REG - Victoria PLC - Half-year Report
22/11/2023 07:15
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RNS Number : 2096U Victoria PLC 22 November 2023
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
Victoria PLC
('Victoria' or the 'Company', or the 'Group')
Half-year Report
for the six months ended 30 September 2023
EBITDA margin improvement despite softer market demand
Victoria PLC (LSE: VCP), the international designers, manufacturers and
distributors of innovative flooring, announces its half year-report for the
six months ended 30 September 2023, delivering a H1 FY24 performance in line
with management expectations.
The Company is delivering against its strategy of margin enhancement.
Underlying EBITDA margin improved 100bps to 14.9%, compared to the prior
six-month period (H2 FY23), resulting in an increase of 0.7% in Underlying
EBITDA (in constant currency) to £95.8 million, whilst Underlying Revenue
fell by 4.1% (in constant currency) to £643.4 million compared with the same
prior six-month period.
A key contributing factor to H1 FY24 margin improvement, was the relocation of
significant manufacturing to Victoria's modernised UK factories, delivering
much-enhanced productivity, lower logistics costs and improved customer
service.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Continuing operations
H1 FY24 H1 FY23
Underlying Revenue(1) £643.4m £771.5m
Underlying EBITDA(1) £95.8m £100.1m
Underlying operating profit(1) £54.3m £61.1m
Operating profit £33.0m £82.0m
(Loss)/profit before tax £(19.2)m £53.1m
Net debt(2) £670.6m £651.4m
Net debt / EBITDA(3) 3.8x 3.4x
(Loss)/earnings per share:
- Diluted (19.61)p 36.69p
- Diluted adjusted(1) 13.48p 17.87p
(1) Underlying performance is stated before exceptional and non-underlying
items. In addition, underlying profit before tax and adjusted EPS are also
stated before non-underlying items within finance costs
(2) Net debt shown before right-of-use lease liabilities, preferred equity,
bond issue premia and the deduction of prepaid finance costs
(3) Leverage shown consistent with the measure used by our lending banks
· Higher margins driven by reorganisation programme, offset softer
demand in the period
· Relocation of manufacturing to modernised UK factories a key
contributor to margin improvement
· EBITDA margin improvement broadly across all divisions
o UK and Europe Soft Flooring operating margin increased 500bps on H2 FY23
o Low margin SKUs removed from product range
· Weak demand in ceramic tiles, yet delivering EBITDA margin
improvement versus same period last year
· North America remains resilient with operational excellence driving
margin expansion
· Strong liquidity and cash balance and undrawn credit lines totalling
c. £250m
· Debt financing provided by long-dated Senior Notes not due to 2026
Outlook
· Delivery against strategy of margin enhancement is expected to
continue
· Challenging outlook given increasing costs and lower demand
· Business well-positioned to tackle anticipated near-term headwinds
· Long-term sector fundamentals remain strong
Geoff Wilding, Executive Chairman of Victoria PLC commented: "Our H1
performance was in line with management expectations with softer demand offset
by higher margins beginning to come through from the reorganisation programme
started 18 months ago.
"A key contributing factor to this margin improvement, and as described in the
Reorganisation projects, was the relocation of significant manufacturing to
our modernised UK factories, delivering much-enhanced productivity, lower
logistics costs and improved customer service.
"The remainder of the year continues to look more challenging with ongoing
lower demand maintaining pressure on top line sales, alongside inflation
edging up raw material input costs. Accordingly, the Board now expects the
resulting impact of these headwinds to slightly more than offset the c. £20m
EBITDA benefit from the previously announced reorganisation programme.
Nevertheless, thanks to the extensive reorganisation Victoria has undertaken
over the last 24 months, the business is far better prepared to meet these
challenges."
Investor presentation
Geoff Wilding, Executive Chairman, Philippe Hamers, Group Chief Executive and
Brian Morgan, Group Chief Financial Officer intends to provide a live
presentation relating to the half-year report via the Investor Meet Company
platform on Thursday 23 November 2023 at 13:00 GMT.
The presentation is open to all existing and potential shareholders. Investors
can sign up to Investor Meet Company for free and add to meet Victoria PLC
here (https://www.investormeetcompany.com/victoria-plc/register-investor) .
Investors who already follow Victoria PLC on the Investor Meet Company
platform will automatically be invited.
The results presentation will be made available on the Company's website on
the day of results here (https://www.victoriaplc.com/investors-welcome/) .
The person responsible for arranging the release of this announcement on
behalf of the Company is Brian Morgan, Chief Financial Officer.
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
Singer Capital Markets (Nominated Adviser and Joint Broker) +44 (0)20 7496 3095
Rick Thompson, Phil Davies, James Fischer
Berenberg (Joint Broker) +44 (0)20 3207 7800
Ben Wright, Richard Bootle
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
Paul McManus, Louis Ashe-Jepson +44 (0)7980 541 893 / +44 (0)7747 515 393/
Alice Woodings, Charlotte Edgar +44 (0)7407 804 654 / +44 (0)7884 664 686
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 6,750 people across more than 30 sites. Victoria is Europe's
largest carpet manufacturer and the second largest in Australia, as well as
the largest manufacturer of underlay in both regions.
