Volution Group plc

Great to see everyone, especially being a Friday. It was an interesting thought on our part how many would turn up. But we're really delighted to have you here this morning. This is our half-year results update. And in actual fact, standard format, we'll go through a bit of an overview. And you'll take you through the financial review. I'll come back and do a business review on the three geographic areas. Then we'll come back to summary and outlook, and at the end, Q&A. And I know from last sessions we've had quite a lot of in-depth questions, so we're very happy to reserve required time to do that. But overview. To start with, strong progress in the first half of the year. Our revenue is up 6.3% or more sensibly 8.7% on a constant currency basis, with organic up just under 1%. So operational excellence and pricing discipline has underpinned a further enhancement in our operating profit margin up to 22.4%. We'll take you through a little bit more detail on how we've delivered that as we go through. And again, strong cash generation. I say again, strong cash generation. We're not surprised about our strong cash generation. Our model dictates that we expect to have ongoing strong cash generation. But it is actually our lowest leverage since we listed at 0.7 times. And, of course, it does provide significant headroom for further acquisitions, which is a huge essential ingredient of our long-term strategy. We've made good progress against our sustainability targets, and we'll talk about those targets. They're absolutely part and parcel of what we do. That's an essential ingredient to our success in the marketplace, and we'll go through those in a little bit more detail. And I'm particularly excited about a couple of things we've done in respect of engagement. First group-wide engagement survey completed, so just under 2,000 employees. We carried out our first survey, very, very pleasing. and we intend to give a lot more colour on that as we go through to the full year and included in our annual report. And also our fourth management development programme launched. And this is something I'm particularly pleased about. We plan to kick off the fourth programme just before COVID. This is a program where we bring high potential leaders from across the business together. So clearly running that program through COVID wouldn't have made any sense. But this is very important for us as we continue to grow by acquisition as a lot of the people on this program are companies that have been acquired in the last three, four, five years. And it's essential for us that we keep strengthening that bench and that we've got that sort of like-minded ambition and focus on delivering our ongoing strong performance. So our strong performance in the first half of the year certainly gives the board confidence in delivering an adjusted EPS for the current financial year that's slightly ahead of consensus. And we'll take you through that in a little bit more detail. But look, delivering on our strategy, just a reminder here, our strategy is... largely the same as it has been since we first came to market in 2014. Organic growth, 0.9%. I mean, our long-term range is between 3% to 5%, so a little bit lower. But I personally believe that against the wider context of the market, organic growth is quite rarefied at the moment. So we're pleased about our 0.9%, and there are some variations and so forth, and we'll take you through that detail in a moment. But let's not forget, from our strong cash generation, I mean, it's not quite organic, but it's all self-financed from our own cash generation, we've grown inorganically by 7.8%. And there's three acquisitions that we made last year. Sorry, that's not correct. We made two acquisitions in the last financial year. That was VMI in France and iVent in Slovenia. And then right at the beginning of the new financial year, on the 4th of August, we acquired DVS Proven Systems. And look, our pipeline, I think it's fair to say that our pipeline is always full, active. Actionability is the only, actionability and timing is the only question mark here. We spend a lot of time courting, focusing on what comes next. Operational excellence, it's embedded. And I think if you look at the last three or four years in particular, I talk about this sort of relentless pursuit and ambition to improve everything around our business. And successful in the first half of the year, predominantly from a UK enhancement, but operating profit margins up to 22.4%, product cost reduction, enhanced mix, Very good factory efficiencies, excellent levels of customer service, which I personally believe in some markets have helped us to grow share. And we're certainly focusing at the moment on optimising our inventory. You remember a couple of years ago, certainly through COVID, we made a strategic decision to hold more inventory. We put investment into that inventory and now we're optimising it. We think in some areas we can actually bring inventory levels down so that further supports our strong cash generation. Talked about sustainability. We have these three P's product, planet and people. And on the product side, the important metric for us is low carbon content of revenue. And we made such strong improvement over the last few years that we actually set ourselves a new target. Originally, our target was to deliver 70% of our revenue from low carbon revenue streams by 2025. We've actually increased that now to 75% by 2026. And we delivered in the first half of the year 70.5% of our revenue, so an improvement over the 69.4%. Interesting dynamic here is that our heat