REG - Victoria PLC - Audited Results for the year ended 1 April 2023
14/09/2023 07:15
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RNS Number : 3969M Victoria PLC 14 September 2023
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Audited Results
for the year ended 1 April 2023
Record underlying revenue and EBITDA
Confident FY2024 outlook with a sharp increase in earnings and free cash flow
expected due to completion of major integration projects
Victoria PLC (LSE: VCP) the international designers, manufacturers and
distributors of innovative floorcoverings, announces its audited results for
the year ended 1 April 2023, which are unchanged from the key preliminary
unaudited data announced on 15 August and show the Company's tenth consecutive
year of revenue and underlying profit growth.
FY2023 Financial and Operational highlights
Year ended Year ended % Change
1 April 2023 2 April 2022
Underlying revenue £1,461.4m £1,019.8m +43.3%
Underlying EBITDA(1) £196.0m £162.8m +20.4%
Underlying operating profit(1) £118.8m £107.9m +10.1%
Operating (loss) / profit (£24.1m) £53.6m -145.0%
Underlying profit before tax(1) £76.9m £73.8m +4.2%
Net loss after tax (£91.8m) (£12.4m)
Underlying free cash flow(2) £71.3m £34.2m 108.3%
Net debt(3) £658.3m £406.6m
Net debt / EBITDA(4) 3.44x 2.66x
Earnings / (loss) per share:
- Basic (79.35p) (10.61p)
- Diluted adjusted(1) 39.06p 40.21p -2.9%
· For the first time in the Company's history, the total volume of
flooring sold in FY2023 exceed 200 million square metres (more than 29,500
football fields), generating record revenues of £1.46 billion.
· Solid like-for-like organic revenue growth of 2.8%, despite
challenging macro-economic conditions and following very strong like-for-like
organic growth of +19.2% in the previous 12 months.
· Underlying EBITDA grew by +20.4% over the prior year to £196.0
million.
· Year-end net leverage was 3.44x, with the Group's senior debt
consisting entirely of fixed rate, covenant-lite bonds falling due in August
2026 and March 2028.
· A resilient balance sheet, with cash and undrawn credit lines at the
year-end in excess of £250 million.
· FY2023's focus on the successful integration of acquisitions has
resulted in the projects' completion this month. The outcome is anticipated to
conservatively deliver a £20+ million per annum increase in EBITDA.
· The Group's integration expenditure (exceptional expenses and capex)
of the last three years is coming to an end. Consequently, the Board
anticipates free cash flow to increase sharply. For the five-year period
FY2015-2019, the Group averaged cash conversion of EBITDA to Net Free Cash
Flow of 55%(5), which the Board believes is a sustainable, long-term ratio and
one management is focused on returning to in the near-term.
· Whilst the Group's FY2024 financial outlook is largely based on
steady-state demand and underpinned by the various integration projects, each
future 5% increase in overall revenue, which is Victoria's long-run organic
growth rate, would be expected to deliver earnings and cash flow growth of
more than £25 million per annum.
· The "signs of life" in some geographies noted in earlier market
announcements, has continued to be seen - most noticeably in the UK, where we
believe the Group is benefitting from the service it offers customers and its
mid-high end product positioning and underlying earnings year-to-date are
ahead of both budget and the same period last year.
Commenting on FY2024 Outlook and beyond, Geoff Wilding, Executive Chairman,
said:
"We expect FY2024 to be a year of two halves, with stronger H2 earnings as the
productivity gains from completion of the major integration projects are
experienced. Completion of the projects is also expected to result in
Victoria's free cash flow increasing sharply from H2 FY2024, with management
focussed on returning to our long-run average cash conversion of EBITDA to Net
Free Cash Flow of 55%(5). Further ahead, FY2025 will see the full
integration benefits with an expected uplift in margins driving an additional
increase in earnings and free cash flow.
Victoria benefits greatly from being in a long-duration, steady growth
industry that will drive compounding organic growth for decades. After making
and integrating two-dozen acquisitions over the last 10 years we have now
achieved a scale that we anticipate will result in higher productivity, more
efficient logistics, wider distribution, and lower input costs than almost all
our competitors. Coupling this scale advantage with the underlying sectoral
tailwinds will, the Board believes, deliver outsized returns for our
shareholders for a very long time."
(1) 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.
(2) Underlying free cash flow represents cash flow after interest, tax and
replacement capital expenditure, but before investment in growth, financing
activities and exceptional items.
(3) Net debt shown before right-of-use lease liabilities, preferred equity,
bond issue premia and the deduction of prepaid finance costs.
(4) Leverage shown consistent with the measure used by our lending banks.
(5) Cash generated after replacement capex, interest, and tax as a percentage
of EBITDA.
For more information contact:
Victoria PLC www.victoriaplc.com/investors-welcome
(http://www.victoriaplc.com/investors-welcome)
Geoff Wilding, Executive Chairman
Via Walbrook PR
Philippe Hamers, Group Chief Executive
Brian Morgan, Chief Financial Officer
+44 (0)20 7496 3095
Singer Capital Markets (Nominated Adviser and Joint Broker)
Rick Thompson, Phil Davies, James Fischer
Berenberg (Joint Broker) +44 (0)20 3207 7800
Ben Wright, Richard Bootle
Peel Hunt (Joint Broker) +44 (0)20 7418 8900
Adrian Trimmings, Andrew Clark
Walbrook PR (Media & Investor Relations) +44 (0)20 7933 8780 or victoria@walbrookpr.com
(mailto:victoria@walbrookpr.com)
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 (http://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 7,300 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.
Victoria PLC
Chairman and CEO's Review
INTRODUCTION
Victoria's operational management philosophy during FY2023 is probably best
encapsulated by Winston Churchill's advice, "When you are going through hell,
keep going". Dramatic increases in the cost of raw materials, unprecedented
energy prices, labour cost inflation, subdued consumer demand, and
international shipping disruption created a testing backdrop against which our
management team nevertheless delivered the 10(th) consecutive year of growth
as set out in the table below.
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Underlying Revenue 70.9 71.4 127.0 255.2 330.4 417.5 566.8 621.5 662.3 1,019.8 1,461.4
(£ million)
Underlying
EBITDA(1) 2.3 5.1 15.8 32.3 45.7 64.7 96.3 107.2(2) 112.0(2) 143.5(2) 171.3(2)
(£ million)
EBITDA margin % 3.3 7.2 12.4 12.7 13.8 15.5 17.0 17.2 16.9 14.1 11.7(3)
(1) The KPIs in the table above are alternative performance measures used by
management along with other figures to measure performance. Full financial
commentary is provided in the Financial Review below.
(2) Underlying EBITDA in FY20 through FY23 is stated before the impact of IFRS
16 for consistency of comparison with earlier years. IFRS-reported EBITDA for
these years are £118m, £127m, £163m, and £196m respectively.
(3) The decline in reported %margin was entirely due to the acquisition mix
effect; LFL organic margins increased by 0.2%
The objectives of this review are to help our shareholders better understand
the business and be able to reach an informed view of the value of the
company, its future prospects, and its financial resilience.
To achieve these objectives requires data to be shared in a way that
communicates information and this will include both IFRS-compliant and
non-IFRS performance measures. The review focuses on the underlying operating
results of the business, which delivered underlying EBITDA of £196.0 million
(FY2022: £162.8m) and underlying EBIT of £118.8 million (FY2022: £107.9m).
The Financial Review covers non-underlying items in detail, following which
IFRS reported operating loss was £24.1 million (FY2022: profit £53.6m), and
furthermore covers items in the income statement below operating profit
(financial items and tax).
Shareholders are of course free to accept or disregard any of this data but we
want to ensure that you have access to similar information Victoria's board
and management use in making decisions.
FY2023 OPERATIONAL REVIEW
Overview
The global flooring market is c. USD 200 billion(1) (GBP 154 billion(2)), and
USD 66 billion (GBP 51 billion) in Victoria's key markets of Europe and the
US, with volume growth over the last 25 years of c. 2.6%(1) per annum. There
are fundamental drivers that sustain this long-term growth and, whilst
somewhat subdued demand was experienced in FY2023, this was due to near-term
macroeconomic conditions and we remain confident that the natural state of the
sector is continued expansion in the regions where Victoria trades.
Before commenting specifically on each of the different operating divisions,
there were several Group-wide elements in FY2023 which are worth highlighting.
( )
(1 )Freedonia Global Flooring Report 2021
(2) GBP/USD 1.29
Integration Projects
Integrating and reorganising an acquisition is expensive (especially in Europe
where mandated social payments must be made to redundant workers) but
necessary to realise the maximum value from acquired businesses. Therefore,
with the proviso that the expected return on the investment must exceed our
internal hurdle rate, the Group is willing to invest heavily where required,
in integrating an acquisition in order to optimise future free cash flow. (To
be clear, although the restructuring cash outlay is made post-completion, the
quantum of the investment is scoped out prior to making the acquisition and is
factored into the purchase price we pay for the business to ensure our
targeted return on capital is achieved).
We have had four major projects underway throughout FY2023, all of which are
now in their final stages and, when completed, are expected to conservatively
result in a £20+ million per annum increase in EBITDA and a significant step
down in exceptional capital expenditures:
(i) Balta's integration consists of three key projects:
a. The relocation of Balta's carpet manufacturing from Belgium to
Victoria's existing UK factories, making full use of the designed capacity.
80% of Balta's carpet is sold in the UK and this move will lower production
and transport costs whilst enabling shorter delivery times, thereby improving
customer service.
b. The consolidation of the Balta rug manufacturing operation onto
Victoria's large site at Sint-Baafs Vijve, Belgium, alongside the relocation
of some production to Usak, Turkey, where the Group has two modern rug-making
and yarn extrusion factories. These changes will improve efficiency and lower
production costs.
c. The divestment of non-core business and real estate assets acquired with
the Balta transaction where the opportunity for synergies with the Group's
existing businesses are minimal.
(ii) Saloni Ceramica. With the investment Victoria has made in
production technology in Spain over the last three years, we have been able to
close the Saloni factory and consolidate production onto the very large
Keraben and Ibero site. This move occurred ahead of schedule and was completed
during March 2023. The Saloni brand continues, with the roll-out of high-end
showrooms and social media presence supporting a renewed focus on the
Architect & Design market.
(iii) Graniser, Victoria's low-cost Turkish ceramics producer, has
two integration projects in progress:
a. Reorganisation and integration with Victoria's Spanish and Italian
factories - increasing spare annual production capacity at Graniser to 8
million sqm.
b. Investment in new printers and packaging lines alongside integration
into Victoria's existing ceramics distribution network will increase
higher-margin export revenue.
(iv) Cali Flooring's integration comprises:
a. Access to Victoria's supply chain lowering Cost of Goods Sold (COGS).
b. Integration into Victoria's US logistics platform, improving delivery
times and reducing costs.
c. Commercial excellence projects focussed on "gross to net" enhancements,
which have lifted gross margin by approximately 5% since April 2022. These
projects have covered restructuring salesforce incentives to encourage
maximising margins rather than volume, minimising claim and product return
related expenses, renegotiating services contracts, and optimising workforce
productivity.
These projects fall into one or more of three broad categories: investment in
productivity-enhancing technology, rationalisation of production facilities,
and logistics integration - all of which are only possible due to Victoria's
scale and business model. Few of our competitors have the size to justify the
investment in technology that makes these large efficiency gains possible.
Technology is expensive and without the large production volume of Victoria,
the cost cannot be recovered. For example, an energy co-generation plant,
capable of saving millions in energy costs, requires annual ceramics
production at the factory of c. 10 million sqm to justify the investment -
volume that few of our competitors manufacture. However, without technology, a
manufacturer's production costs will remain permanently higher than that of
Victoria, putting them at a perpetual disadvantage.
In total, these integration projects have reduced headcount by 1,000 FTE's
whilst we have maintained our production capability.
The full £20+ million financial effect of these projects (detailed in the
Capital Allocation section below) will be seen in FY2025, although the
benefits will start flowing from later this year and the anticipated
productivity improvements, cost savings, and working capital enhancements
underpin the current year's expected increased financial performance.
Cash Generation
It is the Board's view that creating wealth for shareholders is best achieved
by maximising the medium-term free cash flow per share and every decision is
viewed through this prism.
Consequently, we set a target of achieving £100 million of cash generation in
H2 FY2023. £117.0 million was generated from operating profits and working
capital improvement, although we fell short of the overall target due to three
timing related issues:
1. Delayed completion of the divestment of an unneeded factory building
arising from the reorganisation of Balta. Recent Belgium legislation requires
an environmental report prepared prior to completion and local consultants
have significant backlogs. The report has been recently received and
completion of the agreed c.£27 million sale can now proceed.
2. Surprisingly (and pleasingly) fast progress of the integration projects
led to earlier payment of some large cash reorganisation-related expenditure
(largely redundancies and expansionary capex) that was not expected until
FY2024, totalling c.£28 million. Saloni's reorganisation completed earlier
than anticipated in March and, due to the progress made in the last four
months of FY2023, Balta's integration is now expected to finish this month
although when it was acquired in April 2022 we advised that integration could
take 24-36 months.
3. Working capital (primarily excess ceramics inventory stockpiled due to
energy uncertainty last winter) reduction proceeded somewhat slower than
anticipated due to softer demand, impacting H2 FY2023 by c £20 million
although progress is now well underway with targets and management incentive
plans in place for each business across the Group.
Whilst these factors collectively impacted H2 cash by c.£74 million, none
represent any fundamental shift in Victoria's financial position as the cash
items paid out in FY2023 are a saving in FY2024 and the delayed inflows will
be received in FY2024.
4. The Board also decided to invest £11.4 million (the equity component of
the purchase) in the acquisition of Florida-based ceramics distributor, IWT.
Similarly, £1.6 million was invested in buying back the Company's shares at
prices the Board considered to represent very good value for shareholders.
Other cash movements were broadly in line with expectations.
For the five year period FY2015-2019, the Group averaged cash conversion of
EBITDA to Net Free Cash Flow of 55%(3) and it is our view that this is a
sustainable, long-term ratio and one management is focused on returning to in
the near-term. Nevertheless, during the last three years Victoria has chosen
to invest heavily in three areas, which the Board's expects to result in
higher future free cash flow conversion:
(i) Reorganisation/integration of acquisitions. The integration
cost is always factored into our purchase price.
(ii) Growth capex. Victoria has been steadily growing market share
for several years and additional plant has been required to produce the
increased volume. However, this investment, together with productivity gains
following completion of the integration projects and selective outsourcing,
means the Group now has sufficient production capacity to cope with existing
and foreseeable demand and this category of expenditure will fall in the
future.
(iii) Ceramics inventory. During FY2023 the uncertainty about the
reliability of gas supplies during the winter months led Victoria's ceramics
businesses to build up additional inventory to ensure we could maintain supply
to customers and protect our reputation as a reliable partner even in the
event production was suspended due to lack of gas deliveries for up to two
months. Given our ceramics division sells nearly £30 million (at cost) of
product per month, the additional six weeks-worth of inventory held was a
substantial commitment.
Gas remained available and, as noted above, we are now returning inventory
levels to normal, and the cash that was invested in the excess inventory is
being released throughout FY2024.
Consequently, it is the Board's expectation that Victoria's free cash flow
will return sharply back to the long-run average (additional financial detail
is provided in the Capital Allocation section below), and accompanying this
evolution is an increased emphasis on free cash flow in senior management
incentive plans.
(3) Cash generated after replacement capex, interest, and tax as a percentage
of EBITDA.
