Annual Report (ESEF) • Oct 19, 2023
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Download Source File213800EPT84EQCDHO7682022-08-012023-07-31213800EPT84EQCDHO7682021-08-012022-07-31213800EPT84EQCDHO7682023-07-31213800EPT84EQCDHO7682022-07-31213800EPT84EQCDHO7682021-07-31ifrs-full:IssuedCapitalMember213800EPT84EQCDHO7682021-07-31ifrs-full:SharePremiumMember213800EPT84EQCDHO7682021-07-31ifrs-full:TreasurySharesMember213800EPT84EQCDHO7682021-07-31ifrs-full:CapitalReserveMember213800EPT84EQCDHO7682021-07-31ifrs-full:ReserveOfSharebasedPaymentsMemberiso4217:GBPiso4217:GBPxbrli:shares213800EPT84EQCDHO7682021-07-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800EPT84EQCDHO7682021-07-31ifrs-full:RetainedEarningsMember213800EPT84EQCDHO7682021-07-31ifrs-full:EquityAttributableToOwnersOfParentMember213800EPT84EQCDHO7682021-07-31ifrs-full:NoncontrollingInterestsMember213800EPT84EQCDHO7682021-07-31213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:IssuedCapitalMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:SharePremiumMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:TreasurySharesMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:CapitalReserveMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:ReserveOfSharebasedPaymentsMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:RetainedEarningsMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:EquityAttributableToOwnersOfParentMember213800EPT84EQCDHO7682021-08-012022-07-31ifrs-full:NoncontrollingInterestsMember213800EPT84EQCDHO7682022-07-31ifrs-full:IssuedCapitalMember213800EPT84EQCDHO7682022-07-31ifrs-full:SharePremiumMember213800EPT84EQCDHO7682022-07-31ifrs-full:TreasurySharesMember213800EPT84EQCDHO7682022-07-31ifrs-full:CapitalReserveMember213800EPT84EQCDHO7682022-07-31ifrs-full:ReserveOfSharebasedPaymentsMember213800EPT84EQCDHO7682022-07-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800EPT84EQCDHO7682022-07-31ifrs-full:RetainedEarningsMember213800EPT84EQCDHO7682022-07-31ifrs-full:EquityAttributableToOwnersOfParentMember213800EPT84EQCDHO7682022-07-31ifrs-full:NoncontrollingInterestsMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:IssuedCapitalMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:SharePremiumMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:TreasurySharesMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:CapitalReserveMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:ReserveOfSharebasedPaymentsMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:RetainedEarningsMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:EquityAttributableToOwnersOfParentMember213800EPT84EQCDHO7682022-08-012023-07-31ifrs-full:NoncontrollingInterestsMember213800EPT84EQCDHO7682023-07-31ifrs-full:IssuedCapitalMember213800EPT84EQCDHO7682023-07-31ifrs-full:SharePremiumMember213800EPT84EQCDHO7682023-07-31ifrs-full:TreasurySharesMember213800EPT84EQCDHO7682023-07-31ifrs-full:CapitalReserveMember213800EPT84EQCDHO7682023-07-31ifrs-full:ReserveOfSharebasedPaymentsMember213800EPT84EQCDHO7682023-07-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800EPT84EQCDHO7682023-07-31ifrs-full:RetainedEarningsMember213800EPT84EQCDHO7682023-07-31ifrs-full:EquityAttributableToOwnersOfParentMember213800EPT84EQCDHO7682023-07-31ifrs-full:NoncontrollingInterestsMember Volution Group plc Annual Report 2023 Volution Group plc Annual Report 2023 Healthy air, sustainably Volution Group plc is a leading supplier of ventilation products with primary markets in the UK, Continental Europe and Australasia. We aim for our products to enhance customers’ experience of ventilation by reducing energy consumption, improving indoor air quality and design and making them easier to use. Welcome to our Annual Report 2023 Strategic Report Our Sustainable Growth Model Highlights At a Glance Our Investment Case Chairman’s Statement Chief Executive Oicer’s Review Regional Review Business Model Market Overview Our Strategy Finance Review Key Performance Indicators Legislation updates Our Growth Opportunity Acquisitions Sustainability Stakeholders Risk Management and Principal Risks Non-Financial and Sustainability Information Statement Governance Report Chair’s Introduction Board of Directors Governance Framework Board Activities Governance Report Nomination Committee Report Audit Committee Report Directors’ Remuneration Report Directors’ Report Directors’ Responsibility Statement Financial Statements Independent Auditor’s Report Consolidated Statement ofComprehensiveIncome Consolidated Statement ofFinancialPosition Consolidated Statement ofChangesinEquity Consolidated Statement ofCashFlows Notes to the Consolidated FinancialStatements Parent Company Statement ofFinancialPosition Parent Company Statement ofChangesinEquity Parent Company Statement ofCashFlows Notes to the Parent Company FinancialStatements Additional Information Glossary of Technical Terms IBC Shareholder Information www.volutiongroupplc.com Our energy efficient indoor air quality solutions help contribute to the global green economy Cover: Image taken by NatalieHumphrey, Marketing, UK Strategic Report Governance Report Financial Statements Additional Information 1 Volution Group plc Annual Report 2023 Our Sustainable Growth Model A healthy net zero carbon future Our purpose is to provide healthy indoor air sustainably Our commitment to our purpose is integral to everything we do. It shapes our values, steers our strategy and informs our capital allocation. We are closely aligned with environmental, health, regulatory and consumer developments that are reshaping the world’s expectation of how we live life indoors. The elements of our sustainable growth model work together to deliver our unique value proposition. Combined, they deliver high returns and long-term value for stakeholders whilst ensuring we continue to deliver on our environmental and social objectives. Our purpose Our sustainability pillars Product Engineer sustainable solutions People Connect people together Planet Improve environmental performance Y Product Page 56 Y Planet Page 64 Y People Page 84 Our values Our values form the basis for ourbehaviour and our culture. These values guide the way that wework, communicate and deal with each other and with stakeholders, andform an importantpart of our success. Our business model We are committed to building on the strength of our successful business model; we continue to develop these dierentiators that are central to making us a successful organisation. Our strategy We aim to achieve our goals through a combination of three strategic objectives: Organic growth Value-adding acquisitions Operational excellence Y Our strategy Page 26 Y Our business model Page 22 Y Our values Page 86 Underpinned by our investment case We aim to continue to deliver value for our investors with reliable, strong and consistent development in inancial results whilst minimising our impact on the environment and helping deliver the net zero carbon goals of the geographies in which we operate. Y Our investment case Page 6 Strategic Report Volution Group plc Annual Report 2023 2 Financial highlights Highlights Strong, compounding financial performance Another year of excellent progress in both inancial performance and delivering against our ESG initiatives, enabling us to provide “Healthy Air, Sustainably”. Revenue +6.6% Organic revenue +4.6% on constant currency (cc) basis Geographic diversity continues, revenue from non-UK customers 60% Adjusted EPS +7.5% a compound annual growth rate of 12.7% since IPO in 2014 Excellent cash conversion 106% closing leverage of 0.8x Dividend 8.0p +9.6% Y Key performance indicators pages 34 to 37 The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating proit, adjusted proit before tax, adjusted EPS, adjusted operating cash low, net debt and net debt (excluding lease liabilities). For a deinition of all the adjusted and non-GAAP measures, please see the glossary of terms in note 34. Areconciliation from reported proit after tax to adjusted proit after tax, adjusted proit before tax andadjusted operating proit is set out in note 2. Adjusted operating cash low £m £75.7m Dividend per share pence 8.0p 75.7 50.4 56.9 43.4 36.9 8.0 7.30 6.30 0 4.90 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Reported basic EPS pence 19.0p Adjusted basic EPS pence 25.8p 19.0 18.1 10.5 4.9 9.2 25.8 24.0 21.0 12.1 16.0 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Revenue £m £328.0m Adjusted operating proit and adjusted operating proit margin £m (% of revenue) £69.9m (21.3%) 328.0 307.7 272.6 216.6 235.7 69.9 64.9 56.9 33.7 42.1 21.3% 21.1% 20.9% 15.6% 17.8% 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Financial highlights • Operating margins increased despite inlationary pressures, with continued good price discipline, robust cost control and good factoryeiciency • £29.7m invested in two European acquisitions: • VMI (France), initial consideration of £7.9m, net of cash acquired. Provides Volution with direct access to the French market, one of the largest ventilation markets in Europe • I-Vent (Slovenia and Croatia), initial consideration of £21.7m, net of cash acquired. Further extends our product portfolio and European market leadership in decentralised residential heat recovery • Post year end, completed the acquisition of DVS (New Zealand), a direct to consumer supplier of whole home residential ventilation systems, for upfront consideration of £8.5m • Successfully launched exciting new products in the year including our new Vent-Axia Econiq range of centralised heat recovery units 1. tCO 2 /£m of revenue 70.1% Recycled plastic Target FY23: 76.8% 76.2% Scope 1 & 2 Carbon intensity Target FY23: 11.6 1 11.1 1 Operational highlights Healthy Air, Sustainably Sales revenue low carbon Target FY23: 65.6% • 70.1% of revenue from low-carbon, energy saving products (2022:66.1%), of which 33.8% (2022:30.1%) was from heat recovery ventilation systems • Excellent progress against our key sustainability targets: • 76.2% of plastic used in own manufacturing facilities from recycled sources (2022: 67.2%), as we continue to develop innovative strategies to increase the utilisation and availability of recycled plastic materials • Reduction of 9.8% in ourcarbon intensity, to 11.1tCO 2 e per £m of revenue(2022: 12.3t) Strategic Report Governance Report Additional InformationFinancial Statements 3 Volution Group plc Annual Report 2023 Strategic Report Volution Group plc Annual Report 2023 4 At a Glance Acquisitions broadening our geographic diversity We are market leaders in residential and commercial ventilation solutions. Our regional coverage United Kingdom Continental Europe Australasia £156.1m 39.6% UK customers 7.9% Export customers £124.5m £47.4m To read more see pages 16 and 17 Y To read more see pages 18 and 19 Y To read more see pages 20 and 21 Y % of Volution Group revenue by region % of Volution Group revenue by region % of Volution Group revenue by region 47.5% 38.0% 14.5% Strategic Report Governance Report Financial Statements Additional Information 5 Volution Group plc Annual Report 2023 Our businesses Volution Group plc is a leading supplier of ventilation products with primarymimary markets intheUK, ets in the UK, Continental Europe and Australasia. We aim for our products to enhance customers’ experience of ventilation by reducing energy consumption, improving indoor air quality and design and making them easier to use. Residential ventilation solutions The Volution Group’s residential products encompass a broad range of solutions designed to suit a variety of budgets and applications, ranging from unitary extractor fans for use in bathrooms and kitchens to signiicantly higher value, low-carbon, energy eicient whole building ventilation systems with heat recovery. Commercial ventilation solutions The Volution Group’s commercial products encompass a variety of extractor fans, as well as mechanical heat recovery units (including both “ixed volume” and “demand” systems, some of which also incorporate high eiciency counter-low heat recovery cells for energy eiciency), air handlingunits, fan coils and hybrid ventilation solutions. Ventilation components andother products The Volution Group’s remaining products encompass a number of key components required for ventilation devices including low energy motors and heat recovery cells. These are supplied to a broad range of customers around the world. In addition, we sell some traded products within our channels including heating and cooling products, hygiene products, lighting and door chimes. Davinder Kumari, Swindon, UK Janika Uusitalo, Oulainen, Finland Strategic Report Volution Group plc Annual Report 2023 6 Our Investment Case Delivering strong growth by maximising the opportunities of the legislative transition as we decarbonise. Regulatory tailwinds Our products are supported by regulatory tailwinds as we help avoid carbon emissions supported by the Building Regulations and the EU taxonomy. New Part O introduced in the UK to reduce the risk of overheating on modern, airtight buildings. See for more detail on regulations Pages 38 to 47 Y Indoor air quality awareness Increased focus on good indoor air quality (IAQ) and the importance of ventilation for health. New changes to the EPBD to measure indoor environmental quality, including IAQ. See for more detail on regulations Pages 38 to 47 Y Structural undersupply In many of our markets there is a structural undersupply of new homes along with existing ageing stock in need of refurbishment. UK continues to fall short of UK Government target of 300,000 homes. See for more detail on regulations Pages 38 to 47 Y Unrivalled product range We service both residential and commercial sectors, in both public and private new build and refurbishment applications in the UK, the Nordics, Central Europe and Australasia, including the manufacture and supply of key technology components required for the decarbonisation of buildings. 60% of our revenue is from non UK customers. See for at a Glance Page 4 Y 76.2% of material from recycled sources Sustainability Delivering healthy indoor air whilst minimising our impact on the environment and helping support the United Nations Sustainable Development Goals. See for Sales of low carbon products Page 56 Y Growth Organic revenue growth from a focused sales strategy. Strong track record of acquiring and integrating value-adding businesses into the Group, leveraging our sales channels and our expertise in product development, manufacturing and supply chains. 9.8% 5 year CAGR revenue Sales for highlights Page 2 Y Fragmented markets Relatively niche local markets with strong defensibility. In many of our markets we have leadingbrands, products and sales channel access. Our business model helps develop substantial customer loyalty and barriers to entry. See for the Business model Page 22 Y 21 brands and sales ofices in 14 countries Strong cash generation and robust financial model Strong and reliable proitability growth leads to string cash generation and cash conversion. 98% average cash conversion % over the last 5 years See for highlights Page 2 Y Reasons to invest Strategic Report Governance Report Financial Statements Additional Information 7 Volution Group plc Annual Report 2023 Financial targets Revenue growth +10% p.a. Adjusted operating margin (% of revenue) >20% Adjusted operating cash low conversion >90% Organic revenue growth +3 to 5% p.a. Adjusted earnings per share +10% p.a. Return on Invested Capital (ROIC) mid-20s % Note 1. The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating proit, adjusted proit before tax, adjusted EPS, adjusted operating cash low, net debt and net debt (excluding lease liabilities). The reconciliation of the Group’s reported proit before tax to adjusted proit measures of performance is summarised in the table on page 30 and in detail in note 2 to the consolidated inancial statements. For a deinition of all the adjusted and non-GAAP measures, see the glossary of terms in note 34 to the consolidated inancial statements. Product Design, Hollola, Finland Strategic Report Volution Group plc Annual Report 2023 8 Chair’s Statement Strong results and delivering on our purpose In my first few months as Chair of Volution, I have taken time to visit more of our sites. On these visits, I have again been struck by the Volution team’s passion and pride in our products, the technical capabilities of our people, the delivery of excellent customer service, and the genuine commitment to the Group’s sustainability ethos. The evidence can be seen in the dedication to operational excellence, innovation and the shared commitment to support our contribution to customers and the communities in which we operate. Nigel Lingwood Non-Executive Chair Strategic Report Governance Report Financial Statements Additional Information 9 Volution Group plc Annual Report 2023 Simx Team, Auckland, New Zealand Dear shareholder, In this, my irst statement as Chair of Volution,I am pleased to report another strong year of progress. The Group has continued to demonstrate the strength ofits business model and strategy, achieving revenue growth of 6.6%, an adjusted operating margin of21.3% with excellent cash generation during the year. Volution is a business with a strong purpose and one that has an excellent track record of delivering value to all stakeholders. A key dierentiator for Volution amongst its peers is the increase of industry regulation designed to make indoor air cleaner and decarbonise buildings. It is this regulation that has continued to be a key driver of Volution’s growth this year, particularly in the UK public sector, where improving poor quality housing has become a legal requirement. It will also provide Volution with considerable resilience in a market where current high interest rates have had an adverse impact on new build construction levels and consumerconidence. Whilst macroeconomic challenges continue, Volution’s performance has demonstrated the strength and resilience of its business model, supported by our broad geographic and product diversity. Strategy The three strategic pillars of the Group are organic growth, value-adding acquisitions and operational excellence. These strategic pillars, together with a focus on sustainability, provide the platform for the implementation of the Group’s purpose, to provide “Healthy Air, Sustainably”. Solid progress was made during the year with good organic growth, whilst the acquisition of VMI, based in France, and I-Vent, based in Slovenia and Croatia, has further strengthened the Group’s geographic and product diversiication. The Group also acquired DVS in New Zealand, which was completed shortly after the year end. Performance and results Group revenue increased to £328.0 million (2022: £307.7 million) whilst adjusted operating proit was up 7.7% at £69.9 million (2022: £64.9 million), representing a margin of 21.3% (2022: 21.1%). Reported proit before tax increased to £48.8 million (2022: £47.2 million). The Group’s adjusted earnings per share was 25.8pence, representing an increase over the prior year of 1.8 pence, up 7.5%. The compound annual growth rate of adjusted basic earnings per share since IPO in 2014 is 12.7%, demonstrating consistent delivery of double-digit earnings growth over the period. Reported basic earnings per share for the year was 19.0 pence (2022: 18.1 pence). Adjusted operating cash low was £75.7million (2022: £50.4 million), and wespent £29.7 million, net of debt acquired, on two acquisitions during theyear. As a result, net debt excluding lease liabilities at the year-end remained largely unchanged at£58.1million (2022:£60.8 million). Strategic Report Volution Group plc Annual Report 2023 10 Chair’s Statement continued Dividends Recognising our strong performance in the year and our continued conidence in the business, the Board has recommended a inal dividend of 5.5 pence per share, giving a total dividend for the inancial year of 8.0 pence per share (2022: 7.3pence per share), an increase of 9.6% on the previous year. This is in line with our ambition to progressively grow dividends each year. The resulting adjusted earnings dividend cover for the year was 3.2x (2022: 3.3x). Subject to approval by shareholders at the Annual General Meeting on 13December2023, the inal dividend will be paid on 19December 2023 to shareholders on the register at 24November 2023. Environmental, social and governance (ESG) objectives Volution is committed to high standards ofcorporate responsibility, sustainability and employee engagement and continues to focus on its contribution to a more sustainable world through its operations, culture and ventilation solutions. The Group aims to give full consideration to the long-term impact of all business operations, which means that, wherever feasible, our products and services are sustainably sourced. The disclosures in our Sustainability Report, including our TCFD disclosure, have been further developed this year to provide a better understanding of our Scope 3 emissions and the carbon footprint of our products. In addition, the Company has received an improved AA rating from MSCI, following improvements in Volution’s decarbonisation initiatives – one of the benchmarks for ESG ratings. We are very proud of our London Stock Exchange Green Economy Mark, irst received in 2021. Tour of Volution site in Växjö, Sweden Strategic Report Governance Report Financial Statements Additional Information 11 Volution Group plc Annual Report 2023 Our people and culture As a Board, we understand the importance of building engagement and a good corporate culture. We regularly monitor the company culture and seek opportunities throughout the year to engage with colleagues across the Group. Claire Tiney, our designated Non-Executive Director for workforce engagement, continues to participate in two Group-wide Employee Forum events each year, enabling in-depth insights to be brought to the Board on the views, opinions and focus areas of our people. A Group-wide workforce engagement survey will be launched later this year and as a Board we look forward to the further insights that this will aord us. Safety at work is always central to everything we do, and the Group remains focused on a zero-harm ambition. I am pleased to report good progress in the area of health and safety, although we saw a small increase in the reportable incident rate compared to last year, and the Company remains fully committed to further strengthening the health and safety culture across all our businesses. Our talented people across the global business are at the heart of our continued success and essential in the execution of Group strategy. I am grateful to all Volution colleagues for their commitment and contribution. I would like to welcome our new colleagues from VMI, I-Vent and DVS to the Volution Group. Board changes Paul Hollingworth retired as Chair oftheBoard on 23 June 2023, having served on the Volution Board for nine years. Iwas delighted to be appointed as Paul’s successor and would like to thank Paul for his leadership and contribution to Volution during his tenure. I would also like to thank my Board colleagues for their assistance in ensuring a smooth and orderly succession process. As part of the succession process, I stepped down from the role of Audit Chair and, on 23 June 2023, we were pleased to welcome Jonathan Davis to the Board as an Independent Non-Executive Director and Chair of the Audit Committee. With his strong inancial and accounting expertise and extensive public company and international experience, I am conident that Jonathan will make a strong contribution to the Board. Governance The Group is committed to high levels of corporate governance, in line with its status as a company with a premium listing on the Main Market of the London Stock Exchange and as a member of the FTSE 250. We are fully compliant with the 2018 edition of the UK Corporate Governance Code. As a Board we are responsible to the Company’s shareholders for delivering sustainable shareholder value over the long term through eective management and good governance. As Non-Executive Chair, my role is to provide strong leadership to enable the Board to operate eectively and collegiately. As a Board, it is our view that open, thorough, and robust discussion around key strategic matters, risks and opportunities faced by the Group is central to reaching our strategic goals, including with regard to our acquisition strategy. We are fortunate to have a diverse range of business experience on the Board, enabling rigorous and productive discussions. Nigel Lingwood Non-Executive Chair 4 October 2023 Strategic Report Volution Group plc Annual Report 2023 12 Chief Executive Officer’s Review A strong set of results with excellent operating cash conversion, in a market with significant headwinds, further highlighting the resilience of the Group’s local brands and wide geographic and end market diversity Summary • Another year of excellent progress inancially, strategically and against our ESG targets. • Reported revenue growth of 6.6% (6.1% at cc), with organic growth of 5.1% (4.6% at cc) supplemented by inorganic growth of 1.5% (1.5% at cc). • Adjusted operating proit of £69.9million, an increase of 7.7%over the prior year (2022: £64.9 million). Reported operating proit of £57.1 million, an increase of 12.4% over the prior year (2022:£50.8 million). • Adjusted operating margin expansion of 20 bps to 21.3% (2022:21.1%), as we successfully managed inlationary headwinds. • Excellent cash conversion in the year of 106%, above our target of 90%. • Adjusted earnings per share at 25.8 pence; a compounded annual growth rate of 12.7% since listing in 2014. Reported earnings per share at 19.0 pence. • Strong M&A momentum: • Two acquisitions completed in the year, VMI in France (April 2023) and I-vent in Slovenia (June 2023) further extending our geographic reach and adding further exciting product technology to the Group’s product portfolio. • A third acquisition, DVS Proven Systems, completed post year-end on 4 August 2023. Our committed local teams have done an incredible job delivering exceptional customer service and another successful year of providing ‘Healthy Air, Sustainably’. Ronnie George Chief Executive Oicer Strategic Report Governance Report Financial Statements Additional Information 13 Volution Group plc Annual Report 2023 Overview The results we achieved this year are a clear demonstration of Volution’s strengths as we beneited from our market leading positions, our wide geographic and end market diversity and our ability to upsell our products supported by industry regulations. We estimate that almost 70% of Group revenue is focused on the refurbishment, maintenance and improvement market (“RMI”), typically more resilient than new build markets in diicult economic times. Against a backdrop of high inlation, rising interest rates, and a slowdown in activity in some of our end markets, we were still able to achieve organic growth of 5.1%. Furthermore, our relentless focus on operational excellence, including strong pricing discipline, robust cost control, value engineering initiatives and good factory eiciency enabled us to expand our operating margin to 21.3%. Our organic growth was supplemented by our continued focus on acquiring strong local brands with attractive market positions, this activity remains a key tenet of Volution’s growth strategy. During the year we were delighted to acquire two businesses, VMI in France and I-Vent in Slovenia, with a third business, DVS Proven Systems, acquired post year-end. These acquisitions provide the Group with increased resilience by broadening its geographic reach and giving it access to attractive new markets. They also bring with them innovative low carbon product solutions to further expand our portfolio. Volution is a leader in the international heating, ventilation and air conditioning market and our purpose is to provide “Healthy Air, Sustainably”. Since listing in 2014 we have delivered consistent revenue and proit growth and strong operating cash low. It is this consistent cash generation which underpins our ability to acquire businesses, which further increases our already broad geographic market, and we maintain an active pipeline of potential targets. As we continue to grow organically, and complement our market positions with new acquisitions, our management “bench strength” is of critical importance to our success. During the year we further strengthened our team including hiring a new Operations Director, for our UK businesses and commencing a Managing Director search process for our ClimaRad business in the Netherlands. I am pleased to say that we will be holding our fourth Management Development Programme later this year and I know from experience how important this programme is for retaining and enhancing our talent pool. As previously reported, the wider supply chain diiculties experienced by the industry in recent years have now subsided. In response to these earlier diiculties, Volution took steps to mitigate any disruption, thus ensuring we had excellent product availability for our customers throughout this period. This early action served us, and our customers, well and has resulted in an increase in our competitive advantage. There are numerous examples where we have made local market share gains due to strong customer relationships and apparent gaps in competitor product availability. The local teams are focused on consolidating these opportunities in the year ahead. Our markets Volution’s revenues are weighted towards the refurbishment market which now accounts for around two-thirds of sales, with the balance focused on new build applications. Both new build and refurbishment activities are increasingly regulated, with the former seeing an accelerated change as local economies focus more readily on reducing carbon emissions from new buildings. The rapid rise in interest rates has had an adverse impact on new build construction levels and consumer conidence during the year. Whilst we are seeing lower overall unit construction output in new residential and commercial projects, ever tightening regulations (focusing on lowering carbon emissions) is supporting demand for Volution’s innovative and value adding low carbon solutions, where typically the average unit value is signiicantly higher than the traditional ventilation solution that itreplaces. Demand in the refurbishment market has been supportive during the year, particularly in the UK where we saw demand in public refurbishment RMI beneiting from the heightened awareness of health risks associated with mould and condensation. Private RMI proved veryresilient. We believe that ventilation refurbishment is far less discretionary than other product categories in buildings. Post the pandemic, we have noticed that there is a more pressing need to replace ventilation products, compared to other elements of refurbishment that can be postponed indeinitely. We have also seen the unintended consequences of home occupiers reducing heating temperatures during the winter months in response to higher energy prices. This leads to lower temperatures in the dwelling which propagates the risk of mould and condensation problems with air holding signiicantly more moisture when cold, than at higher temperatures. This too makes the requirement for ensuring good ventilation more pressing. To deliver on net zero commitments, Governments must address our buildings which, in Europe, are responsible for around 40% of our energy use and 36% of our carbon emissions. Our technology provides solutions to avoid some of those emissions, and increasing regulation is the key driver. This year we have provided more insight in this report into the regulatory position in each of our key geographies, covering both air quality and energy eiciency. Our local teams and our trade associations continue to ensure our voices are heard as the regulations provide strong tailwinds supporting the adoption of higher value ventilation solutions. See more on page 38 to 47. Results The Group delivered revenue of £328.0 million (2022: £307.7 million), an increase of 6.6% (6.1% cc), with organic growth of 5.1% (4.6% cc) and inorganic growth from the two acquisitions in the year, as well as the full year eect of the acquisition in the prior year, of 1.5%. Adjusted operating margins increased from 21.1% in the prior year to 21.3%, a strong performance in the face of much higher inlation than in previous years. Reported proit before tax was £48.8 million (2022: £47.2 million), an increase of 3.4%. Sustainability Good progress was achieved with our sustainability initiatives. Recycled plastics content in our own production increased substantially in the year to 76.2% of total consumption. A signiicant proportion of the Group’s injection moulding and PVC extrusion production takes place at our Reading facility in the UK and I am proud of the way in which the team developed innovative strategies in the year to increase the utilisation and availability of recycled plastic materials. This is a great example of a cross functional initiative and whilst we still have some way to go to achieve the 90% target by the end of our inancial year 2025, the increase from under 60% in 2021 provides a good trajectory towards the target. Utilising recycled materials is also a signiicant Strategic Report Volution Group plc Annual Report 2023 14 Chief Executive Officer’s Review continued commercial advantage for our customers with many new projects requiring a minimum recycled content in the supply of materials and we are keen to assist in the more circular economy for the supply of products into buildings. Revenue from our low-carbon products has increased to 70.1% in the year, well ahead of this year’s target of 65.6%, and two years ahead of our target of 70% by the end of 2025. We expect the growth in our low carbon product solutions to continue to be ahead of the growth of more traditional products. The recent acquisitions of VMI in France and I-Vent inSlovenia will positively assist our metric in the year ahead as they already have a high concentration of their revenue from low carbon solutions. Our Sustainability Committee, comprising of our senior leadership team and our non-executive director, Amanda Mellor, met twice in the year, where we reviewed progress against our published targets and key initiatives for the years ahead. Strategy Organic growth We delivered organic growth of 5.1% (4.6%cc) driven by increases in both priceand volume. Volution has a long-term target to consistently deliver annual organic growth in the range of 3-5%. We have again delivered organic growth at the top end of the range, despite the more diicult trading environment in the year. As in previous years, our more vertically integrated business model, our intentional approach to holding a higher component 6.6% Revenue growth 21.3% Adjusted operating margin 70.1% Revenue from our low-carbon products 2 Acquisitions during the year Sustainability continued Strategic Report Governance Report Financial Statements Additional Information 15 Volution Group plc Annual Report 2023 inventory and our resulting excellent service levels have helped us to deliver this growth. Across the Group there have been notable market share gains directly attributable to superior service levels. An acceleration of regulatory support; the impact of higher energy costs; and our strong local brands, managed by local, motivated, and empowered teams, have enabled us to deliver an above market growth performance. Our strapline, “Healthy Air, Sustainably”, which we introduced in 2020, resonates strongly across the Group. Acquisitions We completed two acquisitions in the year. In April we announced the completion of the acquisition of Ventilairsec (VMI) for an initial consideration of £7.9 million (€9.0 million), net of cash acquired. VMI, based in Nantes, France, designs and manufactures a range of residential ventilation systems focused on a low carbon positive input ventilation technology known as “VMI”. The acquisition provides Volution with direct access to the French market, one of the largest ventilation markets in Europe. Our position in France, whilst currently quite small, is eminently scalable in the years ahead. A new managing director was recruited and a successful handover from the owner has already been completed. We are conident that our wider ranging ventilation solutions from across the Group can assist the local team to grow more rapidly in the period ahead. The VMI acquisition included an earn-out payment of up to €5 million, which will be calculated on the basis of the EBIDTA for the year ended 31 December 2023. In June 2023 we completed the acquisition of I-Vent for an initial consideration of £21.7 million (€25.2 million), net of cash acquired, with further contingent consideration of up to €15 million based on stretching growth targets for the inancial results for the three years up to and including 31 December 2025. I-Vent, based in Slovenia and Croatia, designs, manufactures, and supplies residential ventilation systems, primarily focused on decentralised heat recovery. Similar to the technology in InVENTer Germany, we see complementarity in the respective ranges and our teams are already working out how we can utilise the increased strength in our product portfolio to optimise our oering. Post year end we also completed the acquisition of DVS (Proven Systems Ltd) in New Zealand. DVS supplies directly to consumers and installs a range of energy-eicient centralised ventilation systems, incorporating positive input, heat recovery, heat transfer, and heating and cooling solutions. Their products can be installed in both new and existing properties and are sold under the DVS Home Ventilation brand. DVS will be integrated into our Australasian business and provides an additional sales channel to supply low carbon solutions. Operational excellence Maintaining our long-term adjusted operating margin at, or above, 20% is an important objective for Volution. In the year we delivered a 20bps margin improvement to 21.3% in the face of signiicant inlationary pressures across materials, labour, and infrastructure costs. Delivering a consistently strong operating proit margin is the culmination of many smaller initiatives across the entire business. Pricing discipline, long term supply chain partnerships, focus on value engineering and operational eiciency initiatives and good investment in new moulding, extrusion and other plant and equipment in 2023, helped underpin ourmargin. People A key highlight of the year was a full return to normal working practices post the pandemic. Our Group is now truly international, and the ability to freely visit all facilities was a tremendous boost. During the year we held more employee engagement meetings than in our recent past. I am privileged to lead such a diverse and talented organisation and the feedback from the people in our local companies is hugely enriching and invaluable to our decision-makingprocesses. I was delighted to observe lots of examples of cross border co-operation on so many levels. Our technical and procurement resources are managed functionally and provide Volution with a signiicant resource to support our local operating companies to outperform their local competitors. Enhancing collaboration across these and other working groups is key to our success. We also held two group wide employee engagement and communication meetings, also attended by Claire Tiney, Non-Executive Director, and chair of the Remuneration Committee, with speciic focus on sustainability at one meeting and product development and innovation at the other. Retention and development of our talented teams is key to our success. Since 2012 we have successfully run three management development programmes across the Group. We are now planning a fourth programme for late October 2023. This current cohort will consist of eighteen high potential managers from all geographic and functional areas of the Group. I am very much looking forward to the programme kick-o, and I also know how excited the participants are to be involved. A look back at the irst three management development programmes reveals a retention rate of over 70%. I believe we have a strong culture of success at Volution, but also a culture where our teams work closely together and have a lot of fun in providing “Healthy Air, Sustainably”. Outlook Through continued successful execution of our sustainable growth model, we have delivered a strong set of results in a year of signiicant headwinds. The Group’s resilience is underpinned by our strong local brands, our increasingly wide geographic diversity and the greater proportion of our revenue generated from the refurbishment market. Exceptional customer service provided by dedicated and committed local teams, and an agile and focused approach to fulilling customer needs has delivered another successful year for the Group. Whilst we are mindful of the impact of higher interest rates on consumer conidence and new build construction, the regulatory changes in our local markets continue to drive demand for our innovative and well-positioned low carbon product technologies. In addition, our three new acquisitions completed in the last six months; our ongoing focus on operational excellence; and the depth of experience and commitment across our local teams provides resilience and gives us conidence of making further progress in the year ahead. Ronnie George Chief Executive Oicer 4 October 2023 Strategic Report Volution Group plc Annual Report 2023 16 Regional Review United Kingdom Market sector revenue m m Change cc UK Residential Commercial Export OEM Total UK revenue Adjusted operating proit Adjusted operating proit margin pp Reported operating proit £156.1 million Revenue ↑8.6% Revenue growth £35.3 million Adjusted operating proit Awareness and understanding of the importance of good ventilation in delivering healthy air inside buildings is now widespread. The UK delivered the standout performance of the year with strong revenue and proit growth. UK revenues increased from £143.7 million to £156.1 million, an 8.6% increase (8.3% at cc), building on good organic growth delivered in the prior year. TheUK saw strong demand in Residential RMI, particularly in the public sector. Alongside this, exceptional customer service, an agile and focused team, and residential market share gains helped deliver this excellent performance. Adjusted operating proit increased from £29.3 million to £35.3 million with a signiicant increase in the adjusted operating margin at 22.6% up 220bps from 20.4% in the prior year. The organisational changes made in the prior year bedded in well delivering a more agile and responsive outcome across the business. Revenue growth accelerated in the second half of the year, and we are well placed to deliver further progress in the year ahead. Although high inlation and rises in interest and mortgage rates are stiling new construction activity, Volution’s overall market demand continues to be underpinned by regulatory and wider consumer awareness of the importance of indoor air quality. Residential Sales in our Residential market sector were £89.7 million (2022: £75.1 million), an impressive organic growth of 19.5%, building on last year’s strong organic growth. Moreover, we saw an acceleration of growth in the second half. In residential new build we delivered another year of revenue growth supported by the increasing penetration of energy eicient ventilation technology in new house construction. In June 2022 revisions to Part F and Part L of the Building Regulations provided increasing support for low carbon energy eicient ventilation systems for new house building. Those changes inevitably take time to impact demand for low carbon solutions, as existing construction sites at the time of the regulatory change will continue to be constructed to the original plan. During the year we certainly beneited from these new changes, but we expect to see a greater proportion of new houses being built with more eicient technology in the year ahead. New account wins have assisted us to grow market share and our exceptional levels of customer service and full product availability to customers, at all times, have set us apart from the competition. Whilst we are conident that regulatory changes in 2022, and further changes to the Future Homes Rizzy Cook, Crawley, UK Strategic Report Governance Report Financial Statements Additional Information 17 Volution Group plc Annual Report 2023 Standard planned for 2025 (delivering buildings that are net zero ready) will underpin sales of new technology solutions, the new build market faces signiicant challenge from the eects of high interest and mortgage rates. Housing starts reduced considerably in the year and will result in fewer completions in the period ahead. This will inevitably result in some moderation of demand for energy eicient ventilation systems. Nevertheless, the medium to long term drivers of demand remain compelling. During the year we made iterative changes to our leading ranges of energy eicient ventilation solutions. Our UK ventilation brands provide the widest product range and solutions, and are well supported by new investment in injection moulding and extrusion capacity to safeguard our excellent levels of customer service and availability. The awareness and understanding of the importance of good quality ventilation in delivering healthy air inside buildings is now widespread. The strong demand we experienced for our refurbishment solutions through the pandemic has continued, which validates our view that ventilation refurbishment is far less discretionary than other types of building refurbishment. Our residential refurbishment category in the UK was the fastest growing area across the entire Group. Our high end, aesthetically attractive, near silent, comprehensively controlled, private refurbishment solutions continued to deliver good growth in the year. Across our Vent-Axia, National Ventilation and Manrose brands, we have strong links to our important professional and retail distribution routes to market. We value our distribution customer relationships very highly and the sales teams worked very hard during the year to help educate and train these outlets on the important aspects of the ventilation industry and our market leading solutions. We have a simple but relentless approach to providing excellent stock availability and customer service, at the centre of which is irst class relationships with our suppliers and customers. The Group has the largest UK ventilation sales force supporting customer needs. Public housing refurbishment demand was very strong in the year. On 9 February 2023, the Government tabled amendments to the Social Housing (Regulation) Bill to introduce ‘Awaab’s Law’, which will require all landlords to investigate and ix reported hazards in their homes within a speciied time frame, or rehouse tenants where a home cannot be made safe. ‘Awaab’s Law’, was put in place following the death of a young boy who died due to exposure to black mould in his socially managed home which had ‘inadequate ventilation”. This sad event has further emphasised the importance of refurbishment in this market sector. As a result, we witnessed a sharp increase in demand for energy eicient ventilation solutions and this delivered accelerated revenue growth in the second half of the year. Volution has been well placed to support these vital refurbishment needs. In the 2022 Annual Report we explained how we were utilising our innovative decentralised heat recovery product solutions from other parts of the Group to support the UK social housing ambition to deliver their 2030 net zero carbon targets. In the year we have been successful in supplying decentralised heat recovery ventilation solutions to projects that require a further step up in their ventilation needs following a more structural refurbishment of the dwelling. Greater air tightness through insulation, an obvious and important upgrade as part of a low carbon refurbishment, then warrants heat recovery ventilation to recover energy and keep fuel bills low. The fuel poverty crisis in the UK resulted in greater mould and condensation risks during the last winter, due to the unintended consequence of turning down heating thermostats to save costs. Colder air temperatures means less moisture can be held in the air; the resultant issue is water droplets forming at lower temperatures which leads to greater condensation and mould. The impact of ‘Awaab’s Law’, the lower property temperatures, and consumers investigating how to solve their condensation problems, resulted in a signiicant increase in demand for “Positive Input Ventilation” technologies. Utilising our strong relationships with our distribution customers, we were able to ensure that contractors could source the exact products they required to service this strong demand. During the latter part of 2023 we further enhanced our product range and have ensured that our customers are well placed to service the expected strong market demand in the year ahead. Commercial Sales in our UK Commercial sector were £30.2 million (2022: £31.0million), an organic decline of 2.8%. Volution has a relatively small share of the larger commercial ventilation market, albeit with a leading share in the niche area of fan coil ventilation. The year inished strongly, and saw an increase in second half revenue, following a decline in the irst half. Excellent progress with our enhanced range of fan coil ventilation enabled us to make good progress with the supply of products to the main market of new London commercial oices. Whilst the commercial oice market has generally been more subdued, we are seeing a growing trend and need for more desirable working environments. Employees are demanding brighter, more energy eicient work places and we see a good pipeline of work for both new build and refurbishment needs for fan coil units. During the year we completed key new developments for products that provide commercial heat recovery or commercial heat recycling. This delivered some success in the second half of the year and puts us in a stronger position to gain market share in the year ahead. Our investment in more advanced metal cutting capability at our Dudley facility provides the capacity to support any increase in demand. Export Sales in our UK Export sector were £12.1 million (2022: £11.7 million), an organic growth rate of 1.7% at constant currency. Export revenues had declined in the irst half of the year, largely due to a signiicant customer de-stocking exercise, but performed well in the second half, growing at close to 10% on a constant currency basis. Our long-term collaborative relationship with our distributor in Eire delivered another year of growth and given the stronger Irish housing market, we see good underpinning of demand for energy eicient heat recovery solutions in the year ahead. OEM Third party Sales in our OEM sector were disappointing at £24.1 million (2022: £25.9 million), an organic decline of 8.0% at constant currency. This was linked to a reduction in customer demand for motorised impellers utilised in products focusing on the new build market. However we delivered a signiicant increase in the internal supply of our EC3 motorised impellers in the year with several new initiatives underway to capture more of our internal needs in the year ahead. A huge strength of the Group is the vertical integration of moulding, extrusion, and component supply capability and this has been particularly beneicial in recent years where we have faced supply chain challenges. Our strategic intention is to greater utilise our OEM capability to capture more of the internal demand. This initiative is particularly relevant as we foresee ongoing weakness of demand for motorised impellers due to more subdued end market demand for new construction. Strategic Report Volution Group plc Annual Report 2023 18 Regional Review continued Continental Europe Market sector revenue m m Change cc Central Europe Nordics Total Continental Europe revenue Adjusted operating proit Adjusted operating proit margin pp Reported operating proit £124.5 million Revenue ↑0.6% Organic revenue growth at constant currency ↑5.2% Revenue growth i-Vent Team, Slovenia Our Continental Europe revenues increased from £118.4 million to £124.5 million, growth of 4.4% at constant currency, within which organic growth was 0.6% on a constant currency basis. The sector beneited from the acquisition of VMI in April 2023, I-Vent in June 2023 and the full-year eect of the acquisition of ERI in September 2021. Adjusted operating proit was down 4.0% at £28.4 million versus a prior year of £29.6million. The adjusted operating proit margin declined in the year by 220bps to 22.8%, partly due to the dilutionary impact of the acquisitions, but also due to the changing mix of revenues with both the higher margin Nordic and German market revenues declining at a higher rate than the growth areas such as ERI in North Macedonia. Central Europe Sales in the Central Europe region grew 12.7% at constant currency to £75.4 million compared to the prior year of £65.1 million. Organic revenue growth was 5.9% on a constant currency basis, with inorganic growth coming from the acquisition of VMI, I-Vent and the full-year eect of the acquisition of ERI. Revenues in Germany in the second half of the year were much weaker than the prior year. Unlike the usual 70%/30% Group wide split of revenues between refurbishment and new build, we have a high concentration of German revenue focused on the new build market. New build construction was much weaker in the second half of the year, coupled with inconsistencies around government subsidies supporting low carbon technologies. Germany has been a strong contributor to our organic growth since 2019 and a revenue decline in the year was unusual. In recent months we have refocused our selling eorts on the signiicant refurbishment opportunities in the market. Germany, alongside every other country is working out how to achieve its net zero carbon targets. Local government is now providing more clarity on subsidies for various low carbon technologies, and we had some good successes towards the end of the year. Strong pricing management, excellent cost controls and some innovative new product solutions enabled us to maintain our local gross margins. Whilst the new build outlook remains fragile, the medium-term dynamic of heat recovery technology demand in Germany, both in new build and increasingly in refurbishment, remains compelling. Strategic Report Governance Report Financial Statements Additional Information 19 Volution Group plc Annual Report 2023 inVENTer team, Löberschütz, GermanyJanika Uusitalo, Oulainen, Finland In the Netherlands, ClimaRad delivered strong organic growth, accelerating in the second half of the year. Our “total cost of ownership” model is reaping signiicant dividends as we demonstrate the substantial savings that a ClimaRad decentralised heat recovery system can deliver in a structural refurbishment. The Netherlands market is one of the most progressive in Europe with a focus on decarbonising buildings and an established approach to the future ban of gas boiler installations in the new build market. This is a hugely supportive change in the market increasing the utilisation of heat pump technology and an increased investment in greater insulation for residential buildings. This positions our decentralised heat recovery technology in ClimaRad very well. The project orderbook remains strong and we remain conident that we will make further inroads in the market with our compelling solution in the year ahead. In Belgium we delivered organic growth, however, the introduction of our new extended range of higher airlow heat recovery systems was delayed until the end of the inancial year 2023. Our Econiq range of heat recovery is the culmination of a signiicant product development investment, and our new application software technology will materially aid commissioning and an improved user experience. Whilst a much later than planned introduction to the market, we are excited about the opportunity to regain lost share inthe new inancial year. Nordics Sales in the Nordics region were £49.1 million (2022: £53.3 million), an organic decline of 5.7% at constant currency compared to the previous year. The Nordics market was especially challenging in the second half of the year with weaker demand and signiicant customer destocking resulting in a revenue decline. Strong pricing discipline in the Nordics, a moderating of input cost inlation, and the increasing beneits of our new production facility in Växjö, helped us to maintain a strong gross margin performance. Customer de-stocking is largely completed and whilst the local markets, as with all of our markets, are grappling with the higher cost of borrowing, we believe that demand reached its low point in H2 2023. Our Nordic activities are weighted around 65% to refurbishment, which is similar to the rest of the Group, the balance being new build construction. Whilst new build markets are likely to continue to be subdued whilst interest rates remain at elevated levels, we continue to exploit opportunities in refurbishment for higher value adding solutions such as the signiicant growth in decentralised heat recovery from a low start point. Volution is the European leader for the supply of decentralised heat recovery in residential buildings and this isakey area of focus for the period ahead. Acquisitions Energy Recovery Industries (“ERI”), a leading provider of aluminium heat exchanger cells for heat recovery applications delivered another year of strong revenue growth. In line with our original investment plan to increase our manufacturing capacity in North Macedonia and boost eiciency, we have also invested in new equipment during the year enabling us to shorten lead times and deliver eiciency beneits which further enhanced our operating proit margin. The long-term growth drivers for heat recovery ventilation are strong and we plan to make further investments to enhance our manufacturing facility and capacity in the year ahead. In April 2023 we acquired VMI in France. Whilst a relatively small player in the French market we are delighted to now have a structural presence in this important market. VMI has an experienced and passionate team of ventilation experts and coupled with the access to our wider portfolio of existing and new product developments we see an opportunity to deliver good organic growth in the French market. Specialising in energy eicient positive input ventilation technology, VMI will beneit from enhancing its product range and new customer relationships. In June 2023 we completed the acquisition of I-Vent, a provider of decentralised heat recovery ventilation systems in Slovenia and Croatia. The acquisition gives the Group access to fast growing new markets, and I-Vent’s innovative Low Carbon product solutions will further enrich our Group’s expansive product portfolio, particularly in decentralised heat recovery. Retro-itting heat recovery into existing residential dwellings is a key strategic focus for the Group across Europe. With the majority of existing revenue arising in Slovenia, the Croatian market position, although much smaller, provides potentially a faster growing opportunity due to our lower marketpenetration. Strategic Report Volution Group plc Annual Report 2023 20 Regional Review continued Australasia Market sector revenue m m Change cc Total Australasia revenue Adjusted operating proit Adjusted operating proit margin p p Reported operating proit £47.4 million Revenue ↑3.9% Revenues growth £11.3 million Adjusted operating proit Nisha Desai, Auckland, New Zealand Sales in our Australasia region were £47.4 million, with organic growth of 3.6% at constant currency. Adjusted operating margins improved to 23.9% versus 21.8% in the prior year. Following a period of substantial organic growth in Australia, organic growth rates moderated in the year as expected. Pricing discipline and excellent cost control enabled us to further increase operating proit margins to 23.9%, a signiicant improvement over the prior year. Simx in New Zealand delivered a good performance. Revenue has increased beyond the high levels of previous years when demand had been boosted by the Healthy Homes Act. New Zealand has a structural demand for additional new residential construction, however, as with other markets, higher interest and mortgage costs are stiling demand. Similar to the wider group, our revenue focus is predominantly refurbishment led and we continue to see opportunities to introduce more innovative technology to this market. The post year end acquisition of DVS Proven Systems, completed on 4 August 2023, further strengthens our position in the residential “Smart Vent” market. With DVS Proven Systems’ unique consumer focused approach to ventilation in the local market, we see huge potential to increase sales our value-added solutions. Through direct consumer marketing, we are conident that we can encourage greater penetration of both central and de-central heat recovery systems in New Zealand. In Australia we continue to make good progress and the launch of our Sky Fan DC range of ceiling fans was particularly successful in the year. We launched our Manrose brand into the DIY sector in the year and we plan to extend this range in the coming months. Ventair has been part of the Group since 2019 and we are delighted that over four years after the successful introduction to the Group we have secured a long-term agreement with the founder and other members of the senior team, so we can continue to work together to further grow our market penetration in Australia. Important elements of our success are the key supplier relationships that we have fostered since the business was founded and the increasing strength of the local team, which is well positioned to capitalise on theserelationships. Strategic Report Governance Report Financial Statements Additional Information 21 Volution Group plc Annual Report 2023 Ventair Team, Melbourne, Australia Joshua Varela, Auckland, New Zealand Simx in New Zealand delivered a good performance, with revenue higher now than at the time of the strong refurbishment demand in previous years. Magnus Sandin (left), Tomas Nilsson (right), Voltair, Stockholm, Sweden Strategic Report Volution Group plc Annual Report 2023 22 Business Model How we create value Why we do What we do Volution supports legislative transition as we decarbonise Health Making our buildings air tight and insulated leads to poor air quality if we don’t ventilate them correctly. Regulations continue to drive the demand for our products. 1/3 of people report mould intheirhome Efficient Volution continues to drive the demand for low carbon products, and our technology provides an important pathway to avoid carbon emissions from buildings. 36% CO 2 from buildings Comfort Modern buildings run the risk of overheating during the summer periods. Our products provide energy eicient solutions to reduce that risk and create comfortable living environments. 2023 record temperatures Y Regulations Page 38 Design We focus on innovation. We are closely aligned with environmental, health, regulatory and consumer developments that are reshaping the world’s expectation of how we live life indoors. £4.5m R&D spend 85 People employed in NPD 70.1% low carbon revenue Y Planet Page 64 Manufacture We manufacture whilst remaining focused on sustainability and assemble high quality, technically dierentiated ventilation solutions at optimal cost. 12 facilities 83% of revenue from products we manufacture 76.2% recycled plastics Y Product Page 56 Acquire We continue to acquire and integrate value-adding companies that provide synergistic beneits, routes to market and help us leverage our scale. 25 acquisitions since 2012 c£250m spend on acquisitions since 2012 Y Our Growth Opportunity Page 48 Strategic Report Governance Report Financial Statements Additional Information 23 Volution Group plc Annual Report 2023 How we do it The value we create Shareholders We seek to deliver attractive returns for our shareholders with sustained growth inproit and cash low. +12.2% Adjusted basic EPS 5 year CAGR Employees We oer career development within a framework of sustainable employment opportunities. 85% retention rate Customers We listen to our customers and provide unrivalled product solutions within our local markets. >20,000 SKUs Suppliers We develop long term relationships with suppliers, helping each other to grow whilst delivering on our social responsibilities. 1,900 suppliers Environment We continually work to reduce our environmental footprint. 2021 Green Economy Mark since 2021 Government and Regulatory Regulatory tailwinds continue to support the adoption of energy eicient ventilation systems. Y Regulations Page 38 Strong expertise Leveraging Group scale Brands We have strong brands supported by passionate local champions. Supply chain We manage supply chain complexities leveraging our scale andmaximising returns. Cross-selling Cross selling group products through oursales channels provides strong barriers for competitors. Group product development Optimising new product development across our businesses ensures we maximise returns. Sustainability (recycled plastics) Using recycled plastic helps reduce our environmental footprint and optimise our costs. Relationships Our local teams have an intimate knowledge of our markets and customers. Distribution channels (multi-channel) Our multibrand, multichannel strategy enables us to maximise our market reach. Y Stakeholders Page 93 Y People Page 84 Strategic Report Volution Group plc Annual Report 2023 24 Key trend Drivers Opportunity How are we responding Regulatory environment • Net zero targets require greater energy eiciency of buildings to reduce carbon emissions. • EU taxonomy and the Green Deal supporting investment in deep refurbishment of buildings. • Increasingly regular warm weather and improvements in insulation in modern air tight buildings leading to over heating during the summer months. • Wider adoption of heat recovery ventilation solutions in buildings through tighter building regulations. • Funding of renovations of buildings leading to sales of heat recovery devices in refurbishment. • Energy eicient cooling solutions to be adopted in more of our geographies. • Innovation in both centralised and decentralised heat recovery product ranges and EC high eiciency motors. • Capital allocation to new acquisitions improving our sales of heat recovery solutions. • Development of wider integrated cooling solutions. Improving air quality for health • Strengthening regulatory tailwinds in refurbishment. • Increasing landlord responsibility to provide acceptable standard of properties with prevention of mould and condensation a key focus area. • Increased air tightness of buildings raises the risk of negative health outcomes unless adequate ventilation is ensured. • Providing air quality solutions for existing buildings and applications where historically is has been diicult to retroit products. • Greater focus on ventilation provision for both new build and refurbishment applications across our geographies. • Development and launch of new product oerings including higher levels of eiciency, iltration and automation. • Internationally we take an active role within our trade associations ensuring that regulators continue to consider ventilation when proposing legislative changes. Digital transformation • Many of our businesses operate in traditional markets with electrical wholesale as our primarily route to market. However, our channel to market is changing with increasing numbers of customer using e-business to procure our products. • Our industry is digitising requiring more data for more performance metrics than ever before. • Our products and services are being made available through a wider number of channels providing consumers and end users more lexible ways to procure our goods. • IoT, Building Safety Act and embodied carbon are all areas enabling us to provide more insight and easier access to products, data and performance. • We continuously develop our sales model, utilise our brands and deploy our sales resources to ensure maximise our opportunities to trade as the sales channels evolve and strengthen barriers to entry for others. • Improving the operability of our products across platforms as well as development of new data sets helping us dierentiate our propositions. Macroeconomic factors • Cost of living crisis will increase the adoption of energy saving measures to buildings. • The low of money into upgrading of buildings through the European Green Deal and the Social Housing Decarbonisation Fund programmes will continue to support the adoption of our products to help save energy and improve air quality within the housing stock. • Energy saving measures such as insulation, air tightness improvements and double glazing can require additional ventilation to prevent poor air quality. • The wider adoption of higher value, continuous running and heat recovery products in refurbishment. • Increasing communications around the energy saving potential of heat recovery in retroit. • Ensuring that we internationalise our group products, particularly decentralised heat recovery solutions. Competitive landscape • Global supply chains have put pressure on suppliers of ventilation solutions across our geographies with stock availability becoming a far greater factor in procurement decisions. • Backlog in refurbishment work due to Covid still providing opportunity. Particularly relevant in public RMI. • Having stock available whilst others have not has ensured that we have maximised our opportunities to not only ensure we delivery excellent customer service to our existing customers but also attract new customers and take market share. • Continued demand for ventilation products to service the backlog. • Increase stock levels across our organisation has ensured that we have maintained supply and buered supply chain constraints. Capital investments have also been made to increase capacity to ensure that we continue to maximise the opportunities. • Increased capacity on public housing product line. Market Overview Attractive markets with long-term structural growth drivers Strategic Report Governance Report Financial Statements Additional Information 25 Volution Group plc Annual Report 2023 Key trend Drivers Opportunity How are we responding Regulatory environment • Net zero targets require greater energy eiciency of buildings to reduce carbon emissions. • EU taxonomy and the Green Deal supporting investment in deep refurbishment of buildings. • Increasingly regular warm weather and improvements in insulation in modern air tight buildings leading to over heating during the summer months. • Wider adoption of heat recovery ventilation solutions in buildings through tighter building regulations. • Funding of renovations of buildings leading to sales of heat recovery devices in refurbishment. • Energy eicient cooling solutions to be adopted in more of our geographies. • Innovation in both centralised and decentralised heat recovery product ranges and EC high eiciency motors. • Capital allocation to new acquisitions improving our sales of heat recovery solutions. • Development of wider integrated cooling solutions. Improving air quality for health • Strengthening regulatory tailwinds in refurbishment. • Increasing landlord responsibility to provide acceptable standard of properties with prevention of mould and condensation a key focus area. • Increased air tightness of buildings raises the risk of negative health outcomes unless adequate ventilation is ensured. • Providing air quality solutions for existing buildings and applications where historically is has been diicult to retroit products. • Greater focus on ventilation provision for both new build and refurbishment applications across our geographies. • Development and launch of new product oerings including higher levels of eiciency, iltration and automation. • Internationally we take an active role within our trade associations ensuring that regulators continue to consider ventilation when proposing legislative changes. Digital transformation • Many of our businesses operate in traditional markets with electrical wholesale as our primarily route to market. However, our channel to market is changing with increasing numbers of customer using e-business to procure our products. • Our industry is digitising requiring more data for more performance metrics than ever before. • Our products and services are being made available through a wider number of channels providing consumers and end users more lexible ways to procure our goods. • IoT, Building Safety Act and embodied carbon are all areas enabling us to provide more insight and easier access to products, data and performance. • We continuously develop our sales model, utilise our brands and deploy our sales resources to ensure maximise our opportunities to trade as the sales channels evolve and strengthen barriers to entry for others. • Improving the operability of our products across platforms as well as development of new data sets helping us dierentiate our propositions. Macroeconomic factors • Cost of living crisis will increase the adoption of energy saving measures to buildings. • The low of money into upgrading of buildings through the European Green Deal and the Social Housing Decarbonisation Fund programmes will continue to support the adoption of our products to help save energy and improve air quality within the housing stock. • Energy saving measures such as insulation, air tightness improvements and double glazing can require additional ventilation to prevent poor air quality. • The wider adoption of higher value, continuous running and heat recovery products in refurbishment. • Increasing communications around the energy saving potential of heat recovery in retroit. • Ensuring that we internationalise our group products, particularly decentralised heat recovery solutions. Competitive landscape • Global supply chains have put pressure on suppliers of ventilation solutions across our geographies with stock availability becoming a far greater factor in procurement decisions. • Backlog in refurbishment work due to Covid still providing opportunity. Particularly relevant in public RMI. • Having stock available whilst others have not has ensured that we have maximised our opportunities to not only ensure we delivery excellent customer service to our existing customers but also attract new customers and take market share. • Continued demand for ventilation products to service the backlog. • Increase stock levels across our organisation has ensured that we have maintained supply and buered supply chain constraints. Capital investments have also been made to increase capacity to ensure that we continue to maximise the opportunities. • Increased capacity on public housing product line. Links to strategy Organic growth Value-adding acquisitions Operational excellence Y Our Strategy Page 26 Strategic Report Volution Group plc Annual Report 2023 26 Our Strategy A clear strategy for compounding growth We aim to achieve our goals through a combination of three strategic objectives: organic growth, selective acquisitions and operational excellence, and this year have continued to embed our focus on environmental, social and governance issues (ESG) into our culture. What this means Growth driven through a focused sales strategy for each of our market sectors. Focus on opportunities arising from increasingly favourable regulatory environments and growing public awareness of indoor air quality issues. Promote the beneits to health of higher value ventilation solutions to grow our markets and increase margins. Invest in innovative new products and deliver beneits from recently acquired businesses and drive cross-selling initiatives. What this means We will continue to acquire and integrate complementary businesses in the residential market and, where appropriate, in the commercial ventilation market. Our focus will be principally on opportunities in Europe where there are clear synergistic beneits available and on key strategic opportunities outside of Europe. How we do it • Cross selling group products through our international channels. • Using our brands to open up new channels to market within the Geographies in which we operate. • Innovation and new product development to keep growing the depth and width of our range. How we do it • Acquisitions which open new channels or product categories helping to diversify and reduce risk. • Allocating capital for businesses that provide opportunities for product or component synergies. • Structured 200 day plan integration process maximising value creation opportunities. Progress • Organic revenue growth at 4.6% on a constant currency basis. • Launching a range of decentralised Heat Recovery Solutions into the UK along with the role out of our new Econiq range across Europe. Progress • Inorganic growth at 1.5% on a constant currency basis. • We have completed two acquisitions in the year: VMI in April and I-Vent in June. Aligning to our sustainability strategy • Good progress on sales of low-carbon products which now represent 70.1% of our revenue. Aligning to our sustainability strategy • Both VMI and I-Vent supply low carbon ventilation solutions to their respective customers. Y Our low carbon sales initiatives Page 56 Y VMI & I-Vent Pages 50 and 51 Organic growth Value-adding acquisitions Strategic Report Governance Report Financial Statements Additional Information 27 Volution Group plc Annual Report 2023 What this means Our dedication to operational excellence continues. We have been focused on improving the eiciency of all our operations and processes, reducing waste and optimising packaging and logistics. We have been building sustainability and ongoing improvement into the culture of our operations teams, helping to drive our ESG strategy. How we do it • Stay focused on service and delivering our proposition for customers. • Continually drive our facilities and teams to optimiseoperations. Aligning to our sustainability strategy • 76.2% of the plastic processed through our own facilities is supplied from recycled sources. Progress • Adjusted operating margin of 21.3% (+20bps). • Well managed supply chains and excellent customer service levels. • Continued focus on sustainability and waste elimination. Y Progress made on recycled plastic Page 64 Strategy in action The group achieved 70.1% of our revenue from low carbon products. This year we have launched our new Vent-Axia Econiq range of centralised heat recovery units into our sales channels across Europe. The range consists of 3 sizes, all optimised around a new control platform providing the latest in connectivity and sensor controls. Optimised to provide the highest levels of heat recovery and ultra low energy, long-life motors, the range will provide us with the next generation of solutions for housing. I am delighted with the progress we made in 2023. Our strong organic growth, two acquisitions completed in the year and our continuing strong operating profit margin were absolutely on point with our strategy. Ronnie George Chief Executive Oicer Operational excellence Strategic Report Volution Group plc Annual Report 2023 2828 Finance Review Financial highlights • Revenue £328.0m (+6.6%), with organic constant currency (cc) revenue growth of 4.6%. • Adjusted operating proit £69.9m (+7.7%), operating margin 21.3% (2022: 21.1%). • Reported operating proit £57.1m (+12.4%). • Cash conversion 106% (2022: 76%); and debt leverage 0.8x (2022: 0.9x). • Adjusted EPS 25.8p (+7.5%); reported EPS 19.0p (+5.0%). Volution delivered another strong financial performance for the year, with good organic revenue growth, operating margins maintained ahead of our 20% target, robust growth in adjusted EPS and excellent cash generation. Andy O’Brien Chief Financial Oicer Strong margins maintained and excellent cash generation Volution delivered another strong inancial performance for the year, with good organic revenue growth, adjusted operating margins maintained ahead of our 20%target, and robust growth in adjusted EPS (up7.5% to 25.8 pence) despite the adverse impacts of higher interest rates on our inancing costs. I am also pleased to report that the Group delivered an excellent cash generation performance, with a working capital net inlow of £2.8 million (2022:£17.7million outlow) contributing to a cash conversion for the year of 106%, wellabove our stated90% target. Strategic Report Governance Report Financial Statements Additional Information 29 Volution Group plc Annual Report 2023 Good organic growth, particularly in the UK Revenue for the year to 31 July 2023 was £328.0 million, up 6.6% (2022: £307.7million) within which organic growth accounted for 4.6% (cc) and inorganic growth 1.5%, with a beneit of 0.5% from currency translation impacts. Our strongest performing region was the UK (up 8.3%), with residential revenue very strong (up 19.5%) fuelled by high public RMI demand as housing providers and tenants became increasingly aware of thehealth risks associated with mould and condensation. Private RMI also performed well underpinned by both price and volume increases, and demonstrating the less “discretionary” nature of our RMI demand. Our more challenging sectors in the UK were in OEM and Commercial, though the latter did return to growth in the second half of the year. A more mixed picture in Continental Europe saw us report organic revenue growth (cc) of 0.6%. Good performances in ClimaRad and ERI were oset by challenging market conditions in Germany and the Nordics, linked to weak new build residential markets, and in the case of Germany to the withdrawal of some previously available subsidy programs for energy eiciency investments. Inorganic growth in Continental Europe (3.8%) relected one month of ERI revenue in September 2022, and then the impact of our new acquisitions in France and Slovenia towards the end of the second half. Australasia revenue grew 3.6% (cc) after a number of years of very strong growth, a solid performance given relatively subdued market conditions and weaker consumer conidence levels. Reported and adjusted results Reported Adjusted Year ended July Year ended July Movement Year ended July Year ended July Movement Revenue m EBITDA m Operating proit m Net inance costs m Proit before tax m Basic EPS p Dividend per share p Operating cash low m Net debt m ROIC pp pp Notes 1. The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating proit, adjusted proit before tax, adjusted EPS, adjusted operating cash low, net debt and net debt (excluding lease liabilities). The reconciliation of the Group’s reported proit before tax to adjusted proit measures of performance is summarised in the table on page 30 and in detail in note 2 to the consolidated inancial statements. For a deinition of all the adjusted and non-GAAP measures, see the glossary of terms in note 34 to the consolidated inancial statements. 2. Net debt, excluding lease liabilities of £31.2 million (2022: £25.0 million) would be £58.1 million (2022: £60.8 million). Revenue growth FY22 UK Continental Europe Australasia Inorganic FX FY23 £307.7m £328m £11.9m C 3.9% Organic growth £14.2m, (+4.6% at cc) £0.7m C 0.2% £1.6m C 0.5% £4.5m C 1.5% £1.6m C 0.5% Strategic Report Volution Group plc Annual Report 2023 30 Finance Review continued Year ended July Year ended July Reported m Adjustments m Adjusted results m Reported m Adjustments m Adjusted results m Revenue — — Gross proit — — Administration and distribution costs excluding the costs listed below — — Amortisation of intangible assets acquired through business combinations — — Contingent consideration — — Costs of business combinations — — Operating proit Re-measurement of inancial liability — — Re-measurement of future consideration — — Net gain on inancial instruments at FV — — Other net inance costs — — Proit before tax Income tax Proit after tax Notes 1. £0.7 million in respect of a contingent consideration in ERI (2022:reductionof£0.6million). 2. £1.0 million relates to costs associated with business combinations (2022: £0.2 million). 3. £1.9 million re-measurement of future consideration relating to the business combination of ClimaRad (2022: £1.0 million). 4. £1.6 million was loss due to the fair value measurement of inancial instruments (2022: gain of £1.4 million). 