Volution Group plc (FAN.L) Earnings Call Transcript & Summary

Really pleased to have a good audience. We're delighted to tell you a little bit more about what happened in our financial year 2023. And what we're also looking forward to doing today is introducing you to some new materials, which we hope we'll try and bring the story to life a little bit more and certainly should be helpful for context. But as you can see from the agenda here, I'll take you through the overview. I'll hand over to Andy. Andy is now 4 years, 4 years with Volution, so 4 financial years completed. Of course, a couple of those were really difficult through the COVID period. But I'm not sure if we should talk about this being the new normal. But nevertheless, it's a more sort of normal environment that maybe we're trading in. I'll go through the business review, and we'll talk a little bit about summary and outlook. The headline there leading player. So we think of ourselves as a leading player in the international HVAC market. I think this is a really important headline for the slide because one of the things that we often talk about in Volution is sort of peer set, peer group and so forth. And of course, in our daily life, the companies that we think of ourselves competing with are not necessarily the same as we get paired with. And so for those, I think, probably you're already aware, HVAC is sort of heating ventilation and air conditioning. And of course, Volution today has less than -- or sort of circa 40% of its revenue ending up with the U.K. customers. I think it's a really important takeaway for today because, many of the names that we compete with on a daily basis are, one, not necessarily U.K. listed and certainly not what you would call building products. This is an important aspect for us, and maybe we'll come back to it a little bit later on. But look, in the year, we delivered what we think was good organic growth, not without its challenges, and we'll take you through some of the individual markets as we go along. But at just under 5% constant currency organic revenue growth, an adjusted operating margin of 21.3%, actually up 20 basis points. It's essential for us, and we'll talk a little bit more about how we underpin and protect those market-leading margins as we go forward. And an excellent cash conversion, and cash conversion is absolutely everything for us. We know what we're going to do with our cash and delighted that we had such a strong year and does provide significant headroom for further acquisitions. And of course, on that note, we completed 2 acquisitions in the year, one in France and another one in Slovenia. And actual fact, we've already completed our first acquisition of FY '24. It completed on the 4th of August, and that was DBS Proven Systems in New Zealand. ESG is really important for us. And in respect of recycled plastics, I thought this was an outstanding achievement to go from 67% of the plastics that we consume in our facilities comes now from a recycled source. So up to 76%. So look, overall, we think it was a strong performance, and it was absolutely in line with our strategy and delivering against our ESG targets. A little bit more about our strategy and delivering on our strategy and what is our strategy? I mean it's the same strategy. In fact, that we had 9 years ago when we listed, although, but got a little bit more experience and maybe a little bit more of a track record that we can claim. But look, what we expect to do is to grow organically each year. And we think we've got a really good track record in doing that in the year just under 5%. There were some changes across the different geographic areas. The U.K. and actual fact was the outstanding performance in the year, and Continental Europe was certainly much more difficult. But still in Australasia, we're at 3.6% constant currency revenue growth and that's off the back of very strong revenue growth, particularly in Australia, since we acquired the business back in 2019. Value-adding acquisitions, I've talked about them. I think now we're averaging about 2.5 acquisitions each year, since we listed and indeed, we made other acquisitions prior to our listing in 2014. And just to stress, the pipeline is healthy, and we expect further transactions in the future. For us, and when Andy and I talk to prospective opportunities, we think of ourselves as a serial acquirer. This is what we do. This is what we expect to do, and you shouldn't be surprised to see us do further transactions in the period ahead. And then last but not least, operational excellence. 21.3% operating profit margin. I think I've had the question every year, since we listed how sustainable are your margins? And I guess the best way to prove sustainability is to just try and inch the map each year. No new targets today, certainly our long-term target is to stay above 20%. And of course, there's always a risk of dilution, particularly if we do bigger transactions in future because rarely, do we bring new companies to the group that operate at the same margin that the group operates at, all opportunity, of course. So sustainability. I've talked about recycled plastics, but 70.1% of our revenue was from low-carbon products. And in actual fact, we surpassed our expectations at the target was 66.1%. And in actual fact, our 2025 target is at 70%. So we are now creating a new ambition today to get to 75% of our revenue from low carbon product set by 2026. And inside that 70%. So it's 33.8% of our total group revenue is from heat recovery and heat recovery is a very, very important product set for us and one that we expect to grow materially over time. And not to give you too much of a lesson on the technology, but basically, the most efficient way to ventilate a well insulated properties with heat recovery. You're not losing all that precious feet that you've paid increasingly more cost for heating in the first place. So just thinking about dilution and what underpins our revenue growth. Why do we believe that we can grow well organically and certainly above the sort of general market trend? There's things that are going on in our space that are sort of obvious, but I thought we just try and summarize them for you here today, decarbonization. And I know there's been a lot of debate, for example, in the U.K. at the moment about whether or not we're stepping off in terms of decarbonization. But for us, we see decarbonization agenda every year become more helpful. It may not move as quickly as we would like, but it certainly every year improves. 40% our energy use or 36% of emissions -- carbon emissions are from buildings, buildings such as this one that we're in today. Healthy air, healthy air is essential. How long can you go without air. Don't try it, but it's not for very long, healthy air is essential. And I think what we saw through COVID and certainly we're seeing coming out the other side is a greater awareness and appreciation. And so for example, we see regulation increasingly focusing on indoor air quality or molding condensation problems and so forth. And let's not forget comfort. The biggest objection to ventilation typically in a property, whether it would be a refurbishment application or new build is noise. Noisy ventilation gets switched off. Ventilation that gets switched off creates all sorts of degradation to the fabric of the building. So we work very hard on providing solutions that are quite, that are less intrusive in the building, but still provide good quality air. So I'm going to go over these slides quite quickly. But we talk about our 3Ps, product, planet and people. And under product here, we got to 70.1% of our revenue from low-carbon sources. Now there's no doubt that the acquisitions that we made more recently helped accelerate that trend, but they should do. If we're acquiring the right companies with the right technology, why wouldn't they help accelerate the trend. So some of the companies that we acquired more recently, for example, energy recovery industries in North Macedonia, is a producer of aluminum heat exchanges, the absolute integral part of any heat recovery system. And of course, the acquisitions that we made more recently haven't had a profound impact on that metric in the year, but nevertheless, VMI in France and I-Vent in Slovenia, I-Vent is a provider of almost exclusively decentralized heat recovery retrofitted into Slovenian properties with a very significant market share. So as I say, no ambition for 2026 to get to 75% of our revenue from a low carbon source. Planet. We are absolutely serious about the impact or lessening the impact that we have on the planet. A lot of the products that we provide to our customers are made from plastic and we decided some years ago that we could utilize more recycled material in our production. Some of the investments that we made last year helped accelerate that production, particularly in our Reading factory in with respect to plastic ducting and so forth. But this is a fantastic performance. We still don't know how to get to 90% by 2025. But I think it's fair to say, when we set the target back in 2020, we didn't know how to get to 76% for last year. This is an absolutely stretching target, but we're making really good progress. And when we stay with Planet, we have made a commitment to be net 0 by 2040. And so reducing our carbon intensity by 9.8% in the year to 11.1 tonnes per million of revenue was a really compelling achievement there. So we're very pleased about the progress that we're making. But last but not least, around people. And I'm just -- I'm personally disappointed about our accident rate for last year. We had an increase and we're disappointed about that. However, I'm confident that the efforts that we're making to improve our health and safety to keep our people safe at work will take us in the right direction. And there were a couple of important new additions to the group last year. Andreas Boeber joined us as the Operations Director in the U.K. in May. And we've also strengthened some of our health and safety representatives and management in the local areas. But staying with these people theme, and management's development program for -- ops management development program for. Just before COVID, we were planning to have our fourth management development program. But of course, no point having a management development program, if we're carrying that program out virtually. The strength of our management development program is that we're bringing together an international management team that get to work together more closely. And I'm particularly delighted about this. We'll kick it off in a couple of weeks' time. The Chairman will join us at that launch. And it's one of the most exciting development programs that we have across the group. And the reason I say that is that if I look back to the first 3 programs, I could read off to you today, the people who are on programs 1, 2 and 3 and what they're doing in the group today. So this is really important for us and I'm very excited about what comes next. That was a very quick introduction to the year. I'm going to leave Andy with the exciting part to take you through the financials. But having said that, I think it is a very exciting update that Andy can provide.

