Business
Victoria : Half-year report for the 26 weeks ended 28 September 2024
Victoria : Half-year report for the 26 weeks ended 28 September
About this update from Victoria Plc
26 November 2024 Victoria PLC ('Victoria' or the 'Company', or the 'Group') Half-year Report for the six months ended 28 September 2024 Continuing to position the business for recovery with lower fixed costs, higher operational gearing, and increased market share Victoria PLC (LSE: VCP), the international designers, manufacturers and distributors of innovative flooring, announces its half-year report for the six months ended 28 September 2024, in line with the numbers announced in the trading update of 15 October. FINANCIAL AND OPERATIONAL HIGHLIGHTS 26 weeks ended 26 weeks ended 28 September 30 September Continuing operations 1 2024 2023 Underlying revenue £568.8m £624.6m Underlying EBITDA 2 £50.2m £92.7m Underlying EBITDA (Pre IFRS-16) £34.6m £77.8m Underlying operating profit 2 £7.7m £51.8m Statutory operating (loss) / profit (£140.8m) £18.8m Underlying (loss) / profit before tax 2 (£13.6m) £31.5m Statutory net loss after tax (£141.7m) (£18.9m) Underlying free cash flow 3 (£12.7m) £29.1m Net debt 4 £658.2m £695.6m Net debt / EBITDA 5 6.2x 3.9x Earnings / (loss) per share - Basic (124.58p) (16.43p) - Diluted adjusted 2 (5.01p) 13.77p The Group sold its B3 Ceramics Danismanlik ("Graniser") business on 18 November 2024 and this has been classified as a discontinued operation. The financial highlights above exclude the contribution of Graniser in both the current and prior year period. Underlying performance is stated before exceptional and non-underlying items. In addition, underlying profit before tax and adjusted EPS are stated before non-underlying items within finance costs. Underlying free cash flow represents cash flow after interest, tax and replacement capital expenditure, but before investment in growth, financing activities and exceptional items. Net debt shown before IFRS16 right-of-use lease liabilities, preferred equity, bond issue premia and the deduction of prepaid finance costs. Leverage shown consistent with the measure used by our lending banks. Outlook Flooring is a staple product required in every building which has a very long growth trend and an assured replacement cycle and the Board believe demand will rebound as markets experience a more favourable interest rate environment. Despite market conditions Victoria has improved its competitive differentiation and gained market share in key markets. £12 million has been permanently removed from our fixed cost base during the period and a further £20 million per annum of savings is being executed, such that the impact on FY2026 earnings will be circa £32 million in total. The challenging trading environment has masked the financial impacts of these changes, but they have minimised Victoria's fixed costs whilst materially improved our operational leverage. Careful management of integration projects and cost savings to maintain unchanged access to production capacity, allowing Victoria to rapidly increase output to meet future demand more efficiently. The Board believe that demand normalisation should deliver a volume uplift from current levels of more than 20%, with each 5% increase expected to drive a greater than £25 million increase in Victoria's earnings. Geoff Wilding, Executive Chairman of Victoria PLC commented: "The long-term prospects for Victoria, continue to be exciting and we believe we have a clear path to return to mid-high teen EBITDA margins. In the short term, even with subdued demand profits should begin to recover with the effects of the 'self-help' work undertaken to improve efficiency and take market share. In the medium term, as demand normalises, we are confident Victoria's revenue will recover and with the higher operational leverage now inherent in the business due to the integration projects and cost initiatives management have executed this year (and which are ongoing), we anticipate earnings increasing sharply with mid-high teen margins achievable." Investor presentation Geoff Wilding, Executive Chairman, Philippe Hamers, Group Chief Executive and Brian Morgan, Group Chief Financial Officer will provide a live presentation relating to the half-year report via the Investor Meet Company platform today (Tuesday 26 November 2024) at 13:30 