5. £3.0 million tax adjustment relates to the tax on the adjusted items above. Adjusted proit before tax of £65.1 million was 6.8% higher than 2022 (£60.9million). Reported proit before tax was £48.8million (2022: £47.2 million) and is after charging: • £11.1 million in respect of amortisation of intangible assets (2022: £14.5 million); • £1.7 million (2022: credit of £0.4 million) of other costs of business combinations, of which: • £1.0 million relates to costs associated with business combinations (2022: £0.2 million); and • £0.7 in respect of contingent consideration in ERI (2022:reduction £0.6 million); • £1.6 million loss due to the fair value measurement of inancialinstruments (2022: gainof £1.4 million); and • £1.9 million re-measurement of future consideration relating toClimaRad (2022: £1.0million). Higher inancing costs Despite leverage (excl. leases) remaining below 1.0x at both the half year and the full year as a result of our strong cash generation, the Group’s adjusted inancing costs nevertheless increased by 44.1% to £4.8 million (2022: £3.4 million) as a consequence of the signiicant increase in bank base rates through the period. Our weighted average interest rates on grossdebt in the year was 4.44% (2022: 2.02%). Adjusted operating margin of21.3% Adjusted operating proit increased by 7.7% in the year to £69.9million (2022: £64.9 million). The increase of £5.0million in adjusted operating proit consisted of £4.3 million from organic growth, £0.5million from acquisitions, and £0.2 million from favourable currencymovements. Inlationary cost pressures on materials diminished through the year. This contrasted with the picture for sta costs, property costs and other categories of overhead costs which continued to experience inlationary pressures. Coupled with good factory performance, eicient customer service and continued judicious selling price management, this enabled us to deliver a 60bps improvement in gross margins to 48.4% (2022: 47.8%) and a 20bps improvement in adjusted operating marginto 21.3% (2022: 21.1%). Adjusted operating proit FY22 Organic Inorganic FX FY23 £64.9m £69.9m £4.3m £0.5m £0.2m Strategic Report Governance Report Financial Statements Additional Information 31 Volution Group plc Annual Report 2023 Currency impacts Aside from Sterling, the Group’s key trading currencies for our non-UK businesses are the Euro, representing approximately 25% of Group revenues, Swedish Krona (approximately 9%), New Zealand Dollar (approximately 7%) and Australian Dollar (approximately 7%). We do not hedge the translational exchange risk arising from the conversion of the results of overseas subsidiaries, although we do denominate some of our borrowings in our non-sterling trading currencies, which osets some of the translation risk relating to net assets. The average rates of sterling versus our principal non-sterling trading currencies are shown in the table below. Average rate 2023 Average rate 2022 Movement Euro Swedish Krona New Zealand Dollar Australian Dollar The Group had Euro denominated borrowings as at 31 July 2023 of £79.4million (2022: £71.9 million) and Swedish Krona denominated borrowings of £nil million (2022: £2.4 million). The Sterling value of these foreign currency denominated loans, net of cash, increased by £1.3 million as aresult of exchange rate movements (2022: decreased by £0.9million). Transactional foreign exchange exposures arise principally in the form of US Dollar denominated purchases from our suppliers in China. We aim to purchase a substantial proportion of our expected requirements approximately twelve months forward, and as such, we have forward currency contracts in place for approximately 85% of our forecast average forward requirements for the 2024 inancial year (approximately $19million). Earnings per share Our adjusted basic earnings per share for the year was 25.8pence (2022: 24.0 pence) and our reported basic earnings per share for the year was 19.0 pence (2022:18.1pence). High returns on invested capital (ROIC) Strong proit and cash generation is a key focus of Volution’s inancial model, and we look to allocate our capital to investments (both organic and inorganic) that further underpin the future growth of the business and create value for our shareholders. Over recent years we have reported our return on acquisition investment (ROAI) KPI, see page 37, measuring our success at generating returns from our inorganic growth strategy. We are pleased to introduce a new inancial KPI in this year’s annual report, Return on Invested Capital (ROIC), measuring the returns for the Group as a whole. We believe ROIC is not only helpful for shareholders to monitor the returns generated by Volution on an ongoing basis, but another metric which helps demonstrate the underlying quality of the business versus our global peers and its ability togenerate shareholder value. Whilst we will continue to monitor and report the performance of individual acquisitions as they reach the three-year measurement point, we believe that the ROIC will provide a more comprehensive overall measure and so this will be adopted in our KPIs. The Group’s ROIC (pre-tax) for the inancial year was 27.4%, measured as adjusted operating proit for the year divided by average net assets adding back net debt, acquisition related liabilities, and historic goodwill and acquisition related amortisation charges (net of the associated deferred tax). The measure also excludes the goodwill and intangible assets arising from the original transaction that created the Group when it was bought out via a leveraged buy-out transaction by private equity house Towerbrook Capital Partners in 2012. Our ROIC of 27.4% for inancial year 2023 is slightly lower than the prior year’s 28.8%, as a result of the timing of acquisitions. Our main acquisition in the prior year (ERI) generated 11 months of operating proit in 2022 relative to two-thirds of the associated invested capital being included in the net assets as a result of our three-point average methodology. By contrast our two acquisitions in this inancial year were both towards the end of the inancial year and so had a very modest contribution to our operating proit. The timing impact of the acquisitions was partly oset by a beneit from both organic growth and operating margin expansion. Importantly, our ROIC of 27.4% is signiicantly ahead of the Group’s estimated pre-tax Weighted Average Cost of Capital of 10%. Volution continues to have exciting plans for growth, both through organic and inorganic investment. Although, at the time of entry to the Group, acquisitions will be dilutive to ROIC, our track record of improving the returns post acquisition, coupled with continued organic growth, mean we are conident of maintaining Group ROIC above 20% over the medium term whilecontinuing to invest to grow the business. Taxation Our reported eective tax rate for the year was 23.4% (2022: 24.4%), the decrease of 1.0pp was driven by favourable business mix eect, increase in Patent Box relief and lower non-deductible items, osetting the impact of the increase in UK Corporation Tax rate from 19% to 25%. The reduction in eective adjusted tax rate to 21.9% (2022: 22.4%) is lower than the reduction in reported eective tax rates primarily due to non-taxable contingent consideration. Our reported eective tax rate for the year was 23.2% (2022: 24.4%). We expect our medium-term underlying eective tax rate to be in the range of 22% to 25% of the Group’s adjusted proit before tax, depending on the business mix and the proile of acquisitions. Capital allocation priorities Volution aims to deliver strong inancial returns and cash generation. Our capital allocation priorities, which remain unchanged, are: • Investment for organic growth, including through capital expenditure, product development and innovation, and ongoing development of our people; • Value-adding acquisitions; and • Regular returns to shareholders throughdividends. Strategic Report Volution Group plc Annual Report 2023 32 Finance Review continued Strong cash generation and balance sheet Volution’s asset light business model and operations are strongly cash generative. Underpinned by a working capital inlow of £2.8 million in the year (2022: outlow of £17.7 million), the Group delivered a strong adjusted operating cash low of £75.7 million (2022: £50.4 million). Group cash conversion, deined as adjusted operating cash low as a percentage of adjusted earnings before interest, tax and amortisation (see the glossary of terms in note 25 to the consolidated inancial statements) was 106% (2022: 76%). A summary of the year’s cash low is shown in the tables below, with the principal outlows being in relation to acquisitions (£30.7million including acquisitions and associated fees), dividends (£14.8 million) and tax paid (£14.0 million). Capital expenditure for the year was £7.8 million (2022:£6.9million), focused on new product development spend of £2.3 million andoperational and capacity enhancements totalling £1.2million in North Macedonia (ERI), Bosnia (ClimaRad) and the UK. There was also further investment in IT and our vehicle leets which weare progressively transitioning tohybrid vehicles. Net debt at 31 July 2023 was £89.3 million (2022: £85.8 million), and is set out in the table below. With low leverage (excluding inance leases) of 0.8x at 31July2023 (2022: 0.9x), our strong balance sheet and reliable high levels of cash conversion give ussigniicant capability for future growth investment. Value-adding acquisitions Acquisition spend in the year net of cash acquired was £29.7million (2022: £24.4 million). We completed two acquisitions, Ventilairsec (VMI) in France, and I-Vent based in Slovenia and Croatia. We agreed a further acquisition, DVS Proven Systems (NewZealand), which was completed shortly after the year end. VMI, based in Nantes, France, was acquired for an initial consideration of £7.9 million (€9.0 million), net of cash acquired. VMI designs and manufactures a range of residential ventilation systems focused on a low carbon positive input ventilation approach. The acquisition provides Volution with direct access to the French market, one of the largest ventilation markets in Europe. The VMIacquisition included an earn-out payment of up to €5million Euros, which will be calculated on the basis of the EBITDA for theyear ended 31 December 2023. In June 2023 we completed the acquisition of I-Vent for aninitialconsideration of £21.7million (€25.2 million), net of cash acquired, with further contingent consideration of up to €15million based on stretching growth targets for the inancial results for the three years up to and including 31December 2025. I-Vent, based in Slovenia and Croatia, designs, manufactures andsupplies residential ventilation systems, primarily focused ondecentralised heatrecovery. Movements in net debt position for the year ended 31 July m m Opening net debt August Movements from normal business operations: Adjusted EBITDA Movement in working capital Share-based payments Capital expenditure Adjusted operating cash low: – Interest paid net of interest received – Income tax paid – Cash low relating to business combination costs – Dividend paid – Purchase of own shares – FX on foreign currency loans/cash – Issue costs of new borrowings – IFRS payment of lease liabilities – IFRS decrease/increase in leaseliabilities Movements from business combinations: – Business combination of subsidiaries, net of cash acquired – Contingent consideration relating to Ventair from operating activities — – Contingent consideration relating to Ventair from investing activities — – Business combination of subsidiaries, debt repaid Closing net debt July A reconciliation of the Group’s reported proit before tax to adjusted proit measures of performance are shown in detail in note 2 to the consolidated inancial statements. Strategic Report Governance Report Financial Statements Additional Information 33 Volution Group plc Annual Report 2023 Reconciliation of Bank debt to Net debt m m Bank debt Cash Net debt excluding lease liabilities Lease liabilities Net debt Reconciliation of adjusted operating cash low m m Net cash low generated from operating activities Net capital expenditure UK and overseas tax paid Contingent consideration relating to the acquisition of Ventair — Cash low relating to business combination costs Adjusted operating cash low Funding facilities and liquidity In December 2022, the Group exercised the option to extend its £150 million multicurrency “Sustainability Linked Revolving Credit Facility”, together with an additional accordion of up to £30million, by a period of twelve months. The maturity date of the facility is now 2December 2025. As at 31 July 2023, the Group had £70.6million of undrawn, committed bank facilities (2022: £75.7 million) and £21.3million of cash and cash equivalents on the consolidated statement of inancial position (2022: £13.5 million). Returns to shareholders Adjusted earnings per share increased by 7.5% to 25.8 pence (2022: 24.0 pence). The Board is recommending a inal dividend of 5.5 pence which, together with an interim dividend paid of 2.5pence per share, gives a total dividend per share of 8.0 pence (2022: 7.3 pence), up 9.6% in total. The inal dividend is subject to approval by shareholders at the AGM on 13 December 2023 and, if approved, will be paid on 19December 2023. Employee Beneit Trust During the year £1.8 million of non-recourse loans (2022: £1.9million) were made to the Volution Employee Beneit Trust for the purpose of purchasing shares in Volution Group plc to meet the Company’s obligations under its share incentive plans. The Volution Employee Beneit Trust acquired 550,000 shares at an average price of £3.33 per share in the period (2022: £4.10) and 920,250 shares (2022: 402,407 shares) were released by the trustees with a value of £3,018,420 (2022: £1,114,667). The Volution Employee Beneit Trust has been consolidated into our results and the shares purchased have been treated as treasury shares deducted from shareholders’ funds. Andy O’Brien Chief Financial Oicer 4 October 2023 Strategic Report Volution Group plc Annual Report 2023 34 Key Performance Indicators Strong and sustainable performance We have identiied a number of key performance indicators (KPIs) that monitor performance against our strategy and priorities, and enable investors and other stakeholders to measure our progress. Financial targets Revenue growth +10% p.a. Adjusted operating margin (% of revenue) >20% Adjusted operating cash low conversion >90% Organic revenue growth +3 to 5% p.a. Adjusted earnings per share +10% p.a. Return on Invested Capital (ROIC) mid-20s % Note 1. The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating proit, adjusted proit before tax, adjusted EPS, adjusted operating cash low, net debt and net debt (excluding lease liabilities. The reconciliation of the Group’s reported proit before tax to adjusted proit measures of performance is summarised in the table on page 30 and in detail in note 2 to the consolidated inancial statements. For a deinition of all the adjusted and non-GAAP measures, see the glossary of terms in note 34 to the consolidated inancial statements. Strategic Report Governance Report Financial Statements Additional Information 35 Volution Group plc Annual Report 2023 Revenue growth £m(% of revenue) +9.8% Five-yearcompound Organic revenue growth % +4.9% Five-yearaverage Adjusted operating margin 1 %ofrevenue 19.3% Five-yearaverage Strategic pillars measured by this KPI Strategic pillars measured by this KPI Strategic pillars measured by this KPI This KPI tracks our performance against our strategic aim to grow the business. This KPI tracks our revenue performance from existing businesses excluding the impact of acquisitions. We expect to deliver growth ahead of GDP, leveraging our strong brand positions and market leading product portfolios, supported by regulatory trends and increasing customer awareness of air quality andtheimportance of ventilation. Comments • Organic revenue growth is the constant currency % growth in the year. • Full-year organic growth of 5.1% (4.6% at cc). • Full-year organic growth delivered in the UK (8.3% at cc), Continental Europe (0.6% at cc) and Australasia (3.6% at cc). This adjusted measure tracks the underlying inancial performance and quality of the Group’s earnings. We aim to achieve and sustain attractive operating margins by leveraging the beneits of product innovation, and through economies of scale in sourcing and operational eiciencies in our production and indirect costs. Comments • Full-year adjusted operating margin up 0.2pp to 21.3% (2022: 21.1%). Link to Directors’ remuneration Financial performance 2022 307.7 2023 328.0 2022 21.1 2023 21.3 2021 272.6 2021 20.9 2020 216.6 2020 15.6-10.7 2020 2019 235.7 2019 17.8 2019 +3.5 2021 2022 +6.6 2023 +4.6 +20.5 A B C Strategy key Link to Directors’ remuneration key Organic growth Value-adding acquisitions Operational excellence Long Term Incentive Plan Annual Bonus Plan LTIP ABP LTIP ABP Strategic Report Volution Group plc Annual Report 2023 36 Key Performance Indicators continued Reported basic earnings pershare p 23.2% Five-yearcompound Adjusted basic earnings pershare 1 p 12.2% Five-yearcompound Working capital as a % LTM revenue 14.7% Five-yearaverage Strategic pillars measured by this KPI Strategic pillars measured by this KPI Strategic pillars measured by this KPI This KPI provides a measure ofshareholder value. Comments • Reported basic EPS grew 5.0%. This KPI tracks our working capital eiciency; optimisation of our working capital, especially inventories across the Group, is an important stream of our operational excellence focus. Comments • Working capital inlow of £2.8 million in the year primarily due to improvement in receivables in the U.K. • Inventory (excluding new acquisitions) remained broadly lat in the year. • Receivables improved, notably in the UK. Link to Directors’ remuneration This KPI provides a measure ofshareholder value. Comments • Adjusted basic EPS grew 7.5%. Link to Directors’ remuneration Note 1. The Group uses some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating proit, adjusted proit before tax, adjusted EPS, adjusted operating cash low, net debt and net debt (excluding lease liabilities). The reconciliation of the Group’s reported proit before tax to adjusted proit measures of performance is summarised in the table on page 30 and in detail in note 2 to the consolidated inancial statements. For a deinition of all the adjusted and non-GAAP measures, see the glossary of terms in note 34 to the consolidated inancialstatements. 2022 18.1 2023 19.0 2021 10.5 2020 4.9 2019 9.2 2022 24.0 2023 25.8 2021 21.0 2020 12.1 2019 16.0 2022 18.1 2023 16.1 2021 12.7 2020 12.8 2019 13.5 Strategy key Link to Directors’ remuneration key Organic growth Value-adding acquisitions Operational excellence Long Term Incentive Plan Annual Bonus Plan LTIP ABP Financial performance continued D E F LTIP ABP LTIP ABP Strategic Report Governance Report Financial Statements Additional Information 37 Volution Group plc Annual Report 2023 Adjusted operating cash lowconversion 1 % 98% Five-yearaverage Return on invested capital (ROIC) % 27.4% Group Return on acquisition investment(ROAI) % 24.5% Group Strategic pillars measured by this KPI Strategic pillars measured by this KPI Strategic pillars measured by this KPI This KPI tracks the eiciency of cash generation at the operational level (important for our acquisition strategy), after movements in working capital and capital expenditure. Comments • Working capital decrease of £2.8 million in the year. • Capital expenditure of £7.8 million (2022: £6.9 million). 2022 28.8 2023 27.4 2022 762022 24.3 2023 1062023 24.5 2021 972021 25.2 2020 1242020 20.4 2019 85 G H I We look to allocate our capital to investments (both organic and inorganic) that further underpin the future growth of the business and value creation for our shareholders. Our new Group Return on Invested Capital (ROIC) KPI measures the returns for the Group as a whole and helps demonstrate the underlying quality of the business and itsability to generate shareholder value. It is measured as adjusted operating proit for the year divided by average net assets excluding net debt, acquisition related liabilities, and historic goodwill and acquisition related amortisation charges. The measure also excludes the goodwill and intangible assets arising from the original transaction that created the Group as a result of the leveraged buy-out transaction by private equity house Towerbrook Capital Partners in 2012.. Comments • 2023 ROIC of 27.4% is signiicantly ahead of the Group’s estimated Weighted Average Cost of Capital. • Slightly lower than prior year due to the timing of our two acquisitions, both towards the end of the year and so with a very modest contribution to in-year operating proit. We aim to enhance the value of acquired businesses over time, via a combination of expanding the product portfolio, value engineering and access to the Group’s procurement capabilities. We believe that three years is an appropriate timeframe to deploy and bring enhancements to bear, although we do expect to continue enhancing value and improving performance beyond that point. The KPI measures adjusted operating proit of all businesses acquired by the Group since its formation in 2012 and which the Group has held for more than three years, divided by the capital invested to acquire them. Comments • Returns on our acquisitions remain very strong. Strategic Report Volution Group plc Annual Report 2023 38 Opportunity for growth Legislation updates Regulatory tailwinds Volution products support legislative transition as wedecarbonise Buildings are responsible for circa 36% of total CO 2 emissions and 40% of energy demand. If we are to hit global net zero targets, we must deal with the existing building stock, as well as new build. With 90% of the buildings that exist today still standing by 2050, and a refurbishment rate of just 1% per year, new initiatives are required. To deliver net zero ready buildings we must make them air-tight, insulate them well and decarbonise the heating source. These actions will impact the environment within the buildings and ventilation will be even more important for both health and comfort. Doing that without losing the heat and therefore the energy will require energy eicient ventilation solutions including energy recovery. If we are successful and reduce the energy demand in our buildings by 80% by 2050, we will save more than 30% of our total energy needs. However, to achieve it we need to triple the rate of renovation to 3% a year. As a structural growth driver, in March 2023, the European Parliament passed a comprehensive revision of the 2010 Energy Performance of Buildings Directive (EPBD IV) to cover existing buildings for the irst time. These regulations will stimulate the renovation market in the EU, as they will trigger a wave of renovations and create a greater demand for energy- eicient upgrades. The scale of the challenge With circa 240 million homes and over 600 million people living in them in the UK, Europe and Australasia alone, we have a lot to do. What does this mean for Volution? Volution has seen strong demand for low-carbon ventilation solutions in social housing. In addition, we have launched a range of heat recovery products into the social housing sector as they take steps to decarbonise the stock and although a new initiative for 2023, sales have been growing well. UK New Build In the UK Approved Building Regulation Documents “Part F: Means of Ventilation”, “Part L: Conservation of Fuel and power” and “Part O: Overheating” are the key documents impacting the proile of sales for Volution. Part L, F and O are linked, and current versions released in June 2021 deliver buildings with 30% lower emissions than the previous versions. In 2023, a new consultation is due, eective from 2025, which will deliver buildings that are net zero ready. In other words, as we decarbonise our electricity, the buildings will become net zero and no further upgrade work will be required to them in the future. What does this mean for Volution? We believe that within a notional dwelling the regulation will support the use on an air-source heat pump to provide space heating and hot water, and MVHR to reduce wasted heat through ventilation and high levels of air tightness and insulation to create a highly eicient, net zero ready dwelling. It is important that the MVHR unit is also likely to be equipped with summer bypass to help mitigate overheating in the warmer months. Refurbishment In both social and private rental properties in the UK the Government have set a long-term target for them to achieve and energy performance certiicate (EPC) level C or above from 2030. This journey has already started and since 2020, minimum energy eiciency standards (MEES) have made it mandatory for a rental property to be EPC level E or better. To assist in the transition in social housing, the Social Housing Decarbonisation fund has already had successful bids and oered £957 million to 176 projects with an additional £1.1 billion in matched funding. In addition, “Decent Homes Standards” are being established, setting minimum requirements in all rental properties. Theserequire properties to be free of hazards as deined within the Housing Health and Safety Rating System. Ventilation is considered a hazard if notproperly provided. Regulations continue to support the adoption of energy eicient ventilation solutions. The importance of ventilation for health grows as we tighten our building envelopes, but the impact of the heat loss associated also increases. To reduce the heat loss, and avoid carbon emissions, the adoption of heat recovery ventilation devices grows every year. 33.8% of our revenue is from heatrecovery Strategic Report Governance Report Financial Statements Additional Information 39 Volution Group plc Annual Report 2023 Nordics New Build All Nordic countries have increased the regulations in respect of more energy eicient ventilation and in almost all situations, some type of energy recovery system will need to be in place. Indeed, heat recovery ventilation units are already the most popular solution, but heat pumps are also growing and is sometimes used in combination with heat recovery units to further boost the energy eiciency. Due to the colder climate in the Nordics, most of the regulatory focus is on heating and less on cooling however we see an increasing demand for cooling applications. New regulations are under development, and we see further regulations to require demand-controlled ventilation and heating applications and also post Covid measures where the ventilation need for housing has increased which will mean ventilation units with higher air volumes will be required. Growth of energy declaration requirements including material and environmental impact from use is very fast. Sweden is mainly following the national building regulation Boverkets Byggregler 2011:6, later amended in BBR 29/BFS2020:4. A new version is expected from 2025 and the current draft is proposing increased demand forventilation, especially in smaller residential properties. New build in Finland is mainly governed by the Maankäyttö – ja rakennuslaki reglation which is stipulating an E-value in Regulation 1010/2017 for energy eiciency measured as maximum SFP value. Denmark is controlled via the building regulation BR-18 and requires MVHR applications for all new residential and commercial properties. Additionally, and where appropriate given the use of the building, the standards for ventilation (DS-447), ire (DS-428) and insulation (DS452) will also apply. Norwegian regulation is called Byggteknisk forskrift (TEK17) and is setting the ventilation requirement for new buildings as well as for larger renovations. What does this mean for Volution? The market will continue to grow for heat recovery units and Volution is well prepared for this with both smaller heat recovery applications as well as larger. Our Voltair business in Sweden recently completed the Eurovent® certiication for one of its ranges and can now more widely target the growing market. Work is already in process to be well prepared for future regulatory changes and the impact on products and declarations and we see the changes as something positive, as it will require more high quality products and veriied performance data. The duct work manufactured in Denmark has over the last couple of years been certiied according to the current ire regulation and is therefore approved for use in the market according to the higheststandards. Refurbishment Ventilation for refurbishment markets is less regulated by governments but more driven by the ambition to reduce energy consumption and improve health/quality of living. More regulations are coming in the refurbishment space, especially for residential apartment buildings where historically there are many supply air systems in place and it will be too costly to install supply air to each apartment, hence the focus on heat pump solutions or ventilation systems with coil-coil energy recovery to recover the heat to the water heating circuit. Small single-family houses use a combination of various technologies from the mid-1980s when the heating recovery era started. Pre 1980s there was limited ventilation in the typical houses with focus on kitchen and bathroom extract fans. Swedish refurbishment is governed by the same regulations as new construction for larger renovations that require a building permit.. Smaller changes where the ventilation system is not altered can be made freely outside the scope of the renovation. The installation of MVHR in extract air buildings will require such permit and hence the development of the market is slower than it should due to the high administrative burden of improving the ventilation system. Renovation in Finland is similar to Sweden, but focuses more on SFP limits which are higher for renovation than for new build. Higher SFP means lower eiciency requirement, but is still challenging to reach without the appropriate products in place. Norway and Denmark also follow similar renovation standards as new build which will apply for larger renovation projects, all with the purpose of improving energy eiciency and also to set a ventilation requirement at a minimum level. The legacy of old buildings prohibits full requirements on renovation also in these countries, but it is gradually increasing. New regulations that also include the Environmental Product Declaration (EPD) are gradually being applied for both renovation and new built. What does this mean for Volution? Volution has for many years seen a strong demand for low-carbon ventilation solutions for family houses and with the widened range for Volution there has been plenty of focus to convert typical extract ventilations solutions with decentralized ventilation applications that do not require duct work to be installed. Markets will continue to provide opportunity to focus on heat recovery for refurbishment to reduce the energy need of the buildings. Volution has a wide range of products and will continue to promote our widersolutions. Strategic Report Volution Group plc Annual Report 2023 40 Refurbishment As far as refurbishment is concerned, the regulations are more lexible, but in view of the non-compliant installations, controls are strengthened, and government subsidies are more diicult to obtain. A new and more qualitative approach initiated by the “Association Française de la Ventilation” will mean that a regulatory document will be associated with any renovation of ventilation systems. A “global” renovation incorporating the housing ventilation will soon be required to beneit from government subsidies. In addition, qualiication of installation companies will also be necessary. What does this mean for Volution: With VMI well positioned in the channel to take new group products to market, along with local expertise Volution are well positioned. VMI also have a range of products which link to electric and water heating or cooling solutions. With the addition of such a broad and deep product oer from Volution, we are well positioned as systems integrate over time. France New build In France, the construction of new housing is governed by the RE 2020 (Environmental Regulation 2020), which came into force on 1 January 2023. It is characterized by increased targets for reducing building carbon emissions (which represents 40% of GHG emissions to date). This implies more consistent levels of insulation of buildings, but also a limit to the energy consumption of the various systems equipping the home and especially the heating. An important consideration of home design in France, like elsewhere, is the potential for buildings to overheat due to high airtightness and insulation. MVHR with summer bypass has a particular relevance in helping energy eiciency, and at the same time, comfort during the summer months. What does this mean for Volution: A heat pump is now the preferred heating solution to meet regulatory constraints, but MVHR makes it possible to reduce consumption even more thanks to energy recovery. Also with insulation making buildings more and more airtight, this increases the need for air renewal and ventilation to maintain the comfort and well-being of occupants. France has some of the lowest carbon emissions within its energy sector and one of the highest performers globally in renewable energy production. However, as regulations continue to make buildings more airtight, the requirement for energy eicient ventilation remains. Our acquisition of VMI provides us with a company already selling low carbon ventilation solutions and specialising in positive input ventilation. The acquisition not only enhances our product portfolio but provides us with access to new sales channels helping us to cross sell inter- company products. 100% of VMI sales are low carbon Legislation updates continued Opportunity for growth continued Strategic Report Governance Report Financial Statements Additional Information 41 Volution Group plc Annual Report 2023 Netherlands New Build In the Netherlands, strict energy requirements are in place for new construction projects through the NTA 8800, also known as the BENG or nZEB standard. Ventilation systems with heat recovery and CO 2 sensors have been identiied as the most eective in terms of energy eiciency and indoor air quality. Furthermore, all newly constructed buildings are required to include heat pumps, which result in lower supply and return temperatures in the central heating system. This demands the use of heat recovery systems for comfortable ventilation, allowing for the downsizing of heat delivery systems due to reduced heat demand. In the Dutch market we have responded to this demand by incorporating low-temperature convectors together with decentralized ventilation systems, achieving two beneits simultaneously. What does this mean for Volution? We are well-positioned to beneit from these regulatory frameworks. Our expertise in sensor technology, heat recovery, and innovative ventilation systems allows us to meet and exceed the regulatory demands. We can strengthen our position in the market and capitalize on the growing demand for energy-eicient and comfortable buildings. Through ongoing innovation of our technical capabilities, we can further improve our oerings to meet the needs of our customers. By staying at the forefront of technological advancements in sensor technology, heat recovery, and ventilation systems, we can provide sustainable and eicient solutions that align with the regulatory frameworks. The BENG standard means that the adoption of heat recovery ventilation is already well advanced in the Netherlands. Ventilair sell through the wholesaler channel providing a route to installers in both refurbishment and new build. ClimaRad, as the market leader of decentralised heat recovery units have a direct supply model specialising in large scale deep refurbishment projects and new builds of multistorey applications. Together, they provide us with a strong, highly dierentiated proposition in the market. 100% ClimaRad offer a 100% low carbon product portfolio Refurbishment In the context of social housing, the ability to charge higher rents for energy-eicient homes serves as a signiicant incentive. Additionally, there is a strong focus on reducing energy costs for lower-income households. These factors, coupled with the mandate that, starting from 2030 onwards, homes with an E label or lower cannot be rented out, have generated a substantial need for sustainable renovations. To further accelerate the transition, a key requirement is the enforced installation of hybrid heat pumps during replacements of the heating system, eective from 2026 in the Netherlands. As a result, incorporating heat recovery systems and sensor technology becomes vital in achieving the sustainability goals outlined for renovation projects. The Dutch Klimaatakkoord (Climate Agreement) sets ambitious targets, calling for a minimum of 1.5 million homes and buildings to undergo sustainable upgrades by 2030. By this time, the aim is to halve the greenhouse gas emissions originating from buildings. Looking ahead to 2050, the objective is to fully transition all buildings to renewable energy sources. What does this mean for Volution? As an HVAC company, we recognise the big potential within the renovation market. The increasing demand for sustainable solutions, driven by the regulatory frameworks, aligns with our expertise and capabilities. By oering innovative technologies, such as heat recovery systems and advanced sensor integration, we can actively contribute to achieving the targets. Our extensive experience in retroitting and upgrading existing buildings positions us as a trusted partner for clients seeking to comply with the growing regulatory landscape. Especially with our decentralised products through ClimaRad which are easy to install in these buildings. Strategic Report Volution Group plc Annual Report 2023 42 Legislation updates continued Germany New Build In Germany, the Building Energy Act (GEG) has been in force since 2021. The most important points for new construction are: 1. Energy saving: The GEG contains requirements for the maximum primary energy demand and the maximum transmission heat loss of buildings. These requirements are intended to ensure that new buildings are energy eicient and consume little energy. They are based on the primary energy demand of a reference building; new buildings may only have 55% of the primary energy demand of the reference building. 2. Renewable energy: The law prescribes the use of renewable energy for the heat demand of new buildings. This can be done by installing solar systems, heat pumps or other renewable systems. 3. Energy performance certiicate: Allnew buildings must have an energy performance certiicate, which provides information on the energy eiciency of the building and helps potential buyers or tenants to decide. 4. Controls and inspections: The GEG provides that compliance with energy eiciency requirements in buildings is monitored by the competent authorities. This includes, for example, the building supervisory authorities of the federal states. There are extensive support programmes of the “Kreditanstalt für Wiederaubau” (KfW) in Germany. Here, low-interest loans including a repayment subsidy are granted. The KfW programme “Climate- friendly New Construction – Residential Buildings” promotes new construction and the initial purchase of energy-eicient and sustainable residential buildings and condominiums in Germany. The requirements for a “Climate-friendly residential building” are: A building must achieve eiciency house level 40, have low CO 2 emissions in its life cycle and must not be heated with oil, gas or biomass. Special quality seals (“Quality Seal Sustainable Building Plus” and “Quality Seal Sustainable Building Premium”) are also available, which are conirmed by a sustainability certiicate and with which higher funding amounts can be achieved. The funding covers construction and purchase, including ancillary costs, as well as planning and construction supervision by energy eiciency experts and sustainability consultants. What does this mean for Volution? On the one hand, it is prescribed by law that newly constructed buildings should consume particularly little energy; on the other hand, such buildings receive particularly extensive support in the form of subsidies. To achieve the required eiciency house standard, it is necessary to construct buildings particularly airtight and to ensure that the heat generated is retained during the necessary air exchange. The installation of a ventilation system with heat recovery is the most sensible solution for this, but is not required by law. The allocation of subsidies is a strong inluencing factor in the building sector. If these cease to exist in the short term, as was the case in 2022, for example, projects will be postponed or eicient technology such as mechanical ventilation will be cancelled, as the legalstandards can also be achieved without thistechnology. Other factors for the decline and uncertainties in the new construction sector are currently: rising interest rates, increases in construction and material costs as well as delivery diiculties or problems within the supply chains. Refurbishment The Building Energy Act (Gebäudeenergiegesetz, GEG) in Germany contains provisions on the energy refurbishment of existing buildings. These provisions aim to reduce the energy consumption and CO 2 emissions of existing buildings and to improve energyeiciency. The most important provisions for refurbishment are: 1. Energy requirements: The GEG sets out certain energy requirements for the refurbishment of buildings. Energy standards such as primary energy demand and transmission heat loss are considered. Dierent requirements apply depending on the type of refurbishment. 2. Energy advice: Before major refurbishment measures, energy advice by a qualiied expert is obligatory. The energy advice is intended to inform owners about sensible refurbishment measures and help them achieve optimal energyeiciency. 3. Cost-beneit analysis: In case of extensive refurbishment measures, owners must carry out a cost-beneit analysis. This should ensure that the refurbishment is economically justiiable and worthwhile for the owners in the long term. 4. Subsidy programmes: The GEG refers to various subsidy programmes that oer inancial support for energy-related renovation measures. These subsidies can be provided by government agencies at federal and state level. 5. Mandatory refurbishment: In certain cases, especially in the case of major renovations or the sale of properties, certain minimum energy standards may have to be achieved. 6. Exceptions: There are exceptions and special schemes for listed buildings and other special cases where full energy refurbishment may not be feasible. Opportunity for growth continued Strategic Report Governance Report Financial Statements Additional Information 43 Volution Group plc Annual Report 2023 Although the Regulations in Germany do not mandate the installation of heat recovery, the technology has a signiicant penetration and has continued to grow. A key driver for adoption in Germany has been the availability of inancial support subsidies encouraging the adoption. Although we have some short term issues with new build volumes in Germany, the largest opportunity for growth in the medium term will be in refurbishment and this year, our Germany company, Inventer, has been actively running communication campaigns to explain the opportunities for deep refurbishment and availability of inancial support to customers. 100% of Inventer sales are low carbon There are also subsidy programmes for refurbishment, on the one hand as a pure grant from the Federal Oice of Economics and Export Control BAFA, and on the other hand as a low-interest loan with a repayment subsidy from the “Kreditanstalt für Wiederaubau” (KfW). This oers an investment subsidy for individual measures on the building envelope, for heating and other building services. Costs for energy planning and construction supervision are alsoconsidered. The KfW supports the energy-eicient refurbishment of a house, provided the measures result in it achieving at least the KfW Eiciency House Standard 85. Particularly high subsidies apply to the so-called EE standard (energy eiciency standard), for which the use of ventilation with heat recovery is mandatory. The KfW eiciency house levels are based on the GEG reference building (KfW eiciency house 100). The lower the eiciency house level (e.g. 85, 55 or 40), the more environmentally /friendly the building becomes and thus receives a higher funding level. An amendment to the GEG has been debated for several months. In particular, it deals with the obligation to replace fossil heating systems. Unfortunately, the vote in parliament was not held before the summer break. What does this mean for Volution? There is a great need for renovation in Germany: several million residential buildings can currently be classiied in energy eiciency class H or worse. In addition, fossil fuels such as coal, oil and natural gas are still the main sources of energy production. The energy-eicient refurbishment of residential buildings can make a decisive contribution to achieving the climate targets of the German government. Here, too, the use of mechanical ventilation with heat recovery makes a decisive contribution to the conservation of the heat energy generated and thus to the energy eiciency of a residential building. Targeted subsidies are intended to ensure that ventilation with heat recovery is used as standard in the energy-eicient refurbishment of buildings. It is important to communicate the possible subsidies comprehensively and sustainably to the respective target groups. Strategic Report Volution Group plc Annual Report 2023 44 Legislation updates continued Belgium New build In Belgium, the valid EPB regulations require residential and non-residential buildings to be energy eicient (builders and renovators). EPB (since 1/2006) stands for Energy Performance and Indoor Climate and refers to the energy consumption of a building: insulation, air tightness, ventilation, heating, solar panels but also to the quality of the indoor climate. The primary objective of the legislation is to improve the energy performance of buildings in Belgium. All homes for which a building permission (new construction and renovation) is submitted must comply. New buildings and major energy renovations that achieve a low E-level enjoy a reduction in property tax from the government. The E-level is a measure of the overall energy performance of a building. The lower the E-level, the more energy eicient the building, and is the result of a calculation and comparison with a reference building. A reporter calculates the E-level, using “EPB software. The E-level depends on factors such as thermal insulation, airtightness, compactness, orientation, sunlight, conscious ventilation losses, ixed installations including heating, hot water, ventilation, cooling and lighting. The imposed e-level had a tightening from E100 to the current E30 (equivalent of energy consumption 30kWh/m²/annum). After 2024, a further reduction in energy consumption of new buildings will require low-temperature heating solutions. From 2025, gas connection will then be generally banned in new buildings. The challenge for ventilation technology is to maintain a minimum level of indoor air quality while reducing ventilation losses and ventilation energy. The focus for Belgium is on systems with heat recovery, the quality of the installation with its favourable eect on the power consumption, and limiting the air volumes by demand control based on CO 2 and humidity, and reducing ventilation lows by dividing into rooms and zones. Ventilation is also valued at the risk of overheating due to climate warming and compact building. Ventilation passively helps maintaining a comfortable indoor temperature and helps reduce installed cooling capacity. What does this mean for Volution? In Belgium, we believe there will be a market for demand-driven systems with precise control with sensors and zoning, and integrated systems with ventilation and heat pumps for domestic hot water and heating, with maximum use of the heat recovered from the home and use of the energy from the outside air as a source of heat and cooling. In combination with renewable energy, the opportunity is to make our ventilation systems work more eiciently to keep the heat out during the day. Refurbishment As of 2023, new owners of residential buildings in Flanders will be required, within 5 years of purchase, to thoroughly renovate their house energetically to a minimum EPC label D. The EPC shows the extent to which your home is energy- eicient and ranges from label A+ (very energy-eicient) to F (energy-guzzling). Those who already own a house will be supported inancially to improve their building score. As of 2025, every residential building must have a speciic EPC label. Ventilation remains an advice and not an obligation, but from now on ventilation will be valued to improve the EPC score of a home. What does this mean for Volution? Within Volution Group there are technological and decentralized products and knowledge that can be used for development of renovation market, social housing, and smaller homes. We continue to roll out group products increasing the width and depth of the product range available in Belgium. Belgium public buildings Recent legislation has created a general framework to achieve better indoor air quality in all indoor spaces open to the public. One of the important objectives is that in future crisis situations regarding the spread of respiratory viruses, the government can intervene in a more targeted way to prevent rapid spread in public indoor spaces. The new legal framework focuses on the following sectors: hospitality, sports and cultural venues and the events sector. What is new is the possibility of using air puriication systems in addition to ventilation rates, now explicitly included. In addition, there will be introduced a certiication and labelling system for public buildings. This is planned to be introduced from the beginning of 2025. A consultation platform will be launched to bring knowledge together from government, scientiic community, manufacturers and installers of ventilation and air puriication equipment and air quality meters. What does this mean for Volution? Also within the non-residential segment, Volution Group has solutions available for both decentralized and centralized ventilation, with or without heat recovery. Possibly and subject to development of a support base for air puriication, there will be an opportunity for air puriication units with an air volume > 500m³h and subject to appropriate certiication. Opportunity for growth continued Strategic Report Governance Report Financial Statements Additional Information 45 Volution Group plc Annual Report 2023 Australia In Australia, building regulations are deined through the National Construction Code, currently in the 2019 edition. The Code has 10 Building Classes with Classes 1-4 covering residential and Classes 5-10 covering non-residential. NCC 2019 saw the introduction of speciic minimum exhaust low rates as part of the new Condensation Management section which was implemented to reduce incidence of moisture damage occurring in buildings. The National Construction Code (NCC) 2022 introduced new provisions to help further minimise condensation within houses and apartments (although adoption dates have stretched out to 2024 and beyond for some states). Exhausting air directly into a ceiling space was the traditional approach but is now no longer permissible and an exhaust from a kitchen, kitchen range hood, bathroom, powder room or laundry must now discharge via a shaft or duct to outdoor air. Whilst the duration of these exhaust rate are not explicitly stated in the NCC, in practice they are typically applied for a short period (i.e. intermittent ventilation). Over the last 10 years Australia has seen a slow but steady increase in the number of residential buildings with continuous ventilation systems (predominantly in the form of heat recovery ventilation systems). For Class 1 buildings and many Class 2 buildings, continuous ventilation systems no longer have a “Deemed to Satisfy” compliance pathway. Instead, you have to rely on a Performance Solution for each individual project which creates a compliance burden for adopters of these systems. Currently neither NCC 2022 nor AS1668.2 make provision for lower continuous extract rates in residential buildings. This is in contrast to the UK (ADF), German DIN 18017-3, and many other European countries that all provide for lower continuous exhaust low rates. For NCC 2025, it is now being proposed that exhaust systems installed in a bathroom or sanitary compartment must have a continuous minimum low rate of 10 l/s when operated continuously, or 12 l/s when installed in a kitchen or laundry. To meet any future carbon reduction goals, heat recovery would naturally be the next step for any legislative changes once continuous extract ventilation low rates have been allowed for in the standards. What does this mean for Volution? New Zealand and Australia have historically provided the lowest regulatory tailwinds for Volution. However, this is changing and continues to advance. The move towards non-discretionary applications of our products means more and more of our sales in Australasia will be driven by legislation and also towards the higher end solutions within key categories. Australia has historically had the least progressive ventilation Regulations out of all of our markets. however, its unique Geography does reward ceiling fans within the NatHERS (Nationwide House Energy Rating Scheme). They oer an energy eicient alternative for comfort cooling than full air conditioning within certain temperature parameters and are widely adopted. We have been very successful in moving form historically low eiciency AC motors to energy eicient EC so reducing theemissions in use. 59.5% of Ventair sales are low carbon Strategic Report Volution Group plc Annual Report 2023 46 Legislation updates continued While increased sales in Heat Recovery across the industry and the increase in brands represented in the country show an appetite for higher eiciency solutions, weaker economic conditions in 2023 have slowed the potential growth as builders retreat to their “minimum standard” budgets. A large portion of New Zealand homes, including social housing, are still built to only the relevant minimum standard. A review to G4 is slated for 2025 and current assumption is that changes then will only reach as far as dropping natural ventilation (windows) as a compliant solution and introducing MEV as a mandatory minimum. Similar to the discussions currently being had in Australia and expected in their legislation from 2025, speciically in the anticipated revision to AS1668 a standard NZ’s G4 also subscribes to. What does it mean for Volution? In a relatively short period of time, mechanical ventilation solutions in New Build have developed signiicantly. Volution has launched both central and decentralised continuously running solutions and will be focused on the roll out of the new Econiq range of MVHR units in FY24. Refurbishment While the above is primarily focused on new builds the NZ Government has taken action to begin retroitting existing housing stock. In 2018 the Government established a retroit grant called “Warmer Kiwi Homes” run by EECA (the Energy Eiciency and Conservation Authority). Available to homeowners on community services cards and in low-socioeconomic areas it covered a percentage of the cost of insulating and heating their homes. To this day, ventilation has been excluded from this standard and remains an opportunity in need of exploration. The following year under the Government Tenancy Services arm the Healthy Homes Standards came into law, addressing housing standards in rental properties. While Healthy Homes also covered insulation and heating the standard did address ventilation, but only in so far as necessary to bring existing homes up to current G4 building standards; 5% openable area for fresh air and intermittent extract in kitchens and bathrooms. With the siloed approach most of these standards take it is not surprising that the correlation of energy eiciency and ventilation has been missed. NZ’s climate change intentions have been published and can be found in the Building for Climate Change programme and NZ’s emissions reductions target. The Building for Climate Change programme includes under HBP1 (Homes, Buildings and Places) the commitment to improve homes and buildings so they can withstand the expected range of temperatures because of climate change as well as improve energy eiciency. Coupling those commitments with NZ’s emissions reduction target of Net Zero by 2050 and a reduction of net Greenhouse Gas Emissions to 50% of 2005 gross levels by 2030 it should be possible to show the relevance and inluence of ventilation in these spaces. Relating the climate change intentions to ventilation is an immediate priority in order to guide the legislation changes to G4 in 2025 and encourage the inclusion of MVHR as not just a desirable solution but a necessary one. Ministry for Business Innovation and Employment (MBIE) have already started work in this direction with their Operational Eiciency Assessment methodology. This new proposal released in July 2023 relies heavily on ventilation for delivering Indoor Environment Quality (IEQ). It proposes the setting of airtightness or permeability limits (called iniltration limits) which directly aects the requirement for ventilation. It also sets ventilation as the proxy for controlling relative humidity and CO 2 levels, with the ventilation rates to be set by EN16798-1:2019 – Energy Performance of Buildings. This Assessment methodology if implemented will eectively result in energy eiciency ratings for homes which in turn will inluence the selection of ventilation to more energy eicient solutions such as MVHR. New Zealand New Build In New Zealand the current minimum building code for Ventilation (G4) only requires openable windows for fresh air, and intermittent extract in wet rooms and kitchens. However, signiicant work from the construction sector is driving a shift in thinking. G4 is up for review in 2025 as part of a rolling update across all standards. The energy eiciency standard (H1) was reviewed and launched in late 2021 with a staged implementation running through to November 2023. While H1 does not address ventilation speciically, there are strong advocates from multiple avenues of the industry that have highlighted the eect H1 will have on airtightness. Primarily that the higher thermal resistance ratings required to comply with code mean that insulation and window standards have increased, and greater attention is now being paid to construction junctions and their airtightness because of this. Thankfully, under the commercial section of H1 energy eiciency standards for ventilation have been introduced, albeit only if one is being used. Commercially H1/VM3 outlines that should a heat recovery system be used, the core must have a minimum eiciency of 60%. The New Zealand Government has committed on their own properties both residentially and commercially to sustainable building standards. Commercially this is through NABERS as an eiciency assessment standard for existing government tenancies and Green Star ratings for new builds, using the NZ Green Building Council (NZGBC) rating system. Residentially since 2019, through the social housing arm Kainga Ora, the government has committed to Homestar (also an NZGBC rating standard) and is in the process of updating with the latest version. While the minimum requirement for the latest Homestar standard is Continuous Extract ventilation (MEV), providing 0.35ACH, the current indication from Kainga Ora is that MVHR with summer bypass is the preferred solution. But an indication is not enough, and the expectation is they will simply implement the Homestar MEV minimumrequirements. Opportunity for growth continued Strategic Report Governance Report Financial Statements Additional Information 47 Volution Group plc Annual Report 2023 What does it mean for Volution? NZGBC, BRANZ, Passive House NZ and others are continuously lobbying government to improve the NZ minimum building standards including at times working with MBIE who oversee the standards. The latest focus has been on reviewing the progress and success of deep retroit housing programmes in Europe with an eye to their relevance and applicability in NZ. With an election this year NZGBC launched an industry alliance called The Homes We Deserve which aims to inluence every political party to include a “pollution-busting” home renovation programme to improve the health and carbon emissions of New Zealanders. Through Simx and DVS, Volution are in a great position to capitalise on the opportunities that continue to develop. Other Codes Temperatures in New Zealand homes are also not adequately addressed in NZ building code. G5 states that rooms shall have provision for maintaining internal temperatures no less than 16°C while the space is adequately ventilated, however this only applies to old people’s homes and early childhood centres. E3 is similar with a limited reference to temperature only going as far as to provide a temperature dierence of 5-7°C indoors above the exterior in childcare and retirement facilities. Healthy Homes, through it’s heating calculation tool, targets 18°C and Homestar uses 20°C. Overheating has only just started being considered and yet over a third of NZ’s population live in a sub-tropical climate. Although New Zealand Building Regulations have historically been behind those in Europe, the adoption of ventilation in private refurbishment has always been high as homes have historically not been fully heated leading to condensation issues. In the last 5 years however, regulations have been signiicantly improved. G4 and the Healthy Homes Act have both mandated ventilation in all new Builds and rental properties from 2021. In addition, their net zero 2050 commitment has meant their energy eiciency regulations are also starting to inluence building design and we see the growing focus on Homestar and other rating systems. This is inluencing the adoption of continuous ventilation systems and we have launched a range of group products to add to theportfolio. 52.8% of Simx sales are low carbon NZ code and local council guidelines are also having an increasing inluence on ventilation through their response to noise. With the very slowly increasing density of New Zealand towns and cities, homes are being built on what can be considered marginal land. This marginal land, near busy roads, railway lines and light paths is aected by code G5 Airborne and Impact Sound. While the standard is often not covered inside a building consent submission, the subdivisions and construction are being held up by local council rules on performance in these homes. These standards typically require high volumes (sometimes in excess of 6ACH) of mechanical ventilation to replace the potential ventilation available on a windy day with the windows open. Whilst poorly implemented currently, this is another angle available to inluence ventilation change. Strategic Report Volution Group plc Annual Report 2023 48 Our Growth Opportunity Strengthening our presence through acquisition 2017 2016 2015 2012 2018 2019 2020 2021 Value-adding acquisitions Strategic Report Governance Report Financial Statements Additional Information 49 Volution Group plc Annual Report 2023 Our acquisitions over the years c£250m investment in acquisitions since FY11 25 Transactions 267% Revenue growth since FY11 2014 2013 2022 2023 Our M&A criteria We seek to acquire complementary businesses in current or close adjacent market niches, with the following key attributes: Strong brand with equity in its markets Access to market from which growth can be accelerated Good teams which we back and support Opportunities to enhance growth and returns Aligned purpose of delivering “Healthy Air Sustainably” Strategic Report Volution Group plc Annual Report 2023 50 Acquisitions I-Vent, Slovenia and Croatia Acquired by Volution in June 2023. Founded in 2010, I-Vent is a market leading ventilation supplier based in Slovenia. It produces a range of smart, wireless energy-eicient decentralised ventilation systems with heat recovery that can be installed in both new and existing buildings and sold under the I-Vent brand. I-Vent have a direct-to-consumer model where they advise individuals on the best ventilation solutions for their home and provide a fully installed solution. This model means that I-Vent have an unparalleled sales and installer network in Slovenia and have also recently expanded into neighbouring Croatia with promising results. The wide group product range oers I-Vent additional productsto their proposition as well as procurement scale to ensure that they can maximise their reach within the market. Their product range will also complement the group decentralised heat recovery range providing an alternative solution helping widen sales channels across our sales network. Acquisition of strong local brands with attractive market positions is a key tenet of Volution’s growth strategy, and we are delighted to announce these two exciting transactions. Ronnie George Chief Executive Oicer I-Vent – Specialising in decentralised heat recovery sales Strategic Report Governance Report Financial Statements Additional Information 51 Volution Group plc Annual Report 2023 VMI, France Acquired by Volution in April 2023. As the French leader on the positive input ventilation market, VMI has been designing and developing Positive Input Ventilation or Ventilation Mécanique par Insulation® (VMI®) system since 1986. This technology is designed to improve the quality of indoor air. They have designed “plug and play” solutions allowing to couple ventilation with heat pump, solar panels and earth to air heatexchangers. After having sold tens of thousands of systems, they are recognised as the specialist PIV supplier and undisputed front-runner of the technology in France leading the ight against humidity and pollutants in indoor and outdoor air. The company is extensively involved in the public debate on air quality and in research on innovative energy solutions. Selling through distributors, VMI provide an excellent channel for other complementary group products such as MVHR into the French market. Additionally, VMI provide a strong network within the trade associations to ensure that we continue to have insight into the legislative framework as it develops. VMI – Providing access to distribution in France Strategic Report Volution Group plc Annual Report 2023 52 Sustainability Product Our ambition To champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. To continue to develop clean air solutions that protect people’s health and increase their comfort in an ethical and responsible way. Y See more on Page 56 Planet Our ambition To reduce our environmental impact by improving business eiciencies and minimising our impact on the climate. To focus on the quality of materials we use to support the creation of a circular economy, and eliminate all forms of waste across our value chain. Y See more on Page 64 People Our ambition To continue to develop an engaging and inclusive workforce where our employees feel valued and can fulil their potential. To build relationships with the local community, provide support where needed, and leave a lasting legacy. Y See more on Page 84 At Volution, we are committed to a low-carbon future with the health and wellbeing of people and the planet at its core. Highlights • The energy saving potential of our products – Pages 60 to 63 • TCFD Compliance statement – Page 66 • Full carbon emissions inventory, metrics and targets – Pages 74 to 79 • Board oversight of sustainability and climate change – Pages 54 and 68 • SASB disclosures and SFDR principal adverse indicators – Pages 80 and 81 • Biodiversity and water stewardship – Pages 82 and 83 • Diversity, equity and inclusion (DEI) – Pages 86 to 88 Strategic Report Governance Report Financial Statements Additional Information 53 Volution Group plc Annual Report 2023 70.1% Revenue from low-carbonproducts 2,183,455 Avoided emissions (tCO 2 e) 33.8% Revenue from heat recoveryproducts (EUtaxonomy aligned) 76.2% Recycled plastic processed in our own factories 11.1 Scope 1 and 2 location-based intensity (tCO 2 e per £m revenue) 3.9% Scope 1 and 2 absolute location-based emissions reduction (tCO 2 e) 0.30 reportable accident rate per100.000 hours worked 391 Safety walks in ouroperations 17,781 hours of formal training Good progress was achieved with our sustainability initiatives, with the team developing innovative strategies to increase the utilisation and availability of recycled plastic, and revenue from our low-carbon products increased organically and through acquisitions. These are great examples of cross functional effort and initiative. Our carbon intensity has fallen again, and whilst we fell short of the stretching absolute emissions target for the year, our colleagues across the world are engaged in energy efficiency initiatives. Ronnie George Chief Executive Oicer Strategic Report Volution Group plc Annual Report 2023 54 Sustainability continued Sustainability Governance Sustainability is fully integrated into the Governance structure of the Group. TheGroup Management Sustainability Committee and Risk Committee are integral to the decision making process ofthe Group. More details of the Governance structure and processes can be found in the Governance sections (Page 106) and intheTCFD section (Page 66). Our approach to sustainability Healthy air, sustainably We aspire to be leaders in the eort to provide healthy indoor air while driving a low-carbon future. Our approach encompasses more than just our key sustainability KPI’s, and includes maintaining high standards in corporate governance and making a positive impact in our communities. This year, we expanded our sustainability eorts across multiple fronts and embraced an array of positive change opportunities. Our commitment to achieving net-zero emissions remains unchanged, and in addition to updating our core sustainability initiatives, we now provide a more comprehensive understanding of our emissions proile including all material Scope 3 emissions. Our focus is on strategically targeting emissions reduction opportunities and developing comprehensive action plans to meet the net zero challenge. The role of the Board and its Committees Board Employee Engagement DEI Committee Audit Committee Remuneration Committee Nomination Committee Executive Management Team Group Management Sustainability Committee Group Risk Management Steering Committee Board oversight Reports to Our ambition Product To champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. To continue to develop clean air solutions that protect people’s health and increase their comfort in an ethical and responsible way. Y Product See more on pages 56 to 63 Planet To reduce our environmental impact by improving business eiciencies and minimising our impact on the climate. To focus on the quality of materials we use to support the creation of a circular economy, and eliminate all forms of waste across our value chain. Y Planet on pages 64 to 83 People To continue to develop an engaging and inclusive workforce where our employees feel valued and can fulil their potential. To build relationships with the local community, provide support where needed, and leave a lasting legacy. Y People on pages 84 to 92 Amanda Mellor, Senior Independent Non-Executive Director – Group Management Sustainability Committee Board oversight Strategic Report Governance Report Financial Statements Additional Information 55 Volution Group plc Annual Report 2023 SDG3 The design of Volution’s products helps support SDG target 3.9: “By 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination.” Speciically, 3.9.1 – “Mortality rate attributed to ambient airpollution”. In action – Our purpose is to provide healthy air, sustainably, supporting the health and wellbeing of people within buildings. SDG7 The design of Volution’s products helps support SDG target 7.3: “By 2030, double the global rate of improvement in energy eiciency.” Speciically, 7.3.1 – “Energy intensity measured in terms of primary energy and GDP”. In action – With a focus on development and sales of low-carbon products, Volution sells product solutions targeted at reducing carbon emissions of buildings by making them moreenergy eicient to run. SDG8 Volution’s ambition to be a diverse and inclusive employer supports SDG target 8.5: “By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work ofequalvalue.” In action – Volution’s ambition is to ensure a diverse and inclusive workplace for everyone. How we align to the UN Sustainable Development Goals We have aligned our strategy to the United Nations Sustainable Development Goals, which are the blueprint to achieve a better and more sustainable future for all. SDG11 Volution’s products and its approach to minimising its operational impacts support SDG target 11.6: “By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management.” Speciically, 11.6.2 – “Annual mean levels of ine particulate matter (e.g. PM2.5 and PM10 in cities (populationweighted). In action – Many of the Group’s products include iltration designed to remove ine particle matter from the air helping to improve airquality. SDG12 SDG target 12.5 (“By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse”) is core to Volution’s approach to sustainability and its ambition to limit its impact on the environment. Speciically, 12.5.1 “National recycling rate, tons of materialrecycled”. In action – Volution continues to focus on the adoption of recycled material, with 76.2% of the plastic used within our own facilities from recycled sources in FY23. SDG13 Volution’s ambition to reduce carbon emissions and minimise its impact on climate change supports SDG 13.2: “Integrate climate change measures into policies, strategies andplanning.” In action – Volution has set our ambition to become net zero by 2040 and has been carbon neutral since FY21 for scope 1 and 2 emissions. In addition, we are signatories to the CEO Water Mandate and the UN GlobalCompact. Materiality assessment alignment with SDGs Materiality matrix In 2021 we reviewed the material issues that impact our sustainability and prioritised them around the Group and our stakeholders needs. Wesought feedback from stakeholders and created a materiality matrix. We then coalesced the material issues into our three focus areas of Product, Planet and People. This year, we have revisited the materiality matrix as a pulse check to assess our priorities and concluded that the same issues remain material to us and our stakeholders. We have also reconsidered the United Nations Sustainability goals which are most aligned to our priorities and we re-assert our commitment to them – as the blueprint toachieve a better and more sustainable future for all. Confronting climate change and carbon emissions remains at the top of our materiality matrix, along with maximising the energy saving potential of the products we produce. Health, safety and wellbeing of our engaged, diverse and inclusive workforce remains critical to deliver our strategy. Lastly, an eicient and eective supply chain, supplying sustainable materials and minimising waste will drive sustainable but also eicient production. 1. Climate change and carbon emissions 2. Health and safety 3. Sustainable products 4. Supply chain management 5. Sustainable materials 6. Packaging/waste management 7. Employee engagement 8. Diversity and inclusion 9. Training and development Signiicance for stakeholders Signiicance for Volution Very Low Low Medium High Very High Very Low Low Medium High Very High 1 3 2 7 6 4 5,8 9 Strategic Report Volution Group plc Annual Report 2023 56 Sustainability continued Product Intrinsically designed to improve air quality and reduce emissions over traditional methods Our ambition To champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. To continue to develop clean air solutions that protect people’s health and increase their comfort in an ethical and responsible way. Key Strategic Report Governance Report Financial Statements Additional Information 57 Volution Group plc Annual Report 2023 Not on track Category Performance Status Comments Read more Low Carbon Sales 70.1% low carbon products Ahead of target and already exceeding our 2025 goal. Y See more on page 62 Avoided emissions 2,183,455 Avoided emissions (tCO 2 e) Avoided emissions resulting from the use of our heat recovery products sold in FY23 over their life time. Y See more on page 60 Heat recovery products 33.8% Revenue from heat recovery products Sales of our energy saving heat recovery products continue to increase. Y See more on page 63 Key On track or ahead Slightly o track – carefully monitor Highlights 57 Volution Group plc Annual Report 2023 Strategic Report Volution Group plc Annual Report 2023 58 A key approach to decarbonisation of buildings, is preventing energy loss in heated or cooled air as it is exhausted from the building for ventilation. To prevent the energy loss, heat recovery cells can be used in the airstream to ensure the energy is recovered. Key stats 93% Up to 93% eficiency in plate heatexchangers 85% Up to 85% eficiency from rotaryheat exchangers Sustainability continued Introduction to energy recovery technology Product continued Plate heat exchangers Plate heat exchangers consist of a series of plates stacked together which form a large internal surface area. Air is then exhausted from inside the building and passed over one side of the plates and at the same time fresh air is introduced into the building on the opposite side of the plates. The large surface area allows heat to be transferred from one side to the other in colder climates, the process recovers energy by passing energy from heated air leaving the building into the incoming air. By contrast in warmer climates with air-conditioned buildings, the process passes heat into the outgoing air. The exchangers can be up to 93% eicient. Rotary heat exchangers Rotary heat exchangers are a regenerative type of air-to-air heat exchanger with a rotating wheel. During the heating season, air is exhausted from the building, warming the rotating disc. Air from outside is introduced across the opposite side of the disc recovering the heat, but also capturing the humidity released from the disk so enriching the air to prevent it drying out. This process provides heat exchangers with up to 85% eiciency. Energy recovery technology types There are four commonly applied types of energy recovery cells: Accuair In colder, dry climates, plate heat exchangers oer very high eiciency but can remove too much moisture from the air as it condenses on the colder sections of the plates. This can cause excessive drying out of the air. Accuair has been designed as an enthalpy system to also recovery up to 70% of the moisture. It does this whilst retaining an eiciency of up to 90% and prevents the air becoming too dry. Regenerative Heat Cells Regenerative heat cells work by acting as heat storage devices. Exhaust air passes through and warms the cell (ceramic) which store the heat. The ventilation system is then reversed, bringing air back though the heat exchanger and introducing the heat back into the incoming air. In this way heat can be recovered in a small, compact device which can be wall mounted for ease of application. Strategic Report Governance Report Financial Statements Additional Information 59 Volution Group plc Annual Report 2023 New low carbon products this year Volution continues to invest in new product development, and this year we launched two new platforms for residential and commercial heat recovery. Vent-Axia Econiq – The new group platform for residential We launched a next generation heat recovery platform across our European sales channels. The range consists of three sizes, with airlows up to 600m 3 h, enough for even the largest homes. The platform provides industry leading eiciency and low energy consumption, and also improves connectivity and control. With a suite of external and internal sensors, the range provides a new level of automation.. Using smartphone- compatible controls, the homeowner is in full control of ventilation all year round, with the lexibility to increase low rate during hot periods or reduce speeds to minimise running costs while away. Sentinel Apex – Commercial heat recovery, simpliied. Our Sentinel Apex range of commercial heat recovery units, with up to 93% heat recovery eiciency and low sound levels, provides high levels of performance eiciently. A new advanced control system provides on board, in room, and App based control, full functionality commissioning and monitoring. Coupled with Vent-Axia’s new range of wired and wireless sensors close control and monitoring of indoor air quality is enabled. Sensors include CO 2 , humidity and temperature and provide both proportional and switch control. Strategic Report Volution Group plc Annual Report 2023 60 Sustainability continued Product continued Avoided emissions – an estimate of the energy saving potential of our innovative products Employing heat recovery ventilation solutions in airtight, optimally insulated buildings, enables marked reductions in the energy used for heating or cooling. Alongside these energy reductions and correlated inancial beneits, there are signiicant carbon emissions that are avoided when compared to alternative, base-line ventilation. Building on the model that we designed last year in collaboration with Arup and updating for conversion factors, this year, we have calculated the avoided emissions from our heat recovery products sold in FY23, over the life-time of those products sold. Our heat recovery products consistently reduce energy consumption throughout their useful life, thereby avoiding emissions for more than just a single year. Further, with every successive year, the sales contribute to the growing installed base, leading to cumulative emission reductions. We have however assessed only the life time emissions of heat recovery products sold in FY23. The one year avoided emissions for FY23have increased to 272,073tCO 2 e. from 223,065tCO 2 e in FY22, primarily a result of increased sales of larger commercial heat recovery products from our Heat recovery cell business ERI. “As ERI products trend towards larger commercial and industrial projects the total volume of air they handle increases. As a business this creates an opportunity to provide much larger energy savings globally compared to our smaller commercial and domestic products.” Michael Parker Managing Director, ERI Deinition – avoided emissions Avoided emissions are those emissions avoided from the use of Volution Group heat recovery products. when compared with alternative measures of ventilation. Avoided emissions are not included within scope 1, 2 or 3 emissions, and do not form part of reporting of total emissions or net zero targets for the Group. Methodology The methodology considers both domestic and non-domestic buildings, following the design standards and guidance in SAP 2012 and CIBSE Guide B2. The total heat load is a function of the fabric heat losses, heat losses due to iniltration and heat losses due to ventilation. The calculated energy savings and greenhouse gas (GHG) emissions reductions relate to the reduced heating load due to the selected MVHR product. The calculation methodology and assumptions include: • number of devices sold; • device airlow rate (24 hours/ day for domestic, 14 hours/day fornon-domestic); • assumed heat recovery eiciencies; • external temperature per country; • relevant emissions factors for gas andelectricity; • internal setpoint temperature of 21ºC (with 12ºC setback for non-domestic); • the energy used in using the devices; • product performance as tested for the Ecodesign Directive; and • average lifetime of use has been assumed as 10 years, and the electricity grid is assumed to decarbonise at a 5% per year. Assumptions and uncertainties of avoided emissions We recognise that there is not yet a universally accepted method of measuring or reporting ‘avoided emissions’ (sometimes referred to as ‘Scope 4’ emissions), and that any measure can only every be an estimate. The TCFD framework does not include avoided emissions with the reporting recommendations, and together with the assumptions and uncertainties involved in the calculations means that avoided emissions reported for FY2023 should not be considered to be at the same level of accuracy as our Group emissions reported within the TCFD section (page 76). However, we understand from our stakeholders that the energy saving potential of our products is useful information and is provided for that purpose. The emissions calculated using our model should be assumed to be the upper limit of energy savings. The calculation is sensitive to the variables noted under ‘methodology’ and other limitations. Limitations include: The domestic application baseline assumes mains gas boiler heating, heat loss due to iniltration is not adjusted for wind speed, the thermal capacity and inertia has not been considered, domestic applications are modelled on detached houses and Commercial applications are modelled on open plan oices. Adjusting the model for these limitations may either raise or lower avoided emissions calculations. Sensitivities to key assumptions include: a 1% increase in the rate of electricity decarbonisation year on year reduces avoided emissions by 4.3%, lowering the internal setpoint temperature from 21ºC to 20ºC reduces avoided emissions by 8.3%, and decreasing unit lifetime use from 10 to 9 years reduces avoided emissions by 8.2%. 1. Calculated by taking the Volution reported avoided emissions of 2,183,455 t/CO 2 and dividing by the average emissions for an existing UK dwelling for one year (OiceofNational statistics, 2021). 