Thanks, Ronnie. And accruing Ronnie's earlier comment. Great to see -- thank you for coming today, guys. Great to see so many people in the room we would go -- we're gonna need some more chairs next time, but good to see both familiar and new faces. So look, I'm just going to briefly talk through some of the financial highlights of the year 2023. So as this slide says here, a strong financial performance. I think, it's not usual, and it certainly makes your life quite straightforward as CFO to see plus percentages on all of the metrics on the right-hand side there. So whether we're talking of -- we'll unpick all of these in a bit more detail as we go through the materials. But a good, strong revenue performance, really, really delighted that, again, managed to gently uptick our margins. So the margin growth slightly above the revenue growth. Earnings per share despite the challenges of interest rates and what that brought to our finance costs in the year, again, managing to deliver a very similar rate of earnings growth as we had with operating profit growth. And then, I guess, perhaps the number that, again, for a CFO, probably the most pleasing one of the lot is the 50% improvement in operating cash flow. Last year, we made a very deliberate investment, which we talked about in inventory, which absolutely stood us in good stead for delivery last year, stood us in good stead of delivery this year. But what we did promise you a year ago was we would return back to our normal levels of cash conversion and cash generation in the year. And indeed, that's what happened. And then a proposed dividend, which will result in a total dividend for the year of 8p, which is just under 10% up on prior year. So look as the strapline says at the bottom there, strong growth in organic revenue, margin and cash flow and earnings per share ahead of consensus. So normally, I show you these charts on a 5-year basis, but I think it's -- there's 10 data points here now because as Ronnie said, it's just over 9 years, since the business listed. And we thought it was really, really important just to draw out and show the consistency of delivery of this business, ever since it IPO-ed in 2014. Invariably, you've got the little blip in 2020 for COVID, but you draw a line straight through those graphs on all the measures. So revenue, operating profit, earnings and cash flow and 13%, 14% compounding through that 10-year period, notwithstanding 2020 piece. Look, I think it's -- it's the numbers themselves, but it's also the consistency of that performance. It's not spikes and troughs and spikes again. It's a really, really consistent compounding performance through the 10 years, which we think is a great achievement. Revenue. So over -- when we move into the regional pieces, Ronnie will unpack this a little bit more. There were different dynamics, different moving parts within the group, some markets having tougher conditions than others. But overall, a result of 6.6% revenue growth, organic revenue up 4.6%. The sort of price volume question is something that we'll always get asked here. And we, roughly speaking, analyzed that 4.6% to be about 75%, 80% of it coming through price and about 20%, 25% of it through volume. But I guess the way you should think about that, and again, more apparent as we get into the regional slides, if you take the bits of the business that really did perform very, very strongly, so whether that would be U.K. residential, whether it would be ClimaRad or ERI in Continental Europe, the growth rates there were very, very much volume with a small price assist. But of course, we did have a couple of markets, particularly in Continental Europe, which will be a little bit tougher, where volumes definitely did contract. So Nordics and Germany, in particular, but we'll talk more about those as we move into the regional slides. Relatively small contribution from inorganic growth this year, not because we weren't active on acquisitions because as Ronnie has already mentioned, to really exciting additions to the portfolio and then a third post year-end, but simply the timing of those transactions, so the 2 in the year were, respectively, April and June, so very, very minimal impact in 2023, but definitely something that we're really excited about in terms of what it brings for 2024 and beyond. Moving then on to margins. So I guess if you look at the bottom left there, 3 full financial years now of delivering post-COVID of delivering margins at all fractionally above 21%. So our target, as Ronnie said, is and remains greater than or equal to 20%. We're not going to be moving that target. But I think, again, back to that consistency of delivery point. These last 3 years have been very unpredictable, very challenging, whether that would be market conditions, whether it would be supply chain disruptions, whether it would be inflation, we've had to navigate that period and to come out with that consistency of delivery, again, is something that we're very, very, very proud of. If you look at the bottom right there, we just try to unpick what that looks like on a 3 regional basis. So you'll see the bars for 2022 and 2023. And I guess the important takeaway for 2023 is that really strong performance in both the U.K. and Australasia. So over 2% of margin improvement in both of those territories. A little bit of softening in Continental Europe, which is predominantly mix. So as I've mentioned, Germany, Nordics, more challenging areas, they are traditionally and still towards the upper end of our margin profile in the group. So that mix effect hasn't been helpful. But what you then end up with is 3 regions, all delivering margins very, very similar to each other and all very strong margins ahead of the group target. Inflation has still been with us this year. I think it was in terms of materials, components and things like freight, it's definitely, definitely got much, much easier in the second half of the year, but that's now moved into