Operating Margins
As forecasted to shareholders last year, operating margins increased slightly
(0.2% LFL) but remained below our long-term expected (and historical)
high-teen level. This was due partially to a management decision to focus on
protecting our cash margin (rather than the percentage margin) and using the
difficult conditions to take further market share from struggling competitors,
but is primarily due to the mathematical effect of acquisitions (Balta,
Ragolle and IWT) - very large businesses with single-digit margins, which were
consequently margin dilutive (-2.5%) prior to integration and benefitting from
synergies with Victoria. There was also some inevitable temporary impact from
the integration disruption (particularly at Balta where plant relocation was
underway).
However, as set out in this Review, the various integration projects will be
completed during H1 FY2024 and therefore we are anticipating an uplift in
margins beginning in the second half of this financial year and the full
benefit to flow in FY2025.
Inflation
Inflation has continued to be a significant factor throughout FY2023. Labour
costs increased by around 10%, and certain key raw materials and energy costs
increased by more than 100% during the year. This has had two impacts on the
Group during the year:
i. Margin pressure. The Group implemented price increases during
the year in order to protect our cash margin, whilst maintaining a strong
competitive position during a period when some market participants were
finding the operating environment very challenging. We are confident that
completion of our integration projects alongside other actions, will
subsequently deliver an uplift in the percentage margin back to our historical
high-teen level.
ii. Working capital. Inflation-driven increases in raw material
and production costs means the same quantity of inventory costs more to make
and consequently ties up additional cash and, absent any mitigating actions,
reduces cash flow and lowers the return on capital. Some of the critical
cost inputs have returned to more normal levels and the consequence of this
will be that much of the cash absorbed in working capital last year will
return as stock is sold and replaced with lower input cost inventory.
In summary the Board and management are alive to the risks imposed by
inflation and are carefully balancing the requirement to increase prices
sufficiently to ensure our cash return on equity remains acceptable, whilst
also maintaining our market share growth momentum, which will help us drive
long-term free cash flow growth.
Demand
Demand softened in FY2023 following very strong volume growth over the
previous 18 months. We believe this to be a function of (a) some pull-forward
of spending in FY2021 and FY2022 (suggested by sectoral volume growth of
c.4.9% in 2021 versus the long-term average of c.2.6% per annum) due to Covid
lockdowns changing consumer purchasing priorities; (b) lower consumer
confidence affecting spending levels, and (c) a level of de-stocking during
the year by some very large retailers. Nevertheless, Victoria achieved 2.8%
LFL revenue growth.
As can be seen from the FY2023 financial results, Victoria has been impacted
less by weaker demand than many of our competitors:
· As a manufacturer and distributor of typically mid to high-end
flooring, Victoria's core end-customers are less sensitive to economic
uncertainty and inflation.
· Although de-stocking has been a feature of some larger retail
customers, most of our production is supplied to our customers (retailers)
based on end-consumer orders, not supplied for inventory, reducing Victoria's
exposure to de-stocking.
· The Group has been deliberately structured with low operational
gearing, reducing the impact on earnings of lower demand.
Although it is too early to make confident predictions, we have, in recent
months, seen some signs of life in certain markets. It is our strong view that
flooring remains a core consumer product and any period of subdued demand will
pass with little impact on the long-term value of Victoria.
Whilst the Group's FY2024 financial outlook is largely based on steady-state
demand and underpinned by the various integration projects, it is worthwhile
noting that each future 5% increase in overall revenue, which is Victoria's
long-run organic growth rate, would be expected to deliver earnings and cash
flow growth of more than £25 million per annum.
DIVISIONAL REVIEW
This section focuses on the underlying operating performance of each
individual division, excluding exceptional and non-underlying items, which are
discussed in detail in the Financial Review and Note 2 to the accounts.
Everything we do operationally is about increasing productivity - lowering the
cost to manufacture and distribute each square metre of flooring - and
improving the customer (retailers and distributors) experience, seeking to
become an increasingly valuable part of their business. Both are required in
order to achieve our goal of creating wealth for shareholders by maximising
the free cash flow per share and the purpose of this Divisional Review is to
outline some of the steps we have taken during FY2023 along these two vectors.
UK & Europe Soft Flooring - A year dominated by integration of recent
acquisitions
FY23 FY22 Growth
Underlying Revenue £718.8 million £423.1 million +69.9%
Underlying EBITDA £66.9 million £70.3 million -4.8%
Underlying EBITDA margin 9.3% 16.6% -730bps
Underlying EBIT £27.2 million £45.4 million -40.1%
Underlying EBIT margin 3.8% 10.7% -695bps
Victoria is now Europe's largest soft flooring manufacturer and distributor.
Following very strong growth in FY2022 (LFL organic revenue growth of 31%),
demand for soft flooring was weaker over the past 12 months, although Victoria
has benefitted from its mid-high end product positioning with LFL revenue
-4.7% for FY2023.
The operating margin reflected the mathematical effect from the acquisition of
the low-margin Balta business (-4.2%) and higher input costs - particularly
polypropylene fibre (-3.4%). As detailed below, cost savings achieved with the
integration of Balta is expected to address the acquisition-mix effect and
many input costs are returning to more sustainable levels.
Carpet and Underlay
· The most significant activity in this division over FY2023 has been
the integration of Balta's broadloom carpet business, which was acquired in
April 2022. The plan, relocating manufacturing to the Group's UK facilities,
has required extensive trade union negotiations arising from the factory
closures in Belgium, re-siting of machinery to the UK, and expansion of one of
our UK factories. Although enormously disruptive in the short term and
resulting in little earnings contribution from Balta in FY2023, the
reorganisation is expected to complete shortly, with the financial benefits
showing almost immediately.
· Interfloor, the Group's underlay subsidiary, has exceeded growth
expectations in the European market, although labour shortages in the UK held
the business back during the year. This issue is now resolved and we look
forward to another strong result in FY2024.
· Prices for polypropylene fibre, a major raw material for soft flooring
products, increased more than 50% due to a global mismatch between supply and
demand. The high prices lasted for most of the financial year, impacting
margins, but have more recently returned to more normal levels, with a benefit
to the Group's production costs and working capital levels.
Rugs (Balta Home)
· Rugs is an entirely new flooring category for Victoria, forming part
of the Balta acquisition. With hard flooring growing as a percentage of the
total flooring area in Europe and the USA (from 53.6% in 2009 to 57.8% in
2024), and the tendency for consumers to then immediately cover their new hard
floor with a rug, we believe this to be a sustainably growing flooring
category.
· The USA is the key market for the rugs manufactured by Victoria and,
after some softness in FY2023 (largely due to large retailer de-stocking) we
are anticipating modest revenue growth in FY2024. However, the primary focus
of the Balta Home management team, led by Marc Dessein, continues to be
finalising the reorganisation of the business, which will have a materially
positive impact on earnings due to efficiency gains.
· The reorganisation, which is on schedule, consists of the
consolidation of production facilities in Belgium alongside transferring
significant production capacity to Turkey, where the company has two modern,
certified and low-cost factories.
Logistics
· Our logistics capability continues to provide Victoria with what we
believe to be an unassailable competitive advantage that continues to drive
market share gains. Retailers value service and product availability over the
last few pennies in price (no margin at all is made by a retailer on
unavailable product!).
· The Group's state-of-the-art, carbon-neutral, purpose-built 185,000
ft² fulfilment centre in Worcester has been completed and is fully
operational, replacing the Kidderminster warehouse. It also houses the
Victoria Group HQ.
· Apart from further enhancing Victoria service proposition, our
logistics operation, Alliance Flooring Distribution, is also now generating
third-party logistics income.
UK & Europe Ceramic Tiles - Extraordinary energy costs successfully
managed
FY23 FY22 Growth
Underlying Revenue £453.3 million £371.6 million +22.0%
Underlying EBITDA £105.8 million £71.4 million +48.2%
Underlying EBITDA margin 23.3% 19.2% +414bps
Underlying EBIT £77.5 million £47.5 million +63.1%
Underlying EBIT margin 17.1% 12.8% +431bps
Successful ceramics production during FY2023 has been exceptionally
challenging due to the unprecedented energy costs and generally soft demand.
Energy costs normally comprise around 15-20% of revenues for a ceramics
business and dealing with prices that at times were more than 900% of 'normal'
levels was an industry-wide problem that led to many of our competitors simply
suspending production.
Fortunately, Victoria's policy of hedging or contracting the supply of key raw
materials and other inputs (which is ongoing) stood our ceramics division in
very good stead during this extraordinary period and the division continued to
contribute favourably to the Group's earnings with LFL revenue growth of 12.4%
and an organic margin improvement of 4.2%.
Italy
· Demand continued throughout FY2023 (and into FY2024) for our 'Made in
Italy' ceramics and we have an ongoing order backlog of many months despite
the significant capacity increase in 2022.
· We took advantage of the failure of a neighbouring competitor to
purchase their atomizer plant at a fraction of its replacement cost. At a
purchase cost of €5 million, this equipment reduces the cost of atomized
clay by c. €1.5 million per annum, alongside securing its supply - vastly
reducing our reliance on third-party suppliers, which was becoming a potential
risk to continued growth. The Italian operation is now vertically integrated
and more resilient.
Spain
· The final stage of our Spanish ceramics' integration was completed
during the year with the closure of the Saloni plant and consolidation of
production on the Keraben and Ibero sites. This action, which maintained
production capability, but with 15% fewer employees, had been much delayed due
to Covid-19 restrictions, which lasted much longer in Spain than in other
European countries. However, the resulting higher productivity will help the
business remain competitive in the US market against ceramic tiles arriving
from India, Mexico, and Brazil.
· The Saloni brand now focusses exclusively on high-end commercial
applications, with stylish new showrooms for the Architecture & Design
community opened in key locations in Spain.
Turkey
· Following the acquisition of Graniser in February 2022, we have
right-sized the business, whilst investing in some key equipment to improve
productivity, remove production bottle-necks, and allow effective integration
with our global ceramics businesses. The result is an increase in spare
capacity to 8 million sqm alongside a 30% reduction in FTEs and we are
anticipating an increased contribution from the business in the current
financial year.
Australia - Ongoing demand, some inflationary margin pressure
FY23 FY22 Growth
Underlying Revenue £120.9 million £109.5 million +10.4%
Underlying EBITDA £15.3 million £16.4 million -6.4%
Underlying EBITDA margin 12.7% 15.0% -227bps
Underlying EBIT £10.0 million £11.8 million -15.7%
Underlying EBIT margin 8.3% 10.8% -255bps
Although inflation had a small temporary impact on margins, the Australian
market continues to see good demand for flooring, partially driven by ongoing
buoyant residential construction due to inwards migration. Permanent migration
(excluding humanitarian migrants) is consistently around 190,000 people per
annum - all of whom are of high economic value, creating consistent demand for
additional accommodation.
Australian consumers - particularly in the mid-high end of the market - are
paying increasing attention to sustainability when selecting products and this
has resulted in a strong recovery in demand for wool-based carpet, which is
Victoria Australia's core manufacturing competency and is highly beneficial to
the operating margins of the Group's spinning mill at Bendigo.
North America - Continued profitable expansion
FY23 FY22* Growth*
Underlying Revenue £168.4 million £115.6 million n/a
Underlying EBITDA £9.3 million £6.4 million n/a
Underlying EBITDA margin 5.5% 5.6% n/a
Underlying EBIT £6.0 million £5.2 million n/a
Underlying EBIT margin 3.6% 4.5% n/a
* FY22 data is for 9 months only as Cali Flooring was not a Victoria
subsidiary until 23 June 2021 and growth comparisons are not applicable
Our North American business continued to grow in FY2023 with the acquisition
of Florida-based ceramics distributor, International Wholesale Tiles ("IWT"),
bringing the Group's North American-sourced annualised revenues (including
exports to the US from our European factories) to more than USD 400 million
(GBP 308 million).
There is strong US-consumer demand for European-branded product - partially
because of the quality and style, and partially because demand exceeds
domestic production capacity by 50%. Ultra-high quality artificial grass as
manufactured by Victoria in Germany and the Netherlands is a particular
high-margin opportunity (as outlined in last year's Annual Report) but we are
also gaining share in our ceramics business and are exporting increasing
quantities of ceramic tiles from our European factories to North America. The
US remains the single-largest market for our rugs business.
The effectiveness of our strategy of acquiring US distribution businesses and
then driving higher margin organic growth for our European factories via
logistics and distribution synergies, whilst massively disrupted by the
pandemic during 2020 and 2021, shows considerable promise - as set out in the
table below:
Organic growth of US market exports from Victoria's European factories
2019 2023 Growth
Revenue (GBP thousands)(a) 4,585 45,322 +888%
(a) Excludes revenue from Balta Rugs, Cali Flooring, and IWT, which were
acquired businesses and do not form part of the Group's US organic growth.
However, we are also continually seeking to profitably expand our US
distribution. One example is the recent soft launch of the Victoria Home brand
on Wayfair.com with Balta rugs and other flooring products available, although
it will be early-2024 before we plan to scale this effort to ensure the
systems are in place to efficiently manage the expected growth.
The well-publicised West Coast shipping disruption last year constricted
supply of LVT product for several months, impacting sales. However, this has
not continued into the current year and normal product supply is being
experienced.
In Q4 FY2023 the Group finalised the reorganisation of its US logistics
capabilities with four distribution centres across Georgia (two), South
Carolina, and Florida and the US-based management is continuing to take
advantage of revenue and cost synergies with the wider Group, with
opportunities for distribution of Victoria's European-manufactured product and
logistics efficiencies.
CAPITAL ALLOCATION
Victoria's Board views every investment decision through the prism of
maximising the medium-term free cash flow per share. With FY2023 being a very
significant transformational year due to the acquisition and integration of
Balta, and the integration of Cali and Graniser, growth/restructuring capex
and restructuring costs totalled £98.5 million. It is important to understand
that these costs were factored into the purchase price of the businesses and
are expected to result in higher earnings and free cash flow than had the
investment not been made. Equally significantly, the shift in allocation of
this free cash will be dramatic:
· Upon completion of the integration projects capex (c.£99.6 million in
FY2023) will reduce to normal maintenance levels (see Table A below for
details) and exceptional costs (c.£40.8 million in FY2023) associated with
reorganisation will be de minimus (see Table B below for details of the major
projects and their associated costs).
· With a much lower risk of energy disruption the cash invested in
excess ceramics inventory will flow back out as inventory levels return to
normal.
Table A sets out the breakdown of capex spending for the last five years to
help shareholders better understand normal maintenance capex levels, with the
last major reorganisation project being in FY2019:
Capex FY19 FY20 FY21 FY22 FY23
£m £m £m £m £m**
Maintenance 23.5 25.4 20.9 40.9 45.5
Growth & Restructuring* 20.9 8.4 7.6 12.4 54.1
44.4 33.8 28.5 53.3 99.6
* Includes capital expenditure incurred as part of reorganizational and
synergy projects to drive higher productivity and lower operating costs.
**The step-up in FY23 is due to the Balta acquisition, which has both a
short-term impact from integration, plus an ongoing increase in quantum due to
the increased size of the Group.
Table B summarises the exceptional expenditure items in FY2023, which are
expected to end as re-organisation/integration projects complete this
financial year.
Exceptional Costs Redundancy cash costs Legal & Asset removal/ Provisions Total
Professional Impairment /other
£m £m £m £m £m
Balta re-organisation 6.4 0.6 - 24.5 31.5
Saloni re-organisation 2.9 0.4 2.9 1.4 7.6
Graniser integration 0.3 - - - 0.3
Cali integration - - 1.2 0.2 1.4
Total 9.6 1.0 4.1 26.1 40.8
The Board will be prioritising allocation of the Group's free cash flow to
reducing net debt and redeeming preference shares (the precise mix will depend
on several factors). At all times the allocation decision will be based on
prudently optimizing the Group's balance sheet while analysing what option
will maximise the medium-term free cash flow per share.