recovery proportion of revenue actually reduced from 32% last year to 30.7%. And that's an interesting dynamic mainly to do with UK residential new build, where we had strong growth in what we call continuous ventilation solutions that are low carbon but don't include heat recovery. And when we look at some of the revenue declines that we've had in continental Europe, they're actually in areas of heat recovery. So the mix changed a little bit there. But over the medium term, we're still confident about that direction of travel. Heat recovery, as a proportion of our overall group revenue, will continue to grow over time. And look, we're a company that is all about product solutions that help improve indoor air quality. And I'm particularly delighted there that we recently won two awards at the SIBSE Building Performance Awards. One for our Ventaxia Apex, that's a commercial heat recovery system. unit. I've talked about it for some years. It was quite late in coming to market, but it's fantastic. We've already won an award and we're getting some good traction on these specifications. And also our diffusion brand won the Highline thermal comfort product, won an award also. So it's all well and good us talking about a great product portfolio, but there's nothing better than third parties crediting us with awards. On the planet, focus, increasing our recycled content. We're up to 77%. It's getting harder. I always said this would get harder. We've set ourselves an extremely ambitious target of 90% of our plastics processed in our facilities from recycled sources by 2025. We've inched forward a little bit in the year, but it's becoming more difficult. It is very evidently lower diminishing returns. We haven't given up on the target. I think that's an outstanding performance. If I look at our peer group in the space, if I look at other ventilation companies, it's hard to think of many that are using anywhere near the level of recycled content in their products. And that's partly to do with the fact that we're very vertically integrated and that we injection mould our own parts and so forth, and that gives us the ability to use recycled plastic in our production. The trick for us here is to make more progress in the Nordics. We've got an ambitious plan to increase that. In actual fact, our UK facilities are running well into the 80s now. But we have to make a sort of transformation in the Nordics in order to hit the 90%. And on the people side, look, our ultimate ambition is we want our people to be safe. We want them to come into work, have a great time, helping us provide healthy air and go home. And we've made an improvement in our accident frequency and also just at all levels in respect of engagement, the Fourth Management Development Programme, the Employment Engagement Survey, the way in which we're communicating And credit to our relatively new two years head of Group HR, Michelle Detman, who's really helping the wider team to drive this forward. I'm going to hand over to Andy now on the financial review, and then I'll come back on the business review in a bit more detail.

Thanks, Ronnie. Morning, everybody. And I say echoing Ronnie's thanks for you turning out on a Friday, Friday and Gold Cup week and St Patrick's Day. So plenty of good reasons not to be here, but I appreciate you being here. So our usual opening financial slide here. So just laying out this interim set of results against the last five reporting periods over the coming slides. We'll go into a little bit more detail on the key numbers here, and then Ronnie will obviously pick up the regional construct of the revenue. But for me, and for us as a business, I think the really pleasing thing is A, that all of these numbers are moving in the right direction, and it's the consistency of delivery now over multiple years. So if you look at the revenue growth, you look at the operating profit and that strong margin, which we'll come on to. As most of you recall, we set ourselves a target of being greater than or equal to 20% margin back in 2019 and over the last four periods, nicely ahead of that in some very, very unpredictable times and environments. Earnings per share up 10.5% relative to the comparator period last year. And slightly lower than the operating profit, but of course that's a function of the huge ratcheting up in finance costs due to the movement in interest rates over the period. So I think notwithstanding that, still able to deliver double digits earnings per share growth. And then bottom right, I guess the one the one metric which we're quite happy to see going in a downward rather than upward direction being leverage 0.7 times pretty certain is the lowest it's been in the group's sort of reported history and as Ronnie mentioned you know we have ambitions what we can do with the headroom that that creates On the revenue side of things, so here we have revenue up 6.3% or 8.7, currency adjusted, to £172.5 million. Organic growth of just under 1%, so 0.9%. Regionally, the highlight performer, undoubtedly the UK, and within that, UK residential. I'll leave Ronnie to give you some more colour on that. Europe, a more mixed picture. But actually, again, I think our message there would be against a really quite challenging backdrop. It's a solid and resilient performance with some areas of very strong performance, some areas where things have been a little bit more challenging. and a decent performance in austral australasia again notwithstanding the market conditions pre-empting the obvious question organic growth splitting it between price and volume um you know over the last couple of years we've