whether it's labor, staff costs, property costs, some of the other overhead areas. So it's not to say inflation is gone, but I think it definitely, it's definitely moved in where it's gone. Then moving us to probably the highlight for me was the cash generation performance in the year. So cash conversion, we set a target of greater than or equal to 90%. As I mentioned earlier, last year, we were, by our standards, relatively lower than that at 76%, but that was a very targeted and specific investment that we made, which definitely did contribute to our service performance and therefore, our revenue performance over the last 2 years. And to get back to now comfortably above 100% is really, really pleasing. A small inflow of working capital this year that wasn't from inventory, inventory basically flat if you exclude the new acquisitions, inventory basically flat year-on-year, and that's what we said. We said haven't done the build. We don't intend to unwind it. We still think supply chains have the potential to be disruptive and the relatively small cost that has versus the ability to keep on servicing the market really excellently is we think worth a lot more than $1 million or $2 million of inventory. But what has contributed to that inflow has mainly been receivables. So a really good performance on receivables. And those of you who look at the notes when you look at the aging profile of the business, you'll see that actually the aging profile of the receivables has always been good, but this year, it was particularly strong. If you draw -- if you were to draw a box around everything here apart from the right hand one being the acquisition spend, what you'll see is an overall cash inflow of about GBP 30 million. So what we would say is we delever, and we've always said this, we would -- in a year where we didn't do acquisitions, we would delever approximately 0.5 ton per year. And so it's a really, really strong cash-generating business. But what we want to do with that cash generation is to invest it in really exciting acquisitions that add to the portfolio. So the right-hand bar there, GBP 30.7 million, that includes a little bit of fees, but GBP 30 million basically spent on the 2 acquisitions in the year. But still with that, we end the year with net debt fractionally lower than we went into it and leverage at 0.8x on an ex-leases basis, again, means that we not only are in a good position at the end of the year, but we're definitely in a place, where we can carry on pursuing these attractive acquisition targets. Ronnie mentioned earlier that we've tried to introduce some sort of new materials this year. And one of the things that we've been doing a lot of work on and consulted with a number of the analysts in the room as part of sort of developing that and thank you all for your help and insight. Return on Capital, ROCE or ROIC or whatever you want to call it, there are obviously multiple ways of looking at this. But what we've -- so we've always had a metric where we look at specifically the performance of our acquisitions. So we've had a target that we've had there for the last few years, where we say for each individual acquisition, we target it to deliver a return of 18% or more once it's been in the group for over 3 years. And that's still a really helpful measure, and it's the measure by which we test out how well we've delivered on both buying assets well, but then improving those assets well. But we felt it was really important to also move into developing an overall return on invested capital. It's all encompassing for the business, not just the acquisitions, but the whole business. Now on that old measure, you may recall that we would have said over the last couple of years, and the number is still the same this year that the acquisition return is about 24% cumulatively, but what we've got here is, is a full return on invested capital for the group. And that's coming out at 27%. So we've taken a 3-point average for the balance sheet. We've added back acquisition-related liabilities, net debt, and we've added back any historic amortization charges. So it is a true sort of grossed-up invested capital. We have made an adjustment, and we won't -- we think this is the right thing to do for the original transaction that created the group back in 2012. So that's what you'll see there, the goodwill intangibles of the 2012 leverage buyout. And altogether, that comes out then with a return of just over 27% for the business. Now that is a very, very strong return as it says on the right there. Clearly, it's significantly ahead of whatever people would estimate your weighted average cost of capital to be, it's clearly far, far in excess of that. I guess going forward, and this is going to be interesting from a target and measurement perspective. If we carry on executing on the acquisition strategy, which absolutely is at the heart of what we do, acquisitions will be dilutive at the point of entry to the group. No question about that. And so actually, if we can carry on maintaining this sort of return in the mid-20s with the execution of a good, strong acquisition strategy, we think that's going to be a recipe for really good growth and good returns for the business. And so, look the final slide from me, and I think there's nothing new here, but just really summarizing it back again in terms of how this year has looked relative to the targets, the core target that we have in our financial model. We've added I say that new return on invested capital target at the bottom there as well. But really, really good strong performance, delivery against all of the targets. I mean the only one that, if you like, is slightly below our model for want of a better word, is the total revenue growth, but that is purely the function of the timing of the inorganic activity and when that starts to play through as revenue. But look, overall, I'd say a really, really pleasing set of numbers. And with that, I'll pass back to Ronnie.