DIVIDENDS
For the reasons detailed in previous years' Annual Reports, it remains the
Board's view (as it has been for the last ten years) that it can continue to
successfully deploy capital to optimise the creation of wealth for
shareholders and therefore it has again resolved not to pay a final dividend
for FY2023.
LEVERAGE
Victoria has for the last 10 years maintained its leverage at around 3-3.5x
EBITDA - a policy that made sense to us given the stable nature of our
business, the terms of our debt (covenant-lite, fixed-rate, long-dated bonds),
and ultra-low interest rates.
However, capital markets conditions have changed and, with the higher interest
rates that are likely to be experienced for the foreseeable future, it is the
Board's objective to (a) reduce the Group's net debt/EBITDA ratio ahead of
refinancing the current bond issues; and (b) redeem preference shares†.
These goals will be met by both reducing the numerator - the absolute quantum
of debt - from operating cash flow and the sale of non-core assets and by
increasing the denominator - the Group's earnings - due to completion of the
various integration projects and other actions discussed elsewhere in this
Review.
† Shareholders will recall that the terms of the preference share issue
incorporated a call option that can be exercised by the Company from November
2023, giving Victoria the right to repurchase the preference shares in blocks
of £25 million at par i.e. their issue price.
OUTLOOK
Charlie Munger, the other half of the Berkshire Hathaway duo, once observed
that whilst some corporate problems seem large in the moment, in time they
will seem trivial. That is why he believes long-term investing pays off and
why Victoria's management focusses on creating long-term value rather than
reacting to short-term market noise, which can distort issues out of all
proportion to their real effect on future prosperity. We are confident that
all our businesses benefit from strong economic fundamentals, and skilled and
dedicated management.
Operations
Completion of the various integration projects discussed in this Review
alongside tight cost management and productivity improvements underpin the
expected continued growth in earnings and cash flow this year, notwithstanding
ongoing challenging macro-economic conditions.
The Board is therefore expecting FY2024 to be a year of two halves, with the
Group's financial performance in H2 being stronger due to the synergy gains
from the projects described in this Review alongside limited recovery in
demand in some markets.
Acquisitions
Although our focus is firmly on the integration projects, acquisitions remain
a core part of Victoria's long-term growth strategy. Victoria has become a
permanent home of choice for flooring companies in Europe and the US -
particularly family-owned businesses - and the Group's potential pipeline of
accretive acquisitions continues to be compelling.
The worth of a business (or indeed any other investment asset) is the present
value of future cash flows and, with our firm belief in Benjamin Graham's
'Margin of Safety', we are mindful of the impact of higher interest rates and
inflation on valuations and the cost of capital.
Private company owners typically take time to adjust their valuation
expectations, but the same selling imperatives remain (retirement being the
most common) and so asking prices will, in time, reflect the new reality.
Consequently, at lower free cash flow multiples, Victoria's acquisitions will
continue to provide the same Return on Capital as previously, notwithstanding
a higher cost of capital. Therefore, at the right time and within our leverage
policy, we will continue deploy capital to build scale, expand distribution,
broaden our product range, and widen the economic moat around our business as
we have successfully done over the previous 10 years.
CONCLUSION
Victoria benefits greatly from being in a long-duration, steady growth
industry that will drive compounding organic growth for decades. After making
two-dozen careful acquisitions over the last 10 years we have now achieved a
scale that, once we have completed the current integration projects, will
result in higher productivity, more efficient logistics, wider distribution,
and lower input costs than almost all our competitors. Coupling this scale
advantage with the underlying sectoral tailwinds will, the Board believes,
deliver outsized returns for our shareholders for a very long time.
Geoffrey Wilding Philippe Hamers
Executive Chairman Chief Executive Officer
13 September 2023
Strategic Report
BUSINESS OVERVIEW
Victoria PLC is a designer, manufacturer and distributor of innovative
flooring products. The Group is headquartered in the UK, with operations
across the UK, Spain, Italy, Belgium, the Netherlands, Germany, Turkey, the
USA, and Australia, employing approximately 7,300 people at more than 30
sites.
The Group designs and manufactures a wide range of wool and synthetic
broadloom carpets, flooring underlay, ceramic tiles, LVT (luxury vinyl tile)
and hardwood flooring products, artificial grass, carpet tiles and flooring
accessories.
A review of the performance of the business is provided within the Financial
Review.
BUSINESS MODEL
Victoria's business model is underpinned by five integrated pillars:
1. Superior customer offering
Offering a range of leading quality and complementary flooring products across
a number of different brands, styles and price points, focused on the
mid-to-upper end of the market or specialist products, as well as providing
market-leading customer service.
2. Sales driven
Highly motivated, independent and appropriately incentivised sales teams
across each brand and product range, ensuring delivery of a premium service
and driving profitable growth.
3. Flexible cost base
Multiple production sites with the flexibility, capacity and cost structure to
vary production levels as appropriate, in order to maintain a low level of
operational gearing and maximise overall efficiency.
4. Focused investment
Appropriate investment to ensure long-term quality and sustainability, whilst
maintaining a focus on cost of capital and return on investment.
5. Entrepreneurial leadership
A flat and transparent management structure, with income statement 'ownership'
and linked incentivisation, operating within a framework that promotes close
links with each other and with the PLC Board to plan and implement the short
and medium-term strategy.
STRATEGY
The Group's successful strategy in creating wealth for its shareholders has
not changed and continues to deliver profitable and sustainable growth, both
from acquisitions and organic drivers.
In terms of acquisitions, the Group continues to seek and monitor good
opportunities in key target markets that will complement the overall
commercial offering and help to drive further improvement in our KPIs.
Funding of acquisitions is primarily sought from debt finance to maintain an
efficient capital structure, insofar as a comfortable level of facility and
covenant headroom is maintained.
Although acquisitions remain a core part of Victoria's growth strategy,
current focus involves completing integration projects to strengthen cost
management and improve productivity to support the Group's overall strategy.
KEY PERFORMANCE INDICATORS
The KPIs monitored by the Board and the Group's performance against these are
set out in the table below and further commented upon in the Financial Review.
2023 2022
£'m £'m
Underlying revenue 1,461.4 1,019.8
% growth at constant currency 42.9% 57.5%
Underlying EBITDA 196.0 162.8
% margin 13.4% 16.0%
Underlying operating profit 118.8 107.9
% margin 8.1% 10.6%
Operating cash flow(1) 157.8 111.8
% conversion against underlying EBITDA 92% 78%
Free cash flow(2) 71.3 34.2
% conversion against underlying operating profit 60% 32%
Underlying pre-IFRS 16 EBITDA per share (diluted) 112.29p 103.68p
Earnings per share (diluted, adjusted) 39.06p 40.21p
Operating cash flow per share(3) 136.38p 95.65p
Adjusted net debt / EBITDA(4) 3.44x 2.66x
(1) Operating cash flow shown before interest, tax and exceptional items
(2) Before investment in growth capex, acquisitions and exceptional items
(3) Operating cash flow per share based on current number of shares
outstanding (non-diluted)
(4) Applying our lending banks' measure of financial leverage
SECTION 172(1) STATEMENT
Section 172 of the Companies Act 2006 requires a Director of a company to act
in the way they consider, in good faith would be most likely to promote the
success of the company for the benefit of the members as a whole. In doing
this, section 172 requires a Director to have regard, among other matters, to:
· The likely consequences of any decisions in the long-term;
· The interests of the company's employees;
· The need to foster the company's business relationships with
suppliers, customers and others;
· The impact of the company's operations on the community and the
environment;
· The desirability of the company maintaining a reputation for high
standards of business and conduct; and
· The need to act fairly between shareholders of the company.
During the year ended 1 April 2023 the Directors consider they have,
individually and collectively, acted in a way that is most likely to promote
the success of the Company for the benefit of its shareholders as a whole and
have given due consideration to each of the above matters in discharging their
duties under section 172. The stakeholders we consider in this regard are our
employees, our shareholders, bondholders and other investors, and our
customers and suppliers. The Board recognises the importance of the
relationships with our stakeholders in supporting the delivery of our strategy
and operating the business in a sustainable manner.
When considering key corporate decisions, such as material acquisitions or
financing arrangements the Board considers the interests and objectives of the
Company's stakeholders, in particular its shareholders. In doing so, the
potential risk and rewards of these transactions are carefully balanced. A
careful and consistent financial policy is employed, in particular focusing on
maintaining a level of financial leverage that the Board consider to be
sustainable through economic cycles, and long-dated and flexible financing
terms in relation to covenants and restrictions. Where there are potential
material financial costs or redemption requirements within financing
arrangements, for example the make-whole provisions in the Company's senior
notes and preferred equity, or the change in control provisions in the
preferred equity, the Board considers the likelihood of these scenarios and
any potential mitigating actions.
Directors are briefed on their duties as part of their induction and they can
access professional advice on these from an independent advisor throughout the
period a director holds office. The directors fulfil their duties partly
through a governance framework; the Board has adopted the Quoted Companies
Alliance ("QCA") Code and the Group's application of this code is detailed on
the Group's website.
The Board recognises the importance of building and maintaining relationships
with all of its key stakeholders in order to achieve long-term success.
Further details on the Company's strategy and long-term decisions are set out
in the Outlook and Conclusion sections of Chairman and CEO's Review.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board and senior management team of Victoria identifies and monitors
principal risks and uncertainties on an ongoing basis. These include:
Inflation - The issues surrounding inflation have the capacity to impact
companies' earnings by interrupting supply chains, workforce sustainability,
demand and rising interest costs.
The Group is well positioned to manage this risk and uncertainty; the key
reasons being:
1. Victoria has the ability to increase prices and implemented price
increases during the year ended 1 April 2023 to protect our cash margin,
whilst maintaining a strong competitive position during a period some market
participants found the operating environment very challenging;
2. Management is focussed on completing a number of integration projects
(set out in the Chairman and CEO's Review) that will increase operating
margins, mitigating some inflationary pressures.
3. We actively hedge or otherwise manage key input costs to provide
management with time to adapt our business and prices to higher input costs so
that margins are protected;
4. The main component of the Group's debt (€750m) is Senior Secured Notes
("bonds") and carry a fixed coupon, of which €500m falls due in August 2026
and €250m falls due in March 2028. Therefore, the key finance cost base of
the Group is protected from any short-term increases in interest rates.
On the demand side specifically, Victoria operates in the mid to high-end of
the flooring market, where customers are less sensitive to economic
uncertainty and inflation. Nonetheless, in the event of lower demand for a
period, Victoria is well placed to manage this for the following reasons:
1. Victoria enjoys comparatively low operational gearing across its
businesses;
2. Victoria has averaged 91.0% pre-tax operating cash conversion in the
last five years, and this high cash conversion(1) ensure the Group continues
to generate cash, even during periods of lower demand;
3. Much of our production output is supplied to order, not supplied for
inventory. This reduces exposure to de-stocking risks.
4. A resilient balance sheet with cash and undrawn credit lines in excess
of £250 million. Furthermore, the Group's senior debt consists entirely of
long-duration, fixed interest rate, covenant-lite bonds.
(1) Cash flow before financing and investing items (including capex),
exceptional items and tax; Conversion from pre-IFRS 16 EBITDA
Competition - the Group operates in mature and highly competitive markets,
resulting in pressure on pricing and margins. Management regularly review
competitor activity to devise strategies to protect the Group's position as
far as possible.
Economic conditions - the operating and financial performance of the Group is
influenced by specific economic conditions within the geographic areas within
which it operates, in particular the Eurozone, the UK, North America and
Australia. Economic risks in any one region are mitigated by the
independence of the Group's four divisions. The Group remains focused on
driving efficiency improvements, cost reductions and ongoing product
development to adapt to the current market conditions.
Key input prices - material adverse changes in energy prices and certain raw
material prices - in particular wool and synthetic yarn, polyurethane foam,
and clay - could affect the Group's profitability. Price increases, alongside
other cost saving measures, have largely mitigated the impact on operating
profit. Key input prices are closely monitored and the Group has a
sufficiently broad base of suppliers to remove arbitrage risk, as well as
being of such a scale that it is able to benefit from certain economies
arising from this. Whilst there is some foreign exchange risk beyond the
short-term hedging arrangements that are put in place, the Group experiences a
natural hedge from multi-currency income as the vast majority of the Group's
cost base remains in domestic currency (Euros, Sterling and Australian
Dollars).
Acquisitions - acquisition-led growth is a key part of the Group's ongoing
strategy, and risks exist around the future performance of any potential
acquisitions, unforeseen liabilities, or difficulty in integrating into the
wider Group. The Board carefully reviews all potential acquisitions and,
before completing, carries out appropriate due diligence to mitigate the
financial, tax, operational, legal and regulatory risks. Risks are further
mitigated through the retention and appropriate incentivisation of acquisition
targets' senior management. Where appropriate the consideration is
structured to include deferred and contingent elements which are dependent on
financial performance for a number of years following completion of the
acquisition.
Other operational risks - in common with many businesses, sustainability of
the Group's performance is subject to a number of operational risks, including
Health & Safety, major incidents that may interrupt planned production,
cyber security breaches and the recruitment and retention of key employees.
These risks are monitored by the Board and senior management team and
appropriate mitigating actions taken.
On behalf of the Board
Geoffrey Wilding
Executive Chairman
13 September 2023
Financial Review
HIGHLIGHTS
With underlying revenue approaching £1.5bn this financial year has been
another record year for Victoria PLC with the Group continuing to deliver
organic revenue growth. In tough economic conditions the Group has been
focussed on maintaining margins, integrating our latest acquisitions, managing
the cost base and reducing working capital.
Underlying revenue growth of £441.5 million (43%) was driven by the
acquisitions completed over the last two years along with some organic growth.
Underlying EBITDA growth of £33.1 million (20%) was predominately organic
with the Balta acquisition, as expected, not contributing significantly in its
first year as we integrate and restructure it.
As inflation continued to drive raw material prices higher during the year we
implemented a number of actions which mitigated the impact on margins. The
actions included prices increases, forward contracting of energy supplies in
key markets and managing the cost base in all of our divisions.
This Financial Review is structured into several sections. The first parts
focus on the underlying performance of the Group, analysing the trends in
underlying revenue and operating margin, and providing an overview of
acquisition and financing activities in the year. Thereafter, the Exceptional
& Non-Underlying Items section provides an important, detailed report on
all of the items that bridge from the underlying results (for example,
underlying operating profit of £118.8 million) to the IFRS statutory
performance of £24.1 million operating loss and, ultimately, £91.8 million
loss after tax. The final parts set out the cash flows of the Group on a
basis consistent with past years, and the year-end net debt position.
Underlying measures of performance are classified as 'Alternative Performance
Measures' and should be reviewed in conjunction with comparable IFRS figures.
It is important to note that these APMs may not be comparable to those
reported by other companies. Underlying results exclude significant costs
(such a significant legal, major restructuring and transaction items), they
should not be regarded as a complete picture of the Group's financial
performance, which is presented in its Total results. The exclusion of other
Adjusting items may result in Adjusting earnings being materially higher or
lower than Total earnings. In particular, when significant impairments,
restructuring changes and legal costs are excluded, Adjusted earnings will be
higher than Total earnings.
A summary of the underlying and reported performance of the Group is set out
below.