sort of talked to you about maybe three three and a half percent price growth on a group basis in this period it's more like two and a half percent i did say that you know the pace of those price increases will have been normalizing over time so You can think of that 0.9% as being roughly 2.5%, 2.6% price and then a very small counter on the volume. Inorganic growth, all three of the new acquisitions contributing to this and contributing positively and in line with how we'd have expected them to be. France. I think we've said all along it's a slow burn there and the growth story is really about how can we bring new product solutions into that market. We've started introducing those in this half, so we're really excited about the opening up and the expansion of the product offering to the market, but clearly that takes time and it's a gradual process to get that turning into revenue, but happy with where that is. DVS in New Zealand, it's the slow season for New Zealand, whereas obviously peak gets more towards the southern hemisphere winter. So we will expect that ratcheting of activity as we get towards May, June and July. But a decent performance in the half, given, again, an external market, which isn't super bullish and super confident at the moment. And probably of the three, the one that we've been particularly pleased with in this first half has been Ivent in Slovenia. So a really, really strong delivery in the first half there. of the year and indeed those of you who do go to the back of the financial statements will probably have noticed what that meant in terms of the first tranche of earn out which actually we're in the process of paying this week because they hit the top end of the targets there which was always the cheque that we're most pleased to write as a business. Operating profit, I think I've probably covered the key points here. For us, it's about the consistency of delivery. If you look at that bottom left chart there, and these last three or four first halves, indeed these last three or four years, have been littered with supply chain, inflation, price adjustments, And now this period with some fairly fundamental mixed shifts in the business and some areas suffering tough volume, some areas delivering good volume. And within all that, we've still been able to maintain this sort of delivery nicely ahead of our targets. And on the bottom right, I think, again, actually really encouraging to see that all three of the regions are In fact, all three of the regions improved margins in the period, particularly in the UK, and all three of them nicely ahead of this sort of target that we're looking to keep delivering. Cash, I've already mentioned. So our key metric here, cash conversion, we set ourselves a 90% cash conversion target for a full year. Generally speaking, conversion will be a few percentage points higher in a half two than a half one because of the way our seasonality and working capital profile works. So I'm not promising it'll be higher than 98, but the fact that it's 98 in the first half I think is really, really strong. in the period um you know working capital you'll see the working capital increased ever so slightly in the period two and a half million but of course that's on you know we've got activity growing a good bit more than that and just within that two and a half million actually inventory reduced by a similar amount the industry reduced by about two and a half million in the period and there was a sort of close to five million change in receivable payable balance offsetting it but the inventory optimization Ronnie's already sort of touched upon under the outcome of this is low leverage very significant headroom so just under a hundred million of available liquidity at the end of the period and continuing to generate cash as we move through into the second half This is the new metric that we introduced for the first time at the full year results back in October, so our return on invested capital. And again, really pleased, really stable, consistent performance here. What we said is, as we believe, that we can continue to add in small bolt-on acquisitions, even though they are generally dilutive at the point – well, they are dilutive at the point of entry because of the investment in the So you'll see the average investment capital going up 13 million in the period. That is predominantly because of bringing in DVS, plus also with the three data point averaging, you've now got two periods of the other acquisitions versus one last time around. So continuing to increase... the acquisitions coming into the group, but still because of the delivery of margins, the delivery of the organic business and the improvement as we get the acquisitions into the group, meaning that we can maintain and we're confident in maintaining these returns in the mid-20s while carrying on investing and growing the business. So the final slide from me, no change to the targets that we communicate and the targets that we focus on. So our revenue growth target 10%, yes, slightly shorter than that in this period. But I think we don't vary our target for the market conditions. And I think probably the period we've just faced, hopefully, will be one of the toughest sets of cumulative market conditions that you might be trying to deliver those targets in. Ditto for organic growth. So we believe, in relative terms, those are both strong performances. The operating margin, 22.4%, probably the highlight for us. Cash conversion, I've already touched upon. Ditto ROIC. And EPS, 10.5%, so slightly ahead of our 10% target. So with that, I'll pass back to Ronnie.