2. Calculated by taking the Volution reported avoided emissions of 2,183,455 t/CO 2 and dividing by the overall average emissions per mile for UK automobiles, assuming 10,000 miles driven per annum per vehicle (Department of Transport, 2020). The estimates of the equivalent number of homes and cars shown are subject to the same assumptions, limitations and sensitivities of the calculation of the Volution reported avoided emissions, and further by the assumptions and limitations of the average emissions for homes and cars published by the ONS and DfT and used for the calculations (noted above). Strategic Report Governance Report Financial Statements Additional Information 61 Volution Group plc Annual Report 2023 Avoided emissions: Results 2,183,455 tCO 2 e Avoided emissions from the use of our heat recovery products sold in FY23 over their lifetime of use 580,000 Homes carbon dioxide emissions for1year 1 OR 975,000 Cars off road for 1 year 2 ERI Team, Heat Recovery Developments, Macedonia Strategic Report Volution Group plc Annual Report 2023 62 Sustainability continued Product continued FTSE Russell Green Economy mark and EU Taxonomy Green Economy mark We are proud to be in the FTSE Russell Green Mark 2023 cohort, our third year. The Green Mark is an accreditation which identiies companies whose products and services contribute to meeting important environmental objectives. These include climate change mitigation, adaptation, waste and pollution reduction, the circular economy, protection of water and marine resources, and sustainable agriculture. In FY2023, We derived 70.1% of Group revenue from ‘green’ products and services as deined by FTSE Russell’s Green Revenues Classiication System – signiicantly above the 50% threshold required to be awarded the recognition mark. In the UK, low carbon products are aligned with the Standard Assessment Procedure (SAP), and are also listed on the Product Characteristics Database (PCDB). For commercial buildings, our products align with the Simpliied Building Energy Model (SBEM). In Germany our products meet carbon reduction standards through calculations combined from DIN V 4701-10:2003-08 with DIN V 4108-6:2004-03 or DIN V 18599-6:2018-09. Globally, we also have products listed through schemes such as the Energy Technology List (ETL). In Australia, our products are designed to enhance the star rating of a home under the Nationwide House Energy Rating Scheme (NatHERS). Furthermore, our automation products and DC/EC motorised extract fans exemplify energy-saving alternatives totraditional methods. EU Taxonomy EU Taxonomy is a classiication system designed to facilitate the identiication of economically sustainable activities. Itaims to direct and facilitate investments in environmentally sustainable projects by establishing criteria for what constitutes agenuinely green product or industry. Similarly to our Green Economy mark categorisation, 70.1% of our sales are EU taxonomy-eligible. These sales fall under the EU taxonomy category “3.5 Manufacture of energy eiciency equipment for buildings” and are speciically related to climate change mitigation. This includes each business in the Group, not just those within the EU. However, whilst all our low carbon sales are EU taxonomy eligible, we do not believe they are all currently EU taxonomy aligned. Strategic Report Governance Report Financial Statements Additional Information 63 Volution Group plc Annual Report 2023 Fulilment of screening criteria The primary method of measuring the energy eiciency of Buildings is through the Energy Performance of Building Directive (EPBD). In March 2023, the European parliament approved its stance on a recast of the EPBD and it will cover both new and existing buildings. This has introduced Minimum Energy Performance standards which would mean the worst performing buildings would need renovating. However, even though the EPBD has entered the inal phase of the process, there are still more negotiations to go. The EPBD is implemented locally within each country with national calculation methods used to deine the energy eiciency of buildings. We deine our low carbon sales as products which use less energy than the products they replace, or as products that are used within the local calculation methods to reduce emissions from buildings. The key qualifying technology that speciically helps avoidcarbon emissions are our heatrecovery products. In addition, there are many other productswith our low carbon deinition which reduce carbon of buildings within the markets that we operate. For example, MEV and PIV systems are applied in the national calculation models within dierent countries to provide a route toavoid carbon emissions. On that basis, there is extremely tight correlation between our low carbon sales to the objectives set out within theEU Taxonomy. Compatibility with Other Environmental Goals (Do No Signiicant Harm – DNSH) EU Taxonomy requires us to evaluate and ensure that our operations do not cause ‘signiicant harm’ to the range of objectives set out in the taxonomy. We have considered each objective as described below. Climate Change Adaptation: Our TCFD reporting and statement describes the process through which we asses the climate risks on our business and steps we are taking to reduce our impact and align to the goals of the Paris agreement and net zero. Water and Marine Resources: Our manufacturing processes use small amounts of water and our stewardship ensures negligible impact on water courses through contamination. Nonetheless, we remain committed to continuous improvement and have initiated eorts to monitor and record our water usage and are signatories to the CEO Water Mandate. Circular Economy: We have prioritised the use of recycled materials in our manufacturing processes for several years. We have published a goal of achieving 90% use of recylced plastic in our manufacturing process by 2025. Pollution: We adhere to all local regulations regarding waste. We do not produce and material amount of hazardous waste from our production processes. Biodiversity and Ecosystems: We do not believe our operations have a material impact on biodiversity, and we do not face any material nature related risks. However, we are conscious of the need to help prevent biodiversity decline and have initiated location speciic plans to enhance local biodiversity. Key: Low carbon 70.1% Other 29.9% Low carbon revenue Minimum Safeguards The “Minimum Safeguards” under the EU Taxonomy ensure that sustainable activities are not aligned unless minimum governance standards are met, and the operations do not violate social norms including bribery or employment rights. The Group has a comprehensive range of ethical, good conduct, anti corruption, anti modern slavery and other policies. We also proactively engage with our suppliers to ensure adherence to our codeof conduct. Strategic Report Volution Group plc Annual Report 2023 64 Volution is committed to a net zero carbon future Planet Our ambition To reduce our environmental impact by improving business eiciencies and minimising our impact on the climate. To focus on the quality of materials we use to support the creation of a circular economy, and eliminate all forms of waste across our value chain. Sustainability continued Strategic Report Governance Report Financial Statements Additional Information 65 Volution Group plc Annual Report 2023 Category Performance Status Comments Read more Recycled plastic 76.2% Recycled plastic processed in our own factories We have increased the use of recycled plastics from 67.2% in FY22 to 76.2% this year, just short of the 76.8% target. Y See more on page 79 Carbon intensity location based 11.1 Scope 1 and 2 location-based intensity (tCO 2 e per £m revenue) We’re pleased to report a reduction in our carbon intensity from 12.3 to 11.1 tCO 2 e per £m of revenue year on year. Y See more on page 67 Carbon emissions reduction 3.9% Scope 1 and 2 location-based absolute emissions (tCO 2 e) While we have made progress since last year in reducing our absolute scope 1 and scope 2 location based emissions, further actions are required to hit future targets. Y See more on page 67 Highlights 65 Volution Group plc Annual Report 2023 Key On track or ahead Slightly o track – carefully monitor Not on track Key Strategic Report Volution Group plc Annual Report 2023 66 Preventing the worst impacts of unchecked Climate change is one of the greatest challenges of our time. The IPCC has made it clear that the window of opportunity to ensure the increase in global temperature does not rise above 1.5°C is closing. The potential physical and other risks of climate change are a concern for everyone, and we as a business have embedded climate change into our risk management and governance frameworks. However, as a business we must also act to ensure we are contributing to the transition to a zero-carbon economy. This is a challenge, but it is also an investment opportunity – Net zero, concluded a recent UK Government commissioned independent review, ‘is the economic opportunity of the 21st century. ¹ The majority of the world’s nations have now deined a path to net zero: more than 90% of global GDP is now covered by a net zero target. According to FTSE Russell, the green economy recorded a compound annual growth rate of approximately 14% over the last 12 years. The pace of this growth is accelerating thanks to strong political and regulatorytailwinds. We believe that we are well placed to continue to drive sustainable growth as a response to the Climate Change challenge. Compliance Statement We are committed to consistent and transparent reporting aligned to the recommendations of the TCFD and will continue to work with our stakeholders to provide comprehensive data. We comply with the FCA’s Listing Rule 9.8.6R(8) and within this Annual Report make disclosures in accordance with the 2017 TCFD recommendations as well as the updated TCFD 2021 guidance, across all four of the TCFD pillars: Strategy; Governance; Risk Management; and Metrics and Targets. In preparing our disclosures we considered the industry speciic guidance for the Materials and Buildings/ construction industry, and so disclose data on our assets vulnerable to climate risks and executive remuneration. We do not consider other industry speciic metrics as material for the Group. Improvements next year, and not fully disclosed in this report, will include a fuller description of how the Board considers climate-related issues when reviewing and guiding strategy, business plans capital expenditures, and acquisitions. We have progressed out TCFD reporting since we began our initial disclosures in FY 2021. Last year, we reported against all the recommendations of TCFD and set detailed targets for the irst time for the short, medium and long term. This year, we have made further improvements to our disclosures as follows: • Including all material categories of scope 3 emissions – including the emissions from the use of all our sold products (Page 76). • Including our annual scope 1,2 and 3 targets, and reporting against those targets for the irst time. • Integration of Climate related risks and opportunities with the principal risks. • A clearer presentation of our TCFD disclosures utilising the 11 subheadings of the 4 pillars of the recommendations. All through these important disclosures, we have kept in mind the principals of eective disclosure. • Focusing on information that is material and relevant. • Disclosures that are speciic and complete and contain both historical actuals and future targets. • Disclosures that are clear and balanced, including both the risks to our business but also the opportunities it represents. We remain committed to a net zero carbon future and aim to become a net zero carbon business by 2040. Sustainability continued Task Force on Climate-related Financial Disclosures Our approach to the climate change challenge Governance Strategy Risk management Metrics and Targets Solar cells on ClimaRad facility, Netherlands Strategic Report Governance Report Financial Statements Additional Information 67 Volution Group plc Annual Report 2023 When preparing the Consolidated Financial statement on pages 167 to 222, the Directors considered the impact of Climate change risks and opportunities, and the actions necessary to achieve the short-, medium- and long-term targets set for carbon emission reduction. After careful consideration of these factors, the directors concluded that there are no material impacts to the assumptions, estimates or judgements used in the preparation of those accounts relating to climate change. When assessing the carrying value of tangible and intangible assets for impairment at the balance sheet date, we considered the impact of climate change under both the 1.5c and 4c scenarios and concluded that there was no material adverse inancial impact over the period of assessment that could lead to impairment. Our analysis of the resilience of our main locations to the physical risk of climate change also showed us that is no impact on the useful lives of our material physical assets. Our carbon reduction targets and commitment made to achieve net zero by 2040 have been carefully considered and we have concluded that the actions that we will take do not have a material adverse impact to future cashlows. Our short terms commitments such as reducing air freight, increasing recycled plastic, moving to 100% renewable taris, and moving to a fully electric vehicle leet do not require material incremental investment, and the longer-term active reductions alongside the passive market reductions do not materially adversely impact future cash lows. This continued success in delivering carbon reductions whilst not impacting proitability is demonstrated again this year with a reduction in both our absolute and intensity measures of scope 1 and 2 emissions (page 76). Actions taken during FY23 include those described in page 78. Impact on financial statements Whilst our absolute location based scope 1 and 2 emissions reduced slightly, we did not achieve our stretching 5.8% absolute year-on-year reduction target, due primarily to the growth in our business this year. The successful control of our emissions as we grow is shown in our chosen measure of carbon intensity – reducing by 9.8% compared with FY22 and overachieving our intensity target. Our absolute market based reduction was driven by our accelerated move to Green energy taris, now covering 86% of our business (FY23: 74%). Carbon emissions – Highlights We saw a signiicant like-for-like absolute emissions decline compared to last year, but we were short of our target primarily as our target assumed a greater reduction in emissions from air freight year-on-year (12%) than the 6% that we delivered. Calculations methodologies, assumptions and uncertainties are shown in the emissions tables on page 77. Scope 1 and 2 (Location based) tCO 2 e 3,628 (3.9% lower than FY22) 1.9% short of FY23 target Scope 1 and 2 emissions (market based) tCO 2 e 2,385 (15.6% lower than FY22) 11.4 ahead of FY23 target Scope 1 and 2 Intensitymeasure tCO 2 e/£million Revenue 11.1 (9.8% lower than FY22) 4.4% ahead of FY23 target Scope 3 emissions (only those categories reported in FY22 forconsistency) 48,330 (6.8% lower than FY22) 3.0% short of FY23 target Strategic Report Volution Group plc Annual Report 2023 68 Sustainability continued TCFD pillar – Governance Climate change is embedded in the Governance structure of the Group through a decentralised local ownership, overseen by Group leadership and under the ultimate oversight of the Board. The Board is collectively responsible for promoting the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The principal way that Climate Change is embedded into this Governance structure is shown in the diagram on page 54 and described in more detail in section a) and b) below a. Board oversight of climate related risks and opportunities The Board has ultimate oversight and responsibility for Climate Change. The Board receives a review of the Group’s risks and opportunities twice per year, including an assessment of Climate Related risks and opportunities. The Board assessed those risks and approved the principal risks presented on page 96 to 105. The Board considered whether Climate change should be disclosed as an individual stand-alone principal risk, but concluded it was more appropriate to embed the speciic impacts of climate change risks within existing principal risks – a ‘cross cutting’ approach. The Group does not believe the any individual or collection of climate change risks are themselves material to the inancial prospects of the Group. See pages 96 to 104 for description of the Groups Risk management process). The Board received updates each month on key sustainability KPIs, and during the year (twice in FY 2023) received a more detailed review of performance against the sustainability targets and the Groups disclosures relating to TCFD. Once per year, the complete set of emissions data, performance against targets, and setting of new targets where relevant is received by the Audit Committee and Board for review and approval to be published externally. The performance of the Executives against their sustainability related incentives is reviewed by the Remuneration Committee (page 140). The Board and certain individual Board members kept up to date on Climate related issues through attending external seminars and discussing with Group advisors. Board Members’ relevant experience is described on page 110. b. Management’s role in assessing and managing climate related risks and opportunities The Group Management Sustainability Committee is responsible for assessing and managing climate related risks and opportunities and co-ordinating with the Group risk management committee to ensure that Climate related risks are fully integrated into the risk management process. The Board representative on the committee communicates the activities of the Group Management Sustainability committee to the Board. The Group Management Sustainability Committee met twice during FY2023. The members of the committee include Amanda Mellor (Senior Independent Non-Executive Director providing Board oversight), Ronnie George (CEO) and Andy O’Brien (CFO), the Managing Directors of each Business and Group ESG subject matter experts. Environment Group Business development Director Group Financial Controller Social Group HR Director Governance Group Company Secretary Overall ESG Group ESG Analyst The managing director of each business unit is responsible for assessing the speciic climate risks and opportunities within their business and submitting to the Group management risk committee. The Group management sustainability committee enables relevant issues to be discussed and to exchange information and best practice. The committee this year focused on our Carbon reduction plan and the risks and opportunities of Climate Change and delivering our climate reduction targets. The ESG subject matter experts are responsible for ensuring they keep up to date with changes in reporting and relevant standards to provide assistance to local business management. The Remuneration Committee The long term incentive plans of the Executives include ESG measures that focus on two targets that are linked to our 2025 goals for optimising recycled plastics used in our manufactured products and increasing the low-carbon credentials in the product portfolio measured as a percentage of revenue. These ESG measures are aligned in part to mitigating the risks of climate change and optimising the opportunities that climate change presents. The measures have a 20% weighting in the LTIP with a maximum pay out that is aligned to the 2025 targets shown on pages 160 and 161. Task Force on Climate-related Financial Disclosures continued Ventair facility, Melbourne, Australia Strategic Report Governance Report Financial Statements Additional Information 69 Volution Group plc Annual Report 2023 TCFD pillar – Strategy Our strategy sets out our response to the transition to a net zero economy and limiting the eects of climate change (see page 26). Our sustainability ambition is to champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. The regulatory tailwinds should signiicantly increase demand for our sustainable and innovative ventilation solutions, while our leading position in the UK, Continental Europe and Australasia ventilation markets means that we are well positioned to seize this opportunity. a. Climate related risks and opportunities the organisation has identiied in theshort, medium and longterm Methodology and risk ratings We carry out a full risk management process each year (see pages 96 to 104) including a separate but integrated bottom up Climate related risk review. The Climate related risk process followed the same process as the wider risk management process considering both the likelihood and the potential impact of each risk, . This year, we have again concluded that Climate change represents a net opportunity to Volution through our ability to continue to drive growth from the regulatory and market tailwinds. Scenarios We assessed our risks and opportunities under a 1.5°C Paris aligned scenario and a 4°C “hot house” scenario to provide a broad view of outcomes. Under a 1.5°C orderly scenario, risks relate primarily to the transition to a net zero world, the regulatory response, and the changing political, consumer and investor expectations. Under a 4°C scenario, the physical impacts of a changing climate will become more apparent. These scenarios are aligned to the Network for Greening the Financial System’s (NGFS) climatescenarios. The timeframes used when identifying the principal risks for Volution are over a relatively short term due to their material impact on strategy and inancial performance targets. Climate change impacts are likely to appear over a much longer timeframe, which we have aligned to the NGFS scenarios. These are short term (less than 5 years) which is the period over which we prepare detailed bottom up plans, medium term (5-15 years) which is the period over which our continued strategy to provide healthy air sustainability under our three strategic pillars will be delivered including speciic targets to reduce carbon, and long term (beyond 15 years) which is the period aligned to the useful economic life of some of our property assets and where the potential impacts under dierent scenarios are less certain. These dierent periods have allowed us to assess risks and opportunities that are immediate and well deined and those which may arise over time but which are much less certain. We have given clear emphasis to both our transition and physical risks and opportunities. We have adopted the same approach to the materiality of these risks and opportunities as for our principal risks anduncertainties. Reading facility, UK Strategic Report Volution Group plc Annual Report 2023 70 Sustainability continued TCFD pillar – Strategy and Risk Task Force on Climate-related Financial Disclosures continued Physical risk – acute andchronic Changing weather patterns, linked to climate change, may directly damage ourproduction facilities or disrupt our supply chain. Scenario 1.5 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Scenario 4 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Strategic response and resilience Our main production assets are not exposed to direct risks of extreme weatheror other impacts of climate change over the short or medium term. Weengage with our supply chain and maintain alternative sources and suicient inventory to avoid the impact of short-term disruption. Our geographic spread from our international acquisition strategy helps to mitigatethe impact of local disruption. Impact on inancial statements There is no material impact on Going Concern, Impairment, or useful economic lives of our assets, nor any required increase in opex or capex to mitigate or replace our assets. Associated principal risk 1 2 Metrics and targets Continued monitoring of each of our signiicant locations and portfolio of owned properties. Transition opportunities Volution products support legislative transition as we decarbonise Buildings are responsible for around 36% of total CO 2 emissions and 40% of total energy demand. If we are to hit global net-zero targets, we must deal with the existing building stock, as well as building new compliant buildings. With 90% of the buildings we have today expected to be still standing by 2050, and a current refurbishment rate of just 1% per year, we need new initiatives. To deliver net-zero-ready buildings we must make them air-tight, insulate them well and decarbonise the heating source. These actions will impact the indoor environment and ventilation will be even more important for both health and comfort. Doing that without losing heat, and therefore energy, will require energy eicient ventilation solutions including Heat recovery. If we are successful and reduce the energy demand in buildings by 80% by 2050, we will save more than 30% of our total energy needs. To achieve this, we need to at least triple the rate of existing building stock renovation, to 3% a year. As a structural growth driver, in March 2023, the European Parliament passed a comprehensive revision of the 2010 Energy Performance of Buildings Directive (EPBD IV) to cover existing buildings for the irst time. These regulations will stimulate the renovation market in the EU, as they will trigger a wave of renovations and create a greater demand for energy-eicient upgrades. Similar regulatory drivers exist in all our markets and are fully described on pages 38 to 47. These responses to Climate change will increase demand for our low emission products and services. Strategic response and resilience The energy saving potential of our products and solutions and ability to support the net zero ambitions of the countries in which we operate. We are part of the Green economy, evidenced by the LSE Green Economy Mark and the eligibility of our products to the EU Taxonomy. Impact on inancial statements The opportunity is conservatively built into going concern and impairment reviews. Metrics and targets Low Carbon Sales 70.1% low carbon products Heat recovery products 33.8% Revenue from Heat recovery products Avoided emissions 2,183,455 Avoided emissions (tCO 2 e) Strategic Report Governance Report Financial Statements Additional Information 71 Volution Group plc Annual Report 2023 1 Economic risk 2 Acquisitions 3 Supply chain and raw materials 4 Regulation 5 IT systems including cyber breach 6 People 7 Innovation 8 Customers 9 Foreign exchange risk Potential inancial impact Low Minimal inancial impact to the Group Medium Some inancial impact to the Group but not material (<5% of Operating Proit) High Material inancial impact to the Group (>5% of Operating Proit) Transition risk – reputation Investors and lenders may show a preference to allocate capital to businesses with smaller climate impacts, and customers may select competitors which are perceived as having delivered on their plans to reduce carbon. Scenario 1.5 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Scenario 4 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Strategic response and resilience Sustainability is at the heart of our purpose and key to our strategy. We have appropriate governance and KPIs in place to ensure delivery of our strategy. We continue to engage with our investors and lenders and are conident ourstrategy is well understood. Impact on inancial statements There is no material risk that we would be unable to raisesuicient funds for future business requirements that could impact our growth strategy, Going Concern orViability. Associated principal risk N/A Metrics and targets Availability of inancing and share price. Transition risk – policy andlegal Governments may implement taxes or charges which penalise businesses that do not reduce carbon, also increasing the input cost of energy, freight andmaterials. Scenario 1.5 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Scenario 4 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Strategic response and resilience We engage with our suppliers to positively challenge and improve our production supply chain with a focus on eliminating waste, minimising emissions and maximising eiciency. Our carbon reduction targets mitigatepotential penalties or charges. Impact on inancial statements There is no material impact on Going Concern, Impairment, or useful economic lives of our assets, notany required increase in opex or capex to mitigate orreplace our assets. Associated principal risk 4 9 Metrics and targets Gross proit margin, Adjusted operating proit margin. Transition risk – policy andtechnology Governments may implement stricter regulation, rendering elements of our product portfolio non-compliant. Scenario 1.5 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Scenario 4 Likelihood Short term Medium term Long term Potential impact Short term Medium term Long term Strategic response and resilience As active members of trade associations across our Group, we inluence directional change in building regulations and improve industry guidance. We are committed to investing in innovation to support breakthroughs in sustainable living and ensuring that emission reduction is a core considerationinoursolution design. Impact on inancial statements There is no material impact on Going Concern, Impairment, or useful economic lives of our assets, nor any required increase in opex or capex to mitigate or replace our assets. Associated principal risk 7 9 Metrics and targets Number of new products developed, spend on and size of development team. Principal risk key Strategic Report Volution Group plc Annual Report 2023 72 Sustainability continued b. The impact of climate-related risks and opportunities on the organisation’s business, strategy and inancialplanning As described on page 70, we have identiied physical risks to some of our locations and supply chains and transitional risks related to reputation, policy and regulation. However, our sustainability ambition is to champion the energy savings potential of our products and solutions, and we are well positioned to seize the opportunities that regulatory tailwinds bring us. The opportunities that are available to us are a key driver to our Sustainable Growth Model. Our organic growth is driven by our local businesses taking the opportunities available to them in each market, driven in part by the local regulatory tailwinds (see page 38). Our drive to innovate and develop new products ensures that we are able to maintain a leadership position in low carbon and heat recovery products (see page 58). Our growth from acquisition targets successful businesses that specialise in low carbon and heat recovery products, evidenced by the two acquisitions during the inancial year (see page 50). We have concluded that we do not expect the risks of climate change to have a material impact on our inancial prospects over the short, medium or long term, and hence those risks have not materially impacted our strategy nor inancial planning. However, we have made a commitment to net zero and published annual targets that we intend to meet (detailed targets currently set including FY23 Scope 3 categories only). We have assessed the impact of these commitments and concluded that they do not have a material adverse inancial impact as shown in the table below. Climate related commitment/target/action Financial impact – transition of UK procured electricity to renewablesources. Multi year agreements in place for UK for whole of FY with no signiicant increase in cost. – of our sales are low-carbon products. target already achieved in FY. – of the plastic processed in our factories are fromrecycled sources. We are on track and successful procurement of reliable and aordable recycled sources ensures no risk to costs. We will operate an all electric leet. We have a small leet, mainly of automobiles, which are being replaced by hybrid and ultimately electric as they become due, at no signiicant incremental costs over fossil fuel cars. We will work with our supply chain and industry to increase theuse of new and sustainable products and inputs. No direct cost to Volution. We will delivery energy net gain through our product portfolio. Our target to increase Heat Recover product sales will deliver netbeneit through up-selling to higher value products. We will continue to incentivise our management and use an internal carbon charge to make our business units pay to oset their residual emissions. No incremental cost to the Group, but incentivising our local businesses to reduce emissions. We will close the loop on the circular economy, recovering our end-of-life products, recycling and reusing. We will role out an end-of-life recovery program when an economically eicient process is conirmed. We will continue to oset Scope and and increasingly Scope carbon emissions through the purchase of carbon credits. Our current commitment to carbon osetting has a non-material annual cost of below . We will reduce air freight by by . Freight will be transitioned to sea freight wherever possible. Seafreight is signiicantly cheaper than air freight. Deinitions Carbon neutral – To oset carbon emissions, we purchase credits for carbon removal or avoidance projects (see page 83). Our 2023 carbon neutral status boundary includes all scope 1 and 2 emissions, colleague commuting and waste. Net zero – The maximum feasible emissions reductions of carbon have been made and only residual emissions are counterbalanced by carbon removal credits. Our net zero target boundary includes all scope 1, 2 and 3 emissions, both upstream and downstream. Science Based Initiatives – The Science Based Targets initiative (SBTi) is a global body enabling businesses to set ambitious emissions reductions targets in line with the latest climate science. It is focused on accelerating companies and inancial institutions across the world to halve emissions before 2030 and achieve net zero emissions before 2050. Our letter of commitment conirms that we will set a long term science-based target to reach net zero value chain GHGs emissions by no later than 2050 in line with the SBTi Net-Zero Standard, submit it for SBTi validation and publish it, within the next 12 months. TCFD pillar – Strategy continued Task Force on Climate-related Financial Disclosures continued Strategic Report Governance Report Financial Statements Additional Information 73 Volution Group plc Annual Report 2023 c. The resilience of the organisation, taking into consideration dierent future climate scenarios The Directors have concluded that Volution is expected to be resilient to the impacts of climate change across the 2 scenarios that have been assessed, moreover, we are well placed to take the opportunities that climate change brings. In 2022, we carried out a detailed review of physical climate risks (acute and chronic) to ensure we understand the resilience of our critical properties to climate change. Climate change poses a physical risk to the buildings that we occupy including oices, factories and warehouses. Four sites have been assessed as having a moderate to high exposure to lood from lood defended rivers in the current climate, with only one more site at a high risk as a result of climate change by 2050. In the long term in the 2050s and beyond, drought and heat stress could have an increased potential impact, including water scarcity, higher risk of ires and an impact on operations, safety and wellbeing. None of our signiicant manufacturing sites are expected to be at risk of signiicant impact from climate change under the 1.5°C scenario under the short, medium or long term, or under the 4°C scenario under the short or medium term. The locations at most risk are typical locations in our decentralised structure, and none of them represent a material portion of the Group operating proits or assets. The impact of any one of these locations being closed for a sustained period as a result of looding for example, would not have a material impact on the long term resilience of the Group. Our decentralised structure also enables us to remain close to local regulation and policy transition risks and we work with industry bodies and regulators in each market. Over the longer term, our combination of centralised technical support and local market knowledge ensures our product development process will deliver products that regulators will require. In the 1.5C scenario, demand for products that improve energy eiciency of buildings will increase as Governments seek to ensure that target is met. We have considered whether our strategy may need to change to address potential climate related risks and opportunities and have concluded that there our strategy is appropriate to take the opportunities that climate change presents, and resilient against the potential risks, and we do not envisage any need to change our strategy. Risk score by location 4 o C global warming scenario at 2050 Facility name Country Drought Fire Heat stress Precipitation River lood defended Sea level rise Tropical cyclone Extratropical cyclone Brisbane AU Greve DK Bitola MK Christchurch NZ Burrowbridge UK Auckland NZ Nylanda SE Surrey UK Perth AU Sarajevo BA Melbourne AU Odder DK Harlev DK Cambridge UK Reading UK Greenbridge UK Westmead UK Crawley UK Eersel NL Oldenzaal NL Löberschütz DE Kuurne BE Hollola FI Hallefornas SE Key No data/ no risk High Very high Very low Moderate Low Strategic Report Volution Group plc Annual Report 2023 74 Sustainability continued a. The metrics used by the organisation to assess climate related risks and opportunities We disclose all material scope 1, 2 & 3 carbon emissions, in total and by business. We have set detailed annual targets for scope 1,2 and a proportion of scope 3 emissions and have distributed these targets to each of our local businesses, and we report against these targets. Our metrics for the % of our total revenue that is from Low carbon and Heat recovery products tracks the extent to which we are utilising the opportunities that Climate change brings. The success of our investments and capital allocation, both in terms of plant and equipment and in the acquisition of low carbon businesses, is relected in increased sales from these products. For the irst time in FY23 we have aligned our revenue with the EU taxonomy and continue to report under the FTS Russell Green Economy taxonomy. We believe these externally reported metrics allows us to demonstrate the success of our continued delivery against our sustainable growth strategy. We show in page 73, the proportion of our locations which are at some physical risk from climate change. b. Scope 1, scope 2, and scope 3 greenhouse gas emissions This year we have disclosed all material scope 1, 2 and 3 emissions, including for the irst time the emissions from the use of our products. Full details of our emissions are shown on page 76 to 77. Our Scope 1 and 2 emissions are not material to our total emissions, representing just 6% of ‘operation emissions (excluding emissions from use of products). Scope 1 and 2 emission sources 2023 are Electricity (51%), Gas (15%), Vehicle fuel (25%), and other (9%). The largest portion of our location-based scope 1 and 2 emissions is from the electricity we use in our facilities. Scope 3 emission sources 2023 are from the use of products (91%), Distribution (4%), Purchased Products (4%) & other 2%. The largest portion of our scope 3 emissions is from the use of our products, over their useful life The methodology we have used to calculate our emissions varies by type of emission and is detailed on page 77. We have increased the accuracy of our emissions data gathering and have adjusted the FY22 base year igures where appropriate if more reliable data is now available. For example, where reliable country level carbon conversion rates have now become available, we have adjusted the prior year reported emissions to ensure a like-for-like comparison year-on-year. Where there is uncertainty and assumptions are used, we have detailed the assumptions and disclosed sensitivities to the assumptions. Our perimeter includes all companies and subsidiaries in the Group. Our base year for target setting aligned with SBTi is 2022 to ensure we are using as accurate a base position as possible. As we grow in part through acquisition, the base level will be re-assessed when appropriate and targets will be adjusted accordingly. c. The targets used by theorganisation to manage climate-related risks and opportunities and performance against targets In FY2022 we set new targets for carbon reduction over the short, medium and long term which will enable us to achieve our commitment to a net zero carbon future. This year we have disclosed the disaggregated annual targets and report the performance against those targets for the year FY23 in the tables on page 76. The targets were set in line with the principles of Science Based Initiatives, and we will continue to reine our targets before being approved by Science Based Initiatives later in the year. 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Scope 1 and 2 Performance – Carbon intensity (tCO 2 e/£m of revenue) and absolute emissions 2014 to 2023 Location based tCO 2 e Market based tCO 2 e 2 CO 2 e intensity (tCO 2 / £m revenue) 36.8 34.1 28.14 25.49 27.91 20.81 19.37 15.15 12.3 11.1 TCFD pillar – Metrics and Targets Task Force on Climate-related Financial Disclosures continued Strategic Report Governance Report Financial Statements Additional Information 75 Volution Group plc Annual Report 2023 We have continued to deliver a year-on-year reduction in our chosen measure of carbon intensity, reducing by 9.8% since last year, cumulatively 69.8% lower than nine years ago when we irst started reporting this measure (see graph page 74). We have also delivered a year-on-year reduction in absolute scope 1 and scope 2 emissions despite the growth of the business both organically and through acquisition. Some of the actions taken by our colleagues to deliver this are shown on page 78. The annual targets include assumptions on (i) Passive reductions – those that will happen without any action from Volution such as decarbonisation of the electricity grid, (ii) Market-based reductions – those achieved by selecting “green” energy taris, (iii) Active reductions – those achieved by the deliberate actions of Volution making technological, behavioural and operational changes within the business, and (iv) carbonosetting. For further details on the target setting please refer to the FY22 Annual Report. 4,000 3,000 2,000 1,000 0 2025 2030 2035 2040 2045 2050 Scope 1 and 2 Target – Carbon intensity (tCO 2 e/£m of revenue) and absolute emissions 2022 to 2050 Location based tCO 2 e Market based tCO 2 e 2 CO 2 e intensity (tCO 2 / £m revenue) 2022 60,000 50,000 40,000 30,000 20,000 10,000 0 2025 2030 2035 2040 2045 2050 Scope 3 Target – Carbon intensity (tCO 2 e / £m of revenue) and absolute emissions 2022 to 2050 Target Scope 3 emissions Target Scope 3 carbon intensity 2022 180 160 140 120 100 80 60 40 20 0 tCO 2 e per £m revenue tCO 2 e per £m revenue tCO 2 e tCO 2 e 180 160 140 120 100 80 60 40 20 0 This year, we have expanded the perimeter of our Scope 3 reporting to include all material categories. However, we have not yet included all of these additional categories in our Scope 3 target, so in order to maintain consistency this year, we will continue to report against the Scope 3 targets established last year, which took into account only the Scope 3 categories reported last year. Strategic Report Volution Group plc Annual Report 2023 76 Emissions and Targets – Scope 1,2 Carbon footprint – Scope and Performance Targets 2023 2025 2030 2050 tCO e KwH tCO e KwH Scope 1 Gas Other fuel Vehicle fuels Refrigerants Total scope 1 Scope 2 Scope 2 (location based) Scope 1 and 2 total (location based) Scope 2 (market based) Total Scope 1 and 2 (market based) Carbon intensity Carbon intensity per £m of revenue, location based Carbon intensity per £m of revenue, market based Energy intensity per £m of revenue, market based Emissions and Targets – Scope 3 Carbon footprint – Scope tCO e Performance Targets 2022 2023 2023 2025 2030 2050 Upstream scope 3 Category 1 – Purchased goods and services 8 Category 2 – Capital goods — Category 3 – Energy-related activities 9 — Category 4 – Upstream transportation anddistribution Category 5 – Waste generated in operations 11 — Category 6 – Business travel 12 — Category 7 – Employee commuting Category 8 – Upstream leased assets — — Downstream scope 3 Category 9 – Downstream transportation anddistribution Category 10 – Processing of sold products 14 — — Category 11 – Use of sold products 15 — Category 12 – End-of-life treatment of soldproducts 16 — Category 13 – Downstream leased assets 17 — — Category 14 – Franchises 17 — — Category 15 – Investments 17 — — YoY Comparison 18 Total scope 3 emissions — Sustainability continued TCFD pillar – Metrics and Targets continued Task Force on Climate-related Financial Disclosures continued Strategic Report Governance Report Financial Statements Additional Information 77 Volution Group plc Annual Report 2023 1. Scope 1 and 2 have been veriied by Carbon Footprint. 2. Our Scope 1 and 2 forecast and the detailed targets within it have been set aligned to the SBTi principles. 3. To increase accuracy, the emissions from refrigerant use are updated and calculated based on top-up value as opposed to system capacity. 4. Reviewed and updated electricity conversion factors for sites in Bosnia and North Macedonia for FY22 to improve accuracy. 5. Reviewed and updated to improve accuracy – see footnotes 3 and 4. 6. Reviewed and updated vehicle fuel related emissions included all company owned vehicles and long term car leasing. 7. For consistency, our reduction targets for Scope 3 emissions are set for the scope categories reported for the base year FY22 only. Our forecast for scope 3 emissions shows that our current active reduction plans, along with passive reductions, will deliver a signiicant reduction in our scope 3 emissions. The forecast shows a reduction in scope 3 emissions of around 40% by 2030 and over 60% by 2050. We recognise that these forecast reductions are not yet aligned with our net zero ambitions and will work on further plans and targets to bridge the remaining gap. 8. Hybrid method of calculation; supplier-speciic plastic type data (where available) and secondary expenditure data for metal, paper, and other manufactured products. This method was chosen to improve the calculation accuracy for plastics, the most material of our production inputs. 9. This category consists of Transport and Distribution losses not included in Scope 2. 10. Comparable to our 2023 method, we have modiied our 2022 upstream and downstream transportation and distribution emissions to be spend based for consistency. 11. The total mass of packaging and waste from our manufacturing locations was determined and converted. 12. Business travel takes into account only air travel. 13. Comparable to our 2023 method, we have modiied our 2022 downstream emissions to be spend based for consistency. 14. Not material to group operations. 15. Limited assurance provided by Carbon Footprint. This category was calculated using activity-based data. Quantities of products sold, energy consumption by product type, and estimations of the product’s useful life. 7 product proile were used as the basis for estimating our Scope 3 category 11 emissions. (a) Residential Ventilation Application Intermittent Fans: These are typically used in residential settings and are expected to operate for 45 minutes in the morning and another 45 minutes in the evening, equating to 1.5 hours of daily operation. (b) Residential Continuous Fan: This fan is assumed to run continuously for 24 hours, but at diering capacities. For 23 hours, it operates on a ‘trickle’ setting, consuming only 30% of its maximum power. For the remaining 1 hour, it’s on ‘boost’, utilising its full power. (c) Commercial Intermittent: Used in commercial environments, this category of fans runs for an average of 1.5 hours each day. (d) Commercial Air Handling: Pertains to larger-scale air handling units in commercial spaces. The assumption is they operate during business hours, running for 10 hours each day while the building is occupied. (e) Residential Electrical Space Heater: Speciically for residential settings in temperate climates, where the heater is required only for a portion of the day, estimated to be around 5 hours daily. (f) Residential Towel Rail: Typically used to warm or dry towels in bathrooms, the operational assumption is 1.5 hours daily. (g) Hand Dryer: This type of dryer is triggered per use. With each use taking roughly 10 seconds, and assuming it’s employed 200 times each day (mostly in commercial or public settings), it operates for a cumulative total of approximately 33.3 minutes daily. Moreover, the utilisation is assumed to be more frequent on weekdays, hence it’s factored for 5 days a week. These proiles are essential to estimate the carbon footprint of each product over its usage phase, factoring in both the frequency and duration of use, to provide a more accurate representation of real-world conditions. 16. Limited assurance provided by Carbon Footprint. The total Weight of Sold products and packaging from our manufacturing locations was determined using weight data of products or estimates based on sales data. Data gaps were completed with estimations of weight based on the average per £m revenue of sales obtained by the existing data. 17. Not relevant to group operations. 18. Includes only the Scope 3 categories that have been recorded in 2022 so that a comparison with 2023 can be made. Emissions recalculation policy and process In alignment with the principals of the SBti under which we have set our short, medium and Long term targets, we have reviewed the targets we set in FY2022 to ensure they are still relevant and appropriate. We do not believe that there have been any material changes in climate science and there are no changes in our business context and so they continue to be relevant in FY2023. Our policy on recalculations and restatements of emissions data is that we review our GHG inventory on an annual basis and will restate our data and/or recalculate our science-based targets when required, to relect signiicant changes to our company structure, methodology changes or errors. Where a restatement or recalculation is performed, it will be clearly described in our annual reporting. During FY2023 we have recalculated FY2022 emissions for our business locations in North Macedonia to use a published local carbon emissions conversion factor for electricity use which was not available last year.This has increased the base year FY2022 emissions. We have also recalculated FY2022 emissions for refrigerants so that it relates only to refrigerants used during the year. This has decreased the base year FY2022 emissions. Within the Scope 3 categories we recalculated Air freight emissions for FY2022 to use a consistent method. As a result of these changes to FY2022, we have adjusted our targets to ensure they appropriately relect the base year of FY2022. We have increased the perimeter of our Scope 3 reporting this year to include all material categories. However, we have not yet included all of these additional categories in our Scope 3 target, and so to ensure consistency this year, we continue to report against the Scope 3 targets set last year which considered only those Scope 3 categories reported last year. Review of our Energy use and emissions data It is currently not mandatory for energy use and emissions data to be assured, but we have chosen to engage with Carbon Footprint to voluntarily assess and verify elements of our reported data. We have not obtained assurance through the (ISAE (UK)) 3000 Assurance Engagements Other Than Audits standard, rather the assessment has been carried out aligned to to ISO14064-1, Greenhouse Gas (GHG) Protocol, and follows UK Government Guidelines for reporting GHG emissions. The assessment of Scope 1 and 2 emissions included the assessors reviewing actual energy invoices and metre readings. The assessment of Scope 3 emissions included the review of the calculations and carbon emission conversion factors for those scope 3 categories calculated internally. We intend to move towards assurance of elements of our reported emissions in the coming year. Strategic Report Volution Group plc Annual Report 2023 78 Delivering against our Scope 1, 2 and 3 emission reduction targets Our colleagues are engaged and empowered to deliver against the carbon reduction targets we have set ourselves. Each action taken on its own may have a small impact, but when taken together we are delivering meaningful reductions inemissions. Sustainability continued TCFD pillar – Metrics and Targets continued Task Force on Climate-related Financial Disclosures continued United Kingdom Initiatives delivered • New injection Moulding Machine – 30% more energy eicient than previous generation • New Energy eicient Compressors atReading, Crawley and Swindon • New Energy eicient electric forklifts replacing gas • EV chargers installed at West Molesey, Swindon & Dudley • New direct shipment workbench reducing trucks movements between factories Upcoming actions • In-house warehousing to yield costsavings and reduce ineicientlogistics • Investment in tooling and value engineering toreduce material usage • Continued roll out of low carbon company cars • All UK sites will to be “Zero-Landill” by Dec-23 Continental Europe Initiatives delivered • Electric heatpumps installed at ClimaRad, which in combination with the already installed solar panels has enabled disconnection from the gas grid, savings costs and emissions • A new in-house Sheetmetal production facility in Bosnia removing truck movements from suppliers • Waste plastics miller enabling recycling and re-use of waste plastic • Inventer removed unnecessary foil wrapper from spare ilters replaced with cardboard • ERI new IT logistics software developed internally to enable full truck delivery • Ventilair 20% employees commuting by bike vs 10% target Upcoming actions • Solar panels in Bosnia facility • Conversion from oil heating in three Nordic factories to wood pellets/heat pump • Larger Grinder for re-use of scrap metal andother materials Australasia Initiatives delivered • Re-useable and recyclable pallet boxes with re-useable and recyclable Velcro pallet wrap replacing shrink wrap and single use pallet boxes. For internal use, the Initial investment will pay back over time and save waste • Improved Deliver in Full on Time (DIFOT) reducing additional multiple and unnecessary shipments • Twilight switches and LED high bay lighting installed in Australia • EVs acquired, on site charging point installed • Plastic packaging removal: Simx polystyrene 78% complete, Ventair ceiling fans 100% complete Upcoming actions • Remaining Twilight switches and LED high bay lighting to be installed in NZ • More EVs ordered • Continued development of product portfolio to transition to EC fans (Smart vent complete by 2024) and ceiling fans to DC (up to 50% inpast 12 months) Strategic Report Governance Report Financial Statements Additional Information 79 Volution Group plc Annual Report 2023 Carbon emissions by country Carbon emissions per country Country Scope Emissions tCO e Total Scope and Scope Location Based tCO e TotalScope and Scope Market Based tCO e Total Scope Emissions tCO e United Kingdom Sweden Norway Finland Denmark Germany Netherlands Belgium Bosnia and Herzegovina North Macedonia Continental Europe New Zealand Australia Australasia TOTAL Performance against carbon reduction initiatives When setting our carbon reduction targets in FY23 we disclosed a selection of active reduction initiatives that would be a major driver of reductions in the short term. Performance against those initiatives is shown below. Carbon reduction metrics FY22 FY23 Performance Carbon emissions from plastic raw materials and the purchase of plastic products (included within Scope 3 category 1) 12,087 10,363 Virgin plastic has a higher carbon footprint than recycled plastic, the disparity varying by type of plastic. The reduction in emissions from purchased raw materials and products is in part driven by supplier-speciic emissions data, where available, improving the accuracy of our data. Air freight (included within Scope 3 category 4 and 9) 10,923 10,179 Volution uses air freight from time to time to move high value or time critical components and products around the Group to ensure good levels of customer service. We recognise this is not a sustainable option. The reduction in reported Air freight emissions represents a deliberate reduction in air-freighting, expecting to accelerate in the coming year. Renewable energy market based emissions from electricity used at our facilities (included within Scope 1&2 market based) 904 623 We aim to move any remaining electricity purchased from national grids to contracted renewable taris in the next year, where available, as well as continue to invest in owned renewable energy such as solar panels. This year, our UK Torin business is included within a 100% renewable energy tari. Natural gas emissions from gas used at our facilities (included within Scope 1&2) 798 544 Our aim to reduce natural gas use in UK by switching facilities to electricity is a longer term metric, and the reduction in use since FY23 is a natural variability due to a warmer winter. Owned vehicles and fuel use 858 912 Higher emissions largely driven by post-covid increase in travel. Transition to hybrid/electric leet continues as vehicles need replacing Strategic Report Volution Group plc Annual Report 2023 80 Recommendations of the TCFD Recommended disclosures Reference Governance • Our governance structure provides clear oversight and ownership of the Group’s sustainability strategy and management of climate risk and opportunity. • In 2021, we established the Group management sustainability committee and Senior Independent Non-Executive Board member Amanda Mellor assumed Board oversight responsibility for Volution’s sustainability strategy andtargets. • Board oversight (page 68) • Management’s role (page 68) Strategy • Our purpose is to provide healthy indoor air, sustainably and this commitment to sustainability is integral to everything we do. It shapes our values, steers our strategy and informs our capital allocation. Our business model is underpinned by our sustainability pillars of Product, Planet and People. • Our sustainability ambition is to champion the energy saving potential of our products and solutions and we are well positioned to seize the opportunities that regulatory tailwinds bring us. • We have identiied transition risks related to reputation, policy and regulation, and technology but have not assessed any of these risks as high under either scenario under the short, medium or long term. • We have undertaken a review of our major production and warehouse locations for physical risk using independent, science based analytics, and have concluded we are not exposed to signiicant risk. • In preparing the Group’s inancial statements, we have considered the impact of climate-related risks on our inancial position and performance, and have not identiied any material adverse impact on the inancial statements or judgements within. • Climate-related risks andopportunities (pages 69-71) • Impact on strategy (page 72) • Resilience (page 73) Metrics and targets • We developed two key sustainability metrics in 2020 to measure our progress against our net zero ambitions: the % of revenue derived from low-carbon products, and the % of recycled plastic used in our manufactured products. • In 2021 we set out our ambition to be a carbon net zero business by 2040. • We have set detailed forecasts and targets for the short, medium and long term which are aligned to our net zero ambitions for scope 1 and 2, and make good progress against our net-zero ambitions for scope 3. • We have provided details of our scope 1, 2 and 3 emissions on both a location and market basis, and have progressed the quality of the scope 3 data by using detailed activity based methodologies and include all material categories. • Metrics (pages 74-77) • Scope 1 and 2 and 3 emissions (page 76) • Targets (pages 76-77) Risk • We have continued to embed climate risk into our broader risk management framework and have integrated climate change into our principal risks. • In 2021 we introduced a climate related risk review, which this year we have improved to consider the risks andopportunities under the short, medium and long term, as well as over our chosen climate scenarios. • Risk processes (pages 70-71) • Integration into overall risk management (pages 70-71) SFDR Principal Adverse Indicators (PAI) We are reporting on PA indicators to help investors with their reporting for the EU Sustainable Finance Disclosure Regulation (SFDR). Adverse sustainability indicator Indicator/Metric Volution response GHG emissions Scope , and emissions Scope : tCO , Scope : tCO , Scope : tCO page Carbon footprint Total emissions: tCO page Carbon intensity Scope & intensity tCO /m revenue page Exposure to companies in the fossil fuel sector Volution does not operate in fossil fuel sector Share of non renewable energyconsumption of energy used was from renewable sources or taris, non-renewable page Energy consumption in GwH per revenue Scope & energy consumption: Gwh Gwh / m Revenue page Biodiversity Activities negatively aecting biodiversity Our operations do not have a signiicant impact on biodiversity page Emissions to water We do not discharge solid, liquid or contaminants into bodies of water page Hazardous waste We use a non-material amount of hazardous water, which is properly recycled or disposed. kgs page Social and employee matters Violations of UK Global Compact principles and OECD GME We are not aware of any violations of the UNGC principles or OECD GME Lack of processes and compliancemechanisms We joined the UN Global Compact in FY and have since signed the CEO water mandate and continue to engage. We have comprehensive policies in place aligned with principles of the UNGC and OECD Guidelines including Anti corruption, Anti modern slavery, Ethical tax etc Unadjusted gender pay gap We publish gender pay gap data for the UK only Board gender diversity At July of the Board was female pages to Exposure to controversial weapons Volution is not involved in the manufacture or sales of weapons Sustainability continued Task Force on Climate-related Financial Disclosures continued Strategic Report Governance Report Financial Statements Additional Information 81 Volution Group plc Annual Report 2023 The Sustainability Accounting Standards Board (SASB) The SASB Foundation was founded in 2011 as a not-for-proit, independent standards-setting organisation. Volution provides information in alignment with SASB reporting guidelines for its sector (electrical and electronic equipment). The below table shows the reported topics and metrics and where further detail can be found within this report. Accounting metric and SASB code Response/data/reference Energy management Total energy consumed RT-EE-a. Our total energy consumption across the Group during the year was kWh, representing all electricity across all of our facilities. A small but increasing proportion is“o grid”, exempliied by the solar array on the Reading facility. The percentage of electricity used that was from renewable sources including renewable taris was . Percentage of grid electricity RT-EE-a. Percentage renewable RT-EE-a. Hazardous waste management Amount of hazardous waste generated, percentage recycled RT- E E- a . kg of hazardous waste generated during the manufacturing, distribution or other processes, collected by an external comparator and recycled where possible. Number and aggregate quantity of reportable spills and quantity recovered RT-EE-a. Zero reportable spills and therefore no recovered quantity to report. Product safety Number of product recalls issued, total units recalled RT-EE-a. Zero product recalls related to product safety issued during the year and therefore zero units recalled. Total amount of monetary losses as a result of legalproceedings associated with product safety RT-EE-a. No monetary losses as a result of product safety issues. Product lifecycle management Percentage of products, by revenue, that contain IEC declarable substances RT-EE-a. We manufacture a large proportion of our products ourselves and use no IEC declarable substances in the production process. We are continuing to review supply chain products for relevant substances and will report in future if necessary. Percentage of eligible products, by revenue, that meet Energy Star criteria RT-EE-a. This metric is not relevant at a global level as it is only applicable in the US and Canada. Revenue from renewable energy-related and energy eiciency- related products RT-EE-a. Revenues derived from products that are low carbon account for : oftotal revenue see page . Materials sourcing Description of the management of risks associated with the use ofcritical materials RT-EE-a. Our suppliers make a vital contribution to our performance and engaging with our carefully selected, high quality supply chain ensures we can maintain security of supply. Reviews and supplier audits are carried out to ensure compliance with our Code of Conduct and our policies on the prevention of bribery, corruption and modern slavery. The Group is exposed to luctuations in the price of raw materials and has implemented certain procedures to limit exposure to rising prices, including hedging of foreign currencies with which a proportion is purchased. Business ethics Description of policies and practices for prevention of bribery, corruption and anti-competitive behaviour RT-EE-a. Volution is committed to complying with all applicable laws and regulations in thecountries in which we operate. Our policies are available on our website. Total amount of monetary losses as a result of legal proceedings associated with bribery or corruption RT-EE-a. No legal proceedings and no monetary losses. Total amount of monetary losses as a result of legal proceedings associated with anti-competitive behaviour RT-EE-a. No legal proceedings and no monetary losses. Activity measures Number of units produced by product category RT-EE-.A A breakdown of revenues by activity and product type is shown on page. Number of employees RT-EE-.B Workforce statistics are shown on page . The average number of employees in the year was : . Reportable accident frequency rate Reportable accident frequency rates are shown on page . We report frequency rates per hours worked, representing an approximation of the hours worked during a person’s lifetime, and allowing comparability across our business units and with other companies. Reportable accidents per hours worked in was : . Fatalities Zero fatalities occurred during the year. Minor accident frequency rate Minor accident frequency rates are shown on page . We report frequency rates per hours worked, representing an approximation of the hours worked during a person’s lifetime, and allowing comparability across our business units and with other companies. Minor accidents per hours worked in was : . Strategic Report Volution Group plc Annual Report 2023 82 Although we do not consider that our operations have a signiicant impact on biodiversity, and that there are no material nature related risks to our operations, we are conscious of helping to reduce biodiversity decline. On that basis this year we have started to review our locations and deine action plans locally where we can make a positive impact. The irst of our sites to start to implement these local plans was Crawley, which is the location of both the Volution Plc and Vent-Axia brand head oices. Our facility in Crawley sits within the Manor Royal Business District which in the past few years has been working hard to create green spaces and enhance the green corridors across the estate. In collaboration with the Manor Royal BID and Sussex Wildlife Trust, the UK team has worked to ensure that we play an active role in improving our facility which is located on one of the green corridors. By planting wildlower seeds and introducing bug hotels we aim to provide a sanctuary to wildlife. In conjunction with reducing mowing of the grass areas during the period that the plants lower, we can provide an important stop o area for insects. Living within our means and doing all we can to behave more sustainably and create more biodiverse places is a priority for the Manor Royal BID. The Volution Group have shown great leadership and vision by looking at how relatively small interventions can collectively add up to make a big difference to the environment. We were delighted to support them in the creation of a new wildflower habitat area at their property in Fleming Way. Our Maintenance Team, with partners from the Sussex Wildlife Trust, worked with the Volution team and their staff volunteers in what was a thoroughly rewarding exercise. Great for team building and the area. We hope other companies will be inspired to take similar steps so that we can collectively benefit from a cleaner, greener and more sustainable Manor Royal. Steve Sawyer Executive Director, Manor Royal BID It was also a great opportunity to get our team together to participate in the process of planting the seeds and put up the bug hotels. Being involved in this project has been a great pleasure. Helping protect biodiversity as well as maintain and enhance our environment is an import part of our responsibility to the local community. I am looking forward to seeing the results of the team’s hard work in the coming few years. Natalie Humphrey Product Marketing Executive, VolutionVentilation UK Helping reduce Biodiversity decline Sustainability continued SASB continued Strategic Report Governance Report Financial Statements Additional Information 83 Volution Group plc Annual Report 2023 Carbon osets – Healthy indoor air We have continued with our commitment to carbon neutrality for Scope 1 and 2 emissions, and have increased the perimeter further to include more categories of Scope 3 each year since we irst made the commitment in FY21. This year, our net-zero perimeter includes all scope 1 and 2 market based emissions, emissions from colleague commuting, business travel, waste generated in operations, and the purchase of capital goods. This year we are again primarily supporting a carbon avoidance scheme that is aligned with our purpose of Health air, sustainably. We are supporting a project which will improve indoor air quality in China through the replacement of traditional coal fuelled cookers with solar powered cookers. The project aligns to the UN SDGs that we support, including 3 – Good Health and Wellbeing, 7 – Aordable and Clean Energy, and 13 – Climate Action. The project improves indoor air quality and reduces ire risk and fuel expenses. We understand that whilst the use of carbon osetting is only a stage on the way to our net zero future, we are conident the emissions reductions we are supporting are real, measurable andveriiable. As a Group we continue to invest in initiatives to reduce our own absolute emissions, including those described in page 78, and have made the decision that in FY24 the resources we have previously allocated to purchasing carbon credits can instead be used to invest more quickly in internal initiatives to reduce our own emissions. We will report in next years annual report the initiatives and impact ofthis investment. Our Commitment to the CEO Water Mandate In line with our sustainability ambition, we have chosen to endorse the UN Global Compact CEO Water Mandate. As an endorser of the Mandate, we have committed to take action over time across six key water-related areas, and to report annually on progress. These areas include our direct operations,our supply chain & watershed management, collective action, public policy, community engagement and transparency. We began to measures and understand our water use more fully in 2022. Whilst our direct water use for operations is not signiicant, and we do not believe there is any signiicant water related risk to our business, we have committed to work to improve our stewardship and have reduced both absolute and relative water use this year. Our target is to continue to reduce our water use over time, and this year we will investigate investments and eiciency measures to achieve this goal. We have raised awareness of water sustainability through our Group management sustainability committee, and we have included water stewardship in our supply chain policies. 1. The igures presented for 2022 have been adjusted to relect locations consistent with 2023. Except for small oices, this includes all locations and represents more than 90% of the Group’s workforce, Where there were data gaps in 2022, estimates were used. 15,000 14,000 13,000 12,000 11,000 10,000 2022 2023 Water use (m 3 ) 14,853 8.1 14,483 7.9 Water use per head (m 3 per head) Water use 1 DISCLOSURE INSIGHT ACTION Strategic Report Volution Group plc Annual Report 2023 84 Developing a working environment that is engaging, inclusive and safe People Our ambition To continue to develop an engaging and inclusive workforce where our employees feel valued and can fulil their potential. To build relationships with the local community, provide support where needed, and leave a lasting legacy. To place the highest priority on health and safety as we continue to pursue our zero-harm ambition. Sustainability continued Strategic Report Governance Report Financial Statements Additional Information 85 Volution Group plc Annual Report 2023 Actions Performance Status Comments Read more Accident rate 0.30 Reportable incidents Unfortunately, we had 12 reportable incidents in 2023. This equates to 0.30 per 100,000 hours worked. Y See more on page 92 Safety walks 391 We have conducted 391 safety walks across our operations, surpassing this year’s goal of 250. Y See more on page 92 Training hours 17,781 Colleagues have spent 17,781 hours in formal training, surpassing this year’s goal of 12,500. Y See more on page 86 Key On track or ahead Slightly o track – carefully monitor Not on track Highlights 85 Volution Group plc Annual Report 2023 Gillion Bulos, Auckland, New Zealand Strategic Report Volution Group plc Annual Report 2023 86 Sustainability continued People continued Our values Our values deine who we are and how we interact, with each other, our customers, oursuppliers and our communities. Our values guide our everyday actions, the decisions we make, and shape our culture, enabling us to fulil our unique purpose to provide Healthy air, sustainably. Living our values 1 Professional and reliable 5 Customer service 3 Integrity 7 Fun 2 Innovate 6 Grow 4 Commitment Innovate Y See more on page 88 Grow Y See more on page 89 Integrity Y See more on page 90 Commitment Y See more on page 91 Strategic Report Governance Report Financial Statements Additional Information 87 Volution Group plc Annual Report 2023 Despite a challenging economic environment, our teams have continued to deliver strong performance. It is their resilience, creativity and drive for results that enables us to stay focused on our purpose and to deliver on our commitments. Michelle Dettman Group Head of HR Diversity, equity and inclusion (DEI) Our employees represent dierent nationalities, cultures, sexual orientations and social backgrounds. We recognise that fostering a culture that is inclusive and equitable is essential to fully leveraging the power of this diversity. Our strength lies in the diverse perspectives, life experiences and skills that our workforce possesses and this has proven to be a catalyst for innovation and growth. In 2023, we launched our DEI steering group, with representation from all operating regions and CEO sponsorship, to assist in shaping our DEI framework. The steering group’s role is to drive accountability across the business, championing DEI activities at the local level and reporting progress to the sustainability committee. We recognise the critical role that leadership will play in cultivating an inclusive culture and launched ‘unconscious bias’ training to our senior leadership team as a irst step. The training is aimed at raising awareness of our unconscious biases and to provide tools to ensure that all voices are heard and valued. This training will be subsequently rolled out to all people managers and the wider workforce. We operate in an industry that traditionally attracts a higher-than-average proportion of male employees but we are committed to increasing the share of women in leadership positions. In FY’23, women represented 43% of our Board membership and 24% of senior management. Our upcoming group wide management development program that is aimed at growing our leadership pipeline comprises more than 35% female participation, which is a signiicant increase from previous years and signals our intent to provide equitable development opportunities. Build a diverse workforce Provide equitable access to opportunities Healthy air, sustainably Nurture an inclusive culture Through a series of local events across the Volution sites, we’ve fostered an environment that goes beyond mere tolerance; we actively celebrate our dierences. Our employees have had opportunities to interact, share their individual experiences, and learn from one another. What started as a Diwali celebration almost 19 years ago has since changed toan annual ‘Diversity Lunch’, to celebrate the rich and diverse cultures of our colleagues at Simx, New Zealand. It’s not always easy to get every cuisine represented on the menu and often have colleagues bring tasty dishes from their own kitchen. This is a great opportunity for colleagues to come together and learn about each other’s cultural backgrounds, practices and celebrations. Strategic Report Volution Group plc Annual Report 2023 88 Sustainability continued People continued Living our values Innovate We were very proud to be awarded, incollaboration with AO Recycling and Ultra Polymers Group, the prestigious ‘Excellence in Recycling Award’, in the category of ‘Recycled Product of the Year’! To be part of this eective collaboration, transforming the recycling landscape, has been a fantastic experience for us all, and together, we have demonstrated the power of innovation, and sustainability, by creating innovative products made from recycled plastics. This recognition celebrates our collective commitment to reducing the environmental impact, and inding innovative solutions to global challenges. By giving recycled goods a second life, we are contributing to a more sustainable future. The success of this project is testament to the transformative potential of recycling. Fabian Gillgower, UK Head of Procurement Find out more about our approach to DEI www.volutiongroupplc.com/application/ files/9516/7949/7556/Volution_Group_-_ Responsible_Operations.pdf Board Senior managers 1 and directreports All employees Male: 57% Female: 43% Male: 76% Female: 24% Male: 70% Female: 30% Note 1. Legislation requires that we deine “senior managers” as the directors of our subsidiary companies. However, the Board believes this information does not provide a meaningful analysis of how the Group operates so the data shown relects the proportion of senior managers by our own internal grading system. The number also excludes Board Directors. 2 The team at ERI, Macedonia participated in the irst women’s night race ‘Bidi Svoja 2023’. The team competed with other companies and secured 5th place. Diversity, equity and inclusion (DEI) continued Strategic Report Governance Report Financial Statements Additional Information 89 Volution Group plc Annual Report 2023 Living our values Grow I am delighted that the company continues to make signiicant investment to grow our operations. The most recent investment in four automatic presses will not just increase our production capacity of counterlow heat exchangers but will also improve our production eiciency and quality Mitko Kokinoski, Chief Operating Oicer, ERI Macedonia 6 Wear it Green Day celebrated across all sites in the UK Mental Health First Aiders training ERI team won 7th place in the “Trcaj Be 2022” race Employee wellbeing Supporting employee wellbeing is critical to strengthening workplace resilience. The COVID pandemic has left a signiicant impact on physical and especially mental health, likely to be felt for many years to come. This has been exacerbated by the current challenging economic environment. In the UK, the wellbeing campaign ‘Taking care of mental health is a team eort, let’s support each other at work’ was launched earlier in the year. Communication around the Employee Assistance Program was reinforced to break the stigma around mental health and to encourage employees to actively seek assistance. Employees across all sites actively participated in the ‘Wear it Green’ day to raise awareness of mental health. The irst group of mental health irst aiders were trained and certiied by Mental Health First Aid England with an aim to provide early on-site support. In Belgium, colleagues regularly join a lunch-time workout session encouraging each other to reach their itness goals whilst colleagues in the Nordics combine exercise and friendly competition in the Padel-Tennis tournament. “ Mental health is vitally important for both society and our business. Being able to break the stigma, to encourage understanding and acceptance of these issues puts individuals in a better position to gain help and be more likely to flourish in their personal and professional lives. The training equipped me with fundamental skills on how to respond in an empathetic, compassionate, and informed way. This training has had a significant impact on me.” Caine Amayo UK Finance Controller Strategic Report Volution Group plc Annual Report 2023 90 Sustainability continued People continued Employee engagement Employee engagement is critical to our success and we believe that when our employees are engaged, they are more creative and more productive. We are committed to creating a workplace where employees feel valued and empowered to achieve their best. Our global employee engagement forum is hosted twice a year and is attended by representatives from all group companies as well as Non-Executive Board member, Claire Tiney. This is a great opportunity for the group management team to share strategic updates with participants and to actively listen to what’s working well and what can be further improved at the local level. On the request of participants, the most recent forum was focused on new product development and the feedback was extremely positive. As part of our continued eorts to strengthen employee engagement, we are launching our irst ever global employee engagement survey – Volution Voices. This survey will give us valuable insights into how our employees are feeling about their work, organisation culture and the company as a whole. We will use the results of the survey to inform our engagement agenda and to make further improvements to our workplace. “ The outlook on the technical roadmap assures me that we are very well positioned for the future with a broad portfolio of ventilation solutions. The engagement forum gave me the opportunity to look beyond my own area and to understand where are there similar areas of application, similar target groups, to what extent can we support each other and which marketing measures can we adapt. Having insight into the technical roadmap of the organisation allows marketing teams to be more strategic, adaptable, and innovative in their approach, leading to more effective marketing campaigns.” Margit Thomas, Marketing Manager inVENTer Germany “ I was very happy to be invited to participate in the employee engagement forum, especially shortly after the acquisition of VMI by Volution. I experienced it as a great opportunity to meet other employees from different companies and to start the integration process into Volution. Learning about the company’s strategy and financial results was reassuring but what was particularly interesting for me, as the R&D Head of VMI, was to learn about the Group’s approach to new product development and current projects across the group.” Louis Stephan R&D Head, VMI France Living our values Integrity A sustainability mindset is key to fulilling our purpose and we cultivate this by actively engaging our employees to submit proposals that will support the business to achieve its carbon reduction targets. Nisha Desai from the warehouse team in Auckland was the winner of the ‘Sustainability Ideas’ competition. Ian Borley, Managing Director Australasia 3 Above: Annual ‘VMI team day’ with a good mix of work and play Below: Teams from ClimaRad Bosnia and the Netherlands jointly celebrate the company’s 10thanniversary Strategic Report Governance Report Financial Statements Additional Information 91 Volution Group plc Annual Report 2023 Living our values Commitment At the age of 65, I was determined to run the London marathon to prove that no matter your age, you can achieve what you set your mind to by putting in the appropriate training. I also wanted to raise money for Young Lives v/s Cancer as this charity has played a signiicant supporting role in the lives of two of my colleagues. Alan Parkinson Operations Director National Ventilation 4 Our communities Our colleagues continue to inspire us with their passion and generosity to support local communities and charities of choice. From bake sales to marathons, from car washes to growing moustaches, our teams came together to cheer each other, have fun along the way and to raise money for worthy causes. The team at inVENTer Germany participated in the company run at Jena in support of their local charity. Below: The UK team, through a variety of activities, raised £8,000 for their chosen charity Young Lives vs Cancer. The team in Sweden participated in ‘Mustaschkampen’, an annual campaign run by the Swedish Prostate Cancer Federation. SEK 50,000 was donated to invest in further research and raise awareness around prostate cancer. Strategic Report Volution Group plc Annual Report 2023 92 Sustainability continued People continued Andreas Boeber, UK Operations Director on a safety walk at Reading Health and Safety We continue to place the highest priority on health and safety as we continue to pursue our zero-harm ambition. Unfortunately we had more reportable accidents in FY23 compared to last year – 12 incidents or a frequency rate of 0.30 per 100,000 hours worked (FY22:10 incidents, 0.25 per 100,000 hours worked). We report reportable incident (UK RIDDOR equivalent) frequency rates per 100,000 hours worked as this represents an approximation of the hours worked during a person’s lifetime, and allows comparability across our business units and with other companies. Whilst we are in no way complacent, we were relieved that none of the incidents during the year resulted in serious or life changing injuries. We also note that a large proportion of the accidents were at one of our manufacturing sites with the most manual processes, which, as we invest in automation at that location over the coming years should reduce the opportunity for incidents. In the UK, where the largest part of our manufacturing is located, our UK operations leadership has re-invigorated our safety culture. Health and Safety KPIs have been included in senior management incentive schemes for relevant individuals for the irst time this year, and we expect to see a signiicant reduction in our reported frequency rates in FY24. During FY23, our senior managers conducted 391 safety walks surpassing the previous year’s total of 167 and this year’s target of 250. We value these proactive inspections and encourage the culture of vigilance and transparency they develop. We have invested in enhancing our safety education and training, recording 1,597 hours health and safety training and exercises during the year. This equips our employees with the knowledge and skills necessary to operate safely, identify potential hazards, and respond eectively in an emergency. Last year, our ventilation operations in the UK successfully implemented and achieved ISO 45001 certiication. These systems have been further improved during FY23 demonstrating our commitment to robust health and safety management systems. We expect to achieve ISO 45001 certiication at our Swindon (UK) operations by the end of FY24. Our business thrives when our people do, and we recognise that this is only possible in an environment that is engaging, inclusive, and safe. Accident frequency rate Reportable incidents 0.30 (FY22: 0.25) Minor incidents 0.50 (FY22: 0.43) (per 100,000 hours worked) Sustainable procurement Responsible procurement is a responsibility we take seriously and we recognise that the decisions we make when selecting suppliers can have consequences on the environment and communities. Our responsible procurement processes also aim to manage and mitigate supply chain risks. Over the past two years, we have made progress ensuring that our suppliers comply with our code of conduct, policies on the prevention of bribery and corruption and modern slavery. We have carried out more desktop assessments and on-site audits for those suppliers deemed to be higher risk. Since the return to business travel this year, our Group procurement director has visited our Chinese suppliers, further enhancing the relationships we have developed through our China–Britain Business Council sourcing oice in Hangzho. The Board is regularly updated on material supplier matters, and Supplier audit reviews are presented to and discussed by the Audit Committee as part of its work in connection with the Group modern slavery policy and statement. Suppliers with spend over £100k 197 Supplier audits carried out in FY23 50 Strategic Report Governance Report Financial Statements Additional Information 93 Volution Group plc Annual Report 2023 Stakeholders Engaging with our stakeholders Employees Why engagement matters Employee engagement is critical to our long-term success. Interaction between our employees and customers is also one of the main ways of experiencing our brands. We work to create a diverse and inclusive workplace where every employee can reach their full potential. This ensures we can retain and develop the best talent. How does Volution engage? • Employee Representative Forum attended for workforceengagement. • Training and development. • Individual performance reviews. • Recognition and reward. • Apprenticeships. • Regular communications such as newsletters. Board engagement • Employee Representative Forum attended by Claire Tiney, designated Non-Executive Director for workforce engagement. • Oversight of employee remuneration and gender paygap data. • Monthly health and safetyreports. • Annual Report and Accounts. Customers Why engagement matters Understanding our customers’ needs and behaviours allows us to deliver relevant products and services, retain customers and attract new ones and improve product performance. It also highlights opportunities for innovation of sustainable products and growth and challenges to be met. How does Volution engage? • Management of ongoing customer relationships. • Customer events and product launches. • Participation in industry forums and events. • Brand websites and social media. • Annual Report and Accounts. Board engagement • New product development reports. • CEO Board report updates the Board on material customer matters. • Update on customer feedback and themes provided as part ofEmployee Forum presentations. Strategic Report Volution Group plc Annual Report 2023 94 Suppliers Why engagement matters Our suppliers make a vital contribution to our performance. Engaging with our supply chain means that we can ensure security of supply and speed to market. Carefully selected high-quality suppliers ensure our brands deliver market leading innovative products meeting our customer expectations andrequirements. How does Volution engage? • Supplier audits and inspections. • Ongoing supplier relationship meetings. • Responsible, sustainable and ethical procurement. • Engagement on our Code of Conduct and policies on the prevention of anti-bribery and corruption and modern slavery. • Through our China–Britain Business Council sourcing oice in Hangzhou. Board engagement • CEO Board report updates the Board on material supplier matters and progress on ethical and sustainable supply. • Supplier audit reviews are presented to and discussed bythe Audit Committee as part of its work in connection with the Group modern slavery policy and statement. Shareholders Why engagement matters Continued access to capital is vital to the long-term success of our business. We work to ensure that our investors and investment analysts have a strong understanding of our strategy, performance and ambition. As a company with shares listed on the Main Market of the London Stock Exchange, we must provide fair, balanced and understandable information about the business to enable informed investment decisions tobe made. How does Volution engage? • Annual Report and Accounts. • Annual General Meeting. • Corporate website including dedicated investor section. • Results presentations and post-results engagement with majorshareholders. • Investor roadshows, site visits, face-to-face meetings and addressing regular investor and analyst enquiries. • Regulatory announcements. Board engagement • Through regular shareholder feedback to the Board by the CEO and CFO. • The CEO and CFO (and Chairman ifappropriate) hold meetingswith shareholders as part of the investor roadshows and ad-hoc meetings asappropriate. • The chair of the Remuneration Committee engages with shareholders on Remuneration Policy and practice. • The Board reviews the voting of shareholders. Stakeholders continued Strategic Report Governance Report Financial Statements Additional Information 95 Volution Group plc Annual Report 2023 Communities and the environment Why engagement matters We do business responsibly. We value our brands and have a reputation built on transparency and proven sustainability expertise. We have strong environmental objectives and targets, driven by our strategic commitments. We are committed to human rights. We aim to contribute positively to the communities and environment in which we operate. We focus on supporting communities and groups local to our operations. ESG principles and responsible business provide the foundations for sustainable growth. Volution has a sustainability strategy and has been awarded the Green Economy Mark by the London Stock Exchange. In addition we have a Sustainability Linked Revolving Credit Facility. How does Volution engage? • Signatories to the UN Global Compact and the CEO Water Mandate. • Community investment initiatives. • Sponsorship and employee volunteering. • Contributing to national initiatives in society such as International Women’s Day and Global Recycling Day. • A number of employee-led charitable initiatives during the year. Board engagement • Active engagement with the Group’s ESG matters and sustainability strategy. • Amanda Mellor, Non-Executive