GMT. The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free to attend the presentation here . Investors who already follow Victoria PLC on the Investor Meet Company platform will automatically be invited. The results presentation will be made available on the Company's website on the day of results here . For more information contact: Victoria PLC www.victoriaplc.com/investors-welcome Geoff Wilding, Executive Chairman Via Walbrook PR Philippe Hamers, Group Chief Executive Brian Morgan, Chief Financial Officer Singer Capital Markets (Nominated Adviser and Joint Broker) +44 (0)20 7496 3095 Rick Thompson, Phil Davies, James Fischer Berenberg (Joint Broker) +44 (0)20 3207 7800 Ben Wright, Richard Bootle Walbrook PR (Media & Investor Relations) +44 (0)20 7933 8780 or [email protected] Paul McManus, Louis Ashe-Jepson, +44 (0)7980 541 893 / +44 (0)7747 515 393 / Alice Woodings +44 (0)7407 804 654 About Victoria PLC ( www.victoriaplc.com ) Established in 1895 and listed since 1963 and on AIM since 2013 (VCP.L), Victoria PLC, is an international manufacturer and distributor of innovative flooring products. The Company, which is headquartered in Worcester, UK, designs, manufactures and distributes a range of carpet, flooring underlay, ceramic tiles, LVT (luxury vinyl tile), artificial grass and flooring accessories. Victoria has operations in the UK, Spain, Italy, Belgium, the Netherlands, Germany, Turkey, the USA, and Australia and employs approximately 5,600 people across more than 30 sites. Victoria is Europe's largest carpet manufacturer and the second largest in Australia, as well as the largest manufacturer of underlay in both regions. The Company's strategy is designed to create value for its shareholders and is focused on consistently increasing earnings and cash flow per share via acquisitions and sustainable organic growth. CHAIRMAN & CHIEF EXECUTIVE'S LETTER TO SHAREHOLDERS H1, Financial Year 1 2025 2024 2023 2022 2021 2020 Revenue £568.8 £624.6m £771.5m £489.0 m £305.5m £312.9m EBITDA £50.2m £92.7m £100.1m £84.5m £52.4m £58.5m Margin 8.8% 14.8% 13.0% 17.3% 17.2% 18.7% The flooring industry continues to experience the longest period of subdued (albeit now appearing to be stabilising) consumer demand in a generation as a result of macroeconomic pressures. We are confident the factors that have been impacting demand are transitory, and at some point, the headwinds the industry has experienced for the last two years will turn into tailwinds and the Board is encouraged by recent positive data in Victoria's end markets. For example, a key driver of demand is housing transactions and in the last quarter increased mortgage approvals, rising house prices, and lower interest rates have been reported in our key markets and these are all precursors to increased transactions and consequently flooring demand as consumers refresh their property before placing it on the market or refurbish their new home. Similarly, as incomes have caught up with inflation alongside lower mortgage expenses, consumer discretionary spending is also likely to increase, which also drives flooring sales. Weak consumer demand for flooring has historically always resulted in revenue deferred, not revenue forgone - the threadbare rug or stained carpet reluctantly tolerated during economic hard times is immediately replaced when a recovery in discretionary spending power allows. Nevertheless, Victoria is seizing the opportunity that the current environment provides to become more efficient and grow market share. Primarily the improved efficiency will come from the integration of recent acquisitions, but much opportunity also exists to reduce costs when every expense item is forensically examined for savings. As a result, we will be well positioned for the recovery when it arrives with lower fixed costs, higher operational gearing, and increased market share. OPERATIONAL REPORT BY DIVISION UK & Europe Soft Flooring H1 FY25 1 H1 FY24 1 Volumes 60.3 million sqm 61.1 million sqm Revenue £284.8 million £318.6 million EBITDA £25.5 million £43.2 million Margin 8.9% 13.6% Soft demand across almost all its markets impacted revenue and margins in the UK & Europe Soft Flooring division although we are confident we have been successful at improving our market position in the UK. For example, the predominant component of our UK business is the delivery of 'cut lengths' (i.e. carpet cut to