REG - Victoria PLC - Half-Year Trading Update

VictoriaAnnouncement

15/10/2024 07:00

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RNS Number : 1460I  Victoria PLC  15 October 2024

 

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')

 

Half-Year Trading Update

 

Victoria PLC, (LSE: VCP) the international designers, manufacturers, and
distributors of innovative flooring, provides a trading update for the
six-month period ended 1 October 2024 ahead of publishing its half-year
financial results in late-November.

 

Year-to-Date Trading and Outlook

Flooring demand across Victoria's markets has continued to be soft, with H1
revenue expected to be circa £580 million and Underlying EBITDA expected to
be circa. £50 million, which is a continuation of the lower demand
environment experienced in H2 FY2024 (£64.9 million). The wider market is
witnessing an estimated 20-25% decrease in demand versus 2019 levels, although
the Company has generally outperformed the market and continued to improve its
competitive position - particularly in the UK. The Board expects H2 trading to
be stronger as a result of the actions taken by management (outlined below)
alongside a small improvement in demand, although earnings are likely to be
below consensus expectations.

 

Whilst industry-wide low demand is impacting margins due to operational
leverage, pricing remains stable and management is taking actions to optimise
the cost base and this will drive better margin results when demand recovers.

 

There has been no fundamental change to the flooring industry, which has a
very long track record of consistent growth, and the low demand presently
being experienced is due to broad macro-economic factors.

 

Consequently, the Board is encouraged by recent positive data in Victoria's
end markets. For example, a key driver of demand is housing transactions and
in the last quarter increased mortgage approvals, rising house prices, and
lower interest rates have been reported in our key markets and these are all
precursors to increased transactions and consequently flooring demand as
consumers refresh their property before placing it on the market or refurbish
their new home. Similarly, as incomes have caught up with inflation alongside
lower mortgage expenses, consumer discretionary spending is also likely to
increase, which also drives flooring sales.

 

Management actions

Building on our track record of successful delivery of cost savings during
previous challenging periods for the sector, management is actively working on
projects to optimise the business for the anticipated recovery in demand.

 

Below is a brief overview of some key recent initiatives:

·    Victoria's various UK brands continue to be important in market
positioning, but the full integration of Balta's UK carpet business during H1
allowed the Company to recently merge the brands of Balta & Carpet Line
Direct and Victoria & Hugh Mackay, and separately consolidate our underlay
operations with immediate savings in rent, logistics, and personnel totalling
c.£5 million per annum.

·    Optimising the synergy gains from the completed relocation of
production capacity from Belgium to Turkey alongside cost-cutting in Belgium:
there will be some benefit in the current financial year, although the first
full year impact of the cost savings, expected to be an additional €6.1
million per annum, will be seen in FY2026

·    Integrated procurement. For the first time Victoria has had, since
July, a Group-wide procurement team responsible for approximately £500
million of purchasing - raw materials, logistics, and finished goods for
resale. Each 1% cost saving delivers c. £5 million annually of increased
earnings and meaningful savings have already been secured, although the full
impact is heavily weighted to FY2026

·    Reorganisation of ceramics production: this is a major project
involving an investment in the Spanish factories and optimisation of
production by manufacturing tiles in the most efficient factory that will take
18 months to complete. The first stage will be delivered in mid-FY26 and
positively impact earnings and cash flow that year, but the full benefit will
be seen in the following year and is expected to improve earnings by £16-19
million, based on current market conditions

 

These actions are expected to increase earnings upside with the anticipated
demand recovery (each 5% increase in volume is additionally expected to drive
a £25 million increase in Victoria's earnings), supporting EBITDA margin
expansion back towards the Group's historical levels of mid-high teens.

 

Refinancing

Group liquidity remains robust with cash on hand and undrawn credit lines
providing more than £200 million of available liquidity.

 

Following the Company's FY 2024 Results announcement in June, which noted that
the Board was beginning to plan for the refinancing of the Company's Senior
Secured Notes (the first tranche of which is due in August 2026), Lazard has
recently been appointed as debt advisers, with Latham & Watkins continuing
as legal advisers. The Board will continue to update the market as
appropriate.

 

Chief Executive, Philippe Hamers, said:

"The flooring sector is experiencing the most severe and longest decline in
demand in the last 30 years. During this period, we have focussed on
optimising productivity and reducing operational costs whilst maintaining the
same potential production capacity. These actions will have a very material
positive impact on earnings and cash flow as demand normalises with the
anticipated improvement in the macro-economic environment and increase in
housing transactions, a key driver of demand. Clearly the recovery continues
to draw closer, although it is difficult to pinpoint precisely when it will
begin. However, we remain prepared for growth when the time arrives, which
will be delivered without any significant capex spend."

 

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

 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

 Edelman Smithfield (Refi Project)

 Alex Simmons                                  +44 (0)7970 174 353

 

 

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 6,300 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.

 

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