2023 2022
Underlying Non- Reported Underlying Non- Reported
performance
underlying
numbers
performance
underlying
numbers
items
items
£m £m £m £m £m £m
Revenue 1,461.4 18.8 1,480.2 1,019.8 - 1,019.8
Gross Profit 474.8 (40.1) 434.7 362.3 (5.5) 356.8
Margin % 32.5% 35.5%
Amortisation of acquired intangibles - (41.5) (41.5) - (32.4) (32.4)
Other operating expenses (356.0) (61.3) (417.3) (254.4) (16.4) (270.8)
Operating profit / (loss) 118.8 (142.9) (24.1) 107.9 (54.3) 53.6
Margin % 8.1% 10.6%
Add back depreciation & amortisation 77.2 54.9
Underlying EBITDA 196.0 162.8
Margin % 13.4% 16.0%
Preferred equity items - (26.9) (26.9) - (33.0) (33.0)
Other finance costs (41.9) (17.7) (59.6) (34.1) 1.1 (32.9)
Profit / (loss) before tax 76.9 (187.5) (110.6) 73.8 (86.3) (12.4)
Profit / (loss) after tax 59.6 (151.4) (91.8) 55.7 (68.1) (12.4)
EPS basic 51.47p (79.35p) 47.62p (10.61p)
EPS diluted 39.06p (79.35p) 40.21p (10.61p)
Group EBITDA margin bridge
FY22 16.0%
Acquisition mix effect -2.8%
Organic impact +0.2%
FY23 13.4%
Victoria acquired three companies during the year. The largest acquisition,
the rugs and UK broadloom businesses of Balta, completed at the start of the
year. On 6(th) June we acquired Ragolle, a rugs business in Belgium to
complement Balta and on 17(th) October we acquired IWT, a ceramics
distribution business in Florida. Management has been focused on integrating
these businesses and those acquired in recent years to maximise the synergies
identified when the businesses were purchased.
As has been noted in prior years acquisitions tend to have lower initial
EBITDA margins at the point of acquisition and this is the key driver of the
margin decline in the year. This was partly offset by an increase in organic
margin despite operating in challenging conditions.
The Group incurred £85.4 million of exceptional operating costs during the
year, primarily relating to the reorganisation of the Balta which we planned
as part of the acquisition, along with other income and costs associated with
acquisitions including the write down of certain assets and negative goodwill
arising on acquisition. Whilst the charge for the restructuring was
recognised in FY23 the majority of the cash will be spent in FY24 and FY25. In
addition, the Group incurred £41.5 million of amortisation of acquired
intangibles (primarily customer relationships and brand names) and £16.0
million of other non-underlying costs (primarily the accounting impact of
acquisition earn-outs, acquired balance sheet fair value adjustments and
hyperinflation accounting). Further details are provided later in this
Financial Review.
LIKE-FOR-LIKE PERFORMANCE
As with previous financial years, it is necessary to analyse the underlying
organic performance of each division of the Group separately from the impact
of acquisitions, both in terms of revenue growth and margin trends.
Basis of analysis
In general, we undertake this assessment by (i) removing from the current-year
data the contribution from acquisitions made during the year, and (ii) adding
into the prior-year data pre-acquisition financial performance (from target
company records and due diligence) for acquisitions made during that year in
order to include a full-year effect.
All of these adjustments have the impact of reducing the calculated
year-on-year growth - stripping out the acquisition impact and showing
like-for-like growth only - and presenting a 'normalised' profit margin for
both the current and the prior year, from which the organic movement (as
opposed to acquisition mix effect) can be determined. As part of this
analysis, we also normalise for translational currency differences between the
two years, and any differences in period length (note that the current and
prior reported financial years were both 52 weeks in length).
LFL revenue performance
Growth
UK & Europe Soft Flooring revenue -4.7%
UK & Europe Ceramics revenue +12.4%
Australia revenue +6.8%
North America revenue -4.4%
Group revenue 2.8%
Victoria continued to show organic revenue growth despite challenging economic
conditions in the second half of the year which impacted all of our markets.
Our UK & Europe Ceramics and Australia divisions continued to show strong
organic revenue growth while our UK & Europe Soft Flooring and North
America divisions were impacted by lower footfall in UK carpet retailers and
destocking in North American customers.
We saw a decline in demand in all markets in the second half the year and the
business mitigated this by maintaining prices in an environment where raw
material prices were declining.
Divisional performance
UK & Europe Soft Flooring FY23 FY22 Growth
Underlying Revenue £718.8m £423.1m +69.9%
Underlying EBITDA £66.9m £70.3m -4.8%
Margin % 9.3% 16.6% -730 bps
Underlying EBIT £27.2m £45.4m -40.1%
Margin % 3.8% 10.7% -695 bps
UK & Europe Ceramics FY23 FY22 Growth
Underlying Revenue £453.3m £371.6m +22.0%
Underlying EBITDA £105.8m £71.4m +48.2%
Margin % 23.3% 19.2% +414 bps
Underlying EBIT £77.5m £47.5m +63.1%
Margin % 17.1% 12.8% +431 bps
Australia FY23 FY22 Growth
Underlying Revenue £120.9m £109.5m +10.4%
Underlying EBITDA £15.3m £16.4m -6.4%
Margin % 12.7% 15.0% -227 bps
Underlying EBIT £10.0m £11.8m -15.7%
Margin % 8.3% 10.8% -255 bps
North America FY23 FY22 Growth
Underlying Revenue £168.4m £115.6m +45.7%
Underlying EBITDA £9.3m £6.4m +44.7%
Margin % 5.5% 5.6% -4 bps
Underlying EBIT £6.0m £5.2m +16.9%
Margin % 3.6% 4.5% -88 bps
As noted above, actions taken by management in relation to the organic
business resulted in an increase in EBITDA margin for the Group as a whole
with the biggest impact being in UK & Europe Ceramics. This was more than
offset by the acquisition mix effect - discussed earlier. This was
particularly pronounced in UK & Europe Soft Flooring given the scale of
the Balta acquisition.
The underlying EBITDA margin charts below, which bridge from the prior-year to
the current year reported margin, strip out the impact of acquisitions to show
the underlying margin trend in each.
UK & Europe Soft Flooring EBITDA margin bridge
FY22 16.6%
Acquisition mix effect -3.9%
Organic impact -3.4%
FY23 9.3%
UK & Europe Ceramic Tiles EBITDA margin bridge
FY22 19.2%
Acquisition mix effect -0.1%
Organic impact +4.2%
FY23 23.3%
Australia EBITDA margin bridge
FY22 15.0%
Acquisition mix effect 0.0%
Organic impact -2.3%
FY23 12.7%
North America EBITDA margin bridge
FY22 5.6%
Acquisition mix effect +1.7%
Organic impact -1.7%
FY23 5.5%
ACQUISITIONS AND INTEGRATION
Using the cash that we had built up in prior years, including the issue of
additional preferred equity, we completed three acquisitions in FY23. The
most significant acquisition was the rugs and UK broadloom business of Balta
in Belgium in April 2022 for total consideration of circa €114.8m million
(c. £95.7m). When we acquired Balta we immediately began the process of
restructuring the business and integrating it into Victoria. This work
consists of three projects:
· The relocation of Balta's carpet manufacturing from Belgium
to Victoria's UK factories, with a net reduction of 295 employees.
· The consolidation of the Balta rug manufacturing operation
onto Victoria's large site at Sint-Baafs Vijve, Belgium, together with the
relocation of some production to Usak, Turkey, where the Group has two very
modern rug-making and yarn extrusion factories. These changes will improve
efficiency and lower production costs, with the same output possible with 220
fewer employees.
· The sale of non-core assets acquired with the Balta
transaction where the opportunity for synergies with the Group's existing
businesses are minimal.
The second acquisition, in June 2022, was of a rugs business based in Belgium,
Ragolle, for total consideration of circa €21.4 million (c. £18.2m). This
business is highly complementary to Balta's rugs business.
The third acquisition, in October 2022, was of a ceramic distributor IWT,
based in Florida in the US for total consideration of circa $22.8 million (c.
£20.4m). This adds to the Group's US footprint, along with Cali which we
acquired in FY22 and the rugs business of Balta, with revenues over $400
million.
We also continued to integrate the businesses we acquired in FY22 with
projects in Graniser and Cali Flooring.
· Graniser has integrated production into Victoria's Spanish and Italian
factories increasing spare production capacity to 38% with 292 fewer FTE's and
made investments in new printers & packaging lines to allow more
higher-margin exports.
· Cali Flooring has been given access to Victoria's supply chain
lowering COGS and integrated into Victoria's US logistics platform, improving
delivery times and reducing costs.
Further details of these acquisitions are provided in Note 8 to the Accounts.
FINANCING
Debt financing and facilities
Victoria has attractively priced, long dated facilities and liquidity headroom
in excess of £250m.
The Group's senior debt comprises €500 million (c. £440m) of notes with a
fixed coupon of 3.625% and maturity of August 2026, and €250 million (c.
£220m) of notes with a fixed coupon of 3.75% and maturity of March 2028 along
with a £150m Revolving Credit Facility which matures in 2026. The Revolving
Credit Facility was increased from £120m to £150m to provide additional
liquidity headroom after the acquisition of Balta.
Other debt facilities in the Group represent small, local working capital
facilities at the subsidiary level, which are renewed or amended as
appropriate from time to time. The total outstanding amount drawn from these
facilities at the year-end was £32 million, as shown below in the Net Debt
section of this Financial Review.
Preferred equity
There have been no changes to the preferred equity arrangements in the year.
In FY22, in order to comply with the Board's own financial policy and internal
leverage limits, the acquisition of Balta was partially funded by the issue of
additional preferred equity to Koch Equity Development in January 2022.
Additional preferred shares totalling £150 million were issued, bringing
the total in issue to £225 million (plus those issued for the 'Payment In
Kind' of the fixed coupon, whereby new preferred shares are issued as opposed
to cash payment, at the Group's option).
Further details of the preferred equity and their accounting treatment are
provided in Note 6 to the Accounts.
EXCEPTIONAL AND NON-UNDERLYING ITEMS
This section of the Financial Review runs through all of items classified as
exceptional or non-underlying in the financial statements. The nature of
these items is, in many cases, the same as the prior year as the financial
policy around these items has remain unchanged, for consistency.
Exceptional costs relate entirely to third-party expenditure. Victoria does
not treat any recurring internal costs (such as employee time spent on
restructuring or acquisition projects) as exceptional, given these resources
are recurring.
The Group incurred £85.4 million of exceptional costs during the year (FY22:
£6.9m). Exceptional items are one-offs that will not continue or repeat in
the future, for example the legal and due diligence costs for a business
acquisition, as whilst further such costs might arise if new acquisitions are
undertaken, they will not arise again on the same business and would disappear
if the Group adopted a purely organic strategy.
2023 2022
Exceptional items £'m £'m
Acquisition related costs (4.0) (10.7)
Reorganisation costs (44.4) (5.3)
Fixed asset impairment (47.5) -
Negative goodwill arising on acquisition 90.5 6.9
Exceptional goodwill impairment (80.0) -
Contingent consideration linked to positive tax ruling - (0.6)
Profit on disposal of fixed assets - 2.9
Total exceptional items (85.4) (6.9)
This total exceptional cost figure is made up of numerous components, both
income and costs.
Description of the specific items is provided below:
· Acquisition related costs - These costs relate to third-party advisory
fees for due diligence and legal services., three acquisitions were completed
during the year, compared to five acquisitions in the prior year A significant
proportion of the costs of acquiring Balta were charged in FY22.
· Reorganisation costs - As described earlier the Group made a
significant investment in restructuring the rugs and UK broadloom businesses
of Balta. The scale of the restructuring was known ahead of the acquisition
and consists of reducing the footprint of the businesses in Belgium and
relocating some production to Turkey and the UK. We also incurred costs in
relation to the restructuring of the Saloni Ceramics business in Spain as we
mothballed one of our sites. In the prior year this figure relates to
post-acquisition integration costs in Italy and at Edel Group, plus small
incremental restructuring of activities in the UK (primarily in underlay
manufacturing) and Spain (further manufacturing rationalisation). The majority
of these costs are either redundancy costs or fees from external service
providers.
· Fixed asset impairment - The assets of the Balta acquisition have been
impaired. Certain assets acquired within Balta, due to the requirements of
IFRS of valuing assets in accordance with highest and best use at the point of
acquisition, were subsequently impaired to reflect the market value or actual
value in use to the company.
· Negative goodwill arising on acquisition - When an acquisition is
completed, under IFRS the opening balance sheet of the target must be
consolidated reflecting the fair value (as opposed to book value) of all
assets and liabilities, including any intangible assets such as brands or
customer relationships. The fair value is effectively the net realisable
value if those assets or liabilities were to be sold or transferred on the
open market at the time. Any excess of purchase price over the fair value of
the balance sheet is then shown in the consolidated accounts as goodwill.
However, if the assessed fair value exceeds the purchase price paid, then
the resulting 'negative goodwill' is income. This was the case with all the
acquisitions during the year. In the prior year this relates to the
acquisitions of Santa Maria in Italy and Graniser in Turkey.
· Exceptional goodwill impairment -Productivity investments at Keraben,
subdued demand, and a refocussing of the Saloni brand towards the high-end
architect and design market to drive margin rather than volume contributed to
the decision of the Spanish business to temporarily shut-off the use of its
production facilities at Saloni in Castellon, to avoid production
inefficiencies.
The other prior year items are described in more detail in Note 2 to the
Accounts.
Adjustment in respect of hyperinflation
During FY23 inflation in Turkey, where Victoria has two businesses, Graniser
(UK & Europe Soft Flooring) and Balta Rugs (UK & Europe Ceramics),
passed the threshold of inflation exceeding 100% over a three year cumulative
period in March 2022. Under IAS29 this is one of the key indicators for
hyperinflation needing to be adopted. This resulted in the revaluation of the
2 April 2022 opening balance sheet for these businesses as well as indexing
the FY23 numbers. As required by the accounting standard there is no
restatement of the prior year performance and we have treated these
adjustments as non-underlying to ensure comparability of results year on year.
The impact of hyperinflation on the income statement is:
2023
£'m
Revenue 18.9
Cost of sales (38.1)
Operating costs 35.8
EBIT 16.6
EBITDA 22.0
Finance costs (1.8)
Profit before tax 14.8
Deferred tax 0.2
Profit for the period 15.0
Non-underlying items are ones that do continue or repeat, but which are deemed
not to fairly represent the underlying business. Typically, they are non-cash
in nature and / or will only continue for a finite period of time.
2023 2022
Non-underlying operating items £'m £'m
Acquisition-related performance plan charge (10.3) (7.1)
Non-cash share incentive plan charge (3.6) (2.3)
Amortisation of acquired intangibles (excluding hyperinflation) (40.3) (32.4)
Unwind of fair value uplift to acquisition opening inventory (10.9) (5.3)
Depreciation of fair value uplift to acquisition property, plant and machinery (9.1) (0.2)
Hyperinflation monetary gain 38.9 -
Hyperinflation amortisation adjustment (1.1) -
Hyperinflation depreciation adjustment (4.2) -
Other hyperinflation adjustments (excluding depreciation and monetary gain) (16.9) -
(57.6) (47.4)
Non-underlying items in the year:
· Acquisition-related performance plan charge - this represents the
accrual of contingent earn-out liabilities on historical acquisitions where
those earn-outs are linked to the ongoing employment of the seller(s). The
primary reason for the increase is the acquisition of IWT in the year which
was acquired with an element of the consideration being contingent on
performance.
· Non-cash share incentive plan charge - the charge under IFRS 2
relating to the pre-determined fair value of existing senior management share
incentive schemes. This charge is non-cash as these schemes cannot be
settled in cash.
· Amortisation of acquired intangibles - the amortisation over a finite
period of time of the fair value attributed to, primarily, brands and customer
relationships on all historical acquisitions under IFRS. It is important to
note that these charges are non-cash items and that the associated intangible
assets do not need to be replaced on the balance sheet once fully
written-down. Therefore, this cost will ultimately disappear from the Group
income statement. The charge has increased in FY23 due to additional
acquisitions having been completed (coupled with the fact that the intangible
assets from the original acquisitions starting in 2013 are not yet fully
written-down).