size for a specific consumer order), and in the last 90 days the rolling four-week average order intake is c.15% above the same period last year in what we know remains a soft market. Earnings in this division were particularly impacted by the performance of Balta, the Group's Belgium- headquartered rug manufacturer and distributor. Government mandated labour cost inflation combined with below forecast volume and pressure on selling prices compressed margins during the period. However, these factors are being mitigated through transference of capacity to the Group's modern Turkish factory in Usak alongside very material reductions in FTE. A reduction of more than 700 FTE in Belgium has been achieved to date with further savings underway that are expected to lower costs by an additional £10 million per annum (approximately half these annual savings will be seen in H2 FY2025, with the balance delivered to impact FY2026) without any loss of production capacity. Other initiatives to reduce costs and/or grow market share executed during the period included: Integration of our UK distribution businesses was completed in September with immediate savings totalling circa £5 million per annum. This will therefore benefit H2 FY2025, but the full year effect will be seen in FY2026. Operational integration of our two underlay businesses, which included the closure of one plant in Scotland and (post the H1 balance sheet date) an upgrade of the Haslingden manufacturing plant is expected to provide annual savings of more than £4 million - £1 million of which will benefit H2 FY2025, with the full impact in FY2026. During the period Victoria expanded its Alliance logistics platform into Northern Ireland and the Republic of Ireland - allowing us to provide the same level of service to retailers in these important markets as it does in the UK. Alliance continues to be a key differentiator, separating Victoria from the continental carpet suppliers by meaningfully enhancing our service proposition. Retailers place great value on fast, on-time delivery as it allows them to reduce their inventory levels and warehouse overheads. UK & Europe Ceramic Tiles H1 FY25 1 H1 FY24 1 Volumes 17.4 million sqm 18.3 million sqm Revenue £151.4 million £166.5 million EBITDA £19.5 million £36.1 million Margin 12.9% 21.7% Continued soft demand alongside competition from cheaper imported product has maintained pressure on volumes and selling prices and this is reflected in earnings for the period. Aggressive action is being taken to mitigate the effects of low demand and increased competition, whilst ensuring the business preserves its production capacity: Installation of a new, ultra-efficient production line in Spain. This will take about 12 months to complete but work is underway and the first stage will be delivered in mid-FY2026, which will positively impact earnings and cash flow that year. However, the full benefit will be seen in the following year and is expected to improve earnings by £16-19 million, based on current market conditions. Full integration of the ceramics production facilities to enhance efficiency by allocating specific tile formats to the optimal plant, irrespective of geographic location, as noted in the Group's 2024 full year results. Post the H1 balance sheet date Victoria sold the Turkish ceramic tile manufacturer, Graniser, in a €36.8 million transaction that will provide Victoria's ceramic tiles business continued access to cost-effective tiles whilst contributing towards the deleveraging of the Group's balance sheet by reducing leverage by approximately 0.5 times. Australia H1 FY25 1 H1 FY24 1 Volumes 11.4 million sqm 11.3 million sqm Revenue £54.7 million £54.0 million EBITDA £7.2 million £6.9 million Margin 13.2% 12.8% The Australian management have been able to achieve a very solid result, despite similar softness in demand that has been experienced in other markets. It is worth reminding shareholders that, despite being 10,000 miles from the majority of Victoria's businesses and enjoying few of the synergy benefits our other operations do, the Australian division consistently generates between 35-40% return on capital employed. North America H1 FY25 1 H1 FY24 1 Volumes 3.4 million sqm 3.5 million sqm Revenue £77.9 million £85.5 million EBITDA £2.4 million £9.6 million Margin 3.1% 11.2% Victoria's US strategy has been to acquire good