The Company's strategy is designed to create value for its shareholders and is
focused on consistently increasing earnings and cash flow per share via
acquisitions and sustainable organic growth.
CHAIRMAN & CHIEF EXECUTIVE'S LETTER TO SHAREHOLDERS
Our H1 performance was in line with management expectations with softer demand
offset by higher margins beginning to come through from the reorganisation
programme started 18 months ago.
Underlying EBITDA margin improved 100bps to 14.9%, compared to the prior
six-month period (H2 FY23), resulting in an increase of 0.7% in Underlying
EBITDA (in constant currency) to £95.8 million, whilst Underlying Revenue
fell by 4.1% (in constant currency) to £643.4 million compared with the same
prior six-month period. The extent of the margin expansion is particularly
noteworthy given the inevitable operational leverage impact of lower volumes.
A key contributing factor to this margin improvement, and as described below
in the Reorganisation projects, was the relocation of significant
manufacturing to our modernised UK factories, delivering much-enhanced
productivity, lower logistics costs and improved customer service.
The remainder of the year continues to look more challenging with ongoing
lower demand maintaining pressure on top line sales, alongside inflation
edging up raw material input costs. Accordingly, the Board now expects the
resulting impact of these headwinds to slightly more than offset the c. £20m
EBITDA benefit from the previously announced reorganisation programme.
Nevertheless, thanks to the extensive reorganisation Victoria has undertaken
over the last 24 months, the business is far better prepared to meet these
challenges.
H1, Financial Year 2024 2023 2022 2021 2020
Underlying Revenue £643.4m £771.5m £489.0m £305.5m £312.9m
Underlying EBITDA £95.8 m £100.1 m £84.5m £52.4m £58.5m
EBITDA margin 14.9% 13.0% 17.3% 17.2% 18.7%
OPERATIONAL REPORT BY DIVISION
UK & Europe Soft Flooring - operating margin +360bps
H1 FY24 H2 FY23 H1 FY23
Revenue £318.6m £346.8m £372.0m
EBITDA £43.2m £29.7m £37.2m
EBITDA margin 13.6% 8.6% 10.0%
Margin variance %* +360bps
* margin variance measured against H1 FY23. It is +500bps when measured
against the previous six-month period.
The UK & Europe Soft Flooring division increased its operating margin by a
very pleasing 360bps and absolute EBITDA by 16.1% (both compared with H1
FY2023) despite lower volumes. Critically, the operating margin increased by
500bps and absolute EBITDA by 45.5% compared with the previous six-month
period (H2 FY23) when trading conditions were most similar.
There were a number of factors at play contributing to this very pleasing
outcome:
(i) Volumes for Victoria's Soft Flooring division
declined 13% due primarily to soft market conditions driven by the
macro-economic environment. The Board believe this decline to be materially
less than the market as a whole (we believe the impact on VCP is being
moderated by our mid-high end product positioning), but nonetheless the lower
volumes created negative manufacturing variances due to operational leverage.
Despite this, the EBITDA margin increased 500bps from 8.6% achieved in the
previous six-month period (H2 FY23) to 13.6%
(ii) Volumes were also impacted by 'bottom slicing'; the
decision by operational management to remove low margin SKU's from the product
range. As part of the reorganisation projects the Group has had underway over
the last 18 months, management have been rigorously reviewing each SKU to
ensure an adequate margin is made on each one. In cases where the margin is
insufficient and a price increase is unsustainable, the product has been
discontinued. Although this impacts headline revenue, it leads to improved
cash flow and a higher return on working capital.
(iii) Selling prices have been selectively reduced to ensure
we continue to treat our customers fairly as input costs (primarily raw
materials and energy) have eased.
(iv) The first of the benefits of the reorganisation projects
began to be seen. Although this remained, as previously advised to
shareholders, very much a work-in-progress during H1, margins steadily
increased as costs were actively removed throughout the period from the
business. A summary of these projects is set out below.
Reorganisation projects
Given the largely completed reorganisation of the soft flooring division, we
thought it might be helpful to recap what the projects entailed and the
anticipated impact on future earnings and cash flow.
(i) Carpet
a. Following the reorganisation of Victoria's UK manufacturing footprint
in 2019/20 and the investment made in modernising the factories at the time,
the Group had significant spare broadloom carpet capacity. Taken together with
the fact that nearly all Balta's broadloom carpet output of 14 million sqm was
being exported to the UK (Europe's largest carpet market), this surplus
capacity made it possible to relocate Balta's carpet production to the UK,
without significant capex.
b. The cost of this project consisted of relocating certain carpet
tufting machines and raw materials to the UK as well as redundancies in
Belgium, totalling c.£19 million.
c. The much-enhanced productivity, lower logistics costs, and improved
customer service achieved by manufacturing in the UK.
