but also doing what we can around things like you know recycled plastics content to take some of the cost out of there looking at other ways of driving efficiency across the operation and it's such an important measure for us and it's something that we sort of cherish and want to hang on to. Earnings per share 24 pence, I think you guys would all have read our pre-close in July where we talked about upper end of expectations and we were ever so slightly ahead of that at 24 pence for the year. Just a little bit on the bottom two, cash flow and leverage. I think, if you'll forgive me a bit of football parlance, I think our cash generation was definitely a game of two halves. So the first half of this year, as we talked about quite a bit back in March, we consciously and deliberately invested heavily in increasing our inventory levels. So we recognized the uncertainty, the challenge around the supply chain, the unreliability of supply deliveries for various reasons. And we felt that it was a sensible investment of our cash to increase our inventory levels for key, fast-moving components across most of our businesses. So that investment went in in the first half of the financial year. If you remember, we talk about cash generation being effectively how much of our adjusted earnings before interest, tax and amortisation do we translate into operating cash. Normally we look to be 90% plus on that metric. The first half of the year we were 50%, so we were substantially different from what we'd normally be. But the full year measure was 76%, so you can do the maths, meaning the second half was effectively 100%. You know, that 50.4 million of operating cash flow that you see on the chart there, 34 of that was in the second half of the year. So we think that was a really, you know, we said that's what we do and we were really pleased that we did that. And I do like the shape of the bottom right chart there just showing how closing leverage has moved. over the years and look of course i mean our leverage essentially wax you know we are very cash generative our leverage waxes and wanes because of the timing of acquisitions um but to be in a position going into a new year with 0.9 times of leverage and continuing to generate good cash you know means that we are both very resilient to whatever comes but also hopefully in the right position to jump on acquisition opportunities as and when they present themselves Fairly simple slide here just in terms of the revenue breakdown between organic, inorganic and currency. You lost the obvious question how much of the organic is price and how much is volume. It does vary from business to business so I think in our UK brands and businesses it is definitely more price than volume but outside of the UK it's the opposite, it's more volume than price. Crudely, we would say that it's approximately half-half in terms of that 6.6% being delivered through those two means. Inorganic there, a big inorganic impact in the year. We were very acquisitive in the previous financial year, as you remember. So you've got two things here. You've got the sort of the drag through of the full year operation of klima rad and our two smaller acquisitions in the nordics which we made in fy21 and then you've got 11 months of eri which entered the group in september 2021. um currency was was a bit of a headwind last year predominantly in you know euro land and in the nordics um obviously currencies are moving slightly different direction at the moment This slide, just in terms of, if you like, putting a bit more colour around the operating margin, the 21.1%. And I guess if I look in particular at those four little mini charts at the bottom for the group and then the three regions, I'm going to start with the UK. So those of you who attended our half year presentation will remember that at the half year, actually our UK margins were trailing the prior year. So we were 19.9% in the first half of the year which was about 160 basis points down on where it had been in half one of 2021. And what we said there was, look, the full force of our price increases will now take effect in the second half of the year. There was a piece of it in the first half, but it will carry on taking effect. We knew we'd taken some actions which would move this in the right direction and looked really pleased to get that UK margin from a deficit of 160 basis points at the half year to being flat year on year in the full year. So that was a strong performance in the second half. Australasia, you know, really good that we've held on to the margins there. Our faster growth in the year was actually in the Australian business versus the New Zealand business. And generally speaking, we would have said that New Zealand is a higher margin profile business. But I think what we're enjoying in Australia is this really strong revenue growth, good management and maintenance of indirect costs, meaning that the leverage is coming through nicely in Australasia. And then continental Europe, yes, you see 160 basis points change in the total European picture year on year, but actually that is essentially an acquisition mix effect. And we're not ashamed of this, we talk about this in our acquisition strategy, that we would buy businesses which will almost invariably have a lower margin profile than the group, and that we believe that over time we can improve that and enhance that. The main contributor there being