Thank you, Andy. So just a reminder here. So I mentioned earlier on, Volution is a much more international business today. And so about 40% of our revenue comes from U.K. customers and the balance as you can see, comes elsewhere. And of course, if you think about the acquisition pipeline and where we're likely to cement future transactions, that sort of reducing U.K. proportion will continue, although the U.K. market is very important to us, but that will continue to change over time. And look, we think that sort of geographic and end market diversification or diversity is really helpful, and it does create quite a bit of resilience. And I think that comes out really well in a moment when I take you through some of the individual markets and how they performed, although we delivered just under 5% organic growth, constant currency organic growth, not all of our markets were performing strongly. And I always say this to the teams, as CEO, it's very rare that every market points up strongly every year, no matter how hard we try. This is just showing how things have moved. So 10 years ago, 2 countries in actual fact, when I became CEO, we had 1 country, and we book based in the U.K. So 17 countries that will change over time. Lots of white spaces on the map still other geographies that we'd like to enter and indeed, existing geographies that we'd also like to add to. There's a lot of detail coming up on the next few slides, and I'm not going to go through every individual bullet, but there's sort of some core sort of highlights and maybe some low lights that we should just discuss, while we're here. So in the U.K. I mean look, it was an outstanding performance, I don't remember us growing 19.5% in the residential market before notwithstanding the COVID recovery year was obviously a very strong performance, but it wasn't against a sensible comp. But we grew 19% in residential. And in actual fact, we grew in all 3 elements of our residential business, public RMI, private RMI and indeed, in residential new build, which I know does feel counterintuitive, when we understand what's happening in the house building market at the moment. Look, I'm convinced that in the U.K., we have a number of brands, leading brands. We have a strong, if not the strongest product portfolio. We have the largest ventilation sales force. We have excellent customer service and excellent relationships. And I don't think the market grew 19% last year. So clearly, we've been gaining share and that was a particularly strong performance. If we look at residential new build, even in residential new build, we talked about some account wins that we made early in the financial year and also this move towards lower carbon continuous system or heat recovery ventilation, which has a very profound impact on the unit revenue that we see per dwelling. And so that is the highlight for us. In commercial, we're underweight. We're not the leader in U.K. commercial ventilation, but we have some strong niches. For example, we're the leading provider what we call fan core ventilation in the London market. And in actual fact, our commercial revenue performed better in the second half of the year. If you look back in the first half, actually, our decline was greater than that. So actually, half 2 was stronger. In export, we grew 1.7%. That's mainly in Ireland. Most of our growth is in Ireland. We're the leader for heat recovery ventilation in the Irish market under our Vent-Axia brand with heat recovery systems and actual fact, that's a market that continues to sort of struggle with how they build more houses. I mean it's completely different to how I remember in 2008, when people building the houses in the wrong place. But there is good sort of structural underpinning and faster regulatory underpinning in Ireland. It's a good example of where maybe the U.K. market could go more quickly because most properties in Ireland are built with some form of system or heat recovery ventilation. OEM was a disappointment. OEM is our motorized impeller business. And what we saw there, particularly in the second half of the year was a situation, where I think supply chains generally had normalized. One particular competitor that had struggled to sort of [indiscernible] German competitor. And we also saw a lot of the business from our OEM, about 50% of the business is in export and what we saw is quite a bit of weakness around Europe because these motorized impellers predominantly go into products that are new build focused. And in actual fact, we expect to see continued weakness in our OEM area, partly as customers are potentially overstocked and we see some destocking. And also, fundamentally, we're seeing obviously a greater weakness in new build construction than we are maybe in terms of RMI. Sorry, how could I miss that. Margin. Yes. I mean, Andy, operating profit margin improvement in the U.K. from 20.4%, 22.6%. And that's a function of a whole after things. So obviously, the volume helps. I would say the pricing discipline and our sort of relentless focus on operational excellence, factory efficiency and value engineering and so forth. So in actual fact, we exit the U.K., if you like, in FY '23 with, if you like, an improving margin trend throughout the year. So if you think about what the operating profit margin was in half one and then look at where we ended up for the year that we believe is a good trajectory to exit the year on. Continental Europe, really quite a mixed bag. I think the 2 low lights were in the Nordics and in Germany and particularly low in the second half of the year. In the Nordics, I'm convinced because I can see what's happening more recently is that we had a period of destocking. We had strong demand in a prior period. We had a distributor and wholesaler customers with high levels of stock. We had weaker demand and then we had the inevitable destocking. And I think a lot of that destocking is largely complete. So we had quite a bit of weakness there. And in Germany, our exposure is greater to new build than it is across the wider group. We typically talk about the group being 65%, 70% RMI to new build. But in Germany, actually, you could probably reverse that, and we have a greater predominance of new build. And there were some subsidy changes and so forth. So the German market, which had performed really well for us for 3 or 4 years. In actual fact, if you remember, back to COVID, we actually grew our revenue in Germany in the COVID year. And we continue to have a strong performance in '21 and '22, but it's come off. And what we had, as Andy has already talked about, is we had strong performance in other areas in ClimaRad in the Netherlands, where we have decentralized heat recovery in energy recovery industries with our heat exchanges. And in 1 or 2 other areas, we had a strong performance. So the operating profit margin decline of 2.2% isn't because we necessarily had a lesser quality delivery in the local areas. It's the participation or the lower participation of the Nordics and Germany, bringing down the average and the greater growth in areas that are at a lower operating profit margin. So I guess what I'm saying there is that if and when we see a recovery in the Nordics and German areas, we would naturally expect to reflect that in an improving margin mix. And the inorganic additions really very small. Ventilairsec or VMI in France, look, we've acquired Ventilairsec in France. It's a small proposition that deals through electrical wholesale trade, has access to distribution, but it's a relatively small player in the French market and we believe that has a huge runway of opportunity in the coming years. The issue for us is to introduce new products and open up new customer relationships. Some of those customers are international groups that we have strong relationships with elsewhere and we believe will see us as the horse to back, if you like, in the local market because they know what we're able to deliver for them in other markets where we partner. So look, the opportunity in France is a long runway of opportunity. We're working very hard with that right now. Whereas i-Vent in Slovenia is slightly different. It's got a market-leading position. It's a country of just 2 million people, although we are now opening up in Croatia, and we have a slightly different model in i-Vent, but it's very profitable, very