(ii) Rugs
a. A substantial extension to the rug factory in Turkey was constructed
in 5 months to allow for the transfer of weaving and extrusion capacity from
Belgium to Turkey, which is a much lower cost operating environment.
Relocation of the yarn finishing plant from the now closed Avelgem factory
into the Sint Baafs Vivje plant in Belgium for a more integrated, and lower
cost, manufacturing process.
b. The costs associated with this project predominantly entailed
construction of the additional building in Turkey, extensive relocation of
plant and machinery both within Belgium and to Turkey, and redundancies in
Belgium. Together, these costs were £31m.
c. The outcome is primarily lower production costs, which will
increase the international competitiveness of Balta's rugs and the Board
anticipates top line growth as a result.
UK & Europe Ceramic Tiles - very weak market conditions
H1 FY24 H2 FY23 H1 FY23
Revenue £185.3 million £198.9 million £254.4 million
EBITDA £39.1 million £54.9 million £51.0 million
EBITDA margin 21.1% 27.6% 20.0%
Margin variance % +110bps
In the face of very weak demand (YTD market volume -30.2% in Spain and -19.3%
in Italy. Source: Intrastat) similar to that experienced during the 2008
Global Financial Crisis, Victoria's ceramics management team faced the
decision of whether to maintain price or volume. Price, once discounted by a
premium brand, is extremely difficult to recover as customers understandably
resist subsequent increases. Therefore, due to the flexibility of our
operations, we decided to shed volume as consumers traded down to lower
quality products rather than risk the premium brand position by dropping
prices. This decision has led to volume declines in line with the broader
market, although the Group's margins remain very materially above (>2x)
known competitors.
Australia - Stable margins in a softer market
H1 FY24 H2 FY23 H1 FY23
Revenue £54.0 million £56.7 million £64.2 million
EBITDA £6.9 million £7.1 million £8.2 million
EBITDA margin 12.8% 12.5% 12.8%
Margin variance % 0bps
Following exceptional LFL organic revenue growth of more than 20% in H1
FY2023, our Australian business experienced softer demand in H1 FY2024 with
margins broadly flat.
North America - operational excellence projects driving margin expansion
H1 FY24 H2 FY23 H1 FY23
Revenue £85.5 million £87.5 million £80.9 million
EBITDA £9.6 million £4.4 million £4.9 million
EBITDA margin 11.2% 5.1% 6.0%
Margin variance % +520bps
North America continues to be a resilient market for Victoria. Due to the
careful selection of the businesses we have acquired in the US, much of our
revenue derives from geographic markets such as Florida and Texas, where
economic growth continues.
During H1 revenue was temporarily impacted by the Uyghur Forced Labor
Prevention Act, which required importers to provide documentary evidence that
goods manufactured in Xinjiang are not made with forced labour. The inspection
process led to significant delays in container traffic crossing the US ports
and held up some deliveries to customers. We have responded by increasing the
percentage of product manufactured for us outside of China and delays have
correspondingly reduced. Consequently, management expects continued revenue
growth in H2.
Margin gains are expected to continue as integration proceeds:
(i) Access to Victoria's supply chain lowering cost of
goods sold.
(ii) Integration into Victoria's US logistics platform,
improving delivery times and reducing costs.
(iii) Commercial excellence projects focussed on
restructuring salesforce incentives to encourage maximising margins rather
than volume, minimising claim and product return related expenses,
renegotiating services contracts, and optimising workforce productivity.
CASHFLOW & LIQUIDITY
Net operating cash flow was in line with management expectations.
Restructuring payments consisting primarily of redundancy payments and plant
and machinery relocation totalling £20.5 million were made during the period.
The redundancy expenses were already fully provided for in FY2023.
As previously indicated to shareholders, capex costs reverted to normal levels
of £28.7 million for the period. This compares with £41.3 million invested
in H1 FY2023 (and £99.6 million for the full year FY2023) and reflects the
completion of the major reorganisation projects.
We are not satisfied with the progress being made with our management of
working capital, although, to be fair to the management team, there was a
material impact on inventory levels due to the US port backlogs caused by the
Uyghur Forced Labor Prevention Act (described in the section covering
Victoria's US division) resulted in some 2.5 months excess inventory in our US
business. Nevertheless, this source of cash remains a key area of focus with
incentives in place for delivery of defined targets.
Victoria continued to maintain a strong liquidity position and the Group
finished the period with cash and undrawn credit lines in excess of £250
million. Furthermore, almost all Victoria's debt financing takes the form of
long-dated Senior Notes ("bonds") which, in themselves, have no financial
maintenance covenants, with the earliest tranche not due for repayment until
mid-2026.