ERI. And just to give you very, very rough numbers. So ERI in 2022 represented about 13% of our continental European revenue stream. And the margins that we enjoy there are sort of close to 20%. So a nice margin, but below the sort of circa 27% that the rest of the European business was trading at. So effectively, that is the primary driver of that there. Net debt cash flow. So talked already about the half one, half two picture referenced earlier, the 76% cash conversion. And look, I'm going to say a closing leverage of 0.9 times excluding leases is a good, healthy position for the balance sheet going into the new year. Although the numbers are generally speaking, speaking for themselves, just in the acquisitions, as well as the purchase of ERI and Berra, probably worth mentioning that in that £24 million there, we had just about £4 million worth of contingent consideration payout For our business inventor in Australia and for the air connection business in in Denmark the larger one being Australia and both of those paid out at their maximum and You know, although it's cash out which normally isn't fun for a CFO actually the you know a hundred percent payout of an earn out is the best check that we can write because what that says is You know, we've set targets for those businesses we've delivered those targets and and we're delighted to then share in the success with with the sellers and A couple of slides just to put a little bit more around some of our capital allocation priorities and where our cash has gone in the year. CapEx, you know, we are a CapEx, relatively CapEx light business. So we've always talked about five, six million pounds being our sort of annual CapEx spend. It's been a little bit more this year, so just under seven million pounds, but some really important and interesting stuff here. So top bullet point. When we purchased ERI, part of the plan and part of the commitment was that they were approaching a capacity headroom ceiling, and so we announced a €2 million investment to acquire some adjacent land. build on that and increase the production capacity of the building. We've started that during 2022, we'll do more of that during 2023 and the programme should finish around December 2023. We've also spent some money, about half a million pounds, increasing our production capacity in Swindon for our OEM Torin motorized impeller business. And again, that's a function of it being at its output capacity and increasing production capability there. R&D is always important to us. So we spent just under £2 million on new product development programs and related tooling and equipment to operationalize it. R&D is an area which also new product introduction was an area which was definitely compromised and difficult during the pandemic and the immediate post-pandemic period for obvious reasons and indeed for most of the year just gone supply chain challenges and focusing on sort of operational engineering to be able to deliver to customers took a priority but what we are now able to do now that supply chains are working well and everything's in good shape is we are definitely doubling down and focusing again on that pipeline. And there's some really interesting new stuff coming through, we hope, this year. Bottom bullet point, you know, we've only talked earlier about our commitment to sustainability and how important that is to us. And we try to embed that in everything we do. So it's yes, it's in the operations, but actually even in, you know, I've referenced here the vehicle fleet. You know, we have we have a large sales force in the UK and elsewhere. They are spending a lot of time on the roads. And that's an area where, again, we can make more informed decisions. So we've moved our fleet in the UK to a fully hybrid fleet. We're not quite ready for electric yet, but we're definitely moving that in the right direction as part of our sustainability journey. Acquisitions, already covered most of that. So the two acquisitions in the year, ERI and Behrer, which was our distributor in Germany, as Ronnie described it. On the right hand side there, you know, the metric that we set to judge our acquisition performance is we say that once we've owned a business for three full financial years, we're targeting a return measured very simply as the operating profit of that business relative to the total acquisition spend, both the initial acquisition and the contingent consideration. of 18 percent and we say that we say we need three years because we need to work out how to support and work alongside that business and so the the only one that falls into newly into that category this year is is venter in australia and you know as i already mentioned we were really delighted to pay out the full contingent consideration there um a couple of stats revenues doubled or more than doubled since we acquired that in march 2019 and the return on that acquisition is now around 25%, so substantially ahead of our target. And we think there's plenty of further potential in the Australian business. Bottom right there is how that then accumulates over time. So of course, well, the bar is the aggregate spend to date, which is three years or above. So that just keeps growing over time. And then you've got the total return on that. So I think, look, it's an important metric for us and hopefully it's one that's important for investors as well. So with that, I'll pass back to Ronnie.