Director, has been appointed as the Board’s representative to attend and report back on the management Sustainability Committee’s decisions andactions. • The Board receives regular updates on sustainability including in relation to the development of sustainable new products and progress against sustainability targets. Government/industry bodies Why engagement matters National governments set the regulatory framework within which we operate. We engage to ensure we can help in shaping new policies, regulations and standards, which assist in improving indoor air quality, andensure compliance with existinglegislation. We continually innovate to ensure our products become more energy eicient in line with the sustainability policies set out by most national governments. We conduct business in accordance with the principles set out inthe Bribery Act 2010. How does Volution engage? • Participation in industry bodies and working groups, in particular BEAMA, the UK trade association for manufacturers and providers of energy infrastructure technologies and systems. • Engagement with tax authorities. • Responding to industry and government consultations. • Conferences and speaking opportunities. • Eective and clear policies against bribery and supporting the elimination of modern slavery with training for sta and business partners. Board engagement • The Board provides direction in support of the UN Global Compact’s principles, and policies relating to modern slavery and anti-bribery. Strategic Report Volution Group plc Annual Report 2023 96 Risk Management and Principal Risks Eective risk management is integral to our objective ofdelivering sustainable long-term value. The Board is committed to protecting and enhancing the Group’s reputation and assets in the interests of shareholders as a whole, while having due regard to the interests of all stakeholders. It has overall responsibility for the Group’s system of risk management and internal control. The Group’s businesses are aected by a number of risks and uncertainties. These may be impacted by internal and external factors, some of which we cannot control. Many of the risks are similar to those found by other companies of similar scaleandoperations. The risks and uncertainties facing the Group have been considered in the context of the political and macroeconomic uncertainties that have arisen since the invasion of Ukraine in early 2022 and from the changes in the trading relationship between the UK and the European Union (EU) from 1January 2021. A speciic assessment ofthe potential risks and our approach tomanagement of these risks can be found on pages 100 to 104. Executive management Day-to-day management of risk Design and implementation of the necessary systems of internal control Audit Committee Assurance oversight of the internal controls and risk management process Board Overall responsibility for risk management Reviews principal risks and uncertainties, along with actions taken, where possible, to mitigate them Our approach Risk management and maintenance of appropriate systems of control to manage risk are the responsibilities of the Board and are integral to the ability of the Group to deliver on its strategic priorities. The Board has developed a framework of risk management which is used to establish the culture of eective risk management throughout the business by identifying and monitoring the material risks, setting risk appetite and determining the overall risk tolerance of the Group. To enhance risk awareness, embed risk management and gain greater participation in managing risk across the Group, a programme of employee communication continues with all new employees receiving a brochure on joining Volution. The Group’s framework of risk management is monitored by the Audit Committee, under delegation from the Board. The Audit Committee is responsible for overseeing the eectiveness of the internal control environment of the Group. BDO LLP (BDO) continued to act in the capacity of internal auditor and provide independent assurance that the Group’s risk management, governance and internal control processes are operating eectively. BDO continued to act in this capacity throughout the inancial year ended 31 July 2023. Strategic Report Governance Report Financial Statements Additional Information 97 Volution Group plc Annual Report 2023 Identifying and monitoring material risks Material risks (including emerging risks) that may lead to threats to our business model, strategy and liquidity are identiied through our framework of risk management, our analysis of individual processes and procedures (bottom-up approach) and a consideration of the strategy and operating environment of the Group (top-down approach). The risk evaluation process begins in the operating businesses with an annual exercise undertaken by management to identify and document the signiicant strategic, operational, inancial and accounting risks facing the businesses. This process ensures risks are identiied and monitored and management controls are embedded in the businesses’operations. The risk assessments from each of the operating businesses are then considered by Group management, which evaluates the principal risks of the Group with reference to the Group’s strategy and operating environment for review by the Board. Our principal risks anduncertainties The 2018 UK Corporate Governance Code (the 2018 Code) states that the Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives and that it should maintain sound risk management and internal control systems. In accordance with provision 29of the 2018 Code, the Directors conirm that they have carried out a robust assessment of the principal risks facing the Group, including those which would threaten the business model, future performance, solvency or liquidity. Set out in this section of the Strategic Report are the principal risks and uncertainties which could aect the Group and which have been determined by the Board, based on the robust risk evaluation process described above, to have the potential to have the greatest impact on the Group’s future viability. For each risk there is a description of the possible impact of the risk to the Group, should it occur, together with strategic consequences and the mitigation and control processes in place to manage the risk. This list is likely to change over time as dierent risks take on larger or smallersigniicance. Having completed a thorough review of climate change risks and opportunities (pages 70 and 71), we have concluded that these risks are most appropriately managed by including their potential impact within existing principal risks where relevant, rather than deining aseparate principal risk. Risk heatmap 1 Economic risk 2 Acquisitions 3 Supply chain and rawmaterials 4 Regulation 5 IT systems including cyber breach 6 People 7 Innovation 8 Customers 9 Foreign exchange risk Impact Likelihood 9 4 5 3 2 6 8 1 7 Strategic Report Volution Group plc Annual Report 2023 98 Risk Management and Principal Risks continued Viability statement The Board has considered the viability of the Group over a three-year period to 31July 2026, taking into account the Group’s current position and the potential impact of the principal risks and uncertainties. While the Board has no reason to believe that the Group will not be viable over a longer period, it has determined that three years is an appropriate period as it aligns with the Group’s business planning cycle. The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Group’s viability. In addition, a three-year horizon is typically the period over which we review our external banking facilities and is also the performance-based period over which awards granted under Volution’s share-based incentive plan are measured. As part of the annual budgeting process, the Board considers projections for subsequent years. The output of this plan is used to perform central debt and headroom proile analysis, which includes a review of sensitivity to key principle risks and a combination of those risks. It also considers the ability of the Group to raise inance and deploy capital. Our inancial position remains robust. On 2 December 2020, the Group reinanced its bank debt and has in place a £150 million multicurrency “Sustainability Linked Revolving Credit Facility”, together with an accordion of up to £30 million. An option was taken to extend the maturity to December 2025 during the year. There are no further opportunities to extend the current facility beyond December 2025, and as such we envisage undertaking a re-inancing during calendar year 2024, with the intention of having a new facility in place at least 12 months ahead of the expiry of the current facility. Relationships with the lenders is considered to be strong, and we envisage good appetite from both current and potentially new lenders to participate. With respect to the longer-term viability of the Group, we believe the business model will remain highly relevant. The regulatory and consumer drive towards making new and existing homes more eicient and therefore airtight will continue, meaning that the opportunities to solve the problems of indoor air quality will only grow, strengthening the vital role ventilation has to play in creating a healthy indoor environment. We believe that one of the legacy consequences of Covid-19 is a heightened awareness of the importance of indoor air quality to health and the role played by good ventilation systems. Customer requirements in terms of enhanced functionality, energy eiciency and aesthetics of products are also supportive trends. The Board carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. Principal risks are identiied through our risk management process and are set out on pages 100 to 104. They are recorded in a Group Risk Register, which is reviewed and discussed by the Board at least twice a year. Whilst the review has considered all the principal risks identiied by the Group, a selection of risks was considered which if they occurred together would be considered a severe but plausible downside scenario with which to assess the viability of the Group. A general economic slowdown representing the impact of macro- economic uncertainty including the actions of central banks in raising interest rates to curb inlation and the impact that this may have housing and construction (principal risk 1) combined with supply chain diiculties and availability issues (principal risk 3 and 4) has been modelled, combined with a signiicant acquisition increasing debt but with no positive cash low contribution (principal risk 2). Combined, this severe but plausible downside assumed a reduction in revenue of 20% and a reduction in gross margin of 10%. The sensitivities modelled used the same assumptions as for the going concern statement, as set out opposite, for the years ending 31 July 2024 and 31 July 2025 with further assumptions applied for the year ending 31 July 2026. The geographic and sector diversiication of the Group’s operations, further demonstrated by the acquisitions made during the FY23 inancial year, helps to mitigate the risk of serious business interruption in one area materially impacting the Group. Furthermore, our business model, structured so that the Group is not reliant on a concentration of customers or sectors, and our ability to lex our cost base, will continue to protect our viability in the face of current and foreseeable future uncertain and adverse economic conditions. We demonstrated our ability to maintain and increase margins across our geographies in FY21, FY22 and in FY23, when the Covid-19 pandemic, the impact of the invasion of Ukraine, political uncertainty in the UK and general inlation impacting all input costs were able to be mitigated where possible and recovered through early and decisive pricing action. The Board have also considered the impact of climate change, particularly in the context of the risks and opportunities identiied in the TCFD disclosure of this Annual Report (page 66). We carried out a full analysis of the physical risks of climate change under our chosen scenarios last year, and have updated that review, considering our new acquisitions. The analysis shows that under the Paris aligned scenario, physical risks to our assets are not expected to be material. The analysis shows that none of our signiicant assets are in areas of signiicant physical risk over the time periods assessed. Under the 4c scenario, there is increased risk to some of our assets, but these risks only occur over the long time period, outside of the Viability assessment period. Over the time period of our viability assessment, we have concluded that there is no material adverse impact of Climate change which could impact the viability of the Group. Whilst we do not currently expect any material short- and medium-term impacts from climate change under the scenarios we have considered, the risks over the long term are more uncertain and we will continue to assess these risks against judgements and estimate made in preparation of the Groups inancialstatements. The Board has carefully considered the principal risks of the Group and the impact of those risks on the viability of the Group and has concluded that there is no reason to believe the Group will not be viable over the period assessed. Strategic Report Governance Report Financial Statements Additional Information 99 Volution Group plc Annual Report 2023 Going concern The inancial position of the Group, its cash lows and liquidity position are set out in the inancial statements. Furthermore, note 28 on page 214 to the consolidated inancial statements includes the Group’s objectives and policies for managing its capital, its inancial risk management objectives, details of its inancial instruments and its exposure to credit and liquidity risk. The inancial statements have been prepared on a going concern basis. In adopting the going concern basis, the Directors have considered all of the above factors, including potential scenarios arising from the political and macroeconomic uncertainty that has arisen post-Covid and since the invasion of Ukraine early in 2022, including the actions of central banks in raising interest rates to curb inlation and the impact that this may have on housing and construction, and from its other principal risks set out on pages 100 to 104. Under a severe but plausible downside scenario, the Group remains within its debt facilities and the attached inancial covenants under the 18 month from the balance sheet date period of assessment and the Directors therefore believe, at the time of approving the inancial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below. Our inancial position remains robust with committed facilities totalling £150 million, and an accordion of a further £30 million, maturing in December 2025. The inancial covenants on these facilities are for leverage (net debt/adjusted EBITDA) of not more than three times and for adjusted interest cover of not less than four times. Our base case scenario has been prepared using robust forecasts from each of our operating companies, with each considering the risks and opportunities the businesses face. We have then applied a severe but plausible downside scenario in order to model the potential concurrent impact of: • a general economic slowdown reducing revenue by 20% compared to plan. • supply chain diiculties or input price increases reducing gross proit margin by 10%; and • a signiicant acquisition increasing debt but with no positive cash lowcontribution. A reverse stress test scenario has also been modelled which shows a revenue contraction of c37% with no mitigations would be required to breach covenants, which is considered extremely remote in likelihood of occurring. Mitigations available within the control of management include reducing discretionary capex and discretionary indirect costs. Over the short period of our Climate Change assessment (aligned to our Going Concern assessment) we have concluded that there is no material adverse impact of Climate Change and hence have not included any impacts in either our base case or downside scenarios of our Going Concern assessment. We have not experienced material adverse disruption during periods of adverse or extreme weather in recent years and we would not expect this to occur to a material level over the period of our Going Concernassessment. The Directors have concluded that the results of the scenario testing combined with the signiicant liquidity proile available under the revolving credit facility conirm that there is no material uncertainty in the use of the going concern assumption. Strategic Report Volution Group plc Annual Report 2023 100 Risk Management and Principal Risks continued Strategic consequence Organic growth Value-adding acquisition Operational excellence Likelihood key Potential impact key Unlikely Possible Likely Low Medium High 1 Economic risk Likelihood Potential impact Risk change No change Risk appetite Cautious Strategy link Risk and impact A decline in general economic activity and/or a speciic decline in activity in the construction industry, including, but not exclusively, a decline caused by economic uncertainty, inlation, high interest rates and impacts of the Russian invasion of Ukraine. Demand for our products serving the residential and commercial construction markets would decline. This would result in a reduction in revenue and proitability. Our ability to achieve our ambition for continuing organic growth would be adversely aected. Change during the year Economic uncertainty in part as a result of post-Covid economic upheaval and the Russian invasion of Ukraine has continued across the world during FY23. As a result of the high inlation environment, the UK and most of our geographies have continued to experience a “cost of living crisis”. Governments and central banks have taken strong actions to reduce inlation, primarily by raising key interest rates. This has had some success, with inlation now falling in most of our geographies. The primary source of global inlation – the invasion of Ukraine and the global price of energy and agricultural products – continues to be a risk, although wholesale prices have fallen for both. There remains considerable uncertainty on the direction of inlation in the short and medium term, and hence the extent to which interest rates may rise further or stay higher for longer than expected. The impact on the housing and construction industry in uncertain. As such, it is appropriate that “economic risk” remains our primary principal risk. Risk mitigation Geographic spread from our international acquisition strategy helps to mitigate the impact of local luctuations in economic activity. New product development, the breadth of our product portfolio and the strength and specialisation of our sales forces allows us to outperform against any general economic decline. Our end-market diversity, with exposure to both residential and commercial and to new build and RMI provides mitigation to economic and housebuilding cycles. Our business is not capital intensive and our operational lexibility allows us to react quickly to the impact of any decline in volume. Link to climate change risks Over the longer term, a decline in general economic activity or economic disruption could be caused by physical or transitional risks of climate change. Relevant climate change risks described in further detail in our TCFD section include: Climate risk 1 – Physical risk, Climate risk 2 – Transition risk Reputation, Climate risk 3 – Transition risk policy and legal, and Climate risk 4 Policy and technology. However, it is important to note that our sustainability ambition is to champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. The regulatory tailwinds should signiicantly increase demand for our sustainable and innovative ventilation solutions, while our leadership position in the UK, Continental Europe and Australasia means that we are well positioned to seize this opportunity (Transition opportunity 1 – Products and Markets). Strategic Report Governance Report Financial Statements Additional Information 101 Volution Group plc Annual Report 2023 Strategic consequence Organic growth Value-adding acquisition Operational excellence Likelihood key Potential impact key Unlikely Possible Likely Low Medium High 2 Acquisitions Likelihood Potential impact Risk change No change Risk appetite Open Strategy link Risk and impact We may fail to identify suitable acquisition targets at an acceptable price or we may fail to complete orproperly integrate the acquisition. Revenue and proitability would not grow inlinewith management’s ambitions and investor expectations. Failure to properly integrate a business may distract senior management from other priorities and adversely aect Group revenue and proitability. Financial performance could be impacted by failure to integrate acquisitions and to secure intended synergies. Our strategic ambition to grow by acquisition may be compromised. Change during the year Whilst the timing and opportunity landscape for acquisitions will vary from time to time, we are positive about the potential range of opportunities in the coming years as exempliied by the two transactions completed during the year ended 31 July 2023 and an additional acquisition in August 2023 (see pages 50 and 51). Risk mitigation The ventilation industry in Europe remains fragmented with many opportunities to court acquisition targets. Senior management has a clear understanding of potential targets in the industry and a track record ofacquisitions since IPO in June 2014. Management is experienced in integrating new businesses into the Group. Our policy of rigorous due diligence prior to acquisition and a structured integration process post-acquisition have been maintained. Link to climate change risks N/a 3 Supply chain and raw materials Likelihood Potential impact Risk change Reducing Risk appetite Open Strategy link Risk and impact Raw materials or components may become diicult to source because of material scarcity or disruption of supply including but not exclusively, as a consequence of economic uncertainty, the Russian invasion of Ukraine, supply interruptions in China, and the evolution of the relationship between the UK and the EU post Brexit. The increased friction and potential for a trade war or other geopolitical disputes including between the US and China could destabilise supply chain activity. Prices for input materials may increase and our sales and proitability may be impacted during any period of constraint. Organic growth may be reduced. Our product development eorts may be redirected to ind alternative materials and components. Change during the year Potential for disruption to supply chains, especially relating to products and materials sourced from China, continues to be a speciic risk that we are managing very closely. Potential impacts could include inability to service customer demand due to non-availability of products as well as input cost increases due to the need to airfreight. Risk mitigation We establish long-term relationships with keysuppliers to promote continuity of supplyandwhere possible we have alternative sources identiied. We continue to monitor stock levels and order patterns and where deemed necessary will adjust inventory levels to help mitigate any disruptions in supply. Link to climate change risks Over the longer term, supply chain issues could be caused by physical or transitional risks of climate change. Relevant climate change risks described in further detail in our TCFD section include: Climate risk 1 – Physical risk, Climate risk 2 – Transition risk Reputation, Climate risk 3 – Transition risk policy and legal, and Climate risk 4Policy and technology. Strategic Report Volution Group plc Annual Report 2023 102 Risk Management and Principal Risks continued Strategic consequence Organic growth Value-adding acquisition Operational excellence Likelihood key Potential impact key Unlikely Possible Likely Low Medium High 4 Regulation Likelihood Potential impact Risk change No change Risk appetite Cautious Strategy link Risk and impact Laws or regulation relating to the carbon eiciency of buildings, the eiciency of electrical products and compliance may change. The shift towards higher value-added and more energy eicient products may not develop as anticipated resulting in lower sales and proit growth. If our products are not compliant and we fail to develop new products in a timely manner, we may lose revenue and market share to our competitors. Our organic growth ambitions may be adversely aected. We may need to review our acquisition criteria to relect the dynamics of a new regulatory environment. We may have to redirect our new product development activity. Change during the year We believe that the already supportive regulatory drivers around energy eiciency and improving indoor air quality will continue to be enhanced over time. There is a risk that the current economic uncertainty could, in the extreme, lead Governments to lessen or pause green deal commitments and regulations to support energy eicient solutions, in the short term, but we deem this risk to be low and only in the short term. Risk mitigation We participate in trade bodies that help to inluence the regulatory environment in which we operate and therefore we are well placed to understand future trends in our industry. Favourable regulatory tailwinds have continued to develop. We are active in new product development and have the resource to react to and anticipate necessary changes in the speciication of our products. Link to climate change risks Our sustainability ambition is to champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. The regulatory tailwinds should signiicantly increase demand for our sustainable and innovative ventilation solutions, while our leadership position in the UK, Continental Europe and Australasia means that we are well positioned to seize this opportunity (Transition opportunity 1 – Products and Markets). 5 IT systems including cyber breach Likelihood Potential impact Risk change Increasing Risk appetite Cautious Strategy link Risk and impact We may be adversely aected by a breakdown in our IT systems or a failure to properly implement any new systems. We could temporarily lose sales and market share and could potentially damage our reputation for customer service. Change during the year. The risk of cyber-attack and cyber fraud continues to increase for all businesses. During the year, a failed ransomware attack in one of our businesses, was dealt with eiciently and eectively, and demonstrated our ability to deal with such attacks. Risk mitigation Disaster recovery and data backup processes are in place, operated diligently and tested regularly. Our decentralised IT systems mean that it is unlikely that a material proportion of the Group could be compromised at any one time. We have a three-layered system of network security protection against cyber-attacks or breaches of security. This infrastructure is maintained to withstand increasingly sophisticated worldwide cyber threats. We also undertake regular cyber security testing and training of our employees. We have a process of annual internal and external penetration testing with quarterly monitoring checks and have carried out an audit review of all third-party IT suppliers. Link to climate change risks N/a Strategic Report Governance Report Financial Statements Additional Information 103 Volution Group plc Annual Report 2023 6 People Likelihood Potential impact Risk change No change Risk appetite Cautious Strategy link Risk and impact Our continuing success depends on retaining key personnel and attracting skilled individuals. Skilled and experienced employees may decide to leave the Group, potentially moving to a competitor. Any aspect of the business could be impacted with resultant reduction in prospects, sales, andproitability. Our competitiveness and growth potential, both organic and inorganic, could be adversely aected. Operational excellence may be adversely aected. Change during the year The direct risk of Covid-19 causing widespread colleague sickness has largely ended, although we remain mindful of the potential risk of resurgence and continue to ensure the utmost priority is given to the health and wellbeing of our employees. A high inlation environment and “cost of living crisis” may impact our ability to retain talent. Our continuing growth has increased the size and complexity of our business. Risk mitigation Regular employee appraisals allow two-way feedback on performance and ambition. A Management Development Programme is run periodically to provide key employees with the skills needed to grow within the business and to enhance their contribution to the business. The Directors regularly review succession planning and key roles. Link to climate change risks N/a 7 Innovation Likelihood Potential impact Risk change No change Risk appetite Cautious Strategy link Risk and impact We may fail to innovate commercially or technically viable products to maintain and develop our product leadership position. Scarce development resource may be misdirected and costs incurred unnecessarily. Failure to innovate may result in an ageing product portfolio that falls behind that of our competition. Our organic growth ambitions depend in part upon our ability to innovate new and improved products to meet and create market needs. In the medium term, failure to innovate may result in a decline in sales and proitability. Operational excellence may be adversely aected. Change during the year The focus of our capital expenditure investment this year was in new product development which, when taken together with the product portfolios and R&D capability of our two new business acquisitions, demonstrates our continued focus onproduct innovation. Risk mitigation Our product innovation is driven by a deep understanding of the ventilation market and its economic and regulatory drivers. The Group starts with a clear marketing brief before embarking on product development. Link to climate change risks N/a Strategic consequence Organic growth Value-adding acquisition Operational excellence Likelihood key Potential impact key Unlikely Possible Likely Low Medium High Strategic Report Volution Group plc Annual Report 2023 104 Risk Management and Principal Risks continued Strategic consequence Organic growth Value-adding acquisition Operational excellence Likelihood key Potential impact key Unlikely Possible Likely Low Medium High 8 Customers Likelihood Potential impact Risk change No change Risk appetite Open Strategy link Risk and impact A signiicant amount of our revenue is derived from a small number of customers and from our relationships with heating and ventilation consultants. We may fail to maintain theserelationships. Any deterioration in our relationship with a signiicant customer could have an adverse signiicant eect on our revenue from that customer. Our organic growth ambitions and operational excellence would be adversely aected. Change during the year The current macroeconomic uncertainty means that certain customers could fall into inancial diiculties. However, we have not yet seen a material increase in the number of customers failing or of bad debt. Risk mitigation We have strong brands, recognised and valued by our end users, and this gives us continued traction through our distribution channels and with consultants and speciiers. We have a very wide range of ventilation and ancillary products that enhance our brand proposition and make us a convenient “one-stop-shop” supplier. We continue to develop new and existing products to support our product portfolio and brand reputation. We focus on providing excellent customer service. Link to climate change risks Our sustainability ambition is to champion the energy saving potential of our products and solutions and support the net zero ambitions of the countries in which we operate. The regulatory tailwinds should signiicantly increase demand for our sustainable and innovative ventilation solutions, and strengthen the industry as a whole, including our customers (Transition opportunity 1 – Products and Markets). 9 Foreign exchange risk Likelihood Potential impact Risk change No change Risk appetite Cautious Strategy link Risk and impact Foreign exchange rates between currencies that we use may move adversely. The commerciality of transactions denominated in currencies other than the functional currency of our businesses and/or the perceived performance of foreign subsidiaries in our Sterling denominated consolidated inancial statements may be adversely aected by changes in exchange rates. Our ambition to grow internationally through acquisition exposes us to increasing levels of translational foreign exchange risk. Change during the year The current macroeconomic uncertainty has led to large movements in exchange rates and continued volatility is likely. Risk mitigation Signiicant transactional risks are hedged by using forward currency contracts to ix exchange rates for the ensuing inancial year. Revaluation of foreign currency denominated assets and liabilities is partially hedged by corresponding foreign currency bank debt. Link to climate change risks How each government and economy respond to the risks of climate change over the long term may impact the macroeconomic outlook for the countries in which we operate, and hence move foreign exchange rates adversely. Strategic Report Governance Report Financial Statements Additional Information 105 Volution Group plc Annual Report 2023 Non-Financial and Sustainability Information Statement This section of the Strategic Report constitutes Volution’s Non-Financial Information Statement and is produced to comply with Sections 414CA and 414CB of the Companies Act 2006. Reporting requirements Relevant policy/code Section within Annual Report Environmental matters • Sustainability Policy • Sustainability (pages 52 to 92) Employees • Code of Conduct • Health and Safety Policy • Anti-Bribery and Corruption Policy • Whistleblowing Policy • Modern Slavery Policy • Data Protection Policy • People Reporting Framework (pages 84 to 92) • Board diversity (page 112) • Gender diversity (page 112) • Stakeholder engagement (pages 93 to 95) • Principal risks (pages 96 to 104) Human rights • Code of Conduct • Modern Slavery Policy • Stakeholder Engagement • People Reporting Framework (pages 84 to 92) • Stakeholder engagement (pages 93 to 95) Social matters • Code of Conduct • Stakeholder Engagement • People Reporting Framework (pages 84 to 92) • Governance (pages 106 to 166) • Stakeholder engagement (pages 93 to 95) Anti-bribery and anti-corruption • Anti-Bribery and Corruption Policy • Whistleblowing Policy • People Reporting Framework (pages 84 to 92) • Governance (pages 106 to 166) Principal risks • Risk management (pages 96 to 104) • Principal risks and uncertainties (pages 96 to 104) Business model • Business model (pages 22 and 23) Non-inancial key performance indicators • Key performance indicators (pages 34 to 37) Directors’ s172 statement Businesses do not operate in isolation. Without a good understanding of who the key stakeholders are and their needs, a business will fail to deliver sustainable value to shareholders and other stakeholders. Under s172 of the UK Companies Act, a director of a company must act in the way they consider, in good faith, would most likely promote the success of the company for the beneit of its shareholders. In doing this, the director must have regard, amongst other matters, to the: • likely consequences of any decisions in the long term; • interests of the company’s employees; • need to foster the company’s business relationships with suppliers, customers and others; • impact of the company’s operations on the community and environment; • company’s reputation for high standards of business conduct; and • need to act fairly as between members of the company. The Directors are focused on their duties under s172 (1) of the Companies Act 2006 and consider that they have acted in the way they consider, in good faith, would promote the success of the Company for the beneit of its members as a whole, having regard to the stakeholders and matters set out in s172 (1) (a–f) in the decisions taken during the year ended 31 July 2023. The Strategic Report was approved by the Board and signed on its behalf by Ronnie George, Chief Executive Oicer, on 4 October 2023. Ronnie George Chief Executive Oicer Governance Report Volution Group plc Annual Report 2023 106 Governance Report Chair’s Introduction Board of Directors Governance Framework Board Activities Governance Report Nomination Committee Report Audit Committee Report Directors’ Remuneration Report Directors’ Report Directors’ Responsibility Statement Governance Report Strategic Report Governance Report Financial Statements Additional Information 107 Volution Group plc Annual Report 2023 Chair’s Introduction Dear shareholder, On behalf of the Board, I am pleased to present the Governance Report for the year ended 31 July 2023. This review and the reports of the Nomination, Audit and Remuneration Committees that follow, summarise the Board’s activities during the year. The Board is committed to high standards of corporate governance, and decisions are made based on what the Board believes is likely to be for the beneit of all stakeholders by promoting and maintaining the long-term success ofthe Company. Compliance with the 2018 UK Corporate Governance Code Our approach to governance is based on the concept that good corporate governance enhances longer-term shareholder value and sets the culture, ethics and values for the Group. Consistent with our belief in the importance of corporate governance, I am pleased to report that the Company has complied in full with the principles and provisions of the 2018 UK Corporate Governance Code (the 2018 Code). A copy of the 2018 Code can be found at www.frc.gov.uk The Board believes that good corporate governance enhances longer-term shareholder value and sets the culture, ethics and values for the Group, andiscommitted to open and transparentreporting. As we look to the future, the Group welcomes enhancements in corporate governance regulation. The Board has spent time during the year considering the potential revisions to the Code in light of the recent FRC consultation. Strategy and sustainability The Board’s agenda this year covered a number of strategic matters, from discussions on future plans for growth, to innovation and new product development, ESG, and regulatory issues. The work of the Management Sustainability Committee, overseen by our Senior Independent Director, Amanda Mellor, also provides important information to the Board, including on the progress being made by the global business in respect of its decarbonisation roadmap. In addition, during the year the Board received a detailed presentation from PwC on upcoming ESG reporting requirements, to ensure a solid understanding of the changing expectations in this area. In line with our strategic goals, the Board also devoted substantial time toconsidering the acquisitions of VMI, I-Vent and a third acquisition, DVS, which completed after the year-end. Maintaining our high standards in corporate governance The role of the Board is to guide the global business in the pursuit of its strategic goals, whilst maintaining high standards of Corporate Governance and ensuring robust decision- making processes. Governance Report Volution Group plc Annual Report 2023 108 Strategy and sustainability continued We also carried out post-investment reviews in relation to acquisitions completed in the prior year, to continue our oversight of the return on investment and capital allocation plans in the context of newly acquired businesses. Board composition and succession planning The Nomination Committee had a busy year, particularly in the area of succession planning, with a number of changes to the composition of the Board and its Committees taking place, including my own appointment to the role of Chair, following the planned retirement of Paul Hollingworth on 23 June 2023. As part of these changes, we welcomed Jonathan Davis to the Board, as a new independent Non-Executive Director and Audit Committee Chair. Both succession processes were led by our Senior Independent Director, Amanda Mellor. New External Auditors The Audit Committee conducted a competitive audit tender process in the year, which resulted in the appointment of PwC as the Group’s External Auditor for the 2024 inancial period, subject to shareholder approval at the AGM in December 2023. I would like to thank our outgoing Auditors, EY, for their contribution during their tenure. A key priority for the Board and the Audit Committee in 2024 will be to oversee the smooth transition to PwC, and ensure an orderly handover of this critical role. Remuneration Policy & Shareholder Consultation Volution’s Remuneration Policy was last approved at the 2020 Annual General Meeting and was designed to operate for three years. Consequently, a new Policy will be put to shareholders at this year’s Annual General Meeting. The Remuneration Committee has conducted a thorough review of the Policy in preparation for its renewal, and an extensive consultation with shareholders has taken place. Further details on the decisions of the Remuneration Committee and the Policy are provided in the Directors’ Remuneration Report on pages 140 to 161. Evaluating the Board’s eectiveness Each year, the Board undertakes a formal evaluation of its eectiveness. This year we carried out an internally facilitated evaluation to assist in the development ofthe Board. The results of the Board evaluation conirmed that the Board continues to function eectively and that there are no signiicant concerns among the Directors about its eectiveness. The Board members were seen as engaged and committed while the Board’s culture remains open, respectful andconstructive. People and culture The ongoing successful performance of the business is only possible due to the commitment, abilities and drive of our People. Our Group Head of HR continues to drive our employee engagement programme, build on our learning and development oering, and further embed an inclusive and safe work culture. Our Designated Non-Executive Director for Workforce Engagement, Claire Tiney, has also continued her programme of engagement during the year. A global employee engagement survey is planned for October 2023, which will further increase the depth of information the Board receives on the views of employees. The Board’s role in monitoring the Company’s culture and ensuring that it is appropriately aligned throughout the Group is very important. In order for the Board to eectively monitor culture, we need to consider andunderstand the insights from, and theconcerns of, all our stakeholders. Site visits enable a deepened understanding of workforce information that the Board receives on a regular basis, and provide the opportunity for open and informal dialogue with employees on their day-to- day activities, priorities and challenges. As a Board we were pleased to be able to travel to our Volution site in Sweden this year, to meet the local Management team and to see the operations irst-hand. A number of other senior managers joined us, and it was an insightful, valuable and enjoyable event. Additionally, in September 2023, we held our Board meeting at our UK site in Reading, incorporating another site tour, and a session with the sales teams, viewing and discussing products. Engagement events such as this are critical to providing the Board with direct insights into the culture of the Group, and we plan to continue with our site visitprogramme in 2024. Diversity The Board supports the FTSE Women Leaders Review and the Parker Review onEthnic Diversity. As at the inancial year end, the Board comprised four male and three female Directors, meaning that over 40% of our Board is female, with Amanda Mellor as our Senior Independent Director. One Board member was of a minority ethnicbackground. I am therefore pleased to say that the Company meets the new targets for diversity in the Listing Rules. The Board and the Nomination Committee remain focused on this area when considering Board succession. The Company is also committed to making progress towards improving the number of women on the Senior Management Team, which is currently at a level of 23% female representation. To support the ambition of the Group, a fourth Group-wide Management Development Programme will be launched in October 2023, and this will consist of nearly 40% female nominations, signalling the commitment of the Group to ensuring diversity in the pipeline of talent, and accelerating change. Chair’s Introduction continued Strategic Report Governance Report Financial Statements Additional Information 109 Volution Group plc Annual Report 2023 As a Board we were pleased to be able to travel to our Volution site in Sweden this year, to meet the local Management team and to see the operations first hand. A number of other Senior Managers joined us, and it was an insightful, valuable and enjoyable event. Election and re-election ofDirectors In accordance with the 2018 Code provisions and following a performance evaluation of those Directors standing for election or re-election at the 2023 Annual General Meeting, I can conirm that they all continue to be eective and committed to their roles and have suicient time available to perform their duties. Accordingly, as recommended by the Nomination Committee, all Directors will be oering themselves for election or re-election at the Company’s Annual General Meeting tobe held on 13 December 2023. Annual General Meeting The Annual General Meeting of the Company will take place at 12.00 noon on Wednesday 13 December 2023 at the oices of Norton Rose Fulbright LLP, 3 More London Riverside, London SE1 2AQ, United Kingdom. All Directors will attend this year’s Annual General Meeting which will again provide an opportunity for shareholders to hear more about our performance during the year and to ask questions of the Board. I look forward to meeting any shareholders who can join us at our Annual General Meeting and extend my thanks to you all for your continued support as we look forward to the year ahead. Nigel Lingwood Chair 4 October 2023 Governance Report Volution Group plc Annual Report 2023 110 Board of Directors Strong leadership Nigel Lingwood Non-Executive Chair Appointed: 30 April 2020 Career and experience: Nigel joined the Board in April 2020 as an independent Non-Executive Director and Chair of the Audit Committee. He became Chair of the Board on 23 June 2023. He is Chair of the Nomination Committee and a member of the Remuneration Committee. Nigel was group inance director of Diploma PLC from 2001 to 2020. During his time at Diploma, Nigel oversaw more than 50international acquisitions across Europe, North America and Australia, during which time the company had grown market capitalisation from circa £60 million to circa £2.7 billion. Nigel was previously senior independent director and audit committee chair of Creston plc from July 2015 until December 2016 when the company was taken private. Skills and attributes which support strategy and long-term success:Nigel brings extensive public company, inancial and accounting and acquisition experience. He also has recent and relevant inancial and accounting expertise together with extensive public company experience and wide ranging international business experience; signiicant strategic and operational expertise together with extensive merger and acquisition experience, both in the UK and internationally. External appointments: Nigel is currently AuditCommittee Chair at Dialight plc. Ronnie George Chief Executive Oicer Appointed: 15 May 2014 Career and experience: Ronnie joined Volution in 2008 as Managing Director of Vent-Axia Division (now the Ventilation Group) and became CEO in 2012 upon leading the management buy-out backed by TowerBrook Capital Partners LP. Since then he has transformed the Company from a UK-centric provider of air quality solutions into a globally diversiied organisation with 22market leading brands in 17 countries. Ronnie led the successful listing of Volution on the Main Market of the London Stock Exchange in 2014 and has subsequently delivered a strong and consistent inancial performance, increasing revenue by over two and a half times, and growing the Company organically and through atotal of 25 acquisitions since irst becoming CEO. Volution is now one of the leading ventilation companies fully active on an international basis. Ronnie has extensive industry experience and prior to joining Volution spent 20 years in the wire and cable industry latterly leading Draka’s global activities to supply to the marine, oil and gas sectors. In 2015 he was nominated as a inalist for EY Entrepreneur of the Year in London and the South East. Skills and attributes which support strategy and long-term success: Signiicant strategic and operational expertise together with extensive merger and acquisition experience, both in the UK and internationally, and in-depth knowledge of the ventilation industry. External appointments: None. Andy O’Brien Chief Financial Oicer Appointed: 1 August 2019 Career and experience: Andy joined Volution as Chief Financial Oicer in August 2019 following nine years at Aggreko plc, a leading global provider of mobile power and temperature control solutions, where he held a number of senior inance roles most recently as Finance Director, Power Solutions. Andy’s background also includes broad inancial leadership, strategy and general management positions in the oil & gas and building materials industries with General Electric and Lafarge S.A. Andy brings extensive international inancial and accounting expertise through a background working in a global business environment having lived and worked in the Nordics, Middle East and Singapore as well as the UK and Republic of Ireland. Throughout his career, Andy has operated in environments where cost control and strong operational management has been critical. Skills and attributes which support strategy and long-term success: Financial and accounting expertise both in the UK and internationally, signiicant merger and acquisition experience, strong track record of building, developing and leading multi-location teams. External appointments: None. All Directors listed below were Directors throughout the inancial period ended on 31 July 2023 with the exception of Paul Hollingworth, who stepped down from the Board on 23 June 2023, and Jonathan Davis, who was appointed as an independent Non-Executive Director with eect from 23 June 2023. External appointments The Board considered and approved the additional external commitments taken on by Nigel Lingwood and Margaret Amos during the inancial period. In each case, it was agreed that there would be no impact on the time commitment, nor on the independence and objectivity, required to discharge the agreed responsibilities ofeach role. RN Paul Hollingworth retired from the Board as Non-Executive Chair on 23 June 2023. Paul had served onthe Board as an independent Non-Executive Director since June2014 and had been Chair ofthe Board since 1 February 2020. Strategic Report Governance Report Financial Statements Additional Information 111 Volution Group plc Annual Report 2023 Amanda Mellor Senior Independent Non-Executive Director Appointed: 19 March 2018 Career and experience: Amanda joined the Board in March 2018 as an independent Non-Executive Director and brings experience in international business, shareholder relations, strategy and governance. Amanda also has wide-ranging experience in climate and sustainability matters, and attends Volution’s Management Sustainability Committee meetings as representative of the Board, to ensure eective oversight of the Group’s environmental and social sustainability agenda. Amanda is currently the group secretary of Haleon plc and was previously group secretary for Standard Chartered plc and, prior to that, group secretary and head of corporate governance at Marks and Spencer Group plc where she was also an executive member of the operating committee. As part of these roles, Amanda was involved in numerous sustainability- related and climate transition initiatives. Skills and attributes which support strategy and long-term success: Experience in international business, consumer and retail, sustainability and ESG, shareholder relations, strategy and governance. External appointments: Amanda is currently group secretary of Haleon plc. RNA Committee membership A Audit Committee N Nomination Committee R Remuneration Committee Chair of Committee Claire Tiney Independent Non-Executive Director of the Board and for Workforce Engagement Appointed: 3 August 2016 Career and experience: Claire joined the Board in August 2016 as an independent Non-Executive Director and was appointed as chair of the Remuneration Committee on 30 April 2020. Claire is also the designated Non-Executive Director at Volution for workforce engagement. Claire has over 30 years’ listed company experience, including a number of executive roles at WHSmith Group plc, Mothercare plc and McArthurGlen Ltd, bringing strengths in business strategy and turnaround, strategic development and change management. Claire was previously senior independent director and chair of the remuneration committee at Topps Tiles Plc and non-executive director and chair of the remuneration committee of Hollywood Bowl Group plc. Skills and attributes which support strategy and long-term success: Extensive board-level experience with key strengths in business strategy and turnaround, strategic development and change management. External appointments: None NA Margaret Amos Independent Non-Executive Director Appointed: 10 March 2022 Career and experience: Margaret joined the Board in March 2022 as an independent NonExecutive Director, and is a member of the Audit, Remuneration, and Nomination Committees. Margaret’s career began at Rolls-Royce Plc in 1990, where she gained extensive inancial and commercial experience, serving most recently as Senior Finance Business Partner, Aerospace (from 2013 to 2015) and Finance Director, Corporate, IT and Engineering (from 2015 to 2017). Following her time at Rolls-Royce Plc, Margaret founded and managed an aerospace consultancy business from 2018 to 2020. Skills and attributes which support strategy and long-term success: Extensive board-level experience with expertise in a wide range of ields including inance, business strategy, international M&A, andsustainability. External appointments: Margaret currently serves as a non-executive director for Pod Point Group Holdings plc (where she is also chair of the audit and ESG committees), Tyman plc (where she is also chair of the audit committee), Ombudsman Service (where she is also chair of the audit committee) and HMG Department for Transport, Trinity House (where she is also chair of the audit committee). RNA Jonathan Davis Independent Non-Executive Director Appointed: 23 June 2023 Career and experience: Jonathan joined the Board in June 2023 as an independent Non-Executive Director and chairman of the Audit Committee, bringing strong inancial and accounting expertise and extensive public company, M&A, and international experience. He is currently Group Finance Director at Rotork plc, a FTSE 250 global provider of mission-critical intelligent low control solutions operating across a diverse range of markets, including the oil & gas, water, power, chemicals, and process industries. Skills and attributes which support strategy and long-term success: Recent and relevant inancial and accounting expertise, public company and international experience. External appointments: Jonathan is currently Finance Director at Rotork plc. R RNA Governance Report Volution Group plc Annual Report 2023 112 Board of Directors continued Board composition Board ethnic diversity Board gender diversity Non-Executive Director tenure 1-3 years: 2 4-6 years: 2 7-9 years: 1 Board meetings and attendance The table below sets out the number of Board meetings held during the year and attendance by each Director. The Board normally holds at least six meetings during the year but will meet or pass resolutions, as required, to deal with urgent matters and event-driven items such as acquisitions and trading updates. In the year ending 31 July 2023, there were seven scheduled Board meetings. Director Attendance at Meetings Chairman Paul Hollingworth to June / Nigel Lingwood from June / Executive Directors Ronnie George / Andy O’Brien / Non-Executive Directors Margaret Amos / Jonathan Davis / Amanda Mellor / Claire Tiney / 1. Jonathan Davis joined the Board on 23 June 2023. There was only one Board meeting between that date and the year end, so Jonathan attended the maximum number ofmeetings possible. 2. Paul Hollingworth stepped down from the Board on 23 June 2023. There were six Board meetings from the start of the inancial year until that date, so Paul attended themaximum number of meetings possible Executive Directors: 2 Non-Executive Chairman: 1* Independent Non- Executive Directors: 4 Minority ethnic background: 1 White: 6 Female: 3 Male: 4 * Nigel Lingwood, Non-Executive Chairman, was independent on appointment Strategic Report Governance Report Financial Statements Additional Information 113 Volution Group plc Annual Report 2023 Governance Framework Promoting long-term sustainable success Overview The Board fully supports the principles laid down in the UK Corporate Governance Code as issued by the Financial Reporting Council in 2018 (the 2018 Code), which applies to the inancial year ended 31 July 2023 and is available at www.frc.org.uk. This report sets out the Company’s governance structure and how it complies with the 2018 Code and also includes items required by the Disclosure Guidance and Transparency Rules (DTRs). The disclosures in this report relate to our responsibilities for preparing the Annual Report and Accounts, including compliance with the 2018 Code to the extent required, our report on the eectiveness of the Group’s risk management and internal control systems, and the functioning of ourCommittees. Compliance with the 2018UK Corporate Governance Code The Board considers that it and the Company have, throughout the year, complied with the provisions of the 2018 UK Corporate Governance Code, which is the version of the Code which applies to the Company for its inancial year ended31July 2023. How we comply with the UK Corporate Governance Code 2018 • Section 172 statement – page 122 • Board of Directors – pages 110 and 11 • Purpose, values and culture – page 1 • Board activities – page 117 Board Leadership & Company Purpose • Leadership and experience – page 112 • Performance evaluation – page 119 • Nomination Committee report – pages 127 to 130 Composition, Succession and Evaluation • Corporate governance structure and division of responsibilities – pages 114 to 116 • Board and committee attendance – pages 112, 127, 131 and 140 • Director independence – page 119 Division of Responsibilities • Audit Committee report – pages 131 to 139 Audit, Risk and Internal Controls • Remuneration Committee report – pages 140 to 161 Remuneration Management Presentation to the Board, Växjö, Sweden, May 2023 Governance Report Volution Group plc Annual Report 2023 114 • • • Y People Section Pages 84 to 92 The Board is collectively responsible for promoting the longterm sustainable success of the Company, generating value for shareholders, other stakeholders, and contributing towider society. The Board sets the Group’s purpose, strategy and values, and ensures that these are aligned with the overall culture ofthe Group. The Board sets the Group’s risk appetite and satisies itself that inancial controls and risk management systems are robust, while ensuring the Group is adequately resourced. It also ensures there is appropriate dialogue with shareholders on strategy and remuneration. The Board’s main responsibilities are included in a schedule ofmatters reserved for the Board, The Board has delegated certain responsibilities to three Committees to assist it with discharging its duties. The Committees play an essential role in supporting the Board to implement its strategy and provide focused oversight of key aspects of the business. The full terms of reference for each Committee are available on the Company’s website, www.volutiongroupplc.com. Governance Framework continued The role of the Board and its Committees Claire Tiney Designated NED for EmployeeEngagement Employee Engagement Reports to the Sustainability Committee. Y People Section Pages 84 to 92 DEI Committee Board Responsibility for monitoring risk management throughout the Group, developing and implementing risk management policy. The Group Risk Management Steering Committee is chaired by the Chief Financial Oicer and its membership is made up of members of the Senior Management Team. Y Risk Management and Principal Risks Pages 96 to 104 Responsibility for the operational delivery of the Group’s strategy and the day-to-day management of the Volution business. Led by the Chief Executive Oicer. Y CEO Review Pages 12 to 15 Responsibility for the development and implementation of the Volution Sustainability strategy and initiatives, covering Product, Planet and People. The Sustainability Committee is chaired by the Chief Executive Oicer and is attended by designated Non- Executive Director for Sustainability matters, Amanda Mellor. Y Sustainability Committee Report Pages 52 to 92 Executive Management Team Sustainability Committee Group Risk Management Steering Committee Non-Executive Chair Four independent Non-Executive Directors Two Executive Directors Attended by Amanda Mellor Board Representative for Sustainability Reports to Responsibility for Board composition; succession planning; and Director selection. Members Non-Executive Chair and Four independent Non-Executive Directors Y Nomination Committee Report Page 127 to 130 Responsibility for oversight and governance of the Group’s inancial reporting, internal controls, risk management and the relationship withthe External Auditor. Members Four independent Non-Executive Directors Y Audit Committee Report Pages 131 to 139 Responsibility for the Remuneration Policy and setting individual remuneration levels for Executive Directors and senior management. Members Non-Executive Chair and Four independent Non-Executive Directors Y Remuneration Committee Report Pages 140 to 161 Audit Committee Remuneration Committee Nomination Committee Board oversight Strategic Report Governance Report Financial Statements Additional Information 115 Volution Group plc Annual Report 2023 Main responsibilities • Manages and provides leadership to the Board of Directors and is responsible for the overall eectiveness of the Board. • Ensures appropriate composition of the Board together with the right skills and talent. • Acts as a direct liaison between the Board and the management of the Company, through the ChiefExecutive Oicer. • Ensures that the Directors are properly informed and that suicient information is provided to enable the Directors to form appropriate judgements. • In concert with the Chief Executive Oicer and the Company Secretary, develops and sets the agendas for meetings of the Board. • Promotes a culture of open debate between the Executive and non-Executive Directors. • Recommends an annual schedule of work including the date, time and location of Board and Committee meetings. • Ensures eective communications with shareholders and other stakeholders. Chair of the Board Nigel Lingwood Main responsibilities • Responsible for the day-to-day management of the Group. • Together with the Senior Management Team, is responsible for executing the strategy, once it has been agreed by the Board. • Creates a framework that optimises resource allocation to deliver the Group’s agreed strategic objectives over varyingtimeframes. • Ensures successful delivery against the inancial business plan, the sustainability strategy, and other key business objectives, allocating decision making and responsibilities accordingly. • Together with the Senior Management Team, identiies and executes new business opportunities and potential acquisitions or disposals. • Manages the Group with reference to its risk proile in the context of the Board’s risk appetite. Chief Executive Oicer Ronnie George Main responsibilities • Ensures the Group has adequate inancial resources to meet business requirements. • Responsible for inancial planning and record keeping, as well as inancial reporting to the Board and shareholders. • Ensures eective compliance and control and responds to regulatory developments, including inancial reporting andcapital requirements. • Management of the inancial risksof the Group. Chief Financial Oicer Andy O’Brien Senior Independent Director Amanda Mellor Main responsibilities • An independent Non-Executive Director. • Provides a sounding board forthe Chair. • Serves as an intermediary for the other Directors when necessary. • Is available to shareholders if they have concerns, when contact through the normal channels of the Chief Executive Oicer or the Chair has failed to resolve them, orfor which such contact is inappropriate. • Leads the appraisal of the Chair’s performance with the other Directors annually. Independent Non-Executive Directors Margaret Amos, Jonathan Davis, Amanda Mellor, Claire Tiney Main responsibilities • Provide constructive challenge tothe Executive Team. • Provide input on strategy. • Scrutinise management’s performance in meeting agreed goals and objectives. • Monitor performance reports. • Satisfy themselves on the integrity of inancial information and that controls and risk management systems are robust and defensible. • Determine appropriate levels of remuneration for Executive Directors, appoint and remove Executive Directors, ensure appropriate succession plans are in place. Division of responsibilities Governance Report Volution Group plc Annual Report 2023 116 Governance Framework continued Company Secretary Fiona Smith Main responsibilities • Plays a leading role in the good governance of the Company by supporting the Chair and helping the Board and its Committees to function eiciently, ensuring governance processes remain it for purpose and considering any improvements as appropriate. • Ensures compliance with the rules and regulations required by a premium Main Market listing on the London Stock Exchange including the UK Corporate Governance Code. • All Directors have access to the services of the Company Secretary, who may facilitate independent professional advice at the Company’s expense at their request to fulil their duties. • Ensures good information lows within the Board and its Committees and between the Senior Management Team and the Non-Executive Directors, as well as facilitating induction and assisting with professional development as required. • Acts as secretary to the Board and its Committees and the Management Sustainability Committee. • The appointment or removal of theCompany Secretary is a matter for the Board as a whole. Non-Executive Director for Workforce Engagement Claire Tiney is the designated Non-Executive Director responsible foroverseeing Workforce Engagement. Claire has a structured engagement plan involving two Group-wide Employee Forum events each year, through which she has been able to provide the Board with further context to support the view that the Company is undertaking appropriate workforce-related activities and to also provide feedback tothe Board regarding the views of employees. The matters reserved for the Board include: • agreeing the Group’s strategy and objectives; • approving acquisitions and disposals; • changing the capital structure of the Company; • approving the Annual Report and Accounts, Half-Year Report and stock exchange announcements relating to trading; • approving the Group’s dividend policy and declaration ofdividends; • reviewing the eectiveness of risk identiication and management and internal controls; • approving signiicant expenditure and material transactions and contracts; • ensuring a satisfactory dialogue with the Group’s shareholders; • appointing and removing Directors; • determining the Remuneration Policy for the Executive andNon-Executive Directors; • reviewing the Company’s overall corporate governancearrangements; • approving the Group’s Treasury Policy; • approving the appointment of advisers; • reviewing the eectiveness of the Board; • delegating authority to the Chief Executive Oicer; and • each year, meeting to set an annual budget for the business in line with the current Group strategy. The Board monitors the achievement of the budget through Board reports which include updates from the Chief Executive Oicer, the Chief Financial Oicer and other functions. Division of responsibilities continued Strategic Report Governance Report Financial Statements Additional Information 117 Volution Group plc Annual Report 2023 2023 Board Activities Board activities and priorities during the year ended 31 July 2023 Board meetings consist of a mix of regular and standard items considered at each meeting and special items which arise from time totime, either annually or as part of project-related work. The table below shows the key agenda items discussed during the year: Matters considered at regular Board meetings • Management accounts including current trading and inancial performance against budget and forecast • Operations and new product development updates • Acquisition opportunities • Health and safety updates • Sustainability and environmental updates, including TCFD • Customers and marketing • Investor relations including market and sector updates • HR updates • Regulatory updates • Company policies and future governance planning • Minutes and actions from previous meetings Other matters considered during the year Link to Strategy Stakeholders Area Agenda items Strategy • Review and discussion of Group strategy • Approval of the acquisitions of VMI (France), i-Vent (Slovenia) and, aftertheyear-end, DVS (New Zealand) • Post-Investment review of ERI Corporation (North Macedonia) • Reviewed the Group’s tax policy • Shareholders • Employees • Customers • Suppliers Financial • Review and approval of Annual Report and Accounts, AGM Notice andassociated documentation for the year ended 31 July 2022 • Review and approval of trading updates in December 2022 and July 2023 • Review and approval of interim inancial statements for the sixmonths ended 31 January 2023 • Review and declaration of interim dividend paid in May 2023 and, after year end, recommendation of inal dividend to be paid in December 2023 • Shareholders • Employees • Customers • Suppliers Budget • Review and approval of budget for the year ending 31 July 2023 • Shareholders • Employees • Customers • Suppliers Risk Management • Consideration of risk framework, signiicant risks and risk appetite (inconjunction with the Audit Committee) • Shareholders • Employees • Customers • Suppliers Shareholder Engagement • Presentations on the Company’s shareholder proile and market perception • Independent feedback from corporate brokers following full and half-year investor roadshows • AGM 2022 proxy results and review of shareholder voting • Remuneration consultation feedback • Shareholders Governance Report Volution Group plc Annual Report 2023 118 2023 Board Activities continued Governance Report Link to Strategy Stakeholders Sustainability • Management presentation on ESG and climate-related reportingrequirements • Amanda Mellor’s reports to the Board following her attendance atManagement Sustainability meetings, held twice a year • Review of climate risks and opportunities and performance against GroupESG targets • Review of the work undertaken to estimate Group Scope 3 emissions • Environment • Communities • Shareholders • Employees • Customers • Suppliers Governance • Executive Director succession planning • Board composition and the appointment of Nigel Lingwood as Chair ofthe Board and Jonathan Davis as a Non-Executive Director andChair of the Audit Committee • Audit Tender • Board performance evaluation • Governance, legislation and regulatory updates • Review and approval of the Group’s Modern Slavery Act Statement • Updates from Board Committee Chairs as appropriate • Shareholders • Customers • Employees • Suppliers Workforce andCulture • Claire Tiney’s reports to the Board following her attendance atthe VolutionEmployee Forum, held twice a year • Update from Group Head of HR on employee matters including pay policy and gender pay gap • Update on the work of the DEI Committee, diversity data andinitiatives • Update on plans for the Company’s fourth Group-wide Management Development Programme • Consideration of cultural indicators and assessment of culture in the context of Group values and purpose • Employees Provisional agendas for the Board meetings are set out at the beginning of the year and new items are added to this as and when appropriate. All Directors receive an agenda and meeting papers in the week prior to the Board meeting, via an electronic board portal for security and eiciency. These include a business and market update report with updates from the Chief Executive Oicer and the Chief Financial Oicer. Members of the Group’s Senior Management Team may also be invited to present at Board meetings as appropriate so that Non-Executive Directors keep abreast of developments in the Group. All Directors attended the Annual General Meeting in December 2022, other than Jonathan Davis, who joined the Board after the date of the meeting. Strategy key Organic growth Value-adding acquisitions Operational excellence Board activities and priorities during the year ended 31 July 2023 continued Amanda Mellor – Board Representative for Sustainability Amanda brings extensive experience in climate and sustainability matters to the Board, and attends Volution’s Management Sustainability Committee meetings as representative of the Board, to ensure eective oversight of the Group’s environmental and social sustainability agenda. The Committee met twice in the year, and has comprehensively discussed and reviewed progress against the Group’s published targets and key initiatives for the years ahead. Additional presentations by Management and advisers were provided to the Board to ensure a deep understanding of this important and ever-changing topic. Strategic Report Governance Report Financial Statements Additional Information 119 Volution Group plc Annual Report 2023 Governance Report Board balance and independence The Company’s Board consists of a Non-Executive Chair, four independent Non-Executive Directors and two Executive Directors. Thecomposition of the Board has remained in compliance with the 2018 Code throughout the inancial year ended 31 July 2023. AlistoftheDirectors is provided on pages 110 and 111. Appointment and tenure The appointment dates of Directors areshown in their biographies on pages 110 and 111. The Board believes that all Directors are eective and committed to their roles and have suicient time available to perform their duties. Accordingly, all members of the Boardwill be oering themselves for election or re-election at the Company’s AGM to be held on 13 December 2023. All of the Directors have service agreements or letters of appointment, and the details of their terms are set out in the Directors’ Remuneration Report on page 140 to 161. The service agreements and letters of appointment are available for inspection at the Company’s registered oice during normal business hours. No other contract with the Company or any subsidiary undertaking oftheCompany in which any Director was materially interested subsisted during or at the end of the inancial year. Non-Executive Directors and independence The independence of each Non-Executive Director is considered each year immediately prior to the signing of the Annual Report and Accounts. The Company’s Non-Executive Directors provide a broad range of skills and experience to the Board which assists both in their roles in formulating the Company’s strategy and in providing constructive challenge to the Executive Directors. All of the Non-Executive Directors are regarded by the Company as independent Non-Executive Directors within the meaning deined in the 2018 Code and free from any business or other relationship which could materially interfere with the exercise of their independentjudgement. During the year, in accordance with the 2018 Code, the Chair held a meeting with the Non-Executive Directors without the Executive Directors being present. Board performance evaluations and eectiveness In the Annual Report 2022 the recommendations resulting from the performance evaluations were set out and are summarised in the table below. The progress made over the last year is set out opposite the recommendations. Board performance evaluation – recommendations Progress against the recommendations To increase the Board’s oversight of company culture and peopledevelopment The Board spent time in the year interacting with members ofthesenior management team andemployees across the Group-wide business in Board meetings, at informal gatherings and presentations, and on visits to production sites both as a fullBoard and on visits arranged for individual Board members. Insights through Board agenda items and supporting papers covering indicators of culture were also enhanced, including in-depth presentations on customer services feedback and health and safety in the UK. Information on people development initiatives were shared by the Group Head of HR, and insights will be further enhanced by feedback from the Group’s fourth Management Development Programme which is scheduled for October . To obtain greater insights into theviews of the wider workforce through enhanced employee engagement mechanisms supported by thenew Group Head of HR Additional information in relation to the wider workforce has been shared by the GroupHead ofHR, appointed in March , who attends Remuneration Committee meetings. Where the pipeline of talent in the organisation and succession plans for senior management is being discussed, the Group Head of HR also joins Nomination Committee meetings to provide additional data and insights. A global employee engagement survey is planned for launch in October which will signiicantly increase the quality and depth Board updates in this area. Governance Report Volution Group plc Annual Report 2023 120 Governance Report continued Process for the 2023 Board and Committee evaluation The process of evaluating the performance of the Board and its Committees, to identify areas for further development, was undertaken internally for 2023. The evaluation process involved the Chair and the Company Secretary discussing and agreeing the scope of the evaluation, and developing a series of web-based questionnaires tailored to the speciic circumstances of the Company. Directors were required to score certain aspects of the Board’s and Committees’ performance, and to comment on the areas of focus, which included leadership and accountability, strategy and risk, Board culture, Board composition, and roles andresponsibilities. The responses to the evaluation of the Board and its Committees were collated and analysed by the Company Secretary and thenreviewed by the Chair prior to being considered by the full Board. The Chair also appraised the performance of individualDirectors. The results of the evaluation demonstrated that the composition and performance of the Board and its Committees (and the performance of the Chair) were rated highly and continue to operate eectively. Whilst there are no signiicant concerns among the Directors about the Board’s eectiveness, some observations and recommendations were made which were considered by the Board. The key areas of recommendation are set out below. As a separate exercise the Senior Independent Director, together with the Non-Executive Directors, conducted the Chair’s performance evaluation. Board performance evaluation: 2023 recommendations • continued focus on interaction with wider senior management team; • further discussion and updates on climate-related matters and TCFD reporting; • increased time to be spent on discussion on product strategy and development plans; and • focus on the pipeline of talent across the business to be further increased. The Chair and Directors completed a web-based questionnaire The Chair of the Board and each Committee chair discussed with the Company Secretary areas of focus for the 2023 review Reports were produced and reviewed and discussed with the Chair and each Committee Chair Reports were discussed at the Board meeting Recommendations were agreed Process for the 2023 Board and Committee evaluation Strategic Report Governance Report Financial Statements Additional Information 121 Volution Group plc Annual Report 2023 Director induction A formal induction programme has been developed in line with the 2018 Code, to ensure that any new Director receives an appropriate induction to the Group with the support of the Company Secretary. The programme covers, amongst other things, the operation and activities of the Group (including site visits and meeting members of the Senior Management Team); the Group’s principal risks and uncertainties; the role of the Board and the decision-making matters reserved to it; the responsibilities of the Board Committees; the strategic challenges and opportunities facing the Group; and the opportunity to meet the Company’s mainadvisers. On the appointment to the Board of a new Non-Executive Director, a formal induction programme is developed, tailored to their experience and background. On appointment, aninduction programme was arranged for Jonathan Davis, who joined the Board on23June 2023. Induction of Jonathan Davis Jonathan Davis, Non-Executive Director and Audit Committee Chair, Site Tour, Reading, UK Jonathan Davis The induction programme for Jonathan Davis included the following elements: • one-to-one meetings with both Executive Directors and the Chair; • brieing from the Chief Executive on the Group’s strategy and operational matters; • brieing from the Group Chief Financial Oicer on inancial matters; • brieings from the Company Secretary on legal and governance matters; • brieings from senior executives and managers across key business areas including operations, HR, sustainability, marketingand sales; • meeting with the External Auditor; • meeting with the Head of Internal Audit; • site visits and tours; and • access to a library of reference materials, including key information on the governance framework, recent inancial data andthe policies supporting Volution business practices, including the share dealing policies and codes of conduct. Governance Report Volution Group plc Annual Report 2023 122 Governance Report continued Stakeholder engagement Directors’ s172 statement Businesses do not operate in isolation. Without a good understanding of who the key stakeholders are and their needs,a business will fail to deliver sustainable value to shareholders andother stakeholders. Under s172 of the UK Companies Act, a director of a company must act in the way they consider, in good faith, would most likely promote the success of the company for the beneit of its shareholders. In doing this, the director must have regard, amongst other matters, to the: • likely consequences of any decisions in the long term; • interests of the company’s employees; • need to foster the company’s business relationships with suppliers, customers and others; • impact of the company’s operations on the community and environment; • company’s reputation for high standards of business conduct; and • need to act fairly as between members of the company. The Directors are focused on their duties under s172 (1) of the Companies Act 2006 and consider that they have acted in the way they consider, in good faith, would promote the success of the Company for the beneit of its members as a whole, having regard to the stakeholders and matters set out in s172 (1) (a–f) in the decisions taken during the year ended 31July 2023. The Board considers its key stakeholders to be its employees, customers, suppliers, shareholders, the communities and environment in which we operate and governments and industry bodies in the countries in which we operate. The Board takes into account the views of these stakeholders in setting and implementing our strategy and believes that good engagement is key to the long-term success of Volution. Stakeholder considerations form part of the Board’s discussions leading to decision-making and some real examples are set out below. We have invested in the development and involvement of our stakeholder groups as we believe it is in the long- term interests of the Group and the stakeholder groups themselves. We set out on pages 93 to 95 how Volution and the Board have engaged with key stakeholders. Our business model on pages 22 to 23 outlines our engagement with stakeholders and the value the business creates for each of them, and this engagement sets the context for the strategy set out on pages 26 to 27. In particular our engagement with governments and industry bodies in the countries in which we operate has assisted in shaping policy on improving indoor air quality, such improvement being part of the Group’s purpose. Our purpose is set out on page 1 and our sustainability strategy is set out in the Sustainability Report on pages 42 to 92. Our employees are fundamental to the execution of our strategy. We aim to be a responsible employer providing a fair package of pay and beneits including opportunities for personal development and sharing in the inancial success of the Group. Claire Tiney is the designated Non-Executive Director for workforce engagement and attends the Employee Representative Forums, reporting back to the Board. Volution’s sustainability strategy is key to ensuring our environmental, social and governance ambitions are realised and Amanda Mellor is the designated Non-Executive Director for sustainability and attends the Management Sustainability Committee meetings, reporting back tothe Board. Board decision-making during the year The following are some of the principal decisions made by the Board during the year under review which demonstrate how employee interests, the need to foster business relationships with other key stakeholders and other Section 172 matters have been taken into account in discussions and decision-making: Decision What happened Acquisitions In line with Volution’s long-term strategy for growth and purpose, the Board completed two acquisitions in the year: VMI, based in France and I-Vent, based in Slovenia and Croatia. After the year-end, a third business, DVS, was acquired in New Zealand. As part of the decision-making process the long-term consequences of these acquisitions on all stakeholders were considered. The Board also considered the potential synergies and inancial beneits of the acquisitions, as well as the environmental aspects of the businesses. The beneit of the acquisitions to shareholders and other stakeholders in terms of the long-term growth of the enlarged Group also formed part of the decision-making process. Further details onthese acquisitions may be found in the CEO’s Review on pages 12 to 15. Further development of the Sustainability strategy The Management Sustainability Committee held two meetings in the year, attended by Non-Executive Director Amanda Mellor. Findings from the Committee meetings were communicated to the Board by Amanda, and the Board in turn provided feedback on the direction of the Group’s sustainability strategy. In addition, in order to ensure full awareness of the Group’s performance against its sustainability targets, regular updates on performance against sustainability KPIs were submitted to the Board. Further details may be found in the Sustainability section on pages 42 to 92. Strategic Report Governance Report Financial Statements Additional Information 123 Volution Group plc Annual Report 2023 Directors’ conlicts of interest Directors have a statutory duty to avoid situations in which they have or may have interests that conlict with those of the Company, unless that conlict is irst authorised by the Board. This includes potential conlicts that may arise when a Director takes up a position with another company. The Company’s Articles of Association allow the Board to authorise such potential conlicts, and there is in place a procedure to deal with any actual or potential conlict of interest. The Board deals with each appointment on its individual merit and takes into consideration all the circumstances. All potential conlicts approved