exciting, and we're delighted to bring it on board. But those companies only participated for a couple of months in the year. Moving on to Australasia. Again, it was a really good year in Australasia. It's slightly mixed, I would say, I think, in New Zealand. In New Zealand, the market has been tougher in Australia, we still continue to grow very well. Operating profit margin of 23.9%. So that's a great performance. If you look back at the sort of Ventair margin, when we acquired the business back in 2019, it was sort of circa 10%, 11%, 12%. So we've been able to steadily improve the margin. And then, of course, more recently, it was a post-balance sheet event. It was the 4th of August. And we did have to go through competition clearance. We had to work with New Zealand competition clearance authorities to get the approval. But delighted that we had. And what's important about DBS is that we have 2 routes to market in New Zealand. It's generally a smaller country, probably about 5 million people, but we have a distribution market-leading position in Simx and we've also acquired DBS, which is an installer of ventilation and has a different proposition. And we believe the attraction of having the installation element in New Zealand is that we can upsell and upscale products more quickly. We're having a direct-to-consumer conversation about what's the right solution and so forth. And the attraction there is that we've got a very wide scope of products across the group, and we know that we can deploy those products into New Zealand through DBS, which, of course, is exciting for Simx over time as well because Simx is providing the products that are replaced over time. And so we're able to sort of double dip in the market. So really excited about that. I'm excited about the profit improvement in the year, 22% growth in the profit in the year, partly because of the organic growth, but of course, hugely assisted by the margin expansion. What I'd like to talk you through now is sort of how our markets benefit from long-term structural growth drivers. And I think it's particularly relevant at the moment because, of course, we're all nervous about outlook and quite what's going to happen next. I'd remind you, of course, that in that context, we have just delivered a circa 5% organic growth. But there's no doubt that with inflation, higher interest rates and mortgage rates that newbuild construction globally is under some pressure in the U.K., in Continental Europe and indeed in Australasia. And we're just trying to show on this slide, how this impacts us. So for example, if we look at new build residential. Clearly, our revenue in new build applications is hugely linked to the construction volume. Are we building more homes, less homes or the same. However, there are also, as you can see on the second line there, huge regulatory drivers that can assist us. And I would argue in FY '23, our residential new build strength was clearly not as a result of building more homes, but was as a result of regulations having a greater impact. And just to understand the runway of opportunity here, we estimate pretty accurately that less than 40% of all U.K. housebuilding consists of heat recovery. The future home standard, which is the standard that's basically setting the outline for how we build homes that are net 0 carbon ready, and would argue that heat recovery is probably the only sensible way to go. Now I'm not arguing that by 2025, we will see that 40% penetration go to 100%, but it is moving every year, and we have daily engagements with house builders and with projects around utilizing more heat recovery and system ventilation. It's moving. It will continue to move. And of course, the last change in part F&L of the building rate was really supportive. But this is a trend that's happening all over Europe, but not just in new build. And what we're showing here is that in RMI, the impact is less, but there are other impacts in RMI that are of greater importance, energy efficiency, indoor air quality. We've only got to look at what's happening in the public housing market in the U.K. at the moment. Indoor air quality awareness is paramount. Molding compensation is something if you Google molding condensation in U.K. social housing it's every day. This is underpinning a substantial increase in demand for proper refurbishment of social housing properties. So we're not arguing we're acyclical, if only that were true. What we are arguing is that there are other drivers that can assist us in a market when maybe overall volumes are a little bit weaker. And of course, all of this is complemented by a broad geographic and end market exposure. So that's us really. That's what we wanted to talk to you about today. I'll come on to summary and outlook and what we think of as our clear compounding growth model. As a debate for Andrew and I, which one of us would use the slide showing the 9, 10-year track record, Andy won that one. But look, I get the opportunity to summarize what should come next. We have structural growth drivers underpinning our long-term growth. We could not have delivered what we have to date and have the confidence in our future expectation without the structural undersupply of homes in the U.K. or for that matter, pretty much all over Europe and indeed in New Zealand, where if you've ever tried to rent a property in New Zealand, it's now only impossible, as one of our colleagues found a couple of years ago. We've got increased regulation. There's no debate about that. I know there's a lot of debate about the recent conservative government announcement. But fundamentally, I don't think they'll make a huge change to the progress that we see in the coming years in this space. A drive for energy efficiency, it's key. It's not just about carbon emissions, it's also about cost, indoor air quality and health awareness and upselling. Upselling is something that we're very good at, particularly in areas such as private refurbishment. We have a differentiated business model aligned to our chosen markets. I won't take you through each of the individual bullets there, but our strong brands, we have leading brands. And sometimes, it might sound counterintuitive, but those brands might not lead an entire market, but they'll lead their niche. In the Netherlands, we have [ clean air rally ] leads the niche in decentralized heat recovery. We have inventor in Germany, it does exactly the same. And just to remind you, delivering an attractive through-cycle financial framework, organic growth between 3% and 5%, we've actually been closer to 5%. Overall revenue, including the acquisitions at 10%. The margin consistently over 20% and EPS growth that should be over 10%, cash conversion over 90% and a group return on invested capital of mid-20s, all of this augmented with an attractive bolt-on M&A strategy. And that particular aspect of our pipeline is full. It's busy, and we're excited about what we can do next. So it just gives me the opportunity now to summarize, it was a good year. You can see on the slide there. And maybe just come on to outlook. I know it sounds like the long disclaimer here. But look, I think the important issue is that we don't know for certain, what's going to happen next, but we do know where our business is at. And the levers that we have to pull. We have the M&A that we've recently consummated that we're excited about improving in the year. We have certain elements of our markets that are -- that are running quite hot at the moment, for example, in terms of U.K. social housing that I believe is a multiyear trend. The amount of work that needs to be completed cannot be completed in 1 or 2 years. This is going to run for some considerable time. And also, I think from Andy and my perspective, credit to the wider management team. We are able to comfortably be here today on the roadshow for the next week in the comfort that we have a very, very strong management team, not just functionally in terms of leading innovation and procurement and product management, but also the local managing directors. And because of that, and of course, our wider geographic and end market diversity it gives us really good confidence of making further progress in the year ahead. Okay. Well, that's the sort of formal part of proceedings. We've got a little bit of time now to open up to questions. Okay.