Just to add, we talked about the contingent consideration that we paid in Vente, but the owner's still with us and still part of a long-term succession handover plan. And I think that's key to our success, is that people stay with us even beyond the earn-out phase. We talked about in Denmark, and the chap who runs our business in Denmark is still with us. So that's a real pleasure for us. If we look now to the sort of business review, the operating segments here, this is UK, continental Europe and Australasia, but I particularly like the next slide. So what this is trying to show you is our growth history in 10 years. You've known us eight years since we've been listed, but in the 10 years, I became CEO at the beginning of 2012 and we materially changed the strategy which was to grow inorganically as well as organically. And what you can see there is that the green and light blue element of the graph has come in as we've acquired. And the only disappointment on that slide is, of course, FY20 when we had the COVID dip and things came off. But what you're looking at is a compounded revenue growth of 13.2% over that 10-year period, which is similarly followed in terms of earnings and completely funded from our own cash generation. And as Andy's already told you, balance sheet leveraged 0.9 times at the end of the last financial year. We're generating cash already in the new financial year. acquisitions are essential for us but it also shows the diversity of the group. We'll probably come on to it later but when I joined Volusion in 2008 it just had the dark blue element and this additional diversity and exposure is really exciting for us. You can see it again on the next slide. Now, I won't talk to this slide because I think it's just there. It's helpful for you to sort of relate to. But into the geographic areas. And so UK, there's Harple there in Reading. Harple's been with us for about 25 years, runs our mould and injection moulding and extrusion. And we've highlighted quite a few people in this presentation, and they are essential. They're absolutely what underpins our delivery here. But in the UK, we delivered 6.2% revenue growth and we held our margins in the year but in actual fact we had a lower margin in the first half of the year to the second half our residential category grew well but inside that residential category there were some interesting trends one of them i remember being in this room in march of this year and we talked about private residential refurbishment that had been challenging certainly there was a covid boost and we enjoyed some of that and we're seeing the other side of it now But the issue for Volution in terms of providing fans and ventilation products in private refurbishment is it's not a completely discretionary spend. If you've got ventilation at home and it breaks, you're likely to change it. You're likely to replace it. And although we make fantastic, great quality products, they don't last forever. And so there is a replacement cycle. There's 20 million private homes in the UK. And it's quite interesting because our estimates are that there's probably a third of UK homes that still don't have any ventilation. In actual fact, ventilation was only regulated in new build from about the mid 80s. So if you think about the UK profile, the stock profile, a lot of houses were built before the mid 80s and therefore not necessarily ventilated. But on the other side, public housing RMI has been very strong. We called that out in March this year. It's not a surprise. Going into COVID, it was reasonably strong and then through COVID it stopped. It ground to a halt because of access to properties. tenants clearly were nervous through COVID and landlords were sort of restricting access. So we've seen strong performance in public housing RMI. We think that will continue. And we're also seeing a really interesting trend when local authorities and housing associations talk about net zero carbon targets 2030. It's music to our ears. And about 10% of our public housing refurbishment now is heat recovery. and that's growing very nicely and in actual fact Volution in the UK is probably the only provider of decentralised heat recovery that goes into social housing. We have a pretty unique product range and we're about to launch the products from Germany into the UK market later on in October. Residential new build, I was here in March and we'd had a week first half of the year on residential new build, which was a lot about the hiatus and the supply chain and so forth. Not so much us, but there were difficulties. But we had a strong second half of the year and we've also had the change in part F and part L of the building regulations, which will act as an additional tailwind in terms of heat recovery and system ventilation going into new houses over time. And the other thing to bear in mind is I'm starting to see... commentary now around how much cheaper it is to run a new house an energy perspective than it is to run an older one and of course that's all about insulating well and using energy efficient ventilation and not emitting all of your nice warm air to atmosphere in commercial our revenue is broadly flat a little bit more challenging but we've had some particular highlights we announced one of them in july we've won a particularly large prestigious new uh bank headquarters in london it's a it's about just under two million of revenue for us That's a project that we're now supplying right now. It's kicked off already and that will support us in the coming months. And again, we've got similar drivers in commercial ventilation as we have in residential. And the interesting one through COVID was that the solution to COVID in schools was to ask our children to wear their coats and open the windows. which isn't really satisfactory. And we see that there'll be a greater push towards improving ventilation standards in commercial buildings, more medium to long range. But the issue in buildings is about carbon emission or CO2 levels. And we don't measure it. And if we were measuring it in this room now, although the ventilation is actually pretty good, you get to quite scary levels of CO2. And that's the issue in future is when you measure the level of CO2 in a building, you're then compelled to do something about it. And that's what we call demand control ventilation and that's a trend that's coming. Export performed well. We're the market leader in Ireland. The house building situation in Ireland is somewhat different to the one I remember back in 2008-9, where effectively we built too many houses in the wrong places. It actually feels like a more sort of underpinned sector, but heat recovery ventilation penetration in Ireland is far greater than it is in the UK. We estimate that it's about 30% to 35% penetration in the UK. In Ireland, I would say it's It's actually so well regulated that it is impossible to build a new house or apartment in Ireland without some form of energy efficient ventilation. The UK is moving in the same direction and will get there in the coming years. And you already mentioned OEM. We manufacture motorised impellers. These are low carbon impellers. motorized impellers that are effectively integral to driving the air movement