by the Board are recorded in a conlicts ofinterest register, which is to be reviewed by the Board on a regular basis to ensure that the procedure is working eectively. TheBoard is satisied that the arrangements in place regarding conlicts of interest are working eectively. External directorships The Board allows Executive Directors to accept one external commercial non-executive director appointment, provided the commitment is compatible with their duties as an Executive Director. The Executive Director concerned may retain fees paid for these services which will be subject to approval by the Board. Currently, neither of the Executive Directors holds an external directorship. Details of all Directors’ signiicant directorships can be found in their biographies on pages 110 and 111. Where Non-Executive Directors have external directorships, the Board is comfortable that these do not impact on the time that any Director devotes to the Company and we believe that this experience only enhances the capability of the Board. Information and support available to Directors All Board Directors have access to the Company Secretary, who advises them on governance matters. The Chair and the Company Secretary work together to ensure that Board papers are clear, accurate, delivered in a timely manner to Directors, and of suicient quality to enable the Board to discharge its duties. Speciic business-related presentations are given by senior management when appropriate. As well as the support of the Company Secretary, there is a procedure in place for any Director to take independent professional advice at the Company’s expense in the furtherance of their duties, where considered necessary. Internal control and risk management The Board acknowledges its responsibility for determining the nature and extent of the signiicant risks it is willing to take in achieving its strategic objectives, and for the Group’s system of internal control. The principal risks facing the Group are set out in the Strategic Report on pages 96 to 104, being those risks which could threaten our business model, future performance, solvency or liquidity, and mitigation measures are detailed against each risk. The Audit Committee, on behalf of the Board, carried out a review of the eectiveness of the Group’s risk management and system of internal control together with a robust assessment of the risks facing the Group. Details can be found on page 138. The Audit Committee Report on pages 131 to 139 describes the system of internal control and how it is managed and monitored. TheBoard acknowledges that such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Whistleblowing An external independent whistleblowing facility is available to enable employees to report any concerns which they feel need to be brought to the attention of Management concerning any possible impropriety, inancial or otherwise, and the appropriateness of the facility is reviewed by the Audit Committee. The Group supports a culture of openness and accountability in order to prevent such situations occurring or to address them when they do occur. Governance Report Volution Group plc Annual Report 2023 124 Governance Report continued Shareholder relations Responsibility for shareholder relations rests with the Chair, the Chief Executive Oicer and the Chief Financial Oicer. They ensure that there is eective communication with shareholders on matters such as governance and strategy, and are responsible for ensuring that the Board understands the views of major shareholders. The Board aims to present a balanced and clear view of the Group in communications with shareholders and believes that being transparent in describing how we see the market and the prospects for the business is extremely important. We have communicated with existing and potential shareholders in a number of dierent ways during the year ended 31 July 2023 as follows: August 2022 • Consultation on remuneration with major shareholders October 2022 • Full year results announcement and analyst presentation • Institutional broker sales desk brieings • UK shareholder roadshow • Annual Report and Accounts and Notice of AGM posted to shareholders and placed on website December 2022 • Trading update • Annual General Meeting March 2023 • Half-year results announcement and analyst presentation • Institutional broker sales desk brieings • Shareholder roadshows July 2023 • Pre-close trading update In addition to the above, we communicate with existing and potential shareholders in a number of other ways, such as: • face-to-face meetings and telephone brieings for analysts and investors; and • arranging periodic visits by analysts and major shareholders to the business sites to give a better understanding of how we manage our business. These visits and meetings are principally undertaken by the Chief Executive Oicer and the Chief Financial Oicer. In situations where new material relating to trading is presented, it is also immediately uploaded to the Company’s website so it is available to all shareholders. The Board receives regular updates on the views of its shareholders from the Chief Executive Oicer and Company brokers. This is a standing agenda item for all Board meetings. The Company’s investor website is also regularly updated with news and information including this Annual Report and Accounts, which sets out our strategy and performance together with our plans for future growth. During the year the Chief Executive Oicer and the Chief Financial Oicer engaged with investors. Key topics that arise in investor meetings include the following: • drivers of demand including regulation; • resilience of the business to economic cycles; • sustainability of margin; • performance of newly acquired businesses and the acquisition pipeline; • performance against our ESG KPIs including carbon reduction targets; and • organisational structure and approach, balance between Group and decentralised local businesses. In addition, the Chair meets with investors on a regular basis during the year, and the Senior Independent Director is available to meet shareholders if they wish to raise issues separately from the arrangements as described above. Strategic Report Governance Report Financial Statements Additional Information 125 Volution Group plc Annual Report 2023 Listing Rule 9.8.6(9) As at the Company’s chosen reference date, 31July2023, and in line with FCA Listing Rule 9.8.6(9),the Company has met the targets for atleast40% female membership on the Board and for one Director to be from an ethnic minority background. In addition, it has met the target for one of the positions of Chair, Senior Independent Director, Chief Executive or Finance Director to be held by awoman, with Amanda Mellor asSenior IndependentDirector. Data under LR 9.8.6(10) In line with LR 9.8.6(10), as at the reference date of 31 July 2023, the composition of the Board and Executive Management was as follows: Sex Number of Board members Percentage of the Board Number of senior positions on the Board CEO, CFO, SID and Chair Number in Executive Management Percentage of Executive Management Man Woman Not speciied/prefer not to say — — — — — Ethnic background Number of Board members Percentage of the Board Number of senior positions on the Board CEO, CFO, SID and Chair Number in Executive Management Percentage of Executive Management White British or other White including minority-white groups Mixed/Multiple Ethnic Groups — — — — — Asian/Asian British — — — Black/African/Caribbean/Black British Other ethnic group, including Arab — — — — — Not speciied/prefer not to say — — — — — 1. Per the deinition within the Listing Rules, executive management within Volution is the Group Executive Committee including the Company Secretary and excluding the Executive Directors. Volution has 100% voluntary completion of sex data and ethnicity data and that is what is used when reporting the diversity of the Board and the Group Executive Committee. All diversity data is collated in accordance with Volution’s Privacy Notice. The building services industry traditionally attracts a higher-than-average proportion of male employees. This is relected in the Group’s split between male and female employees as shown. Male Female Senior Managers 1 Board Directors All other employees 1,320 569 4 3 10 3 Note 1. Legislation requires that we deine “senior managers” as the directors of our subsidiary companies. However, the Board believes this information does not provide a meaningful analysis of how the Group operates so the data shown relects the proportion of senior managers by our own internal grading system. The number also excludes Board Directors. Governance Report Volution Group plc Annual Report 2023 126 Governance Report continued Business ethics Our core values and principles, and the standards of behaviour to which every employee and agent across the Group is expected to work, are set out in the Volution Code of Conduct. These values and principles are applied to dealings with our customers, suppliers and other stakeholders. We have a zero-tolerance approach to all forms of bribery and corruption. Our Anti-Bribery and Corruption Policy has been approved by the Board and rolled out across the Group. It applies to all businesses, Directors, employees and agents within the Group to ensure compliance with all laws and regulations governing bribery and corruption in the countries in which the Group operates. The Group has a “Speak Up” facility operated by an independent external company, where employees can report any incidents or inappropriate behaviours in their own language by telephone or online. The conidentiality of the information reported is protected. Inaddition, web-based anti-bribery and corruption training is carried out by employees in areas of the business where risk is deemed to be highest. A Group policy in relation to Corporate Criminal Oences legislation is also in place. Human rights Breaches of human rights are not considered to be a material risk for the business as our activities are substantially carried out in developed countries that have strong legislation governing human rights. We adhere to policies which support human rightsprinciples. Diversity We employ a diverse workforce and pride ourselves on providing equal opportunities for all. We understand the beneits a diverse workforce brings and recognise that the industry faces under representation of women as well as people from dierent ethnic backgrounds. High value is placed on rewarding our people for their commitment, their integrity and their service. We aim to ensure that no employee is discriminated against, directly or indirectly, on the grounds of colour, race, ethnic or national origins, sexual orientation or gender, marital status, disability, religion or belief, age or being part time. We believe that business decisions can be enhanced by having representation from dierent genders and cultural backgrounds with diering skill sets, experience and knowledge, which relect our customer base and the wider population in our markets. Modern Slavery Act We are opposed to slavery, servitude, forced labour and human traicking. We take a zero-tolerance approach to modern slavery in the supply chain and businesses under our control. The Board has approved a statement setting out the steps that have been taken to combat modern slavery. This statement can be found on the Group’s website at www.volutiongroupplc.com. Group employees, agents and suppliers are requested to conirm that they do and will continue to comply with our policy which is set out in our Code of Conduct. During the year, further work has been carried out in this area, relected in the most recent Modern Slavery Statement. Shareholder engagement has also taken place, providing further insights into investor expectations, and emerging practice. Fair, balanced and understandable The Board recognises its duty to ensure that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the performance, strategy and business model of the Company. The Board has placed reliance on the following to form this opinion: • a veriication process dealing with the factual content of the reports and to ensure consistency across the various sections; • a review of the Annual Report and Accounts by senior management to ensure consistency and overall balance; and • the Audit Committee reviewed the Annual Report and Accounts and its compliance with the requirements, concluded that they hadbeen met and recommended its approval by the Board as fair, balanced and understandable. Annual General Meeting The Annual General Meeting (AGM) of the Company will take place at 12.00 noon on Wednesday 13 December 2023 at the oices of Norton Rose Fulbright LLP, 3 More London Riverside, London SE1 2AQ, United Kingdom. The Notice of AGM can be found in a circular which is being posted at the same time as this Annual Report and Accounts. The Notice of AGM sets out the business of the meeting and explanatory notes on all resolutions. Separate resolutions are proposed in respect of each substantive issue. Strategic Report Governance Report Financial Statements Additional Information 127 Volution Group plc Annual Report 2023 Nomination Committee Report Continued focus on Board composition, succession and development Membership and attendance The Committee met for four scheduled meetings during the year with attendance disclosed below. Additional meetings were held to deal speciically with the Chair succession process and the appointment process for Jonathan Davis. Committee members Member since Attendance Nigel Lingwood (Chair) 30 April 2023 (Chair from 23 June 2023) / Margaret Amos 10 March 2022 / Jonathan Davis 1 23 June 2023 n/a Paul Hollingworth 2 23 June 2014 / Amanda Mellor 19 March 2018 / Claire Tiney 3 August 2016 / 1. Jonathan Davis joined the Board on 23 June 2023. There were no scheduled Nomination Committee meetings between that date and the year end. 2. As part of the succession planning process, Paul Hollingworth retired as Chair of the Nomination Committee, and as a Committee member, on 7 March 2023. Amanda Mellor, Senior Independent Director, took over as the Chair of the Nomination Committee until the date of Nigel Lingwood’s appointment as Chair of the Board on 23 June 2023, at which point Nigel Lingwood also became Chairof the Nomination Committee. There were no scheduled Nomination Committee meetings between 23 June 2023 and the year end. 3. Neither Paul Hollingworth or Nigel Lingwood attended Committee sessions dealing with the Chair succession process. Highlights of 2023 • Appointment of Nigel Lingwood as Non-Executive Chair in June 2023. • Reviewed the succession plan and identiied future needs, both for Board and senior management positions. • Commenced a search for a new Non-Executive Director and Chair of the Audit Committee, resulting in the appointment of Jonathan Davis on 23June 2023. Priorities for 2024 • Continue to manage Board and senior management succession plans. • Ongoing evaluation of the size and composition of the Board including the balance of skills, knowledge, independence, experience and genderand ethnic diversity. • Review the talent pipeline below Board level. It has been a busy year for the Committee, overseeing the Chair succession process and the appointment of Jonathan Davis as Independent Non-Executive Director and Audit Committee Chair. Governance Report Volution Group plc Annual Report 2023 128 Nomination Committee Report continued Dear shareholder, I am pleased to present the Committee’s report detailing its role and responsibilities and its activities during the year, as Chair of the Committee, following PaulHollingworth’s retirement from the Board on 23 June 2023. It has been a busy year for the Committee, overseeing the Chair succession process and subsequently the appointment of Jonathan Davis as Independent Non- Executive Director and Audit Committee Chair. In addition to these key tasks, the Committee has continued its work in the area of the oversight of the development of the talent pipeline, and further review of succession plans for both the Executive team and the Non-Executive Directors. Role and responsibilities The key responsibilities of the Committee are: • assessing whether the structure, size and composition (including the skills, knowledge, independence, experience and gender and ethnic diversity) of the Board continue to meet the Group’s business and strategic needs; • considering succession planning and talent development for the Executive Directors and the Senior Management Team and, in particular, for the key roles of Chair of the Board and Chief Executive Oicer, taking into account the challenges and opportunities facing the Group and the future skills and expertise needed on the Board; and • identifying and nominating, for approval by the Board, candidates to ill Board vacancies as and when they arise together with leading the process for such appointments. Other activities during the year In addition to the succession planning processes described above, the following matters were also considered at the Committee meetings held during the year: • evaluation of the size and composition of the Board, including the balance of skills, knowledge, independence, experience and gender and ethnic diversity; • reviewed succession planning and talent development for the Senior Management Team; • reviewed and approved the recommendations to be made to shareholders for the re-election of Directors at the Annual General Meeting; and • reviewed the results of the Committee performance evaluation. After the year end at the October 2023 meeting, the Committee considered the outcome of the performance evaluations when discussing the eectiveness of the Non-Executive Directors seeking re-election at the Annual General Meeting 2023. The full terms of reference of the Committee are available on the Company’s website at www.volutiongroupplc.com. Membership and attendance The majority of the members of the Nomination Committee are independent non-executive directors as required by the Code. Following Paul Hollingworth’s retirement, I was appointed Committee Chair on 23 June 2023, and all other members are independent Non-Executive Directors. Biographies of all Committee members can be found on pages 110 to 111. By invitation, the meetings of the Committee may be attended by the Chief Executive Oicer, the Chief Financial Oicer and the Group Head of HR. The Company Secretary acts as the secretary to the Committee and minutes of each Committee meeting are provided to Board members. Board composition and succession planning During the year the Committee discussed succession planning for Executive and Non-Executive Directors and the progressive refreshing of the Board. The search process for a successor to Paul Hollingworth resulted in my appointment as Chair Designate, which was announced on 15 March 2023. I was delighted to become Chair of the Board on 23 June 2023. The appointment of Jonathan Davis as a Non-Executive Director and Audit Committee Chair was announced on 19June 2023 and his appointment became eective on 23 June 2023. Further details on these appointment processes may be found on pages 129 to 130. Strategic Report Governance Report Financial Statements Additional Information 129 Volution Group plc Annual Report 2023 Appointment of Nigel Lingwood as Chair of the Board This search process was led by Senior Independent Director, Amanda Mellor, supported by external search irmWarren Partners Ltd. The process involved discussions by the Nomination Committee of the key attributes required for the role, and the subsequent development of a detailed role speciication. Following the distribution of the role speciication to potential applicants, an initial long-list of candidates was prepared for the Committee and then discussed in detail. A small number of candidates were short-listed and interviews were scheduled with the Senior Independent Director, the other independent Directors, and the Chief Executive Director. Following a detailed discussion by the Committee, if was recommended that Nigel Lingwood, the then current Audit Committee Chair, be appointed as Chair Designate, with a planned appointment date to coincide with Paul Hollingworth’s retirement. The announcement regarding Nigel’s appointment as Chair Designate was made to the London Stock Exchange on 15March 2023 and he became Chair on 23 June 2023. Warren Partners Ltd had no connection to Volution or its Directors, other than that it assisted with the search process for Margaret Amos and other executive roles in 2022 and 2023. Paul Hollingworth and NigelLingwood did not take part in the discussions regarding Chair succession. We are delighted to have appointed Nigel to succeed Paul. We conducted a thorough search for Paul’s successor, and we believe that Nigel brings strong understanding of Volution’s markets and opportunities as well as the leadership qualities and relevant expertise crucial for this role. He is well placed to lead the Board and support Volution’s future ambitions. Amanda Mellor Senior Independent Director Nigel Lingwood Chair of the Board Governance Report Volution Group plc Annual Report 2023 130 Nomination Committee Report continued Appointment of Jonathan Davis as Audit Committee Chair This search process was instigated following the appointment of Nigel Lingwood to the role of Chair ofthe Board, in anticipation of his stepping down from theAudit Chair role. The process was led by the Nomination Committee, with input from Nigel Lingwood (Chair Designate and Audit Committee Chair at the time), and supported by external search irm Russell Reynolds. The process included the development of a role speciication and the review, initially, of a long- list of candidates. A short-list was subsequently prepared and the short-listed candidates were interviewed by Nigel Linwood and Amanda Mellor. Final stage candidates were also interviewed by Committee members andthe Executive Directors. The process resulted in the recommendation of Jonathan’s appointment as an independent Non-Executive Director and Audit Committee Chair, with a planned appointment date of 23 June 2023. The announcement regarding Jonathan’s appointment wasmade to the London Stock Exchange on 19 June 2023. Russell Reynolds had no connection to Volution or its Directors. Diversity and inclusion The Committee, the Board of Directors and Volution as a whole continue to pay full regard to the beneits of diversity, including gender and ethnic diversity, when searching for candidates for the Board, Senior Management Team and other appointments. We believe that business decisions can be enhanced by having representation from dierent genders and cultural backgrounds with diering skill sets, experience and knowledge, which relect our customer base and the wider population in our markets. Diversity of Board members is important to provide the necessary range of background experience, values, and diversity of thinking and perspectives to optimise the decision-making process. Gender and ethnicity are important aspects of diversity which the Committee consider when deciding upon the most appropriate composition of the Board. The Board supports the FTSE Women Leaders Review and the Parker Review on Ethnic Diversity. As at the inancial year end, the Board comprised four male and three female Directors meaning that over 40% of the Board is female. One Board member was of a minority ethnic background. Election and re-election ofDirectors On the recommendation of the Committee and in line with the 2018 Code and the Company’s Articles of Association, all of the Company’s Directors will stand for election or re- election at the Annual General Meeting 2023. The biographical details of the Directors can be found on pages 110 to 111. The Committee considers that the performance of each of the Directors standing for election or re-election at the Annual General Meeting continues to be eective and each demonstrates commitment to their role. Committee performance evaluation During the year, the Board conducted an internally facilitated evaluation of the performance of the Board, its Committees, the Directors and the Chair. Further details can be found in the Governance Report on pages 119 and 120. Iam pleased to conirm that this process concluded that the Committee had fulilled its role eectively and did not identify any signiicant development points requiring action. Nigel Lingwood Chair of the Nomination Committee 4 October 2023 Strategic Report Governance Report Financial Statements Additional Information 131 Volution Group plc Annual Report 2023 Audit Committee Report Highlights of 2023 • Concluded an audit tender process resulting in the appointment of PwC as External Auditor of the Company, subject to shareholder approval, and oversaw adviser transitions to ensure independence requirements have been met. • Supported the transition to an in-house Internal Audit function. • Maintained focus on control environment and reporting processes in businesses across the Group, including in particular newly acquired businesses, keeping pace with our expansion. • Continued to monitor Group risk environment and internal controls with enhanced process to identify, assess and monitor emerging risks incurrent macroeconomic and politicalenvironment. • In-depth presentation from the UK Finance Director providing key insights into activities, controls, processes and priorities in the UK inance function. Priorities for 2024 • Oversee and support the External Auditor transition. • Ensure the successful embedding of the new in-house Internal Audit function. • Review the accounting for the recently completed acquisitions in France and Slovenia. • Continue to monitor developments in the regulatory landscape and prepare for implementation of new regulations and standards, including in relation to the implementation of an assurance policy and the assurance requirements in the context of sustainability data. Keeping pace with business expansion Membership and attendance The Committee met for ive scheduled meetings during the year with attendance disclosed below. Additional meetings were scheduled for the purposes of working on the audit tender process. Committee members Member since Attendance Jonathan Davis Chair June / Nigel Lingwood April / Margaret Amos March / Amanda Mellor March / Claire Tiney August / 1. Jonathan Davis joined the Board and was appointed as Chair of the Committee on 23 June 2023. There was only one Committee meeting between that date and the year end, and so Jonathan attended the maximum number of meetings possible. 2. Nigel Lingwood stepped down from the Committee on 23 June 2023, having chaired the Committee since his appointment to the Board on 30 April 2020. There were four Committee meetings between 1 August 2022 and that date, and Nigel attended all four meetings. Governance Report Volution Group plc Annual Report 2023 132 Audit Committee Report continued Dear shareholder, I am pleased to present this report, which is my irst as Chair of the Audit Committee (the “Committee”), for the year ended 31July 2023. This report is intended to provide shareholders with an insight into key areas considered by the Audit Committee in the year, together with how the Committee has discharged its responsibilities and provided assurance on the integrity of the Company’s inancial statements and reporting, its internal control and risk management processes, its audit and risk activities, and business conduct andintegrity. Speciic tasks this year have included the undertaking of an external audit tender process, which resulted in the appointment of PricewaterhouseCoopers LLP (PwC”), subject to approval by the shareholders at the 2023 AGM, for the inancial year commencing 1 August 2023. The process was informative and thorough, involving input from a wide range of internal stakeholders, including from the international businesses, and we look forward to focusing on the transition to the new Audit team in the coming year. You can read more about the tender process on page 136. During this inancial year, the Audit Committee also supported the transfer of the Internal Audit function to an in-house role, with the aim of improving the consistency of internal audit reporting and the controls environment, and to assist in the identiication and communication of good practice across the Group. As a result, a new Head of Internal Audit, with extensive international risk management and manufacturing experience, joined the Group in April2023, to develop and deliver the internal audit programme for the 2024 inancial year. As part of a comprehensive induction, the Head of Internal Audit undertook a number of joint reviews with BDO during the 2023 inancial year. To support the work of the Head of Internal Audit, BDO will continue as a co-source partner, assisting on specialist or ad-hoc projects across the Group going forward. More details may be foundon page 138. In addition to these speciic tasks, the Committee has continued to focus on its fundamental priorities, which include ensuring the quality and eectiveness of the external and internal audit processes and monitoring the management of the principal risks of the business. I am pleased that the internal audit reports received this year from BDO conirm that the Group’s businesses continue to maintain a strong focus on internal controls and compliance with emerging regulatory requirements. The Committee will continue to devote time to the monitoring of controls across the Group; an area of key importance as we continue to grow both in size and complexity. As part of our regular cycle of work we have again reviewed in depth the company’s principal and emerging risks, the approach to risk appetite and the risk management process, led by the Group Risk Management Steering Committee. More information on the Committee’s work in these areas may be found on page 138. In March 2023, the Corporate Reporting Review team, FRC Supervision, corresponded with the Company regarding its review of the Company’s Annual Report for the year ended 31 July 2022 and, as part of the review, sought information in respect of some aspects of the Annual Report, and provided a number of observations and potential improvements to existing disclosures. I am pleased to report that all queries were answered satisfactorily, and the feedback of the review team has been incorporated as appropriate into this Annual Report. More details may be found on page 138. Looking to the year ahead, as a Committee, we will also continue to focus on the potential future regulatory changes and emerging best practice, including in respect of the development of an assurance policy and the increasing focus on assurance around sustainabilityreporting. In my short time on the Board and as Chair of the Committee, it has been a pleasure to start to work with my fellow Committee members. I am also grateful to the very dedicated inance teams across the organisation, including within our newly acquired companies, and I look forward to working with them again in 2024 and beyond. On behalf of the Committee, I would like to thank the lead partner, Jon Killingley, and the team at outgoing External Auditor Ernst&Young LLP (“EY”) for the signiicant contribution during their time as auditor of the Company. In addition, I would like to thank the Internal Audit team at BDO for their valuable insights over the years, having supported the Company as Internal Auditor since the IPO in 2014. Lastly, I would like to thank Nigel Lingwood who, prior to his succession into the role of Chair of the Board, chaired the Audit Committee since his appointment in 2020, providing an immensely valuable contribution during this time. Jonathan Davis Chair of the Audit Committee 4 October 2023 Strategic Report Governance Report Financial Statements Additional Information 133 Volution Group plc Annual Report 2023 Role and responsibilities The primary function of the Committee is to assist the Board in fulilling its responsibilities with regard to the integrity of inancial reporting, audit, risk management and internal controls. Thiscomprises: • monitoring and reviewing the Group’s accounting policies, practices and signiicant accounting judgements; • reviewing the annual and half-yearly inancial statements, trading statements and any other inancial announcements; • reporting to the Board on whether the Annual Report and Accounts is fair, balanced and understandable; • reviewing the Board’s shorter-term cash low forecasts and its method for assessing the Group’s long-term viability; • approving the appointment and recommending the re-appointment ofthe External Auditor and its terms ofengagement and fees; • reviewing the scope of work to be undertaken by the External Auditor and reviewing the results of that work; • monitoring and reviewing the eectiveness of the external audit process and the External Auditor; • reviewing and monitoring the independence of the External Auditor and approving its provision of non-audit services; • monitoring and reviewing the adequacy and eectiveness of the risk management systems and processes and, where appropriate, making recommendations to the Board on areas for improvement; • monitoring and reviewing the eectiveness of the Group’s Internal Audit function, and resolution of its material indings, in the context of the Group’s overall risk management systems; • reviewing reports from the Chief Financial Oicer on the controls to mitigate fraud risk; and • overseeing the Group’s procedures for its employees to raise concerns through its Whistleblowing Policy as set out in the Code of Conduct. Membership and attendance In compliance with the Code, the Committee comprises four members who are independent Non-Executive Directors. Jonathan Davis is Committee Chair, and Margaret Amos, Amanda Mellor and Claire Tiney are Committee members. Nigel Lingwood stepped down as Chair and as a member of the Committee on 23 June 2023 on the commencement of his role as Chair of the Board. Jonathan Davis was appointed as a Non-Executive Director and Chair of the Audit Committee on 23June 2023. Financial expert, recent and relevant inancial experience The Board has satisied itself that the membership of the Audit Committee includes at least one Director with recent and relevant inancial experience and has competence in the sector in which the Company operates, and that all members are inancially literate and have experience of corporate inancial matters. For the purposes of the Code, the Board has determined that Jonathan Davis is independent and may be regarded as an Audit Committee inancial expert, having recent and relevant inancial experience, and that all members of the Audit Committee are independent Non- Executive Directors with relevant inancial and sectoral competence. See pages 110 to 111 for details of relevant experience ofDirectors. Committee meetings are also normally attended by the Chair, the Chief Executive Oicer, the Chief Financial Oicer and the Company Secretary, who acts as secretary to the Committee. The External and Internal Auditors also attend meetings when appropriate. Other members of Management may be invited to attend depending on the matters under discussion. The Committee meets regularly with the External Auditor and Internal Auditor with no members of Management present. Meetings are scheduled in accordance with the nancial and reporting cycles of the Company and generally take place prior to Board meetings to ensure eective collaboration with the Board. Minutes of each Committee meeting are provided toBoard members. Governance Report Volution Group plc Annual Report 2023 134 Audit Committee Report continued The Committee also has independent access to the Internal Auditor and the External Auditor. The Internal Auditor and the External Auditor have access to the Chair of the Committee outside formal Committee meetings. The Committee met for ive scheduled meetings during the year with attendance disclosed on page 131. Additional meetings were scheduled for the purposes of working on the audit tender process. Audit Committee activities during the year During the year, the Committee dealt with the following matters: Financial statements and reports • Reviewed the Annual Report and Accounts, together with the full year results announcement and the half-year results announcement, and received reports from the External Auditor on the above; the Committee also reviewed the trading updates. • Assessed the impact of climate change on accounting assumptions and disclosure, including the reporting requirements ofthe Task-Force on Climate-Related Financial Disclosures. • Reviewed the eectiveness of the Group’s internal controls and disclosures made in the Annual Report and Accounts. • Reviewed executive management’s representation letter to the auditor, going concern reviews, fair, balanced and understandable criteria and signiicant areas of accounting estimates and judgement. • Reviewed the Group’s cash low forecasts, the Group’s bank facilities and the Viability Statement. • Liaised with Corporate Reporting Review team, FRC Supervision, regarding their review of the 2022 Annual Report and Accounts. Risk management • Monitored and reviewed the eectiveness of risk management and internal control processes. • Reviewed the Group Risk Register, which identiies, evaluates and sets out mitigation of risks, and reviewed the principal risks and uncertainties disclosed in the Annual Report and Accounts. Internal audit • Reviewed reports from BDO as Group Internal Auditor and reviewed its summary report on internal audits completed in 2022 and its internal audit plan for 2023. • Maintained oversight of the process to transition to an in-house Internal Audit function, a role that became eective on1August 2023. External Auditor and non-audit work • Reviewed the relationship with the External Auditor including its independence, objectivity and eectiveness and recommended to the Board its re-appointment at the 2022 Annual General Meeting. • Conducted a tender process for the role of External Auditor for the year commencing 1 August 2023. • Reviewed, considered and agreed the scope of the audit work to be undertaken by the External Auditor on this year’s Annual Report. • Agreed the terms of engagement and fees to be paid to the External Auditor. • Reviewed and approved the Group policy on non-audit services and reviewed any non-audit fees. • Reviewed and discussed the FRC’s July 2023 audit quality inspection report in respect of EY. Governance • Reviewed and approved the Group’s Tax Strategy; reviewed a paper on the Group’s tax risks, controls and processes operating over all businesses in the Group. • Monitored the Group’s Code of Conduct, Anti-Bribery and Corruption Policy and Policy on Corporate Criminal Oences; reviewed the Group’s whistleblowing arrangements. • Met with the External Auditor and the Internal Auditor without Management being present. • Completed an evaluation of the Committee performance and set its annual work programme. Strategic Report Governance Report Financial Statements Additional Information 135 Volution Group plc Annual Report 2023 Signiicant accounting matters The Committee, together with the auditor, identiied the matters set out below as being signiicant in the context of the consolidated inancial statements for the year ended 31 July 2023. These were discussed and reviewed with Management and the External Auditor; the Committee challenged judgements and sought clariication where necessary. The Committee received a report from the External Auditor on the work it had performed to arrive at its conclusions and discussed in detail all material indings contained within the report. Area of focus Why was this signiicant? How did the Committee address this area? Impairment ofgoodwill and other intangible assets The Group’s policies on accounting for separately acquired intangible assets and goodwill on acquired businesses are set out in notes 12 and 14 to the consolidated inancial statements. At 31 July 2023 intangible assets relating to goodwill and other intangible assets amounted to £248.7million. The acquisitions made during the year added £29.3 million of goodwill and other intangible assets through acquisition. Goodwill on acquisitions is initially recorded at fair value, and is subject to testing for impairment at each balance sheet date. For intangible assets amortised over inite lives, the Group is required to determine whether indicators of impairment exist and, if so, perform a full impairment review. As is customary, such testing involves estimation of the future cash lows attributable to the asset, or cash generating unit of which it is part, and discounting these future cash lows to today’s value. The Committee has reviewed the key assumptions behind these valuations and impairment reviews, notably the expected development of future cash lows and the discount rates used, as well as considering reasonable sensitivities to these estimates, and concluded that these support the carrying values set out in notes 12 and 14 to the consolidated inancial statements and no impairment provision is required. The Committee considered the impact of climate change over the medium and long time period of our climate change assessment (aligned to our impairment review), and considered it reasonable to expect no material adverse impact of climate change to our business model that would materially impact the cash lows used in our impairment reviews. The Committee has also reviewed the additions to goodwill and other intangible assets through the acquisitions of VMI and i-Vent in the year, the allocation of goodwill and other intangible assets to the appropriate cash generating units (CGUs), and the level of CGUs at which the impairment testing is completed. The Committee considered these allocations and judgements to be reasonable. As disclosed in note 1 to the accounts (Critical accounting judgements and key sources of estimation uncertainty), the Committee concluded that the judgement in identifying the Group’s cash generating units (CGUs) and the grouping of those CGUs for goodwill impairment testing purposes could have a signiicant impact on the carrying value of goodwill and other intangible assets in the inancial statements. Hence, the Committee concluded that thisis a critical accounting judgement that falls under the scope of paragraph 122 of IAS1. However, the Committee did not consider it reasonably possible that changes in the key estimates and assumptions could cause the carrying value of the CGUs to materially exceed their recoverable value. Hence the Group did not consider that this was a major source of estimation uncertainty that could have a signiicant risk of resulting in a material adjustment to the inancial statements, thus is not disclosed as such in note 1 to the accounts, but is included as an additional disclosure. Revenue recognition – liabilities arising from retrospective volume rebates The Group has a number of customer rebate agreements that are considered to be variable consideration and are recognised as a reduction from sales. Rebates are based on an agreed percentage of revenue, which will increase with the level of revenue achieved. These agreements may run to a dierent reporting period to that of the Group with some of the amounts payable being subject to conirmation after the reporting date. At the reporting date, Management makes estimates of the amount of rebate that will become payable by the Group under these agreements using a probability weighted average to arrive at an expected amount. At the reporting date, Management makes estimates of the amount of rebate that will become payable by the Group under these agreements using a probability weighted average to arrive at an expected amount. The liability arising from retrospective volume rebates at 31 July 2023 included within trade and other payables is £9.8 million (2022:£10.3 million). The Committee reviewed a paper from Management setting out the process for estimating the amount of rebates to be recognised and considered the operating eectiveness of controls surrounding revenue recognition and Management’s subjective assessment and recognition of rebates at the year end. The Committee reviewed Management’s methodology and judgement in assessing the recognition of rebates. TheCommittee concurred with its approach. The Group did not consider it reasonably possible, at the balance sheet date, that this was a major source of estimation uncertainty that could have a signiicant risk of resulting in a material adjustment to the liabilities recorded and thus is not disclosed as such in note 1 to the accounts as a key source of estimation uncertainty, but is included as an additional disclosure. Governance Report Volution Group plc Annual Report 2023 136 Audit Committee Report continued Accounting for business combinations There were two business combinations during the year: the acquisitions of VMI and I-Vent. The acquisitions were relatively straight forward and included 100% purchase of shares. Both of these acquisitions include future consideration contingent on the performance of the businesses. The acquisitions of ERI in 2022 and ClimaRad in 2021 also include contingent consideration liabilities at the balance sheet date. The Committee reviewed the accounting for the acquisitions and the application of the relevant accounting standards and agreed that it was appropriate. The Committee also reviewed the judgements that Management made in assessing the fair value measurement of the contingent consideration for the VMI and I-Vent acquisitions and for the previous acquisitions of ERI and ClimaRad, and agreed the judgements were reasonable. The Group did not consider it reasonably possible, at the balance sheet date, that this was a major source of estimation uncertainty that could have a signiicant risk of resulting in a material adjustment to the liabilities recorded and thus is not disclosed as such in note 1 to the accounts as a key source of estimation uncertainty, but is included as an additionaldisclosure. Going concern The Board of Directors has a responsibility to assess whether there are any signiicant doubts about an entity’s ability to continue as a going concern. The Group has completed a comprehensive and robust assessment in order to support the preparation of the inancial statements on the going concern basis. Such testing involves a number of assumptions regarding the future inancial performance of the Group for 18 months from the balance sheet date. The Committee has reviewed the key assumptions used in the going concern assessment and the other relevant factors surrounding going concern, notably the expected liquidity levels of the Group and covenantheadroom. The Committee has also considered reasonable sensitivities to these estimates including the potential impact from the the principal risks and concluded that these support the preparation of the inancial statements on the going concern basis. The Committee considered the impact of climate change (not a standalone principal risk) over the short time period of our climate change assessment (aligned to our going concern review), and considered it reasonable to expect no material adverse impact of climate change over the going concern period, and hence considered it reasonable that no adverse impacts in either the base case or downside scenarios were included. Further details of the going concern assessment prepared by the Group is included on page 99. In addition, the Committee reviewed policy and provisions with respect to: treasury, taxation, warranty, doubtful debts and inventory and weighted average cost of capital rates. External audit EY has acted as External Auditor for the Group since Volution was listed in June 2014. The lead partner for the inancial year ended 31 July 2023 and the prior year was Jon Killingley. Other than this role, he has not had any previous involvement with the Group. The Committee notes the tendering and rotation provisions in the EU Audit Directive and Regulation and the Companies Act 2006, which state that there should be a public tender every ten years and a change of External Auditor at least every 20 years. The Committee also conirms compliance with the provisions of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (the Order). In line with these requirements, the Committee has this year conducted a tender process for the appointment of the External Auditor for the year ending 31July 2024. The tender process was concluded in January 2023, and more details are set outopposite. Audit tender The Audit Committee initiated and supervised a competitive tender process for the Group’s External Auditor during the inancial year. It was concluded in January 2023. As part of the planning, the Committee agreed a timetable with Management, appointed a Selection Panel, and agreed minimum requirements. A set of selection criteria was then prepared, taking into account FRC guidance and those criteria most relevant to the Group. The Audit Committee deined the primary objective of the tender process as to appoint the audit irm that would provide the highest quality, most eective, and eicient audit of the Group. During 2022, the Audit Committee Chair, with the advice and support of the CFO, engaged with all the “Big 4” irms, and at least one challenger irm, to understand their appetite to tender. Three irms declined to participate . A formal RFP document was then issued to two irms, which included details of the selection criteria. Two irms completed the full process, including the incumbent auditor. To ensure a level playing ield, comprehensive information was provided in an electronic data room, and each of the participating irms were invited to meetings with the Chair of the Board, the Chair of the Audit Committee, and members of senior management, and also to visit aselection of the Group businesses. Both irms submitted comprehensive tender documents, including lead partners’ and prospective audit teams’ CVs, for consideration, and each irm gave a formal in-person presentation to the Audit Committee, where the Committee had the opportunity to ask questions and discuss the tender documentation in detail. These Presentations were also attended by and the Selection Panel, which included the Chair, the Chief Financial Oicer, theCompany Secretary, and members of the Finance function. The evaluation process included each member of the Selection Panel scoring against the agreed selection criteria, and was supplemented with a review of FRC Audit quality reports for each irm, discussion of the merits of the proposals, and the review of additional feedback from other senior management involved in the tender process. There were no contractual obligations that restricted the Company’s choice of external audit irm. The Audit Committee reviewed a report on the audit tender and selection process and, after due consideration, recommended to the Board that their preferred choice was PwC. As announced on 1 February 2023, the Company intends to appoint PwC as its auditor for the year ending 31 July 2024, subject to shareholder approval at the AGM in December 2023. Since their appointment, work has been completed to ensure PwC are independent, and relevant transitionary activities have commenced, ahead of PwC’s expected formal appointment at the AGM. No Committee members have any connection with either EY or PwC. Signiicant accounting matters continued Strategic Report Governance Report Financial Statements Additional Information 137 Volution Group plc Annual Report 2023 The Committee has recommended to the Board that a resolution to appoint PwC for the inancial year ending 31 July 2024 be proposed to shareholders at the Annual General Meeting in December 2023 and the Board accepted and endorsed thisrecommendation. Eectiveness review During the year, the Committee assessed the eectiveness of EY and the external audit process for the year ended 31 July 2022 using a checklist and questionnaire issued to senior inancial management across the Group who had been involved in the audit process. A summary of the indings was prepared for consideration by the Committee and EY. There were no substantive matters identiied during this assessment and the Committee concluded that the external audit process had been eective. The Committee has been provided with a copy of the Financial Reporting Council’s July 2023 audit quality inspection report in respect of EY and a copy of EY’s published audit quality and transparency reports for the UK. The Audit Quality Review team of the Financial Reporting Council (‘FRC’) considered certain aspects of EY’s audit of the Company’s 2022 consolidated inancial statements. Having received a full copy of the report, the Committee was pleased to note that no key indings arose from the review, with only one area identiied for limited improvement. This area has been discussed with EY and the Committee is satisied that it was addressed appropriately. Non-audit services The Committee agrees the fees paid to the External Auditor for its services as auditor. A formal policy in relation to the provision of non-audit services by the External Auditor was reviewed by the Committee during the year to ensure that there was adequate protection of its independence and objectivity. A copy of the policy is available at the Company’s website www.volutiongroupplc.com. Following the Committee’s announcement on 1 February 2023 regarding the intended appointment of PwC as External Auditor, the decision was also taken in line with independence requirements to replace PwC as tax advisor to the Group. Management undertook a process, with oversight of the Committee, which resulted in the appointment of BDO as the Group’s tax advisor with eect from 1 June 2023. During the year, EY charged the Group £99,000 (2022: £95,000) for non-audit services relating to the half-year review, which represents 11.9% (2022: 12.9%) of the average of the external audit fee over the last three inancial years. A breakdown of the fees paid to EY during the year is set out in note 8 to the consolidated inancialstatements. Internal control and risk management The Board is responsible for the eectiveness of the Group’s system of internal control, which has been designed and implemented to meet the requirements of the Group and the risks to which it is exposed. Details are set out below on the Group’s internal control environment, how risk is managed, and the Committee’s review of the eectiveness of the risk management andinternal control systems. Internal control environment In seeking to achieve the Group’s business objectives, we face a number of risks, as deined on pages 96 to 104. The following key elements comprise the internal control environment, which has been designed to identify, evaluate and manage these risks in line with our risk appetite, and to ensure accurate and timely reporting of inancial data for the Company and the Group: • an appropriate organisational structure with clear lines of responsibility, including adopting the three lines of defence model to eectively manage the risks; • an experienced and qualiied inance function, which regularly assesses the possible inancial impact of the risks facing the Group; • a comprehensive annual business planning process; • key control procedures as deined in our Risk and Control matrix; • delegation of authority devolved from the Board which sets the approval limits for capital and operating expenditure and other key business transactions anddecisions; • a robust inancial control, budgeting and forecasting system, which includes regular monitoring, variance analysis, key performance indicator reviews and risk and opportunity assessments at Board level; • procedures by which the consolidated inancial statements are prepared, which are monitored and maintained through the use of internal control frameworks addressing key inancial reporting risks arising from changes in the business or accounting standards; • established policies and procedures setting out expected standards of integrity and ethical standards which reinforce the need for all employees to adhere to all legal and regulatory requirements; and • an annual internal controls checklist. Volution Board/Audit Committee Three lines of defence model Volution Management 1st line Day to day management of risk Application of internal controls 2nd line 3rd line Internal Audit External Auditor Group Finance Technical CoSec/Compliance IT Security HR Governance Report Volution Group plc Annual Report 2023 138 Audit Committee Report continued Internal Audit Internal Audit plays an important role in helping the organisation deliver its vision and objectives by providing independent and objective assurance to Management, the Committee and Board on the eectiveness of Volution’s risk management activities, internal controls and corporate governance framework. The purpose, scope and authority ofInternal Audit is deined within its charter which is approved annually bytheCommittee. For the inancial period ended 31July 2023, BDO continued to provide the internal audit service. The Audit Committee agreed the internal audit plan prior to the commencement of the inancial year, which was designed to ensure that there was appropriate coverage of the internal control environment, strategic priorities and key risks identiied by the Board in its annual risk management process. Regular updates on Internal Audit are provided to the Committee, covering an overview of the work undertaken in the update period, actions arising from audits conducted, the tracking of remedial actions, and progress against the Internal Audit Plan. Updates provided in the year included detailed reports on the segregation of duties and similar controls in our newly acquired businesses, and also on speciic areas of cyber, fraud and other key risk areas. The Committee routinely meets independently with the Internal Auditor, to discuss the results of the audits performed and any additional insights obtained on the risk management and control environment across theorganisation. Transition to an in-house Internal Audit function During this inancial year, the Audit Committee supported the transition to an in-house Internal Audit function, eective from the start of the 2024 inancial year. Thisdevelopment aims to improve the consistency of reporting between the business units and to help to identify and disseminate good practice across the Group. A new Head of Internal Audit was appointed to deliver the Internal Audit Programme, with BDO acting as a co-source partner. The Head of Internal Audit reports to the Committee and functionally to the Chief Financial Oicer. Priorities for Internal Audit in the new inancial year will include continuing to focus on the integration of the three new businesses recently acquired in France, Slovenia and New Zealand and ensuring alignment with Group’s expected standards of internal control. Risk management The Board sets the risk appetite that forms the basis of the approach to risk management, accepting that some level of risk taking is necessary to meet business objectives. The Group has a risk management process which is led by the Group Risk Management Steering Committee. This process identiies risks and assesses the probability and impact from these risks, and assigns an owner to manage mitigation activities at the operational level. Each business unit operates a process to ensure that key risks are identiied, evaluated, managed in line with our risk appetite, and reviewed appropriately. This process is also applied at Board level to major business decisions such as acquisitions. The business unit risk registers form the basis for the Group Risk Register, which is maintained for all corporate risks and is monitored by senior management and reviewed by the Committee. During the year, the Group Risk Register and the methodology applied were the subject of review by senior management and updated to relect new and developing areas which might impact business strategy. The Audit Committee reviews the Group Risk Register at least twice a year and assesses the actions being taken by senior management to monitor and mitigate the risks. The Group’s principal risks and uncertainties, the areas which they impact and how they are mitigated are described on pages 96 to 104. Review of eectiveness Provision 29 of the 2018 Code states that the Board should monitor the Company’s risk management and internal control systems and, at least annually, carry out a review of their eectiveness. The Committee receives an annual report on the performance of the system of internal control, and on its eectiveness in managing risks and in identifying control failings or weaknesses. The Committee has reviewed the Group’s risk management process and the eectiveness of the Group’s risk management and internal control systems for the period from 1 August 2022 to the date of this report. Taking into account the matters set out on pages 96 to 104 relating to principal risks and uncertainties and the internal audit reports from BDO, the Board, with the advice of the Committee, is satisied that the Group has in place eective risk management and internal control systems. Corporate Reporting Review, FRC Supervision Following their review of the Annual Report for the year ended 31 July 2022 in accordance with Part 2 of the FRC Corporate Reporting Review Operating Procedures, the Corporate Reporting Review team, FRC Supervision (CRR), wrote to the Company in March 2023 requesting certain information to understand how relevant reporting requirements had been met in relation to three areas: the acquisitions of ERI (Macedonia) and ClimaRad (Netherlands), disclosures on judgements and estimates, and carbon avoidance reporting. Information was duly provided and accepted as satisfactory by the CRR. Some reporting changes suggested as part of their review have been relected as appropriate in this Annual Report. TheFRC’s role is to consider compliance with reporting standards and is not to verify the information provided to them. Therefore, given the scope and inherent limitations of their review, which does not beneit from any detailed knowledge of the Group, it would not be appropriate to infer any assurance from their review that our 2022 Annual Report and Accounts was correct in all material respects. Code of Conduct, anti-bribery and whistleblowing The Group is committed to providing a safe and conidential avenue for all employees across the Group to raise concerns about serious wrongdoings. The Group also acknowledges the requirements of the 2018 Code in this area, which states that the Committee should review arrangements by which employees across the Group may, in conidence, raise concerns about possible improprieties in matters of inancial reporting or other matters and ensure that these concerns are investigated and escalated as appropriate. The Company has a Group-wide Code of Conduct, an Anti-Bribery and Corruption Policy and a Policy on Corporate Criminal Strategic Report Governance Report Financial Statements Additional Information 139 Volution Group plc Annual Report 2023 Oences. These policies set out the Group’s values and the importance that is placed on honest, ethical and lawful conduct in all business dealings. The Code of Conduct also sets out the Group’s policy on anti-slavery and human traicking, in accordance with the Modern Slavery Act 2015. Group employees, agents and suppliers are asked, where relevant, to conirm that they do and will continue to comply with these policies. Agifts and hospitality register is operated by each business unit to ensure transparency where items are over a certain monetary threshold. In addition, all employees who are considered the most likely to be exposed to bribery and corruption are given web-based anti- bribery and corruption training. Arrangements are in place by which employees are able to raise, in conidence, any concerns they may have about possible wrongdoing or dishonest or unethical behaviour, such as bribery, corruption, fraud, dishonesty and illegal practices. An external independent whistleblowing provider provides a conidential web-based and telephone facility which has been communicated across the Group, branded as “Speak Up”, to ensure awareness. The Code of Conduct protects anyone who comes forward to make a disclosure under the Whistleblowing Policy. When a disclosure is made, the Company Secretary reports the matter to the Committee Chair and initiates an investigation to include all necessary parties. A report on the investigation is submitted to the Committee and appropriate steps are taken to ensure that any matters relating to any disclosures have been resolved satisfactorily. The Committee also has the power to conduct further enquiries itself or any other additional actions it sees it. The Committee has reviewed these arrangements and is satisied that they areoperating eectively. Committee performance evaluation During the year, the Board conducted an internally facilitated evaluation of the performance of the Board, its Committees, the Directors and the Chair. Further details can be found in the Governance Report on page 120. This process concluded that the Committee had fulilled its role eectively and did not identify any signiicant development points requiring action. Fair, balanced and understandable The Board has responsibility under the Code for preparing the Company’s Annual Report and Accounts, ensuring that it presents a fair, balanced and understandable (FBU) assessment of theGroup’s position and prospects and that it provides the information necessary for shareholders to assess the Group’s performance, business model andstrategy. The review of the Annual Report and Accounts took the form of a detailed assessment of the collaborative drafting process, which involves the Board members, the Senior Management team, Group inance and the Company Secretary, with guidance and input from external advisers. This ensures that there is a clear and uniied link between this Annual Report and Accounts and the Group’s other external reporting, and between the three main sections of the Annual Report and Accounts – the Strategic Report; the Governance Report; and the Financial Statements. In addition, the Committee receives a report highlighting areas for FBU consideration to ensure compliance before approval of the Annual Report and Accounts. In particular, the Committee: reviewed all material matters, as reported elsewhere in this Annual Report and Accounts; ensured that it fairly relected the Group’s performance in the reporting year; ensured that it relected the Group’s business model and strategy; ensured that it presented a consistent message throughout; and considered whether it presented the information in a clear and concise manner, illustrated by appropriate KPIs, to facilitate shareholders’ access to relevant information. A summary of the process, and of the Committee’s indings, was considered by the Board at its meeting on 3 October 2023. The outcome of that review was that the Committee conirmed to the Board that the Annual Report and Accounts 2023 met the requirements of the 2018 Code and the Board’s formal statement tothat eect is set out on page 166. Jonathan Davis Chair of the Audit Committee 4 October 2023 Governance Report Volution Group plc Annual Report 2023 140 Directors’ Remuneration Report Dear shareholder, On behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the year ended 31 July 2023. At the Annual General Meeting in December 2022, the Directors’ Remuneration Report resolution received strong support from shareholders, with 98.3% of the votes cast being in favour of the resolution. Our current Remuneration Policy (current Policy) was approved at the 2020 AGM and also received very good support from shareholders, with over 95% of the votes cast being in favour of the resolution. In line with the three year lifecycle of the Policy, a new Policy is being put forward to a shareholder vote at the 2023 AGM, further detail of which is provided in this report. The Committee reviewed the Policy in the context of our remuneration principles, which are to: • attract and retain the best talent; • drive behaviours that support the Group’s strategy and business objectives which are developed in thelong-term interests of the Company and its shareholders; • reward senior management appropriately for its personal and collective achievements; • provide incentives that help to maintain commitment over the longer term and align the interests of senior management with those of shareholders; and • ensure that a signiicant percentage of the overall remuneration package of the Executive Directors and senior management remains at risk, dependent on performance, and that their pay and beneits adequately take account of reward versus risk. Wider workforce considerations The Committee is aware of the impact of inlation and the cost-of-living crisis on our employees, and the Group has taken a number of actions during the year to support the workforce, a selection of which is set out below: • Salaries have increased at higher levels than in previous years. During the period there was a total base salary increase of c.8% in the UK, with an increase of 6.5% for indirect labour and 9.2% for direct labour. There has also been a signiicant increase in some functional roles that were benchmarked Membership and attendance The Committee met for four scheduled meetings during the year with attendance disclosed below. Committee members Member since Attendance Claire Tiney Chair August / Margaret Amos March / Amanda Mellor March / Nigel Lingwood April / Jonathan Davis June / Paul Hollingworth June / 1. Jonathan Davis joined the Board and the Remuneration Committee on 23 June 2023. There was only one Remuneration Committee meeting between that date and the year end, and so Jonathan attended the maximum number of meetings possible. 2. Paul Hollingworth retired from the Board and stepped down from the Committee on 23 June 2023. There were only three Remuneration Committee meetings between the start of the year and that date, and so Paul attended the maximum number of meetings possible. A policy to support Group strategy Strategic Report Governance Report Financial Statements Additional Information 141 Volution Group plc Annual Report 2023 against competitors, such as customer service, technical support, marketing and transactional inance, ranging from 10.5%-17.8%. In previous years we have also implemented out-of-cycle salary increases in certain business units, and will continue to do so as appropriate to remain an employer of choice in our markets. • We operate a ‘mind the gap’ philosophy for lower paid employees. When the national minimum wage (‘NMW’) increases, as it did this year by c.10%, junior employees who are paid above the NMW also get an increase so the gap to the NMW stays the same. Wealso implemented pay increases sixmonths earlier than we were required to do so on the NMW increase for certain business areas in the UK. • The ‘Employee Beneits’ platform was enhanced in December 2022 which oers, amongst other things, attractive discounts at leading retailers including cash back options. • Employees who are eligible to participate in the annual bonus scheme have beneitted from pay-outs due to Volution’s strong performance in recent years and have done so again in respect of 2023. Employees have also been able to share in the success of the share price increase through the all-employee Sharesave scheme. Review of the RemunerationPolicy In accordance with the Directors’ Remuneration Report regulations, Volution is required to submit a revised Directors’ Remuneration Policy to shareholders for approval at the December 2023 AGM. In light of this, the Committee has undertaken a robust and comprehensive review of our Remuneration Policy and framework to ensure it remains appropriate and supports the delivery of our strategy, whilst rewarding Management fairly and in line with investor expectations. An extensive shareholder consultation was carried out with the majority of Volution’s shareholder register to gather views and feedback, which have been carefully considered in developing and inalising the proposals on the new Policy. In summary, the Committee is of the view that the current Policy has operated as intended and continues to support the strategic priorities of the business and creation of sustained long-term value for shareholders. Therefore, no major change to the structure of remuneration is being proposed this time. Two changes are being proposed to align Volution with investor expectations and UK market practice, which the majority of shareholders were supportive of as part ofthe shareholder consultation exercise: • Pension contributions – as part of the Policy review the Committee has undergone a comprehensive review of the pension arrangements across the Group. Following this review and further discussion, and in recognition of investor expectations and UK market practice on executive director pension levels, the Committee determined that it is appropriate to reduce the CEO pension to 5.5% of salary (from 8.5% of salary) as being more relective of the pension rates available to the wider UK workforce. This represents a further reduction with the CEO’s pension originally being reduced from 15% of salary. The CFO will remain on a pension equivalent to 5.5% of salary. • Variable pay cap – under the current Policy, the annual bonus and LTIP are subject to a combined cap of 275% of salary. The Committee notes that having a combined cap is not common in the UK market and is therefore proposing to remove it in the new Policy to align with market practice. The individual caps on the annual bonus (150% of salary) and the LTIP (175% of salary) will remain unchanged, as will the maximum award opportunities for the period ending 31July 2024. The Committee commits to consult with shareholders if it increases maximum incentive levels during the life of the Policy. Implementation in the year ending 31 July 2024 Salary As part of the Policy review the Committee has reviewed the salary levels for the CEO and CFO to ensure that they remain relective of their skills and experience, as well as being appropriate in the context of the increased size and complexity of the Group. Since listing in 2014, the Group has more than doubled in market capitalisation and is now an established FTSE 250 company after its promotion from the FTSE SmallCap in 2021. This alongside a consistent increase in dividend per share (from 3.3p in FY15 to 8.0p in FY23, corresponds with total shareholder returns over the period of over 200% versus a FTSE 250 index return of c.50% over the same period. TheGroup has also achieved strong inancial performance, including revenue growth of over 39% and adjusted EPS growth of 61.3% since 2019. Volution substantially increased its international footprint in recent years and is now a more international business than at any point in the Group’s history, with 60.4% of revenue coming from non-UK customers in the period. This makes Volution a more international and complex business than those FTSE 250 companies that are predominately UK focused. There have also been a number of acquisitions in recent years including: ERI Corporation, RTek, ClimaRad, Klimatfabriken, and Ventair. There have been two further acquisitions in the inancial year ending 31July 2023, I-Vent in Slovenia and Croatia and VMI in France, further increasing the international footprint and complexity of the Group. The Group has also acquired DVS (Proven Systems Ltd) in New Zealand which completed after the year end. There has been signiicant progress made against the “product, planet and people” targets in light of the Group’s commitment to sustainability – and Volution received the Green Economy Mark in 2021, being recognised by the London Stock Exchange as contributing to the global green economy. The commitment to sustainability is embedded in all aspects of the business. Taking into account the above business context and the excellent track record and experience of the CEO (who has been CEO since 2012) and CFO (who joined in 2019), who have both been key drivers to Volution’s success, and the increased scope and responsibilities of the roles, the Committee has identiied that the salary levels (and total remuneration packages) have not kept pace with the increased size and complexity of the Group and the increased scope and responsibilities of the roles. In line with the three year lifecycle of the Policy, a new Policy is being put forward to a shareholder vote at the 2023 AGM, further detail of which is provided in this report. Governance Report Volution Group plc Annual Report 2023 142 Directors’ Remuneration Report continued Implementation in the year ending 31 July 2024 continued It is therefore proposing to increase the salary for the CEO to £555,000 (c.17.4% increase) and the salary for the CFO to £380,000 (c.15% increase) for the period ending 31 July 2024. The Committee notes that the total remuneration package after these salary increases is around the lower quartile against the FTSE 250. As part of the shareholder consultation exercise the majority of shareholders who provided feedback recognised that salary levels had not kept pace with the increase in the size and complexity of the Group and were supportive of an adjustment being made. I would like to thank shareholders for their input and feedback on this topic. It is currently intended that any salary increases next year will be no more than those for the wider workforce. Pension contributions As set out earlier in this letter, the CEO’s pension has been reduced to 5.5% of salary (from 8.5% of salary last year and an initial starting point of 15% of salary) as being more relective of the pension rates available to the wider UK workforce. The change to the CEO pension became eective on 1 August2023. The CFO will remain on a pension equivalent to 5.5% of salary. Variable remuneration As set out above, there are no proposed changes to the maximum award opportunities for the period ending 31July2024, being 125% of salary for the annual bonus and 150% of salary and 125% of salary for the CEO and CFO respectively for the LTIP. The performance measures applicable to the annual bonus will remain unchanged and the Committee continues its policy of setting stretching annual bonus targets which take into account a number of internal and external factors. The weightings will be: adjusted EPS (50%); adjusted operating proit (35%); andworking capital management (15%). During the year, the Committee has also considered the inclusion of a return-based measure in the LTIP. A ROIC number has been calculated and included in the Finance Review on pages 28 to 33 for the irst time, and a number of shareholders commented that a return-based measure could be considered for inclusion in the LTIP. Given that this is the irst time we as a business have reported on it, the Committee has concluded that the period ending 31 July 2024 would be too soon to include it in the LTIP and set long-term targets. However, the Committee recognises the importance of such a measure and intends to incorporate it as an LTIP measure for the LTIP awards for the period ending 31 July 2025, further detail of which will be provided in the Directors’ Remuneration Report next year. The measures for the 2024 LTIP award will remain unchanged being earnings per share (60%); total shareholder return (20%); and ESG targets (20%). As part of the Policy review, the Committee also reviewed the peer group used to measure comparative total shareholder return and has updated it for 2024 awards onwards. The new peer group has been communicated to shareholders and their feedback has been taken into account to ensure it is more relective of Volution’s business as it is today. Detail on the new group can be found onpage 160. Performance in the year ended 31 July 2023 and remuneration outcomes During the year ended 31 July 2023 the business performed very well. The strong set of results relects the resilience of the business through the pandemic and against other macro-economic factors, with the Group’s revenue increasing by 6.6% compared to last year to £328.0 million (2022: £307.7 million). Adjusted operating proit was £69.9 million (2022: £64.9 million), representing 21.3% of revenue and a £5.0 million improvement compared to the prior year. Reported proit before tax increased by 3.4% to £48.8 million (2022: £47.2 million). Our adjusted earnings per share was 25.8 pence, representing a 7.5% increase over the adjusted earnings per share for the prior year of 24.0 pence. The compound annual growth rate of adjusted earnings per share since IPO in 2014 was 12.7%. Adjusted operating proit, adjusted EPS and working capital management were the key measures used by the Committee to assess performance and, accordingly, were the performance measures used for the bonus. Performance against these measures resulted in the Committee awarding an annual bonus of 88% of salary to Ronnie George and 88% of salary to Andy O’Brien (70% of themaximum). We have provided full retrospective disclosure of the bonus targets as well asthe actual performance against them. In accordance with the Policy, one-third of the total annual bonus payment will be deferred into awards over the Company’s shares which will vest after three years. Further details can be found on page 154. The LTIP awards granted in the 2020/21 inancial year (in October 2020) had a performance period ending on 31 July 2023 and are subject to a two-year holding period. Due to strong EPS growth and total shareholder return performance over the period (with a total shareholder return over the performance period of c.140% being top of the peer group), the October 2020 LTIP awards will vest at 100% of maximum. Further details can be found on page 154. When determining variable pay outcomes, the Committee also took account of the shareholder experience, the employee experience and the wider stakeholder experience alongside all of the performance context provided above. Overall, the Committee considered that remuneration outcomes were appropriate and as such determined that no discretion would be applied. Shareholder consultation We are committed to maintaining an open and transparent dialogue with our shareholders on executive pay. As set out earlier in this letter, the Committee has undertaken a substantial shareholder consultation exercise on the proposed new Policy and the remuneration decisions for the inancial year ending 31 July 2024. This included two phases of consultation and over 75% of the total shareholder base was consulted with overall. The feedback on the remuneration decisions received from shareholders has been positive and I would like to thank all shareholders who provided feedback on the proposals. Annual General Meeting 2023 As well as the Annual Report on Remuneration and Remuneration Policy, revised Deferred Share Bonus Plan Rules and LTIP Rules are also being put forward for a shareholder vote. Whilst both plans will reach the end of their ten-year life, they remain broadly it-for-purpose. As such it is proposed that they are renewed for a further ten years at the 2023 AGM subject to minor changes to ensure continued alignment with Volution’s policies and evolving market and best practice. On behalf of the Board I would like to thank shareholders for their continued support and do hope that you will support the resolution requesting approval of the Annual Report on Remuneration and the resolution to approve the new Remuneration Policy at this year’s Annual General Meeting on 13 December 2023. Claire Tiney Chair of the Remuneration Committee 4 October 2023 Strategic Report Governance Report Financial Statements Additional Information 143 Volution Group plc Annual Report 2023 At a Glance: Implementation of the new Remuneration Policy for 2024 and key decisions in 2023 The table below summarises how key elements of the Remuneration Policy will be implemented in the period ending 31 July 2024 and key decisions taken bythe Committee for the year ended 31 July 2023. Element Chief Executive Oicer Ronnie George Group Finance Director Andy O’Brien Base salary (from 1 August 2023) £555,000 £380,000 Pension 5.5% 5.5% Annual bonus opportunity 2024 Maximum: 125% Maximum: 125% Annual bonus measures • The majority of the bonus will be based on inancial measures and the remainder (if any) will be based on non-inancial measures. • For the period ending 31 July 2024, the inancial measures include: Adjusted EPS (50%); Adjusted operating proit (35%); and Working capital management (15%). • Full disclosure of performance targets will be disclosed retrospectively. Annual bonus deferral • One-third of the annual bonus will be deferred into shares for a period of three years. Long term incentive plan (LTIP) opportunity 2024 Maximum: 150% Maximum: 125% LTIP measures • LTIP awards will be based on the EPS growth (60%); Relative TSR (20%); and ESG (20%). • Performance will be measured over a three-year period. • Targets are disclosed prospectively later in this report. LTIP holding requirement • LTIP awards are subject to a two year holding period. Shareholding guideline • 200% of salary in-employment shareholding guideline. • Post-cessation shareholding requirements apply at the same level as the in-employment guideline (or actual shareholding, if lower) for two years afterdeparture. Malus and clawback • Malus and/or clawback provisions apply up to the third anniversary of payment of the cash bonus, and the earlier of the sixth anniversary of grant and the third anniversary of satisfying awards for DSBP and LTIP awards. • The malus and clawback provisions are set out in the Remuneration Policy later oninthis report. July year-end outcomes: Bonus outcome • 70% of maximum pay-out. 2020-23 LTIP outcome • 100% of maximum vesting. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 144 Directors’ Remuneration Policy Report This section of the Directors’ Remuneration Report sets out the Remuneration Policy (the Policy) for Executive and Non-Executive Directors. As required, it complies with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). It is intended that the Policy will be put before shareholders for approval by way of a binding vote at the Company’s AGM in December 2023. If approved by shareholders, the Policy will have eect immediately thereafter. Until such approval, the Company’s existing Remuneration Policy will continue to apply. When determining the Policy the following principles were kept in mind: • clarity – all remuneration aspects are clearly and openly communicated to employees, shareholders and other stakeholders through comprehensive Directors’ Remuneration Report disclosures and shareholder consultation materials; • simplicity – the remuneration package is simple and clear, consisting of three main elements of pay: i) ixed pay (salary, beneits andpension); ii) annual bonus; and iii) LTIP; • risk – the Committee has discretion to adjust variable pay outcomes away from the formulaic outturn. Malus and clawback provisions are also in place for all variable pay elements; • predictability – the potential range of payouts is set out in the relevant Remuneration Policy; • proportionality – there is a clear link between pay for performance and link to business strategy, with stretching targets applied tothe annual bonus and LTIP; and • alignment to culture – the variable incentive schemes, including quantum, time horizons, form of award and performance measures, are all designed with the Company’s people, culture, purpose, values and strategy in mind. Remuneration Policy table Operation Maximum opportunity Performance metrics Base salary Purpose and link to strategy: Core element of remuneration set at a level to attract, retain and reward Executive Directors of the required calibre to successfully deliver Company strategy. Normally reviewed annually. In determining base salaries, the Committeeconsiders: • Company performance and external market conditions; • pay and conditions elsewhere in the Group; • role, experience and personal performance; and • salary levels at companies of a similar size and complexity. There is no automatic entitlement to an increase each year. An exceptional review may take place to relect a change in the scale or scope of a Director’s role, for example (but not limited to) a major acquisition. The current salaries for the Executive Directors are set out in the Annual Report onRemuneration. While the Committee does not consider it appropriate to set a maximum salary, annual increases will generally be no more than those of the wider workforce (in percentage of salary terms). Increases beyond those awarded to the wider workforce may be awarded in certain circumstances such as (but not limited to) progression in the role, where there is a change in responsibility or experience, or a signiicant increase in the scale of the role and/or size, value and/or complexity ofthe Group. Company and individual performance are factors considered when reviewing salaries. Pension Purpose and link to strategy: The Company aims to provide an appropriate means of saving for retirement. Executive Directors may receive an employer’s pension contribution to a personal or Group pension scheme and/ or any other arrangement the Committee considers has the same economic beneit (including a cash allowance). The maximum pension contribution or allowance for Executive Directors will take into account what is available to UK employees or to participants in the pension plan in the relevant country. The Executive Directors pension contribution or allowance is currently 5.5% of salary. N/A Strategic Report Governance Report Financial Statements Additional Information 145 Volution Group plc Annual Report 2023 Operation Maximum opportunity Performance metrics Annual Bonus Plan ABP Purpose and link to strategy: To incentivise Executive Directors to achieve speciic, pre-determined goals. Rewards achievement of objectives linked to the Company’s strategy. Annual bonus payment is determined by the Committee after the inancial year end, based on performance against targets set by the Committee for the year or part of the year. Normally, one-third of any annual bonus payment earned by the Executive Directors will be deferred into awards over the Company’s shares under the Company’s Deferred Share Bonus Plan (DSBP) which normally vest after three years. Malus and clawback provisions apply, as set out in the notes to this table. 