It's Robert Chantry from Berenberg. Just 3 questions from me. Firstly, just on the German market, in particular, you mentioned 70% New Build. Could you share some of your thoughts around the structure of that market in terms of its cyclicality compared to the U.K. and the broader structure of how that is impacting the business and specifically in German New Build? Secondly, how do you see yourself moving further around the kind of broader HVAC landscape? You clearly put that lined up the tagline at the start of the presentation. On a multiyear view, do you see there's significant opportunities beyond your current end markets that you'd like to play a role in? And then thirdly, you talked about increasing the proportion of kind of feedstock from recycled material, with a 90% target by '25. Could you just talk about some of the main, I guess, supply chain, technological barriers, challenges around feedstock availability and pricing to getting there? Because clearly, it's all not immediately available today at the price you want it to at a stable price.

Okay. So Germany first. Our exposure in Germany is about 70% New Build, 30% RMI. Like a lot of markets, I think New Build construction have been reasonably strong up until about 12 months ago. We saw the impact in our half 2 quite, quite profound. Couple of things that we're doing at the moment. One is that we think decentralized heat recovery lends itself really well to refurbishment, and we have been sort of doubling down and focusing hard on the refurbishment opportunity. So that acts as a little bit of a mitigation there. In terms of New Build construction, I don't know this for certain, but I suspect that we are probably at or close to the bottom. And so there's almost an inference there that as we come around into the second half of this year. But the situation in Germany if we're able to be successful and indeed, I think we will be in telling more into refurbishment, and we come off the bottom in New Build, actually, it probably gets a little bit easier for us. And also, this is a technology that fundamentally has been growing well anyway. So you'd almost argue in a static volume market, you would expect heat recovery to grow. And indeed, the reason I talked about 2021 and '22 is we were delivering consistent double-digit revenue growth in Germany because of that. Just a second question on HVAC and how we think of ourselves. I don't know you're going to ask the question, but if I was to answer it, I would look at this slide and say, if we deploy the same strategy with the same success for the next 3 to 5 years, one would hope, and this isn't a forecast, but one would hope that we could deliver a similar performance to the one that we've delivered in the last 9 years. And we don't see any major departure from strategy. What I would say is that there isn't going to be a ventilation company of any size in Europe that's sold in the next 12 months that won't have us as a potential acquirer on the list. And an actual fact, there's also quite a few other things that we won't be a potential acquirer of that were on the list for as well. So what I'm saying is we're getting many more inbounds than ever, but the core markets are U.K., Continental Europe and Australasia. We're not looking at North America. We believe that there's so much value to be created in those existing markets. And the third point about recycled materials, it's really quite detailed here. But if you imagine a ventilation device, there's certain parts that are passive, and there are certain parts that move. The passive parts have less structural integrity in them because they're not moving, then, for example, an impeller that may spin up many thousands of RPM. So we have to be very careful about applying recycled materials to parts that are active in the device. And what that means is that we have to do extensive testing to satisfy ourselves that we're not taking undue risk with the structural integrity of the material. What is happening, of course, is more recycled material is being made available, but there's also more demand for recycled material because we're not alone here. But I have confidence in the team to get to this 90% measure because as I say, when we set the measure at 90% previously and that -- those individual steps across the years, we've got some great people who came together, and they're really challenging. Even some simple things where we've moved -- we've moved products that are not visible from white to black because it's easier to find black materials than white. And we've had to go to customers and say, it's going to be black now, not white, but it's not visible. And actually, when you go to customers and say, we're trying to be more sustainable in our processes and what we do, there's very little pushback. In actual fact, we would argue there's a new account acquisition shortly that I think will get over the line, and it's because they can claim to their customers that this particular product line will be from a 100% recycled source. There's also sort of regulation now about having a certain minimum recycled content in a New Build commercial project, and we help customers with that metric.