brands and distribution (not manufacturing) businesses, which sell the same categories of product as the Group manufactures or sells in Europe. Management had expected demand to recover during FY2025 and had positioned the business accordingly, but with US mortgage rates remaining close to 7% and housing transactions sitting at 25-year lows (both key drivers of flooring sales), demand remained subdued. Therefore, we are taking the necessary actions to restore profitability in what remains a challenging market: Restructuring actions to reduce SG&A by approximately $7.5 million per annum, including a reduction in corporate and warehouse personnel, as well as other controllable expenses. Commercial excellence initiatives to improve profitability including minimum order quantity policies, improved inventory positioning, and pricing enhancements to achieve improved gross margin performance and reduce transportation spend. Cost cuts at our partner factories to improve landed product costs in several key products. Across the board price increases to offset the increase in COGS due to higher sea freight expenses. The full impact of these actions is expected to impact earnings by February of 2025. 1 FY25 and FY24 performance is stated on a continuing and underlying basis: excluding discontinued operations; and before exceptional and non-underlying items. CASHFLOW & LIQUIDITY Net operating cash flow before interest, tax and exceptional items was £31.7 million for the half year ended 28 September. Importantly, after three consecutive years of cash being absorbed in working capital, there was a decrease of £2.1 million in H1 FY2025. This must - and will - continue to improve with specific plans being executed by all managers. Victoria continued to maintain a strong liquidity position and the Group finished the period with cash and undrawn credit lines in excess of £200 million. During the year the Company has completed the sale of a property in Belgium for €39.7 million and (post the H1 balance sheet date) realised €36.8 million from the sale of Graniser, which reduced leverage by 0.5 times. OUTLOOK It is easy, almost inevitable, during challenging periods for investors and management to focus almost entirely on the short term, but I think it is useful to maintain awareness of the long-term prospects for Victoria, which continues to be exciting: Flooring is a staple product required in every building and has a very long growth trend and an assured replacement cycle. Macro-economic drivers will influence spending for periods, but underlying factors (continually ageing housing stock with interiors requiring repair and renovation, higher household formation, broad housing shortages, increasingly style-conscious consumers, and new construction) inexorably increase demand over time and, as has happened in previous cycles, we believe demand will rebound as our markets experience a more favourable interest rate environment. It is important to remember that our competitors are experiencing the same market conditions and, as we have executed on our integration projects, we have been able to improve our competitive differentiation and gain market share in key markets. This gain has been camouflaged by the temporary fall in the size of the market and pricing pressures, but it is no less real for that. £12 million has been permanently removed from our fixed cost base during the period and more than £35 million in the last 18 months. (A further £20 million of annual savings are being executed). The challenging trading environment has masked the financial impacts of these changes, but they have minimised Victoria's fixed costs whilst materially improved our operational leverage. We have been extremely careful with all the integration projects and cost savings to maintain unchanged access to production capacity. Consequently, Victoria will be able to rapidly increase output to meet the anticipated future demand - and will meet it more efficiently than it ever has done in the past. In calendar 2023, flooring volume across Victoria's key markets was estimated to be some 20% below the levels of 2019 (which were broadly in line with the 25-year average growth rate). Simple reversion to the mean therefore suggests demand normalisation should deliver a volume uplift from current levels of more than 20%. Whilst the Group's FY2025 financial outlook is largely