part of a ventilation device and we are currently capacity constrained and have been investing in additional capability. We did something earlier in the last financial year and we've got another investment that goes in over the next three or four months to further uplift our capacity in our OEM area. Continental Europe Interesting statistic here. Our operating profit in continental Europe is now actually greater than in the UK. It's an interesting statistic for you. For those that can sometimes think of us as a sort of very pure play UK centric situation, it's not. I won't talk too much about the margins other than 25% operating margin is a strong margin. Inevitably, as we acquire in continental Europe over time, we're going to get some inevitable dilution. It's unlikely that we can buy significant organisations in Europe that are already generating our group margins. But the proposition in Europe is very exciting. In the Nordics, we've been well established for some time. It was a difficult year. But in actual fact, we didn't have sort of soft comps in the Nordics. We had some strong performance. And we were pleased about how things held up. And if you consider in the Nordics, our exposure to RMI is probably greater than it is in some other areas. That was actually a really commendable performance. And we're pleased about the direction of travel in the Nordics at the moment. We're not seeing a sort of boom bust RMI play. in heat recovery, decentralized heat recovery, both in the Netherlands and Germany. Particularly pleased about KlimaRad. It had a stronger second half of the year, but most notably, the order intake was very strong. Andy and I have been with the team on several occasions over the last few months, and they talk about the payback on the investment for housing associations having halved in the last 12 months. And it's very obvious, isn't it? Energy costs have doubled. Our products have gone up a little bit to protect our margins, but the payback is really compelling. Very excited about KlimaRad. We still own 75%. We have a commitment to buy the other 25% at the end of 2024. And also in Germany, we've seen our inventor proposition where we're the market leader for decentralized heat recovery perform really well in the year and then energy recovery industries another heat recovery play Andy and I had the pleasure to be in Bitter last week and a really nice photo with about 200 of our colleagues but we are investing in ERI we are capacity constrained and we are investing to increase the size of the facility by about another 60-70% again. We're quite well underway with that investment plan and we want to reduce our lead times and increase our capacity for this strong proposition of heat recovery cells. When we print our annual report in a few weeks' time, you'll see a really nice case study, and we've opened up a little bit about the due diligence that we've done on ERI when we acquired the business and shared some of the commercial DD in terms of how that company ranked versus its peers. But we knew the company really well anyway. We've been a customer of ERI for many years. We had first-hand experience, so we knew what we were acquiring. and as Andy said earlier we've actually extended the earn out window to the end of 2024 with the senior team with the previous owners and I absolutely would be delighted if we wrote that cheque. It's quite a big one but there's quite a big hurdle for them to get over but they're confident about the direction of travel and really committed to helping us get there. And then Australasia, we're going in three weeks, three or four weeks. Can't wait to be there. It'll be a little bit warmer than it is here in Europe at the moment. But look, we've got a fantastic proposition in Australasia. In Symex, I thought about this this morning. In Symex, we've owned the company for four years and I've known the general manager for 10 years. It was a customer of ours. Ian Borley does a fantastic job in New Zealand. And in Australia, where we own Ventaire, it's been growing faster than in New Zealand. But look at that, 11.4% organic growth in the year, operating margin to 21.8%. And actually quite a lot of our inventory investment that went in in the last year was to provide the stock availability to our customers, most notably in Australia. We're not shy about putting inventory close to customers to support fantastic levels of good customer service. There we are. So that's a summary. I mean, this is very much backward looking, so we'll get on to the outlook in a moment. But it was, I'm repeating myself here. The only additional point that wasn't at the beginning of the slide there is our geographic diversity. So 62% of our revenue wasn't in the UK. And of course, that will grow again this year. We've got a full year of ERI. We had one month had one month last year sorry where we didn't own the company so we have an extra participation this year and we're pleased about this geographic diversity it's not that we don't like the UK market I particularly do we've got a market leading position in residential but by definition in order for volution to grow materially over time we have to be in more than just the UK market and onto outlook The new year has started well. We've delivered a revenue and profit that is ahead of the prior year. we're delivering great levels of customer service, best levels of customer service at any time since pre-pandemic. The pandemic was tough. A lot of people struggled with supply chains and so forth, but we're in really good shape, really good shape. And I stress that because it's enabled us to win share over some of the competition. There's been some, you know, well-publicized issues and events around the UK market in particular, and we've benefited from it. And possession is, you know, it's the old adage about nine tenths of the law. When you win an account, from somebody because of a poor service, it's generally yours to give up. It doesn't automatically go back to those that lost it if they get back to where they were. So we're well placed and pleased about where we are, but of course there is that wider geopolitical uncertainty, macroeconomic uncertainty that our view is only as good as anyone else's. But the agility of the group and the positioning of the group and the strength of the balance sheet, I think, puts us in a good place. So that's the sort of formal part of our presentation. I hope that update was helpful. We have tried to allow the sort of remaining 25 minutes, if necessary, for Q&A. So I think what we'll do is start in the room. So I'm happy to do that. So please, Clyde.

Three, if I may please, Ronnie. Probably maybe one for Andy on costs. Can you just update us a little bit as to what you're expecting to see, I suppose, in terms of sort of cost pressures for current year, obviously raw materials labour in particular. One for you, Ronnie, on the acquisition pipeline. It would be great to get an update as to where things stand on that front. And then the last one, particularly around, I mean, I think most of us are probably all over the part, our part F changes, but it would be really useful to hear a bit more about the European building rate changes rather than the UK side of things. Sure.