FY 23 AUDIT
The Board appreciates the support and patience exhibited by shareholders with
the overwhelming votes in favour of the various resolutions (re-election of
directors, adoption of the annual accounts, and re-appointment of Grant
Thornton as auditor, amongst others) presented at the recent shareholder
meetings.
Shareholders can be assured that the Board immediately moved to
comprehensively address the items set out in the audit report and have
allocated additional experienced finance resources to the small (1.25% of
Group revenue) subsidiary that has been the focus of all the attention and
audit qualification. Further controls have been put in place to ensure the
subsidiary's accounting records and internal controls are being maintained to
the high levels we have solidly embedded across the rest of the Group.
OUTLOOK
Operations:
Across the globe, demand for flooring has been at levels not seen since the
2008 financial crisis, with a number of correlations previously observed over
a long period of time not holding in current conditions. More
Victoria-specific impacts include the current situation in the Middle-East -
Israel is an important export market for our ceramic tile division and the
current war has temporarily impacted order flow from that country.
Fortunately, the Group benefits from experienced operational management who
have a number of levers available to further lower costs and improve
productivity (particularly in ceramics) and, of course, the full benefit of
the soft flooring division reorganisation was not seen in H1 whilst the
projects were still being finalised.
Whilst one swallow does not a summer make, recent positive daily news flow
appears to be resetting market expectations for mortgage interest rates in
2024 in certain key markets which, when translated into consumer confidence
will drive increased spending on flooring.
Acquisitions:
Whilst we actively continue to maintain relationships with potential
acquisitions, our focus remains firmly on the optimising the integration
projects and reducing leverage.
There are two main reasons for this decision:
(i) The cost of capital is high at present which makes
achieving an acceptable return on an acquisition for shareholders challenging.
(ii) Although Victoria has become a permanent home of
choice for flooring companies in Europe and the US - particularly family-owned
businesses - private company owners typically take time to adjust their
valuation expectations to levels reflecting the new reality.
Nonetheless, acquisitions remain a core part of Victoria's long-term growth
strategy and therefore, at the right time and within our leverage policy, we
will continue to 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
The long-term sector fundamentals remain strong as, whilst consumer spending
on flooring may be subdued during difficult macro-economic conditions, unless
people wish to return to walking on mud floors, demand always recovers. The
current lower demand is a result of purchase decisions deferred, not purchases
forgone: carpet continues to age, stains don't magically disappear with the
passing of time, ceramic tiles continue to chip or crack, style and fashion
move on. Therefore, as consumer confidence and discretionary spending rebounds
Victoria will, of course, benefit from significant pent-up demand - just as it
always has done in the past.
We cannot predict precisely when the rebound will occur although we are
(clearly) continually closer to that point. Nevertheless, we view the second
half of FY2024 with caution, with increased geopolitical uncertainty and
continuing high mortgage rates impacting consumer confidence and discretionary
spending. Consequently, we are managing the business to optimise results,
market share, and cash flow until the inevitable recovery in demand.
Geoff Wilding
Executive Chairman
Philippe Hamers
Group Chief Executive
Condensed Consolidated Income Statement
For the 26 weeks ended 30 September 2023 (unaudited)
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022 52 weeks ended 1 April 2023
(audited)
Underlying Non- Reported Underlying Non- Reported Underlying Non- Reported
performance
underlying
numbers
performance
underlying
numbers
performance
underlying
numbers
items
items
items
Notes £m £m £m £m £m £m £m £m £m
Revenue 3 643.4 5.1 648.5 771.5 4.6 776.1 1,461.4 18.8 1,480.2
Cost of sales (416.3) (16.8) (433.1) (541.5) (12.6) (554.0) (986.6) (58.9) (1,045.5)
Gross profit 227.1 (11.7) 215.3 230.0 (8.0) 222.0 474.8 (40.1) 434.7