· Unwind of fair value uplift to acquisition opening inventory - as
noted above (see 'negative goodwill' bullet) under IFRS the opening balance
sheet of each acquisition is fair valued, and this includes inventory. As
such, this opening inventory is no longer held at cost, rather at net
realisable value, which means that for the period of time over which it is
sold (typically 3-4 months) no profit will be recorded in the Group
consolidated accounts despite the fact that the target business itself
generated a profit. Any newly purchased inventory post-acquisition is held
at cost in the ordinary course. Given this is not representative of the
underlying performance of the acquired business, this one-off uplift in cost
of sales is classed as exceptional.
· Depreciation of fair value uplift to acquisition property - this is
the same effect as described above, except relating to property within fixed
assets as opposed to inventory.
As described above there were a number of adjustments made to the income
statement in relation to Hyperinflation. The hyperinflation adjustments
represent the impact of restating the non-monetary items on the Turkish
entities balance sheet based on the change in the general price index between
the acquisition date and the reporting date, as well as the indexation of the
income statement, with the gain/loss on the monetary position being included
within the income statement.
Further details of exceptional and non-underlying operating items are provided
in Note 2 to the accounts.
In addition to the above operating items, there were a number of
non-underlying financial items in the year.
2023 2022
Non-underlying financial costs £'m £'m
Finance items related to preferred equity 26.9 33.0
Fair value adjustment to notes redemption option 2.0 6.3
Unsecured loan redemption premium charge - 0.4
Mark to market adjustments and gains on foreign exchange forward contracts 0.4 (2.0)
Translation difference on foreign currency loans 13.3 (5.7)
Other financial expenses (hyperinflation) 1.8 -
Defined benefit pension (law change) 0.2 -
Other non-underlying 17.7 (1.1)
44.6 31.9
The significant items are described below:
· Finance items related to preferred equity - the preferred equity
issued in November 2020 and further in January 2022 is treated under IFRS 9 as
a financial instrument with a number of associated embedded derivatives.
There are a number of resulting financial items taken to the income
statement in each period, including the cost of the underlying host contract
and the income or expense related to the fair-valuation of the warrants and
embedded derivatives. However, the preferred equity is legally structured as
equity and is also equity-like in nature - it is contractually subordinated,
never has to be serviced in cash, and contains no default or acceleration
rights - hence the resultant finance costs or income are treated as
non-underlying.
2023 2022
Finance items related to preferred equity £m £m
Amortised cost of host instrument 26.8 14.9
Accounting impact of terms modification in Jan 2022 - 11.5
Fair value movement on associated equity warrants (20.3) 11.3
Fair value movement on embedded redemption option 20.5 (10.7)
Charge associated with previous KED commitment to additional pref's (now - 6.0
ended)
Total 26.9 33.0
· Fair value adjustment to notes redemption option - the corporate bonds
issued in March 2021 comprise two tranches maturing in August 2026 and March
2028. However, the company can choose to repay early if it pays a redemption
premium, the level of which varies over time (a very high cost within the
first two to three years, followed by comparatively lower costs, stepping-down
over the remaining term). Under IFRS 9, this 'embedded call option' must be
separately disclosed as a financial asset on the balance sheet and fair-valued
at each reporting date. The income or charge resulting from this revaluation
exercise at each reporting is a non-cash item.
· Mark to market adjustments on foreign exchange forward contracts -
across the Group we analyse our upcoming currency requirements (for raw
material purchases) and offset the exchange rate risk via a fixed, diminishing
profile of forward contracts out to 12 months. This non-cash cost represents
the mark-to-market movement in the value of these contracts as exchange rates
fluctuate.
· Translation difference on foreign currency loans - this represents the
impact of exchange rate movements in the translation of non-Sterling
denominated debt into the Group accounts. The key items in this regard are
the Euro-denominated €500m 2026 corporate bonds, and €250m 2028 corporate
bonds.
· Other financial expense (hyperinflation) - Restated finance costs
within Turkish entities based on the change in the general price index between
the date when the finance costs were initially recorded and the reporting
date.
· Defined benefit pension (law change) - Turkish government announced an
early retirement law change based on being in employment back in 1999.
Further details of non-underlying finance items are provided in Note 3 to the
accounts.
OPERATING PROFIT AND PBT
The table below summarises the underlying and reported profit of the Group,
further to the commentary above on underlying performance and non-underlying
items.
Operating profit and PBT 2023 2022
£'m £'m
Underlying operating profit 118.8 107.9
Reported operating (loss) / profit (after exceptional items) (24.1) 53.6
Underlying profit before tax 76.9 73.8
Reported loss before tax (after exceptional items) (110.6) (12.4)
Reported operating loss (earnings before interest and taxation) of 24.1
million (FY22: £53.6 million profit). After removing the exceptional and
non-underlying items described above, underlying operating profit was £118.8
million, representing a 10.1% increase over the prior year.
Reported loss before tax increased to £110.6 million (FY22: loss of £12.4
million). After removing the exceptional and non-underlying items described
above, underlying profit before tax was £76.9 million, representing a 4.2%
increase over the prior year.
TAXATION
The reported tax credit in the year of £18.8m (2022: £nil) was distorted by
the impact of the exceptional and non-underlying costs, which contributed to a
tax credit of £36.1 million. On an underlying basis, the tax charge for the
year was £17.3 million (2022: £18.1m) against adjusted profit before tax of
£76.9 million (2022: £73.8m), implying an underlying effective tax rate of
22.4% (2022: 24.6%).
EARNINGS PER SHARE
The Group delivered a basic loss per share of 79.35p (FY22: loss per share of
10.61p) due to exceptional costs in relation to acquisitions and restructuring
and also the increase in amortisation of amortisation of acquired intangibles.
However, adjusted earnings per share (before non-underlying and exceptional
items) on a fully-diluted basis was 39.06p (FY22: 40.21p). While earnings have
increased, the decrease in EPS is driven by the greater dilutive impact of the
preference shares.
Basic and diluted earnings / (loss) per share 2023 2022
Basic loss per share (79.35p) (10.61p)
Diluted adjusted earnings per share 39.06p 40.21p
OPERATING CASH FLOW
Cash flow from operating activities before interest, tax and exceptional items
was £157.8 million which represents a conversion of 92% of underlying EBITDA
(pre-IFRS 16).
Operating and free cash flow 2023 2022
£'m £'m
Underlying operating profit 118.8 107.9
Add back: underlying depreciation & amortisation 77.2 54.9
Underlying EBITDA 196.0 162.8
Payments under right-of-use lease obligations (29.3) (18.8)
Non-cash items (15.1) (5.9)
Underlying movement in working capital 6.3 (26.3)
Operating cash flow before interest, tax and exceptional items 157.8 111.8
% conversion against underlying operating profit 133% 104%
% conversion against underlying EBITDA (pre-IFRS 16) 92% 78%
Interest paid (34.8) (28.4)
Corporation tax paid (11.4) (13.7)
Capital expenditure - replacement / maintenance of existing capabilities (45.6) (40.9)
Proceeds from fixed asset disposals 5.3 5.3
Free cash flow before exceptional items 71.3 34.2
% conversion against underlying operating profit 60% 32%
% conversion against underlying EBITDA (pre-IFRS 16) 42% 23%
Pre-exceptional free cash flow of the Group - after interest, tax and net
replacement capex - was £71.3 million. Compared with underlying operating
profit (i.e. post-depreciation), this represents a conversion ratio of 60%.
Cash conversion was positively impacted in the year by improvements in
working capital compared with the prior year.
The Group generated a cash inflow from working capital of £53.1m in the
second half of the year through reducing inventory levels as supply chains and
raw material prices returned to more normal levels. Working capital management
will continue to be a focus for us in the coming year.
A full reported statement of cash flows, including exceptional and
non-underlying items, is provided in the Consolidated Statement of Cash Flows.
NET DEBT
As at 1 April 2023, the Group's net debt position (excluding IFRS 16
right-of-use leases and preferred equity) was £658.3m. Free cash flow of
£71.3 million was generated in the year, while £79.4 million was invested in
organic growth / synergy initiatives. Acquisition-related expenditure
(including debts assumed on acquisition) was £207.1 million, which was funded
from the cash on balance sheet, and the net cash proceeds from the additional
preferred equity issuance of £143 million in previous financial year.
Applying our banks' adjusted measure of financial leverage, the Group's year
end net debt to EBITDA ratio was 3.44x (FY22: 2.66x).
Current leverage is consistent with our financial strategy to use a sensible
but cautious level of debt in the overall funding structure of the Group. As a
result of changing conditions and with the higher interest rates that are
likely to be experienced for the foreseeable future, it is the Board's
objective to reduce the Group's net debt/EBITDA ratio to around 2.25x ahead of
refinancing the current bond issues.
Free cash flow to movement in net debt 2023 2022
£'m £'m
Free cash flow before exceptional items (see above) 71.3 34.2
Capital expenditure - growth / synergy (54.1) (12.4)
Exceptional reorganisation cash cost (25.3) (2.5)
Investment in organic growth / synergy projects (79.4) (14.9)
Acquisition of subsidiaries (119.7) (127.9)
Total debt acquired or refinanced (87.4) (74.8)
Deferred and contingent consideration payments (4.6) (20.5)
Exceptional M&A costs (4.0) (10.7)
Acquisition-related working capital absorption (17.3) -
Acquisitions - related (233.1) (233.9)
Buy back of ordinary shares (7.8) (0.6)
Preferred equity issuance - 143.0
Net refinancing cash flow (7.8) 142.4
Other debt items including factoring and prepaid finance costs 24.4 1.5
Translation differences on foreign currency cash and loans (27.0) 9.6
Other exceptional items (2.6) 11.1
Total movement in net debt (251.7) (61.1)
Opening net debt (406.6) (345.7)
Net debt before obligations under right-of-use leases (658.3) (406.6)
Net debt 2023 2022
£'m £'m
Net cash and cash equivalents 90.4 258.0
Senior secured debt (at par) (660.2) (631.6)
Unsecured loans (87.5) (32.2)
Finance leases and hire purchase arrangements (pre IFRS 16) (1.0) (0.8)
Net debt before obligations under right-of-use leases (658.3) (406.6)
Adjusted net debt / EBITDA 3.4x 2.7x
Bond embedded redemption option - 2.7
Bond issue premium - non-cash (related to initial value of redemption option) (3.6) (4.3)
Pre-paid finance costs on senior debt 7.9 9.8
Preferred equity, associated warrants and embedded derivatives (281.2) (254.2)
Factoring and receivables financing facilities (25.1)
Obligations under right-of-use leases (incremental to above finance leases) (171.3) (104.8)
Statutory net debt (net of prepaid finance costs) (1,131.5) (757.4)
ACCOUNTING STANDARDS
The financial statements have been prepared in accordance with UK-adopted
international accounting standards. There have been no changes to
international accounting standards this year that have a material impact on
the Group's results. No forthcoming new international accounting standards
are expected to have a material impact on the financial statements of the
Group.
LIMITATION OF SCOPE
In the year ended 1 April 2023 UK subsidiary, Hanover Flooring Limited
("HFL"), a small regional distributor in Yorkshire, had revenue of £18.7m
(2022: £23.4m), statutory loss before tax of £1.2m (2022: loss £0.9m),
underlying profit before tax of £3.9m (2022: £5.8m) and net liabilities of
£0.4m (2022: net assets of £0.7m). For reference, the level of materiality
set by our auditor Grant Thornton for work performed on HFL for FY23 is £2.4m
and £6.0m for the entire Group audit.
Victoria plc acquired the trade, inventory and debtors of Hanover Carpets
("HCP") from a UK partnership on 26 January 2021, with one of the partners
joining the group as managing director of HFL.
As is usual in these types of acquisitions, customers, despite instructions
otherwise, continued to remit receipts for sales into the bank account of the
seller (the bank account was not acquired by HFL and continued to be used by
the partnership's other businesses). These receipts (£5.2m since acquisition,
more than 70% between January and June 2021 but including £0.3m in FY23) were
periodically transferred to HFL. HCP also made payments on behalf of HFL of
£0.4m in FY21 from this bank account between January and June 2021. The
opening and activation of a bank account for HFL was delayed until March 2021
due to Covid-19 lockdowns.
This arrangement was specifically anticipated in the Asset Purchase Agreement
as we were not acquiring the bank account but it was brought to our attention
in June 2023 that a small number of customers were still remitting payments
into it (c.£0.002 million in the previous three months). This matter was
reviewed by executive management and in discussion with the Board it was
decided to appoint an external professional services firm (Big Four Accounting
Firm) to assist in performing a number of procedures to confirm the
completeness of amounts owing to HFL from HCP and the adequacy of accounting
records.
The interim outcome of the work undertaken has confirmed that since 26 January
2021:
(a) £0.4m due to HFL by HCP was offset from the latest deferred
consideration payment;
(b) £0.1m of HFL customer receipts in FY23 (and £1.2m since January 2021)
cannot be reconciled to individual product invoices due to a lack of detailed
records in relation to those payments. (It is important to understand Victoria
has received the payments, it is solely that customer receipts were applied to
customer receivable balance without regard for specific invoices being paid);
and
(c) a number of instances of potential non-compliance with High Value Dealer
regulations (MLR 2017) in HFL since the date of acquisition. Once identified
we immediately stopped all cash handling until appropriate controls could be
put in place, have advised the relevant regulatory authorities and, with the
benefit of appropriate legal advice, have made a provision for the expected
fine.
Under the terms of the Asset Purchase Agreement we have the legal right to
retain any or all of the contingent consideration (of which £8.0 million
remains to be paid) to cover any negative financial effect should there be
one. We will continue to perform procedures on the completeness of amounts
owed to HFL from HCP ahead of the final deferred consideration payment.
Therefore, we do not anticipate any financial impact on Victoria from any of
the above matters.
There have been some deficiencies in the control environment in this minor
subsidiary and it has not maintained adequate and complete accounting records
for the purposes of demonstrating how individual customer receipts were
applied to individual invoices in the debtors' ledger. Consequently, we
allocated additional experienced finance resources to this subsidiary who are
putting appropriate controls in place to ensure adequate accounting records
will be maintained.
We have reviewed other similar acquisitions in the group and did not identify
these deficiencies in their control environments or record keeping.
We believe, based on the extensive work carried out with the support of
professional advisors, that due to inadequate books and records in certain
areas, any further audit procedures by Grant Thornton will not provide them
with sufficient and appropriate evidence to satisfy their concerns and
therefore we took the decision to impose a limitation of scope on the
auditor's work and requested them to stop their work in respect of HFL.
As a result, Grant Thornton have not been able to complete their audit work on
HFL in support of the Group audit for the year ended 1 April 2023. Grant
Thornton have had to modify their audit opinion in respect of our decision to
impose a limitation of scope in this area.
GOING CONCERN
The consolidated financial statements for the Group have been prepared on a
going concern basis.