So on the cost side of things, the various things moving in different directions. So there are there are a couple of things that are perhaps now starting to help us, most notably. And this is, of course, versus the last year compared to you. I'm not taking it back to where it was two, three years ago. But, you know, one of the ones we've talked a lot about over the last year has been freight. We bring in a lot of components from. the Far East, generally by sea freight. And we've given you some stats before along the lines of container rates, which used to be $3,000, $4,000 per 40-foot container pre-crisis, spiked all the way up to about $20,000, they're now back around the $5,000, $6,000 mark. So compared to what we were experiencing four years ago, yes, they're up, they're elevated, but year over year, they are definitely down. And hopefully the fact that last year that was particularly profound for us, of course, because we were adding to the inventory stack so that we could deliver the customer service so we were actually bringing in not just what we needed to service last year's revenue but also what we wanted to do to put more stock on the shelves so that's a help in the other direction you know energy clearly is getting a lot of publicity now direct energy for us isn't too big a concern two reasons number one we are a light assembly operation so we're not a big big consumer of energy our energy cost is predominantly heating, lighting, and utilities for our buildings. Now, we are, so in the UK, let's say for example, we spend roughly a million pounds per year on that. We are actually hedged at the moment, so we're locked in at fixed rates. those fixed rates will elapse in September 23 and September 2024. And when they do, yes, prices will definitely go up, but it's not going to be earth shattering for us. But where energy, of course, you know, and it's harder to quantify this, where energy will be a factor is what it does to our suppliers, because they are suffering it and they're feeling it. And therefore, of course, when they're making their pricing decisions and trying to pass price through to us, energy is going to be an important part of that. So, you know, we're looking at sort of four, four and a half percent salary increases typically across the board. But there are some places where the pressure is higher than that. But, you know, we're managing that relatively well. But again, that's something, A, for our direct cost, but B, for the sort of indirect pass through from workers. from suppliers. So when we wrap it all together, we are seeing some suppliers coming back in again with new requests for increases. We're trying to manage it through both pushing it back through Obviously countering it with things like our recycled plastics initiative and actually just generally on an efficiency perspective. Can we use less packaging than we were using before? Because if the unit cost is high but we're using less, where are quids in? But we recognise that we are going to need to go again on price increases and we're planning that for early calendar 2023. But, you know, our goal will be to carry on doing what we've done for the last year of, you know, just anticipating it, staying ahead of it and trying to manage those margins. Sorry, very long answer, but hopefully that gives you what you wanted.

Sorry, because I'm going to add to it. But, of course, currency is an issue, dollar, pound dollar. And so we're hedged to a degree and that gives us some protection. But all the hedge does is basically give you a little bit more notice. about acting. But I said this previously, so I'll be more general about it. We protected our margins. We weren't shy about increasing prices, but we always said to our customers, we think we've got great products, great service and availability, but we do need the price increase to recover. But our sense is that some of our peers haven't. And so in actual fact, the dynamics are that most of our peers are suffering the same sort of market dynamics as we are, but they've got more of a catch-up. So in actual fact, directionally, our price increases are likely to be lower than some of our peers who have got a gap. And I think that's helpful, because if we're advising... price increases that are outliers to the competition, that's when it becomes unstuck. And I don't think we will be. And we've got some mitigation. I mean, on the currency, as I said, we're hedged, but there is some mitigation. It gets quite complex because you've got a dollar, you've got a pound-dollar issue, and then you've got a dollar-a-minby issue. So there is actually a little bit of clawback because the dollar is at its probably 10 to 15-year high against the Chinese one. So there's a little bit of way that we can offset some of that in our negotiation. M&A. Yeah, we were busy in the last year. I mean, there was quite a big transaction that we were involved in in France, Germany and Poland that we actually pulled away from. It was a transaction that was competed by a competitor, a company called Alves in France, bought its supplier, Arico. It was a big transaction. We worked on that from July, August last year till March this year. But we didn't feel that it was the right transaction for us. We couldn't get certainty on the customer who actually was always the right buyer for the business. Andy and I always have to be a little bit careful because we don't tell people where we've been flying off to because it's quite a narrow market. If we said we were just flown to so and so, somebody put two and two together and realised who we were courting and it's important to us but we've been flying a bit more recently and we've got a strong balance sheet and M&A is a forever issue for us you know just because the outlook might be a little bit more difficult doesn't mean that we would stop you know that part of the strategy is embedded it doesn't mean that we turn it off because the outlook's a little bit more concerning maybe so M&A continues pipeline is quite good but almost certainly non-UK

And... In terms of sort of, I suppose, the targets, is it still very much air movement, ventilation? Oh, absolutely.