Distribution and administrative expenses (176.1) (9.6) (185.7) (171.5) (32.6) (204.2) (360.4) (193.4) (553.8)
Negative goodwill arising on acquisition - - - - 61.5 61.5 - 90.5 90.5
Other operating income 3.3 - 3.3 2.6 - 2.6 4.4 0.1 4.5
Operating profit / (loss) 54.3 (21.3) 33.0 61.1 20.9 82.0 118.8 (142.9) (24.1)
Comprising:
Operating profit before non-underlying and exceptional items 54.3 - 54.3 61.1 - 61.1 118.8 - 118.8
Amortisation of acquired intangibles 4 - (20.4) (20.4) - (21.0) (21.0) - (41.5) (41.5)
Other non-underlying items 4 - 7.1 7.1 - (13.4) (13.4) - (16.0) (16.0)
Exceptional goodwill impairment 4 - - - - - - - (80.0) (80.0)
Other exceptional items 4 - (8.0) (8.0) - 55.3 55.3 - (5.4) (5.4)
Finance costs 5 (22.6) (29.6) (52.2) (21.3) (7.6) (28.9) (41.9) (44.6) (86.5)
Comprising:
Interest on loans and notes 5 (17.9) - (17.9) (17.7) - (17.7) (33.6) - (33.6)
Amortisation of prepaid finance costs and accrued interest 5 (1.3) - (1.3) (1.5) - (1.5) (2.8) - (2.8)
Unwinding of discount on right-of-use lease liabilities 5 (3.3) - (3.3) (2.0) - (2.0) (5.4) - (5.4)
Preferred equity items 5 - (14.0) (14.0) - (14.3) (14.3) - (26.9) (26.9)
Other finance items 5 (0.1) (15.6) (15.7) (0.1) 6.7 6.6 (0.1) (17.7) (17.8)
Profit / (loss) before tax 31.7 (50.9) (19.2) 39.8 13.3 53.1 76.9 (187.5) (110.6)
Taxation (charge) / credit 6 (9.0) 5.7 (3.3) (9.7) 4.1 (5.6) (17.3) 36.1 18.8
Profit / (loss) for the period 22.7 (45.2) (22.5) 30.1 17.4 47.5 59.6 (151.4) (91.9)
(Loss) / earnings per share - pence basic 7 (19.61) 40.76 (79.35)
diluted 7 (19.61) 36.69 (79.35)
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks ended 30 September 2023 (unaudited)
26 weeks ended 26 weeks ended 52 weeks ended
30 September 2023
1 October 2022
1 April 2023
(audited)
£m £m £m
(Loss) / profit for the period (22.5) 47.5 (91.8)
Other comprehensive (expense) / income
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on defined benefit pension scheme (0.7) 0.9 (2.0)
Items that will not be reclassified to profit or loss (0.7) 0.9 (2.0)
Items that may be reclassified subsequently to profit or loss:
Hyperinflation adjustments 9.9 32.1 16.5
Retranslation of overseas subsidiaries (24.1) 16.6 (2.1)
Items that may be reclassified subsequently to profit or loss (14.2) 48.7 14.4
Other comprehensive (loss) / income (14.9) 49.6 12.4
Total comprehensive (expense) / income for the period attributable to the (37.4) 97.1 (79.4)
owners of the parent
Condensed Consolidated Balance Sheet
As at 30 September 2023 (unaudited)
30 September 2023 1 October 2022 1 April 2023
(audited)
£m £m £m
Non-current assets
Goodwill 172.5 258.8 173.6
Intangible assets other than goodwill 281.4 335.1 305.5
Property, plant and equipment 456.2 433.7 462.6
Right-of-use lease assets 152.8 169.0 162.0
Investment property 0.2 0.2 0.2
Deferred tax assets 2.0 23.5 1.7
Total non-current assets 1,065.1 1,220.3 1,105.6
Current assets
Inventories 368.5 415.7 351.2
Trade and other receivables 252.7 315.9 276.3
Current tax assets 10.6 - 14.7
Cash and cash equivalents 92.7 78.4 93.3
Assets classified as held for sale 25.8 - 25.8
Total current assets 750.3 810.0 761.3
Total assets 1,815.4 2,030.3 1,866.9
Current liabilities
Trade and other current payables 359.1 427.3 369.8
Current tax liabilities 11.2 8.5 6.9
Obligations under right-of-use leases - current 27.2 23.3 27.6
Other financial liabilities 62.4 42.2 65.2
Provisions 9.4 - 19.0
Total current liabilities 469.3 501.2 488.5
Non-current liabilities
Trade and other non-current payables 7.4 11.5 14.1
Obligations under right-of-use leases - non-current 136.5 132.7 144.6
Other non-current financial liabilities 716.0 683.5 706.2
Preferred equity 269.2 222.2 255.2
Preferred equity - contractually-linked warrants 26.0 46.4 26.0
Deferred tax liabilities 84.1 132.6 89.3
Retirement benefit obligations 8.1 5.5 8.0
Provisions 16.0 - 16.0
Total non-current liabilities 1,263.3 1,234.4 1,259.4
Total liabilities 1,732.6 1,735.6 1,747.9
Net Assets 82.8 294.7 119.0
Equity
Share capital 6.3 6.3 6.3
Retained earnings 62.5 229.5 85.7
Foreign exchange reserve (23.1) 19.7 1.0
Hyperinflation reserve 26.4 32.1 16.5
Other reserves 10.7 7.1 9.5
Total equity 82.8 294.7 119.0
Condensed Consolidated Statement of Changes in Equity
For the 26 weeks ended 30 September 2023 (unaudited)
Share Retained Foreign exchange reserve Hyperinflation reserve Other Total
capital
earnings
reserves
equity
£m £m £m £m £m £m
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 expense 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 - (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