Brian Morgan
Chief Financial Officer
13 September 2023
Consolidated Income Statement
For the 52 weeks ended 1 April 2023
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Underlying Non- Reported Underlying Non- Reported
performance
underlying
numbers
performance
underlying
numbers
items
items
Notes £m £m £m £m £m £m
Revenue 1 1,461.4 18.8 1,480.2 1,019.8 - 1,019.8
Cost of Sales (986.6) (58.9) (1,045.5) (657.5) (5.5) (663.0)
Gross profit 474.8 (40.1) 434.7 362.3 (5.5) 356.8
Distribution and administrative expenses (360.4) (193.4) (553.8) (256.5) (58.6) (315.1)
Negative goodwill arising on acquisition - 90.5 90.5 - 6.9 6.9
Other operating income 4.4 0.1 4.5 2.1 2.9 5.0
Operating profit / (loss) 118.8 (142.9) (24.1) 107.9 (54.3) 53.6
Comprising:
Operating profit before non-underlying and exceptional items 118.8 - 118.8 107.9 - 107.9
Amortisation of acquired intangibles 1,2 - (41.5) (41.5) - (32.4) (32.4)
Other non-underlying items 1,2 - (16.0) (16.0) - (15.0) (15.0)
Exceptional goodwill impairment - (80.0) (80.0) - - -
Other exceptional items 1,2 - (5.4) (5.4) - (6.9) (6.9)
Finance costs 3 (41.9) (44.6) (86.5) (34.1) (31.9) (66.0)
Comprising:
Interest on loans and notes 3 (33.6) - (33.6) (27.9) - (27.9)
Amortisation of prepaid finance costs and accrued interest 3 (2.8) - (2.8) (2.3) - (2.3)
Unwinding of discount on right-of-use lease liabilities 3 (5.4) - (5.4) (3.8) - (3.8)
Preferred equity items 3 - (26.9) (26.9) - (33.0) (33.0)
Other finance items 3 (0.1) (17.7) (17.8) (0.1) 1.1 1.0
Profit / (loss) before tax 76.9 (187.5) (110.6) 73.8 (86.2) (12.4)
Taxation (charge) / credit (17.3) 36.1 18.8 (18.1) 18.1 -
Profit / (loss) for the period 59.6 (151.4) (91.8) 55.7 (68.1) (12.4)
(Loss) / earnings per share - pence basic 4 (79.35) (10.61)
diluted 4 (79.35) (10.61)
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 1 April 2023
52 weeks ended 52 weeks ended
1 April 2023
2 April 2022
Note £m £m
Loss for the period (91.8) (12.4)
Other comprehensive (expense) / income
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on defined benefit pension scheme 7 (2.0) 1.6
Items that will not be reclassified to profit or loss (2.0) 1.6
Items that may be reclassified subsequently to profit or loss:
Hyperinflation adjustments 16.5
Retranslation of overseas subsidiaries (2.1) 3.5
Items that may be reclassified subsequently to profit or loss 14.4 3.5
Other comprehensive income 12.4 5.1
Total comprehensive expense for the period attributable to the owners of the (79.4) (7.3)
parent
Consolidated Balance Sheet
As at 1 April 2023
1 April 2023 2 April 2022 (Restated) 3 April 2021 (Restated)
Note £m £m £m
Non-current assets
Goodwill 173.6 244.6 164.8
Intangible assets other than goodwill 305.5 259.7 224.2
Property, plant and equipment 462.6 256.0 202.1
Right-of-use lease assets 162.0 99.6 82.6
Investment property 0.2 0.2 0.2
Investments in subsidiaries - - -
Trade and other non-current receivables - - -
Deferred tax assets 1.7 1.0 1.0
Total non-current assets 1,105.6 861.1 674.9
Current assets
Inventories 351.2 280.7 164.4
Trade and other receivables 276.3 223.8 150.1
Current tax assets 14.7 - -
Cash and cash equivalents 93.3 273.6 348.8
Assets classified as held for sale 25.8 - -
Total current assets 761.3 778.1 663.3
Total assets 1,866.9 1,639.2 1,338.2
Current liabilities
Trade and other current payables 369.8 337.2 213.8
Current tax liabilities 6.9 0.7 5.1
Obligations under right-of-use leases - current 27.6 16.9 13.0
Other financial liabilities 65.2 25.2 30.2
Provisions 19.0 - -
Total current liabilities 488.5 380.0 262.1
Non-current liabilities
Trade and other non-current payables 14.1 7.5 17.0
Obligations under right-of-use leases - non-current 144.6 88.7 74.0
Other non-current financial liabilities 706.2 646.0 647.5
Preferred equity 255.2 207.9 70.1
Preferred equity - contractually-linked warrants 26.0 46.4 6.1
Deferred tax liabilities 89.3 55.2 46.7
Retirement benefit obligations 7 8.0 4.9 6.5
Provisions 16.0 - -
Total non-current liabilities 1,259.4 1,056.6 867.9
Total liabilities 1,747.9 1,436.6 1,130.0
Net Assets 119.0 202.6 208.2
Equity
Share capital 6.3 6.3 6.3
Retained earnings 85.7 187.3 198.7
Foreign exchange reserve 1.0 3.1 (0.4)
Hyperinflation reserve 16.5 - -
Other reserves 9.5 5.9 3.6
Total equity 119.0 202.6 208.2
Consolidated Statement of Changes in Equity
For the 52 weeks ended 1 April 2023
Share Retained Foreign exchange reserve Hyper-inflation reserve Other Total
capital
earnings
reserves
equity
£m £m £m £m £m £m
At 3 April 2021 6.3 198.7 (0.4) - 3.6 208.2
Loss for the period to 2 April 2022 - (12.4) - - - (12.4)
Other comprehensive loss for the period - 1.6 - - - 1.6
Retranslation of overseas subsidiaries - - 3.5 - - 3.5
Total comprehensive loss - (10.8) 3.5 - - (7.3)
Buy back of ordinary shares - (0.6) - - - (0.6)
Share-based payment charge - - - - 2.3 2.3
Transactions with owners - (0.6) - - 2.3 1.7
At 2 April 2022 6.3 187.3 3.1 - 5.9 202.6
Loss for the period to 1 April 2023 - (91.8) - - - (91.8)
Other comprehensive income for the period - (2.0) - - - (2.0)
Retranslation of overseas subsidiaries - - (2.1) 16.5 - 14.4
Total comprehensive loss - (93.8) (2.1) 16.5 - (79.4)
Buy back of ordinary shares (note 22) - (7.8) - - - (7.8)
Share-based payment charge - - - - 3.6 3.6
Transactions with owners - (7.8) - - 3.6 (4.2)
At 1 April 2023 6.3 85.7 1.0 16.5 9.5 119.0
Consolidated Statement of Cash Flows
For the 52 weeks ended 1 April 2023
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Cash flows from operating activities
Operating (loss) / profit (24.1) 53.6
Adjustments for:
Depreciation and amortisation of IT software 90.5 55.2
Amortisation of acquired intangibles 41.5 32.4
Hyperinflation impact (22.0) -
Negative goodwill arising on acquisition (90.5) (6.9)
Goodwill impairment 80.0 -
Acquisition-related performance plan charge 10.3 7.1
Amortisation of government grants (1.3) (0.5)
Profit on disposal of property, plant and equipment (1.8) (2.9)
Fixed asset impairment 47.5 -
Loss on disposal of leased assets 1.5 -
Share incentive plan charge 3.6 2.3
Defined benefit pension (2.5) (0.1)
Net cash flow from operating activities before movements in working capital, 132.7 140.2
tax and interest payments
Change in inventories 62.8 (51.8)
Change in trade and other receivables 40.6 (29.9)
Change in trade and other payables (114.5) 55.5
Change in provisions 19.1 -
Cash generated by continuing operations before tax and interest payments 140.7 114.0
Interest paid on loans and notes (34.8) (28.4)
Interest relating to right-of-use lease assets (5.4) (3.8)
Income taxes paid (11.4) (13.7)
Net cash inflow from operating activities 89.1 68.1
Investing activities
Purchases of property, plant and equipment (96.4) (51.3)
Purchases of intangible assets (3.2) (2.0)
Loan to subsidiary companies - -
Proceeds on disposal of property, plant and equipment 5.3 5.3
Deferred consideration and acquisition-related performance plan payments (4.6) (12.7)
Acquisition of subsidiaries net of cash acquired (119.7) (127.9)
Net cash used in investing activities (218.6) (188.6)
Financing activities
Proceeds from debt 66.0 -
Repayment of debt (75.4) (89.8)
Issue of preferred equity - 150.0
Preferred equity ticking fee - (7.0)
Buy back of ordinary shares (7.8) (0.6)
Payments under right-of-use lease obligations (23.9) (15.0)
Repayment of acquisition-related capital investment to Keraben senior mgmt - (7.2)
team
Net cash (used) / generated in financing activities (41.1) 30.4
Net (decrease) / increase in cash and cash equivalents (170.6) (90.1)
Cash and cash equivalents at beginning of period 258.0 344.8
Effect of foreign exchange rate changes 3.0 3.3
Cash and cash equivalents at end of period 90.4 258.0
Comprising:
Cash and cash equivalents 93.3 273.6
Bank overdrafts (2.9) (15.6)
90.4 258.0
NOTES
1. Segmental information
The Group is organised into four operating segments: soft flooring products in
UK & Europe; ceramic tiles in UK & Europe; flooring products in
Australia; and flooring products in North America. The Executive Board (which
is collectively the Chief Operating Decision Maker) regularly reviews
financial information for each of these operating segments in order to assess
their performance and make decisions around strategy and resource allocation
at this level.
The UK & Europe Soft Flooring segment comprises legal entities primarily
in the UK, Republic of Ireland, the Netherlands and Belgium (including
manufacturing entities in Turkey and a distribution entity in North America),
whose operations involve the manufacture and distribution of carpets, rugs,
flooring underlay, artificial grass, LVT, and associated accessories. The UK
& Europe Ceramic Tiles segment comprises legal entities primarily in
Spain, Turkey and Italy, whose operations involve the manufacture and
distribution of wall and floor ceramic tiles. The Australia segment comprises
legal entities in Australia, whose operations involve the manufacture and
distribution of carpets, flooring underlay and LVT. The North America segment
comprises legal entities in the USA, whose operations involve the distribution
of hard flooring, LVT and tiles.
Whilst additional information has been provided in the operational review on
sub-segment activities, discrete financial information on these activities is
not regularly reported to the CODM for assessing performance or allocating
resources.
No operating segments have been aggregated into reportable segments.
Both underlying operating profit and reported operating profit are reported to
the Executive Board on a segmental basis.
Transactions between the reportable segments are made on an arm length's
basis. The reportable segments exclude the results of non-revenue generating
holding companies, including Victoria PLC. These entities' results have been
included as unallocated central expenses in the tables below.
Income statement
52 weeks ended 1 April 2023
UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m
Income statement
Revenue 722.9 468.0 120.9 168.4 - 1,480.2
Underlying operating profit / (loss) 27.2 77.5 10.0 6.0 (1.9) 118.8
Non-underlying operating items (30.0) (12.0) (1.7) (9.2) (4.6) (57.5)
Exceptional operating items 5.8 (90.1) (0.1) 2.8 (3.8) (85.4)
Operating profit / (loss) 3.0 (24.6) 8.2 (0.4) (10.3) (24.1)
Underlying net finance costs (41.9)
Non-underlying finance costs (44.6)
Loss before tax (110.6)
Tax credit 18.8
Loss for the period (91.8)
52 weeks ended 2 April 2022
UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m
Income statement
Revenue 423.1 371.6 109.5 115.6 - 1,019.8
Underlying operating profit / (loss) 45.4 47.5 11.8 5.2 (2.0) 107.9
Non-underlying operating items (9.9) (27.5) (1.7) (5.1) (3.2) (47.4)
Exceptional operating items (4.0) 2.2 (0.1) (1.8) (3.2) (6.9)
Operating profit / (loss) 31.5 22.2 10.0 (1.7) (8.4) 53.6
Underlying net finance costs (34.1)
Non-underlying finance costs (31.9)
Loss before tax (12.4)
Tax credit -
Loss for the period (12.4)
Management information is reviewed on a segmental basis to operating profit.
During the year, no single customer accounted for 10% or more of the Group's
revenue. Inter-segment sales in the year and in the prior year were
immaterial.
All revenue generated across each operating segment was from the sale of
flooring products recognised at a point in time in accordance with IFRS 15.
The flooring products sold across each operating segment have similar
production processes, classes of customers and economic characteristics such
as similar rates of profitability, similar degrees of risk, and similar
opportunities for growth.
The Group's revenue for the period was split geographically (by origin) as
follows:
2023 2022
£m £m
Revenue
United Kingdom 316.5 336.6
Belgium 251.5 -
Spain 204.1 205.8
Italy 184.8 155.2
Netherlands 94.1 86.5
Turkey 105.6 10.7
Australia 120.9 109.5
United States 202.7 115.6
1,480.2 1,019.8
Balance sheet
52 weeks ended 1 April 2023
UK & UK & Australia North America Central Total
Europe
Europe
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m
Total assets 684.4 719.9 83.6 138.5 240.5 1,866.9
Total liabilities (401.0) (295.6) (26.6) (64.0) (960.7) (1,747.9)
Net Assets 283.4 424.3 57.0 74.5 (720.2) 119.0
52 weeks ended 2 April 2022 (restated)
UK & UK & Australia North America Central Total
Europe
Europe
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m
Total assets 378.6 769.8 99.7 96.3 294.8 1,639.2
Total liabilities (193.4) (293.7) (34.1) (31.8) (883.6) (1,436.6)
Net Assets 185.3 476.2 65.5 64.5 (588.9) 202.6
The Group's non-current assets (net of deferred tax) as at 1 April 2023 were
split geographically as follows:
2023 2022
£m £m
Non-current assets (net of deferred tax)
United Kingdom 169.7 146.6
Belgium 179.6 -
Spain 301.0 375.6
Italy 102.5 97.7
Netherlands 101.9 98.8
Turkey 108.7 35.5
Australia 34.8 40.1
United States 105.7 65.8
1,103.9 860.1
Other segmental information
52 weeks ended 1 April 2023
UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m
Depreciation of tangible fixed assets and IT software amortisation 35.7 23.8 3.0 1.8 - 64.3
Depreciation of right-of-use lease assets 16.4 5.6 2.3 1.4 0.5 26.2
Amortisation of acquired intangibles 11.9 23.4 1.8 4.4 - 41.5
64.0 52.8 7.1 7.6 0.5 132.0
52 weeks ended 1 April 2023
UK & UK & Australia North Central Total
Europe
Europe
America
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m
Total capital expenditure (cashflow) 46.1 39.6 3.3 5.2 0.1 94.3
52 weeks ended 2 April 2022
UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m
Depreciation of tangible fixed assets and IT software amortisation 13.4 21.8 0.3 0.9 - 36.4
Depreciation of right-of-use lease assets 11.5 2.3 4.2 0.4 0.4 18.8
Amortisation of acquired intangibles 7.4 20.8 1.7 2.5 - 32.4
32.3 44.9 6.2 3.8 0.4 87.6
52 weeks ended 2 April 2022
UK & UK & Australia North Central Total
Europe
Europe
America
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m
Total capital expenditure (cashflow) 12.9 30.6 3.1 1.2 0.2 47.9
2. Exceptional and non-underlying items
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Exceptional items
(a) Acquisition related costs (4.0) (10.7)
(b i) Reorganisation costs (44.4) (5.3)
(b ii) Fixed asset impairment (47.5) -
(c i) Negative goodwill arising on acquisition 90.5 6.9
(c ii) Exceptional goodwill impairment (80.0) -
(d) Contingent consideration linked to positive tax ruling - (0.6)
(e) Profit on disposal of fixed assets - 2.9
(85.4) (6.9)
Non-underlying operating items
(f) Acquisition-related performance plans (10.3) (7.1)
(g) Non-cash share incentive plan charge (3.6) (2.3)
(h) Amortisation of acquired intangibles (excluding hyperinflation) (40.3) (32.4)
(i) Unwind of fair value uplift to acquisition opening inventory (10.9) (5.3)
(j) Depreciation of fair value uplift to acquisition property, plant and (9.1) (0.2)
machinery
(k) Hyperinflation depreciation adjustment (4.2) -
(l) Hyperinflation amortisation adjustment (1.1) -
(m) Hyperinflation monetary gain 38.9 -
(n) Other hyperinflation adjustments (excluding depreciation and monetary (16.9) -
gain)
(57.5) (47.4)
Total (142.9) (54.3)
Representing functional categorisation of:
Revenue (see notes k,l,m,n) 18.9 -
Cost of sales (see notes i,j,k,l,m,n) (58.9) (5.5)
Distribution and administrative expenses (193.4) (58.6)
Negative goodwill arising on acquisition 90.5 6.9
Other operating income (see notes e,k,l,m,n) 0.1 2.9
(142.9) (54.3)
(a) One-off third-party professional fees in connection with prospecting and
completing specific acquisitions during the period.