No change to that at all? Absolutely. We're not going to go off and buy something else outside of air quality. We are absolutely focused on air quality. But the good news is that we have a big pond to fish in, don't we? Because it's not just UK. So there's a whole raft of opportunities. And it's a bit like the bus analogy. You know, if you look at our acquisition track record, some years we don't do any, and then I think July one year we did three. and it was particularly unhelpful because it's year end and we have to do the purchase price allocation and everything else for the for the audit so but and we had this conversation I'm looking at Nigel we had a conversation at the board the other day that said that you know the point about M&A is if you spend a lot of time courting a target and then they finally come towards us we can't just say actually we're not ready or we've changed our mind or can we come back in a couple of months If I look over the M&A that we've done, some of the targets, I mean, Cymex we bought in March 2018. We were close in August 14. I remember exactly where I was when I agreed with the owner that it wasn't the right timing, so it was four years later. But pipeline's still interesting. We're excited about that, and it's important. Building regulations, so not UK. The issue is that in Europe, and we talk about things like Fit for 55, Europe is actually much further ahead in terms of building regulations in new build. So the penetration of heat recovery ventilation in places like the Nordics or in Belgium or in Germany are really quite strong in new build. But what excites me is the change to the refurbishment market. Germany, Netherlands, where we're very strong, Also, we think there'll be a bit of a move in Belgium over time and thinking about slightly different solutions. And also this energy efficiency play about products that are much lower energy consuming. So we still see a huge support there. And we've got another lens on this now because ERI, our energy recovery industries business with heat exchanges, provide heat exchangers to pretty much every country in Europe we get a really good insight as to what's happening locally and of course the reason why we need more capacity in ERI is that there is that nice gentle tailwind in every jurisdiction. I mean Europe have got this three percent of all public buildings to be refurbished every year for the next 25 years or whatever it is to get through all of the stock and that inevitably means more heat recovery going into these into these buildings over time. That was it. Okay. Thank you. Kristen from Numis. Hi. Good morning. Oh, sorry. Sorry.

I'll go then. Thanks, guys. I've got two, actually, if that's okay. Just the first one is on the outlook statement and further progress, and obviously there's two elements of that. There's the macro and Volution's outperformance, just sort of a bit more color on those two elements and how they sort of equal further progress for the next year. And the second one is just on margin sustainability. I know it's a question you get asked a lot, but... But you did touch on being ahead of some peers. Just sort of a bit more colour on what you think the real barriers to entry are and how you can sort of sustain maybe margins ahead of some of those peers.

Yeah, absolutely. Let's do that one first. We listed the company in June 2014. The margins were a little bit lower and people said, are these margins sustainable and what are the barriers to entry? My sense is in the markets where we're strong, or the markets that we operate in, the barriers to entry are greater than they were now. I remember in 2014 people would say, can't we just do this in China and ship the products to the UK and take you out? Well, that may have been a threat then, but I think it's much less of a threat now. But it's about brands. It is about brands. We pride ourselves on having strong brands that are underpinned by really authentic, passionate people with You look at the detail. We were talking about this in terms of the SKUs and the product ranges, and we've taken some investors along to Reading recently and shown them the installed base of tooling. And I sort of look at this, use this as an analogy. If I wasn't here at Volusion tomorrow and I was somewhere else, but I know all that I know about Volusion, I'd be best placed to attack the company. But I don't have the tooling, and I don't have the brands, and I don't have the people. And the way to articulate that best is why do we buy companies in markets rather than just enter them organically? we know what to do we could turn up in we're not in france we'd love to be in france but we won't go organically there's no way we'll go organically we'll waste our money it'll take forever we don't have a brand that's the barrier to entry it's it's lots and lots of small things and i know people often say where's the ip and show me all your patents and everything else funny enough when we're when we're doing due diligence on a company we don't say show us all your patents We go in and say, what's the strength of the brand and the proposition? So I think those barriers are huge. I think the margin defensibility point is a couple of things. I genuinely believe that Andy and I, and permeates throughout the senior management team, a lot of them have been with us for some time. It's in our DNA. There's lots and lots of small margin improvements. There's not one big hit. We're very well integrated with moulding and we make our own motors and we have a really well integrated supply chain. These individual elements are worth sort of 50, 100, 150, and they accumulate. And it's not that we're blasé about margins. We work very hard to defend them, but I'm not nervous about them. I don't see a margin deterioration risk over time. And indeed, I was around in 2008-9 when our position in the UK market was not as strong as it is today. And we didn't have a collapse in our margins with an 11% pizza trough decline in revenue. So we work very hard. They're precious, and we work every day to underpin them. In terms of outlook, it is intentionally quite vague. I don't know any more than anyone else what comes next. But what we do know is that our geographic diversity is giving us a degree of confidence and reassurance around the group. Last year, not all areas of our group pointed up to the same degree as others. There was a mix in there. You can look at the numbers individually. Look at the Australasian growth. It was an outperformer. There were other areas a little bit weaker. But we think that package, plus the fact that Some of the scary things that are around us at the moment will also act as an additional tailwind. I was talking to people yesterday and saying, what's likely to happen this winter in the UK at home? People are going to run their heating lower. I wonder if some of you have already tried the challenge of how far into autumn you can get without switching it on. But the point is, and there's a bit of physics here, the colder the temperature in your dwelling, the greater the risk of molten condensation. So sadly, when people are nervous about running their energy up, their fuel bills up, they're going to create inadvertently an additional demand for problem solving of mould and condensation. Social housing is already aware of it. And what do you do? Turn the heating up? You ventilate properly. So there's all these sort of structural underpinnings, including regulations, that will help us. But yeah, the macro, who knows? We're agile and flexible and reasonably optimistic, but can't be certain. Thank you very much. Sorry, lush. Sorry, did I...