Loss for the period to 30 September 2023 - (22.5) - - - (22.5)
Other comprehensive expense for the period - (0.7) - - - (0.7)
Retranslation of overseas subsidiaries - - (24.1) 9.9 - (14.2)
Total comprehensive loss - (23.2) (24.1) 9.9 - (37.4)
Share-based payment charge - - - - 1.2 1.2
Transactions with owners - - - - 1.2 1.2
At 30 September 2023 6.3 62.5 (23.2) 26.4 10.7 82.8
At 2 April 2022 6.3 187.3 3.1 - 5.9 202.6
Profit for the period to 1 October 2022 - 47.5 - - - 47.5
Other comprehensive income for the period - 0.9 - - - 0.9
Retranslation of overseas subsidiaries - - 16.6 32.1 - 48.7
Total comprehensive income - 48.4 16.6 32.1 - 97.1
Buy back of ordinary shares - (6.2) - - - (6.2)
Share-based payment charge - - - - 1.2 1.2
Transactions with owners - (6.2) - - 1.2 (5.0)
At 1 October 2022 6.3 229.5 19.7 32.1 7.1 294.7
Condensed Consolidated Statement of Cash Flows
For the 26 weeks ended 30 September 2023 (unaudited)
26 weeks ended 52 weeks ended 52 weeks ended
30 September 2023 1 October 2022 1 April 2023
(audited)
£m £m £m
Cash flows from operating activities
Operating profit / (loss) 33.0 82.0 (24.1)
Adjustments For:
Depreciation and amortisation of IT software 46.4 39.6 90.5
Amortisation of acquired intangibles 20.4 21.0 41.5
Hyperinflation impact (18.5) - (22.0)
Negative goodwill arising on acquisition - (61.5) (90.5)
Goodwill impairment - - 80.0
Acquisition-related performance plan charge 5.3 4.0 10.3
Amortisation of government grants (0.4) (0.4) (1.3)
Profit on disposal of property, plant and equipment (0.7) (1.1) (1.8)
Fixed asset impairment - - 47.5
Loss on disposal of leased assets - - 1.5
Share incentive plan charge 1.2 1.2 3.6
Defined benefit pension (0.7) - (2.5)
Net cash flow from operating activities before movements in working capital, 86.0 84.8 132.7
tax and interest payments
Change in inventories (26.5) (7.8) 62.8
Change in trade and other receivables 14.8 (32.5) 40.6
Change in trade and other payables (15.9) (23.8) (114.5)
Change in provisions (9.8) - 19.1
Cash generated by continuing operations before tax and interest payments 48.6 20.7 140.7
Interest paid on loans and notes (14.3) (20.4) (34.8)
Interest relating to right-of-use lease assets (3.3) (2.0) (5.4)
Income taxes received / (paid) 0.8 (7.3) (11.4)
Net cash inflow / (outflow) from operating activities 31.8 (9.0) 89.1
Investing activities
Purchases of property, plant and equipment (27.6) (40.8) (96.4)
Purchases of intangible assets (1.2) (0.5) (3.2)
Proceeds on disposal of property, plant and equipment 2.0 2.4 5.3
Deferred consideration and acquisition-related performance plan payments (10.5) (3.5) (4.6)
Acquisition of subsidiaries net of cash acquired - (108.6) (119.7)
Net cash used in investing activities (37.3) (151.0) (218.6)
Financing activities
Proceeds from debt 45.2 25.1 66.0
Repayment of debt (24.4) (34.5) (75.4)
Buy back of ordinary shares - (6.2) (7.8)
Payments under right-of-use lease obligations (13.1) (11.5) (23.9)
Net cash generated / (used) in financing activities 7.7 (27.1) (41.1)
Net increase / (decrease) in cash and cash equivalents 2.2 (187.2) (170.6)
Cash and cash equivalents at beginning of period 90.4 258.0 258.0
Effect of foreign exchange rate changes (1.3) 2.7 3.0
Cash and cash equivalents at end of period 91.3 73.5 90.4
Comprising:
Cash and cash equivalents 92.7 78.4 93.3
Bank overdrafts (1.4) (4.9) (2.9)
91.3 73.5 90.4
Notes
1. General information
These condensed consolidated financial statements for the 26 weeks ended 30
September 2023 have not been audited or reviewed by the Auditor. They were
approved by the Board of Directors on 21 November 2023.
The information for the 52 weeks ended 1 April 2023 does not constitute
statutory accounts as defined in Section 434 of the Companies Act 2006. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The audited financial statements incorporated 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 nonsignificant 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.
2. Basis of preparation and accounting policies
These condensed consolidated financial statements should be read in
conjunction with the Group's financial statements for the 52 weeks ended 1
April 2023, which were prepared in accordance with IFRSs as adopted by the
European Union.
These interim financial statements have been prepared on a consistent basis
and in accordance with the accounting policies set out in the Group's Annual
Report and Financial Statements for the 52 weeks ended 1 April 2023.