Charlie Campbell, Liberum. I've got a couple and maybe do them in turn. Market share in the U.K. clearly has gone up. I just wonder kind of whether -- what more levers you have to increase that further? And in particularly, you talked about new account wins in the financial year just gone, any prospects for any more of those sorts of accounts in '24, '25?

Yes. I think I think there are. I'm probably not going to answer that question full, Charlie, because I think we've got a strategy that's working and an approach that I think is slightly different. And I'm confident that will continue to help us gain share. But I probably don't want to be too intimate about how that works because, yes, but we are confident. I think in certain aspects, we are confident about being able to further leverage our position. I mean, one area that stands out for us is this sort of, I think I used the word relentless pursuit of customer service. And I know we had a board visit to our Reading factory recently, and I just let the team get on with it, and they live and breathe this relentless pursuit of delivering customer service. And it's quite incredible in this day and age that it's actually a point of competitive advantage. So I think that's really clear. And we've stood out, where housebuilders, for example, over the last few years have really been fraught with supply chain difficulties. I think where one name they can put on the pad and not have to worry about. And I think that last -- but look, credit to the U.K. team. We have a very significant long-serving team who know what to do. So there's a couple of new account wins that I think we'll get over the line. And obviously, that's helpful if there are more headwinds, particularly in the New Build sector.

And the second question was about order books. I mean I know that there aren't order books across the group, but there are, I suppose, a few companies where there are order books and maybe thinking about ERI, ClimaRad and maybe New Build U.K. Just if you could give us some color on the order books, and how those are looking for the year?

ERI, the order book is quite -- it's quite short in actual fact because it's more of an OEM. And so what happens is customers are placing orders probably 1 or 2 months in advance. And there's probably a little bit less demand in that area, not surprisingly because these heat exchanges are going into New Build. On the other side, if I look at ClimaRad, these are projects that tend to get placed quite early on. And I would say there that there's quite a bit of strength in the order book. And definitely, that was what was underpinning the second half strength of last year. So we've got really good visibility in ClimaRad. And in Residential New Build, I think our project order intake is remarkably consistent at the moment. But we are stronger in apartments versus houses at the moment because of the way the regulations work. And we've also got the tailwind still of a couple of new accounts and indeed another account that we won more recently. So I always say to the team, so you might have a count A that's talking about a 20% reduction, but actually, it's 100% more than we had in the prior year. So that's helpful. Okay. Clyde, sorry, I've not gone a little about out of turn, but I will get to everyone.