OK, brilliant. Thanks, Andy. Thanks very much. Just a reminder, so three geographic areas, just having a look at where we are. We've introduced a little bit more colour for you here in terms of the detail, but 41% of our group's revenue is from the UK, as it were, UK and export market. But if you take out our OEM, about half of our OEM is exported in the UK, you see that about 40% of our group revenue is is in the UK geography, and then 60% is elsewhere. And of course, we expect through continuing M&A, and more likely that M&A is not in the UK, that our group becomes more international over time. But nevertheless, the UK is the standout in the first half of the year. But look, a couple of statistics on here. We are 72% versus 28 or 70-30 resi to commercial. We've always said that we're more predominantly a residential ventilation business. And again, interestingly, 70-30 RMI new build. And we like the RMI market. We know that there's greater regulations. There's more definite regulations around the new build space. But in RMI, as I'll take you through in a moment, there's some really strong tailwinds around indoor air quality awareness, refurbishment, mould and condensation problems, and so forth. And if I go into the UK, and just talk specifically now about what happened. And I was just reminding myself about this UK residential performance, you know, 19% residential revenue growth in the first half of the year. We are focusing on public private refurbishment and new build inside that category. And I know there's been a sort of request and desire to see a little bit more detail inside the residential and the split. One of the problems that we've talked about over the last couple of years is that as continuous ventilation starts to get more traction in the market, it's harder for us to differentiate whether those products are ending up, particularly in RMI, in a public or private application. So in some cases, what we didn't want to do is to be quite granular about the public-private split when we're not as certain Now, we have sort of guiding numbers internally, and we can talk roughly about a 60-40 split in our RMI being sort of private versus public. But it is becoming increasingly difficult to have that visibility. But look, we grew 19% in residential, and that was off the back of a strong comp. last year and I was just reminding myself that Volusion grew over 6% organically in the first half of last year. So I just wanted to remind everybody that in this sort of difficult construction phase where organic growth has been quite rarefied, we've continued to grow throughout. This is not 1% growth on weakness in the prior year, this is plus one on plus six overall. 310 basis points of margin improvement you know how have we managed to put such a strong margin improvement and indeed it's interesting because for some time andy and i have had questions around why is the uk the outlier in respect of margins i think we've dealt with that now by bringing the uk margins up in line with the rest of the group But look, we had exceptionally strong residential performance, delighted about what we've delivered there. We've gained share. We have market statistics and trade statistics, and we know in continuous ventilation we've gained share. And also I want to credit our partners in distribution and so forth. We've talked about leveraging our distribution partners, and that's worked really well. And I'm very, very pleased about the performance And growing residential new build seems counterintuitive when we think about completions and so forth. But this is the extent to which the unit value of continuous ventilation and indeed heat recovery is significantly higher than more traditional extract fans. We've talked about this for some time, but I think we're seeing it now. We're seeing the impact of the building regulations. I know some have talked about sort of up to 5x increase in revenue over time. We think that might happen over the long term. but certainly we're seeing a year-on-year improvement in unit revenue. So, look, that was the standout. UK Residential was the standout. Enhanced mix, increasing share, but also pleased in commercial, where we delivered 6% revenue growth. And we're underweight in commercial. We don't claim to be the leading commercial ventilation player, but certainly it's an opportunity for us, and certainly through the innovation and new products that we've brought to market, it's an area where we think we can do better over time and again in export predominantly our export market is to Ireland. Ireland is a market that has moved up the scale in terms of regulations in new build construction and we have a strong position in the Irish market and also I think we've got thankfully quite a strong outlook with regards to house construction and the robustness of the local market so whereas we talk about uncertainty in UK residential new build or maybe less uncertainty now than we maybe had four or five months ago, it feels much more certain in Ireland. And we're moving towards, we've just introduced what we call a passive house solution. So it's a product that's certified under the passive house. It's basically a much more airtight dwelling, making good traction in Ireland. So the shame here, of course, is that all of those areas were growing very strongly. And overall, in the UK, we grew 5.6%. And if we think about our long-term target being, say, let's call it circa 5% of revenue growth, this would have been an inline performance for the market. But of course, it would be remiss not to talk about the 41% decline we had in OEM. That wasn't a surprise to us. We flagged it. If you look back at the full year, 23, we flagged how challenging OEM has been. A couple of things happening here that have exacerbated it. We had strong new build demand for our motors across Europe. And then we got ourselves into a situation where customers have been overstocked. What we're seeing now is that demand from our customers is lower than the demand for their products. And as they destock, we're confident that that