based on current demand, it is interesting to note the potential impact normalising demand could have on the business as each 5% increase in volume is expected to drive a greater than £25 million increase in Victoria's earnings. In the short term, even with subdued demand profits should begin to recover with the effects of the 'self-help' work undertaken to improve efficiency and take market share. In the medium term, as demand normalises, we are confident Victoria's revenue will recover and with the higher operational leverage now inherent in the business due to the integration projects and cost initiatives management have executed this year (and which are ongoing), we believe we have a clear path to return to mid-high teen EBITDA margins. Geoff Wilding Executive Chairman Philippe Hamers Group Chief Executive Condensed Consolidated Income Statement For the 26 weeks ended 28 September 2024 (unaudited) 26 weeks ended 28 September 2024 26 weeks ended 30 September 2023 52 weeks ended 30 March 2024 (audited) (Restated)* (Restated)* Non- Non- Non- Underlying underlying Reported Underlying underlying Reported Underlying underlying Reported performance items numbers performance items numbers performance items numbers Notes £m £m £m £m £m £m £m £m £m Continuing operations Revenue 3 568.8 0.7 569.5 624.6 1.6 626.2 1,226.4 7.7 1,234.1 Cost of sales (389.1) (10.9) (400.0) (401.7) (11.3) (413.0) (812.2) (26.1) (838.3) Gross profit 179.7 (10.2) 169.5 222.9 (9.7) 213.2 414.2 (18.4) 395.8 Distribution and administrative expenses (175.3) (138.3) (313.6) (174.4) (23.3) (197.7) (345.9) (119.5) (465.4) Other operating income 3.3 - 3.3 3.3 - 3.3 4.7 0.1 4.8 Operating profit / (loss) 3 7.7 (148.5) (140.8) 51.8 (33.0) 18.8 73.0 (137.8) (64.8) Comprising: Operating profit before non-underlying and exceptional items 7.7 - 7.7 51.8 - 51.8 73.0 - 73.0 Amortisation of acquired intangibles 4 - (18.4) (18.4) - (19.4) (19.4) - (38.6) (38.6) Other non-underlying items 4 - (5.6) (5.6) - (5.7) (5.7) - (6.2) (6.2) Exceptional impairment charge 4 - (120.0) (120.0) - - - - (72.6) (72.6) Other exceptional items 4 - (4.5) (4.5) - (7.9) (7.9) - (20.4) (20.4) Finance costs 4 (21.3) (5.7) (27.0) (20.3) (17.2) (37.5) (41.9) (10.2) (52.1) Comprising: Interest on loans and notes (16.2) - (16.2) (15.8) - (15.8) (32.3) - (32.3) Amortisation of prepaid finance costs for loans and notes (1.3) - (1.3) (1.3) - (1.3) (2.7) - (2.7) Unwinding of discount on right-of-use lease liabilities (3.7) - (3.7) (3.2) - (3.2) (6.8) - (6.8) Preferred equity items 4 - (3.3) (3.3) - (14.0) (14.0) - (5.4) (5.4) Other finance items 4 (0.1) (2.4) (2.5) - (3.2) (3.2) (0.1) (4.8) (4.9) (Loss) / profit before tax (13.6) (154.2) (167.8) 31.5 (50.2) (18.7) 31.1 (148.0) (116.9) Taxation credit / (charge) 5 1.9 24.2 26.1 (8.3) 8.1 (0.2) 1.1 20.1 21.2 (Loss) / profit from continuing operations for the period (11.7) (130.0) (141.7) 23.2 (42.1) (18.9) 32.2 (127.9) (95.7) Discontinued operations Loss from discontinued operations for the period 8 (5.2) (25.7) (30.9) (0.5) (3.1) (3.6) (0.4) (11.9) (12.3) Total (loss) / profit for the period (16.9) (155.7) (172.6) 22.7 (45.2) (22.5) 31.8 (139.8) (108.0) Loss per share from continuing operations - pence basic 6 (124.58) (16.43) (83.15) diluted 6 (124.58) (16.43) (83.15) Loss per share from total operations - pence basic 6 (151.74) (19.61) (93.85) diluted 6 (151.74) (19.61) (93.85) *See note 8 for further details surrounding discontinued operations. Condensed Consolidated Statement of Comprehensive Income For the 26 weeks ended 28 September 2024 (unaudited) 26 weeks ended 26 weeks ended 52 weeks ended 28 September 2024 30 September 2023 30 March 2024 (audited) £m £m £m Loss for the period (172.6) (22.5) (108.0) Other comprehensive (expense) / income Items that will not be reclassified to profit or loss: Actuarial loss on defined benefit pension scheme (0.1) (0.7) (1.9) Items that will not be reclassified to profit or loss (0.1) (0.7) (1.9) Items that may be reclassified subsequently to profit or loss: Hyperinflation foreign exchange adjustments 18.1 9.9 (9.0) Retranslation of overseas subsidiaries (4.1) (24.1) (21.8) Items that may be reclassified subsequently to profit or loss 14.0 (14.2) (30.8) Other comprehensive income / (loss) 13.9 (14.9) (32.7) Total comprehensive expense for the period attributable to the owners of the parent (158.7) (37.4) (140.7)