Having reviewed the Group's projections and taking account of reasonably
possible changes in trading performance, the Directors believe they have
reasonable grounds for stating that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis in
preparing the financial statements of the Group.
Hyperinflation accounting
The inflation rate used by the Group is the official rate published by the
Turkish Statistical Institute, TurkStat. The movement in the publicly
available official price index for the half year ended 30 September 2023 was
33% (half year ended 1 October 2022: 24%).
Non-underlying items
Non-underlying items are material non-trading income and costs and
non-underlying finance costs as defined by the Directors. In line with IAS 1
para 85, the non-underlying items are disclosed separately in the Consolidated
Income Statement given, in the opinion of the Directors, such presentation is
relevant to an understanding of the Group's financial performance.
3. 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
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
UK & UK & Australia North Unallocated Total UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m £m £m £m £m £m £m
Income statement
Revenue 320.2 188.8 54.0 85.5 - 648.5 373.7 257.4 64.2 80.9 - 776.1
Underlying operating profit / (loss) 20.7 25.3 4.4 7.2 (3.3) 54.3 15.7 37.5 5.6 3.7 (1.3) 61.1
Non-underlying operating items (7.1) 0.2 (0.8) (3.9) (1.7) (13.3) (17.8) (12.0) (0.9) (2.5) (1.2) (34.4)
Exceptional operating items (6.8) (0.1) - (0.3) (0.8) (8.0) 57.1 (1.0) (0.1) (0.6) (0.2) 55.3
Operating profit / (loss) 6.8 25.4 3.6 3.0 (5.8) 33.0 55.1 24.5 4.7 0.6 (2.7) 82.0
Underlying net finance costs (22.8) (21.3)
Non-underlying finance costs (29.6) (7.6)
(Loss) / profit before tax (19.4) 53.1
Tax credit (3.3) (5.6)
(Loss) / profit for the period (22.5) 47.5
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
UK & UK & Australia North Unallocated Total UK & UK & Australia North Unallocated Total
Europe
Europe
America
central
Europe
Europe
America
central
Soft Flooring
Ceramic Tiles
expenses
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m £m £m £m £m £m £m
Depreciation of tangible fixed assets and IT software amortisation 17.1 11.7 1.5 1.2 - 31.5 15.4 11.2 1.5 0.8 0.1 29.0
Depreciation of right-of-use lease assets 9.6 2.9 1.1 1.1 0.2 14.9 6.1 2.9 1.1 0.3 0.2 10.6
Amortisation of acquired intangibles 5.7 11.4 0.9 2.4 - 20.4 7.1 11.1 0.9 1.9 - 21.0
32.4 26.0 3.5 4.7 0.2 66.8 28.6 25.2 3.5 3.0 0.3 60.6
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
UK & UK & Australia North Central Total UK & UK & Australia North Central Total
Europe
Europe
America
Europe
Europe
America
Soft Flooring
Ceramic Tiles
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m £m £m £m £m £m £m
Total capital expenditure (cashflow) 19.6 4.3 1.4 2.2 0.1 27.6 16.7 17.2 2.0 3.0 - 38.9
4. Exceptional and non-underlying items
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
£m £m
Exceptional items
(a) Acquisition related costs (0.7) (1.9)
(b) Reorganisation costs (7.3) (4.3)
(c) Negative goodwill arising on acquisition - 61.5
(8.0) 55.3
Non-underlying operating items
(d) Acquisition-related performance plans (5.3) (4.0)
(e) Non-cash share incentive plan charge (1.2) (1.2)
(f) Amortisation of acquired intangibles (excluding hyperinflation) (19.9) (21.0)
(g) Unwind of fair value uplift to acquisition opening inventory - (9.5)
(h) Depreciation of fair value uplift to acquisition property, plant and (2.7) (0.2)
machinery
(i) Hyperinflation depreciation adjustment (2.1) (0.5)
(j) Hyperinflation amortisation adjustment (0.6) -
(k) Hyperinflation monetary gain 26.1 1.9
(l) Other hyperinflation adjustments (excluding depreciation and monetary (7.6) -
gain)
(13.3) (34.4)
Total (21.3) 20.9
(a) One-off third-party professional fees in connection with M&A
prospecting activities during the period.
(b) One-off reorganisation costs relating to a number of efficiency projects
during the period and prior period, mainly Balta restructuring.
(c) Negative goodwill of £61.5m arose in the prior period on the
consolidation of Balta, Ragolle, all acquired during the prior period. As the
purchase price allocation was concluded over FY23 the final negative goodwill
for Balta and Ragolle totalled £85.5m. The increase was mainly due to the
fair value uplift of property.
(d) Charge relating to the accrual of expected liability under
acquisition-related performance plans.
(e) Non-cash, IFRS2 share-based payment charge in relation to the long-term
management incentive plans.
(f) Amortisation of intangible assets, primarily brands and customer
relationships, recognised on consolidation as a result of business
combinations.
(g) 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.
(h) 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.