starts to turn around. But we've mentioned on the slide here a couple of things that we're doing. In our OEM activities, we have two facilities in Swindon. In actual fact, we had our board meeting on site on Tuesday this week and we announced a restructuring in September, October last year that's now largely complete. We're closing our second facility and by the end of this financial year we'll have moved everything into the one facility and in actual fact I think we took about a £400,000 cost through the income statement in half one to do with that restructure. But the OEM situation will continue to be difficult. Our expectation as we start to move round to sort of April, May, June this year, we come up against some very weak prior year comps and that situation will be much easier. We have, however, increased the use of the OEM proposition inside the group and that further helps to expand operating profit margins. So 24.3% operating profit margin, exceptionally strong performance from the UK in spite of the fact that OEM has been a drag. We move to continental Europe. And again, this is where I like to think about the sort of diversity of the group. For some years, we talked about strong continental European performance and maybe the UK being left behind. Now we're talking about strong UK residential performance and continental Europe being quite difficult. And we had an organic decline in the first half of the year. And it's been really quite challenging in a couple of geographies in particular. Germany is difficult, was difficult second half of last year. In the next couple of months, we start to lack those comps. So it does get easier. Certainly I would say that the Nordics has been quite challenging, but probably a little bit easier now. And we're seeing customer destocking maybe coming to an end. But look, in spite of all of that, we've delivered a 24.2%, 20 basis points improvement in operating margin. We brought two new acquisitions into continental Europe. since the first half of last year. That's Venture Layer SECH VMI in France and iVent in Slovenia. iVent in Slovenia is delivering ahead of group operating profit or in line with, let's say, continental European operating profit margins. Ventilair Sec in France is some way behind and that acquisition is very small in a large market. We have big ambitions to grow organically in France over time. We're rolling out new products and so forth. Actually, we've had a big catalogue update now in March and we've got big expectations as we look to increase our share of the French ventilation market over time. But overall, we improved our operating profit by 7.4% over the prior year, but of course, largely assisted by the M&A. And again, the split 70-30 RMI, sorry, 70-30 residential commercial, two thirds RMI, one third new build. Australasia. continuing to expand our margins, which is particularly pleasing when you consider that DVS, as Andy talked about, DVS-proven systems we acquired in August. And because of seasonality and so forth, actually we've had quite a lean period so far in the first six months of trading. The busy period is the mould and condensation season that we look forward to as we move into... as we move into the second half of the year. So the DVS profit contribution is far greater in half two than it is in half one. But a 7.8% improvement in Australasian revenue, a small organic growth, a big improvement in operating profit, which is of course supported by the acquisition and the margin expansion, and 130 basis points margin improvement in Australasia. up to sort of 23.9 percent so actually across the group now we've got a very similar operating profit margin throughout we are predominantly residential as you can see here 95 percent residential our business in australia is almost exclusively residential our business in new zealand has that commercial element and again very very rmi versus versus new build focused So that's a very, very quick go-through. No doubt there will be some questions in a moment. And sort of the recap there, I won't read each of the bullets on the slide again, but look, I think the performance that we delivered in the first half of the year, the strong carry on the operating profit margins in each of the three local geographies, the tailwind that we will continue to get from the acquisitions in the second half of the year, has sort of given the board that confidence to think about our full year earnings being slightly ahead of the current consensus. And just to remind you here, this is a slide that we put together last time, our clear compounding growth model, and just to remind us that we would like to grow our revenue sort of circa 10%, including M&A, each year. an EPS that's ahead of 10%. So in a difficult market in the first half of the year, we're still delivering in line with our long-term metrics. We still believe that there's large elements of our markets that have recovery to look forward to, certainly in continental Europe, certainly in UK residential new build. So in spite of that, we're delivering in line with our long-term compounding growth model, we think the business is hugely differentiated. And one of the things I want to remind everybody of is that purity is key for us. We are fully focused on providing healthy air ventilation solutions. And that, I believe, gives us an intrinsic advantage over many of our peers because we're staying very, very focused and will continue to stay focused on that ventilation proposition. And albeit still relatively small compared to our long-term ambition, we think we're delivering scale in some of these markets now that we can leverage. And I think what you've seen is that manifests in that improvement in the operating profit margin. So that's the sort of formal proceedings and the canter through. And as I said, we believe that we're slightly ahead of current consensus. We've had a very good start to the second half, as it were. We're only five, six weeks in. But we'd be delighted to hand open to the floor for questions. Ainslie, we've got a mic for you there.