150% of base salary Bonus opportunities in respect of the year under review (and for the following year) are disclosed in the Annual Report on Remuneration. Performance measures are determined with reference to the Company’s key strategic business objectives. No less than 50% of the bonus will be dependent on inancial measures and the remainder (if any) will be based on non-inancial or individual measures that are aligned to the strategic priorities of the business. At threshold performance up to 25% of the maximum pays out. Below this level of performance, no bonus pays out. On-target bonus is set at 50% of the maximum opportunity. The Committee retains the discretion to vary the level of bonus paid away from the formulaic outcome to relect overall Company and individual performance and any othercircumstances as determined bythe Committee. Long Term Incentive Plan LTIP Purpose and link to strategy: To incentivise the delivery of key strategic objectives over the longer term and align the interests of Executive Directors with those of our shareholders. Vesting of the awards is dependent on the achievement of performance targets set by the Committee, normally measured over a period of at least three years. Shares will then normally be subject to an additional two-year holding period (which can be structured on a gross or net of tax basis). During this holding period, no further performance measures will apply. Malus and clawback provisions apply, as set out in the notes to this table. 175% of base salary The face value of awards in respect of the year under review (and for the following year) are disclosed in the Annual Report on Remuneration. Awards vest based on challenging inancial, non-inancial or share price targets. At least 50% will be based on inancial and/or share price-based measures. No more than 25% vests at threshold with 100% of awards vesting at maximum performance. The Committee retains the discretion to vary the level of LTIP vesting away from the formulaic outcome to relect overall Company and individual performance and any othercircumstances as determined bythe Committee. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 146 Directors’ Remuneration Policy Report continued Remuneration Policy table continued Operation Maximum opportunity Performance metrics Other beneits Purpose and link to strategy: To provide a market-competitive package of beneits consistent with the role to attract, retain and reward Executive Directors of the required calibre to successfully deliver Company strategy. Various cash/non-cash beneits are provided to Executive Directors which may include (but are not limited to) a company car (or cash equivalent), life assurance, expatriate beneits, private medical insurance (for the Executive Director and their immediate family) and relocation beneits and any tax liability that may be due on these beneits. The Committee may introduce other beneits if it is considered appropriate to do so. Reimbursement of all costs associated with reasonable expenses incurred for the proper performance of the role including tax thereon where a business expense is deemed taxable by HMRC. Executive Directors are also eligible to participate in any all-employee share plans (e.g. the Sharesave Scheme) on the same basis as other eligible employees. Although the Committee does not consider it appropriate to set a maximum beneits level, it is set at an appropriate level for the speciic nature of the role and the individual’s personal circumstances. N/A Share ownership guidelines Purpose and link to strategy: To provide close alignment between the longer-term interests of Executive Directors and shareholders. Executive Directors are expected to achieve and retain a holding of the Company’s shares worth 200% of their base salary. Executive Directors will normally be expectedto remain aligned with the interestsof shareholders for an extended period after leaving the Company. Executive Directors will typically be expected to retain a shareholding at the level of the in-employment shareholding guideline for two years (or the actual shareholding on stepping down, if lower), unless the Committee determines otherwise in exceptional circumstances. Further detail is set out in the Annual Report onRemuneration. The Committee has discretion to disapply or reduce the share ownership guidelines inextenuating circumstances, for example incompassionate circumstances. There is no maximum, but minimum levels have been set at 200% of base salary for the current Executive Directors. It is expected that Executive Directors will normally retain at least 50% of any shares delivered under the DSBP and LTIP, after the deduction of applicable taxes, until the guideline is met. N/A Strategic Report Governance Report Financial Statements Additional Information 147 Volution Group plc Annual Report 2023 Operation Maximum opportunity Performance metrics Chair and Non-Executive Director fees Purpose and link to strategy: To enable the Company to attract and retain Non-Executive Directors of the required calibre byoering market-competitive fees. The Chair is paid an all-inclusive fee for allBoard responsibilities. Non-Executive Directors receive a basic Board fee. Neither the Chair nor Non-Executive Directors are eligible to participate in any ofthe Company’s incentive arrangements orreceive any pension provision. Additional fees may be payable for additional Board responsibilities such as chair of the Board role or membership of a Committee or performing the Senior Independent Director role or for an increased time commitment. The Committee reviews the fees paid to the Chair and the Board reviews the fees paid to the Non-Executive Directors annually, with reference to the time commitment ofthe role and market levels in companies of comparable size and complexity. Travel expenses, hotel costs and other beneits related to the performance of the role, including any tax due, are also paid where necessary. Fees are set within the aggregate limits set out in the Company’s Articles of Association from time to time. Non-Executive Directors and the Chair may receive fee increases to ensure they continue to appropriately recognise the responsibilities and time commitment of the role and fee levels in companies of a similar size and complexity. Any increase in fees would normally be no more than the wider workforce salary increase (in percentage terms). Increases beyond those awarded to the wider workforce may be awarded, including on an on-going, temporary or ad hoc basis, in certain circumstances such as where there is a signiicant increase in the time commitment or responsibilities of the role. N/A Summary of the decision- making process and changes made to the Policy In determining the new Remuneration Policy, the Committee followed a robust process which included discussions on the content of the Policy at four Remuneration Committee meetings. The Committee considered input from Management and our independent advisors, ensuring that any conlicts of interest were suitably managed, and sought the views of Volution’s major shareholders. The Committee is of the view that the current remuneration framework has worked as intended, with strong alignment between pay and performance, and remains aligned to Volution’s remuneration philosophy and business strategy, as well as best practice. As such, there are no substantive changes to the Policy. The CEO’s pension contribution has been reduced, the combined annual bonus and LTIP cap has been removed to align with market practice and other minor changes have been made to the Policy to clarify its intentions. Choice of performance measures and approach to setting targets The performance metrics and targets thatwill be set for the Executive Directors for the ABP and LTIP will be carefully selected to align closely with the Company’s strategic plan and key performance indicators. Awards under the ABP will be determined by reference to inancial measures as regards at least 50% of the award, with anybalance (if any) responsibilities and based on non-inancial measures appropriate toan individual’s role. The long-term performance metrics relating to the LTIP awards will be set at the time of each grant but will normally include at least 50% based on inancial and/or share price performance in line with the Company’s key strategic objectives. Challenging targets for both plans will be set each year based on a number of internal and external reference points. The Committee will review the choice of performance measures and the appropriateness of the performance targets prior to each grant under the LTIP and will normally consult with major shareholders in the event of any signiicant proposed change. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 148 Legacy arrangements The Committee reserves the right to make any remuneration payments and/ or payments for loss of oice (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above where the terms of the payment were agreed: (i) before the Policy set out above came into eect, provided that the terms of the payment were consistent with the shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed; or (ii) at a time when the relevant individual was not a Director of the Company (or other person to whom the Policy applies) and, in the opinion of the Committee, the payment was not in consideration of the individual becoming a Director of the Company (or other such person). For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted. Common award terms The Committee will operate the LTIP and DSBP in accordance with the respective rules, the Policy set out above and the Listing Rules where relevant. Awards under the LTIP and DSBP may: • be granted as conditional share awards or nil-cost options or in such other form that the Committee determines has the same economic eect; • have any performance conditions applicable to them amended or substituted by the Committee if an event occurs, or other exceptional circumstances arise, which causes the Committee to determine an amended or substituted performance condition would be more appropriate; • incorporate the right to receive additional shares with a value equal to the value of dividends which would have been paid on the shares under an award that vests up to the time of vesting (or, where the award is subject to a holding period, release) or such later date as the Committee may determine. This amount may be calculated assuming that the dividends have been reinvested in the Company’s shares on a cumulative basis; • be settled in cash at the Committee’s discretion in exceptional circumstances; and • be adjusted in the event of any variation of the Company’s share capital or any demerger, delisting, special dividend or other event that may aect the Company’s share price. Performance conditions applying to the annual bonus may be amended in the same way as performance conditions for LTIP awards. Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration and may, as appropriate, be the subject of consultation with the Company’s major shareholders. Malus and clawback Malus and clawback provisions (as relevant) may be operated at the discretion of the Committee in respect of any awards granted under the ABP, DSBP and LTIP in certain circumstances including, but not limited to, a material misstatement of the Company’s inancial results, a material failure of risk management by any member of the Group or a relevant business unit, material reputational damage to any member of the Group or relevant business unit, corporate failure, an error in assessing a performance condition applicable to the award or in the information or assumptions on which the award was based, or if the participant is summarily dismissed or in any other circumstances that the Committee considers to be similar in their nature or eect. Clawback may be applied at the discretion of the Committee up to the third anniversary of payment of the cash bonus, and the earlier of the sixth anniversary of grant and the third anniversary of satisfying awards for DSBP and LTIP awards. Minor changes The Committee may make minor amendments to the Policy set out in this report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) withoutobtaining shareholder approval for the amendment. Directors’ Remuneration Policy Report continued Strategic Report Governance Report Financial Statements Additional Information 149 Volution Group plc Annual Report 2023 Illustrations of the application of the Remuneration Policy The Company’s remuneration arrangements have been designed to ensure that a signiicant proportion of pay is dependent on the delivery of stretching short-term and long-term performance targets. The charts below provide illustrative values of the remuneration package for Executive Directors under four assumed performance scenarios. The charts are for illustrative purposes only and actual outcomes may dier from that shown. £2,800,000 £2,600,000 £2,400,000 £2,200,000 £2,000,000 £1,800,000 £1,600,000 £1,400,000 £1,200,000 £1,000,000 £800,000 £600,000 £400,000 £200,000 £0 Long-term variable remuneration Annual variable remuneration Fixed remuneration Minimum performance In line with expectations Maximum performance Minimum performance In line with expectations Maximum performance Maximum performance incl. 50% share price increase Maximum performance incl. 50% share price increase Chief Executive Oficer Chief Financial Oficer 100% 100% 45% 25% 30% 29% 32% 39% 24% 27% 49% 47% 26% 26% 31% 34% 34% 26% 29% 44% £619,525 £1,382,650 £2,145,775 £2,562,025 £427,900 £902,900 £1,377,900 £1,615,400 The assumptions used for these charts are as follows: Levels of performance Assumptions Fixed pay All scenarios • Total ixed pay comprises base salary, beneits and pension • Base salary – eective as at 1 August 2023 • Beneits – as set out in the single igure table for the 2022/23 year • 5.5% of base salary pension contributions Variable pay Below threshold performance • No payout under the ABP • No vesting under the LTIP In line with expectations • 50% of the maximum potential payout under the ABP • 50% vesting under the LTIP, assuming awards equivalent to 150% and 125% ofbase salary are granted to the CEO and the CFO, respectively Maximum performance • 100% of the maximum potential payout under the ABP (i.e. 125% of base salary) • 100% vesting under the LTIP, assuming awards equivalent to 150% and 125% of base salary are granted to the CEO and the CFO, respectively Maximum performance – share price growth assumption • The same as the maximum performance row above but incorporating a 50% share price growth assumption for the LTIP over the three-year performance period External appointments of Executive Directors The Board allows Executive Directors to accept one external commercial non-executive director appointment provided the commitment is compatible with their duties as an Executive Director. The Executive Director concerned may retain fees paid for these services which will be subject to approval by the Board. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 150 Approach to recruitment The Committee will aim to set a new Executive Directors’ remuneration package in line with the Policy approved by shareholders. In arriving at a total package and in considering value for each element ofthe package, the Committee will take into account the skills and experience of a candidate and the market rate for acandidate of that experience, as well asthe importance of securing the preferred candidate. The maximum level of variable remuneration (excluding any buy-outs) in respect of an appointment will be in line with the maximum levels as set out inthe Policy table. The Committee retains discretion to lex the balance of the annual bonus and LTIP and the measures used toassess performance. The Committee may make additional cash and/or share-based awards as it deems appropriate and if the circumstances so demand may replace remuneration arrangements forfeited by an Executive Director on leaving a previous employer. This may include the use of the relevant provisions in the Financial Conduct Authority’s Listing Rules allowing for exceptional awards to be made without shareholder approval. Awards to replace forfeited remuneration would, where possible, take into account of the delivery mechanism (cash or shares) of forfeited awards, time horizons, value and whether or not they were subject to performance conditions. Other payments may be made in relation to relocation expenses, legal fees and other support as appropriate. In the case of an internal appointment, anyelement of remuneration in respect of the prior role would be allowed to continue according to its original terms, or adjusted if appropriate to take into account the appointment. For the appointment of a new Chair or Non-Executive Director, the fee would be set in accordance with the approved Policy. The length of service and notice periods will be set at the discretion of the Committee taking into account market practice, corporate governance considerations and the particular candidate at that time. The Committee retains discretion to make appropriate remuneration decisions and include other elements to meet the individual circumstances of recruitment when: • an interim appointment is made to ill an Executive Director role on a short-term basis; and • exceptional circumstances require that the Chair or a Non-Executive Director takes on an executive function on a short-term basis. Service agreements and letters of appointment Each of the Executive Directors’ service agreements is for a rolling term and may be terminated by the Company or the Executive Director by giving not less than (in the case of the CEO) twelve months’ prior written notice and (in the case of the CFO) nine months’ prior written notice. The Chair and each of the Non-Executive Directors of the Company do not have service contracts. Each of these Directors has a letter of appointment which has a three-year term which is renewable and is terminable by the Company or the individual on one month’s written notice. The terms of the Non-Executive Directors’ positions are subject to their election by the Company’s shareholders at the 2023 AGM. No contractual payments would become due on termination. The Executive Directors’ service agreements and Non-Executive Directors’ letters of appointment are available for inspection at the Company’s registered oice and will be available at the 2023 AGM. Policy on Directors leaving theGroup The Committee must satisfy any contractual obligations agreed with the Executive Director. This is dependent on the contractual obligations not being in contradiction with the Policy set out in this report. If an Executive Director’s employment isterminated, in the absence of a breach of service agreement by the Director, the Company may, although it is not obliged to, terminate the Director’s employment immediately by payment of an amount equal to base salary and beneits (including pension scheme contribution) in lieu of the whole or the remaining part of the notice period. Payments in lieu of notice will ordinarily be paid in monthly instalments over the length of the notice period. Payments will be subject to mitigation in the event alternative employment is taken up during the notice period. Discretionary bonus payments will not form part of any payments made in lieu of notice. Annual bonus may be payable for “good leavers” at the Committee’s discretion and, unless the Committee determines otherwise, will normally be subject to the original performance conditions, deferral requirements, time pro-rating and paid at the normal payment date. Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules. The default treatment under the LTIP is that any outstanding awards lapse when the individual leaves the Group. However, in certain prescribed circumstances, such as death, ill health, injury or disability, transfer of the employing entity outside of the Group or in other circumstances at the discretion of the Committee (except where the Director is summarily dismissed), “good leaver” status may be applied. Directors’ Remuneration Policy Report continued Strategic Report Governance Report Financial Statements Additional Information 151 Volution Group plc Annual Report 2023 For good leavers, LTIP awards will normally continue until the normal vesting date, or when awards are subject to a holding period, to the end of the holding period, although the Committee may allow awards to vest (and be released from any holding periods) as soon as reasonably practicable after leaving in the case of death or such other circumstances the Committee considers appropriate. Awards will normally be subject to the original performance conditions, time horizons, and will be pro-rated for time, unless the Committee determines otherwise. If a participant of the DSBP leaves the Group for any reason, the default positionunder the plan rules is that the award will vest in full on the normal vestingdate, unless the Committee determines otherwise. In the event that a buy-out award is made on recruitment, the leaver provisions would be determined at the time of the award. The Committee reserves the right to make any other payments in connection with a Director’s cessation of oice or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of a Director’s oice or employment or for any fees for outplacement assistance and/ or the Director’s legal and/or professional advice fees in connection with his cessation of oice or employment. Takeover or other corporate event In the event of a change of control, outstanding DSBP awards will normally vest in full as soon as practicable after thedate of the event. For outstanding LTIP awards, generally the performance period and holding period applicable to them will end on the date of the event. The Committee will determine the level of vesting of unvested awards taking into account the extent to which performance conditions have been achieved at this point. Unless the Committee determines otherwise, unvested awards will generally vest on a time pro-rata basis taking into account the period of time between grant and the relevant event as a proportion of the vesting period. Alternatively, the Committee may permit a participant to exchange his awards for equivalent awards which relate to shares in a dierent company. If the change of control is an internal re-organisation of the Group, or if the Committee so decides, participants will be required to exchange their awards (rather than awards vesting). If other corporate events occur, such as a winding-up of the Company, demerger, delisting, special dividend or other event which, in the opinion of the Committee, may aect the current or future value of the Company’s shares, the Committee may determine that awards will vest on the same basis as set out above for a takeover. Dierences in the Policy for Executive Directors compared to other employees The Committee has regard to pay structures across the wider Group when setting the Policy for Executive Directors. The Committee considers the general basic salary increase for the broader workforce when determining the annual salary review for the Executive Directors. Overall, the Policy for the Executive Directors is more heavily weighted towards performance-related pay than for other employees. The time horizons of awards for Executive Directors are also longer with the annual bonus deferral and LTIP holding period. The level of performance-related pay varies within the Group by grade of employee and is calculated by reference to the speciic responsibilities of each role as appropriate. All employees are able to participate in all-employee share plans on the same basis as the Executive Directors. Statement of consideration of employment conditions elsewhere in the Group Although pay and employment conditions elsewhere in the Group are taken into account to ensure the relationship between the pay of Executive Directors and employees remains appropriate, the Committee does not consult with employees directly when formulating the Policy. However, the Chair of the Remuneration Committee attends the Volution Employee Forum where employee representatives present views from the employees they are representing and there is the opportunity for interaction. At one of these sessions Claire Tiney provided an update on approach to executive pay and the work of the Remuneration Committee. Consideration of shareholder views We take an active interest in shareholder views on our Executive Remuneration Policy. The Committee is also committed to maintaining an ongoing dialogue with major shareholders and shareholder representative bodies whenever material changes are under consideration. In total the Committee Chair consulted with shareholders representing over 75% of the shareholder register and the proxy voting agencies when formulating this Policy. In direct response to the feedback received consideration will be given to incorporating a return-based measure (e.g. ROIC) into incentives in a future year, and the comparator group used for TSR purposes has been amended. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 152 This section provides details of how the Remuneration Policy (the Policy) was implemented during the year and how the Remuneration Committee (the Committee) intends to apply the Policy during the inancial year ending 31 July 2024. Certain sections of this report are audited and indicated as such where applicable. The Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2023 AGM. Role of the Committee The role of the Committee is to recommend to the Board a strategy and framework for remuneration for Executive Directors and the Senior Management Team in order to attract and retain leaders who are focused and incentivised to deliver the Company’s strategic business priorities, within a remuneration framework which is aligned with the interests of our shareholders and thus designed to promote the long-term success of the Company. The Committee has clearly dened terms of reference which are available on the Company’s website, www.volutiongroupplc.com. The Committee’s main responsibilities are to: • establish and maintain formal and transparent procedures for developing policy on executive remuneration and for xing the remuneration packages of individual Directors, and to monitor and report on them; • determine the remuneration, including pension arrangements, of the Executive Directors, taking into account pay and policies across the wider workforce; • monitor and make recommendations in respect of remuneration for the tier of senior management one level below that of the Board; • approve annual and long-term incentive arrangements together with their targets and levels of awards; • determine the level of fees for the Chairof the Board; and • select and appoint the external advisers to the Committee. Membership The Committee currently comprises four independent Non-Executive Directors, Claire Tiney (Chair), Margaret Amos, Jonathan Davis, and Amanda Mellor, and the Non-Executive Chair, Nigel Lingwood. The Chair of the Board is also a member of the Committee because the Board considers it essential that the Chair is involved in setting Remuneration Policy (although he is not party to any discussion directly relating to his own remuneration). Claire Tiney is the Chair of the Committee and has chaired the Committee since 30April 2020. Claire has been a member of the Committee since 1 August 2016 and has extensive experience of chairing listed company remuneration committees. Paul Hollingworth stepped down from the Committee on 23 June 2023 when he retired from the Board. Jonathan Davis joined the Committee on 23 June 2023. During the year the Committee also consulted with the Chief Executive Oicer, the Chief Financial Oicer and the Company Secretary, but not on matters relating to their own remuneration. Attendance The Committee met for four scheduled meetings and for additional meetings as required during the year. It has had two meetings to date in 2023/24. Committee member attendance can be found in the table on page 140. Committee activity and key decisions duringtheyear ended 31 July 2023 Matters considered and decisions reached by the Committee during the year included: • implemented the Policy approved by shareholder at the 2020 AGM; • reviewed the Directors’ Remuneration Policy and consulted with shareholders on the proposals; • fully considered feedback received from shareholders in reining and inalising the proposals, and approved the 2023 Directors’ Remuneration Policy to be put forward to shareholders at the 2023 AGM; • reviewed approach to wider workforce remuneration in the context of continuing cost-of-living crisis; • considered and approved the Directors’ Remuneration Report 2021/22; • reviewed outcomes for Executive Director and Senior Management Team bonuses for 2021/22; • reviewed performance measurement outcomes and vesting of LTIP awards granted in October 2019; • reviewed and approved the parameters of the ABP, including performance measures and targets for 2022/23 for the Executive Directors and Senior Management Team; • considered and approved the LTIP awards to the Executive Directors and Senior Management Team for 2022/23; • reviewed market trends and developments in executive remuneration in advance of considering Executive Director and Senior Management Team remuneration proposals for 2023/24; • reviewed and approved the Executive Director and Senior Management Team salaries for 2023/24; and • evaluated the performance of the Committee in conjunction with an internal facilitator. Annual Report on Remuneration Strategic Report Governance Report Financial Statements Additional Information 153 Volution Group plc Annual Report 2023 Committee performance evaluation During the year, the Board conducted an internally facilitated evaluation of the performance of the Board, its Committees, the Directors and the Chair. Further details can be found in the Governance Report on pages 118 and 119. I am pleased to conirm that this process concluded that the Committee had fulilled its role eectively and did not identify any signiicant development points requiring action. Advice to the Committee The Committee keeps itself fully informed on developments and best practice in the ield of remuneration and it seeks advice from external advisers when appropriate. The Committee appoints its own independent remuneration advisers and at the time of listing appointed Deloitte LLP to that role. Deloitte LLP has served as adviser to the Committee since listing and throughout the year. Total fees for advice provided to the Committee during the year by Deloitte LLP were £46,300 and were charged based on the time spent and seniority of the sta involved in providing the advice. During the year Deloitte LLP also provided the Company with other reward and share plan related advice. Deloitte LLP is a member of the Remuneration Consultants Group and as such voluntarily operates under the code of conduct in relation to executive remuneration consulting in the United Kingdom. The Committee requests Deloitte LLP to attend meetings periodically during the year. The Committee was satisied that the advice received from Deloitte during the year was objective andindependent. Single total igure of remuneration (audited) The audited table below sets out the total remuneration for the Directors in the years ended 31 July 2023 and 31 July 2022. Salary and fees Beneits Pension Annual bonus Long-term incentives Total Total ixed remuneration Total variable remuneration Chair Nigel Lingwood — — — — — — — — — — Paul Hollingworth — — — — — — — — — — Executive Directors Ronnie George Andy O’Brien Non-Executive Directors Margaret Amos — — — — — — — — — — Jonathan Davis — — — — — — — — — — — — — Amanda Mellor — — — — — — — — — — Claire Tiney — — — — — — — — — — Notes 1. Beneits: this includes an annual car allowance, life assurance equivalent to four times annual salary and private medical insurance. 2. Pension: a cash payment in lieu of employer’s pension contribution, equivalent to 8.5% of base salary, was paid to Ronnie George and 5.5% was paid to Andy O’Brien. 3. Annual bonus: detail on the 2023 bonus performance targets and actual performance is provided on page 154. 4. Long-term incentives: this column relates to the value of long-term awards whose performance period ends in the year under review. The awards granted on 14 October 2020 had a performance period that ended on 31 July 2023, and this has been included in the table above. This award will vest on 14 October 2023 and, therefore, the value included in the table above represents an estimated value using the average share price of £4.03 over the three months to 31 July 2023. The value of the award attributable to share price growth is £2.12 per share. Details of the performance measures and achievement against the targets set can be found on page 154. In line with the remuneration reporting requirements, the awards which vested on 15 October 2022 have been restated to relect the actual share price (£3.15) on the date of vesting. 5. Nigel Lingwood stepped into the role of the Chair of the Board on 23 June 2023. 6. Paul Hollingworth retired from the Board on 23 June 2023. 7. Jonathan Davis was appointed as a Non-Executive Director on 23 June 2023. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 154 Annual Report on Remuneration continued Annual Bonus Plan (ABP) (audited) The operation of the ABP during the year ended 31 July 2023 was consistent with the framework set out in the 2020 Policy. The maximum annual bonus potential for the Executive Directors during the year was 125% of base salary, and bonus for on-target performance was 50% of the maximum opportunity. In line with last year’s report, we have provided full retrospective disclosure of the targets and performance against those targets which are set out in the table below. The performance measures and weightings for the year ended 31 July 2023 were the same as for the year ended 31 July 2022. The targets were set taking into account the business plan, market conditions and analysts’ forecasts at the time. As set out in the Policy, one-third of the annual bonus payment earned by the Executive Directors will be deferred into awards over the Company’s shares for three years. As set out in the Committee Chair’s letter, the Committee considered a number of dierent matters when determining the outcome including wider Company performance, employee experience, shareholder experience and wider stakeholder experience and determined that the remuneration outcomes were appropriate and as such no discretion would be applied. Measure Strategic objective Weighting Threshold Target Maximum Actual performance of measure achieved Payment of base salary Adjusted operating proit To increase proit m m m m Adjusted EPS Creation of shareholder value p p p p Working capital management Delivering eiciency of working capital and cash generation Total Total as a of maximum Notes 1. Adjusted operating proit up to target level is purely organic. Between target and maximum, unbudgeted acquisitions will be taken into account. Adjusted EPS includes unbudgeted acquisitions. 2. Working capital targets for the average of the ive quarters, quarters ending 31 July 2022, 31 October 2022, 31 January 2023, 30 April 2023 and 31 July 2023. Working capital management (inventories, right of return assets, trade and other receivables, trade and other payables, refund liabilities and provisions) as a percentage of revenue. Long Term Incentive Plan vesting – October 2020 awards The LTIP values included in the single total igure of remuneration table for 2023 relate to the LTIP award granted on 14 October 2020. Awards with a face value of 150% of salary were granted to Ronnie George and 125% to Andy O’Brien, and, following a three-year performance period ending on 31 July 2023, are due to vest on 14 October 2023. As set out at the time of the award, the Committee approved retaining the percentage growth targets as per prior years, but committed to reviewing the vesting level in the context of wider performance. As set out earlier in this report, given the TSR performance over the performance period of c.140% is top of the peer group and the strong EPS performance over the period, as well as the wider shareholder and stakeholder experience, the Committee is comfortable with 100% vesting. In accordance with the Policy, this LTIP award is subject to an additional two-year holding period following vesting. Therefore, this award will not be available to exercise until 14October 2025. Performance against the performance targets is set out below: Weighting of total award Below threshold vesting Threshold vesting Maximum vesting Actual performance outcome Vesting of maximum EPS growth Below p.a. equivalent to / EPS of less than pence p.a. equivalent to / EPS of pence p.a. equivalent to / EPS of pence p.a. actual/ EPS of pence TSR vs Direct Peer Group Index Below median Median Upper quartile Upper quartile st Total vesting of maximum Notes 1. Awards vest on a straight line basis between these points. 2. Direct Peer Group Index is comprised of 16 companies: Breedon Group, Epwin Group, Eurocell, Forterra, Headlam Group, Ibstock, Luceco, Marshalls, Michelmersh Brick, Norcros, Polypipe (now Genuit Group), Safestyle, SIG, Topps Tiles, Tyman and Watkin Jones. Strategic Report Governance Report Financial Statements Additional Information 155 Volution Group plc Annual Report 2023 Share awards granted during the year (audited) Long Term Incentive Plan (LTIP) 2022/23 awards On 12 October 2022 the Committee made awards under the LTIP in accordance with the Policy. The LTIP awards were made in the form of nil-cost options which will vest following the Committee’s determination of the extent to which performance conditions, measured over three inancial years to 31 July 2025, have been met. Awards to the Executive Directors are subject to a two-year holding period. Further context as well as the targets below were disclosed in the Directors’ Remuneration Report last year. Performance measure Weighting of total award Below threshold vesting Threshold vesting Maximum vesting EPS growth Below p.a. p.a. p.a. TSR vs Direct Peer Group Index Below median Median Upper quartile ESG Low-carbon sales as a of total revenue Below ESG of recycled plastics that are used inourmanufactured products Below Notes 1. Awards will vest on a straight line basis between these points. 2. Direct Peer Group Index is comprised of 16 companies: Breedon Group, Epwin Group, Eurocell, Forterra, Genuit Group, Headlam Group, Ibstock, Luceco, Marshalls, Michelmersh Brick, Norcros, Safestyle, SIG, Topps Tiles, Tyman and Watkin Jones. In addition to the performance conditions set out above, for awards to vest, the Committee must be satisied with the overall inancial performance of the Company over the performance period. The LTIP awards made on 12 October 2022 were as follows: Executive Director Number of shares Base price Face value Face value of base salary Release date Expiry date Ronnie George October October Andy O’Brien October October Notes 1. The price used to calculate the number of LTIP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive business days immediately preceding the date of grant. 2. The LTIP awards were granted with a three-year performance period and an additional two-year holding period. Deferred Share Bonus Plan (DSBP) 2022/23 awards As set out in the Policy, under which the 2022/23 annual bonus was awarded, one-third of any bonus payment earned by the Executive Directors will be deferred into awards over the Company’s shares. On 12 October 2022, Ronnie George and Andy O’Brien received an award of shares under the Deferred Share Bonus Plan relating to the 2021/22 annual bonus, as follows: Executive Director Number of shares Base price Face value Release date Ronnie George October Andy O’Brien October Note 1. The price used to calculate the number of DSBP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive business days immediately preceding the date of grant. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 156 Annual Report on Remuneration continued Equity incentives (audited) Details of the awards granted, outstanding and vested during the year to the Executive Directors under the LTIP and DSBP are as follows: Name/plan Date of award Number of share awards at August Shares awarded during the year Shares lapsed during the year Shares vested during the year Number of share awards at July Face value at date of grant Vesting date Expiry date Ronnie George LTIP / // — — — — // // LTIP / // — — — // // LTIP / // — — — // // LTIP / // — — — // // DSBP / // — — — — // N/A DSBP / — — — — — — — — — DSBP / // — — — // N/A DSBP / // — — — // N/A Andy O’Brien LTIP / // — — — — // // LTIP / // — — — // // LTIP / // — — — // // LTIP / // — — — // // DSBP / — — — — — — — — — DSBP / // — — — // N/A DSBP / // — — — // N/A Notes 1. The price used to calculate the number of LTIP and DSBP awards was the average of the mid-market closing price of a Volution Group plc share on the three consecutive business days immediately preceding the date of grant, being £1.76 for the LTIP 2019/20 and DSBP 2019/20, £1.9167 for the LTIP 2020/21, £4.67 for the LTIP 2021/22 and DSBP 2021/22, and £3.0878 for the LTIP 2022/23 and DSBP 2022/23. 2. LTIP awards granted from 2016/17 were granted with a three-year performance period and an additional two-year holding period Employee Beneit Trust The Volution Employee Beneit Trust (EBT) currently holds 2,471,100 shares in the Company. It is the Company’s intention to use shares currently held in the EBT to satisfy all awards made so far under the Long Term Incentive Plan, Deferred Share Bonus Plan and Sharesave Plan. Dividends arising on the shares held in the EBT are waived on the recommendation of the Company. Funding of future awards under the share incentive plans It is the Company’s current intention to satisfy any future requirements of its share incentive plans in a method best suited to the interests of the Company, either by acquiring shares in the market, utilising shares held as treasury shares or issuing new shares. Where the awards are satisied by newly issued shares or treasury shares, the Company will comply with the dilution limits as set out inthe relevant plan rules. Strategic Report Governance Report Financial Statements Additional Information 157 Volution Group plc Annual Report 2023 Statement of Directors’ shareholdings and share interests (audited) We believe that Executive Directors should have shareholdings in the Company to ensure that they are as closely aligned as possible with shareholder interests. As such, during the year the Company had share ownership guidelines in place which stated that Executive Directors were expected to achieve and retain a holding of the Company’s shares equal to 200% of their base salary. It should be noted, as shown below, that Ronnie George has a shareholding well in excess of 200% of base salary. Andy O’Brien will build up his shareholding over time to reach the required 200% of base salary. Andy O’Brien’s current shareholding is signiicantly higher than 46% of salary when LTIP awards not subject to further performance conditions and DSBP shares are included (on a net of tax basis). A formal post-employment shareholding guideline is also in place requiring Executive Directors to hold a shareholding equal to their in-employment shareholding, or their actual shareholding on leaving if lower, for two years after departure. This post-employment shareholding requirement applies to shares acquired from incentive plans from DSBP and LTIP awards granted after 1 August 2020. The Chair and the Non-Executive Directors are also encouraged to hold shares in the Company in order to align their interests with those of shareholders. Directors’ interests in ordinary shares held as at 31 July 2023 (together with the interests held by Persons Closely Associated with them) are set out below. There were no changes in the Directors’ shareholdings between 31 July 2023 and the date of this report. Shares held beneicially at August Shares held beneicially at July Beneicial shareholding at July of salary Target shareholding achieved LTIP awards unvested awards subject to performance LTIP awards vested but not exercised DSBP awards unvested awards, not subject to performance Chair Paul Hollingworth N/A N/A — — — Nigel Lingwood N/A N/A — — — Executive Directors Ronnie George Yes Andy O’Brien No Non-Executive Directors Margaret Amos — — N/A N/A — — — Jonathan Davis — — N/A N/A — — — Amanda Mellor — — N/A N/A — — — Claire Tiney N/A N/A — — — Notes 1. Includes any shares held by Persons Closely Associated. 2. The target shareholding achieved has been calculated based on shares held beneicially as at 31 July 2023 using the share price on that date of £4.016 per share. 3. LTIP awards in this column consist of all awards granted as at the date of this report which are structured as nil-cost options. All awards are subject to performance conditions, with performance measured over three inancial years. 4. Paul Hollingworth retired from the Board on 23 June 2023 and information is accurate as at that date. 5. Nigel Lingwood was appointed Chair of the Board on 23 June 2023. 6. Jonathan Davis was appointed a Non-Executive Director with eect from 23 June 2023. Payments to past Directors and payments for loss of oice There were no payments to past Directors or payments for loss of oice in the year. Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 158 Annual Report on Remuneration continued Performance graph and Chief Executive Oicer remuneration table (audited) The chart below compares the total shareholder return performance of the Company against the performance of the FTSE 250, of which Volution has been a constituent since May 2021. The base point in the chart for the Company equates to the listing oer price of 150 pence per share. Total shareholder return (rebased) Dec 2014 June 2014 Dec 2015 Dec 2016 June 2015 June 2016 Dec 2017 June 2017 Dec 2018 June 2018 Dec 2019 June 2019 Dec 2020 Dec 2021 June 2020 June 2021 June 2022 Dec 2022 June 2023 50 300 250 100 350 150 400 200 Volution Group plc FTSE 250 Index The table below summarises the Chief Executive Oicer’s single igure for total remuneration, annual bonus payments and LTIP vesting levels as a percentage of maximum opportunity. Chief Executive Oicer’s single total igure ofremuneration Annual bonus payout as a of maximumopportunity LTIP vesting as a ofmaximumopportunity N/A N/A N/A Note 1. As noted in the Directors’ Remuneration Report 2020, the working capital management target was largely met and resulted in 11% being eligible for payment to each Executive Director. However, given the adverse impact on the business, shareholders and employees from the Covid-19 pandemic during the inancial year ended 31 July 2020, the Executive Directors waived the right to receive the 11% bonus entitlement under the ABP. Percentage change in remuneration of the Board Directors compared to employees (audited) The table below sets out the percentage change in salary, taxable beneits and annual bonus set out in the single igure of remuneration tables (on page 153) paid to each Director in respect of the year ended 31 July 2022 and the year ended 31 July 2023, compared to that of the average change for employees. Average change to Average change to Average change to Average change to Element ofpay Salary/ fees Taxable beneits Annual bonus Salary/ fees Taxable beneits Annual bonus Salary/ fees Taxable beneits Annual bonus Salary/ fees Taxable beneits Annual bonus Executive Directors Ronnie George Andy O’Brien Non-Executive Directors Paul Hollingworth N/A N/A N/A N/A N/A N/A N/A N/A Margaret Amos N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Nigel Lingwood N/A N/A N/A N/A N/A N/A N/A N/A Amanda Mellor N/A N/A N/A N/A N/A N/A N/A N/A Jonathan Davis N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Claire Tiney N/A N/A N/A N/A N/A N/A N/A N/A Employee average Notes 1. Average employee pay includes full and part-time employee data. This igure is calculated in line with the statutory requirements and based on employees of the parent company and excludes the Executive and Non-Executive Directors. Prior year igures have also been updated to be in line with the statutory requirements. 2. During the inancial year ended 31 July 2023: • Paul Hollingworth retired from the board on 23 June 2023 • Nigel Lingwood succeeded Paul Hollingworth as Chair with eect from 23 June 2023 • Amanda Mellor’s fee for the role of Senior Independent Directors increased with eect from 1 August 2022 • Margaret Amos was appointed a Non-Executive Director with eect from 10 March 2022 • Jonathan Davis was appointed a Non-Executive Director with eect from 23 June 2023 3. Beneits include car allowance, health cover and life assurance but exclude employer pension contributions. Strategic Report Governance Report Financial Statements Additional Information 159 Volution Group plc Annual Report 2023 Chief Executive Oicer pay ratio (audited) The table below sets out the ratio at the 25th, median and 75th percentile of the total remuneration received by the Chief Executive Oicer (using the amount set out in the single total igure table shown in this report on page 153), compared to the total remuneration received by our UK employees for whom total remuneration has been calculated on the same basis. For the inancial year ended 31 July 2023, Volution delivered very strong revenue and proit growth and the CEO’s single igure total is heavily inluenced by incentive outturns and share price appreciation over the three-year performance period. These factors all contributed to the CEO pay ratio shown below. CEO pay ratio July July July July Method Option A Option A Option A Option A th percentile pay ratio Median pay ratio th percentile pay ratio The salary and total pay for the individuals identiied at the 25th percentile, median and 75th percentile as at 31 July 2023 are set out below: Employees th percentile Median th percentile Salary Total pay and beneits The employees used for the purposes of the table above were identiied as based in the UK as at 31 July 2023. Option A was chosen as it is considered to be the most accurate way of identifying the relevant employees required by The Companies (Miscellaneous Reporting) Regulations 2018. Employees have been included on a FTE basis where appropriate. No other adjustments were necessary and no elements of employee remuneration have been excluded from the pay ratio calculation. The Board has conirmed that the ratio is consistent with the Company’s wider policies on employee pay, reward and progression. Relative importance of the spend on pay (audited) The following table shows the total expenditure on pay for all of the Company’s employees compared to distributions to shareholders by way of dividend and share buyback. In order to provide context for these igures, adjusted operating proit is also shown. m m change Employee remuneration costs Distributions to shareholders Adjusted operating proit Directors’ Remuneration Report continued Governance Report Volution Group plc Annual Report 2023 160 Statement of implementation of Remuneration Policy for the financial year ending 31 July 2024 Executive Director base salaries As set out in the Committee Chair’s letter, taking into account the increased size and complexity of the Group, the performance of the Group, and the performance of the Executive Directors, the Committee determined that an increase in base salary of 17.3% and 15% would be awarded to the Chief Executive Oicer and the Chief Financial Oicer respectively. The increase took eect from 1 August 2023, increasing the base salary of the Chief Executive Oicer to £555,000 per annum and the Chief Financial Oicer to £380,000 per annum. Further details regarding the Committee discussions may be found in the Committee Chair’s letter on pages 140 to 142. Pension and other beneits Following the Policy review and further discussions, the Committee determined that it is appropriate to reduce the CEO pension to 5.5% of salary (from 8.5% of salary) as being more relective of the pension rates available to the wider UK workforce. This has reduced to 5.5% of salary from an initial starting point of 15% of salary. The CFO will remain on a pension equivalent to 5.5% of salary. Other beneits received comprise an annual car allowance paid in cash, life assurance equivalent to four times annual salary and private medical insurance. Annual Bonus Plan (ABP) The maximum annual bonus opportunity for both the Chief Executive Oicer and Chief Financial Oicer will be 125% of salary, unchanged from the level set in 2022/23. One-third of the total bonus payable will be deferred into shares for three years. The performance measures applicable to the ABP will remain unchanged and the Committee continues its policy of setting stretching annual bonus targets which take into account a number of internal and external factors. The target weightings will be: adjusted EPS (50%); adjusted operating proit (35%); and working capital management (15%). The targets set for the year ending 31 July 2024 will be disclosed in the next Annual Report on Remuneration, unless they remain commercially sensitive. Long Term Incentive Plan (LTIP) During 2023/24, the Committee intends to grant LTIP awards with a maximum opportunity of 150% of salary and 125% of salary for the Chief Executive Oicer and Chief Financial Oicer, respectively. These levels are unchanged from 2022/23. The Committee will continue its policy of setting stretching LTIP targets which take into account a number of internal and external factors. Volution is committed to its purpose of providing “healthy air, sustainably” and to the importance of environmental, social and governance (ESG) measures in meeting its purpose and ESG measures are once again included. The measures will be: earnings per share (60%); total shareholder return (20%); and ESG targets (20%). EPS growth per annum of 6% (threshold) will result in 25% vesting and 12% (maximum) will result in 100% vesting. TSR measurement against the Direct Peer Group Index at median (threshold) will result in 25% vesting and at upper quartile will result in 100% vesting. As discussed in the Committee Chair’s letter, a review of the comparator group was carried out during the inancial year and a refreshed group in recognition of the company’s growth in the last few years will be used for the October 2023 LTIP grant, as listed below: Ariston Eurocell Lindab SIG Belimo Forterra Luceco SystemAir Breedon Group Genuit Group Marshalls Tyman Epwin Group Ibstock Norcros Zehnder For the ESG measures, low-carbon sales as a % of total revenue will continue to be measured with targets set at stretching levels taking into account of where we are today and our externally communicated ambitions. The Committee has introduced a new measure based on Carbon Intensity to replace % of recycled plastics that are used in our manufactured products. Carbon Intensity is a measure the Board wants management to focus on over the next three-year LTIP cycle and it would have been diicult to continue to set stretching targets under the previous measure due to the progress we have already made to date. These ESG measures will ensure management is incentivised to attain the sustainability targets set out on page 161. Strategic Report Governance Report Financial Statements Additional Information 161 Volution Group plc Annual Report 2023 A two-year holding period will apply to the Executive Directors following the end of the three-year vesting period. Measure Threshold vesting Maximum vesting EPS growth weighting p.a. p.a. Relative TSR weighting Median Upper quartile ESG weighting Low-carbon sales as a of total revenue Carbon intensity m tonnes of CO foreverym of revenue m tonnes of CO forevery m of revenue Non-Executive Director fees Fees of Non-Executive Directors are determined by the Board in their absence. The fees of the Chair (whose fees are determined by the Committee in his absence) and the Non-Executive Directors’ fees were reviewed during the year and will be increased for the year ending 31 July 2024 in line with the wider workforce in the UK. The Chair’s fee remains below the FTSE 250 lower quartile. The fees with eect from 1 August 2023 are summarised in the table below: From August From August change Chair fee covering all Board duties Non-Executive Director basic fee Supplementary fees to Non-Executive Directors covering additional Board duties: – Senior Independent Director – Audit Committee chair – Remuneration Committee chair Statement on shareholder voting The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes in respect of the approval of the Directors’ Remuneration Report and the Remuneration Policy. In the event of a substantial vote against a resolution in relation to Directors’ remuneration, the Company would seek to understand the reasons for any such vote and would set out in the following Annual Report and Accounts any actions in response to it. The following table sets out the voting by shareholders at the Annual General Meeting in December 2022 in respect of our Annual Report on Remuneration and the Annual General Meeting in December 2020 in respect of the current Remuneration Policy. Resolution Votes cast for of votes cast Votes cast against of votes cast Votes withheld Remuneration Policy AGM Remuneration Report AGM Approval This Directors’ Remuneration Report was approved by the Board of Directors on 4 October 2023 and signed on its behalf by the Chair of the Remuneration Committee. Claire Tiney Chair of the Remuneration Committee 4 October 2023 Governance Report Volution Group plc Annual Report 2023 162 Directors’ Report Introduction The Directors present their Annual Report and the audited inancial statements of the Company for the year ended 31 July 2023. This Directors’ Report includes additional information required to be disclosed under the Companies Act 2006, the 2018 UK Corporate Governance Code (the 2018 Code), the Disclosure, Guidance and Transparency Rules (DTRs) and the Listing Rules of the Financial Conduct Authority. Certain information required to be included in the Directors’ Report is included in other sections of this Annual Report as follows, which is incorporated by reference into this Directors’ Report: • the Strategic Report on pages 1 to 105; • the Governance Report on pages 106 to 166; • information relating to inancial instruments, as set out in note 23 to the consolidated inancial statements; and • related party transactions as set out in note 29 to the consolidated inancial statements. This Directors’ Report also represents the Management Report for the purpose of compliance with the DTRs. Corporate structure Volution Group plc is a public company limited by shares, incorporated in England and Wales, and its shares are traded on the premium segment of the Main Market of the London Stock Exchange (LSE: FAN). Results and dividend The Group’s results for the year are shown in the statement of comprehensive income on page 177. An interim dividend of 2.5 pence per share was paid to shareholders on 2 May 2023 and the Directors are recommending a inal dividend in respect of the inancial year ended 31 July 2023 of 5.5 pence per share. If approved, the inal dividend will be paid on 19 December 2023 to shareholders on the register on 24 November 2023. The total dividend paid and proposed for the year amounts to 8.0 pence per share. Share capital and related matters The Company has only one class of share and the rights attached to each share are identical. Details of the rights and obligations attaching to the shares are set out in the Company’s Articles of Association which are available from the Company Secretary. The Company may refuse to register any transfer of any share which is not a fully paid share. At a general meeting of the Company, every member has one vote on a show of hands and on a poll one vote for each share held. Details of the voting procedure, including deadlines for exercising voting rights, are set out in the Notice of Annual General Meeting 2023. As at 31 July 2023 the issued share capital of the Company was 200,000,000 ordinary shares of 1 pence each. Details of the share capital as at 31 July 2023 are shown in note 25 to the consolidated inancial statements. Powers of the Directors The Directors may exercise all the powers of the Company including, subject to obtaining the required authority from the shareholders in general meeting, the power to authorise the issue of new shares and the purchase of the Company’s shares. During the inancial year ended 31 July 2023, the Directors did not exercise any of the powers to issue or purchase shares in the Company. Restrictions on transfer and voting rights There are no general restrictions on the transfer of ordinary shares in the Company other than in relation to certain restrictions that are imposed from time to time by laws and regulations (for example insider trading laws). Pursuant to the Market Abuse Regulation, Directors and certain oicers and employees of the Group require the approval of the Company to deal in the ordinary shares of the Company. Each ordinary share in the capital of the Company ranks equally in all respects. No shareholder holds shares carrying special rights relating to the control of the Company. The Company has in place certain share incentive plans and details can be found on pages 154 and 155. Awards under the Company’s Long Term Incentive Plan and Deferred Share Bonus Plan are normally made on an annual basis and details can be found in the Directors’ Remuneration Report on pages 140 to 161. An invitation under the Company’s all-employee Sharesave Scheme was launched in November 2021. The Company also has an Employee Beneit Trust (EBT) in which to hold ordinary shares to satisfy awards under the share incentive plans. As at the date of this report, there were 2,471,100 ordinary shares held in the EBT. The trustee of the EBT has the power to exercise the rights and powers incidental to, and to act in relation to, the ordinary shares subject to the EBT in such manner as the trustee in its absolute discretion thinks it. The trustee of the EBT has waived the right to receive dividends on any ordinary shares held, except for a nominal amount of 1 pence, other than for those ordinary shares held in the EBT which are the beneicial property of an employee or shareholder. For further details on the EBT please see note 25 to the consolidated inancial statements. The trustee does not vote ordinary shares held in the EBT, except for those ordinary shares which are the beneicial property of an employee or shareholder, which the trustee will vote in accordance with the instructions received from the beneicial owner. Strategic Report Governance Report Financial Statements Additional Information 163 Volution Group plc Annual Report 2023 Substantial shareholdings The Company had been notiied, in accordance with the DTRs, of the following interests representing 3% or more of the voting rights in the issued share capital of the Company: of total issued share capital Major shareholder July Date of this Report Black Rock, Inc Primestone Capital LLP Baillie Giord & Co The Capital Group Companies, Inc. FMR LLC Franklin Templeton Fund Management Limited Abrdn plc Swedbank Robur Fonder AB Artemis Investment Management LLP ODIN Forvaltning AS This information was correct at the date of notiication. It should be noted that these holdings may have changed since they were notiied to the Company. However, notiication of any change is not required until the next applicable threshold is crossed. Directors The Directors of the Company and their biographies are set out on pages 110 and 111. Their interests in the ordinary shares of the Company are shown in the Directors’ Remuneration Report on page 157. Jonathan Davis was appointed to the Board as an independent Non-Executive Director on 23 June 2023 and Paul Hollingworth stepped down from the Board on 23 June 2023. Appointment and removal of Directors Directors may be appointed by ordinary resolution of the Company or by the Board. All Directors will stand for election or re-election on an annual basis, in line with the recommendations of the 2018 Code. In addition to any powers of removal conferred by the Companies Act 2006, the Company may by special resolution remove any Director before the expiration of his period of oice. Employees Volution is committed to sustainable development (meeting the needs of the present without compromising the ability of future generations to meet their own needs) as well as encouraging equality, diversity and inclusion amongst our workforce, and eliminating unlawful discrimination. Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of a member of sta becoming disabled, every eort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled member of sta should, as far as possible, be identical to that of other employees. A Responsible Operations Policy covering diversity and inclusion can be found on the Volution website. Directors’ indemnities and insurance The Articles of Association of the Company permit it to indemnify the Directors of the Company against liabilities arising from or in connection with the execution of their duties or powers to the extent permitted by law. The Company has directors’ and oicers’ indemnity insurance in place in respect of each of the Directors. The Company has entered into a qualifying third party indemnity (the terms of which are in accordance with the Companies Act 2006) with each of the Directors. Neither the indemnity nor insurance provides cover in the event that a Director or oicer is proved to have acted fraudulently. Transactions with related parties Details of the transactions entered into by the Company with parties who are related to it are set out in note 29 to the consolidated inancial statements. Governance Report Volution Group plc Annual Report 2023 164 Directors’ Report continued Change of control There is one signiicant agreement to which the Company is a party that is aected by a change of control as follows: • The Facilities Agreement dated 3 December 2020 contains provisions to enter into negotiations with the lenders to continue with the facilities set out in the agreement upon notiication that there will be a change of control. Further details of the Group’s banking facilities are shown in note 23 to the consolidated inancial statements. The provisions of the Company’s share incentive plans may cause options and awards granted to employees under such plans to vest on takeover. The Company does not have agreements with any Director that would provide compensation for loss of oice or employment resulting from a change of control. Amendments to the Company’s Articles of Association The Company may alter its Articles of Association by special resolution passed at a general meeting of shareholders. Political donations The Group has not made in the past, nor does it intend to make in the future, any political donations. Post-balance sheet events The acquisition of DVS (Proven Solutions Limited) completed on 4 August 2023. More details may be found in the Chief Executive Oicer’s Review on pages 12 to 15. Going concern The Company’s statement on going concern can be found on page 99. Viability Statement The Board assessed the prospects of the Group over a three-year period and the Viability Statement is set out on page 98. Annual General Meeting The Annual General Meeting (AGM) of the Company will take place at 12.00 noon on Wednesday 13 December 2023 at the oices of Norton Rose Fulbright LLP, 3 More London Riverside, London SE1 2AQ, United Kingdom. The Notice of Annual General Meeting and an explanation of the items of non-routine business are set out in the explanatory circular that accompanies this Annual Report and Accounts. Auditor and disclosure of information to auditor Each of the Directors in oice at the date when this Annual Report and Accounts was approved conirms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Following a competitive tender process, PwC has expressed its willingness to be appointed as auditor of the Company. A resolution to appoint PwC as the Company’s independent auditor will be proposed at the forthcoming Annual General Meeting. Energy and greenhouse gas emissions reporting The Board presents this report in order to meet the Company’s obligation under The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 to disclose the Group’s worldwide emissions of the “greenhouse gases” (GHG) attributable to human activity measured in tonnes of carbon dioxide equivalent. As stated in the sustainability section, Volution is committed to reducing and minimising its impact on the environment. Examples of actions taken to increase energy eiciency are given there. Strategic Report Governance Report Financial Statements Additional Information 165 Volution Group plc Annual Report 2023 Energy and greenhouse gas emissions reporting continued Energy use and GHG emissions data for the year ended 31 July 2023 kWh CO e tonnes CO e tonnes Electricity, gas and other fuels Petrol and diesel vehicle fuels Refrigerants — — Total Notes 1. 57% of the total igure reported relates to energy use in the UK and 43% relates to regions outside the UK. We have only included energy use for which we are directlyresponsible. 2. 57% of the total igure reported for 2023 relates to emissions in the UK and 43% relates to regions outside the UK. We have only included emissions for which we are directlyresponsible. We have not included emissions for activities over which we have no direct control. 3. 57% of the total igure reported for 2022 relates to emissions in the UK and 43% relates to regions outside the UK. We have only included emissions for which we are directlyresponsible. We have not included emissions for activities over which we have no direct control. 4. 2022 emissions have been restated to use the appropriate country speciic conversion factors for our overseas businesses. The carbon conversion rates for electricity havebeen revised to provide a more accurate representation for two of the Group’s manufacturing sites located in North Macedonia and Bosnia and Herzegovina. Toimprove accuracy, the vehicle fuel has been updated for 2022 and the refrigerant carbon is calculated based on top-up value rather than system capacity for both years. Our energy and GHG emissions for 2023 were calculated using the methodology set out in the UK Government’s Environmental Reporting Guidelines 2019. Activity data has been converted into GHG emissions using the UK Government’s most recent GHG Conversion Factors for Company Reporting (2023) and using country speciic conversion factors for our overseas businesses from reliable sources including the Association of Issuing Bodies (AIB) and the Australian and New Zealand environment ministries. This is in line with standard industry practice and allows fair comparison with other UK businesses. Energy use and GHG emissions – Scope 1 and 2 – Group and UK Group UK Group UK Energy use – scope kwh Energy use – scope kwh Energy use – scope and kwh GHG emissions – scope CO e tonnes GHG emissions – scope CO e tonnes GHG emissions – scope and CO e tonnes Intensity ratio: CO e tonnes per m revenue n/a n/a Notes 1. 2022 emissions have been restated to use the appropriate country speciic conversion factors for our overseas businesses. The carbon conversion rates for electricity have been revised to provide a more accurate representation for two of the Group’s manufacturing sites located in North Macedonia and Bosnia and Herzegovina. Toimprove accuracy, the vehicle fuel has been updated for 2022 and the refrigerant carbon is calculated based on top-up value rather than system capacity for both years. We are obligated to report GHG emissions and energy consumption in accordance with The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. To calculate our emissions, our methodology follows the GHG Protocol Corporate Accounting Standard, using an operational control approach. For both energy and emissions data, we have included all subsidiaries within the Group measure, and have included all UK-based subsidiary operations within our consolidated UK measure. Other information that is relevant to the reporting of GHG emissions, including detailed descriptions of methodology and energy eiciency actions, and which is incorporated by reference into this report, can be located on pages 64 to 81. By order of the Board Fiona Smith Company Secretary 4 October 2023 Volution Group plc Registered oice: Fleming Way, Crawley, West Sussex RH10 9YX Company number: 09041571 Governance Report Volution Group plc Annual Report 2023 166 Directors’ Responsibility Statement The Directors are responsible for preparing the Annual Report and the inancial statements in accordance with applicable law andregulation. The inancial statements are prepared in accordance with UK-adopted international accounting standards (IFRS). Under company law the Directors must not approve the inancial statements unless they are satisied that they give a true and fair view of the state of aairs of the Group and Company and of the proit or loss of the Group for that period. In preparing the inancial statements, theDirectors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable UK-adopted international accounting standards (IFRS) have been followed, subject to any material departures disclosed and explained in the inancial statements; • make judgements and accounting estimates that are reasonable and prudent; • present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • prepare the inancial statements on the going concern basis unless it is inappropriate to presume that the Group and Company willcontinue in business. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are suicient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the inancial position of the Group and Company and enable them to ensure that the inancial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of inancial statements may dier from legislation in other jurisdictions. Directors’ conirmations The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy. Each of the Directors, whose names and functions are listed on pages 110 and 111, conirms that, to the best of their knowledge: • the Company inancial statements, which have been prepared in accordance with UK-adopted international accounting standards (IFRS), give a true and fair view of the assets, liabilities, inancial position and proit of the Company; • the Group inancial statements, which have been prepared in accordance with UK-adopted international accounting standards (IFRS), give a true and fair view of the assets, liabilities, inancial position and proit of the Group; and • the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group andCompany, together with a description of the principal risks and uncertainties that they face. In the case of each Director in oice at the date the Directors’ Report is approved: • so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditor is unaware; • they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditor is aware of that information; and • the inancial statements on pages 167 to 231 were approved by the Board of Directors on 4 October 2023 and signed on its behalf by Ronnie George and Andy O’Brien. On behalf of the Board Ronnie George Andy O’Brien Chief Executive Oicer Chief Financial Oicer 4 October 2023 4 October 2023 Strategic Report Governance Report Financial Statements Additional Information 167 Volution Group plc Annual Report 2023 Inside this section Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Changes in Equity Parent Company Statement of Cash Flows Notes to the Parent Company Financial Statements Financial Statements Financial Statements Volution Group plc Annual Report 2023 168 Independent Auditor’s Report To the members of Volution Group plc Opinion In our opinion: • Volution Group plc’s group inancial statements and parent company inancial statements (the “inancial statements”) give a true and fair view of the state of the group’s and of the parent company’s aairs as at 31 July 2023 and of the group’s proit for the year then ended; • the group inancial statements have been properly prepared in accordance with UK adopted international accounting standards; • the parent company inancial statements have been properly prepared in accordance with UK adopted international accounting standards as applied in accordance with section 408 of the Companies Act 2006; and • the inancial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the inancial statements of Volution Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 July 2023 which comprise: Group Parent company Consolidated statement of inancial position as at 31 July 2023 Parent company statement of inancial position as at 31 July 2023 Consolidated statement of comprehensive income for the year then ended Parent company statement of changes in equity for the year then ended Consolidated statement of changes in equity for the year then ended Parent company statement of cash lows for the year then ended Consolidated statement of cash lows for the year then ended Related notes 1 to 14 to the inancial statements, including asummary of signiicant accounting policies Related notes 1 to 34 to the inancial statements, including asummary of signiicant accounting policies The inancial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards and as regards the parent company inancial statements, as applied in accordance with section 408 of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the inancial statements section of our report. We believe that the audit evidence we have obtained is suicient and appropriate to provide a basis for our opinion . Independence We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the inancial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting the audit. Conclusions relating to going concern In auditing the inancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the inancial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included: • Obtaining an understanding of management’s basis for use of the going concern basis of accounting. To challenge the completeness of this assessment, we independently identiied factors that may indicate events or conditions that may cast signiicant doubt on the group’s ability to continue as a going concern. We designed our audit procedures to evaluate the eect ofthese risks on the group’s ability to continue as a going concern; • Agreeing the Group’s available inancing and related terms, including the changes during the year, to the original debt agreements; • Obtaining the cash low forecast models used by the Board in its assessment, reviewing their arithmetical accuracy, whether they have been approved by the Board and considering the group’s historical forecasting accuracy; • Recalculating the Group’s forecast covenant tests at each test date within the going concern period and comparing these to the terms of the Group’s inancing to check that no breach is expected to occur; • Challenging management on the critical estimates and judgements applied in their latest inancial models so that we could understand and consider the rationale informing these and assess the impact on the forecasts and conclusion. We also agreed anykey amendments, estimates and judgements to underlying supporting information and fact patterns as appropriate; Strategic Report Governance Report Financial Statements Additional Information 169 Volution Group plc Annual Report 2023 Conclusions relating to going concern continued • Inspecting the inancial models provided to assess their consistency with our understanding of the operations of the Group and the other matters identiied in our audit, and searching for any contra indicators against the estimates and judgements applied bymanagement in the forecast models; • Considering management’s stress testing of the group’s cash low forecast models and their impact on forecast liquidity and banking covenants, speciically whether the stress tests were of reasonably possible adverse eects that could arise from these risks individually and collectively and considering whether the factors we identiied independently that could adversely impact thegroup had been appropriately included; • Considering management’s reverse stress test, which determined how signiicant a reduction in cash lows would cause a breach in covenants and assessing the likelihood of such an occurrence; and subjecting the inancial models to additional stress testing toconirm that the Board has considered a balanced range of outcomes in its assessment of the impact on the Group; • Assessing the appropriateness of the going concern disclosures in describing the risks associated with the group’s ability tocontinue as a going concern for the period to 31 January 2025; and • Enquiring of management as to whether any events or conditions beyond 31 January 2025 had been identiied that may cast signiicant doubt on the group’s ability to continue as a going concern and evaluating whether we were aware of any such events orconditions from our audit work. We communicated to the Audit Committee that we consider the disclosures made in the basis of preparation note and in the Strategic Report in respect to going concern to be appropriate. Based on the work we have performed, we have not identiied any material uncertainties relating to events or conditions that, individually or collectively, may cast signiicant doubt on the group and parent company’s ability to continue as a going concern until 31 January 2025, being a period of approximately 16 months from when the inancial statements are authorised for issue. In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the inancial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. Overview of our audit approach Audit scope • We performed an audit of the complete inancial information of ive components, audit procedures onspeciic balances for a further seven components and speciied audit procedures for a further threecomponents. • The components where we performed full scope, speciic scope or speciied audit procedures accounted for 90% of adjusted proit before tax less amortisation of acquired intangibles, 85% of revenue and 94% oftotal assets. Key audit matters • The risk of manipulation of revenue recognition through inappropriate manual journal entries or customer rebates. • Inappropriate accounting for business combinations, due to the complexity and number of estimates and judgements involved. Materiality • Overall group materiality of £2.5m which represents 5% of adjusted proit before tax less amortisation ofacquired intangibles. Financial Statements Volution Group plc Annual Report 2023 170 An overview of the scope of the parent company and group audits Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group. Taken together, this enables us to form an opinion on the consolidated inancial statements. We consider size, risk proile, the organisation of the group and eectiveness of group-wide controls, changes in the business environment, the potential impact of climate change and other factors such as recent Internal audit results when assessing the levelofwork to be performed at each company. In assessing the risk of material misstatement to the Group inancial statements, and to ensure we had adequate quantitative coverage of signiicant accounts in the inancial statements, of the 55 reporting components of the Group, we selected 15 components covering entities in Australia, Germany, the Netherlands, New Zealand, North Macedonia, Sweden and the UK, whichrepresent the principal business units within the Group. Of the 15 components selected, we performed an audit of the complete inancial information of ive components (“full scope components”) which were selected based on their size or risk characteristics. For a further seven components (“speciic scope components”), we performed audit procedures on speciic accounts within that component that we considered had the potential for the greatest impact on the signiicant accounts in the inancial statements either because of the size of these accounts or their risk proile. For a further three components (“speciied procedures components”), speciied audit procedures were performed on account balances identiied on account of either size or risk proile. The reporting components where we performed full scope, speciic scope or speciied audit procedures accounted for 90% of the Group’s adjusted proit before tax less amortisation of acquired intangibles (2022: 92% of proit before tax and separately disclosed items), 85% (2022: 85%) of the Group’s revenue and 94% (2022: 95%) of the Group’s total assets. The full scope components contributed 66% of the Group’s adjusted proit before tax less amortisation of acquired intangibles (2022: 71% of proit before tax andseparately disclosed items), 60% (2022: 60%) of the Group’s revenue and 81% (2022: 80%) of the Group’s total assets. The speciic scope and speciied procedures components contributed 24% of the Group’s adjusted proit before tax less amortisation of acquired intangibles (2022: 21% of proit before tax and separately disclosed items), 25% (2022: 25%) of the Group’s revenue and 13% (2022: 15%) of the Group’s total assets. The audit scope of these components may not have included testing of all signiicant accounts of thecomponent but will have contributed to the coverage of signiicant accounts tested for the Group. Of the remaining 40 components that together represent 10% of the Group’s adjusted proit before tax less amortisation of acquired intangibles, none are individually greater than 2% of the Group’s adjusted proit before tax less amortisation of acquired intangibles. For these components, we performed other procedures, including analytical review and testing of consolidation journals, intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material misstatement tothe Group inancial statements. There were no signiicant changes in our component scoping from the prior year audit. The charts below illustrate the coverage obtained from the work performed by our audit teams. Independent Auditor’s Report continued To the members of Volution Group plc Full scope components 66% Speciic scope components 22% Speciied procedures 2% Other procedures 10% Full scope components 60% Speciic scope components 25% Other procedures 15% Full scope components 81% Speciic scope components 12% Speciied procedures 1% Other procedures 6% Adjusted proit before tax less amortisation of acquired intangibles Revenue Total assets Strategic Report Governance Report Financial Statements Additional Information 171 Volution Group plc Annual Report 2023 Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit team, or by component auditors from other EY global network irms or non-EY irms operating under our instruction. Of the ive full scope components, audit procedures were performed on two of these directly by the primary audit team and on the remaining three by EY global network irm component teams. Of the