(i,j,k,l) Impact of hyperinflation indexation in the period, see accounting
policies.
5. Finance costs
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
£m £m
Underlying finance items
Interest on bank facilities and notes 17.9 17.0
Amortisation of prepaid finance costs on loans and notes 1.3 1.5
Unwinding of discount on right-of-use lease liabilities 3.3 2.7
Net interest expense on defined benefit pensions 0.1 0.1
22.6 21.3
Non-underlying finance items
(a) Finance items related to preferred equity 14.0 14.3
Preferred equity related 14.0 14.3
(b) Unwinding of present value of deferred and contingent earn-out liabilities 0.3 -
Acquisitions related 0.3 -
(c) Fair value adjustment to notes redemption option (0.6) 2.7
(d) Mark to market adjustments and gains on foreign exchange forward contracts (1.4) (5.0)
(e) Translation difference on foreign currency loans and cash 13.2 (3.0)
(f) Hyperinflation - finance portion 4.1 (1.4)
Other non-underlying 15.3 (6.7)
29.6 7.6
(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) Fair value adjustment to embedded derivative representing the early
redemption option within the terms of the senior secured notes.
(d) Non-cash fair value adjustments on foreign exchange forward contracts.
(e) Net impact of exchange rate movements on third party and intercompany
loans.
(f) Other finance cost/income impact of hyperinflation.
6. Taxation
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
£m £m
Current tax
- Current year UK 0.9 -
- Current year overseas 6.7 8.8
- Adjustments in respect of prior years -
7.6 8.8
Deferred tax
- Credit recognised in the current year (4.4) (3.2)
- Adjustments in respect of prior years -
- Effect of rate change -
(4.4) (3.2)
Total tax charge 3.3 5.6
Corporation tax is calculated at the applicable percentage of the estimated
assessable profit for the year in each respective geography. The overall
effective corporation tax rate on underlying profit is 28.6% (FY22: 24.5%),
representing the best estimate of the weighted average annual corporation tax
rate expected for the full financial year.
7. Earnings per share
The calculation of the basic, adjusted and diluted earnings / loss per share
is based on the following data:
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
Basic Adjusted Basic Adjusted
£m £m £m £m
(Loss) / profit attributable to ordinary equity holders of the parent entity (22.5) (22.5) 47.5 47.5
Exceptional and non-underlying items:
Income statement impact of preferred equity - 14.0 - 14.3
Amortisation of acquired intangibles - 19.9 - 21.0
Other non-underlying items - 9.2 - 11.9
Other exceptional items - 8.0 - (55.3)
Interest on short -term draw of Group revolving credit facility - - - -
Amortisation of prepaid finance costs - - - -
Fair value adjustment to notes redemption option - (0.6) - 2.7
Translation difference on foreign currency loans - 13.2 - (3.0)
Other non-underlying finance items - (1.1) - (7.8)
Tax effect on adjusted items where applicable - (5.7) - (4.1)
Hyperinflation - (11.7) - 2.9
(Loss) / earnings for the purpose of basic and adjusted earnings per share (22.5) 22.7 47.5 30.1
Weighted average number of shares
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022
Number Number
of shares
of shares
(000's) (000's)
Weighted average number of shares for the purpose of basic and adjusted 115,010 116,464
earnings per share
Effect of dilutive potential ordinary shares:
Share options and warrants 1,768 1,473
Weighted average number of ordinary shares for the purposes of diluted 116,778 117,937
earnings per share
Preferred equity and contractually-linked warrants 51,682 50,493
Weighted average number of ordinary shares for the purposes of diluted 168,460 168,430
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:
26 weeks ended 30 26 weeks ended 1 October 2022
September 2023
Pence Pence
Earnings / loss per share
Basic (loss) / earnings per share (19.61) 40.76
Diluted (loss) / earnings per share (19.61) 36.69
Basic adjusted earnings per share 19.75 25.85
Diluted adjusted earnings per share 13.48 17.87
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 period,
in calculating the diluted loss per share, the share options, warrants and
preferred equity are considered to be non-dilutive.
8. Rates of exchange
The result of the Group's overseas subsidiaries have been translated into
Sterling at the average rate prevailing during the periods. The balance sheets
are translated at the exchange rates prevailing at the period ends:
26 weeks ended 30 September 2023 26 weeks ended 1 October 2022 52 weeks ended 1 April 2023
Australia (A$) - average rate 1.9110 1.7447 1.7679
Australia (A$) - period end 1.8975 1.7425 1.8458
Europe (€) - average rate 1.1567 1.1701 1.1557
Europe (€) - period end 1.1528 1.1374 1.1360
USD ($) - average rate 1.2560 1.2160 1.2065
USD ($) - period end 1.2197 1.1150 1.2345
Turkey (₺) - average rate 30.8810 20.3012 21.6304
Turkey (₺) - period end 33.4357 20.6297 23.6755
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