Clyde Lewis, Peel Hunt. I think I've got 3, if I may. You put up HVAC, but obviously, the V is massively bigger than the H and the AC. Is that an indication, albeit a very subtle one, that you are starting to think a bit harder about the H and the...

No. No, no, it's not. Sorry. Absolutely no. So the classic sort of heating, ventilation and air conditioning, we're absolutely the V for ventilation. But no, it was just more the fact that, if I looked at -- if I looked at a piece of research from anywhere in the marketplace, it would not talk about companies like Zehnder or Lindab or Systemair or Belimo and so forth that we think of as very credible ventilation peers. It would talk about more U.K.-centric building products companies that are great companies, but they're in a different area of the market. And so what we're trying to say is that Volution is, I think, the only U.K.-listed ventilation group. So there is a danger that we get paired with other U.K. listed companies that don't actually do what we do, have a minimal overlap. There's only 1 company that's listed in the U.K. that has a minimal overlap with us in the U.K., and that's obviously Genuit. So we look at what's happening with Belimo or Zehnder or Systemair or Ariston or Lindab, names that might be new to some of you, but ones that we compete within their local markets. So for example, if we go to Germany, we're competing with Zehnder, or if we go to the Netherlands, we're competing with an Ariston owned company. That was the point. But no, we're not looking to be a heating or air conditioning company. Good question.

Just checking. Second one was on new housing. It would be really useful if you could give us a little bit of an example as to how the U.K. versus the German market, the average spend on the product -- the ventilation products in the German house compared to the 40%. I must say I was surprised as many as 40% new houses are using those heat recovery systems. But it'd be useful to sort of maybe comp if you have got any numbers just so that we can sort of understand the opportunity in that sort of market?

Yes. And so first of all, the 40% is all U.K. construction, so apartments, some student accommodation, but also houses. So it's probably 80,000, 90,000 pieces out of maybe 2 40 total. And we've had some slides in the past to talk about the revenue per dwelling. It's quite crude here, but I would say that a new 3- or 4-bedroom house that includes heat recovery as a system would probably have about GBP 1,000 to GBP 1,400 of materials installed plus also the installation cost, but it's relatively low cost to install in the new build. Clearly, not the case in a retrofit. If I looked at that in Germany, it's higher, but not massive, a couple of thousand to EUR 2,500. The standard is probably more elevated, and there's a little bit more, but it's not hugely different. And of course, we should compare that to a house that maybe 5 years ago was built with just unitary fans, and that's probably GBP 100 to GBP 200. What happened with the last change of the building regulations in June 2022 is that it's almost impossible now to meet the regulations, building with unitary ventilation. Now the problem is that it takes time for the existing construction, if you like, to work through. So we don't see an immediate impact from the change in rate. It tends to come a couple of years later. And there's some intermediary stages as well in terms of the technology. But the sort of holy grail for us is that one day, whether it's in my lifetime with Volution or not. But one day, you'd be expecting 90%, 95% of all U.K. construction to potentially be with heat recovery.

And the 40% in the U.K. would look like what?

Oh, sorry. In actual fact, in Germany, it's not as high as you might think because the -- it's not as well-regulated in terms of the way the U.K. is, and I can be quite prescriptive about that route that we're going through. But they generally build more energy-efficient properties. So even though it's not regulated, they'll use decentralized heat recovery so they've been using us and other brands, they use central systems and so forth. So I would say if you looked at decentral and central heat recovery, it's probably 60%, 70%. Yes.

Last one then was on U.K. RMI, but private side rather than public sector because obviously, public sector is pushing quite hard. What trends are you seeing there? In terms of is there an upscaling improving quality of what people are putting in? Are they doing it...

In private RMI. Yes, I think there is. There were 2 things that happened in the year that were really quite profound. One of them was that -- I think we talked about at the half year, the positive input ventilation, the problem solver and the Google search for that. We've seen the positive input ventilation. There was some -- went viral on TikTok, with people showing, I put one of these products into my property and look what happened. So [ POIV ] in private refurbishment grew really well. And what we argued is that because of our strong links to distribution versus the brands that we compete with that are more direct sellers, we were able to leverage that opportunity really well, and we're confident we do the same again this year. And of course, our strategy is to upsell. What we're saying to consumers, to contractors, to whomever, is ventilation doesn't have to be noisy. And actually, the premium you're paying over a more traditional to a quiet device is GBP 10 or GBP 20 or GBP 30 or GBP 40. You're paying 3 or 4x that to have it installed. And that's an education, it's a forever education because there's 30,000-plus small electric contractors probably more than that, that fit these products. How do we get to them? How do we influence them? But we're very good at it. And our customers understand. I won't use any specifics, but there are a number of retail and trade customers who get it because they're selling a higher value proposition. So it helps them grow as well as us, of course. Okay. Sorry, at the back there. I know you've had your hand out a couple of times. Thank you.

Vanessa Jeffriess, from Jefferies. Just a follow-up on installation and heat recovery a bit. Aside from the cost, could you talk a bit about the practicalities? Because my understanding is that some housebuilders find them to be quite complex to install. And then after that, if you could just talk about if there's any theme in the last 3 acquisitions you did and how you plan to exploit that French opportunity anymore? And what kind of opportunity is there?