Thanks. from Berenberg. A couple of questions from me, I guess. On sort of order books or order intake, Talked about climate already, but just other businesses we've got an order book and so what sort of visibility have you got and sort of what are you seeing there? Secondly, that heat recovery starts 30% of revenue is sort of heat recovery. I'd be interested to know how that 30% has grown over the last two, three, four, five years relative to the rest of the business. And then sort of on future homes and the UK, I think you won that big contract, I think it was last year or earlier this year. Because how are the conversations going with the other house builders? Are they sort of moving across to you guys because of heat recovery, et cetera? Just be interested to hear sort of any market share opportunities there as well. Thank you.

Okay. I mean, order book is, a lot of what we supply is through, particularly on the RMI side, is through a distributor. So we don't have long, I mean, it's about our service, isn't it? In actual fact, we're receiving orders today and delivering them in a couple of days. So the lead times are not very long. What we do track intimately, and we can do this very well, is sales out. So we can see what's coming out. The worst thing that can happen is that we're busily providing our distributors with ventilation products, but they're not coming out. And that just builds up a problem for later. So we look at our retailers. They provide us weekly data. We analyse it in some detail. And my sense is that things are continuing to trade pretty much in line with what we've seen so far. In actual fact, the private RMI situation for us in the UK has been quite weak over the last six, seven months. And what I'm predicting internally is at what point we see that start to actually come up against softer comps. It's not private RMI has been weak in September. It's been weak for seven or eight months now. On the project side, the lead times are longer. If I look on the commercial side, we've alluded to the big projects in the UK, or indeed if I look in Finland at the moment and the order intake, our project order intake order book has been strong. And we've got two particular areas at the moment where in actual fact, and we don't like this, but we're putting a lid on the amount that we can service, and that's energy recovery industries in North Macedonia. and our Torian EC3 proposition because we need to invest in more capacity. So that provides some comfort as we put that additional capacity on stream, it gives us the opportunity to grow in. So the trends are similar and I don't think there's any sort of profound indications that we've got at the moment that things are going particularly better or worse. The second question was Yes, sorry, that was a great question. I was already asked this this morning, actually, and it increased because of ERI. But even outside of that, I think the question here is, is our heat recovery representation growing faster or slower than the rest? And it's absolutely growing faster. So Klimerad, Inventor, so Netherlands, Germany, decentralized heat recovery in the UK, residential system heat recovery in New Build, and ERI are all above average performers. So the participation is increasing. It's a number that, not that we resisted declaring it externally, but it's one that I know people have had a sort of piqued interest in. But it's definitely grown substantially over the last few years, but also assisted by M&A. And then Future Homes and a large house builder account that we won. We were delighted to win this house builder account. It is a large one and it has started. And the strategy was always about being with these larger house builders as they go through the journey of low carbon. And that particular house builder has already confirmed to us that they'll be moving to an energy efficient form of ventilation from June next year. So it starts to move up the scale. It's inevitable. And future home standards says we don't see how you can build a new home that's well insulated without heat recovery in future. So there's a long way to go on that trend. Charlie, hi.