ten speciic scope and speciied procedures components, audit procedures were performed on four of these directly by the primary audit team, on ive by EY global network irm component teams and one by a non-EY irm. Where the work was performed by EY global network irm or non-EY irm component auditors, we determined the appropriate level of involvement to enable us to determine that suicient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor visits component auditors on a periodic basis. During the current year’s audit cycle, visits were undertaken by the Senior Statutory Auditor to the component teams in the Netherlands, North Macedonia and Sweden. These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with the local management and reviewing key audit working papers in risk areas. The primary audit team interacted regularly with all of the component teams, including those not physically visited, during all stages of the audit, reviewed relevant working papers and was responsible for the scope and direction of the audit process. The Senior Statutory Auditor or a senior member of the primary audit team attended meetings with each of our full and speciic scope component teams and local management to conclude the audit procedures at each location by video conference, to ensure that we were fully briefed on the progress and results of audit procedures. This involvement, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group inancial statements. Climate change Stakeholders are increasingly interested in how climate change will impact the Group. The Group has determined that whilst it considers climate change to be a net opportunity for the Group, the most signiicant future risks from climate change will be from changing weather patterns that may directly damage production facilities or disrupt supply chains; investors and lenders not allocating suicient capital to the Group; governments implementing taxes or charges which penalise the Group, also increasing the input cost of energy, freight and materials; and governments implementing stricter regulation, rendering elements of the Group’s product portfolio non-compliant. This is explained on pages 70 to 71 in the required Task Force on Climate-related Financial Disclosures and on pages 96 to 104 in the principal risks and uncertainties. The Group has also explained its climate commitments on pages 52 to 92. All of these disclosures form part of the “Other information”, rather than the audited inancial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the inancial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”. In planning and performing our audit, we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its inancial statements. We focused on evaluating management’s assessment that there is no material impact of climate change risk, the adequacy of the Group’s disclosures in the inancial statements and the conclusion that no issues were identiied that would impact the carrying values of assets with indeinite and long lives or have any other impact on the inancial statements as disclosed on page 70. We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. Based on our work we have not identiied the impact of climate change on the inancial statements to be a key audit matter ortoimpact a key audit matter. Financial Statements Volution Group plc Annual Report 2023 172 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signiicance in our audit of the inancial statements of the current period and include the most signiicant assessed risks of material misstatement (whether or not due tofraud) that we identiied. These matters included those which had the greatest eect on: the overall audit strategy, the allocation ofresources in the audit; and directing the eorts of the engagement team. These matters were addressed in the context of our auditof the inancial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk Our response to the risk Key observations communicated to the AuditCommittee The risk of manipulation of revenue recognition through inappropriate manual journal entries or customer rebates: During the year the Group recognised revenue of £328.0 million (2022: £307.7 million) and at 31 July 2023 had a rebate liability of £9.1 million (2022:£9.4 million). We determined that there is risk of material misstatement associated with revenue recognition as revenueis the most signiicant item in the consolidated statement of comprehensive income and impacts the majority of the key performance indicators of the Group. Auditing standards include a rebuttable presumption that there is a risk of fraud in revenue recognition. We consider that this arises through: • Inappropriate recognition of salesdue to inappropriate manualjournal entries; or • Inappropriate measurement of judgemental customer rebate provisions as a result ofmanagement bias. Supporting references in the Annual Report and Accounts: the Audit Committee Report (page 135); accounting policies (page 185); and note 3 to the consolidated inancial statements (page 186). We tested that revenue had been appropriately recognised through performance of the following audit procedures: • We obtained an understanding of the signiicant classes of transactions impacting revenue and performed walkthroughs of each in order to conirm our understanding; • We evaluated the adequacy of the design of the controls in place over the signiicant classes of transactions impacting revenue; • We performed analytical procedures, including a comparison of actual revenue against budget and prior year; • We investigated and understood manual journal entries postedto revenue; • We tested the application of cut-o for a sample of transactions across all in-scope trading components in the group by obtaining appropriate evidence for a sample of sales transactions; and • For the majority of full scope and speciic scope components, we used data analytics to identify recorded transactions that did not align with our expectation of the transaction low. This involved performing a three-way correlation between revenue, trade receivables and cash and obtaining evidence for unaligned amounts. We tested the adjustments made to revenue from the application of rebate agreements by performing the following procedures: • We tested a sample of rebate agreements in place with customers and agreed terms to supporting evidence; • We also searched for and enquired into the existence of undocumented side agreements; • For the sample selected, we conirmed the key terms and conditions per the rebate agreement directly with the customer or performed alternative procedures; • We recalculated the expected sales rebates for customers and compared these to actual amounts recorded by management; • We evaluated whether a consistent methodology was applied with the prior year; • We analysed the ageing of the rebate accrual and the ratio of the rebate accrual and rebate expense against revenue; and • We understood the basis for any release of prior year accrual identiied as surplus. We issued instructions to perform the above procedures to all full and speciic scope component teams, to the extent they were relevant, which covered 85% of revenue and 96% of the rebates accrual. The remaining 15% of revenue relates to components where we concluded the risk of material misstatement is low. We concluded that: • revenue has been recognised in accordance with IFRS; • the customer rebate expense and liabilities recognised by the Group have been appropriately accounted for; and • there were no inappropriate manual journal entries recorded to revenue. Independent Auditor’s Report continued To the members of Volution Group plc Strategic Report Governance Report Financial Statements Additional Information 173 Volution Group plc Annual Report 2023 Key audit matters continued Risk Our response to the risk Key observations communicated to the AuditCommittee Inappropriate accounting for business combinations, due to the complexity and number of estimates and judgement involved: We determined that business combination accounting contains arisk of material misstatement as the Group agrees contractual terms for contingent and other formsof deferred consideration with the vendors of acquired entities that may be non-standard. Following acquisition, the principal areas of judgement relate to the identiication and fair value measurement for intangible assets, the recognition ofcontingent consideration liabilities and any non-controlling interests. In April 2023, the Group acquired Ventilairsec (VMI) in France for initial consideration of £7.9 million (€9.0 million), net of cash acquired and further contingent consideration of up to €5.0 million. Subsequently, in July 2023, the Group acquired I-Vent in Slovenia for initial consideration of £21.7 million (€25.2 million), net of cash acquired and further contingent consideration of up to €15.0 million. These acquisitions both included contingent consideration and resulted in the recognition of intangible assets at fair value. Supporting references in the Annual Report and Accounts: the Audit Committee Report (page 136); accounting policies (page 198); and Note 15 to the consolidated inancial statements (pages 198 to 202). In order to respond to the risks identiied in accounting for business combinations: • We obtained management’s accounting papers which included the assumptions and judgements used for the business combination; • We considered the appropriateness of the separate classiication and valuation of fair value adjustments; • We considered whether there were any non-standard contractual terms that should be identiied and disclosed; • We identiied contingent and deferred consideration amounts that exceeded our testing thresholds or were otherwise unusual, and validated the appropriateness and value of the recognised liability; and • We involved valuation specialists to challenge the appropriate recognition and valuation of intangible assets based on management’s own valuation. The audit work for both the Ventilairsec (VMI) and I-Vent business combinations was performed by the primary audit team. We concluded that the accounting for business combinations isacceptable. The key audit matters we identiied are consistent with the previous year. Financial Statements Volution Group plc Annual Report 2023 174 Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the eect of identiied misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to inluence the economic decisions of the users of the inancial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £2.5 million (2022: £2.15 million), which is 5% of the Group’s adjusted proit before tax less amortisation of acquired intangibles (2022: proit before tax and separately disclosed items). We believe that adjusted proit before tax less amortisation of acquired intangibles is the measure that users of the Group’s inancial statements are most focused on. We determined materiality for the Parent Company to be £2.3 million (2022: £2.2 million), which is 1% of net assets. The materiality determined for the standalone parent company inancial statements is dierent to the Group materiality as it is determined on a dierent basis given the nature of the operations. For the purposes of the audit of the Group inancial statements, our procedures, including those on balances in the parent company, are undertaken with reference to the lower of Group and Parent Company materiality and performance materiality set out in this report. During the course of our audit, we reassessed initial materiality using the Group’s actual reported results and made no changes to our initial assessment Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 75% (2022: 75%) of our planning materiality, namely £1.9m (2022: £1.6m). We have set performance materiality at this percentage as we did not anticipate a signiicant level of audit dierences following our 2022 audit. Audit work at component locations for the purpose of obtaining audit coverage over signiicant inancial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £380k to £1,130k (2022: £320k to £970k). Reporting threshold An amount below which identiied misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit dierences in excess of £125,000 (2022:£110,000), which is set at 5% of planning materiality, as well as dierences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light ofother relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report and accounts, other than the inancial statements andour auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the inancial statements does not cover the other information and, except to the extent otherwise explicitly stated inthis report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the inancial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. Ifwe identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the inancial statements themselves. If, based on the work we have performed, we conclude that there isa material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Independent Auditor’s Report continued To the members of Volution Group plc Strategic Report Governance Report Financial Statements Additional Information 175 Volution Group plc Annual Report 2023 Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the inancial year for which the inancial statements are prepared is consistent with the inancial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course ofthe audit, we have not identiied material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report toyouif, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company inancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration speciied by law are not made; or • we have not received all the information and explanations we require for our audit. Corporate Governance Statement We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code speciied for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the inancial statements or our knowledge obtained during the audit: • The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identiied set out on page 99; • The Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is appropriate set out on page 98; • The Directors’ statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities set out on page 99; • The Directors’ statement on fair, balanced and understandable set out on page 126; • The Board’s conirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 123; • The section of the annual report that describes the review of eectiveness of risk management and internal control systems set out on page 138; and • The section describing the work of the audit committee set out on pages 131 to 139. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 166, the directors are responsible for the preparation of the inancial statements and for being satisied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of inancial statements that are free from material misstatement, whether due to fraud or error. In preparing the inancial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Financial Statements Volution Group plc Annual Report 2023 176 Auditor’s responsibilities for the audit of the inancial statements Our objectives are to obtain reasonable assurance about whether the inancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance isahigh level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inluence the economic decisions of users taken on the basis of these inancial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. • We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most signiicant are those that relate to the reporting framework (UK adopted international accounting standards, the Companies Act 2006 and the UK Corporate Governance Code) and the relevant tax compliance regulations in the jurisdictions in which the Group operates. There are no signiicant industry speciic laws or regulations that we considered in determining our approach. • We understood how the Group is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through our review ofboard minutes and papers provided to the Audit Committee. Our assessment included a consideration of the tone from the top and the emphasis on a culture of honest and ethical behaviour. • We assessed the susceptibility of the group’s inancial statements to material misstatement, including how fraud might occur. Wechallenged management to understand where it considered performance targets and their propensity to inluence on eorts made by management to manage earnings. We considered the programs and the controls which the Group has established to address risks identiied or that otherwise prevent, deter and detect fraud; and how senior management monitors these programs and controls. Where the risk was considered to be higher, including areas impacting Group key performance indicators or management remuneration, we performed audit procedures to address each identiied fraud risk or other risk of material misstatement. These procedures include those on revenue recognition described above and testing manual journal entries and were designed to provide reasonable assurance that the inancial statements were free from material fraud or error. • Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations, including instructing full, speciic and speciied procedures scope component teams. At a Group level our procedures involved: enquiries of Group management and those charged with governance, legal counsel and internal audit; and journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding ofthe business. We engaged our Forensics specialists to assist us in evaluating the appropriateness of management’s response toareported incident and instructed relevant component teams to perform additional audit procedures to address the risk. • At a component level, our full, speciic and speciied procedures scope component teams included enquiries of component management; journal entry testing; and focused testing, including as referred to in the key audit matters section above. A further description of our responsibilities for the audit of the inancial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address • Following the recommendation from the Audit Committee, we were appointed by the Board of Directors on 14 December 2022 toaudit the inancial statements for the year ended 31 July 2023 and subsequent inancial periods. The period of total uninterrupted engagement including previous renewals and reappointments is ten years, covering the years ended 31 July 2014 to 31 July 2023. • The audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Jon Killingley (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 4 October 2023 Independent Auditor’s Report continued To the members of Volution Group plc Strategic Report Governance Report Financial Statements Additional Information 177 Volution Group plc Annual Report 2023 Consolidated Statement of Comprehensive Income For the year ended 31 July 2023 Notes 2023 £000 2022 £000 Revenue from contracts with customers 3 328,008 307,701 Cost of sales (169,149) (1 60 , 603) Gross profit 15 8 , 8 5 9 14 7, 0 9 8 Administrative and distribution expenses (10 0 ,0 9 5) (9 6,6 9 3) Operating profit before separately disclosed items 5 8 ,76 4 5 0,4 0 5 Costs of business combinations (1, 0 3 2) (2 15) Contingent consideration (6 40) 598 Operating profit 57,092 5 0 ,7 8 8 Finance revenue 5 65 1 , 333 Finance costs 5 (6 , 51 3) (3,3 6 9) Re-measurement of financial liabilities 54 (5 8 3) Re-measurement of future consideration (1, 8 7 9) (95 5) Profit before tax 4 8 , 819 4 7, 2 14 Income tax 9 (11, 4 3 7) (1 1 ,542) Profit after tax 37,382 3 5,67 2 Attributable to the shareholders 37 ,373 3 5,610 Attributable to non-controlling interest 9 62 Other comprehensive income Other comprehensive income that may be reclassified to profit or loss in subsequent periods: Exchange differences arising on translation of foreign operations (3,015) 1,9 4 4 Loss on currency loans relating to the net investment in foreign operations (1, 3 0 9) (1,74 4) Other comprehensive (loss)/income for the year (4,324) 20 0 Total comprehensive income for the year, net of tax 33 ,05 8 3 5,87 2 Attributable to the shareholders 33, 049 3 5, 810 Attributable to non-controlling interest 9 62 Earnings per share Basic earnings per share 10 19.0p 1 8 .1p Diluted earnings per share 10 18 .7p 1 7. 8 p Financial Statements Volution Group plc Annual Report 2023 178 Consolidated Statement of Financial Position At 31 July 2023 Notes 2023 £000 2022 £000 Non-current assets Property, plant and equipment 11 29, 4 4 8 28,23 5 Right-of-use assets 21 29, 9 0 2 23,5 67 Intangible assets – goodwill 12 164 , 8 73 14 2 ,6 6 1 Intangible assets – others 14 83, 86 3 87,592 308, 086 282,05 5 Current assets Inventories 16 58,9 80 5 7,1 51 Trade and other receivables 17 52 ,3 3 6 57,526 Other financial assets 18 — 1, 0 9 1 Cash and short-term deposits 19 21, 2 4 4 13 , 5 4 3 13 2 , 5 6 0 12 9 , 3 11 Total assets 440, 646 411, 3 6 6 Current liabilities Trade and other payables 20 (47,108) (4 8,8 37) Refund liabilities 3 (9,817) (10, 2 6 8) Income tax (4,6 6 2) (5, 5 6 4) Other financial liabilities 22 (3 30) — Interest-bearing loans and borrowings 23 (3,754) (3,5 9 9) Provisions 24 (1,7 9 1) (1,6 8 4) (67,462) (69,9 52) Non-current liabilities Interest-bearing loans and borrowings 23 (116 ,7 0 4) (10 4, 4 3 3) Other financial liabilities 22 (16 , 5 9 7) (1 4, 1 32) Provisions 24 (3 0 1) (3 19) Deferred tax liabilities 26 (13,337) (1 4,222) (14 6 , 9 3 9) (133,106) Total liabilities (214,401) (2 03, 058) Net assets 226,24 5 2 08, 308 Capital and reserves Share capital 25 2, 000 2 , 000 Share premium 25 11, 5 2 7 11, 5 2 7 Treasury shares (2,3 90) (3 , 5 74) Capital reserve 93,8 5 5 9 3,8 5 5 Share-based payment reserve 5,5 8 4 5,0 5 8 Foreign currency translation reserve (1, 2 2 5) 3,0 9 9 Retained earnings 116 , 8 9 4 9 6 ,24 7 Total shareholders’ equity 226,24 5 2 0 8 , 2 12 Non-controlling interest — 96 Total equity 226,24 5 2 08, 308 The consolidated financial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors and authorised for issue on 4 October 2023. On behalf of the Board Ronnie George Andy O’Brien Chief Executive Officer Chief Financial Officer Strategic Report Governance Report Financial Statements Additional Information 179 Volution Group plc Annual Report 2023 Consolidated Statement of Changes in Equity For the year ended 31 July 2023 Share capital £000 Share premium £000 Treasury shares £000 Capital reserve £000 Share-based payment reserve £000 Foreign currency translation reserve £000 Retained earnings £000 Shareholders’ equity £000 Non- controlling interest £000 Total equity £000 At 31 July 2021 2 , 000 11, 5 2 7 (3,739) 9 3,8 5 5 4,0 9 0 2,8 9 9 74, 6 5 8 18 5, 2 9 0 — 18 5, 2 9 0 Profit for the year — — — — — — 3 5,610 3 5,6 10 62 3 5,67 2 Other comprehensive income — — — — — 20 0 — 20 0 — 20 0 Total comprehensive income — — — — — 20 0 35,6 10 3 5,8 10 62 3 5,87 2 Acquisition of businesses — — — — — — — — 34 34 Purchase of own shares — — (1,9 0 0) — — — — (1,9 0 0) — (1,9 0 0) Exercise of share options — — 2,0 6 5 — (1,129) — (74 9) 18 7 — 187 Share-based payment including tax — — — — 2,0 97 — — 2,0 97 — 2,0 97 Dividends paid (note 27) — — — — — — (13 , 2 7 2) (13 , 2 7 2) — (13 , 2 7 2) At 1 August 2022 2 , 000 11, 5 2 7 (3 , 5 74) 9 3,8 5 5 5,05 8 3,0 9 9 9 6, 247 2 0 8 , 2 12 96 208 ,3 08 Profit for the year — — — — — — 37 ,373 37 ,373 9 3 7, 3 8 2 Other comprehensive loss — — — — — (4,3 24) — (4 ,3 24) — (4,3 24) Total comprehensive income — — — — — (4, 3 24) 37 ,373 3 3,0 4 9 9 3 3,0 5 8 Purchase of own shares — — (1,8 3 4) — — — — (1,8 3 4) — (1,8 3 4) Exercise of share options — — 3, 0 18 — (1, 3 7 9) — (1,6 3 9) — — — Share-based payment including tax — — — — 1,9 0 5 — — 1,9 0 5 — 1,9 0 5 Dividends paid (note 27) — — — — — — (14 , 8 2 3) (14, 8 2 3) — (14 , 8 2 3) Acquisition of non-controlling interest — — — — — — (2 6 4) (26 4) (10 5) (3 6 9) At 31 July 2023 2, 000 11, 5 2 7 (2,3 90) 93, 85 5 5,5 8 4 (1, 2 2 5) 116 , 8 9 4 226,2 45 — 226,24 5 Treasury shares The treasury shares reserve represents the cost of shares in Volution Group plc purchased in the market and held by the Volution Employee Benefit Trust to satisfy obligations under the Group’s share incentive schemes. Capital reserve The capital reserve is the difference in share capital and reserves arising from the use of the pooling of interest method for preparation of the financial statements in 2014. This is a non-distributable reserve. Share-based payment reserve The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key management personnel, as part of their remuneration. Refer to note 32 for further detail of these plans. Foreign currency translation reserve Exchange differences arising on translation of the Group’s foreign subsidiaries into GBP are included in the foreign currency translation reserve. The Group hedges some of its exposure to its net investment in foreign operations; foreign exchange gains and losses relating to the effective portion of the net investment hedge are accounted for by entries made to other comprehensive income. No hedge ineffectiveness has been recognised in the statement of comprehensive income for any of the periods presented. Retained earnings The parent company of the Group, Volution Group plc, had distributable retained earnings at 31 July 2023 of £131,795,000 (2022:£120,294,000). Financial Statements Volution Group plc Annual Report 2023 180 Consolidated Statement of Cash Flows For the year ended 31 July 2023 Notes 2023 £000 2022 £000 Operating activities Profit for the year after tax 3 7, 3 8 2 3 5,67 2 Adjustments to reconcile profit for the year to net cash flow from operating activities: Income tax 11, 4 3 7 11, 5 4 2 Gain on disposal of property, plant and equipment and intangible assets – other (17) (51) Costs of business combinations 1, 0 3 2 215 Contingent consideration 640 (5 9 8) Cash flows relating to business combination costs (1, 0 3 2) (2 15) Re-measurement of financial liability relating to business combination of ClimaRad (5 4) 583 Re-measurement of future consideration relating to business combination of ClimaRad 1, 8 7 9 955 Finance revenue 5 (65) (1 , 333) Finance costs 5 6 , 513 3,3 6 9 Share-based payment expense 1, 3 57 1 ,1 1 5 Depreciation of property, plant and equipment 11 4,102 3,816 Depreciation of right-of-use assets 21 3, 89 5 3 ,6 12 Amortisation of intangible assets 14 12 , 5 74 16, 0 2 6 Working capital adjustments: Decrease/(increase) in trade receivables and other assets 6,925 (6,41 8) Decrease/(increase) in inventories 310 (9 , 805) Decrease in trade and other payables (4,5 0 5) (1, 23 5) Movement in provisions 89 (24 2) Cash generated by operations 82,462 5 7, 0 0 8 UK income tax paid (4 ,1 7 1) (3 , 000) Overseas income tax paid (9, 819) (9,155) Contingent consideration relating to the acquisition of Ventair 15 — (3 , 2 11) Net cash flow generated from operating activities 6 8, 472 4 1, 6 4 2 Investing activities Payments to acquire intangible assets 14 (3,0 4 9) (2, 23 8) Purchase of property, plant and equipment 11 (4,91 4) (4 ,7 7 3) Proceeds from disposal of property, plant and equipment and intangible assets – other 17 5 17 9 Business combination of subsidiaries, net of cash acquired 15 (2 9,6 9 6) (15, 9 9 6) Contingent consideration relating to the acquisition of Air Connection 15 — (476) Contingent consideration relating to the acquisition of Ventair 15 — (9 52) Interest received 65 4 Net cash flow used in investing activities (3 7, 4 1 9) (24,252) Financing activities Repayment of interest-bearing loans and borrowings (62 ,24 0) (3 3,6 2 6) Repayment of VMI debt acquired (92) — Repayment of ERI debt acquired — (3,2 27) Repayment of ClimaRad vendor loan — (5 0 4) Proceeds from new borrowings 65, 9 50 3 6,428 Issue costs of new borrowings (30 0) (3 3 0) Interest paid (3 ,74 8) (2 ,6 6 2) Payment of principal portion of lease liabilities (4,482) (3,2 0 2) Dividends paid to equity holders of the parent (14 , 8 2 3) (13 , 2 7 2) Purchase of own shares (1, 8 3 4) (1,9 0 0) Net cash flow used in financing activities (21, 5 6 9) (2 2,29 5) Net increase/(decrease) in cash and cash equivalents 9,4 8 4 (4,9 0 5) Cash and cash equivalents at the start of the year 13, 5 4 3 19,4 5 6 Effect of exchange rates on cash and cash equivalents (1,78 3) (1,0 0 8) Cash and cash equivalents at the end of the year 19 2 1, 2 4 4 13 , 5 4 3 Volution Group plc (the Company) is a public limited company and is incorporated and domiciled in the UK (registered number: 09041571). The share capital of the Company is listed on the London Stock Exchange. The address of its registered office is Fleming Way, Crawley, West Sussex RH10 9YX. Strategic Report Governance Report Financial Statements Additional Information 181 Volution Group plc Annual Report 2023 Notes to the Consolidated Financial Statements For the year ended 31 July 2023 1. Basis of preparation The Group’s consolidated dated financial statements have been prepared in accordance with UK-adopted international accounting standards (UK-adopted_IAS). The consolidated inated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies under the relevant notes. The preparation of the consolidated lidated financial information in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise judgement in the process of applying the Group’s accounting policies. Accounting policies, including critical accounting judgements and estimates used in the preparation of the n of the financial statements, are described inthe sin the specicific note to which they relate. The consolidated idated financial statements are presented in GBP and all values are rounded to the nearest thousand (£000), except as otherwise indicated. Basis of consolidation The consolidated idated financial statements comprise the e the financial statements of the Company and its subsidiaries as at 31 July 2023. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to aect tity to affect those returns through its power over the investee. Speciiifically, the Group controls an investee if, and only if, the Group has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee • The ability to use its power over the investee to aect its returnnvestee to affect its returns The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated dated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. The The financial statements of subsidiaries are prepared for the same reporting periods using consistent accounting policies. All intercompany transactions and balances, including unrealised proits arofits arising from intra-group transactions, have been eliminated on consolidation. Going concern The The financial position of the Group, its cash ash flows and liquidity position are set out in the t in the financial statements. Furthermore, note 28 on pages 214 to 217 to the consolidated idated financial statements includes the Group’s objectives and policies for managing its capital, its infinancial risk management objectives, details of its ils of its financial instruments and its exposure to credit and liquidity risk. The The financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Directors have considered all of the above factors, including potential scenarios arising from the political and macroeconomic uncertainty that has arisen post-Covid and since the invasion of Ukraine early in 2022, including the actions of central banks in raising interest rates to curb inlinflation and the impact that this may have on housing and construction, and from its other principal risks set out on pages 96 to 104. Under a severe but plausible downside scenario, the Group remains within its debt facilities and the attached ed financial covenants under the 18 month from the balance sheet date period of assessment and the Directors therefore believe, at the time of approving the ithe financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. Thekey facts anThe key facts and assumptions in reaching this determination are summarised below. Our Our financial position remains robust with committed facilities totalling £150 million, and an accordion of a further £30 million, maturing in December 2025. The The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA) of not more than three times and for adjusted interest cover of not less than four times. Our base case scenario has been prepared using robust forecasts from each of our operating companies, with each considering the risks and opportunities the businesses face. We have then applied a severe but plausible downside scenario in order to model the potential concurrent impact of: • a general economic slowdown reducing revenue by 20% compared to plan. • supply chain diicfficulties or input price increases reducing gross proit ms profit margin by 10%; and • a signiiificant acquisition increasing debt but with no positive cash lh flow contribution. A reverse stress test scenario has also been modelled which shows a revenue contraction of c37% with no mitigations would be required to breach covenants, which is considered extremely remote in likelihood of occurring. Mitigations available within the control of management include reducing discretionary capex and discretionary indirect costs. Over the short period of our Climate Change assessment (aligned to our Going Concern assessment) we have concluded that there is no material adverse impact of Climate Change and hence have not included any impacts in either our base case or downside scenarios of our Going Concern assessment. We have not experienced material adverse disruption during periods of adverse or extreme weather in recent years and we would not expect this to occur to a material level over the period of our Going Concern assessment. The Directors have concluded that the results of the scenario testing combined with the signiicficant liquidity proilrofile available under the revolving credit facility conirnfirm that there is no material uncertainty in the use of the going concern assumption. Financial Statements Volution Group plc Annual Report 2023 182 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 1. Basis of preparation continued Non-controlling interest Non-controlling interests are identientified separately from the Group’s equity. Non-controlling interests consist of the amount of those interests at the date of the business combination and the non-controlling interest’s share of changes in equity since that date. Non-controlling interests are measured at the non-controlling interest’s share of the fair value of the identientifiable net assets. Where there is an obligation to purchase the non-controlling interest at a future date, the non-controlling interest will be recognised on the business combination, and subsequently when the obligation to purchase liability is recognised the amount is reclassisified from equity to a inany to a financial liability and the non-controlling interest is derecognised. Any dierenny difference between the carrying value of the non-controlling interest and the liability is adjusted against retained earnings. The The financial liability for the non-controlling interest is subsequently accounted for under IFRS 9, with all changes in the carrying amount, including the non-controlling interest share of proit, recre of profit, recognised as a re-measurement in the income statement. When the obligation or “put liability” is exercised, the carrying amount of the unt of the financial liability at that date is extinguished by the payment of the exercise price. Foreign currencies The individual inl financial statements of each subsidiary are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the Group e Group financial statements, the results and ind financial position of each entity are expressed in GBP (£000), which is the functional currency of the Company and the presentational currency of the Group. In preparing the g the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rate of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rate prevailing at the end of the reporting period. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of theinithe initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date the fair value was determined. For the purpose of presenting consolidated idated financial information, the assets and liabilities of the Group’s foreign operations are expressed in GBP using exchange rates prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rate for the period. Exchange diege differences arising are classiiified as other comprehensive income and are transferred to the foreign currency translation reserve. All other translation dierenn differences are taken to proit as are taken to profit and loss with the exception of dierenof differences on foreign currency borrowings to the extent that they are used to inand to finance or provide a hedge against Group equity investments in foreign operations, in which case they are taken to other comprehensive income together with the exchange dierendifference on the net investment in these operations. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions aboutthut the carrying amounts of assets and liabilities that are not readily apparent from other sources. The key judgement, apart from any involving estimations, that has the most signiinificant eect offect on the amounts recognised in the infinancial statements is the identiicntification of the Group’s cash generating units (CGUs) and the grouping of those CGUs for goodwill impairment testing purposes. This judgement could have a signinificant impact on the carrying value of goodwill and other intangible assets in the ihe financial statements. Hence, the Directors have concluded that this is a key judgement under the scope of paragraph 122 of IAS1. Further details can be found in note 13 – impairment assessment of goodwill and note 14 – intangible assets other. The Directors have concluded that there are no major sources of estimation uncertainty that have a signiicficant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next int financial year. Other judgements and estimates, which the directors do not believe to be critical accounting judgements or key sources of estimation uncertainty under the scope of paragraph 122 or 125 of IAS1, but for which additional disclosures have been made in the relevant notes include i) estimates and assumptions made related to: impairment assessment of goodwill (note 13), intangible assets – other (note 14), ii) estimates and assumptions relating to refund liabilities arising from retrospective volume rebates (note 3), and iii) ), and iii) financial liabilities relating to the business combination of ClimaRad, ERI, VMI and I-Vent (notes 15 and 22). The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised inthepin the period in which the estimate is revised if the revision aects on affects only that period, or in the period of the revision and future periods ifthe revisiif the revision aeon affects both current and future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a signiiificant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next it financial year are described under the relevant notes. Strategic Report Governance Report Financial Statements Additional Information 183 Volution Group plc Annual Report 2023 1. Basis of preparation continued Critical accounting judgements and key sources of estimation uncertainty continued The Group based its assumptions and estimates on parameters available when these ise financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are relere reflected in the assumptions when they occur. The Directors have considered arange of pa range of potential scenarios arising from the current macroeconomic uncertainty and how these have impacted the signiicficant judgements, estimates and assumptions in these ine financial statements is included under the relevant notes. In preparing the g the financial statements, we have considered the impact of climate change, particularly in the context of the risks identiintified in the TCFD disclosure on pages 66 to 80. Whilst we do not currently expect any material short and medium term risks from climate change under the scenarios we have considered, the risks over the long term are more uncertain. However, there have been no risks of climate change identiiefied which would have a material impact on the judgements andestid estimates made in preparation of these ise financial statements. These are short term (less than 5 years) which is the period over which we prepare detailed bottom up plans, medium term (5-15 years) which is the period over which our continued strategy to provide healthy air sustainability under our three strategic pillars will be delivered including specicific targets to reduce carbon, and long term (beyond 15 years) which is the period aligned to the useful economic life of some of our property assets and where the potential impacts under dierent scfferent scenarios are less certain. These dierent pdifferent periods have allowed us to assess risks and opportunities that are immediate and well deinfined to those which may arise over time but which are much less certain. Separately disclosed items The Group discloses some items on the face of the consolidated statement of comprehensive income by virtue of their nature, size or incidence to allow a better understanding of the underlying trading performance of the Group. These separately disclosed items include, but are not limited to, signiicficant restructuring costs and signignificant business combination and related integration andeand earn-out costs. New standards and interpretations The standards or interpretations listed below have become eece effective since 1 August 2022 for annual periods beginning on or after 1January 2021 January 2022. The following amendments became eee effective as at 1 January 2022: • Amendments to IFRS3 “Reference to the Conceptual Framework” • Amendments to IAS 16 “Property, plant and equipment – proceeds before intended use” • Amendments to IAS37 “Onerous Contracts – Costs of Fulosts of Fulfilling a Contract” • Amendments to IFRS 9 “Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of inn of financial liabilities” At the date of authorisation of these Consolidated Financial Statements, the Group has not applied the following new and revised IFRSSIFRS Standards that have been issued but are not yet eeut are not yet effective. The following amendments became eee effective as at 1 January 2023: • Amendments to IAS 12 “Deferred tax related to assets and liabilities arising from a single transaction” • Amendments to IAS 8 “Deiefinition of accounting estimates” • Amendments to IAS 1 and IFRS Practice Statement 2 – “Disclosure of accounting policies” The following amendments became eee effective as at 1 January 2024: • Amendments to IAS 1 “Classiicfication of liabilities as current or non-current” • Amendments to IFRS 16 “Lease liability in a sale and leaseback” • Amendments to IAS 1 “Non-current liabilities with covenants” • Amendments to IAS 7 “Supplier Finance Arrangements” The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Consolidated Financial Statements of the Group in future periods. Financial Statements Volution Group plc Annual Report 2023 184 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 2. Adjusted earnings The Board and key management personnel use some alternative performance measures to track and assess the underlying performance of the business. These measures include adjusted operating prorating profit and adjusted prosted profit before tax. These measures are deemed more helpful as they remove items that do not releot reflect the day-to-day trading operations of the business and therefore their exclusion is relevant to an assessment of the day-to-day trading operations, as opposed to overall annual business performance. Suchalternh alternative performance measures are not deefined terms under IFRS and may not be comparable with similar measures disclosed by other companies. Likewise, these measures are not a substitute for IFRS measures of proitrofit. A reconciliation of these measures of performance to the corresponding reported igted figure is shown below. 2023 £000 2022 £000 ProProfit after tax 37,382 35,672 Add back: Contingent consideration 640 (598) Cost of business combinations 1,032 215 Re-measurement of future consideration relating to the business combination of ClimaRad 1,879 955 Net gain on ain on financial instruments at fair value 1,599 (1,329) Amortisation and impairment of intangible assets acquired through business combinations 11,088 14,485 Tax eect of the aax effect of the above (2,788) (2,085) Adjusted prod profit after tax 50,832 47,315 Add back: Adjusted tax charge 14,225 13,627 Adjusted prod profit before tax 65,057 60,942 Add back: Interest payable on bank loans, lease liabilities and amortisation of ation of financing costs 4,914 3,369 Re-measurement of innt of financial liabilities relating to the business combination of ClimaRad (54) 583 Finance revenue (65) (4) Adjusted operating proitrating profit 69,852 64,890 Add back: Depreciation of property, plant and equipment 4,102 3,816 Depreciation of right-of-use assets 3,895 3,612 Amortisation of development costs, software and patents 1,486 1,541 Adjusted EBITDA 79,335 73,859 For deFor definitions of terms referred to above see note 34, Glossary of terms. Strategic Report Governance Report Financial Statements Additional Information 185 Volution Group plc Annual Report 2023 3. Revenue from contracts with customers Accounting policy Revenue from contracts with customers is recognised when the control of goods or services is transferred to the customer at an amount that reunt that reflects the consideration to which the Group expects to be entitled in exchange for those goods and services. The performance obligation is satisified upon delivery of the equipment and payment is generally due within 30 to 90 days from delivery. Sale of products Revenue from the sale of products is recognised at the point in time when control of the asset is transferred to the buyer, usually on the delivery of the goods. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g. warranties and volume rebates). In determining the transaction price for the sale of ventilation products, the Group considers the eee effects of variable consideration (if any). Volume rebates The Group provides retrospective volume rebates to certain customers once the quantity of products purchased during the period exceeds a threshold specicified in the contract. To estimate the variable consideration for the expected future rebates, the Group applies the expected value method for contracts with more than one volume threshold. The Group then applies therequthe requirements on constraining estimates of variable consideration and recognises a liability for the expected future rebates. Before including any amount of variable consideration in the transaction price, the Group considers whether the amount of variable consideration is constrained. The Group determined that the estimates of variable consideration are not constrained, other than with respect to volume rebates, based on its historical experience, business forecasts and the current economic conditions. In addition, the uncertainty on the variable consideration will be resolved within a short timeframe. Warranty obligations The Group typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Refer to the accounting policyon walicy on warranty provisions in note 24, Provisions. Installation services The Group provides installation services that are bundled together with the sale of equipment to a customer. Contracts for bundled sales of equipment and installation services are comprised of two performance obligations because the promises to transfer equipment and provide installation services are capable of being distinct and separately identientifiable. Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of the equipment and thecthe cost plus margin approach for installation services. The Group recognises revenue from installation services at a point in time after the service has been performed; this is because installation of the ventilation equipment is generally over a small timeframe, usually around one to two days. Revenue from the sale of the ventilation equipment is recognised at a point in time, generally upon delivery of the equipment. Contract balances Contract assets A contract asset is the right to consideration in exchange for goods and services transferred to the customer. A contract asset is recognised when the Group transfers goods or services to the customer before the customer pays consideration. There is no contract asset included within the statement of inaf financial position as revenue is recognised at a point in time, after installation. Consideration is recognised immediately as a receivable and is unconditional (only the passage of time is required before payment of consideration is due). The Group’s accounting policy on trade receivables is detailed in note 17. Contract liabilities There are no contract liabilities recognised in the comparative period or in the r in the financial year ended 31 July 2023. Estimates and assumptions Liabilities arising from retrospective volume rebates The Group has a number of customer rebate agreements that are recognised as a reduction from sales (collectively referred to as rebates). Rebates are based on an agreed percentage of revenue, which increases with the level of revenue achieved. These agreements typically are not coterminous with the Group’s year end and some of the amounts payable are subject to conct to confirmation after the reporting date, of the total rebates, approximately £3.6m is non-coterminous with the year end and is based on actual revenue recorded to 31 July 2023 however, in, final rebate % are dependent on estimated performance to December based on the bottoms up board approved budget and managements experience and knowledge of the customers. Estimates are made as to which % band each customer will fall into. At the reporting date, the Directors make estimates of the amount of rebate that will become payable by the Group under these agreements; to estimate the variable consideration for the expected future rebates, the Group applies the expected value method for contracts with more than one volume threshold. Where the respective customer has been engaged with the Group for a number of years, historical settlement trends are also used to assist in ensuring an appropriate estimate is recorded at the reporting date and that appropriate internal approvals and reviews take place before rebates are recorded. Given that the rebate provision represents an estimate within the ate within the financial statements, there is a risk that the Directors’ estimate ofthe pof the potential liability may be incorrect. However, the Directors do not consider it reasonably possible, at the balance sheet date, that this was a major source of estimation uncertainty that could have a signiinificant risk of resulting in a material adjustment to the liabilities recorded under the scope of paragraph 125 of IAS1. Financial Statements Volution Group plc Annual Report 2023 186 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 3. Revenue from contracts with customers continued Revenue recognised in the statement of comprehensive income is analysed below: 202 3 £000 2022 £000 Sale of goods 320,808 301,097 Installation services 7,2 0 0 6,604 Total revenue from contracts with customers 328,008 3 07,701 Market sectors 202 3 £000 2022 £000 UK Residential 89,680 75,040 Commercial 3 0,151 31,031 Export 12 ,119 11,670 OEM T (Torin-Sifan) 24,120 25,908 Total UK 156,070 143,649 Nordics 1 4 9,12 6 53,303 Central Europe 2 75,410 6 5,128 Total Continental Europe 124,536 118,431 Total Australasia 47,4 0 2 45,621 Total revenue from contracts with customers 328,008 3 07,701 Right of return assets and refund liabilities 202 3 £000 2022 £000 Right of return assets — — Refund liabilities Arising from retrospective volume rebates 9,15 3 9,427 Arising from rights of return 664 841 Refund liabilities 9,817 10,268 Notes 1. Included in the Nordics revenue is £nil of inorganic revenue from the business combination of Klimatfabriken and Rtek (2022: £3,514,000 of inorganic revenue from the business combination of Klimatfabriken and Rtek). 2. Included in the Central Europe revenue is £4,530,000 of inorganic revenue from the business combination of ERI, VMI and I-Vent (2022: £18,950,000 of inorganic revenue from the business combination ofCn of ClimaRad BV and ERI). 4. Segmental analysis Accounting policy The method of identifying reporting segments is based on internal management reporting information that is regularly reviewed by the chief operating decision maker, which is considered to be the Chief Executive Oifficer of the Group. In identifying its operating segments, management follows the Group’s market sectors. These are UK including OEM (Torin-Sifan), Continental Europe (Nordics and Central Europe) and Australasia. The measure of revenue reported to the chief operating decision maker to assess performance is total revenue for each operating segment. The measure of prosure of profit reported to the chief operating decision maker to assess performance is adjusted operating proit (see nrofit (see note 34 for deiefinition) for each operating segment. Gross proit anrofit and the analysis below segment proit rofit isadis additional voluntary information and not “segment information” prepared in accordance with IFRS 8. Finance revenue and costs are not allocated to individual operating segments as the underlying instruments are managed onaGon a Group basis. Total assets and liabilities are not disclosed as this information is not provided by operating segment to the chief operating decision maker on a regular basis. Transfer prices between operating segments are on an arm’s length basis on terms similar to transactions with third parties. Strategic Report Governance Report Financial Statements Additional Information 187 Volution Group plc Annual Report 2023 4. Segmental analysis continued Year ended July d 31 July 2023 UK £000 Continental Europe £000 Australasia £000 Central/ eliminations £000 Consolidated £000 Revenue from contracts with customers External customers 156,070 1 24,536 1 47,40 2 — 328,008 Inter-segment 24,908 38,779 188 (63,875) — Total revenue from contracts with customers 180,978 163,315 47,590 (63,875) 328,008 Gross proirofit 74,254 60,616 23,989 — 158,859 Results Adjusted segment EBITDA 39,562 31,707 12,568 (4,502) 79,335 Depreciation and amortisation of development costs, software and patents (4,277) (3,283) (1,239) (684) (9,483) Adjusted operating proitrating profit/los/(losss) 35,285 28,424 11,329 (5,18 6) 69,852 Amortisation of intangible assets acquired through business combinations (7,16 3) (3,338) (587) — (11,088) Business combination-related operating costs — — — (1,672) (1,672) Operating prorating profit/losit/(losss) 28,12 2 25,086 10,742 (6,858) 57,092 Unallocated expenses Net Net finance cost — — (90) (6,358) (6,448) Re-measurement of future consideration — — — (1,879) (1,879) Re-measurement of inanc financial liability — — — 54 54 ProProfit/lit/(loss before ts) before tax 28,12 2 25,086 10,652 (15,041) 48,819 Year ended July d 31 July 2022 UK £000 Continental Europe £000 Australasia £000 Central/ eliminations £000 Consolidated £000 Revenue from contracts with customers External customers 143,649 118,431 1 45,621 — 3 07,70 1 Inter-segment 20,318 30,038 179 (50,535) — Total revenue from contracts with customers 163,967 148,469 45,800 (50,535) 3 07,701 Gross proirofit 62,397 61,984 22,456 — 146,837 Results Adjusted segment EBITDA 33,052 32,810 11,236 (3,239) 73,859 Depreciation and amortisation of development costs, software and patents (3,799) (3,201) (1,292) (677) (8,969) Adjusted operating proitrating profit/los/(losss) 29,253 29,609 9,944 (3,916) 64,890 Amortisation of intangible assets acquired through business combinations (6,978) (6,365) (1,142) — (14,485) Business combination-related operating costs — — — 383 383 Operating prorating profit/losit/(losss) 22,275 23,244 8,802 (3,533) 50,788 Unallocated expenses Net Net finance cost — — 99 (2,13 5) (2,036) Re-measurement of future consideration — — — (955) (955) Re-measurement of inanc financial liability — — — (583) (583) ProProfit/lit/(loss before ts) before tax 22,275 23,244 8,901 (7,20 6) 47,214 Note 1. Included in the Continental Europe revenue is £4,530,000 of inorganic revenue from the business combination of ERI, VMI and I-Vent (2022: £22,464,00000 of inorganic revenue from the business combination of ClimaRad BV, Klimatfabriken, Rtek and ERI). Financial Statements Volution Group plc Annual Report 2023 188 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 4. Segmental analysis continued Geographic information Revenue from external customers by customer destination 202 3 £000 2022 £000 United Kingdom 132,507 119,371 Europe exEurope (excluding United Kingdom and Swedenn) 119,289 112,886 Sweden 23,328 24,431 Australasia 47,6 6 8 45,780 Rest of the world 5,216 5,233 Total revenue from contracts with customers 328,008 3 07,701 Non-current assets excluding deferred tax 202 3 £000 2022 £000 United Kingdom 121,458 117,70 4 Europe exEurope (excluding United Kingdom and Nordicss) 106,502 79,408 Nordics 33,901 35,930 Australasia 46,225 49,013 Total 308,086 282,055 Information about major customers Annual revenue from no individual customer accounts for more than 10% of Group revenue in either the current or prior year. 5. Finance revenue and costs Accounting policy Finance revenue Finance revenue is recognised as interest accrues using the eective interest mffective interest method. The eehe effective interest rate is the rate that discounts estimated future cash receipts through the expected life of the cted life of the financial instrument to its net carrying amount. Net Net financing costs Net Net financing costs comprise interest income on funds invested, gains/losses on the disposal of inl of financial instruments, changes in the fair value of lue of financial instruments, interest expense on borrowings and foreign exchange gains/losses. Interest income andexpand expense is recognised as it accrues in the statement of comprehensive income using the eective intereffective interest method. 202 3 £000 2022 £000 Finance revenue Net gain on ain on financial instruments at fair value — 1,329 Interest receivable 65 4 Total al finance revenue 65 1,333 Finance costs Net loss on s on financial instruments at fair value (1,599) — Interest payable on bank loans (3,087) (1,828) Amortisation of ion of finance costs (452) (442) Lease interest (635) (520) Other interest (740) (579) Total inance finance costs (6,513) (3,369) Net iNet finance costs (6,448) (2,036) The net loss or gain on inn financial instruments at each year-end date relates to the measurement of fair value of the e of the financial derivatives and the Group recognises any es any finance losses or gains immediately within net int finance costs. The fair value of the Group’s inae Group’s financial derivatives can be found in note 22. Strategic Report Governance Report Financial Statements Additional Information 189 Volution Group plc Annual Report 2023 6. Sta c6. Staff costs Accounting policy Pensions Contributions to deins to defined contribution schemes are recognised in the statement of comprehensive income in the period they become payable. The cost charged to the statement of comprehensive income of providing retirement pensions for employees represents the amounts paid by the Group to various deefined contribution pension schemes operated by the Group in the roup in the financial period. Sta costsStaff costs 202 3 £000 2022 £000 Wages and salaries 64,858 60,439 Social security costs 7,210 6,825 Other pension costs 2,625 2,442 Share-based payment charge see note rge (see note 32) 1,357 1,115 76,050 70,821 Other pension costs relate to the Group’s contribution to den to defined contribution pension plans. Total contributions payable in the next infinancial year are expected to be at rates broadly similar to those in 2022/23 but based on actual salary levels in 2023/24. Average monthly number of employees in the year 202 3 Number 2022 Number Production 1,10 0 1,126 Sales and administration 771 772 1,871 1,898 Directors’ remuneration 202 3 £000 2022 £000 Amounts paid in respect of qualifying services Aggregate Directors’ remuneration 3,748 3,497 Aggregate Directors’ pension scheme contributions 59 72 In respect of the highest paid Director Aggregate Director’s remuneration 2,298 2,14 8 Aggregate Director’s pension scheme contributions 48 55 The number of Directors accruing beneefits under Group money purchase pension arrangements was £nil (2022: £nil). The Group also incurred fees and expenses of £400,000 (2022: £367,000) in respect of Paul Hollingworth, Tony Reading, Claire Tiney, Amanda Mellor, Nigel Lingwood, Margaret Amos and Jonathan Davis for their services as Non-Executive Directors. Financial Statements Volution Group plc Annual Report 2023 190 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 7. Other operating expenses Accounting policy The Group’s research and development concentrates on the development of new products. Research and development costs that arenot ethat are not eligible for capitalisation have been expensed in the period incurred and are disclosed in the table below. Cost of sales, distribution costs and administrative expenses include the following: 2023 £000 2022 £000 Cost of sales Costs of inventories recognised as expenses 131,227 125,836 Depreciation of property, plant and equipment 2,311 1,696 Depreciation of right-of-use assets 2,507 2,081 Amortisation and impairment of intangible assets 254 375 Administrative and distribution expenses Research and development costs 4,485 4,481 Depreciation of property, plant and equipment 1,791 2,120 Depreciation of right-of-use assets 1,388 1,531 Amortisation and impairment of intangible assets 12,320 15,651 Net foreign exchange diee differences (190) (695) Gain on disposal of property, plant and equipment, and intangible assets – other (17) (51) 8. Auditor’s remuneration The Group paid the following amounts to its auditor, Ernst & Young LLP, and its member er firms in respect of the audit of the dit of the financial statements and for other services provided to the Group: 202 3 £000 2022 £000 Audit services Fees for the audit of the parent and Group d Group financial statements 332 310 Fees for local statutory audits of subsidiaries 488 423 Non-audit services Fees payable for interim review 99 95 Total 919 828 Strategic Report Governance Report Financial Statements Additional Information 191 Volution Group plc Annual Report 2023 9. Income tax Accounting policy Current income tax assets and liabilities are measured at the amount expected to be recovered from, or payable to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted at the reporting date. The Group’s deferred tax policy can be found in note 26. (a) Income tax charges against prost profit for the year 202 3 £000 2022 £000 Current income tax Current UK income tax expense 4,694 4,897 Current foreign income tax expense 8,887 9,075 Tax credit relating to the prior year (638) (673) Total current tax 12,943 13,299 Deferred tax Origination and reversal of temporary dierenifferences (2,023) (2,851) Eect of chEffect of changes in the tax rate (223) 200 Tax charge relating to the prior year 740 894 Total deferred tax (1,506) (1,757) Net tax charge reported in the consolidated statement of comprehensive income 11,437 11,542 (b) Income tax recognised in equity for the year 202 3 £000 2022 £000 Increase in deferred tax asset on share-based payments (343) (685) Net tax credit reported in equity (343) (685) (c) Reconciliation of total tax 202 3 £000 2022 £000 Proit bProfit before tax 48,819 47,214 Proit bProfit before tax multiplied by the standard rate of corporation tax in the UK of K of 21 : .00% (2022: 19.00%) 10,252 8,971 Adjustment in respect of previous years 102 221 Expenses not deductible for tax purposes 1,473 1,161 Eect of chEffect of changes in the tax rate see exphe tax rate (see explanation belowow) (164) 200 Non-taxable income — (391) Higher overseas tax rate 184 1,602 Patent box (410) (330) Other — 108 Net tax charge reported in the consolidated statement of comprehensive income 11,437 11,542 Our reported eective taffective tax rate for the period was 23.4% (2022: 24.4%). Our underlying eeing effective tax rate, on adjusted proisted profit before tax, was 21.9% (2022: 22.4%). On 24 May 2021, legislation was passed which substantively enacted an increase in UK corporation tax rate from 19% to 25% from April2April 2023. Deferred tax on the balance sheet at 31 July 2023 was therefore measured at 25%. The higher overseas tax rates relate to the Group’s proits from sax rates relate to the Group’s profits from subsidiaries which are subject to tax jurisdictions with a higher rate oftax cof tax compared to the standard rate of corporation tax in the UK (see note 30 for subsidiary locations). We expect our medium-term reported eectid effective tax rate to be in the range of 29% to 35% of the Group’s reported proted profit before tax andoand our underlying eective taffective tax rate to be in the range of 22% to 25% of the Group’s adjusted proit brofit before tax. Financial Statements Volution Group plc Annual Report 2023 192 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 10. Earnings per share (EPS) Basic earnings per share is calculated by dividing the prog the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net proit atrofit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are 3,365,875 dilutive potential ordinary shares at 31 July 2023 (2022: 2,966,484). The following reowing reflects the income and share data used in the basic and diluted earnings per share computations: Year ended Julyd 31 July 202 3 £000 2022 £000 Proit atProfit attributable to ordinary equity holders 37,382 35,672 Number Number Weighted average number of ordinary shares for basic earnings per share 197,131, 6 5 0 197,52 2 ,14 3 Eect of dilEffect of dilution from: Share options 2,658,209 2,525,713 Weighted average number of ordinary shares for diluted earnings per share 199,789,859 20 0,0 47,8 5 6 Earnings per share Basic 19.0p 18.1p Diluted 18p.7p 17.8 p Year ended Julyd 31 July 202 3 £000 2022 £000 Adjusted proit atted profit attributable to ordinary equity holders 50,832 47,315 Number Number Weighted average number of ordinary shares for adjusted basic earnings per share 197,131, 6 5 0 197,52 2 ,14 3 Eect of dilEffect of dilution from: Share options 2,658,209 2,525,713 Weighted average number of ordinary shares for adjusted diluted earnings per share 199,789,859 20 0,0 47,8 5 6 Adjusted earnings per share Basic 25.8p 24.0p Diluted 25.4p 23.7p The weighted average number of ordinary shares has declined as a result of treasury shares held by the Volution Employee Benenefit Trust (EBT) during the year (see note 25 for details). The shares are excluded when calculating the reported and adjusted EPS. Adjusted proit atted profit attributable to ordinary equity holders has been reconciled in note 2, Adjusted earnings. See note 34, Glossary of terms, for an explanation of the adjusted basic and diluted earnings per share calculation. 11. Property, plant and equipment Accounting policy Property, plant and equipment is stated at cost, net of accumulated depreciation and impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment; when signiiificant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with speciic ufic useful lives and depreciates them accordingly. All other repair and maintenance costs are recognised in the statement of comprehensive income as incurred. Depreciation is charged so as to write o the co as to write off the cost or valuation of assets, except freehold land, over their estimated useful lives using the straight line method. The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the eect of affect of any changes in estimates accounted for on a prospective basis. The following useful lives are used in the calculation of depreciation: Buildings – 30–50 years Plant and machinery – 5–10 years Fixtures, tures, fittings, tools, equipment and vehicles – 4–10 years The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the diee difference between the disposal proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income as part of administrative expenses. The Group’s impairment policy can be found in note 13. Strategic Report Governance Report Financial Statements Additional Information 193 Volution Group plc Annual Report 2023 11. Property, plant and equipment continued 2023 Freehold land and buildings £000 Plant and machinery £000 Fixtures, ittings, tools,fittings, tools, equipment and vehicles £000 Total £000 Cost At August At 1 August 2022 17,480 17,0 22 12,923 47, 425 On business combinations — 514 — 514 Additions 486 2 ,110 2,318 4,914 Disposals (18) (185) (655) (858) Net foreign currency exchange diee differences 61 (21) (506) (466) At July At 31 July 2023 18,009 19,440 14,080 51,529 Depreciation At August At 1 August 2022 5,011 6,493 7,68 6 19,190 Charge for the year 527 1,619 1,956 4,10 2 Disposals (56) (129) (524) (709) Net foreign currency exchange diee differences (46) (124) (332) (502) At July At 31 July 2023 5,436 7,859 8,786 22,081 Net book value At July At 31 July 2023 12,573 11,581 5,294 29,448 2022 Freehold land and buildings £000 Plant and machinery £000 Fixtures, ittings, tfittings, tools, equipment and vehicles £000 Total £000 Cost At August At 1 August 2021 15,370 13,840 11,544 40,754 On business combinations 2,046 1,739 92 3,877 Additions 341 2,237 2,19 5 4,773 Disposals — (531) (812) (1,343) Net foreign currency exchange diee differences (277) (263) (96) (636) At At 3 July 1 July 2022 17,4 8 0 17,022 12,923 47,425 Depreciation At August At 1 August 2021 4,542 5,795 6,509 16,846 Charge for the year 517 1,339 1,960 3,816 Disposals — (523) (709) (1,232) Net foreign currency exchange diee differences (48) (118) (74) (240) At At 3 July 1 July 2022 5,011 6,493 7,6 8 6 19,190 Net book value At At 3 July 1 July 2022 12,469 10,529 5,237 28,235 Financial Statements Volution Group plc Annual Report 2023 194 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 12. Intangible assets – goodwill Accounting policy Goodwill Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units that are expected to beneefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units. Goodwill is reviewed for impairment annually or more frequently if there is an indication of impairment. Impairment of goodwill is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying value of the cash generating unit to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. See note 13 for the Group’s impairment assessment. Goodwill £000 Cost and net book value At August At 1 August 2021 137,710 On the business combination of ERI 5,13 4 Net foreign currency exchange diee differences (183) At At 3 July 1 July 2022 142,661 On the business combination of VMI 4,072 On the business combination of I-Vent 19,813 On the business combination of ClimaRad 126 Net foreign currency exchange diee differences (1,799) At July At 31 July 2023 164,873 13. Impairment assessment of goodwill Accounting policy Intangible assets, including goodwill, that have an indeinite usfinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, where the recoverable amount is the higher of the asset’s fair value less costs of disposal and value in use. Goodwill acquired through business combinations has been allocated, for impairment testing purposes, to a group of cash generating units (CGUs). These grouped CGUs are: UK Ventilation, Central Europe, Nordics, Australasia and OEM. This is also the level at which management is monitoring the value of goodwill for internal management purposes. Judgements and estimates Impairment of goodwill The Group’s impairment test for goodwill is based on a value in use calculation using a discounted cash low mh flow model. The test aimsto enaims to ensure that goodwill is not carried at a value greater than the recoverable amount, which is considered to be the higher offair valuof fair value less costs of disposal and value in use. The identiicntification of the Group’s cash generating units (CGUs) used for impairment testing is considered a critical judgement within the scope of paragraph 122 of IAS1. Management has reviewed the Group’s assets and cash inh inflows and identientified the lowest aggregation of assets that generate largely independent cash inlnflows. The cash lowh flows are derived from the business plan for the following three years. The recoverable amount is very sensitive to the discount rate used for the discounted cash ash flow model as well as assumptions and estimates of expected future cash lowh flows and the growth rate used for extrapolation purposes. The current economic and political uncertainty has increased the level of estimation uncertainty as the impact on countries and markets continues to be uncertain; however, the Group has modelled a range of scenarios to consider the impact on the carrying value of its assets as described in the going concern statement in the risk management and principal risks section. We have tested the sensitivity of our headroom calculations in relation to the above assumptions and estimates and the Group does not consider that changes in these assumptions that could cause the carrying value of the CGUs to materially exceed their recoverable value are reasonably possible, and hence are not major sources of estimation uncertainties under the scope of paragraph 125 of IAS1. Strategic Report Governance Report Financial Statements Additional Information 195 Volution Group plc Annual Report 2023 13. Impairment assessment of goodwill continued July 31 July 2023 UK Ventilation £000 OEM Tor(Torin-Sifan in-Sifan) £000 Nordics £000 Central Europe £000 Australasia £000 Carrying value of goodwill 55,899 5,10 1 18,637 6 3 ,10 9 25,673 CGU value in use headroom 1 166,576 12,382 47,383 28,396 27,73 0 As at 31 July 2022 calculated headroom was: July 31 July 2022 UK Ventilation £000 OEM Torin-(Torin-Sifan fan) £000 Nordics £000 Central Europe £000 Australasia £000 Carrying value of goodwill 55,899 5,10 1 19,022 3 5,16 5 27,474 CGU value in use headroom 1 152,066 21,821 71,987 61,517 32,446 Note 1. Headroom is calculated by comparing the value in use (VIU) of a group of CGUs to the carrying amount of its asset, which includes the net book value of ie of fixed assets (tangible and intangible), goodwill and operating working capital (current assets and liabilities). Impairment review Under IAS 36 Impairment of Assets, the Group is required to complete a full impairment review of goodwill, which has been performed using a value in use calculation. A discounted cash sh flow (DCF) model was used, taking a period of ive yead of five years, which has been established using pre-tax discount rates of 13.8% to 16.8% (2022: 12.1% to 15.7%) over that period. In all CGUs it was concluded that the carrying amount was in excess of the value in use and all CGUs had positive headroom. When assessing for impairment of goodwill, we have considered the impact of climate change, particularly in the context of the risks and opportunities identiintified in the TCFD disclosure in the Annual Report. We have not identintified any material short and medium-term impacts from climate change that would impact the carrying value of goodwill. Over the long term, the risks and opportunities are more uncertain and we will continue to assess these risks at each reporting period. Assumptions in the value in use calculation The calculation of value in use for all CGUs is most sensitive to the following assumptions: • speciic gific growth rates have been used for each of the CGUs for the ivee five-year forecast period based on historical growth rates andmand market expectations; • long-term growth rates of 2% (2022: 2%) for all CGUs have been applied to the period beyond which budgets and forecasts do notexistnot exist, based on historical macroeconomic performance and projections for the geographies in which the CGUs operate; and • discount rates relent rates reflect the current market assessment of the risks speciic to eafic to each operation. The pre-tax discount rates used for each CGU are: UK Ventilation: 14.2% (2022: 13.0%); OEM (Torin-Sifan): 15.4% (2022: 14.0%); Nordics: 13.8% (2022: 12.1%); Central Europe: 14.4% (2022: 12.2%); and Australasia: 16.8% (2022: 15.7%). The value in use headroom for each CGU has been set out above. We have tested the sensitivity of our headroom calculations in relation to the above assumptions and the Group does not consider that changes in these assumptions that could cause the carrying value of the CGUs to materially exceed their recoverable value are reasonably possible. Financial Statements Volution Group plc Annual Report 2023 196 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 14. Intangible assets – other Accounting policy Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identiiefied and recognised separately from goodwill where they satisfy the deinfinition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the business combination date. The fair value of patents, trademarks and customer base acquired and recognised as part of a business combination is determined using the relief-from-royalty method or multi-period excess earnings method. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Research and development Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an intangible asset when the Company can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete and its ability to use or sell the asset; how the asset will generate future economic beneits; thfits; the availability of resources to complete the asset; and the ability to reliably measure the expenditure during development. Subsequent measurement of intangible assets Intangible assets with a ts with a finite life are amortised on a straight line basis over their estimated useful lives as follows: Development costs – 10 years Software costs – 5–10 years Customer base – 5–15 years Trademarks – 15–25 years Patents/technology – 5–25 years Other – 5 years The estimated useful life and amortisation methods are reviewed at the end of each reporting period, with the eect oe effect of any changes in estimate being accounted for on a prospective basis. Judgements and estimates Impairment of other intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its other intangible assets to determine whether there is any indication that those assets have suered an iave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isesis estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identiintified, corporate assets are also allocated to individual cash generating units, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be identintified. The identiintification of the Group’s cash generating units (CGUs) used for impairment testing is considered a critical judgement within the scope of paragraph 122 ofIAS1of IAS1. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash sh flows are discounted to their present value using a pre-tax discount rate that relent rate that reflects current market assessments of the time value of money and the risks speciic to the afic to the asset for which the estimates of future cash ash flows have not been adjusted. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognised in the statement of comprehensive income. The assumptions and sensitivities in respect of the Group’s other intangible assets are included in note 13, and are not considered major sources of estimation uncertainties under the scope of paragraph 125 of IAS1. Strategic Report Governance Report Financial Statements Additional Information 197 Volution Group plc Annual Report 2023 14. Intangible assets – other continued 2023 Development costs £000 Software costs £000 Customer base £000 Trademarks £000 Patents/ technology £000 Other £000 Total £000 Cost At August At 1 August 2022 7,9 5 6 9,835 160,014 5 4,10 5 3,364 1,16 3 236,437 Additions 2,310 568 171 — — — 3,049 On business combinations 2,466 1 1,175 1,626 — — 5,268 Disposals — (50) — — — — (50) Net foreign currency exchange dierenceschange differences — (77) (519) (471) 53 — (1,014) At July At 31 July 2023 12,732 10,277 160,841 55,260 3,417 1,16 3 243,690 Amortisation At August At 1 August 2022 2,601 6,282 114,12 0 22,678 2,001 1,16 3 148,845 Charge for the year 702 1,080 5,507 5,037 248 — 12,574 Disposals — (41) — — — — (41) Net foreign currency exchange dierenceschange differences (37) (163) (698) (583) (70) — (1,551) At July At 31 July 2023 3,266 7,15 8 118,929 27,132 2,179 1,16 3 159,827 Net book value At July At 31 July 2023 9,466 3,119 41,912 28,128 1,238 — 83,863 Included in software costs are assets under construction of £54,000 (2022: £48,000), which are not amortised. Included in development costs are assets under construction of £1,505,000 (2022: £1,501,000), which are not amortised. 