(b) One-off reorganisation costs of £44.4m relating to a number of efficiency
projects during the year, mainly Balta restructuring. An asset impairment cost
of £47.5m also occurred in the year relating to acquired Balta property,
plant & machinery. One property was revalued on acquisition using a
depreciated replacement cost valuation approach however due to subsequent
restructuring decisions the property was transferred to assets held for sale
and is now held at fair value less costs to sell. Indicators of impairment
have been identified in respect of certain groups of assets which have been
valued at the higher of value in use and fair value less costs to sell.
Prior year included post-acquisition integration costs in Italy and at Edel
Group, plus small incremental restructuring of activities in the UK (primarily
in underlay manufacturing) and Spain (further manufacturing rationalisation).
(c i) Negative goodwill of £90.5m arose on the consolidation of Balta,
Ragolle and IWT, all acquired during the period, achieved through favourable
bilateral negotiations on Ragolle and IWT's negative goodwill is due to the
accounting treatment of the accrued employment costs. Balta's negative
goodwill is linked to the fact further spend is required to restructure the
business and due to fair value uplift of property. See point b.
(c ii) Productivity investments at Keraben, subdued demand, and a refocussing
of the Saloni brand towards the high-end architect and design market to drive
margin rather than volume contributed to the decision of the Spanish business
to temporarily shut-off the use of its production facilities at Saloni in
Castellon, to avoid production inefficiencies.
Prior period negative goodwill of £4.2m arose on the consolidation of Santa
Maria, and £4.7m on the consolidation of Graniser, both acquired during the
prior period, achieved through favourable bilateral negotiations. This was
offset by a £1.9m charge relating to Hanover.
(d) One-off prior period charge in the year reflecting the final instalment of
contingent consideration on the acquisition of Saloni, which was linked to a
positive ruling over the tax deductibility of certain pre-acquisition costs.
(e) Prior period gain on sale of the Westex property following completion of
the synergy project to consolidate manufacturing into another factory (G
Tuft).
(f) Charge relating to the accrual of expected liability under
acquisition-related performance plans.
(g) Non-cash, IFRS2 share-based payment charge in relation to the long-term
management incentive plans.
(h) Amortisation of intangible assets, primarily brands and customer
relationships, recognised on consolidation as a result of business
combinations.
(i) One-off cost of sales charge reflecting the IFRS 3 fair value adjustment
on inventory acquired on new business acquisitions, given this is not
representative of the underlying performance of those businesses.
(j) Cost of sales depreciation charge reflecting the IFRS 3 fair value
adjustment on buildings and plant and machinery acquired on new business
acquisitions, given this is not representative of the underlying performance
of those businesses.
(k,l,m,n) Impact of hyperinflation indexation in the period, see accounting
policies.
The hyperinflation impact in the period on revenue was £18.9m (income), cost
of sales was £38.1m (charge), admin expenses was £35.8m (income) and other
operating income was £0.1m.
3. Finance costs
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Underlying finance items
Interest on bank facilities and notes 33.6 27.1
Interest on unsecured loans - 0.8
Total interest on loans and notes 33.6 27.9
Amortisation of prepaid finance costs on loans and notes 2.8 2.3
Unwinding of discount on right-of-use lease liabilities 5.4 3.8
Net interest expense on defined benefit pensions 0.3 0.1
Retranslation on foreign cash balances (0.2) -
41.9 34.1
Non-underlying finance items
(a) Finance items related to preferred equity 26.9 33.0
Preferred equity related 26.9 33.0
(b) Unwinding of present value of deferred and contingent earn-out liabilities 0.3 -
(c) Partial waiver of deferred consideration (0.3) -
Acquisitions related - -
(d) Fair value adjustment to notes redemption option 2.0 6.3
(e) Unsecured loan redemption premium charge - 0.4
(f) Mark to market adjustments and gains on foreign exchange forward contracts 0.4 (2.0)
(g) Translation difference on foreign currency loans and cash 13.3 (5.7)
(h) Hyperinflation - finance portion 1.8 -
(i) Defined benefit pension (law change) 0.2 -
Other non-underlying 17.7 (1.1)
44.6 31.9
(a) The net impact of items relating to preferred equity issued to Koch Equity
Development during the current and prior periods.
(b) Current period non-cash costs relating to the unwind of present value
discounts applied to deferred consideration and contingent earn-outs on
historical business acquisitions. Deferred consideration is measured at
amortised cost, while contingent consideration is measured under IFRS 3 at
fair value. Both are discounted for the time value of money.
(c) Credit arising due to partial waiver of deferred consideration payable due
to formally agreeing a reduction in the overall liability based on an advanced
payment.
(d) Fair value adjustment to embedded derivative representing the early
redemption option within the terms of the senior secured notes.
(e) Prior period charge relating to the £0.4 million redemption premium on
the BGF loan. The BGF loan, including redemption premium, was fully repaid in
the prior period.
(f) Non-cash fair value adjustments on foreign exchange forward contracts.
(g) Net impact of exchange rate movements on third party and intercompany
loans.
(h) Other finance cost/income impact of hyperinflation.
(i) Defined benefit pension change in year relating to law change in Turkey.
See Financial Review for further details of these items.
4. Earnings per share
The calculation of the basic, adjusted and diluted earnings / loss per share
is based on the following data:
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Basic Adjusted Basic Adjusted
£m £m £m £m
(Loss) / profit attributable to ordinary equity holders of the parent entity (91.8) (91.8) (12.4) (12.4)
Exceptional and non-underlying items:
Income statement impact of preferred equity - 26.9 - 33.0
Amortisation of acquired intangibles - 40.3 - 32.4
Other non-underlying items - 33.7 - 15.0
Exceptional goodwill impairment - 80.0 - -
Other exceptional items - 5.4 - 6.9
Interest on short -term draw of Group revolving credit facility - - - -
Amortisation of prepaid finance costs - - - -
Fair value adjustment to notes redemption option - 2.0 - 6.3
Translation difference on foreign currency loans - 13.3 - (5.7)
Other non-underlying finance items - 0.7 - (1.6)
Tax effect on adjusted items where applicable - (36.1) - (18.1)
Hyperinflation - (14.8) - -
(Loss) / earnings for the purpose of basic and adjusted earnings per share (91.8) 59.6 (12.4) 55.7
Weighted average number of shares
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Number Number
of shares
of shares
(000's) (000's)
Weighted average number of shares for the purpose of basic and adjusted 115,746 116,858
earnings per share
Effect of dilutive potential ordinary shares:
Share options and warrants 1,569 1,759
Weighted average number of ordinary shares for the purposes of diluted 117,315 118,617
earnings per share
Preferred equity and contractually-linked warrants 35,213 19,774
Weighted average number of ordinary shares for the purposes of diluted 152,528 138,391
adjusted earnings per share
The potential dilutive effect of the share options has been calculated in
accordance with IAS 33 using the average share price in the period.
The Group's earnings / loss per share are as follows:
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Pence Pence
Earnings / loss per share
Basic earnings / (loss) per share (79.35) (10.61)
Diluted earnings / (loss) per share (79.35) (10.61)
Basic adjusted earnings per share 51.47 47.62
Diluted adjusted earnings per share 39.06 40.21
Diluted earnings per share for the period is not adjusted for the impact of
the potential future conversion of preferred equity due to this instrument
having an anti-dilutive effect, whereby the positive impact of adding back the
associated financial costs to earnings outweighs the dilutive impact of
conversion/exercise. Diluted adjusted earnings per share does take into
account the impact of this instrument as shown in the table above setting out
the weighted average number of shares. Due to the loss incurred in the year,
in calculating the diluted loss per share, the share options, warrants and
preferred equity are considered to be non-dilutive.
5. Rates of exchange
2023 2022
Average Year end Average Year end
Australia - AUD 1.7679 1.8458 1.8269 1.7509
Europe - EUR 1.1557 1.1360 1.1777 1.1874
United States - USD 1.2065 1.2345 1.3627 1.3114
Turkey - TRY 21.6304 23.6755 18.7879 19.2606
6. Net Debt
Analysis of net debt
Reconciliation of movements in the Group's net debt position:
Group At Cash flow Non-cash movement Acquisitions Other non-cash changes Exchange movement At
on inception
3 April 2022
of leasing contract 1 April 2023
expenditure
£m £m £m £m £m £m £m
Cash and cash equivalents 273.6 (192.5) - 9.3 - 3.0 93.3
Bank overdraft (15.6) 12.6 - - - - (2.9)
Net cash and cash equivalents 258.0 (179.9) - 9.3 - 3.0 90.4
Senior secured debt (gross of prepaid finance costs):
- due in more than one year (633.2) - - - (2.0) (28.6) (663.8)
Unsecured loans:
- due in less than one year (9.6) 8.5 - (87.5) 27.9 (1.7) (62.3)
- due in more than one year (22.6) - - - (27.9) 0.3 (50.3)
Net debt (407.4) (171.4) - (78.2) (2.0) (27.0) (686.0)
Obligations under right-of-use leases:
- due in less than one year (16.9) 23.9 (9.7) (6.0) (17.4) (1.5) (27.6)
- due in more than one year (88.7) - (32.5) (33.7) 11.1 (0.8) (144.6)
Preferred equity (gross of prepaid finance costs) (254.2) - - - (27.0) - (281.2)
Prepaid finance costs:
- In relation to senior debt 9.8 0.8 - - (2.7) (0.1) 7.9
Financing liabilities (1,015.4) 33.3 (42.2) (127.2) (38.0) (32.3) (1,221.9)
Net debt including right-of-use lease liabilities, issue premia, preferred (757.4) (146.6) (42.2) (117.9) (38.0) (29.4) (1,131.5)
equity and prepaid finance costs
The cashflows therein included represent the physical cash inflows received by
the Group as a result of the refinancing exercise in the period, the majority
of which was directly paid by the new debt holders to the existing debt
holders, with the remainder of the cash being held by the Company. The Group
determined that the financial institution that handled the transactions with
bond holders acted in their capacity as principal.
Senior debt
Senior debt as at 1 April 2023 relates to €750m of senior secured notes,
split between two tranches: €500m 3.625% notes maturing in 2026; and €250m
3.75% notes maturing in 2028. The coupon on the notes is paid bi-annually.
These notes were issued in March 2021, at which time the previous €500m
5.25% notes were refinanced. The fair value of the liability as at 1 April
2023 was €603.3m (2022: €718.6m), which has been determined based on a
quoted price in an active market.
Attached to both sets of notes are early repayment options, which have been
identified as embedded derivative assets, separately valued from the host
contracts. Changes in the Group's credit rating and market pricing of the
notes would have an impact on the value of the options. The redemption price
of the repayment option on the €500m 2026 notes is the par value of the
notes plus any accrued interest, plus the following premia: within the first
two years 1.813% plus a make-whole of the present value of interest that would
otherwise have been payable in that period; in the third year 1.813%; in the
fourth year 0.906%; in the fifth year 0%. The redemption price of the
repayment option on the €250m 2028 notes is the par value of the notes plus
any accrued interest, plus the following premia: within the first three years
1.875% plus a make-whole of the present value of interest that would otherwise
have been payable in that period; in the fourth year 1.875%; in the fifth year
0.938%; in the final two years 0%.
These options have been valued based on the contractual redemption terms and
measuring the Group's forward assessment of the notes' market value based on
an option pricing model. The fair value of the derivative assets at inception
of the first and second tranches of the notes was £4.3m in aggregate. Of
which £0.7m has been amortised in the period (2022: £Nil). The value of the
senior debt liabilities recognised were increased by a corresponding amount at
initial recognition, which then reduces to par at maturity using an effective
interest rate method. The fair value of the derivative asset at the year end
was £Nil (2022: £2.7m), and therefore an associated non-cash debit was
recognised through the income statement for the period of £2.7m (2022:
£6.3m).
Prepaid legal and professional fees associated with the issue of the new notes
totalling £12.9m (2.0% of gross debt raised) is offset against the senior
debt liability and is amortised over its life (£2.7m in the year (2022:
£2.3m). The net prepaid value as at 1 April 2023 is £7.9m.
As a result, as at 1 April 2023 there is a total liability recognised of
£655.9m (2022: £623.4m) in relation to notes with a par value of £660.2m
(2022: £631.6m).
Additionally, the Group has a variable rate £150m multi-currency revolving
credit facility maturing in 2026, which at the year end was drawn by £12.5m.
Preferred equity
Background and key terms
On 16 November 2020 the Company issued £75m of preferred equity to Koch
Equity Development, LLC. (via its affiliate KED Victoria Investments, LLC).
The agreement was subsequently amended on 23 December 2021 and the Company
issued additional preferred shares for a total subscription price of £150m.
The additional preferred shares issued consist of "A" preferred shares for a
subscription price of £50 million and "B" preferred shares for a subscription
price of £100 million. The "A" shares mirror the existing preferred shares
(resulting in a total of £125m "A" shares made up of the £50m new and the
existing £75m were redesignated as ""A"" shares and the terms amended). The
"B" shares represent a separate tranche with all the same characteristics
except for: i) the process for early redemption (described below); and ii)
that the "B" shares do not contribute to the overall return cap pertaining to
the warrants. No further warrants were issued as part of this amendment and,
at the point of completion, fees in relation to the follow-on commitment
ceased to apply. Additionally, a reduction of 100bp to the dividend rates
(both cash and PIK) was agreed.
The preferred equity attracts a dividend of 8.35% if cash settled, or 8.85% if
Paid In Kind by way of issue of additional preferred shares (such PIK
occurring quarterly). Starting in year five, the dividend moves from a fixed
rate to a spread over three-month LIBOR (or SONIA, if it is not possible to
ascertain LIBOR). The spread starts at 8.35% and 8.85% (for cash and PIK
settlement respectively) and increases by 1% in each subsequent year up to
year nine, after which it remains flat.
The preferred equity is a perpetual instrument, albeit the Company can choose
to redeem it in cash at any time, subject to a redemption premium. The
redemption price of this repayment option is the face value of the preferred
shares plus any accrued dividends, plus the following premia:
For the "A" shares, within the first three years 6.0% plus a make-whole of the
present value of dividends that would otherwise have accrued in that period;
in the fourth year 6.0%; in the fifth year 3.0%; and after the fifth
anniversary 0%. There are two scenarios in which mandatory cash redemption of
the preferred equity can occur outside of the Company's control, both of which
are highly unlikely in management's view: (i) if the Group becomes insolvent
(being bankruptcy, placing into receivership or similar events), or (ii) a
change in control of the Company where the offer for the ordinary shares is
not all-cash and, at the same time, the offeror (on an enlarged pro-forma
basis) is deemed to be sub-investment grade. For the "B" shares, the premia
are applied in the same way except that if redeemed after the 3rd anniversary
no redemption premium is payable. Any redemption for some, but not all, of the
preferred shares must comprise a redemption of the "A" shares and the "B"
shares pro rata to the number of "A" shares and "B" shares in issue at the
applicable time.