Hi, morning. I'm Charlie Campbell at Liverum. I've got two, actually. So first of all, just to follow up on this big new house build there. Sorry, just to follow up on the big new house builder that you've won. And just wondering without getting kind of supposed to into the commercialities of it, just wondering what indication they're giving you of sort of spend on ventilation per house over time? Because the standards do step up over time and obviously the first step is quite big as well. I just want to maybe an index form or percentage changes, you know, how much more they might be spending on a house per house for ventilation say in five years time versus now? That'd be really interesting. And then secondly, just on ERI and Torin Saifan, just wonder if you could remind us kind of what percentage of sales are external, those two companies. So in other words, just to try and get a sense of how much the extra capacity that's going in will lead to group growth effectively and how much of that, I suppose, is feeding internally as well. Yes.

Roughly, more rudimentary exhaust fan ventilation that goes into a house almost extinct now, it's almost impossible. I would say over the next six to nine months you won't be fitting fans in houses anymore. But on an index, I've got to use four points on the scale here. You've got fans, you've got what we would call DMEV, MEV and MVHR. I apologise for the acronyms, but they're in our glossary. Fans to DMEV is probably one and a half to two times. And then DMEV to MEV is broadly similar. And then those two up to MVHR could be another two, two and a half times again. So you sort of go, that's about four to five times. Heat recovery is about four to five times the revenue per plot that we would see from fans. But there's a step on the way. And we look at the participation of our revenue in each of those blocks. And it doesn't jump from block one to block four usually. It usually goes through a transition to three and four. The other thing to bear in mind is that apartment ventilation, it's not sensible to build an apartment now, irrespective of regulations, without MEV. You can see the ones that are, if you've ever looked at an apartment block with lots of holes and grills in the side of it, it's because there's all exhaust fans, each individually exhausted to atmosphere. It looks horrible. um so much to talk about on building regs though i mean we've got part o now which is the overheating concerns um because the biggest problem in a new apartment in london in the summer is it overheats and one solution in through planning is to make the windows smaller but i don't think that's particularly appealing if i'm selling an apartment block So these regulations are really helpful. Participation in terms of revenue, I mean, external revenue, I'm just trying to, we show OEM revenue in the pack, don't we, in here. So what you can see is OEM is 25.9 million. That's all third party. But there is a growing intercompany element, and that's what's been able to help us. Where motorised impellers have been short in supply, because there's two companies in Germany in particular, one announced force majeure back in November of 2020, we've been able to support our own internal needs very well. And then in ERI, we don't show it there separately. But you can sort of do the calculation on the inorganic growth last year because that was mainly ERI. But they're both growing very nicely. And ERI has also captured some opportunities internally as well, most notably in the Nordics. David, hi.

Hi, David from Jefferies. Two questions for me. Firstly, when you think about the product, it's largely hardware. But to what degree, as things get more complex in houses, is there a possibility possibility to have an overlay of software which would enhance organic growth and probably margins and then secondly as I look at the portfolio and you had that chart of growth since 2012 I think 10 plus organic revenue driven by new country entries you haven't really done one Australia is getting quite mature is that a bit of a worry as you look to kind of extend that growth rate over time

No, I mean, I think the new country opportunities, you know, look at the white spaces on the map, you know, they are absolutely at the centre of our thinking. So I believe that it'll either be infills in existing countries, which are hugely accretive because we've got a platform that we can add to, or new geographies. I'm mindful of time, so apologies for being quick, but software is already an integral part of what we do. When we look at heat recovery now, it's about It's about demand control ventilation. You could spend a lot of time talking about this, but why ventilate a dwelling when there's nobody in it? It's a waste of energy. But when there's more people in it, you need to appropriately ventilate. And so you need to have sensing. You sense the levels of CO2 or sense the humidity and ventilate appropriately. And Europe's actually very good at this. They call it DCV, demand control ventilation. And so a lot of our innovation costs that Andy talked about earlier is around software and around apps and so forth. And that's where we win because we can build a platform that we can then roll out locally in different jurisdictions. Mindful that we're coming up to time. Do we have any questions from...? We currently have no questions from the online audience, so I'd like to hand back the closing remarks. Perfect. Okay. Were there any other? Great. Well, look, I think the Q&A, very helpful. Thank you. Understandably about outlook. But I just leave you with the thought that we don't know, as any of us don't know exactly what's ahead. But I would point a little bit to the COVID pandemic and the way we navigated through that and, you know, strong balance sheet, no equity raised, continue to generate cash pretty much in every month through the pandemic, that geographic diversity, but also, you know, and Andy and I have got to give thanks and credit to the wider senior management team and the local teams, how they navigated us through that pandemic. We came through in really good shape, in much stronger shape the other side of it, and I'm confident whatever we're faced with, we'll deal with it in a similarly appropriate way. Okay, great. Well, thanks very much for your time this morning. Thank you.