2022 Development costs £000 Software costs £000 Customer base £000 Trademarks £000 Patents/ technology £000 Other £000 Total £000 Cost At August At 1 August 2021 6,783 9,698 147,582 51,447 3,410 1,16 3 220,083 Additions 1,245 238 755 — — — 2,238 On business combinations 6 39 12,957 2,933 19 — 15,954 Disposals (25) (122) — — — — (147) Net foreign currency exchange dierenceschange differences (53) (18) (1,280) (275) (65) — (1,691) At July At 31 July 2022 7,9 5 6 9,835 160,014 5 4,10 5 3,364 1,16 3 236,437 Amortisation At August At 1 August 2021 2,039 5,503 106,202 18,127 1,676 1,16 3 134,710 Charge for the year 620 932 9,207 4,868 399 — 16,026 Disposals (8) (122) — — — — (130) Net foreign currency exchange dierenceschange differences (50) (31) (1,289) (317) (74) — (1,761) At July At 31 July 2022 2,601 6,282 114 ,12 0 22,678 2,001 1,16 3 148,845 Net book value At July At 31 July 2022 5,355 3,553 45,894 31,427 1,363 — 87,592 Financial Statements Volution Group plc Annual Report 2023 198 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 14. Intangible assets – other continued The remaining amortisation periods for acquired intangible assets at 31 July 2023 are as follows: Customer base Trademark Patent/ technology/ other Volution Holdings Limited and its subsidiaries ye1 year 15 years — Fresh AB and its subsidiaries — 10 years — PAX AB and PAX Norge AS — 11 years — inVENTer GmbH ye1 year 12 years 12 years Ventilair Group International BVBA and its subsidiaries ye1 year 3 years — Energy Technique Limited and its subsidiaries ye2 years 14 years — NVA Services Limited and its subsidiaries yea4 years yea9 years — Breathing Buildings Limited ye4 years yea9 years — VoltAir System AB 10 years 10 years — Simx Limited 11 years ye21 years — Oy Pamon Ab ye6 years 16 years ye6 years Air Connection ApS ye6 years — — Nordic Line ApS — — — Ventair Pty Limited ye8 years 18 years — ClimaRad BV ye7 years 14 years — Nordiska Klimatfabriken AB ye4 years yea9 years — Energent Oy ye4 years yea9 years — ERI ye9 years 19 years — VMI ye8 years 10 years ye5 years I-Vent — 2 yea0 years — Individually material intangible assets with deth definite useful lives: Carrying amount 202 3 £000 Remaining amortisation period 202 3 Years Customer base Simx Limited 6,10 2 11 years ClimaRad BV 10,462 ye7 years ERI 10,517 ye9 years Trademark Volution Holdings Limited and its subsidiaries 16,885 15 years ClimaRad BV 2,671 14 years ERI 2,663 ye19 years Strategic Report Governance Report Financial Statements Additional Information 199 Volution Group plc Annual Report 2023 15. Business combinations Accounting policy Business combinations are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the consideration transferred, measured at fair value on the date of the business combination. The business combination costs incurred are expensed. When the Group acquires a business it assesses the ine financial assets and liabilities assumed for appropriate classiiification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the business combination date. Contingent consideration resulting from business combinations is accounted for at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the deiefinition of a inn of a financial liability, it is subsequently re-measured to fair value at each reporting date, with changes in fair value recognised in proit orofit or loss. The determination of fair value is based on discounted cash lowsh flows. The key estimates and assumptions used in determining the discounted cash lowh flows take into consideration the probability of meeting each performance target and a discount factor. The Group did not consider it reasonably possible, at the balance sheet date, that this was a major source of estimation uncertainty that could have a signiicficant risk of resulting in a material adjustment to the liabilities recorded and hence is not within the scope of paragraph 125 of IAS 1. Goodwill is initially recognised at cost, being the excess of the aggregate of the consideration transferred over the net identiiafiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units (CGUs) that are expected to beneit from thfit from the combination, irrespective of whether assets or liabilities of the business combination are assigned to those units. Non-controlling interests are identientified separately from the Group’s equity. Non-controlling interests consist of the amount of those interests at the date of the business combination and the non-controlling interest’s share of changes in equity since that date. Non-controlling interests are measured at the non-controlling interest’s share of the fair value of the identientifiable net assets. Where there is an obligation to purchase the non-controlling interest at a future date, the non-controlling interest will be recognised on the business combination, and subsequently when the obligation to purchase liability is recognised the amount is reclassisified from equity to a inany to a financial liability and the non-controlling interest is derecognised. Any dieren. Any difference between the carrying value of the non-controlling interest and the liability is adjusted against retained earnings. The The financial liability for the non-controlling interest is subsequently accounted for under IFRS 9, with all changes in the carrying amount, including the non-controlling interest share of proit, recre of profit, recognised as a re-measurement in the income statement. When the obligation or “put liability” is exercised, the carrying amount of the ine financial liability at that date is extinguished by the payment of the exercise price. Business combinations in the year ended 31 July 2023 VMI On 4 April 2023, Volution Group plc acquired the entire share capital of Ventilairsec (VMI), a company based in Nantes, France. VMI designs and manufactures a range of residential ventilation systems focused on a low carbon positive input ventilation technology known as “VMI”. The acquisition provides Volution with direct access to the French market, one of the largest ventilation markets in Europe. The acquisition of VMI is in line with the Group’s strategy to grow by selectively acquiring value-adding businesses in new and existing markets and geographies. Total consideration for the purchase of the entire issued share capital was £7.9 million (€9.0 million), net of cash acquired, with a further contingent cash consideration of up to €5 million. Contingent consideration was assessed based on the current estimate of the future performance of the business for the year ended 31 December 2023 as £nil, with a range from €0–€5,000,000, based on EBITDA performance from €1,600,000 to €3,000,000 for year ended 31 December 2023. If actual EBITDA for the year ended 31D31 December 2023 varies by 10% from the estimate, the contingent consideration would vary by approximately £600,000. The fair value of contingent consideration is calculated by estimating the future cash sh flows for the company based on management’s knowledge of the business and how the current economic environment is likely to impact performance. Transaction costs relating to professional fees associated with the business combination in the year ended 31 July 2023 were £532,000 and have been expensed as cost of business combinations separately disclosed on the face of the consolidated statement of comprehensive income above operating proit.rofit. Financial Statements Volution Group plc Annual Report 2023 200 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 15. Business combinations continued Business combinations in the year ended 31 July 2023 continued VMI continued The fair value of the net assets acquired is set out below: Book value £000 Fair value adjustments £000 Fair value £000 Intangible assets 1,217 2,369 3,586 Property, plant and equipment 224 — 224 Inventory 1,180 — 1,18 0 Trade and other receivables 1,445 — 1,445 Trade and other payables (1,314) 213 (1,10 1) Debt (894) — (894) Deferred tax liabilities — (592) (592) Cash and cash equivalents 1,371 — 1,371 Total identiiafiable net assets 3,229 1,990 5,219 Goodwill on the business combination 4,072 Discharged by: Cash consideration 9,291 Goodwill of £4,072,000 rele0 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the value of expected synergies arising from the business combination and the experience and skill of theacthe acquired workforce. The fair value of the acquired trade name and customer base was identintified and included in intangible assets. The gross amount of trade and other receivables is £1,445,000. The amounts for trade and other receivables not expected to be collected are £nil. VMI generated revenue of £2,057,000 and proid profit after tax of £71,000 in the period from the business combination to 31 July 2023 that are included in the consolidated statement of comprehensive income for this reporting period. If the combination had taken place at 1 August 2022, the Group’s revenue would have been £8,272,000 higher and the proit afrofit after taxfrom ctax from continuing operations would have been £796,000 higher than reported. I-Vent On 22 June 2023, Volution Group plc acquired the entire share capital of I-Vent, a company based in Slovenia and Croatia. I-VentdesI-Vent designs, manufactures and supplies residential ventilation systems, primarily focused on decentralised heat recovery. The acquisition of I-Vent is in line with the Group’s strategy to grow by selectively acquiring value-adding businesses in new and existing markets and geographies Total consideration for the purchase of the entire issued share capital was £21.7 million (€25.2 million), net of cash acquired, with a further contingent cash consideration of up to €15.0milli5.0 million. Contingent consideration was assessed based on the current estimate of the future performance of the business as £nil, with a range and performance thresholds for each of 3 years of; year 1 range from €0 - €3,000,000, based on EBITDA performance from €3,600,000 to €4,080,000 for year ended 31/12/23, year 2 range from €0 - €5,000,000, based on EBITDA performance from €4,080,000 to €5,280,000 for year ended 31/12/24, and year 3 range from €0 - €7,000,000, based on EBITDA performance from €5,280,000 to €7,5000,000 for year ended 31/12/25. If actual EBITDA for each year varies by 10% from the estimate, the contingent consideration would vary by approximately £3,000,000. The fair value of contingent consideration is calculated by estimating the future cash lsh flows for the company based on management’s knowledge of the business and how the current economic environment is likely to impact performance. Transaction costs relating to professional fees associated with the business combination in the year ended 31 July 2023 were £98,000 and have been expensed as cost of business combinations separately disclosed on the face of the consolidated statement of comprehensive income above operating proit.rofit. Strategic Report Governance Report Financial Statements Additional Information 201 Volution Group plc Annual Report 2023 15. Business combinations continued Business combinations in the year ended 31 July 2023 continued I-Vent continued The fair value of the net assets acquired is set out below: Book value £000 Fair value adjustments £000 Fair value £000 Intangible assets 55 1,626 1,681 Property, plant and equipment 290 — 290 Inventory 959 — 959 Trade and other receivables 290 — 290 Trade and other payables (1,011) — (1,011) Deferred tax liabilities — (372) (372) Cash and cash equivalents 3,099 — 3,099 Total identiiafiable net assets 3,682 1,254 4,936 Goodwill on the business combination 19,813 Discharged by: Cash consideration 24,749 Goodwill of £19,813,000 rele0 reflects certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the value of expected synergies arising from the business combination, the experience and skill of the acquired workforce, and from the access to this important and growing market that the acquisition allows. The fair value of the acquired trade name and customer base was identientified and included in intangible assets. The gross amount of trade and other receivables is £290,000. The amounts for trade and other receivables not expected to be collected are £nil. I-Vent generated revenue of £621,000 and proit afrofit after tax of £31,000 in the period from the business combination to 31 July 2023 that are included in the consolidated statement of comprehensive income for this reporting period. If the combination had taken place at 1 August 2022, the Group’s revenue would have been £8,143,000 higher and the proit afe profit after taxfrom ctax from continuing operations would have been £2,198,000 higher than reported. Business combinations in the year ended 31 July 2022 ERI On 9 September 2021, Volution Group acquired ERI Corporation, a leading manufacturer and supplier of low-carbon, energy eirgy efficient heat exchanger cells, for an initial consideration of €20.0 million with a further contingent cash consideration of up to €12.4 million based on stretching targets for the ine financial results for the year ending 31 December 2024. The acquisition of ERI Corporation is in line with the Group’s strategy to grow by selectively acquiring value-adding businesses in new and existing markets and geographies. ERI designs and manufactures a range of innovative and highly ely efficient aluminium heat exchanger cells for use primarily in commercial heat recovery ventilation systems. Products are manufactured in ERI’s modern, high quality production facility in Bitola, North Macedonia, and are supplied to heat recovery and air handling unit manufacturers predominantly in Europe, including existing Volution Group companies. The business combination encompasses 100% of the issued share capital of ERI Corporation DOO Bitola (North Macedonia), ERI Corporation S.R.L. (Italy) and Energy Recovery Industries Trading SLU (Spain) and 51% of the issued share capital of Energy Recovery Industries Corporation Ltd (UK). For the in). For the financial year ended 31 December 2020, ERI generated revenue of€11.of €11.3 million and prond profit before tax of €2.0 million. Financial Statements Volution Group plc Annual Report 2023 202 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 15. Business combinations continued Business combinations in the year ended 31 July 2022 continued ERI continued The fair value of the net assets acquired were as follows: Book value £000 Fair value adjustments £000 Fair value £000 Intangible assets 418 15,536 15,954 Property, plant and equipment 3,13 0 747 3,877 Inventory 2,276 — 2,276 Trade and other receivables 3,626 — 3,626 Trade and other payables (2,343) — (2,343) Deferred tax liabilities — (1,589) (1,589) Bank debt (3,227) — (3,227) Cash and cash equivalents 896 — 896 Total identiiafiable net assets 4,776 14,694 19,470 Non-controlling interest in ERI UK (34) Goodwill on the business combination 5,13 4 Discharged by: Cash consideration on (including deferred cash consideration) 16,892 Contingent consideration 7,678 Goodwill of £5,134,000 rel0 reflects certain intangibles that cannot be individually separated and reliably measured due to their nature. These items include the value of expected synergies arising from the business combination and the experience and skill of the acquired workforce. The fair value of the acquired trademark and customer base was identiintified and included in intangible assets. The gross amount of trade and other receivables is £3,626,000. All of the trade receivables are expected to be collected in full. Transaction costs relating to professional fees associated with the business combination in the period ended 31 July 2022 were£126were £126,000 and have been expensed as cost of business combinations separately disclosed on the face of the consolidated statement of comprehensive income above operating proitg profit. ERI generated revenue of £15,215,000 and proit afd profit after tax of £2,642,000 in the period from acquisition to 31 July 2022 that are included in the consolidated statement of comprehensive income for this reporting period. If the combination had taken place at1Auce at 1 August 2021, the Group’s revenue would have been £309,231,000 and the proit be profit before tax from continuing operations would have been £47,559,000. Cash outtflows arising from business combinations are as follows: 2023 £000 2022 £000 VMI Cash consideration 9,291 — Less: cash acquired with the business (1,371) — I-Vent Cash consideration 24,749 — Less: cash acquired with the business (3,099) — ClimaRad Cash consideration 1 126 — ERI Cash consideration — 16,892 Less: cash acquired with the business — (896) Ventair Deferred cash consideration paid — 4,16 3 Air Connection Deferred cash consideration paid — 476 Total 29,696 20,635 Note: 1. During the year Volution Group plc purchased a small proportion of shares holding of ClimaRad for £126,000. Strategic Report Governance Report Financial Statements Additional Information 203 Volution Group plc Annual Report 2023 15. Business combinations continued Business combinations in the year ended 31 July 2022 continued ERI continued Operating cash lh flows – cost of business combinations: 2023 £000 2022 £000 VMI 532 — I-Vent 98 — DVS 207 — ERI — 126 Other potential or aborted business combinations 195 89 Total 1,032 215 16. Inventories Accounting policy Inventories are stated at the lower of cost and net realisable value. The cost of raw materials is purchase cost on a st on a first in, irst in, first out basis. The cost of work in progress and ind finished goods includes the cost of direct materials and labour and an appropriate portion of ixed aof fixed and variable overhead expenses based on normal operating capacity but excludes borrowing costs. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs to sell. 2023 £000 2022 £000 Raw materials and consumables 27,566 24,247 Work in progress 3,242 3,523 Finished goods and goods for resale 28,172 29,381 58,980 57,151 During 2023, £970,000 (2022: £865,000) was recognised as cost of sales for inventories written o in thten off in the year. Inventories are stated net of an allowance for excess, obsolete or slow-moving items which totalled £5,634,000 (2022: £5,473,000). This provision was split amongst the three categories: £3,187,000 (2022: £2,926,000) for raw materials and consumables; £111,000 (2022: £146,000) for work in progress; and £2,336,000 (2022: £2,401,000) for in0) for finished goods and goods for resale. 17. Trade and other receivables Accounting policy Trade and other receivables are recognised when it is probable that a future economic beneefit will it will flow to the Group. Trade and other receivables are carried at original invoice or contract amount less any provisions for discounts and expected credit losses. Provisions are made where there is evidence of a risk of non-payment taking into account ageing, previous experience and general economic conditions. Allowance for expected credit losses Allowance for expected credit losses is measured at an amount equal to lifetime expected credit losses (ECLs). For trade receivables the Group applies a simpliplified approach in calculating ECLs. Trade receivables have been grouped based on historical credit risk characteristics and the number of days from date of invoice. The expected loss rates are calculated using the provision matrixapn matrix approach. Trade receivables are categorised by common risk characteristics that are representative of the customers’ abilities to pay all amounts due in accordance with the contractual terms. The provision matrix is determined based on historical observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. Rebates receivable The Group has a number of supplier rebate agreements that are recognised as a reduction of cost of sales (collectively referred to as rebates). Rebates are based on an agreed percentage of purchases, which will increase with the level of purchases made. These agreements typically are not coterminous with the Group’s year end and some of the amounts payable are subject to conirmfirmation after the reporting date. Financial Statements Volution Group plc Annual Report 2023 204 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 17. Trade and other receivables continued 2023 £000 2022 £000 Trade receivables 44,968 53,431 Allowance for expected credit loss (521) (772) 44,447 52,659 Other debtors 4,323 2,069 Prepayments 3,566 2,798 Total 52,336 57,526 Movement in the allowance for expected credit losses is set out below: 2023 £000 2022 £000 At the start of the year (772) (553) Charge for the year (39) (231) Amounts utilised 292 19 Foreign currency adjustment (2) (7) At the end of the year (521) (772) Gross trade receivables are denominated in the following currencies: 2023 £000 2022 £000 Sterling 25,361 30,639 US Dollar 723 677 Euro 8,16 5 9,665 Swedish Krona 2,713 3,216 New Zealand Dollar 2,946 3,073 Australian Dollar 3,914 4,262 Other 1,14 6 1,899 Total 44,968 53,431 Net trade receivables are aged as follows: 2023 £000 2022 £000 Neither past due nor impaired 40,547 41,297 Past due but not impaired Overdue e 0– d–30 days 2,500 5,273 Overdue e 31– d60 days 598 2,283 Overdue e 61– d90 days 349 932 Overdue more than dn 90 days 453 2,874 Total 44,447 52,659 The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings where available; otherwise, historical information relating to counterparty default rates is used. The Group continually assesses therecthe recoverability of trade receivables and the level of provisioning required. Trade receivables are non-interest bearing and are generally on terms of 30 to 90 days. Strategic Report Governance Report Financial Statements Additional Information 205 Volution Group plc Annual Report 2023 18. Other inancial ar financial assets 2023 Current £000 2022 Current £000 Financial assets Foreign exchange forward contracts — 1,091 Total — 1,091 19. Cash and cash equivalents Accounting policy Cash and short-term deposits comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less. 2023 £000 2022 £000 Cash and short-term deposits 21,244 13,543 Cash and cash equivalents are denominated in the following currencies: 2023 £000 2022 £000 Sterling 6,276 3,004 Euro 9,828 4,654 US Dollar 200 519 Swedish Krona 34 1,082 New Zealand Dollar 2,240 1,987 Australian Dollar 1,339 1,370 Other 1,327 927 Total 21,244 13,543 20. Trade and other payables 2023 £000 2022 £000 Trade payables 23,059 27,715 Social security and sta wed staff welfare costs 1,929 1,737 Accrued expenses 22,120 19,385 Total 47,108 48,837 Trade payables are non-interest bearing and are normally settled on 60-day terms. Financial Statements Volution Group plc Annual Report 2023 206 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 21. Leases Group as a lessee Accounting policy The Group leases a range of assets including property, plant and equipment and vehicles. Leases of property generally have lease terms of up to 20 years, plant and machinery between three and six years and motor vehicles and other equipment between two and wo and five years. Right-of-use assets are initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain re-measurements of the lease liability. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, restoration costs and lease payments made at or before the commencement date less any lease incentives received. The right-of-use assets are depreciated on a straight line basis over the shorter of their estimated useful life and the lease term. At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include ude fixed payments (including in-substance ixee fixed payments) less any lease incentives receivable. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term rele term reflects the Group exercising the option to terminate. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to releed to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modiicfication, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in interest-bearing loans and borrowings. The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of oes of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight line basis overthe lover the lease term. Set out below are the carrying amounts of right-of-use assets recognised and movements during the year: Right-of-use assets 2023 Land and buildings £000 Plant and machinery £000 Fixtures, ittings, tools,fittings, tools, equipment and vehicles £000 Total £000 Cost At August At 1 August 2022 29,069 327 3,289 32,685 Additions 2,003 38 1,376 3,417 Remeasurement 4,223 — — 4,223 Disposals — — (65) (65) Expiration of leases (156) (93) (110) (359) Net foreign currency exchange diee differences 1,602 (206) 193 1,589 At July At 31 July 2023 36,741 66 4,683 41,490 Depreciation At August At 1 August 2022 7,320 271 1,527 9,118 Charge for the period 3,286 33 576 3,895 Disposals — — (15) (15) Expiration of leases (156) (93) (110) (359) Net foreign currency exchange diee differences (713) (180) (158) (1,051) At July At 31 July 2023 9,737 31 1,820 11,588 Net book value At July At 31 July 2023 27,004 35 2,863 29,902 Strategic Report Governance Report Financial Statements Additional Information 207 Volution Group plc Annual Report 2023 21. Leases continued Group as a lessee continued Right-of-use assets 2022 Land and buildings £000 Plant and machinery £000 Fixtures, ittings, tfittings, tools, equipment and vehicles £000 Total £000 Cost At August At 1 August 2021 28,073 203 2,819 31,095 Additions 2,657 30 639 3,326 Disposals — (19) (149) (168) Expiration of leases (1,634) (78) (184) (1,896) Net foreign currency exchange diee differences (27) 191 164 328 At July At 31 July 2022 29,069 327 3,289 32,685 Depreciation At August At 1 August 2021 5,298 139 1,181 6,618 Charge for the period 2,967 99 546 3,612 Disposals — (15) (51) (66) Expiration of leases (1,634) (78) (184) (1,896) Net foreign currency exchange diee differences 689 126 35 850 At July At 31 July 2022 7,3 2 0 271 1,527 9,118 Net book value At July At 31 July 2022 21,749 56 1,762 23,567 Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the year: Lease liabilities 2023 Land and buildings £000 Plant and machinery £000 Fixtures, ittings, tools,fittings, tools, equipment and vehicles £000 Total £000 At August At 1 August 2022 23,775 36 1,15 6 24,967 Additions and remeasurement 6,226 38 1,376 7,640 Early termination — — (65) (65) Interest expense 599 3 33 635 Lease payments (3,778) (41) (663) (4,482) Foreign exchange movements 2,352 (3) 164 2,513 At July At 31 July 2023 29,174 33 2,001 31,208 Analysis Current 3,599 14 141 3,754 Non-current 25,575 19 1,860 27,454 At July At 31 July 2023 29,174 33 2,001 31,208 Financial Statements Volution Group plc Annual Report 2023 208 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 21. Leases continued Group as a lessee continued Lease liabilities 2022 Land and buildings £000 Plant and machinery £000 Fixtures, ittings, tfittings, tools, equipment and vehicles £000 Total £000 At August At 1 August 2021 24,281 75 1,073 25,429 Additions to lease liabilities 2,657 30 639 3,326 Early termination — (19) (149) (168) Interest expense 470 6 44 520 Lease payments (3,362) (61) (300) (3,722) Foreign exchange movements (271) 5 (151) (418) At July At 31 July 2022 23,775 36 1,15 6 24,967 Analysis Current 3,116 28 455 3,599 Non-current 20,659 8 701 21,368 At July At 31 July 2022 23,775 36 1,15 6 24,967 The following are amounts recognised in the statement of comprehensive income: 2023 £000 2022 £000 Depreciation expense of right-of-use assets cost oets (cost of saleses) 2,507 2,081 Depreciation expense of right-of-use assets admiets (administrative expenseses) 1,388 1,531 Interest expense 635 520 22. Other er financial liabilities 2023 Foreign exchange forward contracts £000 ClimaRad BV £000 ERI £000 Total £000 Contingent consideration At August At 1 August 2022 — 7,052 7,080 14,132 Re-measurement of inanc financial liability — (54) — (54) Re-measurement of future consideration — 1,879 640 2,519 Foreign exchange 330 — — 330 At July At 31 July 2023 330 8,877 7,720 16,927 Analysis Current 330 — — 330 Non-current — 8,877 7,720 16,597 Total 330 8,877 7,720 16,927 Strategic Report Governance Report Financial Statements Additional Information 209 Volution Group plc Annual Report 2023 22. Other inancial liabilities continued 2022 Air Connection ApS £000 Ventair Pty Limited £000 ClimaRad BV £000 Nordiska Klimatfabriken AB £000 Energent Ab £000 ERI £000 Total £000 Contingent consideration At August At 1 August 2021 483 4,070 5,514 251 256 — 10,574 Re-measurement of contractual liability to purchase remaining non-controlling interest — — 1,538 — — — 1,538 Further consideration recognised — — — — — 7,080 7,080 Consideration paid (476) (4 ,16 3) — (240) (256) — (5,13 5) Foreign exchange (7) 93 — (11) — — 75 At July At 31 July 2022 — — 7,0 52 — — 7,080 14,13 2 Analysis Current — — — — — — — Non-current — — 7,0 52 — — 7,080 14,13 2 Total — — 7,052 — — 7,080 14,13 2 The fair value of contingent consideration is calculated by estimating the future cash lsh flows for the acquired company These estimates are based on management’s knowledge of the business and how the current economic environment is likely to impact performance. The relevant future cash sh flows are dependent on the specicific terms of the sale and purchase agreement. For Non-current liabilities due more than one year from the balance sheet date, the assessed contingent liability is discounted using the discount rates for the relevant CGU (note 13). Non-current On 17 December 2020, Volution Group plc acquired 75% of the issued share capital of ClimaRad Holding B.V. and subsidiaries (ClimaRad), a company based in the Netherlands. Total consideration for the purchase of 75% of the issued share capital was €41,100,000 (£37,100,000) with a commitment to purchase the remaining 25% on or before 28 February 2025. The future consideration for the purchase of the remaining 25% is set at 25% of 13 times the EBITDA of ClimaRad for the ine financial year ended 31D31 December 2024, plus the non-controlling interest share of proits eare of profits earned in the periods up to and including 31 December 2024, and is subject to a cap of €100 million. The expected value of the future consideration is partially in the form of a vendor loan of €12,000,000 (£10,686,000) payable to certain individuals including the co-founder and management team of ClimaRad on completion of the purchase of the remaining 25% on or before 28 February 2025, and an additional element of contingent consideration. The contingent consideration was assessed based on the current estimate of the future performance of the business as £8,877,000, discounted to present value (2022: £7,052,0000). If actual EBITDA for the year ended 31 December 2024 varies by 10% from the estimate, the contingent consideration would vary by approximately £1,800,000. On 9 September 2021, Volution Group plc acquired 100% of the issued share capital of ERI Corporation DOO Bitola (North Macedonia), ERI Corporation S.R.L. (Italy) and Energy Recovery Industries Trading SLU (Spain) and 51% of the issued share capital of Energy Recovery Industries Corporation Ltd (UK). The contingent consideration was assessed based on the current estimate of the future performance of the business as £7,720,000 (2022: £7,080,000), with a range from €0 - €12,400,000, based on EBITDA performance from €4,500,000 to €8,500,000 for year ended 31 December 2024. If actual EBITDA for the year ended 31 December 2024 varies by 10% from the estimate, the contingent consideration would vary by approximately £1,500,000. The foreign exchange forward contracts are carried at their fair value with the gain or loss being recognised in the Group’s consolidated statement of comprehensive income. Refer to note 28 for the fair value hierarchy the Group uses to determine the fair value of value of financial instruments. Financial Statements Volution Group plc Annual Report 2023 210 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 23. Interest-bearing loans and borrowings Accounting policy Borrowings and other inr financial liabilities, including loans, are initially measured at fair value, net of transaction costs. Borrowings and other inr financial liabilities are subsequently measured at amortised cost using the eeg the effective interest method. The eective interesffective interest method is a method of calculating the amortised cost of a int of a financial liability and of allocating interest expense over the relevant period. The eective interesffective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the ine financial liability or, where appropriate, a shorter period. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 2023 2022 Current £000 Non-current £000 Current £000 Non-current £000 Unsecured – at amortised cost Borrowings under the revolving credit facility maturity (maturing ng 2025) — 79,369 — 74,351 Cost of arranging bank loan — (692) — (843) — 78,677 — 73,508 Lease liabilities note s (note 21) 3,754 27,454 3,599 21,368 Other loans — 802 — — ClimaRad vendor loan — 9,771 — 9,557 Total 3,754 116,704 3,599 104,433 In December 2022, the Group took the option to extend its multicurrency “Sustainability Linked Revolving Credit Facility”, together withan awith an accordion of up to £30 million, by a period of twelve months; the maturity date is now December 2025. Revolving credit facility – at 31 July 2023 Currency Amount outstanding £000 Termination date Repayment frequency Rate % GBP — De2 December er 2025 One payment SONIA maIA + marginrgin% Euro 79,369 De2 December er 2025 One payment EURIBOR marginR + margin% Swedish Krona — De2 December er 2025 One payment STIBOR maR + marginrgin% Total 79,369 Revolving credit facility – at 31 July 2022 Currency Amount outstanding £000 Termination date Repayment frequency Rate % GBP — D2 December r 2024 One payment SONIA maIA + marginrgin% Euro 71,932 De2 December er 2024 One payment EURIBOR marginR + margin% Swedish Krona 2,419 D2 December r 2024 One payment STIBOR maR + marginrgin% Total 74,351 The interest rate on borrowings includes a margin that is dependent on the consolidated leverage level of the Group in respect of the most recently completed reporting period. For the year ended 31 July 2023, Group leverage was below 1.0:1 and therefore the margin will remain at 1.25%. At 31 July 2023, the Group had £70,631,000 (2022: £75,649,000) of its multicurrency revolving credit facility unutilised, plus an unutilised accordion of up to £30,000,000. Strategic Report Governance Report Financial Statements Additional Information 211 Volution Group plc Annual Report 2023 23. Interest-bearing loans and borrowings continued Changes in liabilities arising from inang from financing activities August1 August 2022 £000 Cash loCash flows £000 Foreign exchange movement £000 New leases £000 Changes due to business combination £000 Interest/ other £000 J31 July 2023 £000 Non-current interest-bearing loansanns and borrowings excludinrrowings (excluding lease liabilitiese liabilities) 74,351 3,710 1,308 — — — 79,369 Debt related to the business combination of VMI seMI (see note e note 15) — (92) — — 894 — 802 Lease liabilities 24,967 (4,482) 2,513 7,6 4 0 — 570 31,208 ClimaRad vendor loan 9,557 — 214 — — — 9,771 Total liabilities from infinancingacing activities 108,875 (864) 4,035 7,6 4 0 894 570 121,150 Augu1 August 2021 £000 Cash sh flows £000 Foreign exchange movement £000 New leases £000 Changes due to business combination £000 Interest/ other £000 J31 July 2022 £000 Non-current interest-bearing loansanns and borrowings excludinrrowings (excluding lease liabilitiese liabilities) 73,293 2,802 (1,744) — — — 74,351 Debt related to the business combination of ERI see nI (see note ote 15) — (3,227) — — 3,227 — — Lease liabilities 25,429 (3,202) (418) 3,326 — (168) 24,967 ClimaRad vendor loan 10,551 (504) (490) — — — 9,557 Total liabilities from infinancingacing activities 109,273 (4,13 1) (2,652) 3,326 3,227 (168) 108,875 24. Provisions Accounting policy Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions for the expected costs of maintenance guarantees are charged against prost profits when products have been invoiced. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation taking into account the risks and uncertainties surrounding the obligation. The timings of cash outlflows are by their nature uncertain and are therefore best estimates. Provisions are not discounted as the time value of money is not considered material. Provisions for warranties and property dilapidations Provisions for warranties are made with reference to recent trading history and historical warranty claim information, and the viewof mview of management as to whether warranty claims are expected. Warranty provisions are determined with consideration given to recent customer trading and management experience. Dilapidation provisions relate to dilapidation charges relating to leasehold properties. The timing of cash lh flows associated withthedwith the dilapidation provision is dependent on the timing of the lease agreement termination. Financial Statements Volution Group plc Annual Report 2023 212 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 24. Provisions continued 2023 Product warranties £000 Property dilapidations £000 Total £000 At August At 1 August 2022 1,540 463 2,003 Arising during the year 1,873 15 1,888 Utilised (1,811) — (1,811) Foreign currency adjustment 23 (11) 12 At July At 31 July 2023 1,625 467 2,092 Analysis Current 1,381 410 1,791 Non-current 244 57 301 Total 1,625 467 2,092 2022 Product warranties £000 Property dilapidations £000 Total £000 At August At 1 August 2021 1,787 458 2,245 Arising during the year 921 9 930 Utilised (1,142) — (1,142) Foreign currency adjustment (26) (4) (30) At July At 31 July 2022 1,540 463 2,003 Analysis Current 1,279 405 1,684 Non-current 261 58 319 Total 1,540 463 2,003 Product warranties A provision is recognised for warranty costs expected to be incurred in the following twelve months on products sold during the year and in prior years. Product warranties are typically one to two years; however, based on management’s knowledge of the products, claims in relation to warranties after more than twelve months are rare and highly immaterial. Property dilapidations A provision has been recognised for dilapidations relating to obligations under leases for leasehold buildings and will be payable atthe eat the end of the lease term. 25. Authorised and issued share capital and reserves Accounting policy Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in prod in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any dies. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. Share options exercised during the period are satisisfied with treasury shares. Number of ordinary shares Ordinary shares £000 Share premium £000 At At 3 July 1 July 202 and July 2 and 31 July 2023 200,000,000 2,000 11,527 The 200,000.000 authorised ordinary shares of £0.01p each. At 31 July 2023, a total of 2,471,100 (2022: 2,183,665) ordinary shares in the Company were held by the Volution EBT, all of which were unallocated and available for transfer to participants of the Long Term Incentive Plan, Deferred Share Bonus Plan and Sharesave Plan on exercise. During the year, 550,000 ordinary shares in the Company were purchased by the trustees (2022: 463,000) and 262,565 (2022: 402,407) were released by the trustees at £973,960 (2022: £1,114,667). The market value of the shares at 31 July 2023 was £9,923,938 (2022: £9,094,965). The Volution EBT has agreed to waive its rights to dividends. Strategic Report Governance Report Financial Statements Additional Information 213 Volution Group plc Annual Report 2023 26. Deferred tax Accounting policy Deferred tax is recognised on all temporary dierenifferences arising between the tax bases of assets and liabilities and their carrying amounts in the ine financial statements, with the following exceptions: • where the temporary diey differences arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aen, affects neither the accounting proig profit nor taxable prole profit or loss; and • in respect of taxable temporary dierenifferences associated with investments in subsidiaries where the timing of the reversal of the temporary diey differences can be controlled and it is probable that the temporary dierencifferences will not reverse in the foreseeable future. Deferred tax assets are recognised only to the extent that the Directors consider it is probable that there will be taxable proits rofits from which the deductible temporary dierencfferences, carried forward tax credits or tax losses can be utilised. Deferred tax assets and liabilities are measured on an undiscounted basis at tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are oss are offset when there is a legally enforceable right to ose right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or dierent taxafferent taxable entities and there is an intention to settle the balances on a net basis. The carrying amount of deferred tax assets is reviewed at each reporting date. Deferred tax assets and liabilities are oes are offset only if a legally enforceable right exists to set o curs to set off current tax assets against current tax liabilities, the deferred taxes relate to the same taxation authority and that authority permits the Group to make a single net payment. Deferred tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, deferred tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable proite profits together with an assessment of the eent of the effect of future tax planning strategies. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, dierencfferences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. However, the Group does not consider this to be an accounting judgement, apart from those involving estimations, that has a signiiificant eect offect on the amount recognised in the in the financial statements under the scope of paragraph 122 of IAS1, nor the estimates and assumptions to be major sources of estimation uncertainty that have a signiicficant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next it financial year under the scope of paragraph 125 of IAS 1. At 31 July 2023, the Group had not recognised a deferred tax asset in respect of gross tax losses of £5,195,000 (2022: £5,195,000) relating to management expenses, capital losses of £3,975,000 (2022: £3,975,000) arising in UK subsidiaries and gross tax losses of £nil (2022: £nil) arising in overseas entities as there is insusufficient evidence that the losses will be utilised. These losses are available to be carried indeefinitely. At 31 July 2023, the Group had no deferred tax liability (2022: £nil) to recognise for taxes that would be payable on the remittance of certain of the Group’s overseas subsidiaries’ unremitted earnings. Deferred tax liabilities have not been recognised as the Group has determined that there are no undistributed proits irofits in overseas subsidiaries where an additional tax charge would arise on distribution. 2023 Augu1 August 2022 £000 Ch(Charged/)/ credited to income £000 Credited to equity £000 Translation didifference £000 On business combinations £000 J31 July 2023 £000 Temporary dierencesemporary differences Depreciation in advance of capital allowances (1,714) (1,18 0) — (2) — (2,896) Fair value movements of derivative infinancialinial instruments (182) 305 — — — 123 Development costs, customer base, trademarkamark and patents (16,464) 2,142 — 139 (964) (15 ,147 ) Unutilised tax losses 63 (62) — — — 1 Other temporary dierifferences 1,12 5 208 — (58) — 1,275 Share based payments 2,950 93 264 — — 3,307 Deferred tax liability (14,222) 1,506 264 79 (964) (13,337) Financial Statements Volution Group plc Annual Report 2023 214 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 26. Deferred tax continued 2022 Augu1 August 2021 £000 Ch(Charged/)/ credited to income £000 Credited to equity £000 Translation didifference £000 On business combinations £000 J31 July 2022 £000 Temporary dierencesemporary differences Depreciation in advance of capital allowances (1,721) 11 — (4) — (1,714) Fair value movements of derivative infinancialinial instruments 11 (193) — — — (182) Customer base, trademark and patent (17,274) 2,409 — (10) (1,589) (16,464) Unutilised tax losses 407 (344) — — — 63 Other temporary dierifferences 1,246 (176) — 55 — 1,12 5 Share based payments 2,455 50 445 — — 2,950 Deferred tax liability (14,876) 1,757 445 41 (1,589) (14,222) 27. Dividends paid and proposed Accounting policy Dividends are recognised when they meet the criteria for recognition as a liability. In relation to inal dn to final dividends, this is when thedivthe dividend is approved by the Directors in the general meeting and, in relation to interim dividends, when paid. 2023 £000 2022 £000 Cash dividends on ordinary shares declared and paid Interim dividend for : nd for 2023: 2. p50 pence per share : hare (2022: 2. p30 pencece) 4,942 4,553 Proposed dividends on ordinary shares Final dividend for : d for 2023: 5 pen.50 pence per share : hare (2022: 5 pe.00 pencee) 10,863 9,891 An interim dividend payment of £4,942,000 is included in the consolidated statement of cash lsh flows (2022: £4,553,000). A inA final dividend payment of £9,891,000 is included in the consolidated statement of cash ash flows relating to 2022 (2022: £8,719,000). The proposed ind final dividend on ordinary shares is subject to approval at the Annual General Meeting and is not recognised asaliaas a liabilityat 3y at 31 July 2023. There are no income tax consequences attached to the payment of dividends in either 2023 or 2022 by the Group to its shareholders. Strategic Report Governance Report Financial Statements Additional Information 215 Volution Group plc Annual Report 2023 28. Risk management Accounting policy Derivative inancial insDerivative financial instruments The Group enters into derivative is into derivative financial instruments to manage its exposure to foreign exchange rate risk. Instruments used areprincare principally foreign exchange forward contracts. Further details of derivative erivative financial instruments are included in note 22. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at the reporting date. The resulting gain or loss is immediately recognised in the statement of comprehensive income. Derivatives are carried as d as financial assets when the fair value is positive and as id as financial liabilities when the fair value isneis negative. The fair value of derivatives is classisified as a non-current asset or a non-current liability if the remaining maturity of the relationship is more than twelve months and as a current asset or a current liability if the remaining maturity of the relationship isleis less than twelve months. No derivative contracts have been designated as hedges for accounting purposes. Hedge of net investments Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for as follows: gains or losses on the hedging instrument relating to the eeng to the effective portion of the hedge are recognised in OCI while any gains or losses relating to the ineeceffective portion are recognised in prod in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is reclassisified to proit or ld to profit or loss. The Group uses borrowings in local currencies as a hedge of its exposure to foreign exchange risk on its investments in foreignopforeign operations. As a result of entering into inag into financial instruments, the Group is exposed to market risk, credit risk, foreign exchange risk andliand liquidity risk. The Group’s principal inal financial instruments are: • interest-bearing loans and borrowings; • trade and other receivables, trade and other payables, cash and short-term deposits; and • foreign exchange forward contracts. This note provides further detail on ail on financial risk management and includes quantitative information on the speciic rific risks theGthe Group is exposed to. Derivative inDerivative financial instruments The Group uses forward foreign currency contracts to reduce exposure to foreign exchange risk. Forward foreign currency contracts The Group’s purchases in foreign currencies, net of Group sales in those currencies, represent approximately 10% (2022: less than 20%) of total material and component purchases. This has increased due to the diversiiification of the Group to more overseas regions. Each quarter the Group enters into forward exchange contracts for the purchase of the budgeted monthly net expenditure in USDUS Dollars for the following rolling 12–15 months. Hedge accounting is not applied for these derivatives. The Group’s criteria for entering into a forward foreign currency contract would require that the instrument must: • be related to anticipated foreign currency commitment; • involve the same currency as the foreign currency commitment; and • reduce the risk of foreign currency exchange movements on the Group’s operations. Market risk Market risk is the risk that the fair value of future cash lowh flows of a ins of a financial instrument will lul fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risks, such as equity price risk andcand commodity risk. The Group’s exposure is primarily to the arily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into derivative inrivative financial instruments to manage its exposure to these risks when appropriate. At 31 July 2023, the Group had commitments under forward foreign exchange contracts with varying settlement dates to 5 July 2024 (2022: 5 May 2023). See note 22 for fair values. Financial Statements Volution Group plc Annual Report 2023 216 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 28. Risk management continued Sensitivity analysis The Group recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might aege rates) might affect the value of its derivatives and also the amounts recorded in its equity in the overseas entities and its statement of comprehensive income for the period. Therefore the Group has assessed: • what would be reasonably possible changes in the risk variables at the end of the reporting period; and • the eethe effects on proit orofit or loss and equity if such changes in the risk variables were to occur. Interest rate risk The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the Group’s loatiroup’s floating rate loans and borrowings which at the relevant reporting dates are not hedged. With all other variables being constant the Group’s proit be Group’s profit before tax is aected throuffected through the impact on ct on floating rate borrowings as follows. There is only an immaterial impact on the Group’s equity. Increase in basis points EecEffect on profit before tax £000 July 31 July 2023 Sterling +25 — Swedish Krona +25 — Euro +25 (198) July 31 July 2022 Sterling +25 — Swedish Krona +25 (6) Euro +25 (180) The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable market environment. The Group’s cash balances are held in bank current accounts and earn immaterial levels of interest. Management has concluded that any changes in the LIBOR and SEK LIBOR rates will have an immaterial impact on interest income earned on the Group’s cash balances. No interest rate sensitivity has been included in relation to the Group’s cash balances. Foreign currency risk The Group’s exposure to foreign exchange risk primarily arises when revenue and expenses are denominated in a died in a different currency from the Group’s presentational currency and translated into GBP for consolidation into the Group’s results. Foreign exchange risk alsoariso arises when the individual entities enter into transactions that are not denominated in their functional currency. The following tables illustrate the impact of several changes to the spot GBP/USD, GBP/EUR, GBP/SEK, GBP/DKK, GBP/NZD and GBP/ AUD exchange rates of +5% weakening of GBP. The tables below releow reflect the impact on proit brofit before tax and equity if those changes were to occur. Only the impact of changes in the SEK, USD, EUR, DKK, NZD and AUD denominated balances has been considered astheas these are the most signiinificant non-GBP denominations used by the Group. Change in GBP vs USD/ SEK/EUR/DKK/ NZD/AUD rate Eect oEffect on pron profit before tax 2023 £000 2022 £000 Swedish Krona 5% 488 499 US Dollar 5% (245) (92) Euro 5% 900 2,024 Danish Krone 5% 23 33 New Zealand Dollar 5% 304 320 Australian Dollar 5% 242 210 Change in GBP vs SEK/EUR/ DKK/NZD/AUD rate Eect oEffect on equity 2023 £000 2022 £000 Swedish Krona 5% (703) (454) Euro 5% 481 373 Danish Krone 5% 47 45 New Zealand Dollar 5% (202) (55) Australian Dollar 5% (9) 83 Strategic Report Governance Report Financial Statements Additional Information 217 Volution Group plc Annual Report 2023 28. Risk management continued Hedge of net investments in foreign operations The Euro denominated loans at 31 July 2023 have been designated as a hedge of the net investments in the subsidiaries in Europe and the Nordics. The borrowing is being used to hedge the Group’s exposure to the Euro and Swedish Krona foreign exchange risk on these investments. Gains or losses on the retranslation of this borrowing are transferred to OCI to oseI to offset any gains or losses on translation of the net investments in the subsidiaries. There is an economic relationship between the hedged items and the hedging instrument as the net investments create a translation risk that will match the foreign exchange risk on the borrowing. The underlying risk of the hedging instrument is identical to the hedged risk component. The hedging gain recognised in OCI before tax is equal to the change in fair value used for measuring eectieffectiveness. There is no ineeneffectiveness recognised in prod in profit or loss. Liquidity risk Liquidity risk for the Group arises from the management of working capital commitments and meeting its ints financial obligations as they fall due. The Group’s policy is to regularly review cash sh flow forecasts/projections as well as information regarding cash balances to ensure that it has signiicficant cash to allow it to meet its liabilities when they become due. The Group reviews its long-term funding requirements in parallel with its long-term strategy, with an objective of aligning both in a timely manner. At the reporting date, forecasts indicate that the Group is expected to have sucted to have sufficient liquidity to meet its et its financial obligations for at least the next three years. The tables below summarise the maturity proiy profile of the Group’s signiicficant undiscounted iunted financial liabilities at 31 July 2023. At July At 31 July 2023 Less than one year £000 Between one and and five years £000 More than ifive years £000 Total £000 Financial liabilities Interest-bearing loans and borrowings e(excluding interest and lease liabilitieses) — 79,369 — 79,369 Lease liabilities 4,602 13,382 13,900 31,884 ClimaRad vendor loan — 9,771 — 9,771 Forward foreign currency exchange outflow 15,380 — — 15,380 Forward foreign currency exchange inle inflow (15,050) — — (15,050) Contingent consideration – ClimaRad BV — 12,800 — 12,800 Contingent consideration – ERI 1,900 6,900 — 8,800 Trade payables and other accrued expenses 4 5,179 — — 4 5,179 52,011 122,222 13,900 18 8 ,13 3 The tables below summarise the maturity proiy profile of the Group’s signiicficant discounted ounted financial liabilities at 31 July 2022. At July At 31 July 2022 Less than one year £000 Between one and iand five years £000 More than ivefive years £000 Total £000 Financial liabilities Interest-bearing loans and borrowings e(excluding interest and lease liabilitieses) — 74,351 — 74,351 Lease liabilities 3,599 21,368 — 24,967 ClimaRad vendor loan — 9,557 — 9,557 Forward foreign currency exchange outflow 17,65 4 — — 17,65 4 Forward foreign currency exchange inle inflow (18,729) — — (18,729) Contingent consideration – ClimaRad BV — 7,052 — 7,052 Contingent consideration – ERI — 7,080 — 7,080 Trade payables and other accrued expenses 47,10 0 — — 47,10 0 49,624 119,408 — 169,032 Fair values of inanFair values of financial assets and s and financial liabilities There are no material dierenifferences between the book values and fair values for any of the Group’s inancp’s financial instruments carried at amortised cost. Derivative inavative financial instruments have all been valued using other techniques, for which all inputs that have asigna signiiificant eect offect on the recorded fair value are observable, either directly or indirectly. Credit risk Credit risk is the risk of ik of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations under a infinancial instrument or customer contract, leading to a inang to a financial loss. The Group is mainly exposed to credit risk from its operating activities (primarily for trade receivables – credit sales) and from cash and cash equivalents and deposits with banks and ks and financial institutions and other ther financial instruments. Financial Statements Volution Group plc Annual Report 2023 218 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 28. Risk management continued Trade receivables Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are dets are defined in accordance with this assessment. Outstanding customer receivables and contract assets are regularly monitored and any shipments to major customers are generally covered by credit insurance obtained from reputable banks and other er financial institutions. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by geographical region, product type, customer type and rating, and coverage by credit insurance). The calculation relon reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written o if paten off if past due for more than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of inaf financial asset disclosed in note 17. The Group does not hold collateral as security. The credit insuranceis cce is considered anintegral pan integral part of trade receivables and considered in the calculation of impairment. Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix: Trade receivables July 31 July 2023 Current £000 <30 days £000 30–6 day0 days £000 –61–90 days £000 d>91 days £000 Total £000 Expected credit loss rate <0.1% <0.1% 1.5% 5.1% 50.4% Estimated total gross carrying amount at default 40,577 2,502 607 368 914 44,968 Expected credit loss 30 2 9 19 461 521 Trade receivables July 31 July 2022 Current £000 d<30 days £000 30– d60 days £000 –61–90 days £000 d>91 days £000 Total £000 Expected credit loss rate < 0 .1% < 0.1% <0.5% 1.5% 20.6% Estimated total gross carrying amount at default 3 9,195 5,273 2,289 946 3,618 51,321 Expected credit loss 8 — 6 14 744 772 Financial instruments and cash deposits Credit risk from balances with banks and nd financial institutions is managed in accordance with the Group’s policy. The Group deposits cash with reputable le financial institutions, from which management believes the possibilities of loss to be remote. The Group’s maximum exposure to credit risk for the components of the statement of ment of financial position at 31 July 2023 and 2022 is the carrying amount. The Group’s maximum exposure to derivative inavative financial instruments is noted in either note 22 or in the liquidity table on the previous page. Capital risk management The primary objective of the Group’s capital management policy is to ensure that it has the capital required to operate and grow the business at a reasonable cost of capital without incurring undue ine financial risks. The Board periodically reviews its capital structure to ensure it meets changing business needs. The Group deinfines its capital as its share capital (excluding treasury shares), share premium account, foreign currency translation reserves and retained earnings. In addition, the Directors consider the management of debt to be an important element in controlling the capital structure of the Group. The Group may carry signinificant levels of long-term structural and subordinated debt to fund investments and acquisitions and has arranged debt facilities to allow for es to allow for fluctuations in working capital requirements. There have been no changes to the capital management policy in the current period. Management manages capital on an ongoing basis to ensure that covenant requirements on third party debt are met. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of r value of financial instruments by valuation technique: • Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities; • Level 2 – other techniques for which all inputs that have a signinificant eecnt effect on the recorded fair value are observable, either directly or indirectly; and • Level 3 – techniques which use inputs which have a signignificant eeant effect on the recorded fair value that are not based on observable market data. Financial instruments carried at fair value comprise the derivative inrivative financial instruments in note 22 and the contingent consideration in notes 15 and 22. For hierarchy purposes derivative inrivative financial instruments are deemed to be Level 2 as external valuers are involved in the valuation of these contracts. Their fair value is measured using valuation techniques including the DCF model. Inputs to this calculation include the expected cash lsh flows in relation to these derivative contracts and relevant discount rates. Contingent consideration is deemed to be Level 3; see note 22 for details on the valuation techniques used to measure the fair value. Strategic Report Governance Report Financial Statements Additional Information 219 Volution Group plc Annual Report 2023 29. Related party transactions Transactions between Volution Group plc and its subsidiaries, and transactions between subsidiaries, are eliminated on consolidation and are not disclosed in this note. A breakdown of transactions between the Group and its related parties is disclosed below. No related party loan note balances exist at 31 July 2023 or 31 July 2022. There were no material transactions or balances between the Company and its key management personnel or members of their close family other than the compensation shown below. At the end of the period, key management personnel did not owe the Company any amounts. The Companies Act 2006 and the Directors’ Remuneration Report Regulations 2013 require certain disclosures of Directors’ remuneration. The details of the Directors’ total remuneration are provided in the Directors’ Remuneration Report (see pages 140 to 161). Compensation of key management personnel 2023 £000 2022 £000 Short-term employee beneitsee benefits 3,886 3,517 Share-based payment charge see note rge (see note 32) 1,003 1,049 Total 4,889 4,566 Key management personnel is des defined as the CEO, the CFO and the fourteen (2022: thirteen) individuals who report directly to the CEO. 30. Group structure details At 31 July 2023, Volution Group plc held 100% of the voting shares of the following subsidiaries: Group company Principal activity Country of incorporation Windmill Topco Limited 1 Intermediate holding company England Volution Holdings Limited 1 Intermediate holding company England Energy Technique Limited 1 Intermediate holding company England Indirect Windmill Midco Limited 1 Intermediate holding company England Windmill Cleanco Limited 1 Intermediate holding company England Windmill Bidco Limited 1 Intermediate holding company England Manrose Manufacturing Limited 1 Non-trading England Volution Ventilation Group Limited 1 Intermediate holding company England Torin-Sifan Limited 1 Original equipment manufacturer England Anda Products Limited 1 Non-trading England Axia Fans Limited 1 Non-trading England Roof Units Limited 1 Non-trading England Torin Limited 1 Non-trading England Vent-Axia Limited 1 Non-trading England Vent-Axia Clean Air Systems Limited 1 Non-trading England Vent-Axia Group Limited 1 HR services to Group England ET Environmental Limited 1 Non-trading England DiusDiffusion Environmental Systems Limited 1 Non-trading England NVA Services Limited 1 Non-trading England SW National Ventilation Limited 1 Non-trading England Airtech Humidity Controls Limited 1 Non-trading England Sens-Air Limited 1 Non-trading England Breathing Buildings Limited 1 Non-trading England Volution Ventilation UK Limited 1 Ventilation products England Volution Holdings Sweden AB 2 Intermediate holding company Sweden Fresh AB 2 Ventilation products Sweden Welair AB 3 Ventilation products Sweden VoltAir System AB 4 Ventilation products Sweden PAX AB 5 Ventilation products Sweden Volution Norge AS formeorge AS (formerly Fresh Norge ASorge AS) 6 Ventilation products Norway Financial Statements Volution Group plc Annual Report 2023 220 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 Group company Principal activity Country of incorporation Fresh Shanghai Limited 7 Ventilation products China inVENTer GmbH 8 Ventilation products Germany Volution Management Holdings GmbH 8 Intermediate holding company Germany Volution Deutschland Real Estate GmbH 8 Property holding company Germany Brüggemann Energiekonzepte GmbH 9 Ventilation products Germany Ventilair Group International BVBA 10 Intermediate holding company Belgium Ventilair Group Belgium BVBA 10 Ventilation products Belgium Ventilair Group Netherlands B.V. 11 Ventilation products Netherlands Ventilair France SARL 12 Ventilation products France Volution Ventilation New Zealand Limited fted (formerly known asChas Chinook Limitedmited) 13 Intermediate holding company New Zealand Simx Limited 13 Ventilation products New Zealand Vent-Axia B.V. formerl. (formerly known as AirFan B.V..) Ventilation products Netherlands Oy Pamon Ab 14 Ventilation products Finland Air Connection ApS 15 Ventilation products Denmark Volution Ventilation Australia Pty Limited formeimited (formerly known asWoomas Woomera Pty Limitedted) 16 Intermediate holding company Australia Ventair Pty Limited 16 Ventilation products Australia ERI Corporation DOO Bitola 17 Ventilation products North Macedonia ERI Corporation SRL 18 Ventilation products Italy Energy Recovery Industries Trading SLU 19 Ventilation products Spain Energy Recovery Industries Corporation Limited 20 Ventilation products UK Ventilairsec 21 Ventilation products France Neosfair 21 Ventilation products France I-VENT doo 22 Ventilation products Slovenia Lunos Hrvatska d.o.o 23 Ventilation products Croatia Registered otered offices 1. Fleming Way, Crawley, West Sussex RH10 9YX. 2. Gransholmsvägen 136, 35599 Gemla, Sweden. 3. Strandvägen 65, 87052 Nyland, Sweden. 4. Box 7033, 12107 Stockholm-Globen, Sweden. 5. Kattkärrsvägen 4, 64831 Hälleforsnäs, Sweden. 6. Professor Birkelands vei 24B, 1081 Oslo, Norway. 7. No. 272–3 Julu Road, Shanghai, China. 8. Ortsstraße 4a 07751 Löberschütz, Germany. 9. Uhlenhorst 149A, 21435 Stelle, Germany. 10. Pieter Verhaeghestraat 8, 8520 Kuurne, Belgium. 11. Kerver 16, 5521 DB Eersel, the Netherlands. 12. Boulevard de la Liberté 130, FR-59000 Lille, France. 13. 1 Haliday Place, East Tamaki, Auckland, 2013, NewZeNew Zealand. 14. Keskikankaantie 17, 15680 Hollola, Finland. 15. Rude Havvej 17B, DK-8300 Odder, Denmark. 16. 4 Capital Pl, Carrum Downs VIC 3201, Australia. 17. BURSA 124 7000, Bitola, North Macedonia. 18. Via Modigliani 90 81031 Aversa, Italy. 19. Calle Pere Dezcallar I Net 11 Planta 2, 07003 Palma DeMDe Mallorca Illes Balears, Spain. 20. 15 Ashifield, Consett, United Kingdom, DH8 0RF. 21. 16 Rue des Imprimeurs, 44220 Couëron, France 22. Robbova ulica 2, 1000 Ljubljana, Slovenia 23. Zagreb (Grad Zagreb), Samoborska cesta 153A, Croatia At 31 July 2023, Volution Group plc held 75% of the voting shares of the following subsidiaries: Group company Principal activity Country of incorporation Volution Ventilation Holdings B.V. 1 Intermediate holding company Netherlands ClimaRad Holding B.V. 1 Intermediate holding company Netherlands ClimaRad BV 1 Ventilation products Netherlands ClimaRad d.o.o 2 Ventilation products Bosnia 1. Lübeckstraat 25, 7575 EE Oldenzaal, thethe Netherlands. 2. Kamenolom 10, 71215 Blazuj, Sarajevo, Bosnia andHed Herzegovina. Torin-Sifan Limited, Volution Holdings Limited, Volution Ventilaition Group Limited and Vent-Axia Group Limited are exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts by virtue of Section 479A of that Act. 31. Commitments and contingencies Commitments for the acquisition of property, plant and equipment as of 31 July 2023 are £582,000 (2022: £730,000). 30. Group structure details continued Strategic Report Governance Report Financial Statements Additional Information 221 Volution Group plc Annual Report 2023 32. Share-based payments Accounting policy Equity-settled transactions The Group enters into equity-settled share-based payment transactions with its employees, in particular as part of the Volution Long Term Incentive Plan. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the valuation model detailed below and incorporates an assessment of relevant performance conditions. The cost is recognised in employee benenefits expense (note 6), together with a corresponding increase in equity (share-based payment reserve), over the vesting period in which the service and performance conditions are fuls are fulfilled. The amount to be expensed over the vesting period is adjusted to reljusted to reflect the number of awards for which conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the conditions at the vesting date. At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the revision of original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are releflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reles are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisiefied, provided that all other performance and/or service conditions are satissfied. The Company operates a share-based incentive scheme for Directors and key employees, known as the Volution Long Term Incentive Plan (LTIP). Share options were granted in March 2018, October 2018 and October 2019; these nil-cost options normally vest after three years assuming continuing employment with the Company. The extent to which the options will vest is dependent upon the Company’s performance over a three-year period set at the date of grant. The vesting of the awards will be determined by the Company’s relative total shareholder return (TSR) performance and EPS growth. The TSR element of the options granted has been valued using the Group’s share price volatility, the correlation between the share price movements of TSR comparators and the relevant vesting schedule. 2023 Number 2022 Number Outstanding at Auding at 1 August 2,954,091 3,270,467 Granted during the year 920,834 365,972 Dividend equivalent added on vesting 28,355 26,500 Exercised during the year (187,697) (236,094) Lapsed during the year (76,423) (472,754) Outstanding at Julding at 31 July 3,6 3 9,16 0 2,954,091 The weighted average exercise price for all options is £nil. Of the total number of options outstanding at 31 July 2023, 1,805,635 had vested and were exercisable. The weighted average fair value of each option granted during the year was £3.02 (2022: £4.91). The weighted average remaining contractual life for the share options outstanding as at 31 July 2023 was 7.5 years (2022: 6.8 years). The following information is relevant in the determination of the fair value of options granted during the year under the LTIP: 2023 Option pricing model used Monte Carlo Weighted average share price at grant date e at grant date (£) 3.02 Exercise price rice (£) Nil Expected dividend yield d (£) Nil Expected life e (yearss) 3 Expected volatility 46.2% Risk-free interest rate 4.09% Financial Statements Volution Group plc Annual Report 2023 222 Notes to the Consolidated Financial Statements continued For the year ended 31 July 2023 32. Share-based payments continued The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis ofshaof share prices over a period commensurate with the expected life of the option. The share-based remuneration expense comprises: 2023 £000 2022 £000 Equity-settled schemes 1,357 1,115 1,357 1,115 The Group did not enter into any share-based payment transactions with parties other than employees during the current or previous periods. 33. Events after the reporting period On 4 August 2023, Volution Group acquired the trade and assets of Proven Systems Limited (“DVS”), a market leading supplier and installer of home ventilation solutions in New Zealand, for an initial consideration of NZ$18 million with a further contingent cash consideration of up to NZ$9 million based on stretching targets for the ine financial results in the next 12 months and the year ending 31M31 March 2025. Transaction costs relating to professional fees associated with the acquisition in the period ended 31 July 2023 were £207,000 and have been expensed as cost of business combinations separately disclosed on the face of the consolidated statement of comprehensive income above operating proit. rofit. 34. Glossary of terms Adjusted basic and diluted EPS: calculated by dividing the adjusted proisted profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the adjusted net proiet profit/(loss) attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares. There are 3,365,875 dilutive potential ordinary shares at 31 July 2023 (2022: 2,966,484). Adjusted EBITDA: adjusted operating proit bg profit before depreciation and amortisation. Adjusted inance costs: finance costs: inanc finance costs before net gains or losses on s on financial instruments at fair value and the exceptional write o al write off ofunamof unamortised loan issue costs upon reinan refinancing. Adjusted operating cash sh flow: adjusted EBITDA plus or minus movements in operating working capital, less net investments inpropin property, plant and equipment and intangible assets. Adjusted operating proit:rating profit: operating proit brofit before exceptional operating costs, release of contingent consideration and amortisation of assets acquired through business combinations. Adjusted prod profit after tax: proit afrofit after tax before exceptional operating costs, release of contingent consideration, exceptional write o of unaoff of unamortised loan issue costs upon reinn refinancing, net gains or losses on inn financial instruments at fair value, amortisation of assets acquired through business combinations and the tax eecax effect on these items. Adjusted prod profit before tax: pro profit before tax before exceptional operating costs, release of contingent consideration, exceptional write o of unawrite off of unamortised loan issue costs upon reinn refinancing, net gains or losses on inan financial instruments at fair value and amortisation of assets acquired through business combinations. Adjusted tax charge: the reported tax charge less the tax eect on thffect on the adjusted items. CAGR: compound annual growth rate. Cash conversion: calculated by dividing adjusted operating cash lh flow by adjusted EBITA. Constant currency: to determine values expressed as being at constant currency we have converted the income statement ofount of our foreign operating companies for the year ended 31 July 2023 at the average exchange rate for the year ended 31 July 2022. In addition, we have converted the UK operating companies’ sale and purchase transactions in the year ended 31 July 2023, which were denominated in foreign currencies, at the average exchange rates for the year ended 31 July 2022. EBITDA: proit before net profit before net finance costs, tax, depreciation and amortisation. Net debt: bank borrowings and lease liabilities less cash and cash equivalents. Operating cash sh flow: EBITDA plus or minus movements in operating working capital, less share-based payment expense, less net investments in property, plant and equipment and intangible assets. ROIC: measured as adjusted operating proit for the yerofit for the year divided by average net assets adding back net debt, acquisition related liabilities, and historic goodwill and acquisition related amortisation charges (net of the associated deferred tax). Strategic Report Governance Report Financial Statements Additional Information 223 Volution Group plc Annual Report 2023 Parent Company Statement of Financial Position At 31 July 2023 Notes Non-current assets Property, plant and equipment Investments Deferred tax asset Current assets Other receivables and prepayments Other current inancial assets — Cash and short-term deposits Total assets Current liabilities Trade and other payables Other current inancial liabilities — Non-current liabilities Interest-bearing loans and borrowings Total liabilities Net assets Capital and reserves Share capital Share premium Treasury shares Share-based payment reserve Capital reserve Retained earnings Total equity As permitted by Section 408 of the Companies Act 2006, the Company’s income statement has not been included in these inancialstatements. The Company’s proit for the year ended 31 July 2023 was £27.5 million (2022: £20.2 million). The inancial statements of Volution Group plc (registered number: 09041571) were approved by the Board of Directors and authorised for issue on 4 October 2023. On behalf of the Board Ronnie George Andy O’Brien Chief Executive Oicer Chief Financial Oicer Financial Statements Volution Group plc Annual Report 2023 224 Parent Company Statement of Changes in Equity For the year ended 31 July 2023 Share capital Share premium Treasury shares Share-based payment reserve Capital reserve Retained earnings Total At August Proit for the year — — — — — Total comprehensive income — — — — — Share-based payment — — — — — Purchase of own shares — — — — — Vesting of shares — — — Dividends paid — — — — — At August Proit for the year — — — — — Total comprehensive income — — — — — Share-based payment — — — — — Purchase of own shares — — — — — Vesting of shares — — — — Dividends paid — — — — — At July Treasury shares The treasury shares reserve represents the cost of shares in Volution Group plc purchased in the market and held by the Volution Employee Beneit Trust to satisfy obligations under the Group’s share option schemes. Share-based payment reserve The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to key management personnel, as part of their remuneration. Refer to note 32 of the Group inancial statements for further details. Capital reserve The capital reserve is the dierence in share capital and reserves arising from the use of the pooling of interest method for preparation of the inancial statements in 2014. This is a non-distributable reserve. Retained earnings £131,795,000 of the retained earnings balance at 31 July 2023 is available for distribution (2022: £120,294,000). Strategic Report Governance Report Financial Statements Additional Information 225 Volution Group plc Annual Report 2023 Parent Company Statement of Cash Flows For the year ended 31 July 2023 Notes Operating activities Proit for the year after tax Adjustments to reconcile proit for the year to net cash low from operating activities: Income tax for the year Business combination-related costs Cash lows relating to business combination costs Finance revenue Finance costs Eect of exchange on foreign denominated loans Share-based payment expense Depreciation of property, plant and equipment Working capital adjustments: Increase in other receivables and prepayments Increase/Decrease in trade and other payables Net cash low generated from operating activities Investing activities Purchase of property, plant and equipment Interest received Net cash low generated from investing activities Financing activities Interest paid Repayment of interest-bearing loans and borrowings Proceeds from new borrowings Issue costs of new borrowings Dividend paid to equity holders Purchase of own shares Net cash low used in inancing activities Net increase in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year Financial Statements Volution Group plc Annual Report 2023 226 Notes to the Parent Company Financial Statements For the year ended 31 July 2023 1. General information These inancial statements were approved and authorised for issue by the Board of Directors of Volution Group plc (the Company) on4 October 2023. The Company is a public limited company and is incorporated and domiciled in the UK (registered number: 09041571). The share capital of the Company is listed on the London Stock Exchange. The address of its registered oice is Fleming Way, Crawley, WestSussex RH10 9YX. 2. Basis of preparation The inancial statements are prepared in accordance with UK-adopted international accounting standards (IFRS). The inancial statements are presented in Sterling (£), rounded to the nearest thousand (£000) unless otherwise stated. They have been prepared under the historical cost convention. The policies applied by the Company are consistent with those set out in the notes to the consolidated inancial statements. Thefollowing additional policies are also relevant to the Company inancial statements. Investments Investments in subsidiary undertakings are valued at cost, being the fair value of the consideration given and including directly attributable transaction costs. The carrying value is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Dividends received Revenue is recognised when the Company’s right to receive the payment is established, which is generally when the shareholders approve the dividend. Financial instruments For detailed disclosures of inancial instruments refer to note 29 of the Group inancial statements. New standards and interpretations The standards or interpretations listed below have become eective since 1 August 2022 for annual periods beginning on or after 1January 2022. The following amendments became eective as at 1 January 2022: • Amendments to IFRS3 “Reference to the Conceptual Framework” • Amendments to IAS 16 “Property, plant and equipment – proceeds before intended use” • Amendments to IFRS 9 “Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of inancial liabilities” At the date of authorisation of these Consolidated Financial Statements, the Group has not applied the following new and revised IFRSStandards that have been issued but are not yet eective. The following amendments became eective as at 1 January 2023: • Amendments to IAS 12 “Deferred tax related to assets and liabilities arising from a single transaction” • Amendments to IAS 8 “Deinition of accounting estimates” • Amendments to IAS 1 and IFRS Practice Statement 2 – “Disclosure of accounting policies” The following amendments became eective as at 1 January 2024: • Amendments to IAS 1 “Classiication of liabilities as current or non-current” • Amendments to IAS 1 “Non-current liabilities with covenants” • Amendments to IAS 7 “Supplier Finance Arrangements” The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Company inancial statements future periods. Accounting judgements and key sources of estimation uncertainty In the application of the Company accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The Directors have concluded that there are no key judgements or major sources of estimation uncertainty that have a signiicant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next inancial year. Strategic Report Governance Report Financial Statements Additional Information 227 Volution Group plc Annual Report 2023 3. Sta costs Sta costs Wages and salaries Social security costs Share-based payment charge Other pension costs Other pension costs relate to the Company’s contribution to deined contribution pension plans. Total contributions payable in the next inancial year are expected to be at rates broadly similar to those in 2022/23 but based on actual salary levels in 2023/24. Average monthly number of employees in the year Number Number Administration Directors’ remuneration Amounts paid in respect of qualifying services Aggregate Directors’ remuneration Aggregate Directors’ pension scheme contributions In respect of the highest paid Director Aggregate Director’s remuneration Aggregate Director’s pension scheme contributions The number of Directors accruing beneits under Company money purchase pension arrangements was £nil (2022: £nil). The Group also incurred fees and expenses of £400,000 (2022: £367,000) in respect of Paul Hollingworth, Tony Reading, Claire Tiney, Amanda Mellor, Nigel Lingwood, Margaret Amos and Jonathan Davis for their services as Non-Executive Directors. Financial Statements Volution Group plc Annual Report 2023 228 Notes to the Parent Company Financial Statements continued For the year ended 31 July 2023 4. Property, plant and equipment Fixtures, ittings, tools, equipment and vehicles Total Cost At August Additions At July Depreciation At August Charge for the year At July Net book value At July Fixtures, ittings, tools, equipment and vehicles Total Cost At August Additions At July Depreciation At August Charge for the year At July Net book value At July 5. Investments Cost At July and July For a list of the subsidiaries in which Volution Group plc held 100% of the voting shares as at 31 July 2023, see note 30 of the Group inancial statements. The Group has considered whether there is objective evidence that the investment in subsidiaries is impaired. A similar model andassumptions were used in this assessment to those used for the Group goodwill impairment testing (see note 13 of the Group inancial statements for further details). No impairment has been identiied. 6. Deferred tax balances Deferred tax assets and liabilities arise from the following: August Charged to income Charged to equity July Deferred tax asset Temporary dierences Strategic Report Governance Report Financial Statements Additional Information 229 Volution Group plc Annual Report 2023 7. Other receivables and prepayments Amounts owed by Group undertakings Prepayments The Group has considered the recoverability of the amounts owed by Group undertakings. Consideration was given to the dierent scenarios for the recovery of the intercompany loan receivables, the possible credit losses that could arise and the probabilities for these scenarios. Based on this assessment, the amounts owed by Group undertakings are considered fully recoverable and therefore no provision for expected credit loss has been recognised. 8. Other inancial assets and liabilities Current Current Financial assets Foreign exchange forward contracts — — Current Current Financial liabilities Foreign exchange forward contracts — — The foreign exchange forward contracts are carried at their fair value with the gain or loss being recognised in the Company’s consolidated statement of comprehensive income. Refer to note 28 within the Group’s inancial statements for the fair value hierarchythe Group uses to determine the fair value of inancial instruments. 9. Trade and other payables Trade payables Other payables — Accruals Amounts owed to Group undertakings 10. Interest-bearing loans and borrowings Current Non-current Current Non-current Unsecured – at amortised cost Borrowings under the revolving credit facility maturing — — Cost of arranging bank loan — — — — In December 2022, the Group took the option to extend its multicurrency “Sustainability Linked Revolving Credit Facility”, together withan accordion of up to £30 million, by a period of twelve months; the maturity date is now December 2025. Financial Statements Volution Group plc Annual Report 2023 230 Notes to the Parent Company Financial Statements continued For the year ended 31 July 2023 10. Interest-bearing loans and borrowings continued Revolving credit facility – at 31 July 2023 Currency Amount outstanding Termination date Repayment frequency Rate GBP — December One payment SONIA margin Euro December One payment EURIBOR margin Swedish Krona — December One payment STIBOR margin Total Revolving credit facility – at 31 July 2022 Currency Amount outstanding Termination date Repayment frequency Rate GBP — December One payment SONIA margin Euro December One payment EURIBOR margin Swedish Krona December One payment STIBOR margin Total The interest rate on borrowings includes a margin that is dependent on the consolidated leverage level of the Group in respect of the most recently completed reporting period. For the year ended 31 July 2023, Group leverage was below 1.0:1 and therefore the margin will remain at 1.25%. At 31 July 2023, the Group had £70,631,000 (2022: £75,649,000) of its multicurrency revolving credit facility unutilised, plus an unutilised accordion of up to £30,000.000. Reconciliation of movement in inancial liabilities Reconciliation of movement of inancial liabilities At August Additional loans Repayment of loans Interest charge Interest paid Foreign exchange At July Changes in liabilities arising from inancing activities August Cash lows Foreign exchange movement New leases July Non-current interest-bearing loans and borrowings — 11. Share capital and share premium The movement in called-up share capital and share premium accounts is set out below: Number of ordinary shares Share capital Share premium At July and July Strategic Report Governance Report Financial Statements Additional Information 231 Volution Group plc Annual Report 2023 12. Dividends paid and proposed Cash dividends on ordinary shares declared and paid Interim dividend for : pence per share : pence Proposed dividends on ordinary shares Final dividend for : pence per share : pence The interim dividend payment of £4,942,000 is included in the consolidated statement of cash lows (2022: £4,553,000). A inal dividend payment of £9,891,000 is included in the consolidated statement of cash lows relating to 2022 (2022: £8,719,000). The proposed dividend on ordinary shares is subject to approval at the Annual General Meeting and is not recognised as a liability at31 July 2023. 13. Related party transactions The following table provides the total amount of transactions that have been entered into with subsidiary undertakings for the relevant inancial period. Related parties Amounts owed by related parties Amounts owed to related parties Amounts owed by related parties Amounts owed to related parties Volution Ventilation Group Limited Volution Holdings Limited — — ERI — — — Ventair — — — VMI — — — Sales made to Volution Holdings Limited of £4,113,000 (2022: £3,885,000) relate to management fees. The sales are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. No sales were made to Volution Ventilation Group Limited; the outstanding balance is an intercompany loan which has been repaid inpart during the year. Compensation of key management personnel The Executive and Non-Executive Directors are deemed to be key management personnel of Volution Group plc. It is the Board that has responsibility for planning, directing and controlling the activities of the Group. Please refer to note 3 for details of the Executive and Non-Executive Directors’ remuneration. There were no material transactions or balances between the Company and its key management personnel or members of their closefamily. At the end of the year, key management personnel did not owe the Company any amounts. 14. Share-based payments For detailed disclosures of share-based payments granted to employees, refer to note 32 of the Group inancial statements. Additional Information Volution Group plc Annual Report 2023 232 Alternating current or AC the low of electric current which reverses direction periodically, typically at Hz intheUKand Europe. This is the standard type of electricity supply to domestic andcommercial properties AC blowers a low-pressure fan with an AC motor AC motor an alternating current motor AHU air handling unit: a ventilation device which usually integrates air, heating and iltration intoone combined unit. May also include cooling and heat recovery Decentralised heat recovery a system of ventilation that collects heat from exhaust air that would otherwise be lost and reuses such heat by transferring it to the incoming fresh air. Decentralised heat recovery consists of multiple units supplying and extracting from around the home EC/DC electronically commutated direct current Electronically commutated or EC a type of motor which historically used a mechanical means of reversing the current low butwhich now uses an electronic device to do the same, which is more reliable and moreeicient Fan coil a device used to heat or cool a space which includes a water coil and fan for connection tothe wider HVAC package within a building HVAC heating, ventilation and air conditioning Hybrid ventilation a method that combines both passive and mechanical means to form a mixed mode ventilation system IAQ indoor air quality Lo-Carbon products a trademark used to represent our low-energy range of products MEV mechanical extract ventilation: a system of ventilation operated by a power-driven mechanism which extracts air from a room and discharges it only to the external air Motorised impellers a motor that is supplied complete with an impeller attached to it MVHR mechanical ventilation with heat recovery: a centralised system of ventilation that collects heat from exhaust air that would otherwise be lost and reuses such heat by transferring itto the incoming fresh air NVHR natural ventilation with heat recycling OEM original equipment manufacturer PIV positive input ventilation: this is an energy eicient method of pushing out and replacing stale, unhealthy air by gently pressurising the home with fresh, iltered air to increase theoverall circulation of air in the dwelling RMI repair, maintenance and improvement Rotary heat exchanger a type of heat exchanger consisting of a circular honeycomb matrix which rotates in the airstream of a heat recovery device Plate heat exchanger a type of heat exchanger consisting of a series of plates which transfer the heat from one airstream to another Speciiers persons who may specify certain characteristics of products Glossary of Technical Terms Additional InformationFinancial StatementsGovernance Report Strategic Report Shareholder services For any enquiries concerning your shareholding please contact our registrar: Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA United Kingdom Equiniti has a shareholder portal oering access to services and information to help manage your shareholdings and inform your important investment decisions. Please visit www.shareview.co.uk. Shareholder helpline: 0371 384 2030 1 from the UK or +44 (0) 121 415 7047 from overseas. Note 1. Lines are open 8.30 am to 5.30 pm, Monday to Friday (excluding public holidays in England and Wales). You can access our Annual Report and Accounts and othershareholder communications through our website, www.volutiongroupplc.com. Company advisers External independent auditor Ernst & Young LLP Corporate brokers Liberum Capital Berenberg Legal adviser Norton Rose Fulbright Financial PR adviser FTI Consulting Company Secretary and registered oice Fiona Smith Volution Group plc Fleming Way Crawley West Sussex RH10 9YX United Kingdom Registered in England and Wales Company number: 09041571 LSE ticker code: FAN Legal Entity Identiier: 213800EPT84EQCDHO768 Tel: +44 (0) 1293 441 662 Shareholder enquiries: [email protected] General enquiries: [email protected] Website: www.volutiongroupplc.com Forward-looking statements The Annual Report and Accounts contains certain statements, statistics and projections that are or may be forward looking. The accuracy and completeness of all such statements including, without limitation, statements regarding the future inancial position, strategy, projected costs, plans and objectives for the management of future operations of Volution Group plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as “intends”, “expects”, “anticipates” and “estimates” and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Volution Group plc believes that the expectations relected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Volution Group plc and could cause actual results and developments to dier materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Volution Group plc has no intention or obligation to update forward-looking statements contained herein. Shareholder Information Volution Group plc’s commitment to environmental stewardship is relected in this Annual Report, which has been printed on Revive 100 Silk, which is 100% post-consumer recycled, FSC® certiied. This document was printed byPureprint Group using its environmental print technology, with 99% of drywaste diverted from landill, minimising the impact of printing on the environment. The printer is a CarbonNeutral® company. Both the printer and the paper mill are registered to ISO 14001. Volution Group plc Annual Report 2023 volutiongroupplc.com Volution Group plc Fleming Way Crawley West Sussex RH10 9YX United Kingdom
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