Volution hikes earnings expectations ahead of year-end

24th Jul 2024 08:14

(Sharecast News) - Air quality technology designer and manufacturer Volution upgraded its expectations for the financial year about to end on Wednesday, anticipating adjusted earnings per share to be slightly ahead of current market forecasts, driven by strong performance in the UK residential sector.

The FTSE 250 company said for the 12 months ending 31 July, it expected to deliver total revenue growth on a constant currency basis of over 7%, with organic growth slightly over 1%, despite challenging macroeconomic conditions, including subdued new construction activity, high interest rates, and weak consumer confidence.

In the UK, residential revenue had seen significant growth, particularly in the refurbishment and improvement market, which benefited from increased awareness of health risks associated with mould and condensation.

New build systems revenue had been supported by key account wins and regulatory measures promoting low carbon and energy-efficient ventilation solutions.

Conversely, the UK commercial sector experienced a weaker second half, with original equipment manufacturer (OEM) demand remaining weak but stabilising year-on-year.

Continental Europe's growth had been bolstered by the acquisitions of VMI in France and I-Vent in Slovenia, with organic revenue expected to remain flat at constant currency.

The Nordics showed resilience in refurbishment revenue, while new build businesses in Denmark and Finland faced tough conditions.

ClimaRad performed strongly, and an increased focus on refurbishment in Germany led to an improved performance in the second half.

In Australasia, small organic revenue growth at constant currency was expected, supplemented by the acquisition of DVS in New Zealand.

While New Zealand's market environment had been challenging, Volutions said Australia had a strong year with continued market share gains.

Volution said it had focussed on operational excellence to grow its strong operating margins.

Initiatives such as insourcing, value engineering and factory efficiency had helped to mitigate input cost inflationary pressures, improving the group's adjusted operating margins to around 22% for the year, up from 21.3% in 2023.

Strong cash generation and effective inventory and working capital management had meanwhile resulted in operating cash conversion expected to exceed the targeted level of 90%.

The company said it expected leverage to be about 0.5x by 31 July.

With significant headroom for further earnings-accretive acquisitions, Volution said it entered the 2025 financial year well-positioned for continued strategic growth through merger and acquisition activities.

"In the year we celebrated 10 years as a public company, we were very pleased to extend our value creation track record and make further strategic and financial progress against what are widely recognised as challenging end markets," said chief executive officer Ronnie George.

"Our refurbishment and improvement activities, representing around 70% of the group's activities, have continued to show resilience and our new build activities, despite lower levels of construction activity, have been underpinned by regulatory drivers and the requirement for more sophisticated ventilation solutions in new lower carbon buildings."

George said Volution's "strong focus" on operational excellence had underpinned operating profit margins, adding that its "close focus" on inventory had helped it to deliver strong operating cash flow.

"Our three more recent acquisitions have been successfully integrated and our pipeline of acquisition opportunities remains encouraging."

Volution said it would announce its full-year results for the 12 months ending 31 July on 10 October.

At 0805 BST, shares in Volution Group were up 1.57% at 516p.

Reporting by Josh White for Sharecast.com.