After the sixth anniversary, KED can elect to convert the outstanding
preferred equity and PIK'd dividends into ordinary shares, with the conversion
price being the prevailing 30 business day VWAP of the Company's ordinary
shares.
In the event of a change of control of the Company (for example a tender
offer, merger or scheme of arrangement in relation to the ordinary shares of
the Company), the terms of the preferred equity envisage three scenarios: (i)
where an all-cash offer is made and accepted, the preferred equity and any
PIK'd dividends will convert into ordinary shares which are then subject to
the same offer price per share made to other shareholders and acquired by the
offeror; (ii) where an offer is made and accepted that is not all-cash and the
offeror (on an enlarged pro-forma basis) is deemed to be investment grade, the
preferred equity and any PIK'd dividends plus a material penalty fee will
convert into ordinary shares which are then subject to the same offer price
per share made to other shareholders and acquired by the offeror (such penalty
fee having the effect of doubling the number of ordinary shares that KED would
otherwise receive on conversion that would then be subject to the offer price
per share; this being designed to incentivise the offeror to consider agreeing
to fund redemption of the preferred equity rather than conversion); and (iii)
where an offer is made and accepted that is not all-cash and the offeror (on
an enlarged pro-forma basis) is deemed to be sub-investment grade, the
preferred equity will be subject to mandatory redemption as described above.
Attached to the preferred equity are warrants issued to KED over a maximum of
12.402m ordinary shares. These warrants are only exercisable following the
third anniversary (unless the preferred shares have been cash redeemed or
there has been a change in control of the Company) at an exercise price of
£3.50. The terms include a total maximum return for KED, across both across
the ""A"" preferred equity and the warrants (the ""B"" shares do not
contribute to this), of the greater of 1.73x money multiple or 20% IRR. If
this limit is exceeded at the point of exercising the warrants (calculated as
if the preferred equity was being redeemed at the same time), then the number
of shares receivable on exercise is reduced until the returns equal the limit.
Additionally, if the IRR achieved by KED on the aggregate subscription price
paid for all of the "A" shares and "B" shares and the warrants is less than
12.0%, the exercise price is reduced from £3.50/share by such minimum amount
as necessary to ensure that the IRR achieved by KED on such aggregate
subscription price would be equal to 12% (but the exercise price cannot be
less than £0.05/share).
Accounting recognition
Whilst the preferred equity is legally structured as an equity instrument
through the Company's articles of association and have many equity-like
features, they must be accounted for as a financial liability under IFRS. This
primarily relates to the fact that the conversion option is based on the
prevailing share price, and therefore it fails the 'fixed-for-fixed' criteria
as prescribed in the standard.
The effect of the amendments in the prior period resulted in substantial
modification, resulting in extinguishing the old financial liability and
recognising a new financial liability.
Based on the terms of the preferred equity, the underlying host instrument was
identified alongside a number of embedded derivatives and other associated
instruments. Furthermore, the embedded derivatives were assessed to identify
those that are deemed to be closely-related to the host instrument and those
that are not, the latter of which are required to be separately valued in the
balance sheet. The underlying host instrument is held at amortised cost and
valued into perpetuity on the assumption of PIK'd dividends for the first ten
years and then a terminal value assuming cash dividends thereafter. This has
been valued using a binomial option pricing model, which uses standard option
pricing techniques to calculate the optimal time to exercise the respective
options, taking into account the specific contractual details of the
instruments and their interconnectedness. The value of the host debt
recognised following the amendment in the prior period was £220.8m.
At each reporting date the terminal value is re-assessed based on long-term
LIBOR (or SONIA) curves and a revised accrued value of the instrument is
calculated at that date using an effective interest rate method, with the
increase in value taken to the income statement as a financial charge. The
value as at 1 April 2023 was £255.2m (2022: £228.4m), with the fair value at
1 April 2023 was £160.7m (2022: £218.7m).
Associated costs and advisory fees incurred in relation to the transaction
were expensed to the income statement in the prior period.
Two non closely-related embedded derivatives were identified:
(i) the Victoria option to cash redeem (rather than the instrument
running into perpetuity or conversion, see below). The fair value of the asset
as at 1 April 2023 was £Nil (2022: £20.5m). This option has been valued
based on the contractual redemption terms and the Group's forward assessment
of the preferred equity value based on an option pricing model.
(ii) the KED option to convert into ordinary shares. The model uses
standard option pricing techniques to calculate the optimal time to exercise
the respective options. As such, the valuation technique assumes that all
interest will be accrued and rolled into the preference share balance and that
there will be no conversion of the preference shares into ordinary shares due
to their coupon and enhanced liquidity preference. As a result, nil value has
been attributed to this feature.
The host debt liability and redemption option asset have been presented as a
single instrument under the heading 'Preferred equity' in the summary of Other
Financial Liabilities presented above.
Finally, the KED ordinary equity warrants have been separately identified. The
warrants are fair valued at each reporting date through the income statement,
with a fair value of £26.0m as at 1 April 2023 (2022: £46.4m). These
warrants have been valued using a binomial option pricing model. The model
uses standard option pricing techniques to calculate the optimal time to
exercise the respective options, taking into account the specific contractual
details of the instruments and their interconnectedness.
Preferred Equity P&L charge 2023 2022
£m £m
Host contract 26.8 14.9
Fair value warrants (20.3) 11.3
Fair value redemption asset 20.5 (10.7)
Loan commitment - 1.3
Ticking fee - 4.7
Loss on substantial modification - 10.3
Preferred equity 26.9 31.8
Preferred equity prepaid finance costs - 1.2
Preferred equity including prepaid finance costs 26.9 33.0
7. Retirement benefit obligations
Defined contribution schemes
The Group operates a number of defined contribution pension schemes. The
companies and the employees contribute towards the schemes.
Contributions are charged to the Income Statement as incurred and amounted to
£6,288,000 (2022: £5,660,000), of which £2,835,000 (2022: £2,837,000)
relates to the UK schemes. The total contributions outstanding at year-end
were £nil (2022: £nil).
Defined benefit schemes
The Group has four defined benefit schemes:
- two schemes relate to Interfloor Limited;
- one scheme relates to both Balta Services and Balta Industries (Balta
group);
- the final scheme relates to Seramik, Sahika and Ic vd Dis Ticaret (Graniser
group).
Summary of all schemes
Amounts recognised in the consolidated income statement in respect of all
defined benefit schemes are as follows:
2023 2022
£m £m
Net interest expense 0.3 0.1
Loss on settlements 0.5 -
Current / Past service cost 1.0 -
Components of defined benefit costs recognised in profit or loss 1.8 0.1
Amounts recognised in the Consolidated Statement of Comprehensive Income are
as follows:
2023 2022
£m £m
The return on plan assets (excluding amounts included in net interest expense) (9.5) 0.6
Actuarial losses arising from changes in demographic assumptions (0.1) (0.5)
Actuarial gains arising from changes in financial assumptions 5.8 1.5
Remeasurement gains on defined benefit obligation 3.6 -
Actuarial losses arising from experience adjustments (1.8) -
Remeasurement of the net defined benefit liability (2.0) 1.6
The amount included in the Consolidated Balance Sheet arising from the Group's
obligations in respect of all schemes is as follows:
2023 2022
£m £m
Present value of defined benefit obligations (34.1) (29.2)
Fair value of plan assets 26.1 24.3
Net liability arising from defined benefit obligation (8.0) (4.9)
Deferred tax applied to net obligation 1.9 1.3
8. Acquisition of subsidiaries
(a) Balta
On 5 April 2022, the Group acquired 100% of the equity of the rugs division of
Balta Group, a Belgium-based flooring company along with the purchase of its
UK polypropylene carpet and non-woven carpet businesses and the
internationally known brand 'Balta'. Balta consists of distribution entities
in the UK and the United States in addition to manufacturing facilities in
Belgium and Turkey.
The primary reason for the business combination is discussed within the
Chairman and CEO's review.
Total consideration of Balta was €114.8m (£95.7m(1)). The consideration of
€121.1m (£101.0m(1)) was paid on completion and €6.3m (£5.3m(1)) was
received subsequently in July 2022 as a closing cash adjustment. Upon
acquisition Victoria settled €59.0m (£49.2m) of debt and therefore is
excluded from the consideration.
The Group results for the 52 weeks ended 1 April 2023 include contribution
from Balta of €328.7m (£283.9m(2)) of revenue and €11.0m (£9.7m(2)) of
loss before tax (before hyperinflation, amortisation of acquired intangibles
and acquisition costs).
(1) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1990
(2) Applying the average exchange rate over the financial year of 1.1582
(b) Ragolle
On 6 June 2022 the Group acquired 100% of the equity of the Belgium luxury rug
manufacturer Ragolle Rugs NV ('Ragolle').
Ragolle is situated close to Balta and will complement the growing Belgium
operations. It is a producer of high quality wool, viscose, heat set
polypropylene and polyester rugs.
The primary reason Ragolle was acquired to complement the Balta Rugs business.
The total cash consideration of €21.4m (£18.2m(3)) was paid on completion.
The Group results for the 52 weeks ended 1 April 2023 include contribution
from Ragolle of €30.6m (£26.4m(3)) of revenue and €2.8m (£2.5m(3)) of
profit before tax (before amortisation of acquired intangibles and acquisition
costs). If the acquisition had been completed on the first day of the
financial year, Group revenue and profit before tax would have been higher by
€7.7m (£6.6m(4)) and €0.3m (£0.3m(4)) respectively.
(3) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1763
(4) Applying the average exchange rate over the financial year of 1.1582
(c) IWT
On 17 October 2022 the Group acquired 100% of the equity of Florida-based
flooring distributor, International Wholesale Tile LLC ("IWT").
The total cash consideration of $16.8m (£15.0m(5)) was paid on completion and
contingent consideration with a present value of $6.0m (£5.4m(5)) and
dependant on future EBITDA performance over a four-year period. Based on the
projected EBITDA forecast over the contingent earnout period, the gross
payment would range between $7.0m to $8.2m (based on a range of base less 10%
and base plus 10%).
The primary reason for the business combination is discussed within the
Chairman and CEO's review.
The Group results for the 52 weeks ended 1 April 2023 include contribution
from IWT of $27.2m (£22.4m(5)) of revenue and $3.9m (£3.2m(5)) of profit
before tax (before amortisation of acquired intangibles and acquisition
costs). If the acquisition had been completed on the first day of the
financial year, Group revenue and profit before tax would have been higher by
$39.5m (£32.5m(6)) and $4.5m (£3.7m(6)) respectively.
(5) Applying the GBP to USD exchange rate at the date of acquisition of 1.1171
(6) Applying the average exchange rate over the financial year of 1.2145
9. Restatement of deferred tax assets and liabilities
Deferred tax assets and liabilities in 2022 and 2021 have been restated to
offset, for presentational purposes, deferred tax liabilities arising on
consolidation against deferred tax assets in the Group's subsidiaries where
these relate to income taxes levied by the same taxation authority within the
same taxable entity or different taxable entities within the Group which
intend to settle current tax assets and liabilities on a net basis.
For the restated Consolidated Balance Sheet presented at 2 April 2022, the
deferred tax asset has decreased by £26.2m, from £27.2m to £1.0m; the
deferred tax liability has also decreased by £26.2m, from £81.4m to £55.2m.
This prior period adjustment changes the balance sheet presentation of
deferred tax only, with the net deferred tax position remaining a liability of
£54.2m.
For the restated Consolidated Balance Sheet presented at 3 April 2021, the
deferred tax asset has decreased by £16.2m, from £17.2m to £1.0m; the
deferred tax liability has also decreased by £16.2m, from £62.9m to £46.7m.
This prior period adjustment changes the balance sheet presentation of
deferred tax only, with the net deferred tax position remaining a liability of
£45.7m.
The above adjustments have no impact on any other balances within the
Consolidated Balance Sheets at 2 April 2022 or 3 April 2021 nor the reported
Consolidated Income Statements for the 52 weeks ended 2 April 2022 or the 53
weeks ended 3 April 2021, nor any impact on basic or diluted earnings per
share measures in prior year periods.
10. Basis of Preparation
The consolidated financial statements for the Group have been prepared on a
going-concern basis. The Group's business activities, together with the
factors likely to affect its future development, performance and position, are
set out in the Chairman and CEO's Review, the Strategic Report, and the
Financial Review.
The Board remains satisfied with the Group's funding and liquidity position.
During the year ended 1 April 2023 there has been no period where financial
covenant tests applied.
The Group's cash position as at the year ended 1 April 2023 was £93.3m (2022:
£273.6m). The Group expects to continue to generate positive operating cash
flows in the forecast period to March 2025.
The Group has €500m of bonds maturing in August 2026 and €250m of bonds
with a maturity in March 2028. The bonds, in themselves, carry no
maintenance financial covenants.
The Group also has access to a £150m multi-currency revolving credit facility
('RCF') maturing in 2026; of which £12.5m was drawn at 1 April 2023. A single
leverage financial covenant applies to the RCF facility if it is drawn in
excess of 40% at our September and March test dates. Considering the above,
the Group expects to maintain a significant level of liquidity headroom
throughout the forecast period such that there is no relevant period where the
covenant test is expected to apply.
In assessing the Group as a going concern, a two-year cashflow forecast to
March 2025 was modelled, with the base case set to the FY24 and FY25 budgets,
consistent with the model used in the testing of goodwill impairment. No
future, hypothetical, acquisitions were included in the assumed cashflows, due
to there being no certainty over any acquisitions outside of those already
completed to date. Furthermore, a stress-test case was also modelled, assuming
a drop in EBITDA of between 30% to 60% versus the base case to ensure that
even in an extreme downside scenario, sufficient liquidity was maintained
through the forecast period. The stress- test didn't include any mitigating
actions other than a reduction in capital expenditure (ranging from 20% to
100%) and the Group does not consider the stress-test, or anything worse than
it, a reasonably possible downside scenario.
The Directors are therefore of the view that the Group is well placed to
manage its business risks. Accordingly, the Directors continue to adopt the
going concern basis in preparing the Annual Report and Accounts.
The results have been extracted from the audited financial statements of the
Group for the 52 weeks ended 1 April 2023. The results do not constitute
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Whilst the financial information included in this announcement has
been computed in accordance with the principles of international accounting
standards in conformity with the requirements of the Companies Act 2006, this
announcement does not itself contain sufficient information to comply with
international accounting standards. The Group will publish full financial
statements that comply with international accounting standards. The audited
financial statements incorporate a qualified audit report which concludes that
except for the effects of the matter which gave rise to the qualification, the
financial statements give a true and fair view of the state of the Group's and
of the parent company's affairs as at 1 April 2023 and of the Group's loss for
the period then ended. The qualification notes that due to a
management-imposed limitation of scope in relation to a non-significant
component, that the auditor is unable to conclude on this non-significant
component. Management imposed this limitation due to the Board's view that
procedures proposed by the auditor were unlikely to generate further or
better-quality audit evidence.
The Auditor's report on the financial statements did not draw attention to any
further matters by way of emphasis and, other than solely in respect of
receiving all the information and explanations from a non-significant
component which, to the best of the Auditor's knowledge and belief, were
necessary for the purposes of the audit, did not contain statements under
S498(2) or (3) Companies Act 2006.
Statutory accounts for the 52 weeks ended 2 April 2022, which incorporated an
unqualified auditor's report, have been filed with the Registrar of Companies.
The Auditor's report on these accounts did not draw attention to any matters
by way of emphasis and did not contain statements under S498(2) or (3)
Companies Act 2006.
The Annual Report & Accounts will be posted to shareholders in due course.
Further copies will be available from the Company's Registered Office:
Worcester Six Business Park, Worcester, Worcestershire, WR4 0AE or via the
website: www.victoriaplc.com (http://www.victoriaplc.com) .
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